As reported earlier, Bhutan’s foreign reserve in the month of May reached USD 549.08 million and trade deficit was Nu 61.92 billions (bn) in 2022. Since then measures such as moratoriums on commercial housing and hotel loans and others were instituted. The government also extended the moratorium on import of selected vehicles. Though, figures suggesting if these measures have increased foreign reserves or not are not available, words on the streets are that proposals on banning non-essentials could be implemented.
Speaking about it, financial experts, the public and small business holders say bans are not good solutions. Bhutan’s consumption patterns are questioned and small businesses say they will be on the streets if there are such bans.
A financial expert said that firstly, it is not easy to draw a line between essentials and non-essentials. “It was easier decades back, but with development what was once a luxury has become an essential.” He cited mobile phones as an example and added that bans on non- essentials will definitely affect small businesses. “One non-essential item will be tobacco items, which are essentials for those addicted to tobacco. If there is a ban, the black market will rise and ultimately people will have to pay the price. There will be inflation and hoarding.”
He further added that if such a proposal has reached the PMO, he doesn’t see the PMO accepting it. “The government’s responsibility is to look after the welfare of the people, including small businesses. During the COVID 19 pandemic, the affects on these businesses were very clearly visible. I do not think the government will want to see people in the same state again.” “Non-essential also means income for some people who are into trading, and whose livelihood depend on the income from these non essential items.We have to be mindful about those implications also, there is a far reaching impact especially on the smaller and medium business units.” He said.
SonamDorji, a social worker based in Olakha said resolving the current economic crisis requires cooperation from all sections of the people. “The Central Bank and the government has come up with several measures, but what has the people done,” he questioned. According to Sonam, at this “critical juncture,” citizens should adopt “responsible consumption patterns.” “Some people say that Bhutanese are junk collectors, which is true. We buy goods and products that are not required. Yes! People buy from their own pockets and they have the rights; but don’t they have responsibilities too,” he said.
Sonam cited examples of Bhutanese who buy crockeries, though they have enough at home. “Go to every Bhutanese house. You will see a ‘show case’ where plates, cups, glasses and others, which have never been used are displayed.” On business failing if there are no buyers, Sonam said profits would reduce but “businesses will not die.” “There will be people buying things for the first time, which are essential for them.” The gist is that right now, while we can, we should start cutting down on non essentials, which will automatically reduce imports and control outflow of foreign reserves.
According to the list that the government has prepared in 2022, Bhutan imported goods such as pasta, sweet biscuits, noodles, waffles/wafers , cakes, puffed rice, bread and corn flask worth Nu 1.3bn, processed meat worth of Nu 1.08bn, processed cheese and honey worth Nu 1.06bn, cigarettes containing tobacco/others worth of Nu 453mn, furniture worth Nu 282mn, television set worth of Nu 217mn, pan masala, supari and ice cream worth Nu 176mn, alcohol and mineral water worth Nu 162mn , tea bags Nu 162mn, juice worth Nu 130 mn, and salted butter worth Nu 119mn in 2021.
The above figures show that many depend on goods like supari and others, a small grocery owner said. “Even if the government wants to ban items, they should study what are really non-essentials,” he said, adding that people like him will have nothing to bank on. “The profits we currently make are also very less and my wife has been saying we need to move to Australia. If there are more bans affecting people, there will be a rise in the number of people leaving the country for better opportunities abroad,” he said.
In May, the total reserve of the country hit its lowest point at USD 549.08 million. According to data from the RMA, this is the lowest recorded over the past five years. Bhutan’s Constitution mandate requires that a total foreign reserve sufficient to cover essential imports for at least 12 months is maintained.
Due to the declining reserve, the government revised the total foreign reserve requirement on February 13, 2023. This revision came after the Cabinet approved the changes to the essential import value of 2017 based on the recommendations presented by the independent review committee.
As per the Cabinet’s decision, the updated essential import value for normal periods in 2023 is USD 603 million, and USD 464 million during critical periods. This comes down to monthly requirements of USD 50.25 million during normal periods and USD 38.6 million per month in critical periods
Thus, the total foreign reserve in the month of May had decreased below the revised value for normal periods, and is USD 53.92 million less than the revised figures required for a normal period. However, it is USD 85 million more from touching the revised figure for the critical period.
Meanwhile, the top ten commodities imported which had extreme impact on reserves were Diesel, aircraft, wood charcoal, PC’s central processing unit, coal, rice, motor spirit, iron and steel, telephone set and towers and vegetable oils, whose total import cost was Nu 90.2bn in 2021, (28.6% of share of GDP) Nu 66.6bn in 2020 ( 34.6% share of gdp) and Nu 69.1bn in 2019. (31% of share of gdp)
Tshering Pelden from Thimphu
