Finance Minister, Namgay Tshering, stated that there is enough foreign reserves to last for 14 months for import of essentials, during the first meet-the-press session of the year yesterday.
During the winter session of the Parliament, in the State of the Nation (SOTN) Address, Prime Minister Dasho Dr Lotay Tshering updated the nation stating that the foreign reserves was at USD 776.63 million and will be enough for a year and half for essential stocking.
The SOTN report stated that the net financial inflow, which finances the current account deficits, was decreasing due to lower inflow of grants, thus impacting the reserves.
The Constitution mandates to have a minimum foreign currency reserve that is adequate to meet the cost of not less than one year’s essential imports. Currently, the reserves are enough for 14 months of essential commodities import.
According to Lyonpo Namgay Tshering, as a heavily import dependent country, if we don’t rationalize spending, having USD 10 billion reserves also won’t be enough.
He said, “Almost 95 percent of whatever we consume is imported, and we, basically, don’t export anything. So, if we look into the nature of our economy, we are import driven trading-based economy. Therefore, no matter the number of reserves, it will be hard to be comfortable with our reserves.”
He also added that many countries are facing similar problems, and at this point in time, he shared that Bhutan is maintaining the constitutional mandate, and the reserve position stands at being able to meet the import of essential items for 14.1 months.
Lyonpo shared that foreign reserve position not being comfortable has been an issue this whole time, but currently, as the financial condition is not good, as the US dollar is appreciating against INR and Nu and with stagnant inflation, the reserve position seems critical.
“To maintain the reserve, to protect it, we have to rationalize the imports and few months ago, a short-term moratorium was instituted on luxury vehicles,” the Finance Minister shared.
He also added that for mid-term goals to build up the reserves, the only option is to borrow, which however, increases the debt.
He stated, “If we are hesitant on borrowing, we have to protect the amount of reserve through the rationalization method. Although we have reserves that are enough for 14 months, we cannot afford to be complacent.”
Prime Minister Dasho Dr Lotay shared that in order to increase the reserves, we will have to borrow the money in forms of loans and grants. If not, then we need foreign direct investments (FDI).
He also added that reduction of imports is an immediate measure, and in the long run, he shared that there should be more convertible currencies inflow to the central bank and unlimited access to imports.
PM also shared some of the challenges faced stating FDIs are not making profits so there is no investment happening in the area, and that there is no conducive working method, and payment gateways are hindrance, in terms of earning dollars or sending dollars.
With regards to borrowing, Lyonpo Namgay Tshering added that options are being explored to build the reserves. He shared that although we are currently not in a desperate situation to explore credit facilities, however, exploring options is being done for the worst-case scenario.