… reserves at USD 550 million is above the Constitution’s threshold of USD 464 million

Thukten Zangpo    

Despite the foreign reserve being within the threshold, Finance Minister Namgay Tshering urged National Assembly yesterday to address the trade deficit issue by fixing the trade imbalance to conserve the reserve.

He said that the country’s foreign reserve is recorded at about USD 550 million at present, adequate to meet 14.22 months of essential imports, and it is above the minimum threshold of USD 464 million.

As per the Royal Monetary Authority’s (RMA) figure, the foreign currency reserve was at USD 532.23 million as of June this year, a decline of about 33 percent from a year ago.

According to Article 14, Section 7 of the Constitution of Bhutan, “A minimum foreign currency reserve that is adequate to meet the cost of not less than one year’s essential import must be maintained.”

Lyonpo said that Bhutan being 90 percent import-dependent, requiring USD 100 million monthly or USD 1.2 billion in a year for import of goods, eats away the foreign reserves.

Bhutan’s import bill accounted for Nu 118.79 billion last year, a 32 percent increase from the previous year. With export figures at Nu 56.87 billion, the country’s trade deficit widened to Nu 61.92 billion, nearly doubling compared to Nu 32.24 billion in the previous year.

Lyonpo said that petrol and diesel imports accounted for Nu 12.3 billion last year, almost half of the electricity export revenue of Nu 22.48 billion. Vehicle imports accounted for Nu 3.5 billion, and other charcoal and raw materials for manufacturing industries were listed in the top 10 country’s imports.

Lyonpo said that foreign reserves in other countries are often measured as net imports and exports. However, for Bhutan, the main sources of reserves are revenue from tourism, hydropower, and concessional grants and borrowings.

“An unanticipated crisis like Covid-19 and climate change could be risky for the Bhutanese economy,” he said, adding that Bhutan has not seen any default in debt repayment or debt distress, unlike other countries.

Given the country’s tourism revenue peak with tourist arrivals in 2019, it only accounted for USD 88.65 million in foreign exchange earnings and USD 23.42 million as direct revenue from sustainable development fees. Non-resident Bhutanese inward remittance was USD 111.2 million in 2020, the highest received to date.

“Boosting exports of boulder, and forest products, among others is necessary but it is critical to correct its trade imbalance at the moment by curtailing non-essential imports,” Lyonpo said.

To save the dwindling foreign reserves, he said that the government in consultation with the RMA has implemented a moratorium on import of non-essential vehicles extending until February 17 next year.

Lyonpo said that construction loans have also been restricted until December this year to prevent the outflow of foreign currencies. At the same time, he said that the government has granted 10 percent incentive for every convertible currency remitted to Bhutan.

To increase the rupee inflow, the RMA has entered into an Indian Rupee SWAP arrangement for Nu 5.4 billion in March this year to improve the Indian Rupee Reserve.

Moreover, the RMA has availed an additional Standby Credit Facility of INR 3 billion in January this year primarily to meet the international foreign currency reserve requirement and balance of payment obligations with the Government of India.

Opposition Leader Dorji Wangdi said that the people should be aware of the current situation of the reserve and measures to be taken by the government to replenish the reserve, so they can collaborate together to conserve the reserve.

Lyonpo said that various measures are put up in the 13th Plan to shore up the country’s reserve, one being the investment by non-resident Bhutanese on green bonds, where Bhutanese abroad can participate and invest in hydropower projects by providing loans.

The investment in the IT sector, Bhutan as a financial or education hub at regional and global levels, along with investing in the agriculture and agro-sector were also some of the potential sources for foreign reserves in future, Bartsham-Shongphu MP, Passang Dorji said.

To reinstate credit access for those economic activities that do not generate adverse implications on reserve, Lyonpo said that the government realising that every Ngultrum injected into the economy leads to 60 percent imports, has initiated reinstating access to credit to the agriculture sector to enhance local production capacity and ultimately to achieve the national objective of food self-sufficiency.

He said that the amalgamation of the National CSI Development Bank (NCSIDB) with the Bhutan Development Bank (BDB) to strengthen the lending capacity of the BDB which predominantly caters to the rural populace is also expected to enhance credit to the economic activities that do not generate adverse implication on the reserves.

Since 2020, Lyonpo said that the NCSIDB has provided Nu 2.1 billion in loans within its one-and-a-half years of operation with 50 percent disbursed in the agriculture and livestock sector and another 50 percent for value addition to the small and cottage industries. At the same time, he said that the National Credit Guarantee Scheme provided collateral-free loans amounting to Nu 900 million.