bhutan: making progress on the path to prosperity

8/13/2019 Bhutan: Making Progress on the Path to Prosperity

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Making Progress on the Path to Prosperity

BhutanDevelopme

nt

EffectivenessBrief


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iii

Contents

Bhutan and ADB: Working ogether or Poverty Reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ADB Contributions to Development and Poverty Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Energy: Harnessing Hydropower Potential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

ransport: Connecting or Better Lives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Finance: Preparing or Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Urban Development: Shaping Up Bhutans Cities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Operational and Organizational Effectiveness: Improving Efficiency and Perormance. . . . . . . . . . . . . 17

Future Challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19


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iv Development Effectiveness BriefBhutan

oto by Natalie Chun/ADB


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Bhutan and ADB: Working Together for Poverty Reduction 1

Bhutan and ADB:

Working Together for

Poverty ReductionSuk Bdr Darjee, 17, is a hardworkingstudent o Dagana Higher SecondarySchool. His parents are both armersand are not earning enough tofinance their childrens education.Determined to succeed in lie, Darjeetakes on part-time jobs every schoolwinter break.

At present, Darjee works as a laboreror a local contractor involved in theconstruction o a roadside wall or theDagachhu hydropower plant. He savesthe money that he earns and uses itto pay or his school ees, books, andood expenses. Since last year, I havebeen able to finance my own education.

I dont have to depend on my poorparents, he says.

I the project wasnt started here,finding employment would have beenreally difficult or us. We would haveto go ar away rom our village to lookor jobs, Darjee says. Many youngBhutanese in Dagana are employed asoffice aides, laborers, night guards, andsecurity personnel at the project site.

By being actively engaged incommunity work, young peoplelike Darjee get to enjoy financialreedom while developing a sense opurpose and responsibility as well.In some ways, I have become more

Bhutan Development Indicators

Non-Millennium Development Goals Millennium Development Goals

Population in millions(2012)

0.7 Population living on less than $1.25(purchasing power parity)a day (%) (2007)

10.2

Annual population growthrate (%) (20102012)

1.3 Population living below thenational poverty line (%) (2012)

12.0

Adult literacy rate (%)(2012)

55.3 Under-5 mortality rate per1,000 live births (2011)

54.0

Population in urban areas (%)(2012)

33.7 Population using an improveddrinking water source (%) (2012)

98.0

Sources: ADB. 2013. Basic Statistics 2013.Manila; ADB. 2013. Key Indicators for Asia and the Pacific 2013.Manila; National Statistics Bureauand ADB. 2013. Bhutan Living Standards Survey 2012 Report.Manila; National Statistics Bureau. 2012. Statistical Year Book of Bhutan 2012.Thimphu.


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Bhutan and ADB: Working Together for Poverty Reduction 3

Loan and Grant Approvals in Bhutan ($ million)

19832006 2007 2008 2009 2010 2011 2012

OCR 51.00

ADF 176.06 19.70 54.28 38.76 21.59 19.87 18.59

Total 176.06 19.70 105.28 38.76 21.59 19.87 18.59

Loan and Grant Disbursements in Bhutan($ million)

19832006 2007 2008 2009 2010 2011 2012

OCR 8.06 21.02 15.09 5.95

ADF 103.42 8.91 7.07 27.58 38.11 26.84 33.53

Total 103.42 8.91 7.07 35.64 59.13 41.93 39.48

ADF = Asian Development Fund, OCR = ordinary capital resources.

Source: Asian Development Bank.

ADB has been a key partner since1982 when Bhutan joined ADB, andtoday it has become the countryslargest multilateral development

partner. Since the first loan approvalo $5 million in 1983, ADB hasprovided 29 loans and 16 grantstotaling $486.29 million as o30 November 2013. ADB assistanceto Bhutan has been mainly financedthrough the Asian DevelopmentFund (ADF), which is a concessionalfinancing window or its developingmember countries.

o be in line with the governments

development agenda, energy, finance,transport, and urban developmentbecame the key sectors o ADBoperations in Bhutan under theprevious country strategy and program20062010, and they have remained so

Asian Development Bank Loans and Grants toBhutan by Sector(as of 30 November 2013)

ICT = information and communication technology.

