strengthening economic management program ii: program … · 2018-08-03 · revenue management and...

Completion Report

Project Number: 46371-002 Loan Number: 3258 Grant Number: 0431 July 2018

Bhutan: Strengthening Economic Management Program II

This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency unit – ngultrum (Nu)

At Appraisal At Project Completion 6 May 2015 30 May 2017

Nu1.00 = $0.0157 $0.0155 $1.00 = Nu63.35 Nu64.54

ABBREVIATIONS

ADB – Asian Development Bank BDBL – Bhutan Development Bank Limited BNBL – Bhutan National Bank Limited BOBL

CD – –

Bank of Bhutan Limited certificate of deposit

CIB – Credit Information Bureau CIC

COL DMEA DMF DPA

– – – – –

community information center concessional OCR lending Department of Macroeconomic Affairs design and monitoring framework Department of Macroeconomic Affairs

DRC – Department of Revenue and Customs FLP – financial literacy program FY – fiscal year GDP – gross domestic product ICT – information and communication technology MMI – money market instrument MOF – Ministry of Finance MPR – macroprudential regulation NPPF – National Pension and Provident Fund POS – point of sales PVM – property valuation methodology RENEW – Respect, Educate, Nurture, and Empower Women RAMIS – Revenue Administration Management Information System RICBL – Royal Insurance Corporation of Bhutan Limited RMA – Royal Monetary Authority RMS – Revenue Management System ROC – Registrar of Companies RSEB – Royal Stock Exchange of Bhutan SDR – special drawing right SEC – Securities and Exchange Commission SEMP – Strengthening Economic Management Program TA – technical assistance TASF – technical assistance special fund T-Bill – Treasury Bill

NOTES

(i) The fiscal year (FY) of the Royal Government of Bhutan and its agencies ends on

30 June. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2018 ends on 30 June 2018.

(ii) In this report, “$” refers to United States dollars.

Vice-President Wencai Zhang, Operations 1 Director General Hun Kim, South Asia Department (SARD) Director Bruno Carrasco, Public Management, Financial Sector and Trade

Division, SARD Team leader Navendu Karan, Senior Public Management Economist, SARD Team members Analyn Bravo, Associate Project Analyst, SARD Jackie Moreno, Senior Project Assistant, SARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 2 A. Project Design and Formulation 2 B. Project Outputs 3 C. Project Costs and Financing 3 D. Disbursements 3 E. Project Schedule 3 F. Implementation Arrangements 4 G. Technical Assistance 4 H. Consultant Recruitment and Procurement 6 I. Monitoring and Reporting 6

III. EVALUATION OF PERFORMANCE 6 A. Relevance 6 B. Effectiveness 8 C. Efficiency 9 D. Sustainability 9 E. Development Impact 11 F. Performance of the Borrower and the Executing Agency 12 G. Performance of the Asian Development Bank 12 H. Overall Assessment 13

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 13 A. Issues and Lessons 13 B. Recommendations 14

APPENDIXES 1. Design and Monitoring Framework 16 2. Status of Compliance with Loan Covenants 18 3. Policy Matrix 21 4. Technical Assistance Completion Report 26 5. Achievements of SEMP II and its Contextual Relevance in Providing Continuity 29

to the Reforms Initiated under SEMP I

BASIC DATA A. Loan Identification 1. Country Bhutan 2. Loan number and financing source Grant number and financing source

3258-BHU(COL) 0431-BHU (ADF)

3. Project title Strengthening Economic Management Program II

4. Borrower Bhutan 5. Executing agency Department of Public Accounts 6. Amount of loan SDR14,443,000 ($20.1 million) 7. Amount of grant $16.1 million 7. Project completion report number 1691 8. Financing modality Policy-based loan

B. Loan Data 1. Appraisal – Date started – Date completed

8 December 2014 15 December 2014

2. Loan and grant negotiations – Date started – Date completed

30 March 2015 30 March 2015

3. Date of Board approval 2 June 2015

4. Date of loan and grant agreement 15 June 2015

5. Date of loan and grant effectiveness – In loan and grant agreements – Actual – Number of extensions

13 September 2015 15 June 2015 16 June 2015 None

6. Project completion date – Appraisal – Actual

31 December 2016 30 May 2017 (loan) 18 June 2015 (grant)

7. Loan and grant closing date – In loan agreement – Actual – Number of extensions

31 December 2016 30 June 2017 (loan) 18 June 2015 (grant) 1

8. Financial closing date – Actual

30 May 2017 (loan) 18 June 2015 (grant)

9. Terms of loan – Interest rate – Maturity (number of years)

1% per annum during the grace period, and 1.5% per annum thereafter 24

ii

– Grace period (number of years) 8

10. Terms of relending (if any) Not applicable

11. Disbursements a. Dates

Initial Disbursement G0431: 17 Jun 2015 L3258: 30 May 2017

Final Disbursement G0431: 17 Jun 2015 L3258: 30 May 2017

Time Interval G0431: 0 months L3258: 0 months

Effective Date G0431: 16 Jun 2015 L3258: 16 Jun 2015

Actual Closing Date G0431: 18 Jun 2015 L3258: 30 May 2017

Time Interval G0431: 0.07 months L3258: 23.47 months

b. Amount ($ million)

Category

Original Allocation

(1)

Increased during

Implementation (2)

Cancelled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

G0431 16.1 0.0 0.0 16.1 16.1 0.0 L3258 20.1 0.0 0.0 20.1 20.0 a 0.1 Total 36.2 0.0 0.0 36.2 36.1 0.1

a Note: Disbursement of SDR 14,443,000 was equivalent to $19.967 million at disbursement because of fluctuation in the SDR–United States Dollar exchange rate. Source: Asian Development Bank.

C. Program Data 1. Program cost ($ million)

Cost Appraisal Estimate Actual

Foreign exchange cost 36.2 36.1a Local currency cost 0.0 0.0 Total 36.2 36.1


2. Financing plan ($ million) Cost Appraisal Estimate Actual

Implementation cost Borrower financed None None ADB financed 36.2 36.1a Other external financing 0.0 0.0 Total implementation cost 36.2 36.1

Interest during construction costs Not applicable Not applicable Total interest during construction cost Not applicable Not applicable


5. Program performance report ratings

Implementation Period Single Project Rating

16 June 2015 – 30 June 2017 No ratings in eOps for program loans and grants

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D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of Membersa

Consultation Mission 6–10 Oct 2014 2 4 a, b First Fact-finding Mission 8–15 Dec 2014 2 7 b, e Second Fact-finding Mission 2–6 Feb 2015 3 5 a, b, c Review Mission 7–11 Sep 2015 1 5 b TA Inception Mission 21–28 Oct 2015 1 7 b Review Mission 14–18 Dec 2015 1 5 b Review Mission 15–18 Feb 2016 2 4 b, d Consultation and Review Mission 6–7 Apr 2016 2 2 a, b Review Mission 13–17 Jun 2016 1 5 b Consultation Mission 30 Sep 2016 1 1 b TA Implementation Mission 10–13 Jan 2017 1 4 b Review Mission 6–7 March 2017 1 2 b Project Completion Review Mission 28–31 May 2018 2 8 b, f

TA = technical assistance. a a = director, b = public management economist, c = counsel, d = financial sector specialist, e = economist, f =

associate project analyst.

I. PROJECT DESCRIPTION

1. Despite annual gross domestic product (GDP) growth averaging a robust 8% during 2001–2011, the Kingdom of Bhutan faced a major rupee liquidity crunch in FY2012. The Asian Development Bank (ADB) was invited to review and assess the reasons for the crunch and prepare a report for the Ministry of Finance. The report cited critical structural and cyclical imbalances in the economy related to (i) a narrow economic base, (ii) an overreliance on hydropower development leading to mismatches in external inward and outward flows, (iii) rapid credit-driven growth in imports leading to rapid depletion of Indian rupee reserves, and (iv) policy distortions associated with weak macroeconomic management and financial intermediation.

