With the two commercial banks and the Royal Monetary Authority holding more than Nu 2.54 billion rupees (as of October 19), the availability of the Indian rupee (INR) within the country should not be a problem, say central bank officials.
The central bank is also due to issue a circular to commercial banks to cap INR exchange in cash at Rs 40,000. Anything beyond Rs 40,000 is to be made in negotiable instruments such as demand drafts. This is to further ensure that there is no INR crunch as was felt earlier this year.
According to RMA officials, the rupee flows in the Bhutanese economy have demonstrated a cyclical pattern that revolves around mega projects. At the commissioning of mega projects, the economy experiences a rupee surplus. When such projects, like Chukha and Tala, wind up, the economy faces a shortage.
For example, the shortage of the rupee experienced this year was attributed to the completion of the 1020 MW Tala project.
“This is because rupee inflows to Bhutan are largely driven by grant/aid from the government of India,� according to a paper presented by the RMA during its annual meeting with the financial institutions earlier this month.
According to the report, up to 2005-06 the total rupee inflow matched outflow. However, in 2006-07, rupee inflows from the government of India decreased significantly, although sale proceeds from exports of hydropower to India increased. The overall rupee balance hit a negative of Rs 168 million in July this year.
With one of its mandates being to ensure that the INR is available, RMA resorted to overdrafts and sold US$ 25 million to address the shortage at different times through the year.
As an import-driven economy, bankers and economists said that the demand for the INR goes hand in hand with growing imports, most of which are from India, Bhutan’s largest trading partner. Fuel imports, which top the import list from India, have continued to grow; it was more than Nu 2 billion in 2006, with the rising import of passenger cars.
The construction boom in the capital, fueled by loans, has also contributed to increasing imports, which have to done in INR, say economists.
But a look at Bhutan’s trade statistics for the year 2006 with India indicates a trade surplus of around Nu 1.4 billion. “This indicates that our rupee supply should be comfortable,� said an official with the National Statistical Bureau. “A shortage means that the money is leaking out and this happens when business units are fronting. All the profits are not flowing back to Bhutan.�
Earlier this year a special team from the government spent time in Phuentsholing to investigate a number of industries and have prepared a confidential report. According to one estimate the shortfall runs into several billion rupees.
Source: Kuenselonline