Source: Asian Development Bank.

2%

4%

40%

5%

2%

6%

7%

20%

11%

3%

Agriculture andNatural Resources

Education

Energy

Finance

Health andSocial Protection

Industry and Trade

Public Sector Management

Transport and ICT

Water and Other MunicipalInfrastructure and Services

Multisector


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4 Development Effectiveness BriefBhutan

since then. Venturing into newer areaso support, ADB has also providedassistance in civil aviation, inormationand communication technology,and trade acilitation since 2007.ADB has been accelerating its regionalcooperation and integration programin Bhutan to enhance cross-borderconnectivity and trade under theSouth Asia Subregional EconomicCooperation Program and otherrelated initiatives.

ADB has been accelerating itsregional cooperation and integrationprogram in Bhutan to enhancecross-border connectivity and trade

under the South Asia SubregionalEconomic Cooperation Programand other related initiatives

Community e-centers, supported by ADBs SASEC Information Highway Project, are helpingyoung people learn computer skills and programming.Photo by Eric Sales/ADB


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ADB Contributions to Development and Poverty Reduction 7

a critical partner o Bhutan in itshydropower development.

o accelerate hydropowerdevelopment in a sustainablemanner, ADB helped the governmentprepare the Sustainable HydropowerDevelopment Policy. One o the key

objectives o the policy was to promotepublic, private, and oreign investmentsto accelerate the developmento hydropower generation in acompetitive manner.

With the hydropower developmentpolicy in place, the governments oBhutan and India signed the Protocolto the 2006 Framework Agreement toincorporate the enhanced developmenttarget o 10,000 MW rom 5,000 MWby 2020.

Under the Green PowerDevelopment Project (loans 2463and 2464 and grants 119 and 141,$106.28 million rom ADF, AsianClean Energy Fund, and ordinarycapital resources, approved in 2008),ADB also provided support or thedevelopment o the 126 MW run-o-river type Dagachhu hydropower

plant as the first publicprivatepartnership inrastructure projectin Bhutan through an innovativefinancing mechanism. It is expectedto be commissioned in 2014 afer thecompletion o construction work bythe end o 2013.

Te Dagachhu hydropower projectwas also registered as the worlds firstcross-border project that applied orthe clean development mechanisms

under the United Nations FrameworkConvention on Climate Change.Tis would allow the project to earnsalable certified emission reductioncredits, which could be counted towardKyoto targets.

Te Dagachhu hydropower projectis the worlds first cross-border cleandevelopment mechanism project, so itis a very special project, says TinleyDorji, chie executive officer o theDagachhu Hydropower Corporation.Te certified emission reduction willbe equal to the amount o electricityexported, he explains. He projectsthat Bhutan will be able to generatealmost 500,000 certified emissionsreductions per year. Trough thecertified emissions reductions, we willbe generating a substantial amount oadditional unds, he says.

Te Green Power Development

Project also has a rural electrificationcomponent. Te electrificationinvestment has been completed andprovides electricity to 8,886 householdsand public acilities, including schools,health clinics, and community centers,in remote rural areas by extending anexisting grid and through the use ooff-grid solar home systems.

Te importance o the Green PowerDevelopment Project was signified

by its receipt o the United StatesDepartment o the reasurysImpact Honors award in July 2013,along with our other internationaldevelopment projects rom multilateraldevelopment banks. Te Green Power

ADB has increased its support forhydropower and renewable energydevelopment since 2006 and has be

a critical partner of Bhutan in itshydropower development


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Development Project was recognizedor its outstanding project design andimplementation, which exemplifieda well-designed initiative thatsimultaneously meets the goals oeconomic growth, rural development,and environmental protection.