2. ADB recommended reform measures to decelerate economic growth and engineer a soft landing while strengthening fiscal, monetary, and liquidity management and building the foundations for financial stability. These reforms formed the building blocks for the Strengthening Economic Management Program (SEMP I) in 2013.1 This first program was successful in meeting its output and impact parameters and successfully supported the government in stabilizing the economy. However, to ensure sustained improvement in macroeconomic and financial management, two critical development constraints remained. First, the capacity of institutions to effectively manage macroeconomic shocks needed strengthening. Second, structural constraints related to financial intermediation and access to finance needed to be addressed to develop a more broad-based economy and set the foundations for reducing Bhutan’s overreliance on hydropower sector.

3. Following the first program, and recognizing the constraints cited above, ADB approved the Strengthening Economic Management Program II (SEMP II), a $36.2 million-equivalent policy-based grant and loan to the Kingdom of Bhutan, on 2 June 2015.2 It was financed by a loan in various currencies equivalent to SDR14,443,000 ($20.1 million) and a grant not exceeding $16.1 million from ADB’s Special Funds resources. The loan has a 24-year term, including a grace period of 8 years, and an interest rate of 1.0% per annum during the grace period and 1.5% per annum thereafter.

4. SEMP II was built on the premise that enhancing the economy’s resilience to domestic and external imbalances required shoring up Bhutan’s domestic revenues and improving financial stability by strengthening macroprudential management.3 SEMP II was designed to introduce permanent structural and/or corrective measures to strengthen the economy and support a sustainable and balanced growth model in Bhutan. The government’s successful sequencing of SEMP II reforms following the achievements of SEMP I reflected its strong commitment to sustaining reforms over the medium term.

5. The SEMP II had the following outputs: (i) improved macroeconomic management and (ii) strengthened financial sector development. The first output would be attained by (a) strengthening revenue management and (b) improving macroprudential management to bring stability to the financial system. The second output would be attained by (a) developing capital markets, (b) promoting financial inclusion,4 and (c) improving the performance of the Credit Information Bureau

1 ADB. 2013. Report and Recommendation of the President to the Board of Directors: Proposed Policy-Based Loan

and Grant to the Kingdom of Bhutan for the Strengthening Economic Management Program. Manila. 2 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Policy-Based Loan

and Grant to the Kingdom of Bhutan for the Strengthening Economic Management Program II. Manila. 3 Macroprudential management is the approach to financial management that aims to mitigate risk to the financial

system as a whole (or "systemic risk"). 4 The achievements of the financial literacy program under SEMP II were showcased in a video presented at the 5th

Asian Youth Forum during 2–7 May 2017, running alongside the 50th ADB Annual Meeting in Yokohama, Japan. http://www.youthforasia.com/adb-projects/video-documentation/.

http://www.youthforasia.com/adb-projects/video-documentation/

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(CIB). The program was supported by attached technical assistance (TA), for which resources were also drawn from three related and ongoing ADB-supported TA grants (para. 18).

6. The impact of SEMP II is a sustainable growth trajectory for Bhutan. The outcome is improved macroeconomic stability. The program supported a policy framework with 8 policy actions under the first tranche and 16 policy actions under the second tranche. In line with a strong readiness filter, the first tranche actions were completed before loan signing and the second tranche actions were expected to be completed within 18 months of the first tranche release, as detailed in the policy matrix (Appendix 3).

II. DESIGN AND IMPLEMENTATION

A. Project Design and Formulation

7. At appraisal, SEMP II was highly relevant. It was consistent with ADB’s country partnership strategy for Bhutan, 2014–2018, which notes that the government requires capacity strengthening in macroeconomic management and identifies the absence of a developed financial sector as a critical constraint for inclusive economic development. 5 The program also aligned well with ADB’s Strategy 2020.6 The program matched the developmental objectives of the government’s Eleventh Five-Year Plan, 2013–2018, namely sustainable and equitable socioeconomic development, promotion of good governance, and use of modern information and communication technology (ICT) infrastructure to improve better government services.7 Furthermore, SEMP I and SEMP II were anchored on a Capital Markets Master Plan (2014–2024) approved by the Ministry of Finance (MOF) and the Royal Monetary Authority (RMA).8 The design of SEMP II incorporated lessons from past ADB programs, including SEMP I, and aligned with the terms of reference of three related ADB TA projects (para. 18). The program is also assessed as highly relevant at completion (para. 27)

8. SEMP II was conceived in close cooperation with the government and stakeholders in order to identify the most relevant policy reforms and actions and ensure wide commitment to meeting them. The policy matrix of SEMP II was designed in coordination with the World Bank’s 2014 development policy credit of $20 million for Fiscal Sustainability and Investment Climate .9 SEMP II complemented the World Bank project’s objectives of improving the ease of doing business and fostering private sector development in Bhutan. During program preparation, consultations were also conducted with representatives from the Bankers’ Association of Bhutan and civil society organizations such as the Bhutan Association of Women Entrepreneurs and the National Commission for Women and Children.

9. A policy-based loan was the appropriate lending modality for a country recovering from an adverse shock to the economy and in need of further support to continue reforms. The program provided direction setting in identification of critical reforms and more importantly for clear support to operationalize the reforms. The two-tranche design was appropriate as the quick disbursement of the grant under tranche 1 provided critical budget support to the government and supported its efforts to shore up its foreign exchange reserves. The second tranche was placed after 18 months from tranche 1, which allowed sufficient time for the government to complete the targeted actions.

5 ADB. 2014. Country Partnership and Strategy: Bhutan, 2014–2018. Manila. 6 ADB. 2008. Strategy 2020 The Long-Term Strategic Framework of the Asian Development Bank 2008–2020. Manila. 7 Government of Bhutan, Gross National Happiness Commission. 2013. Eleventh Five-Year Plan, 2013–2018.

Thimphu. 8 Capital Markets Master Plan (2014-2024) for Bhutan was developed with ADB support under ADB. 2012. Technical

Assistance to Bhutan for Capital Market Development. Manila (TA 8280-BHU). ADB provided $1,250,000 from TASF-IV resources on 15 December 2012.

9 IDA 2015. First Fiscal Sustainability and Development Policy Credit (Report No. 90005-BT). Washington.

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The design and monitoring framework (DMF) was well-designed with concrete and measurable targets and performance indicators. Tranche release conditions in the policy matrix followed activities and targets set out in the DMF. Furthermore, the reforms also targeted interventions in complementary sectors to support sustained economic recovery. The program’s comprehensive design supported quick recovery and resilience in the economy.

B. Project Outputs

10. The program’s targeted outputs were improved macroeconomic management and a strengthened financial sector. The DMF is in Appendix 1. All required DMF output indicators were successfully achieved, although indicators 1b, 1c, and 2c were achieved with 6-month delays. There was no major change in scope. SEMP II required completion of 24 policy actions: 8 for tranche 1 release and 16 for tranche 2 release. Many policy actions for the release of tranche 2 followed on from tranche 1 release conditions.10 All policy actions were achieved except for one action that was partially complied with (policy action T2-1; refer to the policy matrix in Appendix 3 for details).

C. Project Costs and Financing

11. Program costs are summarized in Table 1. The minor difference between the amount allocated and the amount disbursed is the result of fluctuations in the exchange rate between the special drawing right (SDR) and the United States dollar.

Table 1: Program Costs Financed by ADB

Item Amount Allocated

at Approval

Amount Disbursed

at Closure

Variance

Amount %

Total grant ($) $16,100,000.00 $16,100,000.00 - -

Total loan (SDR) SDR 14,443,000.00 SDR14,443,000.00 - -

Total $ Equivalent $36,200,000.00 $36,067,000.00 $133,000 3.67

ADB = Asian Development Bank; SDR = special drawing right.a Note: aDisbursement of SDR 14,443,000 was equivalent to $19.967 million at disbursement because of fluctuation in the SDR–United States Dollar exchange rate. Source: Asian Development Bank.

D. Disbursements

12. Disbursements were conducted in accordance with ADB’s simplification of disbursement procedures and related requirements for policy-based loans and grants.11 SEMP II was provided in two tranches and disbursed upon satisfaction of loan and grant effectiveness conditions. The first tranche, which was the grant of $16,100,000 million, was disbursed on 17 June 2015. The second tranche, which was the loan of SDR14,443,000 (equivalent to $19,967,000), was disbursed on 30 May 2017.12

E. Project Schedule

13. The reforms under the program were to be implemented over 18 months from June 2015 to December 2016. The original closing date for the program was 31 December 2016. On 22

10 For example, to improve taxpayer services, the Department of Revenue and Customs was required to prepare a plan

to establish a taxpayer information call center as a tranche 1 action (T1-A1); operationalization of the call center was a tranche 2 action.

