The Bhutanese Leading the way.
Main strategy to build reserves is through external borrowing
The Prime Minister Dasho (Dr) Lotay Tshering said that as per the government’s calculation a Convertible Currency reserve of USD 668 mn is enough for 12 months of essential imports and currently the reserves are at USD 850 mn plus.
“We are still on a positive note. In general, the reserves are still depleting but the rate of depletion is going down and we are keeping a tab on a daily basis.”
The PM said that if the reserves go down sharply and is not replaced enough then there will have to be some more import moratoriums.
Lyonchhen explained that the vehicle import moratorium is saving around Nu 5 bn a year and at the next level if the reserves go down alarmingly then there can be an import moratorium on non essential items like foods and clothes which are not essentials and that can save another Nu 2 to Nu 2.2 bn a year.
The PM said the country has just come out of a pandemic with restrictions being relaxed and so the economy is picking up but it should not result in draining the reserves.
“Right now we are worried and concerned and we need not be alarmed and we also cannot become complacent,” emphasized the PM.
In terms of replenishing the reserves the PM said that the main strategy being adopted by the government is to go for borrowings from international Financial Institutions and also bilateral partners.
He said whether it is international banks or countries they have a formula whereby Bhutan is eligible to a certain amount of borrowing.
He said Bhutan is in talks with them to see if this borrowing limit can be increased.
He said the second avenue is for grants but the grants are already committed and on the way and so there is not much additional scope there.
Lyonchhen said that a third area would be trade and there the balance of trade is important. He said that on a positive note tourism is picking up and that will help with the reserves.
Outlining the main challenge, the PM said that even in normal ties there is a trade deficit and so Bhutan’s import dependent economy drains out reserves.
He said that up to 35 to 40 percent of the GDP is supported by public expenditure and so it is important for the government to inject capital but this results in more imports.
Lyonchhen said it was hoped that the import moratorium on vehicles would also impact fuel imports, but there was not much impact as the main fuel guzzlers are the big diesel vehicles whose import cannot be banned as it would impact the economy.