Passang Wangmo and her amilyare among many who have benefitedrom ADB support in the energysector. Passang lives with her ailing

parents and a younger brother insendaganagewog(village block) inDagana district, about 150 km romthe capital, Timphu. Both her parentssuffer rom respiratory ailments.

o a large extent, says Passang,I believe their sickness was caused

by many years o exposure to smokeand soot rom indoor cooking. Teyare always coughing and suffer rombreathing problems. Beore powerwas installed in their house, Passangsamily used kerosene lamps or lightand cooked their meals in traditionalhearths using firewood.

From the time her amily beganreceiving electricity in their district,Passang noticed a significant

improvement in her parents healthcondition. My parents are less exposedto smoke as we use the hearth orcooking only when the light goes off.So they are now breathing cleanerair, she adds. Tey also do not haveto go through the trouble o etching

Living conditions for

Passang Wangmo andher family have improvedafter power wasinstalled in their house inDagana district.Photo by Kezang Namgay


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firewood or kindling a fire everytime they cook, and can now save themoney they used to spend on kerosene.Electricity has made our lives so mucheasier, she says.

Homes with electricity, includingPassangs, not only provide a healthierliving environment, but are also moreconducive or learning and accessing

inormation. oday with electricity,my brother can study or longer hours.Passang and her parents are pinningthe amilys hopes on her brother.I am confident that he will becomesomebody one day and lif us rom theabject poverty that we are in. Electricity

has not only lighted up our homebut has given us this hope as well,she remarks.

Transport: Connecting

for Better Lives

Te development o Bhutans

transport sector is constrained bythe combination o a landlocked,mountainous terrain and a small andscattered population. Tis makesthe building and maintenance ovital inrastructure, particularly theroad network, very costly. Te Gross

ADB road projects have made a substantial impact on economic growth and connectivity in BhutaPhoto by Eric Sales/ADB


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National Happiness CommissionsTenth Five Year Plan (20082013)Mid Term Review Report, released in2011, revealed that accessibility stillposes the biggest challenge in thetransport sector.

Bhutan currently has a road network

o 10,578 km, comprising 2,436 km onational highways and expressways,1,190 km o eeder or district roads,5,257 km o rural arm roads, 350 kmo urban roads, 667 km o orest roads,and 678 km o other access roads. Roadtransport is the dominant mode otransportation within Bhutan and withneighboring Indian states. Tere is norailway system in the country.

Bhutans vehicle fleet, concentratedin Timphu and Phuentsholing, hasalso grown rapidly rom only 13,600registered vehicles in 1997 to 62,707in 2012. Te development o the roadnetwork has not been able to meetthe growing demands o vehicles,particularly o larger and heaviervehicles, because o the rapid growth.

Recognizing these major concerns,ADB has been providing assistance to

(i) enhance the main road network,especially o the southern EastWesthighway; (ii) develop and strengthenthe road asset management system;(iii) improve road saety conditions;(iv) provide capacity strengthening inmodern road technology; (v) improvesubregional road connectivity withneighboring countries, including transitacilities and logistics; and (vi) enhancesaety, capacity, and security at the

airports. As o 30 November 2013,ADB has provided our loans and threegrants to the transport sector totaling$92.78 million. Tis comprises 19% oits investment portolio, representingthe second-biggest sector o ADBoperations in Bhutan.

Under the Road Network Project I(loan 2187, $27.3 million ADF,completed 2011), about 136 km o thenational highway between Gelephu andongsa was strengthened and 16 km obypass and 66 km o eeder roads wereconstructed. Te project completion

report notes that the improvement oroads resulted in a reduction in traveltime by 23% and vehicle operatingcosts by 18%, on average. Averagewalking distance or the relevantvillages along the project eeder roadswas also reduced rom 3.26 km to1.27 km.

Te enhanced road network hascontributed to improving access tobasic services. For instance, the numbero children who were not attendingschool due to remoteness declined rom8.7% in 2007 to 3.1% in 2012. Similarly,the percentage o the rural populationnot consulting heath care providersdue to lack o transport ell rom 30.7%in 2007 to 0.4% in 2012. Moreover,the improved road conditions havesubstantially improved armersaccess to airly priced markets while

stimulating agricultural developmentthrough expanded production ocash crops.