11 ADB. 1998. Simplification of Disbursement Procedures and Related Requirements for Program Loans. Manila. 12 Policy actions for tranche 2 release are described in detail in ADB. 2017. Progress Report on Tranche Release:

Bhutan: Strengthening Economic Management Program II Second Tranche. Manila.

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November 2016, the original program closing date was extended to 30 June 2017 to accommodate implementation delays that occurred because (i) formulation of a property tax proposal for local governments was hindered by legislative and administrative issues; (ii) the tax system software vendor was the target of a corporate takeover, resulting in disruptions in development of the revenue administration management information system (RAMIS); (iii) the attached TA required more funding to accommodate unexpected cost overruns to procure ICT equipment and software for the taxpayer information call center and the CIB; this necessitated a repetition of the bidding to obtain the lowest price quotes; and (iv) recruitment of call center agents required additional time.

F. Implementation Arrangements

14. As the executing agency, the Department of Public Accounts (DPA) within the MOF was responsible for overseeing, coordinating, and reporting on the implementation of policy actions required under the program. After the establishment of the Department of Macroeconomic Affairs (DMEA) within the MOF on 21 September 2016, government responsibility for managing loans, grants, and on-lending shifted to the DMEA, and it became the new executing agency for SEMP II.13 The DPA (and subsequently the DMEA) was responsible for overall administration of the program and the TA, disbursements, and maintenance of program records.

15. A program steering committee, comprising representatives from the implementing agencies, was set up and chaired by the secretary of MOF to monitor progress in achieving policy actions. ADB monitored program implementation through periodic progress reports submitted by the DPA and regular missions to confirm the fulfillment of policy actions for tranche releases. The eight implementing agencies were Bhutan Development Bank Limited (BDBL), the CIB, the Department of Revenue and Customs (DRC), the DPA, the MOF, the National Pension and Provident Fund (NPPF), the Registrar of Companies, and the RMA. Each implementing agency took responsibility for program activities under its domain.

16. Implementation arrangements drawn up during program preparation ensured representation by a broad range of stakeholders and fostered strong government ownership of program objectives. TA resources were employed from three ongoing ADB TA projects to support the attached TA (para. 18).

17. Conditions for loan effectiveness were met without delays. Loan covenants were relevant and in line with program requirements. Details on compliance with program assurances and conditions are in Appendix 2. Loan terms and conditions were prescribed by the standard Asian Development Fund loan terms of ADB.

G. Technical Assistance

18. SEMP II did not incorporate preparatory TA because most of its policy actions were designed to deepen reforms initiated under SEMP I, and drew on policy dialogue from that program. However, support was drawn from the TA for Capital Market Development, under which a staff consultant was hired to identify and make recommendations on how to improve credit reporting and secured transactions regimes in Bhutan.14 SEMP II was strongly supported by the attached TA and three related, ongoing ADB-supported TA grants. Details on all four TA projects are given below:

13 MOF Public Notification No. MoF/HRD/OD/68/2016/4974 on 21 September 2016. 14 See footnote 8.

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(i) The attached TA for Supporting Implementation of Strengthening Economic Management Program II supported tranche 2 policy actions 1, 3, 4, 5, 9, 12, 13, 14, 15, and 16.15 The TA included support for (i) calculating property tax rates based on the property valuation methodology (PVM), (ii) operationalizing a taxpayer information call center, (iii) an annual calendar for issuance of government debt securities, (iv) introduction of new money-market instruments, (v) support to NPPF (vi) a financial inclusion and financial literacy program, (vii) introduction of mobile and branchless banking, and (viii) strengthening of the CIB. Additional software for the RAMIS was also included under this TA. The TA was rated highly successful in the TA completion report (Appendix 4);

(ii) The TA for Developing a Revenue Administration Management Information System supported tranche 2 policy action 2: operationalization of direct tax and sales tax modules of the RAMIS.16 The completion report for this TA is due to be written in 2018;

(iii) The TA for Capital Market Development supported tranche 2 policy actions 5, 10, and 11.17 The TA components included (i) introduction of new money market instruments, (ii) a feasibility report for establishing a securities exchange commission, and (iii) a feasibility report on securitization of hydropower revenues. An individual capital market expert and a securitization expert were hired under this TA. The TA was rated successful in the TA completion report.18

(iv) The TA for Supporting Financial Stability in Bhutan and the Maldives supported second tranche policy actions 6, 7, and 8.19 The TA included support to RMA for (i) assessing compliance with the macroprudential regulations of at least three financial institutions, (ii) preparing an assessment report on the implementation of its liquidity management and stress testing framework by the Bank of Bhutan Limited and Bhutan National Bank Limited, and (iii) publishing a financial stability report for FY2015. Although the TA was closed before SEMP II implementation began, the testing and report templates prepared under this TA were used under SEMP II. The TA was rated successful in the TA completion report.20

19. Capacity building initiatives under the program. Trainings and workshops under the attached TA benefited more than 300 participants, enhancing the sustainability of reforms. Although most trainings were conducted within Bhutan, 11 officials from the NPPF, the Registrar of Companies, the RMA, and the MOF attended international trainings in Malaysia, the Philippines, and Thailand. In addition, officials from the Registrar of Companies attended a conference in Nepal on corporate and business law reforms and good governance (details are in Appendix 4).

15 ADB. 2015. Supporting Implementation of Strengthening Economic Management Program II (TA 8901-BHU). Manila.

The piggybacked TA grant for $700,000, funded by the ADB Technical Assistance Special Fund (TASF-V), was approved and became effective on 9 July 2015. An additional $500,000 from the Financial Sector Development Partnership Special Fund was approved on 10 August 2015, and an additional $110,000 from the TASF-V was approved on 10 June 2016, bringing the total TA resources to $1.310 million.

16 ADB. 2011. Technical Assistance to Bhutan for Developing a Revenue Administration Management Information System (TA 7881-BHU). Manila. ADB provided $500,000 from a grant by the Republic of Korea e-Asia and Knowledge Partnership Fund on 7 October 2011.

17 Footnote 8. 18 ADB. 2017. Completion Report for Technical Assistance to Capital Market Development (TA 8280-BHU). Manila. 19 ADB. 2012. Technical Assistance for Supporting Financial Stability in Bhutan and the Maldives (TA 8284-REG).

Manila. ADB provided $500,000 from the Financial Sector Development Partnership Fund for development of macroprudential regulations and liquidity management on 19 December 2012.

20 ADB. 2016. Completion Report for Technical Assistance for Supporting Financial Stability in Bhutan and the Maldives (TA 8284-REG). Manila.

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20. TA resources were used effectively, and project coordination was successful because of strong teamwork between the consultants and project officers at the implementing agencies and ADB. For the three separate TA projects that supported specific actions under SEMP II, deliverables and the performance of consultants were generally satisfactory and on time.

H. Consultant Recruitment and Procurement

21. Under the attached TA, ADB engaged three consulting firms and one individual consultant to support the government in delivering program outputs. The original target was to engage 27 person-months of consultancy under the attached TA, but the scope of the TA was expanded, and 36 person-months were added. The TA completion date was extended by 6 months to 30 June 2017, to match the extension of the program completion date (para. 13).

22. Individual consultants and consultancy firms were recruited in accordance with ADB’s Guidelines on the Use of Consultants (2013, as amended from time to time). Disbursements under the TA were made in accordance with ADB's Technical Assistance Disbursement Handbook (2010, as amended from time to time).

23. Procurement was undertaken for the ICT equipment and software for the call center, the CIB and BDBL. Procurement was carried out in accordance with ADB’s Procurement Guidelines (2013, as amended from time to time).

24. The firms and individual consultants received excellent ratings.21

I. Monitoring and Reporting

25. The financing agreement with the government contained covenants relevant to program reporting. These were fully complied with according to ADB policies (Appendix 2).

