India`s credit facility to solve Bhutan`s rupee shortage

Thimphu, July 27: To help meet Bhutan the shortage of Indian currency, New Delhi will grant the Himalayan nation a standby credit of Rs four billion.The commitment was made during Prime Minister Jigme Y Thinley's recent four-day visit to India."This facility will be used as and when we face a ... ...said an official, who was part of the Bhutanese 42-member delegation during Thinley's July 14 visit.As of now, the Royal Monetary Authority (RMA), the country's central bank, has managed the shortage by borrowing from the State Bank of India (SBI) at an interest rate of 10 RMA pledged hard currency as collateral to borrow.March until now, the central bank had borrowed about Rs 2 billion from SBI, the state-run Kuensel reported."The standby credit line facility could be used to liquidate the borrowing from SBI, from which we've borrowed at a higher interest and for other import-related payments," said a central bank official."The central bank and finance ministry will now have to work on modalities like interest rates on the standby credit facility, but this is a good news," said the official.With more than 80 per cent of Bhutan's trade with India alone, the demand for Indian rupee has been steadily rising within the country in tandem with growing disposable incomes Central bank officials explained that rupee flows in the Bhutanese economy have demonstrated a cynical pattern that revolves around mega projects.At the commissioning of mega projects, the economy experiences a rupee surplus and when such projects, like Chukha and Tala, wind up, the economy faces a shortage.The recent shortage of rupee was attributed to the completion of the 1020 MW Tala project.inflows to Bhutan are largely driven by grant and aid from the Rupee inflows from power exports to India were also seasonal, going up from July to November, and trickling for the next seven months."Between March and July, outflows are more than inflows," another central bank official said."We've also started repaying the loan for the Tala project from January this year.Since the shortage was felt from the middle of last year, the central bank first borrowed from SBI and then sold hard currency reserves of USD 25 million to pump Indian rupees into the economy.Central bank officials said that with several mega hydro-projects starting this year, a rupee shortage may not be felt for the next few years.constant requirement of the rupee made it necessary to take some monetary and fiscal measures.

Add to: del.icio.us | Digg