Bhutan's outstanding external debt rose by 9.5 per cent between June 2013 and June 2014, with Indian rupee debt constituting 64 per cent of the total owing.
In three months, from June to September 2014, Bhutan's debt swelled to 108 per cent from 101 per cent of the GDP size.
In absolute terms, from $1.6B in June 2013, the total debt increased to $1.8B in 2014, Bhutan's national newspaper Kuensel reported on Wednesday.
The Himalyan country's Royal Monetary Authority in its annual report revealed a growth of 10.6 per cent in rupee debt, and 8.7 per cent growth in debt pertaining to convertible currency.
Rupee debt also constitutes 64 per cent of the total debt, which grew from Rs 67.8 billion in June to Rs 74.9 billion in September last year.
This was mainly on account of disbursements of rupee loan for the ongoing hydropower projects, the report said.
Hydropower loans now account for 83.4 per cent of outstanding rupee loan as of June 2014, against about 70 per cent in 2013.
This was because rupee loan through the overdraft facility from state-run Indian banks State Bank of India and Punjab National Bank has been either liquidated or not renewed.
The INR swap loan from the Reserve Bank of India was also repaid in September 2013, which is why the hydro loan accounted for a majority of the rupee debt.
As of fiscal year 2013-14, disbursement for Punatshangchu I amounted to Rs 25.7 billion, and Rs 14 billion for Punatshangchu II. Disbursement towards Mangdechu hydropower projects amounted to Rs 10.4 billion.
The RMA report also stated that actual interest payments on hydropower debt denominated in Indian rupees amounted to Rs 1.4 billion last year. However, it also highlighted that the accrued interest on the three ongoing hydropower projects amounted to almost Rs 3.6 billion.
According to an audit report on public debt management published in April last year, hydropower debt is projected to reach Nu 211 billion (Rs 211 billion) at the end of eleventh Plan, accounting for around 81 percent of the total external debt.
Although the government, both the former and the current, has stressed that hydropower debts are self-liquidating, some pointed out that loans undertaken for hydropower projects are susceptible to time and cost overruns, thereby increasing the debt burden.
For instance, the cost escalation of Kurichu was about 120 per cent from the initial estimated cost of Nu 2.5 billion (Rs 2.5 billion), and Tala's cost overrun was 207 per cent from the initial estimate of Nu 14 billion.
The geological surprise at Punatshangchu I added Nu 94 million to the initial estimated cost of about Nu 35 billion (Rs 35 billion).
Besides the government of India, the largest creditor to the country was the Asian Development Bank, followed by the government of Austria.