26. The financing agreement also specified the program implementation arrangements under Schedule 4 (Program Implementation and Other Matters). The executing agency and implementing agencies have fully complied with these requirements. The DPA and DMEA conducted periodic reviews throughout the program and supported ADB in its review missions. The executing agency provided information on the use of counterpart funds to ADB as and when needed. There were no allegations of corrupt, fraudulent, collusive, or coercive practices related to the program. The financial management capacity of the executing agency was assessed as reasonable.

III. EVALUATION OF PERFORMANCE

A. Relevance

27. The program is rated and remains highly relevant.22 It provided continuity to the macroeconomic stabilization actions initiated under SEMP I. After the liquidity shock of 2012, the two successive programs strongly supported the government in the 3Rs: recovery, rebalancing, and reorientation. The reforms for recovery initiated under SEMP I were strengthened under SEMP II to provide better resilience to the economy in the short run. Recovery-enhancing reforms in revenue management included (i) successful implementation of direct tax and sales tax modules of the RAMIS, (ii) introduction of objective property tax valuation methodology, (iii) a

21 The capital market expert, who was hired under TA 8280 for Capital Market Development, received a satisfactory

rating. 22 Ratings have been determined based on ADB. 2016. Guidelines for the Evaluation of Public Sector Operations.

Manila.

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taxpayer information call center, and (iii) upgrading the Revenue Management System (RMS) for Thimphu Thromde. 23 With improved taxpayer services, the RAMIS was expected to encourage voluntary compliance and mobilize higher tax revenues. Indeed, the amount of registered tax payers in Bhutan increased by 13.7%, from 94,690 in FY2014 to 107,678 in FY2016, and the number of online tax filers has also increased significantly, from 29,615 to 51,545 (74%), during the same period. Similarly, after upgrading the revenue management system, property tax collection in Thimphu jumped by almost 70% in 1 year—from Nu19.9 million in FY2015 to Nu33.8 million in FY2016. In terms of rebalancing, policy actions for strengthening financial stability through RMA support for stress testing and liquidity management framework, publication of an annual Treasury Bill (T-Bill) issuance calendar at the beginning of a financial year and moves to strengthen the NPPF and the CIB have had visible effects. Lastly, in terms of reorientation, concerted efforts to develop capital markets and improve financial literacy and inclusion are reorienting the economy toward the private sector over the long run and can be considered for additional support by ADB.

28. A holistic approach toward financial inclusion is among the most innovative and distinguishing features of SEMP II. Even as the program supported BDBL to expand its geographic and market reach to remote areas through branchless banking and/or agent banking, it also implemented a financial literacy program (FLP) to create awareness among different socioeconomic, demographic, and gender groups on services offered by banks and capital markets, and to mobilize domestic savings. An effective communication strategy was employed using brochures and printed material, radio advertisements, and events. Awareness programs were conducted to extend outreach to schools, and initial cash contributions were offered for newly opened individual accounts; this initiative involved local nongovernment organizations for maximum impact. The effort to mobilize savings and improve financial literacy was complemented by components to strengthen the CIB’s services to enable easier access to credit certification for individuals. The participation of women in these activities was encouraging (para. 34). Expanding the use of bank accounts to remote areas is aimed toward promoting financial independence and security for individuals. Bank accounts also allow citizens to receive direct benefits from the government. Mobilization of additional savings also paves the way for further development of capital markets.

29. A policy-based loan was the appropriate lending modality for providing further support to the government for economic recovery after the adverse liquidity crisis in 2012. The two-tranche design was also appropriate, and the tranches were properly spaced to allow completion of targeted actions. The DMF was well designed, with concrete and measurable targets and performance indicators (para. 7). The program provided a comprehensive design, including expansion into complementary sectors, that supported quick recovery and resilience in the economy.

30. Since SEMP II was conceived in close cooperation with the government and the stakeholders, commitment by all sides to further reforms remains relevant. SEMP II was consistent with ADB’s country partnership strategy for Bhutan, 2014–2018, matched the developmental objectives of the government’s Eleventh Five-Year Plan, 2013–2018, and aligned with ADB’s Strategy 2020 priorities to complement earlier financial sector reforms initiated under SEMP I. The program also supported the government’s commitment to the Capital Markets Master Plan promoted under SEMP I (footnote 6). The design of SEMP II incorporated lessons from past ADB programs, including SEMP I, and was aligned with other ongoing ADB programs.

23 A thromde, or municipality, is a second-level administrative division in Bhutan. The Local Government Act of 2009

defines the legal administrative status of thromdes.

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B. Effectiveness

31. The program is rated effective. It achieved its outcome indicator targets (Table 2) and output indicator targets (Appendix 3). The 24 policy actions took a gradual approach, starting with capacity building and consolidation of gains before moving on to further reforms. This approach contributed to Bhutan’s financial resources being used in a more predictable manner, improved taxpayer services for expansion of tax-base, introduced objective valuation methodology for property taxes, and supported steps toward financial stability and inclusive finance.

32. All policy actions were achieved satisfactorily except for one that was partially complied with because of regulatory and administrative constraints outside of the program’s control. The cabinet introduced property tax rate proposals for Thimphu Thromde in Parliament; the same could not be done for the other 19 thromdes because a Supreme Court writ issued on 15 August 2016 declared the dzongkhag (administrative and judicial district) thromdes “unconstitutional”. These thromdes will be in a position to submit their own tax proposals when they are fully constituted as per the requirements of the Local Government Act 2009. Going beyond the envisaged policy actions, the program also supported Thimphu Thromde in upgrading its revenue management system. The resultant improvements in property tax collection are noteworthy (para. 27).

33. As all the SEMP II activities were confined to policy and institutional reforms, the program was classified at appraisal as category C for impacts on the environment, involuntary resettlement, and indigenous peoples, in compliance with ADB’s Safeguard Policy Statement (2009). No activities under SEMP II resulted in or led to involuntary resettlement, or affected indigenous peoples, and no adverse environmental impacts were identified.

34. The program was effective in including women under various reform initiatives. The FLP created awareness among different socioeconomic, demographic, and gender groups on the importance of savings and services offered by banks and capital markets. A financial literacy survey was conducted among school-age youth (1,328 respondents) and adult bank customers (388 respondents). Focus group discussions were carried out with rural communities (100 farmers, mostly women in farming cooperatives in four eastern districts). Financial literacy clubs were established in six pilot schools in five districts across Bhutan, and financial literacy outreach sessions for more than 300 girls were conducted. Banks visited the pilot schools to provide information on financial services and to open savings accounts for 340 students. RMA collaborated with local nongovernment organizations active in rural communities and microfinance projects involving women, such as Rural Education and Development Global and RENEW (Respect, Educate, Nurture, and Empower Women), by conducting trainings with FLP materials. A presentation on debt management was made during RENEW’s entrepreneurship day celebration on 30 September 2016, where entrepreneurs who received microfinance loans shared their experiences with primarily women participants. Furthermore, women formed a significant proportion of new customer enrolment in branchless and agency banking. Of the 10,425 individuals enrolled in agency banking during August 2014–February 2017 via point-of-sales, 5,436 were women and 4,989 were men. Similarly, female users of CIB services increased by 9.8%, from 18,478 to 20,279, during 2014–2016, then increased by 18%, to 23,981 in 2017. Appendix 3 and Appendix 5 provide a detailed assessment of the achievements of SEMP II.

9

Table 2: Program Outcome Performance Indicators

Outcome Status

Gross official reserves in months of merchandise import coverage sustained at not less than 13 months by end of Q4 2016 (FY2014 baseline: 13 months of import coverage)

FY2014: 12.6 months

FY2015: 11.7 months FY2016: 13.3 months

Fiscal deficit within the prescribed level of 3% of GDP achieved by end of Q4 2016 (FY2014 baseline: 4%)

FY2014: 4.1 % surplus

FY2015: 1.6% surplus FY2016: 1.2% deficit

Non-performing loan ratio of banks reached 10% or less by end of Q4 2016 (September 2014 baseline: 11.8%)

FY2014: 11.8%

FY2015: 9.5% FY2016: 9.1%

FY = fiscal year, GDP = gross domestic product. Source: Ministry of Finance. May 2015. National Budget Financial Year, 2015–16. Thimphu; Royal Monetary Authority of Bhutan. January 2015. Annual Report, 2013–2014. Thimphu; Royal Monetary Authority of Bhutan. January 2018. Annual Report, 2016–2017. Thimphu.

