Top secret govt task force formulates strategy to solve rupee crisis

The task force’s still-confidential report recommends a series of monetary, tax, government expenditure and trade related measures to deal with the rupee crisis. 

Many of the steps being taken by the government and the central bank like restricting imports or tightening credit to address the rupee crisis are part of the larger recommendations made in the task force report on the rupee shortage.

The still secret report rupee titled ‘Balance of Payments with India and the Rupee Shortage’ has recommended a series of monetary, tax, government expenditure and trade related measures to deal with the rupee crisis.

The report has become a Bible of sorts for the government in tackling the rupee crisis as some of the recommendations are already being implemented while there are many others which the government may implement in the medium or long term.

The rupee task force comprises members from the Royal Monetary Authority, Ministry of Finance (MoF), Ministry of Economic Affairs, National Statistics Bureau and other relevant agencies supported by staff from the Policy and Planning Division (PPD) of the MoF. This task force was formed on 12th January 2012 and submitted its report on 5th March 2012.



Many of the monetary measures recommended by the report are already being implemented or are in the process of being implemented.

However, some measures that have not yet been made public are also listed. One is that the RMA in collaboration with the MoF and related stakeholders will submit a convertible currency and Rupee reserve management plan to the Government.

The RMA will also review the annual government budget size and provide its opinion to the MoF.

In what could be an important recommendation that can also curb fronting, the RMA, Department of Trade, and Department of Revenue and Customs are to track large rupee flows of industries. This is because export revenue of some big industries has been less than the imports in some years. An earlier 2007 rupee shortage investigation had attributed this to possible fronting whereby rupee was flowing to the actual Indian owners.

The report recommends raising that Cash Reserve Ratio (CRR) or the 10% that a bank has to keep with RMA, and the Statutory Liquidity Ration (SLR) which is the 17% cash on any deposit that has to be kept in the bank and cannot be lent out. The RMA earlier had reduced the CRR from 17% to 10% to help banks to meet their commitments. If the CRR and SLR are raised, credit will be further tightened. The report however acknowledges that CRR and SLR rates in Bhutan are the highest in the SAARC region and past measures have not been adequate.

It has also recommended that RMA have a base rate which means that it come up with a minimum rate below which it will not be viable for financial institutions to lend.

The report says that electronic means of payment are to be encouraged by placing ATMs and credit card machines in retail and commercial outlets to facilitate spending by visitors.

The report recommends ‘ring-fencing’ adequate rupee reserve for rupee debt service like paying hydropower loans. Ring fencing means restricting rupee to only a specific purpose. This is to avoid situations like in January, 2012 when there was no rupee available to pay the Nu 2.8bn loans for Tala and Kurichu.

Apart from the above new measures, the report recommends measures that are already being implemented like enhancement of GoI credit line from 3bn to 6bn, rupee currency swap arrangement with India, discouraging credit to non-productive and exposed sectors like transport loans, streamlining access to rupees, treating rupee as an essential reserve currency and closing bank accounts of Indians.



The report says that though government expenditure has not directly contributed to the rupee shortage except through the multiplier effect, fiscal measures can influence consumption spending.

The Department of Revenue and Customs is recommended to identify and propose new taxes and rationalize existing tax rates including items which are currently not taxed. The DRC has also been asked to look at Capital Gains Tax or tax on the profit gained from selling assets like land, building, cars and so on.

The MoF is to consider shifting the levy of sales tax on vehicles from the point of entry to the point of sale.

The report also recommends a 40% green tax on all imported vehicles, a five percent green tax on vehicle fuel, and taxes on heavy earth-moving equipment.


Government Expenditure 

As an immediate measure, the report recommends that no consideration should be given for salary hikes, enhancement of allowances and service benefits.

It is proposed that the government in collaboration with GoI revise the debt service schedule for GoI loans for hydropower development as most of the loan repayments for Tala and Kurichu falls due in January every year. The MoF has already requested the GoI to revise the existing repayment schedule on a semi-annual or quarterly basis. It is recommended to include such debt servicing schedules in all the future loan agreements on hydropower.

The report proposes that the government review implementation of the ongoing 2011/12 financial year’s budget. The MoF has received budget implementation status of agencies with some agencies indicating their inability to spend and others asking for additional funds. The report says that government agencies should be asked not to initiate new works.

The report also says that greater care should be taken so that non-priority activities including those that have no socio-economic benefits are eliminated in the upcoming 2012-13 budget, especially those activities that will spill over to the 11th FYP.

The report says that for current expenditures, government agencies should maintain 2011-12 levels or reduce their budget in utilities, supplies, operating expenses, advertisement and entertainment. On capital expenditure, no budget is to be allowed for furniture, office equipment, or vehicles irrespective of source of funding.

