Opposition MP quizzes government on a host of key election pledges

Dechen Dolkar 

The government’s pledge to reduce interest rate for home construction loans to 4 percent, a key measure aimed at making housing more affordable, will be implemented soon.

Finance Minister Lekey Dorji said this in response to a query by Member of Parliament (MP) from Nanong-Shumar Constituency, Yeshey Jamtsho, on the government’s pledge to lower interest rates for home loans to 4 percent during question-and-answer session in the National Assembly on November 26.

Finance Minister Lekey Dorji explained that while the proposal is part of the Economic Stimulus Plan, the government is facing budget constraints, and reduction in the interest rate would likely require setting a ceiling on the loan amount.

“The government will consult with the central bank and financial institutions to finalise this,” Lyonpo said.

Nanong-Shumar MP asked about the government’s pledge to increase the Loan-to-Value (LTV) ratio for home and apartment purchases, as well as house construction.

Currently, the LTV ratio stands at 70 percent, and the government had pledged to raise it to 95 percent in consultation with the Royal Monetary Authority.

MP Yeshey Jamtsho also asked about the government’s pledge to raise the debt-to-equity ratio for vehicle purchases such as taxis and trucks from 50 percent to 80 percent.

The finance minister said that while the government is considering this change, concerns about the potential economic impact and traffic congestion need to be addressed.

Lyonpo said that the global price of electric vehicles (EVs) is decreasing, which is a positive development for Bhutan. “This will also benefit our economy by reducing fossil fuel imports,” he added.

The current LTV ratios for vehicle loans are 50 percent for heavy trucks, 70 percent for electric vehicles and public buses, and 30 percent for all other vehicles.

Currently, if a member of the National Pension and Provident Fund, or a civil servant, were to take a loan of Nu 500,000 for five years at an interest rate of 8.5 percent per annum, they would pay an equated monthly installment (EMI) of about Nu 10,300, with a total interest payment of Nu 115,496 over the loan period.

However, if the interest rate were reduced to 4.25 percent per annum, the same borrower would pay an EMI of approximately Nu 9,300 monthly, with the total interest payable reduced to Nu 55,886 over the life of the loan.

However, officials from financial institutions have previously expressed skepticism about the feasibility of such a reduction without government support.

They argue that achieving the 4 percent interest rate would be difficult without financial backing from the government.