RMA has instituted measures to encourage and enhance remittance inflow
In a positive development following the recent initiative to enhance remittance inflow from Bhutanese living abroad, the first two months of this year witnessed a substantial increase in remittance inflow compared to the same period last year, amounting to Nu 1,201.19 mn, making it the second highest remittance received in the country for the same period in the last five years. This is also an indication that measures adopted by the RMA to encourage inward remittance has begun to work.
The RMA’s monthly statistic report, states that the country received a remittance of Nu 1,201.19 million (mn) during the month of January and February this year, reflecting a remarkable increase of Nu 593.06mn (USD 6.38 mn) from the same period last year. Further, the report also states that the highest remittance received in the first two months during the last five-year period was in 2021, which totaled Nu 1,323.32 mn.
During the corresponding periods of January and February last year, the remittance received amounted to Nu 608.13mn (USD 8.3mn).
This surge in remittance inflow is attributed to the efforts made to improve the remittance information and services for Bhutanese residing overseas.
On February 16 this year, the RMA announced the extension of the 2% incentive scheme until December 30, 2023. The scheme is applicable to inward remittances received from January 1 of this year.
Under this initiative, beneficiaries are eligible to receive a 2% cash incentive upon converting their remitted amount into Ngultrum using the prevailing exchange rates through banking channels and international money operators.
Furthermore, Bhutanese living abroad can also maintain foreign currency accounts and earn interest on their foreign currency deposits, as offered by commercial banks.
During the first two months of this year, the highest proportion of remittance was denominated in US dollars, accounting for 46.6% of the total remittance. Which amounted to Nu 559.94mn.
The second-highest share was held by the Australian Dollar (AUD), constituting 39.5% or Nu 475.37mn of the total inward remittance.
Notably, the AUD received experienced a significant increase of Nu 220.84mn compared to the same period last year when it stood at Nu 54.53mn.
Additionally, remittances denominated in Euros (EUR) also exhibited growth, reaching Nu 52.37mn from Nu 11.86mn in the corresponding period of the previous year. Similarly, the Canadian Dollar (CAD) and Singaporean Dollar (SGD) saw increases of Nu 24.52mn from Nu 17.73mn and Nu 18.46mn from Nu 6.03mn, respectively.
However, remittances from Japan decreased to Nu 4.35mn from Nu 6.57mn, while remittances from the UK decreased to Nu 8.63mn from Nu 9.14mn during the same period last year.
To facilitate remittance inflow, Bhutan provides nine channels through which remittances can be sent: Bhutan Post’s Western Union and EuroGiro, T-Bank’s T-Pay remit and Prabhu Money Transfer, Bhutan National Bank’s MoneyGram and Ria Money Transfer, Bank of Bhutan’s Ria Money Transfer and BoBit, and Bank Transfer (SWIFT).
Meanwhile, in response to the decline in inward remittances from overseas, the RMA extended the 2% cash incentive until December 30 of this year. This move aims to encourage the inflow of remittances into the country.
In 2021, the RMA initially introduced a 1% incentive on inward remittances for Bhutanese individuals residing, working, or studying abroad. This measure aimed to offset transaction costs while facilitating the transfer of funds to personal accounts or family members in Bhutan.
Meanwhile, RMA discovered that the monetary incentive not only encourages an increased number of inward remittances but also ensures that remittance flows are received through formal channels.
Additionally, since July 2022, the incentive was increased to 2% from 1 % until December 2022, which was further extended till December 30th of this year.
Beneficiaries can now receive a cash incentive of 2% while sending in the money. This indicates a gradual increase in inward remittances compared to previous years.
Additionally, in 2019, the remittances received in January and February amounted to Nu 408.02 mn, 2020, it increased to Nu 723.17 mn, and in 2022, it reached Nu 608 mn.
Remittances have been one of Bhutan’s main generator of convertible currency. Moreover, Article 14, Section 7 of the Constitution states that a minimum foreign currency reserve that is adequate to meet the cost of not less than one year’s essential import must be maintained.
With reserves depleting and to maintain this constitutional mandate, the government on August 18, 2022, issued a moratorium of the import of vehicles “To uphold the Constitutional provision and most importantly to address the macroeconomic imbalances that the entire world is going through and as an initiative towards protecting Bhutan’s foreign currency reserve.” Based on this the import of selected vehicles were suspended with immediate effect. The government said that the moratorium shall be reviewed and amended (where necessary) in 6 months from the date of issue of this Notification depending on the foreign currency reserve position. However, six months later the moratorium remained effective.
Meanwhile, the Cabinet Secretariat earlier 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.
In an earlier interaction with the 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 had 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. However, if foreign reserves continue to increase, there would be no need for all the above to be undertaken.
Tshering Pelden from Thimphu