IMF stands ready to provide advice and support at the request of the Bhutanese authorities
Since Bhutan became a member of the International Monetary Fund (IMF) on 28 September 1981, it has never engaged in fund arrangement as the country has been able to address shocks without the need for one, according to the IMF’s Bhutan Team Mission.
According to the team, unlike development banks, the IMF does not lend for specific projects. Instead, the IMF provides financial support to countries hit by crises to create breathing room as they implement policies that restore economic stability and growth. It also provides precautionary financing to help prevent crises. IMF lending is continuously refined to meet countries’ changing needs.
The Bhutan Mission Team of IMF also said that the Fund is ready to support members that face balance of payments needs, which arise from external shocks or as a result of policy imbalances. These shocks are usually addressed through a combination of policy adjustment, use of buffers, and new financing. A Fund arrangement provides financing that eases the pace of adjustment and allows countries to rebuild buffers. “Bhutan has never engaged in a Fund arrangement because it has been able to address such shocks without the need for one,” Bhutan Team Mission said.
In addition to technical assistance, the Fund conducts its Article IV consultation with Bhutan on a 24-month cycle. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.
A press release from the Executive Board of the IMF consultation on Article IV with Bhutan in May last year, stated that prior to the pandemic, Bhutan had made significant strides in improving per capita income and reducing poverty, qualifying for its graduation from the Least Developed Country (LDC) status in 2023.
The ]Team also said that the COVID 19 pandemic has had a substantial impact on the Bhutanese economy. Real GDP contracted for two fiscal years, with contact-intensive and externally oriented sectors most affected. The wide-ranging policy responses, aided by Bhutan’s impressive vaccination campaign, helped mitigate adverse impact on lives and livelihoods. The responses included the deployment of the National Resilience Fund, the Economic Contingency Plan, and a series of fiscal, monetary, financial, and labor market measures.
Elaborating further, the Team said that IMF lending gives countries breathing room to adjust policies in an orderly manner, paving the way for a stable economy and sustainable growth and that policy adjustments will vary depending on the country’s circumstances. For example, a country facing a sudden drop in the price of key exports may need financial assistance while moving to strengthen its economy and diversify its exports. A country facing severe capital outflows may need to restore investor confidence by addressing the problems that led to capital flight —perhaps interest rates are too low, the budget deficit and debt are growing too fast, or the banking system is inefficient or poorly regulated.
The Team further underlined that the IMF lending process is flexible. Countries that maintain a commitment to sound policies may be able to access resources with no or limited conditionality. The IMF has several lending instruments to meet the different needs and specific circumstances of its members.
The IMF has a large technical assistance program in Bhutan, focused on revenue administration, public financial management, national accounts and government finance statistics, financial sector supervision, and monetary policy. The IMF does not lend or provide advice on projects.
“The IMF keeps a close dialogue with the authorities and stands ready to provide advice and support at the request of the authorities,” Bhutan Mission said.
Sangay Rabten from Thimphu