The Bhutanese Leading the way.
In the State of the Nation Address (SOTN), Prime Minister Dasho Dr Lotay Tshering briefed the nation on the status of the foreign reserves currently, at USD 776.63 million (mn).
According to the SOTN, the net financial inflows which finances the current account deficits has been decreasing due to lower inflow of grants, which has impacted the gross international 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. According to PM, “With the current reserves, we can meet the cost of imports of essential items for a year and half, but if we import items as we did previously, the reserves will not be enough.”
According to the Report, with the expected rise in imports, prolonged rising inflationary pressure and depreciation of exchange rate in emerging economies, the reserve position will likely remain lagged and below pre-pandemic level.
“The global growth forecast for 2023 is grim, about 2.7 percent, according to the International Monetary Fund (IMF). If we resort to the conventional style of investing more, or offering more incentives this time around, implications on inflation and foreign reserve. Even if we don’t improve, people should know that our monetary and fiscal policies should be sensitive enough to help us stay the course until we tide over the next one or two years. This does not mean we will not do more, we will do all that is required,” he added.
Lyonpo Loknath Sharma shared that the country cannot stop imports. “Currently, there is a global economic downturn with countries such as USA and EU showing signs of recession, and we cannot say we will not face the same situation. So, we are concerned about inflation and recession. Inflationary pressure will hit us hard, as there are increases in the source, and we almost import everything. So, we can only advice to spend the money rationally and judiciously, as we cannot stop the imports.”
He also shared that the Tax Bill that was introduced by the current government in the Parliament was to help conserve the reserves by discouraging heavy spending, help encourage domestic production and to control inflationary pressure on food basket.
The report also stated that to prevent breaching of the constitutional requirements, appropriate policy measures will be pursued to build the external reserves. Tourism marketing, enhancing export and phase wise measures, like moratorium on import of vehicles are some of the measures to build the reserves.
When the paper talked to the minister of economic affairs for the same concerns in August, he stated that to preserve the foreign reserves, there will be three phases of restrictions depending on the situation. Currently, he says that the country is doing relatively better. “The 1st phase was the restriction of non-essential items, which was the vehicle moratorium. We won’t have to go to the 2nd phase, we are already doing well. Other countries have reached to a month of reserves, but we have reserves that will last for a while so we are relatively doing well.”
“Constitution’s mandate is for good times, and currently, economically, it is a bad time and we can afford to go down to six months. The economy is improving and the reserves are building up slowly. So, we don’t see the need to go for the 2nd and 3rd phase of restrictions. Currently, we are building up and doing relatively well,” he added.
Lyonpo also talked about Foreign Direct Investment (FDI) not being quite forthcoming. “One way to increase the foreign reserves is FDIs, and we are encouraging it but it is hard because we have limited resources and the cost of production is high. We are lacking in the use of technology and skills to use it. It is quite difficult due to logistics and geographical terrain, but we are looking into attracting FDIs in sectors that are very specific and unique.”
