For Bhutan, the decision to issue a sovereign bond was not merely a financial maneuver but a strategic step toward broader economic resilience. The funds raised were earmarked to support the government’s budgetary needs, ensuring essential programs and initiatives could be funded without over-reliance on external borrowing or aid. More importantly, this move was a statement of intent to establish a robust domestic capital market.
The bond, issued with a tenure of three years, carried an interest rate of 6.5%, which was considered attractive given the prevailing market conditions. The issuance was facilitated by the Royal Monetary Authority of Bhutan (RMA), the central bank, in collaboration with the Ministry of Finance. The bond was targeted primarily at domestic financial institutions such as banks, pension funds, and insurance companies, which had been seeking stable and secure investment opportunities.
Despite its aspirations, Bhutan faced significant hurdles. With a population of just over 750,000, the domestic market is small, and the financial sector’s capacity to absorb new instruments was untested. Additionally, the infrastructure required to manage bond issuances and trading was still in its nascent stages. Yet, the success of the bond demonstrated Bhutan’s ability to overcome these limitations through careful planning and execution.
The government’s transparency in structuring and marketing the bond played a key role in its success. By offering competitive yields and ensuring clear communication with potential investors, Bhutan was able to attract strong participation from domestic institutions. The RMA also developed systems to ensure seamless subscription and trading processes, laying the groundwork for future issuances.
The bond’s performance over its tenure was steady, with timely interest payments made to investors. The funds raised were primarily allocated to critical sectors such as health, education, and infrastructure development. One notable use of proceeds was in improving road connectivity in rural areas, which had a direct impact on local livelihoods by facilitating access to markets and essential services.
Moreover, the success of this initial issuance paved the way for subsequent issuances, including a Nu 4 billion sovereign bond in 2021 with a tenure of 10 years. This follow-up bond carried a slightly lower interest rate, reflecting growing investor confidence and the development of Bhutan’s bond market.
One compelling local story comes from the village of Tsirang, where funds from the sovereign bond were used to build a new healthcare facility. Previously, villagers had to travel long distances to access basic medical care, often at great personal and financial cost. The new facility has not only improved healthcare access but also provided employment opportunities for local residents.
In another instance, the bond-funded improvements in rural road infrastructure allowed farmers in the remote district of Zhemgang to transport their produce to urban markets more efficiently. This has significantly boosted their incomes and improved their quality of life, illustrating the tangible benefits of development financing.
The issuance of the sovereign bond in 2020 has had a ripple effect on Bhutan’s financial landscape. It has not only provided an alternative financing source for the government but also set the stage for the development of additional financial instruments. The success of this bond has instilled confidence in the viability of Bhutan’s capital market, encouraging further participation from both domestic and international stakeholders.
2023 bond: A 9-year bond worth Nu. 5,000 million was offered for auction in April 2023. Bhutanese citizens, firms, companies, financial institutions, and trust funds could subscribe to the bond.
2022 bond: A Nu 3 billion bond was sold in February 2022 for 10 years until February 2032. It had a coupon rate of 3.49%.
2021 bond: A Nu 700 million bond was offered in February 2021.
Bhutan is also developing a framework for sovereign green bonds. These bonds would be used to finance green projects that help the country reach its sustainability targets
