In a concerning revelation, according to The Kuensel, Bhutan’s foreign currency reserve has dwindled to USD 464.66 million as of October, perilously close to breaching the Constitutional threshold of USD 464 million, warns the Royal Monetary Authority. This reserve, which is intended to cover 12.02 months of essential imports, has seen a drastic 25% decline from January’s figure of USD 625 million.
The Constitutional mandate stipulates a minimum foreign currency reserve adequate to sustain no less than one year’s essential imports. Though there is currently no contemplation of a moratorium, the Finance Ministry is keeping a watchful eye on the situation.
October alone witnessed a decline of USD 2.39 million in the reserve, underscoring the vulnerability faced by Bhutan’s economy. Limited revenue streams from exports, tourism, remittances, and commercial borrowings pose a risk that the reserve may breach the Constitutional threshold in the coming months.
The country’s total foreign exchange reserve, as of October, stands at USD 505.6 million. This comprises USD 464.66 million in foreign currency reserve, USD 34.19 million in special drawing right (SDR) holdings, and USD 6.75 million as a reserve tranche position in the International Monetary Fund (IMF).
Given Bhutan’s import-dependent status, the alarming trade figures further compound the fiscal challenges. The import value, recorded at Nu 85.69 billion (USD 1.04 billion) against exports of Nu 41.48 billion (USD 503.53 million) as of September, leaves a staggering gap of USD 536.7 million to finance the country’s imports.
The urgency of shoring up the foreign currency reserve is not lost on the impending government, with both political parties, Bhutan Tendrel Party (BTP) and People’s Democratic Party (PDP), addressing this critical issue in their election pledges.
BTP outlines a comprehensive strategy focusing on tourism promotion, export enhancement, import substitution, and attracting investment inflows. The party aims to secure a minimum Foreign Direct Investment (FDI) of USD 1 billion by 2029.
On the other hand, PDP commits to increasing FDI inflow from Nu 43 billion to Nu 500 billion in the next five years. Their strategy involves establishing special economic zones, export processing zones, and even introducing casinos in southern border towns. Additionally, the party plans to encourage Bhutanese entrepreneurs to invest abroad and create special mechanisms to attract investments from Bhutanese residing overseas.
Observers note that Bhutan’s reserves threshold is relatively high compared to global standards, where most countries maintain reserves covering only three to six months of imports. The incoming government faces a daunting task in navigating these fiscal challenges and safeguarding Bhutan’s economic stability. As the general elections loom, the people anxiously await the decisions and actions that will shape the nation’s financial future.