Current foreign reserves stand at about USD 850mn

The government has maintained the constitutional mandate to have foreign reserves sufficient to meet costs of one year’s imports

Despite the economy having taken a nose-dive due to the Covid 19 pandemic and foreign reserves depleting, the government has adhered to the constitutional mandate of having foreign reserves that can meet cost of imports for a year. This was highlighted by Prime Minister (PM), Dr. Lotay Tshering during a virtual meet with the Bhutanese media on October 14, 2022.

The PM said Bhutan’s foreign reserves currently stand at about USD 850 million, while the country required USD 668 million for annual imports of necessities. “So we are doing well,” the PM said, adding that the country’s economy is also picking up, as a result of the resumption of economic activities and reopening of the tourism industry, post-Covid 19. He also underlined that the rate at which foreign reserve was depleting has slowed.

Nonetheless, the PM mentioned that when economic activities pick up, it does not pick up proportionately and said that if not monitored properly, the economy may superficially pick up but put extra strain on convertible currency. Calling for caution, he said that the country is still not very comfortable regarding foreign reserve and that the government is monitoring it on a daily basis, due to which the rate at which reserves are depleting has decreased. 

Concerning different ways in which the reserves can be replenished, the PM said that there are three ways to get USD in the central bank’s account. “First one is through borrowings. Bhutan is eligible to borrow from bilateral or multilateral donor partners based on the consumption capacity and size of the economy,” he explained.

The PM said that the second way is through grants that the country is eligible to and the third is trading. He said “all three were halted due to the pandemic.” “It has resumed and the government is monitoring the balance between how much Indian currency (IC) or USD is going to be received versus how much is spent,” the PM said, while underlining that it is currently crucial to strike a balance between how much is earned and spent.

Additionally, the PM informed about the probable ban on import of non-essentials, saying that if the need arises and the foreign reserve doesn’t stabilize, the government has developed a list of non-essential items that will be banned. He said that the list includes “all the items that are not so essential” and mostly things that people can survive without having it. Implementing the ban on these items will allow the country to save anywhere between Nu 2mn to Nu 2.2bn. “Should there be a need, we will publish the list to the public,” he added.

According to the PM, for a slow Bhutanese economy, a capital of Nu 37 bn must be injected for survival. “But now the economy is bigger, as the Gross Domestic Product (GDP) denominator has shrunken and up to 35-40% of the GDP is supported by public expenditure,” he said.

He said that as per the nature of Bhutan’s trade deficit, it clearly indicates that it will be extremely tough during the crisis, if things do not improve, while emphasizing that since Bhutan heavily relies on imports, every ngultrum which is sent out results in more imports and drains out more convertible currencies.

Tshering Pelden from Thimphu