Bhutan is yet to come out of its Indian Rupee reserve crisis

SILIGURI: Despite many restrictions imposed by Bhutan in utilization of Indian currency and extended helping hands of India, Bhutan’s Rupee reserve crisis following current account deficit is yet to get into a definite positive situation. As a result, a subtle restriction on import of Indian goods may continue even further.

According to the Royal Monitory Authority figures, by the end of last calendar year, Bhutan’s total foreign currency reserve touched a level equivalent to INR 57 Billion. “It is a great relief in after our severe shortage of INR. But it is still far from a comfortable situation,” said a senior official from Royal Monitory Authority( RMA), the highest financial authority of the country.

Despite having apparently different floating value, Bhutan currency Ngultrum (Nu) is officially pegged at-per with Indian Rupee. At the same time, India is the largest trade partner of Bhutan. Eventually, maintaining as high as possible reserve of INR is always a priority for Bhutan finance department. Indian currency is an official tender inside Bhutan territory.

Severe depletion of INR reserve took place in Bhutan in recent past, mainly due to excessive import of consumer goods from India- as reported.

According to RMA of Bhutan, balance of trade in Bhutan averaged 678.17 Million Nu from 1991 until 2012, reaching an all time high of 18281 Million Nu in 2004 and a record low of -23985.10 Million Nu in 2012.

In order to ease out the situation, borrowings of INR 10 Billion against soft 5% interest under the Government of India credit line facility, borrowings from the Indian commercial banks and borrowing of INR 5 billion under the swap arrangement with the Reserve Bank of India were worked out.

But more importantly, the country imposed several restriction in outflow of INR. It has brought import of vehicle or luxury goods from India under tight control or even restricted disbursement of INR from ATMs.

Despite all these, the current account deficit is not expected to get smooth soon as imports continue to grow at a faster pace than exports. In spite of slightly higher levels of budgetary grants as compared to the past, the current account deficit is expected to increase steadily in the medium term reaching 29.7% of GDP by 2014/15- states Monitory Statement of RMA.