Bhutan, known for its stunning landscapes and unique culture, has long struggled with the challenge of keeping its economy buoyant. One significant lifeline has been remittances from Non Resident Bhutanese (NRB) working abroad, but a recent drop in these inflows prompted a bold response from the Royal Monetary Authority (RMA) and local banks. The introduction of a 10% incentive has sparked a remarkable uptick in remittances, offering a glimmer of hope for the country’s economic stability.
NRBs have faced a predicament—earning decent wages overseas while grappling with meager term deposit rates in foreign banks. In a bid to entice higher remittances, the RMA and banks have unveiled a strategy to offer attractive term deposits denominated in foreign currencies. The accrued interest, higher than what foreign banks provide, will bolster the appeal of these deposits.
Currently, NRBs can maintain Foreign Currency accounts in Bhutan, but the returns are minimal. To address this, the authorities are committed to not only enhancing remittance inflows but also diversifying investment options. NRBs will be granted easier access to Bhutan’s stock market, a step forward from the current practice of broker-assisted stock purchases. Plans are also in motion to streamline NRBs’ access to Ngultrum loans.
These initiatives are set to debut through the revamped REMIT Bhutan website, a testament to the nation’s proactive approach to embracing technology for financial empowerment.
The centerpiece of this strategy, the 10% incentive introduced in June 2023, has yielded remarkable results. Prior to its implementation, the remittance total from June 1 to June 13 was a modest USD 2.36 million. However, once the incentive took effect, remittances skyrocketed to USD 6.26 million for the latter half of June, culminating in a significant remittance influx of USD 8.62 million for the entire month. July continued the upward trend with USD 8.13 million in remittances. This impressive turnaround underscores the tangible impact of targeted incentives on economic behavior.
An RMA official highlighted the dramatic shift, noting that the month-to-month increase in remittances before and after the incentive hovered around 80%. The urgency for this boost became evident as Bhutan faced a potential steep decline in remittances throughout 2023, which could have strained its foreign exchange reserves.
In recent years, Bhutan’s remittance journey witnessed fluctuations. A peak of USD 111.20 million in 2020 marked a high point, followed by USD 108.74 million in 2021, and a dip to USD 82.58 million in 2022. Faced with a concerning decline in remittances during 2023, the RMA’s inventive approach has offered respite.
With its foreign exchange reserves below desired thresholds, Bhutan has navigated challenging terrain. To this end, the incentivized surge in remittances bodes well, with the reserves sitting at USD 549.08 million as of May 2023. The subsequent remittance uptick is anticipated to maintain this upward trajectory, contributing to the nation’s economic stability.
As RMA officials point out, the incentive also promotes responsible financial behavior. Formal remittance channels are witnessing increased utilization, and the associated charges for transferring funds have become nominal, enhancing the appeal of sending money through legitimate avenues. Moreover, the reduction in banks’ demand for foreign currency from the RMA showcases a healthier balance.
However, some concerns have been raised regarding the potential devaluation of the Ngultrum due to the generous 10% incentive. RMA officials reassure that the incentive merely aims to encourage remittances and does not interfere with the official exchange rates.
Bhutan’s proactive measures underline its commitment to nurturing its economic well-being through innovative strategies. With remittances taking center stage as a catalyst for change, the nation is showcasing its resilience and determination to chart a prosperous future in a rapidly evolving financial landscape.