Domestic prices have risen as a result of rising fuel import costs and global grain shortages, causing a possibility of food scarcity for Bhutanese citizens, particularly in rural regions, according to economic affairs minister Loknath Sharma.
Bhutan, which has a population of less than 800,000 people, is dealing with the fallout from the Ukraine conflict, which has pushed up global crude oil and food prices, after its economy began to recover as epidemic restrictions were lifted.
“Food scarcity might fuel increased inflation,” Sharma told the media, adding that the government was concerned about the impact of some nations’ grain export limitations, but he did not identify them.
Bhutan, which relies on imports to satisfy its food needs, bought $30.35 million in grains from India in 2021, mostly rice and wheat.
Recent limits imposed by India on wheat exports have fueled fears of a further rise in local prices, according to local industry leaders, but New Delhi has stated that it would continue to export to vulnerable and neighboring nations.
Higher food costs, according to Sangay Dorji, secretary-general of the Bhutan Chambers of Commerce and Industry, could affect the local economy: “We are genuinely concerned about food shortages… this will aggravate the situation following fuel inflation.”
Bhutan’s economic growth has been harmed by a rigorous zero-COVID policy and vaccination of over 90% of the population, according to a World Bank assessment released last month. This includes fuelling inflation and limiting visitor inflows.
The $3 billion economy shrank for the second year in a row, by 3.7 percent in the fiscal year that ended in July and 2.4 percent the year before, forcing more people into poverty.
The number of people living in poverty – defined as earning $3.20 per day – increased to 12.6 percent of the entire population in 2021 from 11 percent in 2019, according to the research, which also noted that the economy is forecast to grow 4.4 percent this fiscal year, with downside risks.
“Around 29% of families are still concerned about running out of food. Almost half of them reduced their food intake as a cautious step “Rural residents were more inclined to eat fewer meals or miss them, according to the survey.
Bhutan’s inflation is expected to continue in line with India’s, which hit an eight-year high of 7.8% in April, due to the Ngultrum’s peg to the rupee and reliance on imports, according to the International Monetary Fund’s annual analysis of the economy released on Tuesday.
It predicted that retail inflation will stay high after gaining 8.2% in the preceding fiscal year 2020/21, owing to rising food costs.
Concerned about the impact of escalating oil imports, which are expected to reach 8.35 billion Bhutanese Ngultrum ($107.63 million) in 2021, the government raised retail petrol and diesel prices for the second time in a fortnight last week.
Sharma stated that the country’s economic fundamentals were sound and that it had sufficient foreign exchange reserves of $1.4 billion, which would cover nearly a year’s worth of imports.