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Has the foreign currency reserve improved?

Although the country saw an increase in total foreign currency reserve, the Opposition claims that convertible currency reserve (CC) declined by USD 200M today compared to that of 2013.

The government claimed otherwise, indicating that both rupee and CC reserve increased. This could be attributed to ambiguous data.

According to the 11th Plan final report, the total foreign currency reserve in 2013 was USD 917M, of which Rs 11.35B was INR reserve. This shot up to USD 1.24B, INR reserve being Rs 16B. While the report did not mention about the CC reserve in 2013, as of June 14, it reported the CC reserve at USD 864B.

The Prime Minister’s State of the Nation report stated that foreign exchange reserve has increased from USD 920M in 2013 to almost USD 1.2B today, of which INR reserve stood at Rs 18.6B.

The Opposition, citing a quarterly report from the National Statistical Bureau (NSB) stated that CC reserve in 2013 was USD 917M and it fell to USD 715M this year. “The only positive figure in current government’s tenure is the increase in INR reserve from Rs 11.35B to Rs 16B,” said Panbang MP, Dorji Wangdi during the last press conference with Opposition yesterday.

Even if the recent figure of USD 864M is considered, he said there is still a decline in CC reserve.

According to the Royal Monetary Authority’s (RMA) monthly statistical bulletin of the past years, it was found that INR reserve in the fiscal year 2012-13 was Rs 11.35B.

This figure is reflected in all other statements and documents. However, the CC or USD reserve in 2013 was USD 727M, leading to a total foreign reserve of USD 917M.

As of April this year, the recent figures published in RMA’s statistical bulletin, INR reserve stood at Rs 11.66B and the CC reserve stood at USD 831M, totaling to USD 1B.

 

On reserve management 

When the country was facing the rupee crises in 2012, at one time INR reserve fell to Rs 1.5B and the country had to borrow INR at higher interest rates from Indian Banks. This was according to the State of Nation Report. “Today the situation has improved but we have to be vigilant as a similar crises can be easily repeated,” it stated.

During a press conference with the cabinet on July 30, the Prime Minister said that foreign currency reserve is handled and managed by the RMA.

He, however, said that during the former government’s tenure, USD 200M was sold in one go on two occasions and it still did not cover the deficit. The government then was holding onto CC reserve until it was compelled to sell USD to replenish the INR stock.

“When I was in the Opposition, I asked the government to calculate how much of the CC should be converted to INR to finance imports from India and then you might want to convert as and when required,” Lyonchhen Tshering Tobgay said.

Sources from finance ministry said that INR stock is kept manageable today because about 30 percent of grant and loan coming in the form of USD is being sold to buy INR.

Lyonchhen said that he is not sure whether 30 percent is being converted, but converting some portion of CC into INR was the suggestion from the former Opposition. “It was not sustainable then but today it is comfortable despite spending in consumption then is not as high as today,” he said.

This is one of the many reasons, he said that rupee crisis came to a quick end. But he acknowledged that this cannot continue for long because INR is also a foreign currency that the country should earn.

This situation, he said will continue until trade balance is corrected. To do so, the country has to export more and import less from India. After the Mangdechhu comes on line, the government expects a surplus and that a situation might come when the country does not have to convert CC into INR. “As long as there is deficit, reserves has to be managed intelligently and sustainably, which the government did and this is why no pinch was felt in terms of rupee availability,” Lyonchhen said.

Opposition member and the former finance minister, Wangdi Norbu said that be it CC or INR, both are foreign currencies that should be earned. If there is a demand in INR, he said CC should be converted to INR to finance imports, as the country imports 90 percent of goods and services from India.

When the former government sold huge INR in one go, he said the connotation snowballed. The INR demand, he justified has swollen because of the sudden expansion of economic activities in hydropower and construction sector. Despite this, he said the Constitutional mandate to finance 12 months of merchandise import from the foreign reserve has been met at all times.

Selling CC, he added is the practice even today. The difference he said is that the former government sold CC in one go while the current is playing a hedging game.

While the former government has sold USD 460M to replenish the INR stock, it claims that CC reserve was USD 694M in 2008 and that despite selling USD 460M, it built a reserve of USD 917M in 2013.

Figures of how much CC the current government sold is not available in any of the documents.

Tshering Dorji

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