… as earnings from tourism stop

MB Subba 

The country has successfully maintained the convertible currency (CC) reserve although tourism, which is one of the main sources of CC, has remained closed for the last two years.

Besides meeting 12 months of essential imports as mandated by the Constitution, the CC reserve increased to USD 1.2876 billion (B) in November last year from USD 1.107B in the same month of the previous year, according to the monthly statistical bulletin Royal Monetary Authority (RMA) published for March 2022.

The inflow of hard currencies through foreign direct investment (FDI), officials said, dried up amid the pandemic. Exports were also affected due to the Covid-19 protocol.

However, with the number of Bhutanese living abroad, remittance has become a major source of hard currencies in the past few years.

The remittance increased to USD 111.20 million (M) in 2020 from just USD 39.88M in 2019, according to records with the RMA. The country received USD 102.64M in the first 11 months of 2021.

The CC is required for meeting fiscal deficits, external trading with third countries, and even for purchase of Indian Rupees (INR) in case the country faces a shortage of INR. The CC is also maintained to meet repayments for hard currency borrowings.

One of the main sources of CC has been concessional external borrowings and grants from development partners.  

However, the increased borrowings in CC had led to an increase in the overall debt stock. The total outstanding CC debt increased to USD 922.7M at the end of the fiscal year 2020-21 from USD 720.1M at the end of the previous fiscal year, according to RMA.

The CC debt makes 28.6 percent of the total external debt.

The debt to GDP has increased to 138.8 percent. The total outstanding public debt, including INR debt, at the end of the fiscal year 2020-21 was USD 3.22B.

However, Finance Minister Namgay Tshering said that the borrowings was just one of the components of the CC reserve and that other changes in the dynamics of the economy like the increase in remittance have equally helped sustain the reserve.

“It’s not only because of external borrowings that we have been able to maintain the CC reserve. We also expedited the mobilisation of grants,” he said, adding that remittances have increased five folds.

The country was closed to international tourists after it detected its first Covid case on March 5, 2020. The country had received USD 88.63M from international tourists in 2019.

Lack of earnings from international tourists, officials said, could affect the country’s ability to import goods from third countries.

However, they added that the country had been able to maintain the CC reserve with the previous reserves, frontloading of planned activities and reduction in imports.

Frontloading of activities meant that the money for those projects that were supported by development partners could have come earlier than expected.

The trade deficit decreased to Nu 17.529B in the fiscal year 2019-20 from Nu 28.338B in the fiscal year 2018-19 as imports decreased by 9 percent.

One of the reasons cited for being able to maintain CC reserve was that most of the external trade happens with India and that the revenue, which comes in INR from India, was not affected severely.

Officials said that the foreign currency reserve is more than enough for meeting 12 months of essential imports.

Some pandemic-hit countries, including Sri Lanka, have been facing shortages of CC to imports goods as their revenue from tourism and exports have dropped significantly.

In his state of the nation report 2021, Prime Minister Dr Lotay Tshering said that the depreciation of hard currencies had significantly reduced the Ngultrum value of CC debt stock.