…to save declining foreign reserves
The government could continue prohibiting import of non-essential items in the wake of dwindling foreign currency reserves.
Prime Minister Dr Lotay Tshering during a meeting with the private sector on May 26 said that phase-II moratorium on the import of non-essential items could come anytime.
Lyonchhen said that the Royal Monetary Authority (RMA) had written to the finance ministry, warning that the reserves are touching the threshold for the normal period. The RMA alerts the government, three months in advance, if the projected reserve position is expected to hit the Constitutional requirement.
The government revised the essential import value of USD 668 million earlier this year to USD 603 million for the normal period and USD 464 million under the critical period.
The Constitution mandates a requirement of at least USD 464 million to maintain foreign currency reserves to cover at least 12 months of essential imports.
Upon the formal communication of the RMA, Lyonchhen said that the finance ministry will forecast the reserve position for the next three months, and if the reserve position is expected to see no improvement and touch the critical period’s value, the phase-II moratorium will be implemented. Restrictions of import of non-essentials are already in place.
“The second list of import restrictions could come anytime, maybe next week or next month,” Lyonchhen added.
The phase II moratorium proposes to suspend construction loans and put a ban on the import of furniture, processed meat and food items, junk foods, alcohol, and LED television.
Lyonchhen said that once the loans are disbursed in the economy, it invites more imports. “Imports are in USD and INR and we do not have enough foreign currency.”
Figures from the ministry show that the country’s import bill rose by about 32 percent to Nu 118.79 billion in 2022 compared to the previous year.
Lyonchhen also said that the RMA’s two percent cash incentives upon converting the remitted amount into Ngultrum were to clearly offset the informal market.
However, the remittance received from the formal channel has been seeing a decline. Figures from RMA show that Bhutan received Nu 6.38 billion last year, a decrease of Nu 1.68 billion compared to the previous year.
“The incentives could be increased from two percent to 10 percent,” Lyonchhen said.
Going by the huge surge in import figures of some commodities, he said that there is an indication of deflection of goods and the government is working on it. To conserve foreign currency reserves, the government banned the import of all vehicles except utility vehicles, heavy earth-moving machines, and agriculture machinery from August last year which was further extended until August this year.
Although the latest figures were not available, the foreign currency reserve that amounted to USD 736 million in August 2021 improved to USD 766.8 million, equivalent to 13.8 months of essential imports as of December last year.
