Let’s be borrow judiciously
The central bank of Bhutan, the Royal Monetary Authority (RMA) issued a circular last Monday that it will lift restrictions on housing and vehicle loans from 1st of next month. The policy of ban was put in place in March 2012 due to severe macroeconomic imbalances in the country faced during that time.
The central bank’s board during the 98th meeting approved the reintroduction of housing and vehicle loan after an extensive process of planning, preparation and consultations. The central bank has come out with intensive guidelines to the commercial banks in order to mitigate the amount of risks involved in these sectors. The lenders and the borrowers have been advised to borrow and lend responsibly.
The ban was put in place when the country went through a severe deficit in current expenditure and out flow of rupees. The current account balance shows a deficit of 25 percent of GDP in the fiscal year 2012-13, as compared to 23 percent in fiscal year 2011-12. The current balance deficit with India during the fiscal year 2012-13 is about 27 percent of GDP as against 18 percent during the previous fiscal year of 2011-12. The external debt in percent of GDP has risen to 102.40 in fiscal year 2012-13 from 91.6 in 2011-12.
With increase in the hydropower grants from Rs1.3B in the previous fiscal year to Rs 9.8B there was also a concomitant in- crease in the Indian rupee flow. The flow of INR has definitely increased giving comfort to the current balance deficit.
One of the key findings on the report on balance of payments with India and the rupee shortage was the lack of diversification and inability of the economy to generate adequate resources to meet rising demand with subsequent overdependence on the external sector. The impact of the government expenditure on the large projects, private consumption and rapid credit expansion were some of the key factors identified as the reasons for the external sector imbalances.
Ngultrum is pegged with the Indian Rupee and while safeguarding the close bilateral relation is inevitable, we don’t required under the law to continue the practice of free and unlimited convertibility between the Ngultrum and the Indian Rupee. However with such a crises looming in our economy we must remember that Indian Rupee is a foreign currency that needs to be earned.
With the re- introduction of the housing loans and vehicle loans all the financial institutions and the prospective customers might be already planning but as a responsible citizens spent as we earn. It will not only benefit us and the economy but our future generation. We cannot afford conspicuous consumption with 12% of our population still living below the poverty line.