Govt. to rationalize imports to protect foreign reserves

Govt. to rationalize imports to protect foreign reserves

As of December 1, last year, the country’s international reserve position was at USD 776.6mn

Updating on the status of foreign currency reserves in the country, during the 48th meet the press, Finance Minister Namgay Tshering said that the government is trying to maintain sufficient foreign reserves to meet the imports for 14 months.

“The government has rationalized imports to protect the foreign reserves,” Lyonpo said.

He added that despite the country’s foreign reserve being in drawdown beyond 40%, the government has taken short-term measures to maintain the reserve position.

However, as per the mandate of Constitution, a minimum foreign currency reserve should be maintained to meet the import of essential items for 12 months.

Lyonpo said that the country has reserve more than the Constitution mandate. “However, we cannot afford to be complacent,” he said, adding that due to global stagnant situation, most of the countries are undergoing a crisis, “not only in Bhutan.”

Given the country’s nature of economy is ‘import driven,’ literally an imbalance of import and export, Lyonpo said, “it would be difficult to maintain the foreign currency reserve.”

There is no inflow of USD or Indian Rupee. Appreciation of USD against Ngultrum has also attributed to the fall of the reserve according to Lyonpo. The USD rate against Ngultrum was 82 as of 20 January, 2023.

In situation of trade deficit with external sector imbalance, Lyonpo said, “We need to learn to stand on our own feet.” Therefore, government have to look for short, medium, and long-term measures.

The government had imposed moratorium on the import of vehicles last year as a short-term measure. It is expected to save around Nu 5.3bn in a year from the moratorium. Either the country should opt for concessional loans/borrowing.

However, if one is hesitant to borrow, Lyonpo said, “one should protect what we have.”

In addition, Lyonpo shared that in the financial history of 10 years, the country never had a comfortable foreign currency reserve position. if we don’t know how to maintain the reserve, it would make no sense of having a billion reserves.

As of December 1, last year, the country’s international reserve position was at USD 776.6mn with the Indian Rupee reserve in Royal Monetary Authority (RMA) forming Rs 6.3bn, and the convertible currency reserve USD 603.61mn.

Meanwhile, the foreign reserve was USD 774.73 million as of December 12, last year, which is enough to cover around 14 months of essential imports. The ministry of finance will be reviewing the moratorium soon and it will be known how much the government saved.

The budget report for FY2022-23 states that in FY 2020-21 reserve stood at USD 1,559.2mn, which decreased to USD$ 1,328.024mn in FY 2021-22.

The convertible currency reserve stands at US$ 1157.408mn and the INR reserve stands at Rs 13,076.040mn. “The government is in a dire situation and is exploring for a better deal,” the minister said.

Sangay Rabten from Thimphu