KATHMANDU: Rising fuel import costs and global grain shortages have resulted in a rise in domestic prices, especially in rural areas, economic affairs minister Loknath Sharma told Reuters on Wednesday that Bhutan, with a population of less than 800,000, is facing the impact of the Ukraine war after its economy began to recover due to the ease of global crude oil and grain prices.
Sharma told Reuters that the government was worried about the impact of export restrictions on grains by some countries, although he did not name them, because of the scarcity of food commodities.
In 2021, Bhutan, which depends on imports to meet food demand, imported cereals amount to US $30.35 million, mainly rice and wheat from India.
Local industry leaders said recent restrictions imposed by India on wheat exports have sparked fears of a rise in local prices, though New Delhi has said it will continue exports to vulnerable and neighbouring countries.
Sangay Dorji, secretary-general of Bhutan Chambers of Commerce and Industry, said higher food prices would hurt the local economy: We are deeply concerned about food supplies after fuel inflation, this will worsen the situation. A strict zero-COVID policy and vaccination of over 90 per cent of the population has hurt economic growth in Bhutan, which is located between China and India, as well as stoking inflation and curbing the inflow of tourists, according to a World Bank report last month.
The US economy contracted for two years -- by 3.7 per cent in the fiscal year 2020 21 and by 2.4 per cent in the previous year -- pushing more people into poverty.
The report said that the economy is projected to grow 4.4 per cent in the current fiscal year with downside risks, and that the poverty level, at US $3.20 earned daily per person, rose to 12.6 per cent of the total population in 2021 from 11 per cent in 2019.
29 per cent of households are worried about running out of food. Of these, almost half curtailed food consumption as a precautionary measure, the report said, and those in rural areas were more likely to eat fewer meals or skip them.
The International Monetary Fund said on Tuesday that Bhutan's inflation will remain the same as that of India, which rose to an eight-year high of 7.8 per cent in April, given its currency Ngultrum's peg to India's rupee and dependence on imports.
Retail inflation could be elevated after rising 8.2 per cent in the previous year of 2020, as a result of food prices.
The government hiked retail petrol and diesel prices for the second time in a row, worried about the impact of rising oil imports - touching 8.35 billion Bhutanese Ngultrum US $107.63 million in 2021.
Sharma said the country's economic fundamentals were strong and it had adequate foreign exchange reserves of around US $1.4 billion - enough for about 12 months of imports.