ADB also provided the Farm Roadsto Support Poor Farmers LivelihoodsProject (grant 9146, $3 million romthe Japan Fund or Poverty Reduction,approved 2010) to develop priorityarm roads connecting isolated ruralcommunities and arms to eederroads constructed under the Road

Network Project I. Solid progresshas been registered in constructing25 km o arm roads in two poorgewogs(blocks o villages) in Chukhaand rashigang districts. Te projectis also providing support to developthe capacity o local communities to


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manage and maintain these roads andto enhance rural armers agricultureand marketing capacity.

In the areas o policy reorms andinstitutional development, ADBhelped the government develop the

Bhutan ransport 2040 IntegratedStrategic Vision in 2011 with financialsupport rom the Australian Agencyor International Development. Tiswas to set the long-term developmentdirection o the countrys transportsector. ADB also provided supportto enhance the capacity o theDepartment o Roads and Road Saetyand ransport Authority or roadsaety audits, and the capacity o the

Department o Roads in road assetmanagement under the CapacityBuilding in Road Saety and RoadAsset Management Project (A 4658,$0.3 million, completed 2010).

Apart rom shortening travel hours,decreasing transport costs, and

improving accessibility, ADB supportto the road network expansion inBhutan has also enhanced business andjob opportunities in local communities.

Te number o small shops along theEastWest highway has mushroomed,

and they are flourishing rom thesteady influx o travelers and motorists.Zam Rinzin, 44, runs a 4-year-oldrestaurantbar in Nobding, a dustyroadside settlement along the highway,some 40 km rom Wangdue Phodrangin western Bhutan.

The upgradedEastWesthighwayhas openedup businessopportunitiesfor localentrepreneurslike restaurantowner ZamRinzin.Photo by Kezang Namgay

ADB support to the road networkexpansion in Bhutan has alsoenhanced business and jobopportunities in local communities


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Noting the changes brought toNobding by the improved road, shesays, the number o travelers hasincreased compared to the past. A ewyears back, the number o vehiclesplying on this road was very ew. Nowevery ew minutes, a motor vehicle

passes by. Te road has been widenedand there are definitely more peopletraveling today. Tanks to the betterroad condition and a greater numbero vehicles driving through, localentrepreneurs like us benefit a lot.

Making more than 200,000ngultrum (Nu) a year is no longeran enormous task or this ladyentrepreneur. For me, this highwayis a source o livelihood, she says.oday, she comortably sends her threechildren to school and spends moneyon other household costs. For Zam, thiskind o change is more than welcome.

Finance: Preparing for

Opportunities

Bhutans financial sector still remains

small and predominantly bank-based,though it has been experiencingrapid development. Under the enthFive Year Plan, 20082013, financewas considered one o the threecritical sectors or Bhutans economicdevelopment, along with inrastructureand energy, given that the financialsector plays a key role in acilitatingprivate sector participation ineconomic growth.

Being one o Bhutans main partnersin financial sector development, ADBhas, together with the government,made concerted efforts to develop awell-unctioning financial system inthe country that can support privatesector development and a broad-

based development model. ADB has

provided assistance in building (i) asound legal and regulatory ramework,(ii) unctioning supervisory andmember financial institutions,(iii) diversified financial products, and(iv) the necessary market inrastructureto meet the countrys economicdevelopment needs. As o 30 November2013, ADB assistance to the financialsector includes five loans totaling

$23.5 million, accounting or about 5%o ADBs investment portolio.Te ADB-financed Financial Sector

Development Program (loans 2279and 2280, $13 million ADF, completedin 2012), or example, contributedto strengthening the governanceo the financial system by adoptingkey regulatory and capital marketlegislations, strengthening corporategovernance, improving anti-money-

laundering measures, and uniyingaccounting and reporting standards.

Trough the Financial SectorDevelopment Program, the revisedRoyal Monetary Authority (RMA) Actand the Financial Services Act werepassed in 2010 and 2011, respectively.

