In a highly secretive move the Royal Monetary Authority sold USD 200 mn around two days ago in exchange for around Rs 12 bn.
The sale was made to meet Bhutan’s growing rupee loan commitments both with the RMA and the government.
A reliable source in the government said that the dollars were being sold as interest payment on rupee loans were due. He said that the money would be used to pay a part of the RMA’s short term rupee borrowings as well as the government’s rupee loan interest for hydropower and other developmental needs.
The sale of the dollars will leave the RMA with around USD 700 to 750 mn in its foreign exchange reserves. Given that the Constitution requires reserves to be enough for 12 months of imports along with other legal commitments like backing up the Bhutanese currency in circulation and as collateral for existing rupee loans, there will be little or flexibility to sell USD for a while.
This is the second time that the RMA has been forced to sell dollars as earlier in late 2011 the RMA facing a huge rupee shortage problem sold USD 200 mn to get Nu 10 bn in loans.
The timing of the USD sale this time around will work in the RMA’s favor as the rupee has reached a record high over the last one week against the dollar with one dollars equivalent to Rs 60. This is compared to a few months back when the rupee was between Rs 50 to 55 against the dollar.
The source said, “It is expected that the Reserve Bank of India will be taking measures to bring up the rupees value against the dollar and so the sale has also been timed to take advantage of the advantageous position of the dollar against the rupee.”
Currently the RMA has around Rs 22 bn in short term rupee borrowings taken from the State Bank of India and Reserve Bank of India to tide over the rupee shortage.
In addition to this the government has a national debt of around Nu 79.2 bn of which rupee loans comprise around Nu 48.6 bn.
This selling of dollars also comes at a time when the government was facing an acute cash shortage.
A source said that the excise duty normally is paid in two installments one in January and another before April but this time around it was paid only in the end of June 2013.
This combined with the Rs 4.2 bn which is yet to be received as part of the small development grants and project tied assistance had created a cash shortage in the system along with a major rupee shortage.
In fact the government to meet the cash shortfall in the system had borrowed Nu 1 bn Treasury Bill from the banks, part of which was used to fund recurrent expenditure which includes the salary of civil servants.
A source said that in the month of March, April and May the T-Bills were partly used to fund recurrent expenditure like salary of civil servants.
Finance Ministry officials, however, expect the revenue situation to improve in the coming months of July, August and September as hydropower revenue comes in.
RMA’s short term rupee borrowings for are expected to increase to Nu 38 bn in 2014-2015 according to the government’s 2012-2013 budget report.
Bhutan’s total long term debt is expected to double to Nu 152.168 bn by 2014-2015 of which the rupee loan just taken by the government would be around 111.266 bn.
In April end 2013 Bhutanese who were all entitled to USD 3,000 per year for foreign travel saw it getting slashed to USD 1,000 per year as part of RMA’s efforts to save foreign currency.
According to a draft Finance Ministry report even after the inauguration of the Punatsangchu 1 project in 2016 the short term rupee borrowings would be Rs 50 bn in 2016-2017 financial year and reach Rs 40 bn only in the next financial year.
Tenzing Lamsang / Thimphu