Banks and private sector yet to come to consensus over monetary measures

Total foreign reserves in July stood at USD 513.90 million

The total reserve for July is a decrease of almost 33.46% compared to the same period last year

The Royal Monetary Authority (RMA) has recently released its monthly statistics bulletin report, revealing that Bhutan’s foreign reserves stand at USD 513.90 million as of July 2023. The figure of USD 514 signals a decline from the previous year of the same month, with a staggering value of 33.46% compared to the same period last year.

According to the report, the foreign reserve has been fluctuating between USD 664 million and USD 514 million during the first seven months of 2023. However, the total reserve in July is decreased by almost 10.4% compared to the previous month of this year.

The reserve plummeted to USD 513.90 million, close to the threshold required to cover essential imports equivalent to at least one year’s worth of essential imports as mandated by the Constitution of Bhutan, which is to maintain the minimum threshold of USD 464 million falling below the benchmark set at USD 603 million for the normal period.

The figure for July represented one of the lowest reserves recorded in Bhutan over the past three years, followed by the foreign reserve for the month of May with 549.08 million.

Bhutan experienced a decline in its foreign exchange reserves due to a surge in import bills, considering that over 80 percent of goods are imported into the country. According to figures from the finance ministry, the country’s import bill reached Nu 93.03 billion as of September last year, surpassing the import value of Nu 90.23 billion in 2021. As a result, the country’s trade deficit widened to Nu 48.14 billion in September last year, reflecting an increase of Nu 15.9 billion compared to 2021.

Although the country has significant foreign reserves to meet the import of essential goods for 14 months against a constitutional mandate of 12 months, the decline pushed the concerned authorities to take some measures. 

To save the dwelling foreign reserves, the government, in consultation with the Royal Monetary Authority (RMA), implemented several policy interventions, such as a moratorium on selected vehicle imports, which has been further extended until February next year (2023).

Additionally, the government revised the essential import value, which is the amount needed to meet 12 months of essential goods imports. The Cabinet endorsed the revision on February 13, 2023, based on recommendations from an independent review committee. The revised essential import value for 2023 during normal periods is set at USD 603 million, with a reduced amount of USD 464 million during critical periods. To increase inward remittances the RMA increased the cash incentive from 2% to 10% on June 14, 2023. Additionally, RMA entered into an Indian rupee SWAP arrangement for Nu 5.4 billion in March this year to improve the Indian rupee reserve.

There are also various measures endorsed in the 13th-year plan, such as investment in the green bond. The green bond is a special-backed security to encourage foreign remittances and investment, wherein the Bhutanese sending money from abroad could benefit from the coupon rate of the bond. The green bond is considered very secure as it is backed by the sovereign guarantee of the government.

These adjustments aim to align with the constitutional mandate that dictates the necessity of maintaining foreign reserves adequate enough to cover 12 months of essential imports.

Meanwhile, as per rough calculations, Bhutan has spent more than Nu 21.26 billion on the import of construction material during the first quarter of 2023, indicating a significant increase of approximately 43.65% compared to the same quarter the previous year. With the moratorium imposed on commercial housing and hotel construction on June 8, 2023, this move is expected to further support efforts to strengthen foreign reserves.

Nidup Lhamo from Thimphu