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Bhutan issues first sovereign bond to meet increasing fiscal financing needs


The Royal Government of Bhutan has announced its first sovereign bond to support the economic recovery from the Covid-19 pandemic while diversifying financial sources.

The new financing instrument supported by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) is a monumental step in tapping into the domestic resources market and preparing Bhutan to enter the international capital market, according to a press statement issued on Wednesday.

Bhutan has recently completed the offering of a three-year bond Series RGOB001 of Nu. 3,000 million (or US$ 41 million) at an annual coupon rate of 6.5 per cent to support financing fiscal needs in response to Covid-19 pandemic. The transaction was well-received and resulted in oversubscription of more than 100 per cent.

The issuance was mainly dominated by financial institutions, while non-bank institutions such as pension and insurance companies as well as civil society organisation also participated. The allotment will be based on a pro-rata basis, the statement added.

“Policymakers are tackling difficult choices over how to prioritize development spending, while continuing to expand their squeezed fiscal space. Exploring sustainability-oriented bonds and innovative financing instruments options for SDG investment should be explored further.

“Now is the time to capitalize on a proven idea to support a sustainable and resilient recovery from COVID-19,” said Armida Salsiah Alisjahbana, United Nations Under-Secretary-General and Executive Secretary of ESCAP.

“Today the Royal Government of Bhutan successfully concluded its first-ever sovereign bond issuance for public subscription. This historical move has significantly expanded our fiscal management space while diversifying debt resources through opening up a new channel for long-term public borrowing,” said Dasho Nim Dorji, Finance Secretary, Ministry of Finance, Royal Government of Bhutan.

At the request of the Royal Government of Bhutan, ESCAP began providing technical assistance to its Ministry of Finance, government agencies and key stakeholders since 2017 to help facilitate the pre-issuance process of the country’s first sovereign bonds. The Covid-19 pandemic has provided impetus for the government to take much-needed measures to support the economy, since the plan to issue the sovereign bond began years ago.

The innovative project in Bhutan serves as an example of how Least Developed Countries with underdeveloped financial infrastructure could issue sovereign bonds as a tool for economic recovery and capital market development.

The bond issuance is a major step to independently finance Bhutan’s fiscal needs as the country normally relied on overseas development assistance (ODA) and concessional loans.