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Banks to offer foreign currency fixed deposits at better rates
One of the disadvantages faced by Non Resident Bhutanese (NRB) working abroad is that while they can earn good money, the banks there offer very low term deposit rates.
Now, in a bid to increase the flow of remittance to Bhutan the Royal Monetary Authority (RMA) and the Banks plan to offer term or fixed deposits for foreign currency.
The interest will be earned in that foreign currency and the interest rate will be higher than what the foreign banks in those respective countries offer.
Currently NRB can maintain Foreign Currency accounts in Bhutan but these offer very minimal interest rates.
Another investment incentive that will be offered to NRB is to make it easier for them to buy stocks in the stock market in Bhutan. Currently they have to call brokers in Bhutan and place orders but the stock exchange is working to allow NRB to buy the stocks online.
The RMA and banks are also working on making it easier for NRB to access Ngultrum loans in Bhutan.
In fact, the entire REMIT Bhutan website is being re-launched soon with the above schemes on offer.
In the meantime, the 10 % incentive offered for remittances from 14 June 2023 onwards has resulted in a significant increase in remittances.
For example, the remittance in May 2023 was USD 4.71 million (mn). Then from June 1 to June 13 it was USD 2.36 mn before the incentive and after the incentive from June 14 to 30 it jumped to USD 6.26 mn which means a total remittance of USD 8.62 mn in June followed by USD 8.13 mn in July.
A RMA official said the month to month jump of remittance before and after the incentive is around 80 percent.
The 10 % incentive came after a sharp drop in remittances was observed from January 2023 to early June 2023 compared to 2022, 2021 and 2020.
Bhutan achieved its highest ever remittance in 2020 at USD 111.20 mn or Nu 8.269 billion (bn). In 2021 it was USD 108.74 mn or Nu 8.062 bn and in 2022 it dropped to USD 82.58 mn or Nu 6.384 bn.
The remittance was on its way to a much sharper drop in 2023 without the incentive. From January to 13 June 2023 the total remittance was only a measly USD 28.26 mn. This means that the remittance would have probably been around USD 60 mn by the end of 2023 a situation that the country could ill afford given the lower foreign exchange reserves.
As per May 2023 the total reserves were only USD 549.08 mn which is below the USD 603 mn threshold to cover 12 months of essential imports during a normal period and just above the USD 464 mn designed for a critical period.
The incentive pushed up the remittance and so as of 31st July the total remittance is USD 42.66 mn with a high figure also expected for August and the coming months.
As a comparison in 2018 the remittance was USD 44. 54 mn or 3.032 bn and in 2019 it was USD 39.88 mn or Nu 2.901 bn.
A RMA official said the 10 % incentive came up based on research. It was found that remittance went up when the exchange rates were favorable and the informal exchange rate for foreign currency went up as high as 8 to even 10 %.
The RMA is not only seeing in increase in the remittance but it is also seeing the conversion of foreign currency accounts into Ngultrums which reduces the liability on the reserve.
Banks demand for foreign currency from the RMA has also declined by 58% and when they reach a certain level they give the excess amount to the RMA.
The RMA official said that a matter of satisfaction for them is that the incentive is being enjoyed by people across 20 Dzongkhags including people living in remote areas as they receive money from abroad.
One more advantage of the incentive is that people are getting used to to send money through formal channels.
The RMA official said the money sending charges are very minimal now with BoB’s BoB it and T-Bank’s T Pay charging only AUD 6 for every AUD 18,000 sent. People can also use BNB.
In the case of the middle east and USA the more popular route is using BNB’s Money gram and Giro in Europe.
T-Bank has Amman exchange in the middle east and Prabhu in the USA.
Bhutan Post uses Western Union in the Middle East and USA but it is more expensive.
One criticism of the 10 % incentive is that it is too high and indirectly devalues the Ngultrum. Here the RMA official said it is only an incentive and if one wants to send payment abroad the banks still offer the official exchange rate.
