The government lifted the two-year moratorium on vehicle import on August 18. This moratorium was imposed by the previous government in August 2022 to stabilise the economy and manage the fast plummeting foreign currency reserve. The present government has announced that its decision to lift the ban is based on the improved economic health of the country.

Interestingly, when the previous government imposed the import ban, foreign currency reserve was USD 736.02 million. However, as of June this year, the forex reserve had dropped to USD 624.11 million. Unless there has been a miraculous spike, it is difficult to believe that any significant surge in the forex reserves could have happened in the months since.

And this leads us to the critical question of whether the lifting of the ban was a little premature at this point in time. Could the government have waited for the economy to fully recover? And, worse still, was the government under pressure to make this policy move?

That aside, the immediate consequences of vehicle imports will be two-fold. First, it will accelerate the depletion of foreign currency reserves, leaving our economy even more vulnerable. Second, the vehicle population will surge, worsening traffic congestion in major towns, amplifying our carbon footprint, and leading to increased consumption of fossil fuel – which will drive imports, further depleting foreign reserves. It is a vicious cycle.

Look at the past statistics. In 2021, Bhutan imported Nu 4.72 billion worth of vehicles. In 2022, the vehicle import bill was Nu 3.2 billion, which significantly dropped to Nu 926.09 million in 2023. This decline was a direct outcome of the moratorium, which helped conserve foreign currency reserves.

According to trade statistics, fuel import surged from Nu 11.37 billion in 2022 to Nu 13.35 billion in 2023. And this has direct correlation to vehicle import figures. Currently, there are 127,316 vehicles in the country, roughly translating to one car for every five Bhutanese. And Thimphu alone has a staggering ratio of one car for every three person.

Over the years, several measures have been put in place to reduce vehicle imports, through higher taxes and stringent financial regulations. The green tax and reduced loan equity were intended to curb the number of new vehicles entering the market. However, these measures have been anything but ineffective. Those with deeper pockets are still able to buy multiple vehicles while low-income families are disproportionately affected, unable to afford their first car.

A more balanced approach is needed to address both the economic and equity issues at play. We need to implement a progressive taxation system, where the first vehicle is imposed lower taxes with subsequent vehicles incurring higher taxes. This could help manage vehicle numbers while supporting first-time buyers. Setting limits on the number of vehicles an individual or household can own can also control the vehicle population.

Investing in public transportation is another critical area. Enhancing the availability, affordability, and frequency of public transport can reduce the reliance on private vehicles.

The government’s decision to lift the vehicle import ban appears to be driven by short-term considerations rather than a long-term strategy for economic and environmental sustainability.