Though scaling new heights, it does not reflect any radical improvement in the economy 

Rupee: The country’s rupee reserve has increased by Rs 4.5B between October and November last year, taking the total INR reserve to Rs 20.27B.

This was the highest INR reserve with the country since 2009, according to the central bank’s monthly statistical bulletin.

However, there is nothing to rejoice about the improved situation.  The reserve didn’t increase, for instance, from improved earning of exports.  It increased mostly because of hydropower funds, composed of grants and loans that came in from India for the ongoing projects.

Finance minister Namgay Dorji said INR reserve might increase and decrease any time.  For instance, if funds for some project come in today, it would increase the reserve.  Similarly, the reserve would experience a decline, when huge amounts of debt need to be serviced in INR, or when imports increase.

Hydropower funds also comprise most corporate deposits with the financial institutions.

While the central bank, in its annual report, claimed that banks have excess funds of more than Nu 19B, the finance minister said, excluding the corporate deposits, it comes to about Nu 5B.

“Corporate deposits could be withdrawn any time and it’s not safe for any bank to lend such deposits,” he said.

On the flipside, the INR debt has soared to about Rs 75B, as of September last year, of which about 83 percent accounted for the hydropower projects.

Officials said the rupee shortage in 2012 forced the central bank to enter into costly borrowing deals from commercial banks in India that charge interest rates above 10 percent.  But as of now, all costly borrowings made from commercial banks in India have been paid off.

But some economists said that INR remittances from hydropower earnings are used systematically in the economy for budgetary and other imports, without any earmarked fund being set aside to liquidate related repayment obligations.  As a result, the central bank has limited flexibility in repaying the INR loans, which may lead to additional borrowing or selling hard currency.

Meanwhile, the USD reserve increased by about only USD 9M to USD 869.5M between October and November.

Officials said that majority of the foreign earnings are on account of project funding from international organisations and tourism earnings, which recorded an all time high of USD 73.2M, last year.

By Tshering Dorji