The Royal Monetary Authority (RMA) has taken another significant step to address decreasing foreign reserves. In a letter dated June 8, 2023, RMA Governor, Dasho Penjore 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 non-performing loan risks in these sectors.
The decision to impose the moratorium comes as a measure to safeguard the dwindling foreign currency reserves of the country. The government had previously issued a moratorium on the import of all vehicles, except utility vehicles, heavy earth-moving machines, and agricultural machinery, starting from August 19 of the previous year.
In light of the situation, the finance ministry had proposed to the Cabinet the continuation of the moratorium on vehicle imports, considering the essential import value in 2017, which amounted to USD 668 million and additionally the foreign reserve requirement was also revised on February this year, The revised essential import value of 2023 for the normal period is USD 603 million and USD 464 mn under the critical period, according to the Cabinet.
Meanwhile, the moratorium on housing loans comes after the Ministry of Finance (MoF) proposed phase II, which is suspension of construction loans. While the exact figures for foreign currency reserves were not accessible, it was revealed that the reserves were slightly above USD 668 million.
Further, in a directive issued by the RMA, it was announced that during the 202nd Board of Directors meeting held on June 6, 2023, the moratorium on new commercial housing and hotel construction loans was approved.
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 non-performing loan risks in these sectors.
Subsequently, financial institutions have been directed to suspend the approval of new loans for the construction of commercial housing and hotels, effective from June 8, 2023. The moratorium also encompasses pending loan applications at various stages of appraisal and new loans for expansion within the commercial housing and hotel sector.
However, the moratorium does not apply to loans that were sanctioned or approved as of the close of business on June 8, 2023, regardless of the loan disbursement status. Additionally, home loans are exempted from the moratorium.
Financial institutions are required to submit a list of approved loans that have not yet been disbursed by 5:00 PM on June 8, 2023, to the RMA.
The moratorium became effective from June 8, 2023, until December 31, 2023. Failure to comply with this directive will result in penalties in accordance with the Penalty Rules and Regulations.
According to the Constitutional requirement, if the projected foreign currency reserves are expected to hit a certain threshold, the RMA must alert the government of the reserve position three months in advance. The RMA’s recent decision to impose the moratorium on commercial housing and hotel construction loans indicates the urgency of the situation and the need for immediate action.
The RMA’s decision to impose the moratorium underscores the gravity of the situation and the government’s commitment to addressing the challenges associated with dwindling foreign currency reserves.
Tshering Pelden from Thimphu