ADB has, together withthe government, madeconcerted efforts to develop

a well-functioning financiasystem in the country thatcan support private sectordevelopment and a broad-based development model


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Te revised RMA Act improved theRMAs autonomy by allowing it tounction as an independent centralbank with a governance structure inline with international best practices.Te Financial Services Act ensuredthat Bhutan would have a completelegal ramework or the entire financialsector and empower the RMA as its

sole regulator.Te establishment o the credit

inormation bureau, the reconstitutiono the Accounting and Audit StandardsBoard, and the issuance o newlicensing regulations that acilitated theentry o two new commercial banks

and one new insurance company werealso accomplished under the FinancialSector Development Program.

Te deputy governor o the RMA,Eden Dema, said that ADB assistancewas critical, since the Bhutanesefinancial system was at a juncturewhen the economy was developing at arapid pace with an increased demand

or financial services. According toher, in the absence o a financial sectormaster plan and financial expertsin the country, the development othe financial system would not havereached the current level withoutADB support.

Since the 1968 establishment of the Bank of Bhutan, the countrys first financial institution,Bhutans financial system has experienced rapid development.Photo by Kezang Namgay


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ADB also financed the Micro,Small, and Medium-Sized Enterprise(MSME) Sector Development Program(grants 0088 and 0089, $15 millionADF, completed in 2012), whichpromoted private sector developmenton a broader scale and enhanced the

development o the MSME sector, inparticular. ADB support to the sectorwas aligned to the governments goalso broadening its economic base andenhancing employment opportunitiesor a growing labor orce.

Under the MSME SectorDevelopment Program, thegovernment established policies,strategies, and an institutionalramework or promoting MSMEdevelopment. It adopted the MSMEPolicy, Strategy, and Action Plan in2012, taking the national MSMEdevelopment agenda to a higher level.According to the project completionreport, the program also contributedto enhancing business laws andregulations whereby the governmentimplemented a regulatory impactassessment methodology in 2011,

reduced business ormalization timerom 62 days to 36 days, and made iteasier or small businesses to obtainmicro-trade registration certificates.

Another key contribution o theMSME Sector Development Programwas enhanced access to market-basedfinance. ADBs credit line unded1,900 subloans through the BhutanDevelopment Bank Limited, whichincreased its lending to micro, small,

and medium-sized enterprises,constituting 35% o its portolioat the end o 2012. A cost-sharingacility, also financed by ADB, undedbusiness development services or1,651 individuals and enterprises.

Urban Development:

Shaping Up

Bhutans Cities

Bhutan has been experiencing rapidurbanization as a result o rural

urban migration. Te current rateo population growth in Timphu,the capital city, is more than 8%per year while it is 3% or higher inPhuentsholing and 18 other regionaland provincial centers. Te governmentis expecting that close to hal o thepopulation will live in the cities by2020. Tis phenomenon has, however,started to strain the provision obasic inrastructure and services inurban areas.

o support the governments effortsto enhance the provision and qualityo urban inrastructure and services,particularly or low-income urbandwellers, ADB has financed projects to(i) develop municipal inrastructure,including water supply and sanitationservices, solid waste management,and urban roads; (ii) improve urban

governance and strengthen municipalplanning and management capacities;and (iii) promote cost recovery orurban services and enhance privateparticipation in municipal servicedelivery. ADB has provided our loansto support urban development totaling$53.5 million as o 30 November2013, comprising about 11% o ADBsinvestment portolio in the country.

Te ADB-financed Urban

Inrastructure ImprovementProject (loan 1625, $5.7 millionADF, completed 2005), or example,made a substantial contribution toimprovements in health conditionsand quality o lie o the residents


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(iii) unaccounted-or water reductionand water calibration, and (iv) landpooling and urban acility managementadvisory. Te SWM strategy and

action plan were key documents thatacilitated the Timphu municipalityswork in SWM, including rehabilitationworks on the existing landfill site,

operationalization o the incompletecompost plant, and identiying alocation or a recycling center andtranser station and a new landfill site.

Rinzin Dema, 49, is a resident oTimphu, where she was born andraised. Having lived in the city all her

lie, Rinzin is an eyewitness to thetremendous changes and developmentTimphu has undergone in the last4 decades. She has seen how thecapital has been transormed rom abeing small, sleepy town into a lively,sprawling city with civic amenities.

