USD hits highest level against Bhutanese Nu

One USD was valued at Nu 77 in May this year

If an individual wants to buy USD from a bank, the rate is Nu 77 for USD 1. If a person wants to sell USD to a bank, he or she could fetch Nu 80 per USD.

One USD was valued at Nu 77 in May this year, which has been recorded as the highest USD exchange rate in the country so far.

The trend shows that the value of the USD is gradually rising compared to the value of the Ngultrum (Nu) in the last 10 years. It was somewhere ten years back when the value of USD 1 was Nu 54 in 2012.

This has, thus, led to a depreciation in the value of the Nu as more Nu is needed now to pay for the USD.

The ones who have been hit the hardest are the Bhutanese manufacturing industries that rely on the raw material imported from countries other than India.

For example, a manufacturing company in Phuentsholing imports a chemical from Germany, and it has to pay in USD. Since the company sells its products to India, it is not entitled to USD from the banks and the central bank. With the USD escalating against the Nu, the company has to resort to other means for the USD. This has affected the competitiveness of the companies at a time when the country is trying to promote exports.

The situation of the manufacturing industries relying on the raw materials imported from third countries and depending on the market in India has worsened because of the Goods and Services Tax (GST) factor adding to the foreign exchange. India imposes about 18% of tax on all goods entering India.

Another impact arising from the depreciating Nu is the price of fuel. The country is dependent on petroleum prices in India. India imports almost 80% of its fuel from third countries. This is also one reason for the rising fuel prices in the country.

This means that when the Rupee depreciates, the exchange rate passes through to fuel prices, resulting in the energy trade deficit. This is because the country earns about Nu 12bn from electricity export to India and in turn imports petroleum products worth Nu 8bn or more on an average annually.

According to the Indian media, the Rupee tumbled 11 paise to close at a fresh lifetime low of 77.85 (provisional) against the USD, as a sell-off in domestic equities and stronger greenback overseas weighed on investor sentiment.

At the interbank foreign exchange market, the Rupee opened at 77.81 and witnessed an intra-day high of 77.79 and a low of 77.87 against the USD.

Meanwhile, this is also happening in Bhutan too.

One USD was valued at Nu 74.45 in January this year, at Nu 76.24 in March, and at Nu 77.13 in May.

Meanwhile, for Bhutanese travelers planning to travel to Bangkok, refraining from purchasing the USD by paying in Nu is prudent. It is advisable to purchase Thai Baht and later exchange it with USD because the value of USD 1 is equivalent to about THB 33.

A local economist, Damber S Kharka said since the foreign exchange is just like any other economic activity driven by demand and supply, all the factors indicate that the USD is in demand. This is creating demand for the USD in the market.

“When the exchange rate depreciates, we bear the extra burden economically as we have to pay more for the import of the same basket of goods. A good example is the fuel price that has gone up drastically and the currency depreciation is one of the key reasons,” he said.

He said that for an import-driven economy, there is very little positive impact of Nu depreciation. The debt repayment and debt serving these days have become very expensive as we pay more in terms of Nu.

“Countries that are export-driven those receiving debt payments from others do have advantages,” he said, adding that our country neither is export-oriented nor has a debt to be recovered from others at this stage.

“We are negatively hit by the currency depreciation. Our currency is pegged with the INR. The INR depreciated, and so did our Nu,” he said.

According to Damber S Kharka, the exchange rate is the price of domestic currency in terms of foreign currency. When the import is more than the export the outflow of foreign currency (demand) is more than the supply of foreign currency (that is generated through export).

“India faces this and we also face it as we have a currency-pegged regime,” he said.

He added that the import-export difference has also been attributed to the current account deficit. The shortfall of foreign currency due to import-export differences is met through the reserve. This has resulted in the depletion of the forex reserve.

“Now when debt servicing is high, imports are much higher than export, and the reserve depletes more sharply. This is a worrying economic situation,” he added.

Kinley Yonten from Thimphu