Dechen Dolkar 

The Economic Affairs Committee (EAC) of the National Council recommended changing the parameters of inflation in Bhutanese context, instead of following international standards, while deliberating the annual budget appropriation Bill for FY 2023-24 yesterday.

The committee also recommended the formulation of guidelines to maintain foreign currency reserves.

The EAC stated that inflation is an important macroeconomic parameter used to calculate everything from real income at the household level to real Gross Domestic Product (GDP) growth rates at the national level.

The committee emphasised that we cannot make such errors.

Pemagatshel NC member Jamyang Namgyal said that when measuring the inflation rate in the country, the parameters should be customised to the Bhutanese context in order to reflect the real economic situation of the country.

The MP also said that inflation has been increasing and a minimum of 30 percent of the salary has been spent on house rent, with some spending their entire salary on rent.

The committee recommended that the government direct the National Statistical Bureau to re-examine the method of calculating inflation in order to correct any anomalies and ensure that the calculation reflects the economic reality in Bhutan, rather than solely following international methods that may not be applicable to Bhutan.

According to the budget report for FY 2023-24, the overall inflation in FY 2021-22 decreased by 2.3 percentage points compared to FY 2020-21, standing at 5.9 percent.

The decline in the inflation rate was due to a lower rate of increase in food prices. The increase in food prices remained subdued with the easing of supply chain disruptions, contributing only 40 percent to the overall inflation. The main driver of the inflation, accounting for around 60 percent of the overall increase, was the hike in non-food prices resulting from higher global prices.

As of March 2023, the overall inflation stood at 3.2 percent, marking a decline of 2.4 percentage points compared to the same month last year.

The budget report states that in the medium-term, inflation is expected to decelerate as the prices of both food and non-food commodities moderate. However, any worsening of the geopolitical situation will exert inflationary pressure going forward.

The committee also mentioned that the budget report shows a decline in reserves from USD 833 million in fiscal year 2021-22, sufficient to cover 15 months of imports, to USD 689 million in the fiscal year 2022-23, sufficient to cover 14 months of essential imports.

The RMA has estimated that the country requires at least USD 668 million of foreign exchange reserves to meet the constitutional requirement.

The committee stated that due to the widening current account deficit and continued trade imbalances, there are imminent risks of crossing the constitutional threshold and posing economic risks.

According to Article 14.7 of the Constitution, Bhutan is mandated to maintain foreign exchange reserves to cover at least 12 months of essential imports.

Samdrupjongkhar NC member, Tshewang Rinchen suggested that the government and RMA should collaborate to formulate guidelines and strategies for maintaining the threshold and ensuring the prudent use of reserves.

The budget report states that in the medium term, with the moderation in imports and the implementation of export promotion efforts, the reserve position is expected to improve.

The house directed the committee to discuss and finalise the relevant recommendations for adoption.