C. Efficiency

35. The program is rated efficient. Board approval was obtained on 2 June 2015, the loan and grant agreement was signed on 15 June 2015, made effective on 16 June 2015, and the first tranche was disbursed on 17 June 2015. SEMP II fully achieved all targeted outputs and outcomes envisaged during program design. However, the original program closure date of 31 December 2016 was extended to 30 June 2017 to accommodate implementation delays because of factors not entirely under the control of the program (para. 13). The legal issue involving the creation of 19 thromdes would have been difficult to envisage at the design stage. It would also have been difficult to mitigate the risk of employee turnover or of the corporate buyout of the tax system software vendor. However, the ICT equipment procurement delay could have been avoided with better planning. It may also have been advisable to begin preparations earlier for critical administrative tasks such as creation of staff positions or appointment of contractual staff by the government.

D. Sustainability

36. The program is rated likely sustainable. The government has demonstrated strong political and administrative commitment to the objectives of the two successive and complementary programs. The government has invested in these reforms since 2012 and the risk of a reversal in the policy, legal, regulatory and institutional frameworks relevant to SEMP II is minimal, as demonstrated by the continuation of reforms despite the change in government after 2013 elections.24 On the contrary, consultations with stakeholders pointed to a demand for further deepening and widening of actions initiated under SEMP II.

37. The program has supported the government to prepare policy frameworks in areas such as securities issuance, reinforced by support to provide software and hardware, build institutions, and build capacity at the operational level. Information technology interventions have made significant contributions under the program, leading to (i) improved revenue collection in Thimphu Thromde; (ii) expanded outreach for financial inclusion by the BDBL and the CIB; (iii) improved efficiency within the DRC because of the RAMIS; (iv) better taxpayer services through the call center; and (v) the CIB offering better service and quicker credit certification, resulting in increased membership. The achievements under the program are being carried forward by the implementing agencies, with results being continually improved even after program closure (Table 3). Appendix 5 details the achievements of SEMP II and shows how the reforms have continued even after its closure— strong evidence of the program’s sustainability.

24 The next National Assembly election in Bhutan is likely to be held in the last quarter of 2018.

10

Table 3: Sustainability of Policy Actions (Examples)

Achievements Indications of Sustainability

Output 1: Macroeconomic Management Improved

A. Strengthening Revenue Management

Efficiency enhancement measures such as digitization of property records through the upgraded revenue management system have helped Thimphu Thromde expand its tax base. Property tax collection in Thimphu jumped by almost 70% in 1 year—from Nu19.9 million in FY2015 to Nu33.8 million in FY2016.

Property tax collection increased by a further 22%, to Nu41.3, million in FY2017. The municipality is aiming toward self-reliance in the medium term.

(Source: Thimphu Thromde)

On 1 July 2016, the MOF introduced a calendar for issuance of T-Bills in FY2018.

Annual calendar for T-Bills was issued for FY2018. The calendar for FY2019 will be issued at the end of June 2018. With the declaration of T-Bill issuance dates beforehand, investors can now better manage their treasury–cash operations. As its capacity improves, the MOF will be able to include indicative issuance amounts along with the dates for the benefit of investors.

B. Enhancing Financial Stability through Macroprudential Management

The RMA has submitted an assessment report based on annual on-site inspections for the compliance of macroprudential regulations in three financial institutions.

The annual on-site inspections have been repeated for FY2016 and FY2017.

Output 2: Financial Sector Development Strengthened

C. Developing Capital Markets

The NPPF raised its membership beyond the program target of 5%. Membership rose from 51,333 members in July 2015 to 53,977 members in February 2017

NPPF coverage further expanded to 55,610 members by May 2018.

E. Improving the Credit Information Bureau

Male users of CIB services increased by 21% during 2014–2016, from 30,185 to 40,017. Female users of CIB services increased by 9.8%, from 18,478 to 20,279, over the same period.

Male users of CIB services further increased by 14%, to 45,661, in 2017.

Female users increased by another 18%, to 23,981, in 2017.

CIB = Credit Information Bureau; FY= fiscal year; MOF= Ministry of Finance; NPPF= National Pension and Provident Fund; RMA= Royal Monetary Authority; T-Bill= treasury bill. Source: Asian Development Bank.

38. The two successive programs have gradually strengthened the financial sector and the government’s macro-financial management to ensure that gains are consolidated before subsequent steps are made. The introduction of macroprudential rules and regulations has strengthened the resilience of the banking system against risks arising from pro-cyclicality of bank lending. Initiatives to promote branchless banking and financial inclusion appear to be gathering steam on their own after receiving initial support under the two programs; the RMA is actively pushing these initiatives, while Bank of Bhutan has begun to provide agent banking services.

39. The introduction of two new money-market instruments, certificates of deposit (CDs) and commercial papers, is another example of sustainable intervention. Druk Holding and Investments was the first corporate entity to issue commercial papers, worth Nu870 million, on 24 March 2017.

11

This was followed by commercial paper issuances by Nubri Capital Pvt Ltd, Druk Green Power Corporation and State Trading Corporation of Bhutan Ltd as shown in Table 4. However, given the popularity of other savings instruments, demand for CDs remains lackluster and issuance of CDs has not taken off.

Table 4: Commercial Paper Issuances in Bhutan

Description Issue Date Maturity Date Term (Days)

Amount

(Nu Million)

Discount Rate

Over Subscription

DGPC Commercial Papers-I 07-JUN-2017 10-SEP-2017 96 1,700 5 % 29.59 %

DHI Commercial Papers-I 24-MAR-2017 23-MAY-2017 30 870 2.50 % 74.71 %

Nubri Commercial Papers-II 08-MAY-2017 04-SEP-2017 120 100 4.00 % 5.00 %

STCB Commercial Paper I 29-AUG-2017 28-FEB-2018 184 100 3.5 % 0 %

DGPC= Druk Green Power Corporation; DHI= Druk Holding and Investments; STCB= State Trading Corporation of Bhutan. Source: Royal Securities Exchange of Bhutan Limited (http://www.rsebl.org.bt/trading#cp).

40. Exceptions where resource constraints have affected continuity are confined to: (i) RMA has not carried forward the initiative to publish a financial stability report after the first report in 2016 (for the year 2015), and (ii) the RMA is conducting stress testing of financial institutions on a need basis only. However, additional annual inspections and checks for adherence to macro-prudential norms are being conducted, which mitigate the risks associated with the above exceptions.25 Financial stability reports and stress testing can be more regular if additional resources materialize.

E. Development Impact

41. The development impact of SEMP II is rated highly satisfactory. Measuring the impact of policy reforms can be challenging. The impact indicators in a policy-based program targeting macroeconomic development can be negatively affected by many external factors. Moreover, impacts may take years to become evident and may not be visible in the short to medium term. However, the targeted impact indicator for SEMP II had already been achieved by FY 2017 (Table 5).

Table 5: Program Impact Indicator

Impact Status

Annual real GDP growth is sustained at not less than 5% by the end of FY2019 (baseline: 4% in FY2014)

FY2015: 5.8%

FY2016: 6.6%

FY2017(a): 8.0%

FY = fiscal year, GDP= gross domestic product, RMA = Royal Monetary Authority. Source: Ministry of Finance. May 2015. National Budget Financial Year, 2015–16. Thimphu; Royal Monetary Authority of Bhutan. January 2015. Annual Report, 2013–2014. Thimphu; Royal Monetary Authority of Bhutan. January 2018. Annual Report, 2016–2017. Thimphu.

42. SEMP II targeted private sector development directly by (i) introducing regulations for issuance of shares; (ii) conducting a feasibility study for an independent securities and regulatory commission; (iii) introducing new money market instruments, including commercial papers; and

25

RMA is conducting annual on-site inspections of financial institutions every year, and compliance with macroprudential regulations has also been verified for FY2016 (in 2017) and FY2017 (in 2018). RMA is also publishing monthly financial sector performance reviews covering both the banking and non-banking sphere. As of 6 July 2018, the latest financial sector performance review is available for March 2018.

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(iv) upgrading the services of the CIB. Moreover, the program’s objectives of macroeconomic sustainability, development of capital markets, and mobilization of savings through FLPs and gewog (groups of villages) banking services were meant to provide a conducive environment for private sector development. SEMP II satisfactorily achieved compliance in these actions.

