Borrowing and remittances support the CC Reserve


… as tourism revenues come to a halt

MB Subba

The country has managed to maintain the convertible currency (CC) reserve although tourism, which is one of the main sources of CC, has remained closed for the past two years.

In addition to meeting 12 months of essential imports as required by the Constitution, the CC reserve increased to USD 1.2876 billion (B) in November last year, from USD 1.107 billion in the same month of the year. previous year, according to the monthly statistical bulletin of the Royal Monetary Authority. (RMA) published for March 2022.

The inflow of hard currency through foreign direct investment (FDI), officials said, has dried up amid the pandemic. Exports were also affected due to the Covid-19 protocol.

However, with the number of Bhutanese living abroad, remittances have become a major source of hard currency in recent years.

Remittances rose to USD 111.20 million (M) in 2020 from just USD 39.88 million in 2019, according to RMA records. The country received USD 102.64 million in the first 11 months of 2021.

CC is needed to deal with budget deficits, foreign trade with third countries, and even for the purchase of Indian Rupees (INR) in case the country faces a shortage of INR. The CC is also maintained to deal with repayments of loans in hard currencies.

One of the main sources of CC has been external concessional borrowing and grants from development partners.

However, increased borrowing from the CC had led to an increase in the overall debt stock. Total outstanding CC debt rose to $922.7 million at the end of fiscal 2020-21 from $720.1 million at the end of the prior fiscal year, according to RMA.

CC debt represents 28.6% of total external debt.

Debt to GDP increased to 138.8%. Total government debt outstanding, including INR debt, at the end of FY 2020-21 was USD 3.22 billion.

However, Finance Minister Namgay Tshering said borrowing was only one component of the CC reserve and other changes in the dynamics of the economy like increased remittances also contributed to maintain the reserve.

“It is not only thanks to external borrowing that we have been able to maintain the CC reserve. We have also accelerated grant mobilization,” he said, adding that remittances had increased fivefold.

The country was closed to international tourists after detecting its first Covid case on March 5, 2020. The country received $88.63 million from international tourists in 2019.

The lack of income from international tourists, officials said, could affect the country’s ability to import goods from third countries.

However, they added that the country was able to maintain the CC reserve with previous reserves, frontloading of planned activities and reduced imports.

Frontloading of activities meant that money for projects supported by development partners could have arrived sooner than expected.

The trade deficit fell to Nu 17.529 billion in FY 2019-20 from Nu 28.338 billion in FY 2018-19 as imports decreased by 9%.

One of the reasons given for being able to maintain the CC reservation was that most of the foreign trade was with India and the revenue, which was derived from INR from India, was not seriously affected.

Officials said the foreign exchange reserve was more than enough to cover 12 months of essential imports.

Some pandemic-affected countries, including Sri Lanka, have faced CC shortages to import goods as their tourism and export revenues have dropped significantly.

In his 2021 State of the Nation Report, Prime Minister Dr Lotay Tshering said that the depreciation of hard currencies had significantly reduced Ngultrum’s value of outstanding CC debt.


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