Is it too early to lift the ban on car imports?

The government lifted the two-year ban on car imports on August 18. The ban was imposed by the previous government in August 2022 to stabilize the economy and manage rapidly declining foreign exchange reserves. The current government announced that the decision to lift the ban was based on the country’s improved economic conditions.

Interestingly, when the previous government imposed the import ban, foreign exchange reserves stood at $736.02 million. However, as of June this year, foreign exchange reserves had fallen to $624.11 million. Barring a miraculous surge, it is hard to believe that there will be any significant increase in foreign exchange reserves in the months since then.

This raises a key question: Is it too early to lift the ban at this point? Can the government wait for the economy to fully recover? Worse still, is the government under pressure to take this policy step?

Beyond that, the direct consequences of car imports are twofold. First, it will accelerate the depletion of foreign exchange reserves, making our economy more vulnerable. Second, the number of cars will surge, exacerbating traffic congestion in major cities, expanding our carbon footprint, and leading to increased consumption of fossil fuels – which will drive imports, further depleting foreign exchange reserves. It’s a vicious cycle.

Take a look at past statistics. In 2021, Bhutan imported vehicles worth Nu 4.72 billion. In 2022, the vehicle import bill was Nu 3.2 billion, which dropped significantly to Nu 926.09 million in 2023. This drop is a direct result of the moratorium, which helped save foreign exchange reserves.

According to trade statistics, fuel imports have soared from 11.37 billion Ngultrum in 2022 to 13.35 billion Ngultrum in 2023. This is directly related to the car import figures. Currently, there are 127,316 cars in the country, which is roughly one car for every five Bhutanese. In Thimphu alone, there is a staggering ratio of one car for every three people.

Over the years, the government has used measures such as higher taxes and stricter financial regulation to reduce car imports. Green taxes and reduced loan entitlements are intended to curb the number of new cars entering the market. However, these measures are not without effect. Those with more money are still able to buy multiple cars, while low-income families are particularly affected and cannot afford their first car.

A more balanced approach is needed to address both economic and equity concerns. We need to implement a progressive tax system, with lower taxes on the first car and higher taxes on subsequent vehicles. This can help manage vehicle populations while supporting first-time car buyers. Limiting the number of vehicles an individual or family can own can also control vehicle populations.

Investing in public transport is another key area. Improving the availability, affordability and frequency of public transport can reduce reliance on private cars.

The government’s decision to lift the ban on car imports appears to be driven by short-term considerations rather than a long-term economic and environmental sustainability strategy.