In the recent state of the nation report to Parliament, Prime Minister Jigmi Y. Thinley said that INR shortfall is only temporary, and everything possible is being done to ease the situation. He stated that the external imbalances will begin to be corrected within the year. However, other political parties, bankers and financial experts believe it to be a severe crisis which might take years to be addressed.
President of Bhutan Kuen-Ngyam Party (BKP) Sonam Tobgay also said “the INR deficit is going to be a perpetual issue and as long as we are not export oriented as long as we don’t have import substitutes there isn’t any permanent solutions for many generations to come.”
He said one has to also question on what has sparked off such a shortfall in such a short period of time. “My guess is over spending by the government, lack of proper monitoring and gap between the RMA and the government who should be working hand in hand,” he said.
Spokesperson of Druk Nyamrup Tshogpa (DNT) Dr Tandi Dorji said “it is not a minor shortfall and it is a crisis.” He said the government’s state of the nation report is one sided and should be validated by an independent body.”
Opposition Leader (OL) Tshering Tobgay said “structurally, our economy is very weak. Imports have exceeded exports by as much as 14 billion in the past year according to the PM’s own report. That imbalance is not sustainable. That imbalance is very risky. To make matters worse we have a huge and growing government debt of almost Nu 80bn.”
The OL also said “today we have a short term credit of more than INR 20bn. This is huge by any standards, and amounts to one quarter of our entire GDP. But the government has not accepted any responsibility for the crisis. The government does not have a well thought out plan. The government is in denial. Instead, they make excuses. At times they say that our GDP is growing. At other times they say that we must borrow money. And sometimes they say that we are running an INR deficit because our foreign currency reserves have increased. That is wrong. In 2010 our reserves stood at over USD 900mn. Today it is only USD 866mn as pointed out by PM himself.”
Vice president and spokesperson of the opposition, People’s Democratic Party (PDP) MP Damcho Dorji said “it’s a sad thing that the government takes the INR crisis very lightly when it has affected our economy and the people so much. It simply shows that the people in power are not actually affected by it.”
He said the situation has turned extremely serious as “it would now involve a vicious circle of shortage of INR once it is created.”
Political parties also expressed criticism over the interim measures adopted by the government and the central bank. Referring to the ad-hoc policies such as import ban, the BKP president said “if we get elected to office, we shall impose a ban on all bans. We will review the fiscal policies intelligently and that will be through larger stakeholder consultations including the private sector.”
Dr Tandi said “we definitely don’t want to hamper the growth of private sector as it is the engine of economic growth. If we are banning loans and imports there is no way that can we grow but we have to look at imposing fiscal measures.”
“Our private sector is doing poorly which is the cause for our stunted economic growth which is veiled by the inflated hydro power projects to give a grossly in accurate economic growth rate,” MP Damcho said. “We will have to expedite the hydro projects, improve tourism, encourage our people to work abroad, find more ways of export and establish small enterprises at home to reduce imports. Above all, we must overhaul our financial management system,” he concluded.
The prime minister in his state of the nation report also stated that INR earnings will be more than what we need and can be easily used to pay off past and present INR loans. However, Opposition MP from Gasa, Damcho said “it will definitely improve the INR situation but that’s a long way to go whereas the crisis has already hit our doors. Moreover, hydro projects will have their hands full with so many loans to repay with interest alone going into billions. And all these loans will have to be paid in rupee or hard currency. Further maintenance costs will also be very high with virtually everything having to be given on contract as our people have been completely kept out of the hydro projects and will have no experience whatever. Our people may not be aware of the millions we are spending on the maintenance of Tala Hydro power station alone every year. It’s time we do some serious mathematics.”
Dr Tandi said depending on future growth and returns such as hydropower should not have negative impact on the current economy, the private sector and the current generation as a whole.
The BKP president said while hydropower may generate income, demands for foreign goods are also on the rise. “Consumption and additional demand for unessential products are increasing along with the hydropower projects, which again will end with not much of a difference unless we have other potential export oriented domestic industries,” he said.
Dr Tandi also said if DNT gets elected, the party will make sure that the government respect the independence of the central bank and work together by initiating fiscal measures in line with monetary policies.
Currently, the country’s INR reserve stands at around 700mn from a total borrowing of INR 21bn, which is twice the total annual revenue from hydropower exports to India.
It comprises INR 6bn from the government of India (GoI) special credit facility at an interest of five percent, INR 10bn from the State Bank of India at 10 percent and INR 5bn from Punjab National Bank at a 10.5%.
The INR 5.4bn secured through the recent currency swap agreement signed last week with Reserve Bank of India (RBI) will be used to clear off the INR 5bn borrowed from the Punjab National Bank. The currency swap allows the central bank to withdraw INR 5.4bn from RBI for six months at a fixed interest rate of 6.5%, which is 4% less than borrowings from Punjab National Bank.
The currency swap is one of the short-term solutions the central bank has resorted to deal with the INR shortfall. In March last year, the central bank indirectly froze housing and transport loans to rein in the demand for INR. Despite the restrictions, INR borrowings have continued to exacerbate.
The central bank’s deputy governor Pushpa Lal Chhetri said everything have been done from the monetary side and that further solutions should come from the government’s side in the form of fiscal policies. “We shall wait for the new government to strengthen fiscal policies,” he said.
Asked if the situation can be eased shortly, Druk PNB chief NK Arora said “temporary relief on RMA will be there because of the recent currency swap among others which shall partially pay off some INR debts.” He opined that in the long term, the government has to take bolder fiscal measures to encourage maximum exports and little imports as current policies aren’t strong enough.