Bhutan hikes incentives on remittances to shore up FX reserves

Bhutan is constitutionally mandated to maintain reserves to cover at least 12 months of imports. The tiny country of less than 800,000 people had increased cash bonuses to residents receiving remittances to 2% in May last year from 1% earlier, but critics say the move has not helped boost foreign exchange reserves as desired.

Bhutan's central bank said it would increase incentives for inward fund remittances to shore up its foreign exchange reserves, which some analysts said had fallen to "serious" low levels. Gross international reserves of Bhutan, nestled between China and India, fell to $833 million last June, from $1.332 billion a year earlier, according to a report of the Royal Monetary Authority (RMA), the country’s central bank, enough to cover imports for about 15 months.

The central bank will release more recent data after the end of this month. "It is definitely a serious situation," said Sanjeev Mehta, a professor of economics at the Royal Thimphu College in the Bhutanese capital.

"The expanding trade deficit, reduced revenue from tourism and remittances, and a significant reduction in FDI inflows have contributed to this crisis," Mehta told Reuters in a text message. Bhutan is constitutionally mandated to maintain reserves to cover at least 12 months of imports.

The tiny country of less than 800,000 people had increased cash bonuses to residents receiving remittances to 2% in May last year from 1% earlier, but critics say the move has not helped boost foreign exchange reserves as desired. The incentive has now been revamped and enhanced to 10% in “recognition of the significant contributions of the incentive scheme in boosting the remittance inflow and the foreign currency reserves,” RMA said in a statement late on Wednesday.

Bhutanese nationals living and working abroad will benefit from the scheme which will remain in force until the end of the year. RMA said that remittances received for the purpose of foreign direct investments, donations, and trade, including for non-governmental organizations, civil society organizations and companies will not be entitled to the incentives.

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