Bhutan's rupee reserves likely to drop

Thimpu, June 25 (IANS) Bhutan's Indian rupee reserves, which improved marginally to about Rs.10 billion in May, will most likely decline, with the government here deciding to lift import ban on vehicles from July.

This would further amplify the current account deficit in the Himalayan nation, which stands at about 24 billion ngultrum - its national currency. The ngultrum is equal in value to the rupee, and both currencies are used in Bhutan.

An economy is said to be running a current account deficit, if its total consumption, imports, investment and government spending is more than it produces.

"Lifting the import ban would certainly burden the foreign currency reserve, including the INR (Indian rupee)," Bhutan's Finance Minister Namgay Dorji was quoted as saying by the national newspaper Kuensel Wednesday.

Besides the current account deficit, the government owes Rs.10 billion borrowed from government of India as line of credit. This repayment, Lyonpo Namgay Dorji said, was due since March this year.

"Upon request, the government of India agreed to defer it by a year," he said.

The tax revision, he said, would control the rate at which the rupee reserve is shed away.

"Another option is to keep the ban as it is, but it leaves no alternatives, for instance, for people wishing to buy new cars," he said. "The existing ban has annoyed people."

Raising the tax, he said, was fair enough.

The budget report projects that current account deficit with India would be exacerbated to about 28 percent of gross domestic product (GDP), mainly for imports pertaining to hydropower construction. This would, the report states, aggravate the rupee shortage.

With developing partners phasing out corresponding with the peak period of hydropower construction, the report states, the current account deficit will deteriorate.

Meanwhile, Bhutan's total convertible currency reserved stand at $895 million, broadly adequate to cover 26 months of essential imports.