Let’s be bor­row ju­di­ciously

Bhutan Times - - Editorial -

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.

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