43. The impact of SEMP II on institutional development was highly satisfactory.

(i) The RAMIS has significantly improved the efficiency of the DRC and the upgraded revenue management system has done the same for Thimphu Thromde. The number of online tax filers increased significantly—by 74%—from 2013–2014 to 2015–2016, as noted in para. 27. Likewise, the property tax collections in Thimphu Thromde have doubled from Nu19.9 million in FY2015 to Nu41.3 million in FY2017.

(ii) The CIB was supported in its business plan and development of efficient ICT-based system, the NPPF received support in preparation of a corporate strategy plan, the RMA and the Registrar of Companies were supported in drafting regulations related to securities regulation, BDBL was helped in extending its branchless banking network, and significant support was extended to RMA for strategizing and implementing the financial literacy program.

F. Performance of the Borrower and the Executing Agency

44. The performance of the borrower and executing agency is rated highly satisfactory. The DPA, and later the DMEA, was responsible for overall program administration as the executing agency, which included (i) overseeing and coordinating timely implementation of policy actions across the eight implementing agencies; (ii) maintaining program records; (iii) complying with reporting requirements; and (iv) managing disbursements. The DPA established a system for monitoring the program and reporting to ADB on the implementation of policy actions (Appendix 2: Program Assurances and Conditions, Condition #7).

45. This was a highly complex program covering a wide gamut of interventions. Besides policy reforms, institutional development, and capacity building, the program covered ICT procurement and an effective communication and media strategy for reforms related to financial inclusion. The program’s broad scope carried a high risk of derailment. Still, the executing agency provided strong leadership in coordinating with the implementing agencies, and that played a critical role in keeping program implementation on track. The executing agency ensured full compliance with all loan covenants. ADB staff and staff at the implementing agencies expressed satisfaction with the executing agency’s role in successfully completing the program.

G. Performance of the Asian Development Bank

46. ADB’s performance is rated highly satisfactory. SEMP II was administered and supervised by ADB headquarters and by the newly opened Bhutan Resident Mission. Following loan effectiveness, ADB fielded 10 review missions for a total of 59 person-days. The review missions were effective in monitoring implementation progress. The ADB project team quickly and efficiently resolved issues identified during review missions through effective communication of policy action requirements and implementation timelines. The need for additional funding for the ICT-related components of the CIB and the taxpayer information call center were recognized and incorporated early on. In a similar vein, the ADB program team was responsive and the staff were highly solutions-oriented when faced with major downside risk from the corporate takeover of the ICT vendor for the RAMIS and subsequent problems in managing the team and threats to quit by the consultant. Likewise, staff from ADB’s Bhutan Resident Mission provided valuable assistance in facilitating policy dialogue. The ADB team coordinated well with the executing and implementing agencies and effectively monitored the external consultants engaged for the related

13

TA. ADB responded effectively to requests for assistance on implementation by providing additional support, including additional financing, to the implementing agencies using staff consultants and additional TA resources (para. 18).

H. Overall Assessment

47. Overall, SEMP II is rated successful. The program achieved all objectives established by the government and ADB at program inception. The program was highly relevant in providing continuity to reforms initiated under SEMP I, introducing innovative features related to financial inclusion, and in reorienting the economy toward a stable and higher growth trajectory. It aligned well with the objectives of ADB’s country partnership strategy for Bhutan, 2014-2018 and the government’s Eleventh Five-Year Plan, 2013–2018. It was effective in that it fully achieved its targeted output and outcome indicators. The program was efficient in achieving a diverse set of outputs leveraging separate TA resources, albeit with a 6-month delay. The program is rated likely sustainable considering that the comprehensive policies and measures implemented under the program have continued after program closure, coupled with the government’s strong commitment to continued reforms. The institutional development impact was highly satisfactory considering that the implementing agencies have made visible improvements in terms of efficiency and effectiveness stemming from program-supported policy recommendations and training. The overall development impact of the program was also highly satisfactory considering that the impact indicator for FY2019 (annual GDP growth of 5%) had already been achieved by FY2017.

Table 6: Overall Ratings

Criteria Rating

Relevance Highly relevant Effectiveness Effective

Efficiency Efficient

Sustainability Likely sustainable

Overall Assessment Successful

Development impact Highly satisfactory

Borrower and executing agency Highly satisfactory

Performance of ADB Highly satisfactory

ADB = Asian Development Bank. Source: Asian Development Bank.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS

A. Issues and Lessons

1. Program Design

48. Legislative and political risks should be examined carefully. Property tax proposals could not be introduced for 19 thromdes (Thimphu being the one exception) because a Supreme Court writ issued on 15 August 2016 declared the dzongkhag thromdes “unconstitutional” (para. 32). The operationalization of property taxes based on property valuation methodology (PVM) has been delayed even in Thimphu because of its political sensitivity. This demonstrates how policy actions involving legislative changes have to examined carefully for potential political risks and legal issues. Such risks can be particularly acute closer to elections or during a change in government. Contingencies pertaining to such risks should be built into projects during the design stage. For agencies concerned with revenue collection, reforms to improve operational efficiency or expand the tax base may be more acceptable than suggesting higher or additional taxes (Appendix 5, row 1).

14

49. Consolidate gains before introducing further reforms. The pace of a program should match the borrower’s capacity and political willingness to change. Policy actions must be thoroughly assessed, clearly defined, relevant, and achievable within the required time frame. Unless the borrower has the intent and capacity for rapid change, gradual reforms may be preferable and more sustainable (para. 31).

2. Program Monitoring and Implementation

50. Strong government ownership and effective program coordination is essential. SEMP II was a complex program that covered a wide range of issues. Eight implementing agencies were involved. It was delivered successfully because of strong government ownership and excellent program coordination, with an effective partnership between ADB and the government, including the RMA (paras. 46 and 47).

51. Communication and consultation is important at every stage of a program. At the design stage, it ensures a thorough assessment of timelines and risks. The implementing agencies should be able to appreciate the benefits that accrue to them from the program. Stakeholder consultations during implementation provide early-warning signals that can be addressed jointly in time (para. 46).

52. Anticipate issues and prepare in advance. The delay in appointing the call center staff shows that it is advisable to begin advance preparations where critical administrative issues such as creation of staff positions or appointment of contractual staff by the government are involved (para.13).

3. Institutional Strengthening

53. Utilize technical assistance resources effectively for capacity building. For example, successive TA projects under SEMP I and SEMP II have built the capacity of the MOF for debt and cash management (Appendix 5).

54. Actions related to information technology require attention during both planning and implementation. Information technology interventions have made significant contributions under the program (paras. 27 and 37). At the same time, the lesson gained is that ICT interventions should be designed and implemented carefully because course correction during implementation can cause delays and cost overruns, and staff turnover can affect project deliverables. Implementation of the RAMIS was hindered by implementation issues that were successfully addressed through tight monitoring and provision of additional resources, including a techno-functional consultant who was hired to intermediate with the DRC and the software developer (para. 46).

B. Recommendations

1. Program-Related

55. Future monitoring. South Asia Public Management, Financial Sector, and Trade Division (SAPF), the Bhutan Resident Mission, and the government should maintain close coordination to ensure effective monitoring of actions initiated under SEMP II and to foster a fruitful policy dialogue for future ADB support to the government.

56. Covenants. The program covenants were relevant and in line with program requirements. They should therefore be maintained in their existing form.

57. Further action or follow-up. The DRC will require assistance to incorporate a goods-and-services tax in the RAMIS, and to make the call center more effective. The call center

15

software may need to be linked with the RAMIS (with adequate security rights and firewalls). ADB may follow up on the implementation of PVM-based property tax methodology in Thimphu and other municipalities. The RMA may need additional support to deepen reforms initiated under the program. For example, the liquidity management and stress-testing framework will need to be institutionalized with allocation of specific resources for an annual review. Further initiatives toward financial inclusion, such as the introduction of financial literacy in the school curriculum, can be supported. Suggestions on securitizing hydropower revenues can be carried forward. The CIB is in a growth stage, and further support to the bureau may provide immediate benefits.

