CASE STUDY

ON TOOLS USED BY
MONETARY AND
FISCAL POLICIES IN
BHUTAN
Kabita Ghimiray -108727
Kencho Wangmo-
Sonam Peldon-107258
Tenzin Metok-107629
CHECK LIST
I. Objectives and purposes
II. Introduction
III. Monetary policy
IV. Fiscal policy
V. Recommendations
VI. Literature review
VII.Conclusion
VIII.References
Objectives of the study
The study is done based on several purpose and objectives which are as follows:
⮚
To understand the monetary and fiscal policy of Bhutan.
⮚
To identify the tools used in Monetary and Fiscal policy.
⮚
To ascertain contribution towards GDP and GNI of the economy.
⮚
To analyse and give suitable recommendations on the tools used.
 
Deals with the loan deferment through raising of the non-performing loan ratio as the monetary
policy tool and with the reduction in taxation as a fiscal policy tool. These two measures were
enacted by various factors the reduction in taxation and loan deferment to deal Bhutan’s economic
slowdown during year 2020 caused by the covid-19 pandemic.
 
 
 
 
Tools used:
Deferment of loan by the Royal Monetary Authority. The
monetary policy is a policy measure that looks to increase
or decrease the flow of currency within the economy.
It allows central bank to control inflation, deflation and
investment within the economy.
The reduction in Taxation by the government.
The fiscal policy is different from the monetary policy.
The objectives of National Accounts Report is aims to
provide reliable and well-proven information of the
economy based upon its conditions and performance.
Bhutan’s Gross Domestic Product at 178 billion ngultrums.
The Gross National Income is likely lower that is 162 billion
ngultrums.
Bhutan’s GDP per capita is 240000 ngultrum per year.
GNI is 220000 ngultrums per year.
The GDP inflator is 0.97% which indicates the inflation is not
that much of an issue.
The consumer’s price index CPI is only 2.73%.
The GDP is measure in both current and constant prices.
The base year for Bhutan’s GDP estimated is year 2000.
MONETARY POLICY(LOAN DEFERMENT)

What?
When?
For whom?
Why?
Benefits
Monetary tools
Immediate relief measures to long-term
policy support to ensure adequate liquidity.
Immediately reduced the Cash Reserve
Ratio from 10 percent to 7 percent.

Loan deferment.

Interest payment relief.

WHAT? WHEN? FOR WHOM?
Loan deferment ⮚Prime ❑For those people
means when the whose capability
bank allows Minister’s Office to repay loans
borrowers to (PMO) on June have been reduced
temporarily 30, 2020. due to the
terminate the loan ⮚July 2021 until pandemic.
payments on both ❑For those
the principal June 2022. borrowers who are
amount and following under
interest on the Non-Performing
borrowed loan. loan.
WHY? BENEFITS
⮚To avoid penalty ⮚When financial institutions have
for not paying loan provided deferment of loan with 1
on time. percent rebate for regular repayment
⮚To reduce the EMI for 1 year to all borrowers 56,696
problem of the account holders were benefited. As a
non-performance result income level of borrowers has
of any loan. increased.
⮚To increase the ⮚  Interest payment accumulated will
income of peoples not be added to the principle so, this
during pandemic. interest rate which actually needs to
be paid to bank goes as an income to
the borrowers.
 ❑Here the supply of
Ms
money has remained
same and only the
income level of people
has changed due to their
loan being deferred.
❑ when their income
level has changed it has
lead to the shift of
money demand
outward.
❑Increase in income
also leads to increse in
interest rate.
Fiscal Policy ( Tax relief)
❏ Taxes were exempted from the date 16 April,
2020
❏ Governments have deferred BIT(Business
income tax) and CIT (Corporate Income Tax)
❏ BIT is imposed at a rate of 30% on net
earnings.
❏ CIT is paid at a rate of 30% on net profit for
state-owned enterprises and 25% on net
profit for other businesses
❏ Increase in disposable income
❏ Decrease in salaries and business income
❏ Before the pandemic started Government spending ratio to
GDP at the year 2019 was 25.5% but after the covid-19 hit
our country it increased significantly to 32.28%
❏ Salaries under Nu.25,000 do not need to pay PIT(Personal
Income Tax)
❏ Those who sold their property after January 16, 2020, are
entitled for a return of 2% of the sales price and car
ownership transfer tax has been deducted from 5% to 1%
❏ On state-owned corporations the CIT (corporate income
tax) has decreased from 30% to 25%. Overall, the
government loss estimated is Nu. 850 million annually.
➔ Reduction of taxes leads to
upward shift of Planned
expenditure
➔ Decrease in tax leads to
raise in disposable income,
allowing consumers to
spend more money,
therefore boosting GNP.
➔ GNP=C+I+G+NX
Under Income Tax Act 2020, the government declared that they will
refund excess payments and deductions to taxpayers. The
following figure is followed for the tax paper:
 RECOMMENDATIONS
Even though our government and central bank are doing their best yet we have
following suggestions for them to implement for further betterment;
1. Government should reduce the income tax to see the growth in the economy.
2. In Bhutan kidu is being used as one of the tool to help the low income earner, as
of April 2021 Nu. 9.18B was given as the Druk Gyalpo’s Relief Kidu. Rather
than giving kidu government should provide the public with basic necessities.
3. Lowering the interest rate should be implemented to keep the economy stable. (
https://www.atlantafed.org)
 LITERATURE REVIEW
Lowering interest rate is recommended by our group because this tool has been seen effective in the
New York City.
✔Lowering Interest Rates
✔The Federal Open Market Committee voted on March 15 to lower the effective rate to a range of 0%-
0.25%. The fed funds rate is the key interest rate you hear about when the Fed lowers rates, and changes
in that rate affect interest rates throughout the economy.
✔Keeping Markets Functioning
✔The New York Fed is working to support the flow of credit to households and businesses and the
overall U.S. economy during this challenging time. It is doing so by implementing monetary policy as
directed by the Federal Open Market Committee (FOMC), administering a number of Federal Reserve
facilities that provide liquidity to a range of markets, developing critical research and analysis, and
supporting communities in the Second District. (Includes detailed FAQs w/ special email addresses for
questions on CPFF, PDCF, PMCCF, SMCCF, FIMA REPO FACILITY).
✔ Through the Money Market Mutual Fund Liquidity Facility, or MMLF, the
Boston Fed will make loans available to eligible financial institutions,
secured by high-quality assets purchased by the financial institution from
money market mutual funds.

✔ The Federal Reserve has made changes to its discount window. Federal
Reserve lending to depository institutions (the discount window) plays an
important role in supporting the liquidity and stability of the banking system
and the effective implementation of monetary policy.

New York City

 CONCLUSION
To conclude the very purpose of doing this research was to find out the tools used under
monetary and fiscal policy in our country especially during the pandemic. We mainly
focused on loan deferment and tax reduction tools for monetary and fiscal policy
respectively. Under those two tools we learned how really those tools do helps in stabilizing
the economy of the country.
According to monetary policy, the government's loan deferral mechanism was used during
the pandemic. As of December 2020, a total of Nu 12,570 billion of 83,464 accounts had
deferments. Through proper study on monetary policy we came to know how central bank
helps in money supply in economy in order to maintain proper economic growth and to
bring stability.
We chose tax relief for this case study because it is the most relevant fiscal policy that has
been implied in our economy during this pandemic. Through this policy it helped the people
with low income to save their income. Government reduced taxes and increased their
government spending by providing facilities for instance free quarantining services and free
flu checkups.
References