Bhutan issues first sovereign bond to meet increasing fiscal financing needs in fighting COVID-19

The Royal Government of Bhutan has recently completed the offering of a 3-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 responding 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 organization also participated. The allotment will be based on a pro-rata basis.

“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 United Nations Under-Secretary-General and Executive Secretary of ESCAP Armida Salsiah Alisjahbana.

“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. Taking this opportunity, I would like to express my sincere appreciation to ESCAP which has provided us valuable technical assistance on the issuance of the sovereign bond since 2017 through various modalities, such as policy advocacy, research studies, training workshops and study tours,” said Dasho Nim Dorji, Finance Secretary, Ministry of Finance, Royal Government of Bhutan.

Gerald Daly, United Nations Resident Coordinator in Bhutan said, “I congratulate Bhutan on the issuance of its first-ever sovereign bond and ESCAP on providing successful technical support to assist the Royal Government in this important work. With this bond, Bhutan has helped demonstrate how a capital market can be created in a small economy. The UN system stands ready to further support Bhutan in its efforts to mobilize financial resources and build resilience during the Covid-19 pandemic and beyond”.

At the request of the Royal Government of Bhutan, ESCAP began providing technical assistance to the Ministry of Finance, government agencies, and key stakeholders since 2017 to help facilitate the pre-issuance process of Bhutan’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.