Council: The improvement in Bhutan’s Indian Rupee (INR) reserve account is not a result of the improvement in the fundamentals of the economy. The government has been selling dollars to maintain the INR reserve.

Member of the National Council’s economic affairs committee and Eminent Member, Dasho Tashi Wangyal, reported this to the house during the deliberation on the annual budget report on June 17.

The Eminent Member reported that the government sold USD 197 million (M), equivalent to INR 12.443 billion (B), from April 17, 2014 to May 30 this year. He said that it’s important that the people know the true picture of the economy.

He said the INR reserve has improved not as a result of the improvement in the economy. “The government needs to do much more to earn the INR and improve the economy,” he said.

According to the budget report, INR reserve stood at Rs 10.86B by the end of June last year.

The total convertible currency reserve was USD 746.4M, out of the total international reserves of USD 916M at the same point of time last year. The total reserves were more than adequate to meet 12 months of essential imports.

The reserve management policy allows the conversion of convertible currencies in the reserves into INR.

However, the Eminent Member said sale of dollars in such a manner was “neither sustainable nor desirable”. If the government portrays a wrong picture of having enough money in the INR reserve, he said the economy would face consequences – pressure from the private sector for INR, for example.

Any improvement in the INR reserve should be reflective of the improvement in the fundamentals of the economy. The Eminent Member citing examples said the economy still faces a huge current account deficit and there has been delays in implementation of hydropower projects.

The current account deficit widened to Nu 36.1B (28.83 percent of GDP) in financial year 2014-15 from Nu 29.7B (26.40 percent of GDP) in the previous year. This was a result of higher imports.

In the future budget reports, he said the government should report how much of the international reserves were sold so as to give a true picture of the economy to the people.

Member from Samtse, Sangay Khandu, expressed his concern saying that selling dollars in such a manner would pose risks to the economy. “The government has said the Rupee reserve has improved but it has not said how those Rupees was earned,” he said.

The budget report states the country’s economic growth momentum picked up due to the revival of domestic demand and continued expansion of ongoing construction of hydropower projects. In 2014, the growth rose to 5.5 percent from a low of 2.1 percent as a result of containing aggregate domestic demand under import and credit restrictions imposed to stem shortages of Indian Rupee reserves.

As of June 30 last year, the external debt stock was Nu118.676B or USD 1.855B accounting for 94.8 percent of GDP. Of this total, about 31.6 percent was convertible currency debt and 68.4 percent Rupee debt.

MB Subba