58. Timing of the project performance evaluation report. It is recommended that ADB’s Independent Evaluation Department prepare a program performance evaluation report within 2 years of completion of SEMP II— while the executing agency retains key government officials—to assess the cumulative impact of the two interrelated public sector programs (SEMP I and SEMP II). This will result in a precise and comprehensive assessment of the programs’ long-term impact and the sustainability of the reforms.

2. General

59. Understand the political commitment and capacity constraints. To design a successful program, it is essential to gauge political will and grasp the capacity of government agencies and other stakeholders to handle comprehensive reforms. ADB’s involvement typically strengthens the commitment of executing agencies’ and stakeholders’ buy-in for politically sensitive reforms.

60. Plan for sustainability after exit. ADB should design projects and programs to ensure that reform actions are sustainable after program closure. In this regard, it is advisable to undertake gradual reforms instead of making quantum leaps. Attention needs to be paid towards institution building and training of staff. Both SEMP I and SEMP II successfully followed this kind of incremental reform approach.

61. Align technical assistance with program objectives. ADB should carefully align the objectives and outputs of program loans with related TA to ensure efficient and effective program implementation. TA resources must be planned, procured, and deployed to support program outputs. SEMP II helped ensure strong government commitment to policy reforms and accelerated implementation by incorporating related TA into the program design. It is important that ADB and the government establish a joint oversight mechanism and introduce a mechanism for coordination between government counterparts and the consulting team.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Indicators and

Targets Project Achievements

Impact Sustainable growth trajectory

Annual real growth is sustained at not less than 5% by the end of FY2019 (baseline: 4% in FY2014)

On track towards achievement.

Annual GDP growth has been above 5% during the period FY2015-FY2016, as shown below:

FY2015: 5.8%

FY2016: 6.6% FY2017(a): 8.0%

Source: RMA Annual Report 2016-2017

Outcome Improved macroeconomic stability

Gross official reserves in months of merchandise import coverage are sustained at not less than 13 months by the end of Q4 2016 (baseline: 13 months of import coverage in FY2014) Fiscal deficit is within the prescribed level of 3% of GDP by the end of Q4 2016 (baseline: deficit of 4% in FY2014) Non-performing loan ratio of banks reaches 10% or less by the end of Q4 2016 (baseline: 11.8% in September 2014)

Achieved. Gross official reserves covered 13.3 months of merchandise import coverage at the end of FY2016 Source: RMA Annual Report 2016-2017 Achieved. Fiscal balance was in surplus of 1.6% of GDP in FY2015 and in deficit of 1.2% of GDP in FY2016. (within the targeted level of 3% of GDP) Source: RMA Annual Report 2016-2017 Achieved. Non-performing loan ratio of banks reduced to 9.5% in FY2015 and further to 9.1% in FY2016 Source: RMA Annual Report 2016-2017

Outputs 1. Improved macroeconomic management

1a. A calendar for issuance of government debt securities is published by MOF for FY2017 by the end of Q2 2016 (baseline: not available) 1b. Direct and sales tax modules of the RAMIS are launched and become fully operational by the end of Q3 2016 (baseline: not available)

Achieved. On 1 July 2016, MOF published the T-bills issuance calendar for FY2017-2018 on RMA and MOF websites and in Kuensel newspaper. Annual calendar for T-bills was also issued for FY2017-2018. The calendar for FY2018-2019 will be issued at the end of June 2018. Achieved. Soft launch of income tax and revenue accounting modules was on 1 January 2015, and sales tax modules on 2 July 2015. System and software enhancements and stabilization of RAMIS were completed and

Appendix 1 17

Design Summary Performance Indicators and

Targets Project Achievements

1c. An effective liquidity management and stress testing framework for banking sector is developed and implemented by the end of Q3 2016 (baseline: liquidity management system is weak)

the direct and sales tax modules were fully operational in January 2017. Achieved. RMA implemented the liquidity management and stress testing framework for the entire banking system and for the Bank of Bhutan and Bhutan National Bank, and submitted a report on 1 March 2017 (Letter No. RMA/FRSD/29/2016-17/3616)

2. Strengthened financial sector development

2a. Gender sensitive financial literacy program is completed by the end of Q3 2016 (baseline: not available) 2b. Gewog banking services in nonurban areas, targeting the specific needs of low-income women, are implemented by the end of Q3 2016 (baseline: not available) 2c. Users of CIB services (disaggregated by gender) increase by 10% by the end of Q3 2016 (baseline: 33,185 men and 18,478 women obtained credit report from CIB in 2014)

Achieved. RMA carried out the financial literacy program and submitted a report on 14 March 2017 (Letter No. RMA/FRSD/29/2016-2017/3942). Achieved. BDBL completed the implementation of agent/branchless banking, extending financial services to 205 gewogs (groups of villages), and submitted a report on 15 March 2017 (Letter No. BDBL/ITD/42/2017). Achieved. Male users of CIB services increased by 21% from 30,185 in 2014 to 40,017 in 2016. Female users of CIB services increased by 9.8% from 18,478 in 2014 to 20,279 in 2016.

CIB = Credit Information Bureau; FY= fiscal year; GDP= gross domestic product; MOF= Ministry of Finance; NPPF= National Pension and Provident Fund; RMA= Royal Monetary Authority; T-Bill= treasury bill. Source: Asian Development Bank.

18 Appendix 2

STATUS OF COMPLIANCE WITH LOAN COVENANTS

COVENANT REFERENCE IN LOAN

AGREEMENT STATUS OF COMPLIANCE

Covenants

Section 4.02 (a) The Beneficiary shall maintain, or cause to be maintained, records and documents adequate to identify the Eligible Items financed out of the proceeds of the Loan and the Grant and to record the progress of the Program

Section 4.02 (b) The Beneficiary shall enable ADB’s representatives to inspect any relevant records and documents referred to in paragraph (a) of this Section.

Financing Agreement (FA), Article IV, Particular Covenants

Complied with.

The executing agency, DPA of MOF, has cooperated fully with each ADB mission by providing relevant documents as requested by ADB.

Following the establishment of DMEA (Public Notification No. MoF/HRD/OD/68/2016/4974 on 21 September 2016 by MOF), DMEA assumed responsibility regarding borrowing, on-lending and grants for the Government of Bhutan. DMEA became the new executing agency of SEMP II. DMEA also fully cooperated with the ADB missions by providing relevant documents.

Section 4.03. (a) As part of the reports and information referred to in Section 6.05 of the Loan Regulations and Sections 6.04 of the Grant Regulations, the Beneficiary shall furnish, or cause to be furnished, to ADB shall such reports and information as ADB shall reasonably request concerning (i) the Counterpart Funds and the use thereof, and (ii) the implementation of the Program, including the accomplishment of the targets and carrying out of the actions set out in the Policy Letter.

FA, Article IV, Particular Covenants Complied with.

The DPA and the implementing agencies have provided ADB with reports and other information concerning the program.

Section 4.03. (b) Without limiting the generality of the foregoing or Section 6.05 of the Loan Regulations and 6.04 of the Grant Regulations, the Beneficiary shall furnish, or cause to be furnished, to ADB quarterly reports on the carrying out of the Program and on the accomplishment of the targets and carrying out of the actions set out in the Policy Letter.

FA, Article IV, Particular Covenants Complied with.

On 29 September 2016, T. Dorji, chief program officer of the Debt Management Division of DPA, submitted an executing agency progress report on the status of SEMP II policy actions, as agreed with the respective implementing agencies, as part of Bhutan’s Tripartite Portfolio Review and Consultation Meeting presentations. The program implementation was discussed with the executing agency and implementing agencies during quarterly ADB review missions.

Appendix 2 19



Implementation Arrangements 1. The Beneficiary shall be responsible for the coordination and execution of the Program with the Program Implementing Agencies. The Program Executing Agency shall oversee and coordinate the timely implementation of agreed policy, legal, and regulatory actions. The Program Implementing Agencies shall also be responsible for Program administration, disbursements, and maintenance of all Program records. ADB will work through the Beneficiary’s Program steering committee mechanism to monitor progress, oversee the implementation of the Program, and guide and direct the activities of the Program Executing Agency.

FA, Schedule 4, Program Implementation and Other Matters

Complied with. The DPA and subsequently DMEA have been responsible for the overall implementation of the program, in coordination with the various implementing agencies. A steering committee meeting was held on 11 August 2016 with 53rd Policy and Planning Coordination Meeting of MOF chaired by the Finance Secretary to review the progress of SEMP II and completion of second-tranche policy actions. The DPA and DMEA have consistently and fully cooperated with the project team and consultants under the piggybacked technical assistance.

