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Foreign Reserves at the Core of all Measures

For long, the economic situation of the country has dominated discussions and policy measures adopted. The same is witnessed in questions asked by parliamentarians to the government as the 9th session of the Third Parliament continues. One of the questions asked to finance minister (FM), Namgay Tshering concerned foreign reserves and in reply, the minister underlined several measures undertaken. An in-depth study and dissection of several economic measures adopted over a period of time shows that foreign reserve has been at the core of almost all measures adopted. 

According to the FM, the country currently has about USD 600m as foreign reserve, which is sufficient to cover import of at least 12 months of essential goods as mandated by the Constitution. He added that though the current foreign reserve is enough for 12 months, it is very important and risky if the government does not come with the measures to address the decreasing foreign currency reserve.

As a highly import driven country, the finance minister highlighted the need for proper monetary and fiscal policies, structural reforms, amongst others.

Additionally, he spoke about loan deferment for those who were not able to pay the loan, the non-performing loan (NPL) strategies implemented by the government, saying that these are some of the policy and structures the government has undertaken.

As mentioned by the FM, the government and concerned agencies have come up with several measures aimed at addressing the critical issue of dwindling foreign reserves. It is a concern.

Some of the measures adopted to reduce foreign reserves from going out include the moratoriums issued by the government and the Central Bank or the Royal Monetary Authority (RMA). On August 19, 2022, the government issued a moratorium on the import of all vehicles, except utility vehicles, heavy earth-moving machines, and agricultural machinery. The Prime Minister (PM), Dr. Lotay Tshering said that the government would be able to save up to Nu 5bn in the year by imposing the ban on import of vehicles.

In a letter dated June 8, 2023, the RMA issued a directive to all chief executive officers (CEOs) of financial institutions, announcing a moratorium on commercial housing and hotel construction loans. As per the letter, the decision was motivated by broader concerns expressed by the RMA and the Royal Government of Bhutan (RGoB) regarding the outflow of foreign currency and the high concentration of credit and NPL risks in these sectors. The decision is another measure to safeguard the dwindling foreign currency reserves.

There has been measures adopted to increase in-ward remittance. In May this year, the RMA increased the incentives provided for in-ward remittance from 2% to 10%.

Green Bonds is another area aimed at attracting investors. Ujjwal Deep Dahal, chief executive officer (CEO) of Druk Holdings and Investment (DHI) in an earlier interview with the paper said that DHI is exploring multiple financial instruments for investing in areas of Technologies, Digital Asset and Energy and Resources to accelerate projects and investments and Green Bonds is also something that DHI is studying very closely.

This came in the wake of the ministry of finance (MoF) saying that the ministry in coordination with the RMA is working on the structure and institutional arrangement required for the issuance of Green Bond. The RMA is working on the conceptualization of taxonomy while the MoF is working on the possibility of carrying out a sovereign credit rating. It is aimed at making Bhutanese living abroad invest in Bhutan. 

Certification and standardization for trade with other countries through which Bhutan will be able to trade with about 185 different countries, construction of mini dry ports, increased tax on goods imported which can be made within the country and others were some of the measures highlighted by the minister of Foreign Affairs and External Trade, to narrow trade deficit. However, these are also means to increase foreign reserves.   

The recent trade agreements with Bangladesh, preferential trade agreement with Thailand and Bangladesh, trade fair for 6 months that was held last year in Dubai and trade fairs in Australia, Thailand and Bangladesh, amongst others were conducted.  Meanwhile, the country is currently discussing with the government of India and Singapore for trade certification and standardization.

Taxes on the import of goods which are available in the country have increased while there has been a reduction on tax for commodities exported. Changes have been made in the Tourism Levy Act 2022, with the introduction of the Sunset Clause. 

Meanwhile, the FM has said that the country should focus on structural reforms in order to address issues since the country can’t depend forever on the revenue from the hydro powers and the tourism sector.

“Last year, the country generated about Nu 23.5bn from selling hydro power to India and Nu 26bn from non-hydro power revenue,” the minister said, adding that, though the country has generated about Nu 51bn in total, the trade deficit with India stood at Nu49.7bn.

According to the FM, the trade deficit with India is mainly attributed to import of general merchandise worth Nu 86bn, followed by petrol, diesel, LPG gas worth Nu 11.3bn and import of electricity during the off season worth Nu 1.6bn.  Similarly, since the re-opening of the tourist in the country, the country generated about USD15mn as of June 11 with 86,000 tourists.

Meanwhile, foreign reserves kept fluctuating between USD 628m during the first quarter of 2023. For instance, during the month of March this year, the total foreign reserve decreased by almost 26.4% compared to the same period last year.

Sherab Dorji and Nidup Lhamo from Thimphu