Govt’s three pronged approach to solve foreign reserve issue 

PM says the government may not need to implement the third phase but that execution of the second phase is a possibility

The moratorium issued on August 18, this year by the government banning the import of selected vehicles as the nation’s foreign reserves depleted may not be the magic bullet to solve the issue of foreign reserves. Nonetheless, the government is prepared to bring in more measures and ready to ban import of all non essentials, should the need arise.

According to the Prime Minister Dr. Lotay Tshering, there are three phases that will be implemented timely as per the economic situation of the country. The moratorium banning import of selected vehicles is the first phase, which is similar to ban on import of non-essential good.

“The government banned the import of vehicles as a part of it. If foreign reserves become stable, we won’t have to go to other phases,” he said, adding that the second phase will be the ban on imports of goods which cannot be imported though important. In the third phase, only necessities can be imported. The PM further stated that looking at the current trend, implementation of the second phase is a possibility.

However, the PM said the public should not be worried because the phases would be executed based on the amount of foreign reserve.

“Our foreign reserve is declining but with the ban on import of vehicles, we will be able to save around Nu 5bn in a year, which is anticipated to aid the eroding foreign reserve,” the PM said. Additionally, he informed that apart from different measures, Druk Holding and Investment (DHI) is also working on a lot of projects to generate foreign reserves.

The PM said there are about 20 projects in the pipeline, most of which are hydropower based. He said that nine will be commissioned as soon as possible, while three – one in Lhuntse, Zhemgang (Buli), Haa (Sombaykha), has already been started.

Business Bhutan learned that the Department of Innovation and Technology (DHI Innotech) is at the forefront, with projects, programs and researches that would bring in convertible currency and reduce imports, too. Of several projects, manufacturing and exporting drones is one. On July 18, 2022, a round of webinar circling on the theme “Drones in Bhutan,” was held. Mark Yong, Founder and CEO of Garuda Robotics discussed his personal journey through idea, innovation, and commercialization of drone projects.

Meanwhile, the chief executive officer (CEO) of the Royal Securities Exchange of Bhutan (RSEBL), Dorji Phuntsho, said expanding or increasing the export of products and services and remittances, in addition to the import ban, are two policies that will aid the country in building up its foreign reserve.

“Bhutanese living abroad should reinvest in their home country through remittances and exports should not be only goods but also services,” he said.

Another economic expert who sought anonymity said that the country’s widening trade deficit is one of the factors contributing to the dwindling foreign reserves. He added that remittances are not and should not be sources that the country should depend on.

Amidst the pandemic and border closure, the country imported goods worth Nu 90.22bn last year which is Nu 32bn more than its export. The country exported goods worth Nu 32bn in 2021.

Although the department of trade (DoT) does not have a list of non-essential commodities, the essential commodities, according to the department are necessities and others like fuel, LPG, milk, flour, cheese, rice, edible oil, vegetables, fruits, noodles, eggs, mineral water, sanitary pads, baby diapers, cereals, butter, toiletries, salt, tea, coffee, sugar, soap, shampoo, toilet paper, detergents, pharmaceuticals product, industrial raw materials and raw materials for hydropower construction.

Thus, going by the PM’s words, ban of any commodity that does not fall under the above may be implemented.

According to the Bhutan Trade Statistics report for the second quarter of this year, the country imported goods worth about Nu 24mn while the goods exported stand at Nu 9mn, which means the country’s trade deficit for the second quarter of this year is Nu 16mn.

During an interview conducted earlier, foreign minister, Dr. Tandi Dorji, had said that due to the pandemic, borders were closed for two years and the country faced a lot of issues related to import and export.

“The last two years allowed us to see how vulnerable we are and what measures we should now take, that is why the whole transformation and resetting from the bottom is important,” he had said.

Tshering Pelden from Thimphu