… enough to cover only 12.22 months of essential imports

Thukten Zangpo

Bhutan’s foreign currency reserves as of July hung at USD 472.4 million, enough to cover 12.22 months of the country’s essential imports, according to the latest data shared by the Royal Monetary Authority for July.

A decline in reserves by USD 8.4 million from July would touch the minimum reserve threshold determined by the government, which is at USD 464 million. In the previous month, foreign currency reserves was recorded at USD 532.23 million.

According to 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.

The total foreign exchange reserve, reported at 513.9 million in July includes USD 472.4 million foreign currency reserves (convertible currencies, Indian Rupee, and monetary gold), USD 34.65 million as special drawing right (SDR) holdings, and USD 6.85 million as reserve tranche position in the International Monetary Fund (IMF).

The SDR is an international reserve asset created by the IMF to supplement its member countries. The SDR is not a currency, but a potential claim on the freely usable currencies of IMF members. SDRs can provide a country with liquidity.

A reserve tranche is a portion of the required quota of currency each member country must provide to the IMF that can be utilised for its own purposes, without a service fee or economic reform conditions.

Between January and July, the reserves dropped by USD 152.6 million. The reserve had declined at an average of about 4.16 percent a month.

At the same time, Ngultrum depreciated by 29 chhetrum to Nu 82.18 against the USD during the same period.

Bhutan being an import-dependent country, the country’s import figure in the first quarter (January to March) of this year was Nu 31.59 billion which is equivalent to USD 384 million. It comes to USD 128 million monthly.

The country’s imports grew by 38 percent to Nu 31.69 billion in the first three months this year from Nu 22.87 billion in the same period last year.

At the same time, the import bill rose by about 32 percent to Nu 118.79 billion in 2022 compared to the previous year.

If Bhutan imports goods in the last three quarters this year as same as the first quarter import worth, this year’s import figure will touch Nu 126.35 billion or equivalent to USD 1.54 billion.

On the other hand, Bhutan’s export earnings were at only Nu 9.52 billion, equivalent to USD 115.67 million in the first quarter of this year.

If the same export patterns continue, the yearly export value will be only Nu 38.06 billion or USD 462.68 million.

Looking at the country’s trade, this leaves a huge gap of USD 1 billion more required to finance the country’s imports.

To fill this gap, the country has to reduce imports and maximise exports. At the same time, shore up the revenue from the tourism sectors, foreign direct investments, and encourage inward remittances.