The Rupee reserve dropped by Rs 4.7bn in March compared to last year
The country’s international reserve position as of March this year was at USD 984mn with the Indian Rupee reserve forming Rs 20.3bn, and the convertible currency reserve of USD 716mn, according to the monthly statistical bulletin of the Royal Monetary Authority (RMA).
The country’s Rupee reserve at the beginning of the year was Rs 12.5bn, the lowest this year. In the following month of February, it fell to Rs 11.4bn.
However, the Rupee reserve dropped by Rs 4.7bn in March compared to last year. It was the highest recorded drop in the first quarter of the year. The country’s highest Rupee stock was recorded in October 2020 with Rs 37.6bn.
On the convertible currency, the reserve dropped from USD 1.24bn in March last year to USD 716mn this year.
The total reserve is enough to finance nine months of merchandise import, according to the RMA’s monthly statistical bulletin.
The convertible currency reserve alone is reportedly sufficient to finance 33.1 months of imports, while the Rupee reserve will meet three 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 borrowing 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 RemitBhutan.
For instance, the RemitBhutan and banks that receive remittances were expected to bring foreign currency earnings of the Non-Resident Bhutanese into the formal banking channel.
According to the report, the RMA alone has collected Rs 19.3bn as of September; Bank of Bhutan Limited (BOBL) Rs 298mn, T Bank Limited reserved Rs 810mn, Bhutan National Bank Limited (BNBL) reserved Rs 488mn, Druk PNB Limited Rs 405mn, and Bhutan Development Bank Limited (BDBL) Rs 17.1mn.
In addition, the RMA has reserved USD 629.8mn, BOBL USD 12.7mn, BNBL USD 16.3mn, T bank USD 7.9mn, Druk PNB USD 2mn, and DHI USD 47.4mn.
Kinley Yonten from Thimphu