Te extent o developmentthat Timphu has undergone isphenomenal, says Rinzin. Tedifference is that o earth and sky.Timphu was like a small rural villagein the old days. Tere were barelyany houses. In the past, many o theplaces here were either huge swatheso orestland or paddy fields. Terewas no network o roads. Even thevehicles were ew. Getting a taxi wasso hard those days. She adds that thedevelopment in the city has benefitedeveryone. We had nothing those days

and today we have access to every kindo acilities, she says. Lie has becomemuch easier afer the development.It is more organized and systematic.We have drinking water, electricity, andgood roads.

For old-time Timphu residentslike Rinzin, urban development is awelcome change. When I look back,Rinzin says, we have leaproggedrom an ancient time to a whole new

modern world. Tanks to the effortso the government and its partners,we live much better lives now thanever beore.

Rinzin Dema has witnessed the rapid rise ofinfrastructure in Bhutans capital, Thimphu.Photo by Kezang Namgay


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Operational and Organizational Effectiveness: Improving Efficiency and Performance 17

Operational and

Organizational Effectiveness:

Improving Efficiency andPerformanceADBs Independent EvaluationDepartment rated ADB countryoperations and programs in Bhutanduring 20012009 as successfulinits 2010 country assistance programevaluation. Tey were ound to be wellaligned with country developmentneeds, government developmentpriorities, and ADBs long-termstrategic ramework 20082020(Strategy 2020). Te 2010 evaluationnoted that ADB operations in Bhutanwere effective as most anticipatedoutputs were delivered as planned.

Between 2006 and 2013, nine project

completion reports were prepared orloans and grants completed in Bhutan,all o which had the overall assessmentrating o successfulor highly successfuland reported tangible developmentimpacts. As or the 15 technicalassistance projects that were evaluated,14 projects were rated successfulorhighly successfulwhile one project wasratedpartly successful.

Despite the successul perormance

o projects in Bhutan, key lessonshave also been identified. Under theFinance Sector Development Program(loans 2279 and 2280, $13 millionADF, completed in 2012), key financialsector legislations were developedand approved. While the delays were

inevitable, the project completionreport noted that closer, long-term, in-country dialogue with the governmentwould have been beneficial. Such adialogue and closer project monitoringwill be enhanced by the establishmento an ADB resident mission in Bhutan.

ADB projects and programs inBhutan have also generally exhibitedbetter portolio perormance thanthe ADB portolio as a whole. Bothcontract awards/commitment ratio(30%) and disbursement ratio (31%)were above the ADB average o 25%and 20%, respectively, in 2012. wo

start-up indicators or Bhutans loanportolio were also better than theADB average in 2012: the averagetime taken rom approval to signingwas 2.6 months and rom signing toeffectivity was 2.7 months in Bhutan,both much shorter than the ADBaverage o 3.8 months and 3.4 months,respectively.

It should, however, be noted thatthere was a deterioration in the project

portolio perormance rating between2011 and 2012. While all 10 ongoingprojects were rated on trackin 2011,3 out o 9 projects (33%) were rated aspotential problem projects and 1 out o9 projects (11%) was rated as an actualproblem project in 2012, due mainly to


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poorer procurement and disbursementperormance than projected.Tis concern was shared with thegovernment during the ripartitePortolio Review Meeting conducted inAugust 2013. Te importance o closemonitoring on portolio perormance

was also emphasized during themeeting.

Te 2010 country assistance programevaluation notes that while ADBsassistance program in Bhutan hasbeen implemented in an efficientmanner, increasing project volumesand complexities coupled with alack o counterpart and domesticcontractor capacity are likely to poseextra challenges in the uture. A greaterocus on service delivery in remoterural areas and small towns in recentyears has also meant that projects arebeing implemented by agencies andprivate contractors who ofen havelittle experience with ADB policiesand procedures. Te evaluationstudy underscores the importance ostrengthening local capacity. Moreefforts need to be devoted to capacity

building in procurement, saeguards,and financial management, particularlyor new municipalities and localgovernments.

o address the above issues, ADB hasbeen providing training in such areasas disbursement and project design orexecuting and implementing agencies.ADB has also been placing a greaterocus on project readiness in projectdesign to avoid implementation delays.

