The trend of rupee reserves has been dropping since April this year
As of December 1, this 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.
However, the rupee reserve in the central bank has dropped by Rs 2.6bn as compared to December last year. The rupee reserve was Rs 8.9bn as of December last year. The trend of rupee reserves has been dropping since April this year.
The RMA’s Monthly Statistical Bulletin shows that the country’s Rupee reserve at the beginning of the year was Rs 12.5bn, the lowest this year. In the following month (February), it fell to Rs 11.4bn, Rs 9.6bn in June and Rs 8.9bn in September.
A rough calculation shows that INR reserves dropped by Rs 16.8bn compared to September last year. It was Rs 25.7bn.
Concerning convertible currency, the reserve dropped from USD 828.9mn in December last year to USD 603.61mn. As of December 1, it dropped by USD 225.5mn this year.
According to an official from RMA, the net financial inflows which are used to finance the current account deficits have been decreasing due to lower inflow of official grants. “This has impacted gross international reserves.”
“The reserve position in the near-term will remain lagged and below pre-pandemic level with the expected rise in imports, prolonged rising inflationary pressure and depreciation of exchange rate in emerging economies,” stated the state of the Nation report, 2022.
Similarly, the gross international reserve depleted from USD 1.5bn in the fiscal year 2020-21 to USD 1.1bn in fiscal year 2021-22.
The total reserve is enough to finance 1.15 months of merchandise import, according to the RMA’s monthly statistical bulletin.
The convertible currency reserve alone is reportedly sufficient to finance 17.60 months of imports, while the Rupee reserve will meet 13.11 months of essential imports.
Meanwhile, it is a constitutional requirement 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.
Foreign currency reserve is crucial for Bhutan as Ngultrum (Nu) is not a legal tender outside the country’s borders. For an import-driven country, a Rupee reserve is necessary as more than 80% of the country’s imports are from India.
However, the Rupee is not a convertible currency, thus the importance of foreign currency. In earlier years, when the country was hit with the Rupee shortage, the country had sold convertible currency to replenish the Rupee stock.
Commercial borrowings in Rupee was also backed by the country’s convertible currency reserve, like a mortgage.
An arrangement with the Reserve Bank of India (RBI) has also been made where the RBI would facilitate the exchange of USD for INR and vice versa.
The government in consultation with the Central Bank has also decided to set a threshold Rupee reserve of INR 10bn and a convertible currency reserve of USD 757mn for all times.
Further, the country’s reserves are primarily built on foreign aid inflow, including hydropower funds and proceeds from the export of electricity.
And as the country graduates from the category of the Least Developed Countries and with the impact of the pandemic, it has been projected that aid from multilateral agencies will decline.
To ensure minimum impact on the reserve from a declining inflow of funds from aid and grants, the RMA has taken initiatives such as the Remit Bhutan.
For instance, Remit Bhutan and banks that receive remittances were expected to bring foreign currency earnings of the Non-Resident Bhutanese into the formal banking channel.
As of September, this year, the RMA alone has rupee reserves of Rs 7.6bn; Bank of Bhutan Limited (BOBL) Rs 586mn, T Bank Limited reserved Rs 265mn, Bhutan National Bank Limited (BNBL) reserved Rs 260mn, Druk PNB Limited Rs 252mn, and Bhutan Development Bank Limited (BDBL) Rs 4.1mn.
In addition, the RMA has reserved USD 537.5mn, BOBL USD 13.6mn, BNBL USD 14.4mn, T bank Limited with USD 4.9mn, Druk PNB Limited USD 0.8mn, and DHI USD 48.1mn.
Sherab Dorji from Thimphu