It is recommended that external borrowings should be strictly for purposes for which there are no grants forthcoming and that these loans shall not be used for training and study visits and purchase of vehicles among others.

The MoF is to issue directives to all government corporations not to hold board/management meetings outside Bhutan and not sponsor sporting events out of corporate funds.

The medium term measure proposed is that the government should maintain a fiscal deficit of 3% of GDP for each plan period. Currently, the policy has been to limit the deficit to an average of five percent of GDP over the 10th plan period.

Another medium term measure is exploring the possibility of issuing Rupee bonds for mega projects in infrastructure development and hydropower that are not financed by GoI under the present arrangements.

The report say that while program grant release is quite regular, project-tied grants and Small Development Project funds are not at all predictable. This is affecting the projects and also local governments. MoF and GNHC are to propose a time schedule for the GoI.

It is also recommended that Bhutan should strengthen its debt management capacity as Bhutan’s debt is projected to be 100% of its GDP in the next few years. The report says that Bhutan should continue to go for low interest loans that give maximum social and economic returns.



Under immediate measures the report says that convertible currency for third country imports paid by retailers is largely met by Indian traders based in China in exchange for rupee. The report recommends that there is a need to review third country import licensing procedures to ensure use of foreign exchange for imports.

Realistic projection of balance of trade particularly with India at the beginning of every financial year by the Department of Trade in coordination with other relevant agencies is also recommended.

The report says that software exports should not be allowed as software export is just documentation to show exports of non-existent software and use the proceeds to import raw materials from third countries duty free. This has already been implemented.

The medium term trade strategy is to build domestic productive capacity to enable more exports.

Here it is recommended that all industries must meet the national value addition criteria of 40%. Further, industries should  plan for movement in the value chain. For e.g. Industries based on intermediate products are required to graduate to finished products within a specified time frame.

The report recommends that distribution of goods is streamlined and organized so that Bhutanese traders deal directly with principal companies in India or with the main national and regional wholesale dealers instead of sub-dealers from India.

It is also recommended that Tourism Council of Bhutan and travel agents should focus on getting higher end Indian tourists by focusing on marketing efforts in metropolitan cities in India.

Under long term trade solutions, the report recommends use of local building materials to substitute imported ones. Promotion of sustainable and efficient use of forest resources is also recommended so that forest resources can be used to develop furniture, timber, charcoal and other forest products.

The report also proposes that import substitution must be encouraged by liberalizing policies for manufacturing industries. Currently they face restrictions like environmental laws.

It is recommended that the Ministry of Agriculture and Forests and other stakeholders build simple cold storage based on air cooling systems at high passes to store agricultural goods during the off-season. Farmers can use these products to secure loans from financial institutions.

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  1. Most ridiculous task force formed,,,,, haha,,,,, sounds like CIA…. go on,,, this task force will conduct meetings in taj hotel, thimphu,, claims sitting fee,,, study tour….. another hole in govt’s budget.

  2. Bhutan is becoming more like living in USA, Singapore or in Japan. Present Govt. totally failed to take a proper measure of these problems. they failed their duties and they have failed to keep their own words. they have failed to bring GNH at home. I feel the pinch and sad to feel it. Why they didnt implement these long ago?? Y? Y? didnt they know it? now all the measures are taking adhoce. Things must move step by step..remember there is no short way for success….jada

  3. “though government expenditure has not directly contributed to the rupee shortage except through the multiplier effect, fiscal measures can influence consumption spending”……

    How can this statement be true? These authors have not read the BCCI report which indicated that the govt spending was the driving force behind Rs crunch. We are not foolish to take the bullshits.

  4. “The DRC has also been asked to look at Capital Gains Tax or tax on the profit gained from selling assets like land, building, cars and so on”….

    wow …what a grand plan to brutalize the middle income and low income groups. Already our income has been squeezed to the limit that we are unable to buy basic stuff. Now they want to torture us more. On what basis, such recommendation could be made.
    First of all, they will ban the import of cars from india. That is good enough to stop middle income and low income groups to forego first-hand cars. Now they want to impose hefty tax on selling second hand cars. That is a double dagger for families who have waited so long to buy a car and take a ride to village to meet their parents and grand parents.
    Let me propose something better. Tax those people who already owns 10s of cars and bulldozers. They make so much income and evade most of the income tax. They have many buildings who pays only minimum amount of property tax. Increase those taxes. That is fair.

