Govt. to rationalize imports to protect foreign reserves

Businesses await government decision on possible moratorium and definition of non-essentials

As the government deliberates on whether to impose a moratorium on non-essential items, businesses in Bhutan are waiting for a clear directive from the Ministry of Finance (MoF) to adjust their business operations accordingly. From the moratorium that the government could issue on selected non-essential goods to the definition of non-essentials, importers from Third countries especially are the ones in the dark. 

Furniture and electronics retailers are especially cautious, holding off on placing orders and making payments to import goods, with the apprehension that a moratorium if issued for the import of non essentials would block their capital. “If the government decides to impose the ban on furniture and electronics suddenly we have made the payments, then it will be a hassle for us as we will not get the payments back from our agents. Our goods will be stick in a dock at Kolkatta or somewhere else,” a dealer of furniture said. He added that no businessman would go against the interests of the country. “We have reeled through the Covid days and if the government issues any moratorium in the national interest, we will abide by it. But, we should at least be informed in advance,” he said.

The same was shared by a dealer of cosmetics and other goods imported from South Korea, Japan and other third world countries. “We have read the notifications from the government that a team has been formed to define non-essentials. Words amongst us (importers) of a ban are there. But we need to be consulted too and kept in the loop,” she said, adding there are many others dealing in furniture, electronics, etc waiting for the government’s announcement, if any. “We are also not aware of what would be considered essential and non-essential,” she said.

Tshering, who opened a shop selling goods from third world countries after the pandemic, said that if the government could at least inform what non-essentials are, he still has the time to change the goods sold. “I would start what are defined as essentials and stop others. When we are informed that something would happen, we are left thinking a notification may come at mid-night also. Due to this, I have not replenished my goods and am running at a loss,” he said.  

Meanwhile, the Cabinet Secretariat directed the Ministry of Foreign Affairs to review and analyze the impact of imposing a moratorium on non-essential items or whether to restrict the issuance of foreign currency for non-essential items through a formal Cabinet directive.

Additionally, on February 15, 2023, the Cabinet Secretary issued two formal directives to the Ministry of Finance regarding the foreign reserve currency. The directive stated, “The essential import value 2023 for the normal period is US 603 million and USD 464 million under the critical period.” The directives came after the foreign reserve of the country depleted.

As per the constitutional mandate, the minimum foreign reserve of the country should be of a value that will be adequate to buy the 12 months of the essential import.

Although the list of non-essential and essential items has not yet been announced by the government, the essential import value for 2023 during the normal period is USD 603 million and US 464 million during the critical period, according to the directives.

Meanwhile during an earlier interaction with media, the Prime Minister (PM) Dr. Lotay Tshering expressed concern about the lack of clarity regarding the definition of “essential”, as everything people have at home is considered essential.

“To address this, an independent team chaired by the Chief Justice, Royal Monetary Authority (RMA) Governor, and Cabinet Secretariat was established through a formal executive letter,” he said.

Following this, the Cabinet Secretariat issued a directive to the finance ministry. The team’s mandate was to define essential commodities clearly and comprehensively for the current time and for a year’s supply of essentials.

“The central bank must project the required foreign reserves and notify the government at least three months prior to the expected depletion of the reserves,” said the PM, adding that the government will then choose alternatives to save the reserves.

The total reserves of the country started depleting from last year, with the greatest decrease in the reserve occurring in July 2022, where reserves stood at USD 772.3 million, according to reports from the RMA.

After July 2022, the total reserve fluctuated between 13 months of essential import to 15 months. As per the RMA report, the monthly cost for essentials comes to around USD 55 million.

Inward remittances and exports bring in reserve, but in both cases, the results have not been favorable.

 Bhutan imports more goods than it exports, leading to a larger trade deficit. Additionally, inward remittances have been steadily declining.

The inward remittances in 2022 have decreased by about 40% compared to 2021, according to the RMA data.

The PM added that in order to strengthen or save the reserve, a nation must either raise exports or at the very least decrease imports.

“We only export hydropower under the guise of export, but that too, we have to import from India for our own winter consumption,” PM said. 

Tshering Pelden from Thimphu