In the second meeting between the government, private sector and Financial Institutions on monetary measures, the entire Royal Monetary Authority (RMA) team was absent.
The RMA instead had sent a note to the Ministry of Finance (MoF) either shooting down all the requests put forth by the private sector in the first meeting Chaired by the Prime Minister or saying they will be looked into in the future.
Now, the Finance Minister Lyonpo Namgay Tshering has written to the RMA Governor on 28 July 2022 asking for certain changes in the Monetary Measures Phase 4 (MMIV).
The first major issue pointed out by the minister is that economic sub-sectors or business units like handicrafts and textiles production, cement units, wood based products and few large industries are classified as low and moderate risk by the RMA.
The letter says these should be categorized as high risk and the basis is the on account of the poor financial performance or statement submitted to the Department of Revenue and Customs from these sectors during the year 2020 and 2021.
It said placing these sectors under low and moderate risk level may compromise the much needed impetus under the monetary measures for these sectors to rebound and sustain the operation.
The MoF shows that handicrafts made a loss of Nu 14.64 mn in 2020 and taxable income of Nu 2.27 mn in 2021.
In cement companies made a loss of Nu 566.78 mn in 2020 and taxable income of Nu 81.44 mn in 2021.
Wood based products industries had no taxable income in 2020 and Nu 3.08 mn taxable income in 2021.
The few large industries it wants placed under high risk are Saint Gobain Pvt Ltd, Pelden Enterprise and Bhutan Milk and Agro Pvt Ltd.
Under the Monetary Measures 4 issued by the RMA only hotels and restaurants and airlines and tour operators are under the High Risk category which means loan deferral or partial repayment up to two years and extension of the gestation period up to two years. 13 other sectors are in moderate risk for which there is deferment for one year and 2-years gestation period. The rest are in moderate category which only gives extension of the gestation period for up to two years.
The next issue raised by the letter is the need to put in place a standard asset valuation among the Financial Institutions (FIs) for the collateral used to avail loans. It says this would help achieve transparency and ensure uniform rate for collaterals across the FIs.
The Ministry sought an update from the RMA on whether such measures has been implemented or the progress of such an initiative.
The Financial Institutions Association of Bhutan (FIAB) had done an exercise and even proposed certain uniform rates or formula to calculate property value, but the RMA had asked the FIAB to put it on hold as the RMA is coming up with a Department that would look into such issues.
The letter says that since FIs usually do not honor third-party collateral of immovable assets, it says it may be recommended to accept the third-party collateral, provided there is a legally binding document with further considerations to single ownership property.
It says RMA in close consultation with the FIAB may also wish to look into the deferment period in a differentiated mode where in highly impacted sectors be granted the deferment ranging from 3 to 5 years.
It says given the severity of the impact and current global or regional economic situation, it is unlikely that the economy will rebound anytime soon.
It says RMA may also need to advice to FIs to consider deferral on the repayment of the bridge loan and working capital given to prioritized sector during the pandemic for a defined purpose.
The letter says considering the growing concern with the widening trade and current account deficit and other macroeconomic indicators, it is critical to promote, protect and sustain the interest of Cottage and Small Industries (CSI), start-ups and cooperatives, thus substituting imports.
“Therefore, it is important for RMA and FIAB to strategically look into possible deferment of outstanding loans with CSI sector within the scope of Monetary Measures 4,” says the letter.
The MoF said that tax exemption is being provided to FIs on preferential lending to the priority sectors. The Ministry said it would like to reiterate and request the FIs to optimally capitalize on the preferential lending facility that shall be provided to the priority sectors for which the FIs are being provided exemption.
It said to avail this fiscal incentives, the list of priority sectors is determined by the RMA. In this regard the Ministry asked the RMA for the list of priority sectors as identified by the RMA.
The letter says given the dynamic and vulnerabilities of the economy further exacerbated by the recent global economic developments, it is important to take strategic decisions to protect and sustain the gains achieved thus far, while rationalizing the future measures befitting the current context and economic environment.
The letter says that while observing the regulatory norms of the RMA, it sees that many decisions pertaining to restructuring under MMIV could be devolved to the respective FIs. This is expected to give more flexibility and convenience to FIs as they know their client best.
The letter says as always it solicits RMA’s unconditional support and consideration in lieu of the volatile nature of the time we are going through.