  5. Stop or minimise buying Land cruisers and Proados for all ranks of people in the country (common people to the highest). Calcualte the cost and its implications instead of just confining to import of vegetables and other basic requirement. We need to reduce the comforts of those who are riding the land cruisers and prados at the expense of the innocent citizens. The dollars have direct linkage with the INR, so pl reduce buying the land cruisers and other expensive cars, with this money government could start paying unemployment allowaces to the educated youth and adult; share this resources to the more need ypeople; share this more by investing in improving the public toilet in Thimphu and for its daily maintenance, hourly maintenance. We observe some section of people at the top and a few of them are taking large chunk of the resources for Land cruisers and other expenditures for luxury thereby depriving the need of the common people. We need to think comforts of larger society instead of a few enjoying at the expense of national exchequer or coffers meant for the citizens of Bhutan. MOF need to look into the matter in totality, pl open your eyes and and do something for the cause of the nation not for a few people.

    We need to take care of the educated youth, as a society we are all responsible and cannot blame them. We see very serious problems associated with youth, words alone will not solve, we need multifaceted pproposal including the unemployment allowance. When we could afford to ride in Landcruisers and Prados whats problem in supporting our educated youth and adult in providing unemployment allowance.

    Our Minister of MOLHR has failed as a Minister to bring any subtantial contribution for the benifit of the youth in the country. We thought as the Minister for Labour and employment, he would propose some kind of innovative ways to ease the problems of youth. It is the responsibility of MOLHR to provide gainful employment and as the country modernizes and advances, all cannot be given job but alternatively think of sustaining these educated youth through unemployment allowances. We are not inventing a great thing through introduction of this unemployment allowance, it exist in many of the nations. We can already see the unemployment problems and need to compensate them insteadd of selfishly buying costly vehicles and othe expensive things thereby creating a huge gap between the common people and the rich. Unemployed educated youth and its related problems is a serious social problem, we need to look into it positively. Just a mere proposal may no longer work, we need concrte proposal one such as unemployment allowance for the educated youth as well as those unemployed adults. The task force need to look into the serious problems of unemployment and educated youth. Finally lets learn how to share the resources with the needy people which is already explained above. (1) invest on public toilet and its maintenance, (2) cut expenses on landcruiser and prados (ordinary people to the highest) and divert the amount to unemployment allowance for educated youth and the adult (3) People to minimise expenditure on luxury goods.

  6. the task force should do the job and not claim fees beyond what the gov can pay. also they should stay with friends and low budget hotel in range of 300-500 Nu only and not starred ones. one thing very ridiculous about the gov is that they want all vegetable items home grown and exploit the customers with very high prices. without increase in income of buyers, it is nonsense to say we have to buy from our local suppliers. we all need money and the low or middle income guys are hard pressed already when the big wigs get away and enjoy as ever before.

  7. They didnot mention about the 9 million dollars (450 milion Nu) consultancy fees for the McKenzie which costed more than the one year vegetables import. Vegetables were consumed by our people. McKenzie’s investment was not needed at all. It was the most wasteful expenditure of this governement. After paying 9 million dollars to draft a report for us, we are not even getting access to read this report. i dont know why the govt is hiding from people who elected them. Now they want to save money by stopping vegetables, which is the source of basic survoval of human beings. Is not that rediculous?

  8. Well,
     Somebody brought the topic of McKenzie project cost us 9.1 million dollars (432 million nu. to be precise). We all know how the researches were done n who were the researchers( I mean how scientific). My personal feeling was and is we have  and had enough experts in our own country then why? why? pay millions to somebody from outside when same work could have been done in few millions.
    We the 3rd world nation have this notion of west is best…. are we all sure they are the best? when at a closer look they are all studying the models made in east.
    We don’t mind paying experts from outside but it pinches us to pay to experts of our own. examples.. say MOH, Doctors from Myanmar i heard they get over 75000/mth, and our doctors not even 1/3rd of that amount. then in MoA similarly no different story. then MOF, tis’ same. We can have 100s here.
    i wonder sometimes, are we so crazy about the west.? or we are just trying to discourage our own home grown experts who understand the ground reality of own people their finance, culture, living standard etc etc…
    As far as i know n to my knowledge McKenzie didn’t fo anything new other than taking our millions with them.

  9. This government is tranquilizing the country with heavy dose. The present way of handling the rupee crises showed some totalitarianism behavior. Everything is happening under great secrecy. Something is getting deathly wrong. Watch out citizens.

  10. It is easy to point fingers and blame. It surely does sound like a CIA because the title of the story as the reporter presents itself is “Secret”. Many things that civil service does it self is secret. Why does anyone has to invite media and talk about every move made? I, as a concerned citizen, think some of the suggestions like big cars sounds constructive to me but rest who simply blame will only bring down the country. May be you should know that accepting the reality and making positive move ahead is the only option for all of us than blaming and doing nothing yourself. 

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