Furthermore, the establishment othe resident mission in Timphu willlead to closer coordination betweenADB and the government and helpenhance implementation efficiency anddevelopment effectiveness.

Te establishment of the

ADB resident missionin Timphu will leadto closer coordinationbetween ADB and thegovernment and helpenhance implementation

efficiency anddevelopment effectiveness


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Future Challenges 19

Future ChallengesBy unlocking its hydropower potential,in recent years Bhutan has managedto transorm itsel rom a closed,

subsistence economy into a rapidlygrowing lower-middle-incomecountry. Te high sustained economicgrowth has helped Bhutan makeremarkable progress in reducingpoverty and achieving the MillenniumDevelopment Goals.

Despite its impressive economicperormance, Bhutan continues to acedevelopment challenges. Te countryhas a narrow economic base and itsgrowth has been propelled mainly byan externally unded, capital-intensive

hydropower sector that generateslimited employment opportunities.As a result, youth unemployment has

become a critical issue in Bhutan.Inequality also remains high eventhrough Bhutan managed to reducepoverty incidence to 12%. In addition,the recent Indian rupee liquidity issuehas underlined the need to strengthenfiscal, debt, and liquidity managemento the country.

ADBs recently completed Bhutan:Critical Development Constraintsreport emphasizes the need or theBhutanese economy to become broad-based with more diverse growth drivers

Sustaining high and inclusive economicgrowth remains a major challenge to

Bhutan and its development partners.Photo by Eric Sales/ADB


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i Bhutan is to move beyond the lower-middle-income paradigm. Accordingto the report, key constraints toinclusive economic growth include(i) inadequate and poor qualityinrastructure, (ii) narrow fiscal space,(iii) lack o access to finance by micro,

small, and medium-sized enterprises,(iv) presence o market ailures thatlimit product diversification andcompetition, and (v) limited andunequal access to quality educationand labor market mismatch.

Te objective o the governmentsEleventh Five Year Plan, 20132018is to achieve sel-reliance andinclusive green socioeconomicdevelopment and the main thrustsare on (i) inclusive social development,(ii) green accelerated economicdevelopment, and (iii) strategicinrastructure development. Byaligning its next country partnershipstrategy, 20142018 with the Eleventh

Five Year Plan, ADB is ully committedto working closely with the governmentand people o Bhutan to address newand existing development challengesto promote high, inclusive, andenvironmentally sustainable growth.

ADB is fully committedto working closely withthe government andpeople of Bhutan toaddress new and existingdevelopment challenges topromote high, inclusive,and environmentallysustainable growth


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Bhutan: Making Progress on the Path to ProsperityDevelopment Effectiveness Brief

Since Bhutan became a member in 1982, the Asian Development Bank (ADB) has provided$486.29 million in loans and grants and $54.09 million in technical assistance. ADB hasassisted the government in advancing socioeconomic development by providing support toenhance rural electrification, hydropower development, road connectivity, provision of urbaninfrastructure and services, and financial sector development. ADB remains committed tosupporting the Government of Bhutans efforts toward sustaining high growth and makingthis growth more inclusive.

About the Asian Development Bank

ADBs vision is an Asia and Pacific region free of poverty. Its mission is to help its developingmember countries reduce poverty and improve the quality of life of their people. Despite theregions many successes, it remains home to two-thirds of the worlds poor: 1.7 billion peoplewho live on less than $2 a day, with 828 million struggling on less than $1.25 a day. ADB is

committed to reducing poverty through inclusive economic growth, environmentallysustainable growth, and regional integration.Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main

instruments for helping its developing member countries are policy dialogue, loans, equityinvestments, guarantees, grants, and technical assistance.

P i t d i th Phili i

Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww adb org

bhutan: making progress on the path to prosperity

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