The vehicle dealers are directly affected by the moratorium but they stand in solidarity with MoF announcement
In the midst of depleting national foreign reserve funds the finance ministry announced the moratorium on the import of vehicles on August 18, 2022. In accordance to the Article: 14. Section 7 of the Constitution of the Kingdom of Bhutan which states that a minimum foreign currency reserve that is adequate to meet the cost of not less than one year’s essential import must be maintained. The moratorium is implemented to ensure adequate foreign currency reserves for maintaining macroeconomic stability.
The import of vehicles has been a single major item based factor attributing to the depletion of the reserve funds. Bhutan imported more than 8,000 vehicles between June 2021 and June 2022. With the increase in vehicle imports, Bhutan also has seen rising fuel imports and spends INR 9B-10B on fuel imports. Fuel import makes almost one-fifth of total imports
Bhutan’s foreign currency reserve currently stands at USD 845 million, which is inclusive of combined US Dollar and Indian rupee. The latest report with the RMA shows that the foreign exchange reserve fell by 30 per cent making it USD 970.4 Million (M) towards the end of December 1.46 Billion (B) in April 2021. It is estimated that USD 970.4 M would be adequate to meet more than 14 months of essential imports. Spike in imports widened Bhutan’s trade deficit from Nu 13.8 billion (B) in the first three months of this year to Nu 27.3B as of June this year.
The finance ministry stated that to uphold the Constitutional provision and most importantly to address the macroeconomic imbalances that the world is going through, as an initiative towards protecting country’s foreign currency reserve, the import of vehicles is suspended with immediate effect until further notice. However, the moratorium is not applicable to utility vehicles, heavy earthmoving machines and agricultural machinery and only utility vehicles costing less than Nu 1.5M or USD 20,000 (whichever is less) will be exempted. For vehicles to be used for promotion of tourism fulfilling terms and conditions, and type or number of vehicles has to be submitted by the Tourism Council of Bhutan for exemption of moratorium. Further, taxis both fossil and electric which are due for replacement shall also be exempted from this moratorium.
Some vehicle dealers were already aware of import suspension and they said that they were expecting the import restriction from five months ago which they came to know through media that foreign currency reserve is depleting. “We had other business plans which we have already planned and some are already in progress and are in final progress of implementing and moreover there is one or two which we hope to start by the end of the year,” said Tshering Wangchuk, CEO of STCBL.
“Everyone should play a role in protecting the country’s reserve fund, people should watch out what they consume, whereas traders should also be mindful of what they import,” said the finance minister.
Kumar Subba, General Manager of Kia Motors, Shingkar Private Limited said, “We have to honour the government decision however, not more than 6 months until then we are here to support national interest. If the government does not lift the ban after 6 months we will be impacted by the moratorium as we have many staff to support and also there would be huge overhead expenses like rental expenses, service charges and salary”. Besides, Government should allow us to import the vehicles for which Letter of Credit (LC) has been established with the bank, he added.
Tshering Wangchuk, CEO of STCBL said that their main revenue is from imported sale of vehicles, so it shall have huge impact on the profitability of the company. Therefore, we worried because it brings down the sustainability of the business and we cannot do anything about it. However, we have to see how we can get through this. “On Friday we had a management meeting and we have chocked down some ways to increase our revenue from other businesses since we have put into so many cost-cutting measures”.
“It will not only affect our business but it will also affect the media as Medias will not get any advertisement,” he added.
Similarly, Roshan Rai, Sales Executive of Shingkhar Private Limited, Kia Motors said that the moratorium would greatly impact their business as they will not receive the automobiles and spare parts they have ordered.
However, for their business to work out, they are planning to give better services to their regular customers and extend service to all cars unlike before where preference were given only to kia automobiles.
The finance minister emphasized that it’s early to say that Bhutan is facing an acute shortage of foreign currency reserves. He stated that having foreign currency reserves to last 14 or 15 months is actually an impressive gain compared to some neighbouring countries that don’t even have the reserve to last a few weeks of imports on essentials. “Saying so, it doesn’t mean that we can be complacent. There’s no room for complacency”, he added.
The moratorium on the import of vehicles will be reviewed after six months from the announcement and decide recourse depending on the status of foreign reserve funds.