Policy Actions and Dialogue 2. The Beneficiary shall (a) use its best endeavors to ensure that critical Program staff will remain in their position on a full-time basis for a reasonable duration to ensure continuity in the implementation of the Program; and (b) ensure that all Program Implementing Agencies will be adequately staffed and provided with the necessary financial, technical, and other resources to perform their functions under the Program.


Complied with. The DPA and DMEA and implementing agencies have confirmed that all policies adopted and actions taken under the program, as set forth in the Policy Letter and the Policy Matrix, continue to be in effect, and commit to the continuation of the policy actions throughout the program, as recorded in each aide-mémoire following an ADB mission.

3. The Beneficiary shall (a) ensure that all policy actions adopted under the Program, as set out in the Policy Letter and the Policy Matrix, continue to be in effect for the duration of the Program and subsequently; and (b) make submissions to ADB on the completion of actions under the Policy Matrix by reference to the indicators set out therein.

4. The Beneficiary shall keep ADB informed of policy discussions with other multilateral or bilateral aid agencies that have implications for implementation of the Program and shall provide ADB with an opportunity to comment on any resulting policy proposals. The Beneficiary shall take into account ADB’s views before finalizing and implementing any such proposals.

The DPA and DMEA have informed ADB missions of ongoing and planned activities of other multilateral and bilateral aid agencies and facilitated meetings with the World Bank’s resident representative office.

20 Appendix 2



Counterpart Funds

5. The Beneficiary shall ensure that the Counterpart Funds are used to finance the implementation of certain programs and activities consistent with the objectives of the Program and provide the necessary budget appropriation to finance the costs relating to the implementation of reforms under the Program.


Complied with.

The DPA and DMEA have provided information to ADB on the use of counterpart funds as and when needed.

Governance and Anticorruption

6. The Beneficiary shall, and cause BDBL, CIB and NPPF to: (a) comply with ADB's Anticorruption Policy (1998, as amended to date) and acknowledge that ADB reserves the right to investigate directly, or through its agents, any alleged corrupt, fraudulent, collusive or coercive practice relating to the Program; and (b) cooperate with any such investigation and extend all necessary assistance for satisfactory completion of such investigation.

1.

2. FA, Schedule 4, Program Implementation and Other Matters

Complied with.

3. The project team has not received allegations of corrupt, fraudulent, collusive, or coercive practices relating to the program.

Monitoring and Review

7. The Beneficiary and ADB shall undertake ongoing monitoring and regular formal review of Program performance. The Beneficiary, through the Program Executing Agency, shall establish and maintain a Program performance monitoring system that will include a database on the compliance status of policy actions.

4. FA, Schedule 4, Program Implementation and Other Matters

Complied with.

5. ADB conducted seven review missions in December 2015; February, April, June, September 2016; and January and March 2017.

6.

7.

8. The Beneficiary shall monitor the implementation and outcomes of the Program using a set of indicators and targets that has been agreed between the Beneficiary and ADB to assess progress towards meeting the objectives of the Program. For each of the agreed indicators, progress shall be measured against the baselines in the design and monitoring framework.

8.

9.

10. The DPA and DMEA have conducted periodic reviews throughout the program and provided ADB with the summary of the review meeting held on 11 August 2016.

ADB = Asian Development Bank, BDBL = Bhutan Development Bank Limited, CIB = Credit Information Bureau, DMEA = Department of Macroeconomic Affairs, DPA = Department of Public Accounts, FA = Financing Agreement, NPPF = National Pension and Provident Fund, MOF = Ministry of Finance, SEMP II = Strengthening Economic Management Program II. Source: Asian Development Bank.

Appendix 3 21

POLICY MATRIX

1ST TRANCHE POLICY ACTIONS STATUS OF COMPLIANCE

Output 1: Improved Macroeconomic Management Short-term Objective: To continue and deepen the macroeconomic management reforms in order to sustain the momentum of recovery and improve the resilience of the economy.


(1) DRC will have approved a plan to establish a taxpayer information call center, including taxpayer services to be provided, and staff, budget, and IT infrastructure requirements. Document required: Plan, certified by Director of DRC.

Complied with. Compliance documents submitted by the government were found acceptable by OGC on 16 June 2015


(2) RMA will have notified the public of the disclosure requirements under its macroprudential regulations. Document required: Notification of the Disclosure Requirements, certified by the Governor of RMA.


(3) RMA will have established a committee tasked with monitoring the stability of the financial sector. Document required: Letter from the Governor of RMA, stating that the Committee has been established, members and terms of reference.


Output 2: Strengthened Financial Sector Development Medium-Long-Term Objective: To promote investment-driven economy in order to rebalance the growth, and to reorient and diversify the economic base.

C. Developing the Capital Markets

(4) ** The NPPF Board will have approved risk-based investment guidelines. Document required: A copy of the investment guidelines, certified by the Chief Executive Officer of the NPPF.


(5) Regulations for the public issue of shares will have become effective. Document required: i) Letter of the Registrar of Companies stating that the regulations have become effective and ii) Copy of the Regulations, certified by the Registrar of Companies.


(6) MOF will have approved and started implementation of the Bhutanese Accounting Standards (BAS) / International Financial Reporting Standards (IFRS). Document required: Letter from the Minister of the MOF stating that the BAS/IFRS have been approved.


22 Appendix 3

1ST TRANCHE POLICY ACTIONS STATUS OF COMPLIANCE


(7) RMA will have approved regulation which will (i) govern the establishment, organization and operation of a credit reporting system; (ii) establish the conditions for credit reporting and (iii) specify the roles of participants, and other relevant information. Document required: Regulations, certified by the Governor of the RMA.


(8) Credit Information Bureau (CIB) will have approved a business plan, including new products and services, projected budget, staffing needs, upgrades of IT infrastructure, and other organizational issues. Document required: Business plan, certified by the Chief Executive Officer of the CIB.


2nd TRANCHE POLICY ACTIONS STATUS OF COMPLIANCE

Output 1: Improved Macroeconomic Management Short-term Objective: To continue and deepen the macroeconomic management reforms in order to sustain the momentum of recovery and improve the resilience of the economy.


(1) The property tax rates based on the property valuation methodology will have been submitted to Parliament, and the policies, systems and processes which are necessary to collect property tax using the new rates will have been completed within the municipality of Thimphu. Document required: (i) Letter from National Assembly Secretariat confirming receipt of the property tax rates, and (ii) status report on the completion of property tax policies, systems and processes, certified by the director of DRC.

Partially complied with. The National Assembly Secretariat acknowledged the receipt of the proposal on land and property tax based on PVM in respect of Thimphu Thromde (submitted via Cabinet letter No. S-20/259 dated 15 February 2017) on 16 February 2017 through letter No. NAB (SG-42)2016-17/4402.

11. 12. Because of a Supreme Court writ issued on 15 August 2016, only 1

of 20 thromdes has introduced property tax reforms. The writ declared the dzongkhag (administrative and judicial district) thromdes “unconstitutional”, except for Thimphu Thromde, on the basis that they have 6 constituencies under the existing delimitations (based on registered voters and size), and do not fulfill the criteria of having 7–10 elected constituencies, as required by the Local Government Act. The Supreme Court postponed local government elections until these thromdes fulfill the criteria as prescribed by law. Considering (i) the legal gridlock on the administrative structure; (ii) Cabinet’s earlier directives to receive local government-related tax proposals directly from the thromdes; (iii) the limited implementation capacity and ability of inhabitants to pay property taxes in other thromdes (including larger class-A thromdes); (iv) limited technical assistance, which was provided only to Thimphu Thromde under SEMP II; and (v) willingness of the Thimphu Thromde to introduce property taxes to

Appendix 3 23


bolster its municipal revenues, the proposal for PVM-based property tax rates was developed only for Thimphu, and could not be introduced for the remaining 19 thromdes as originally intended.

13. Complied with. The DRC Director certified the status report on the completion of property tax policies, systems and processes within the municipality of Thimphu, which was submitted on 15 March 2017 with letter No. DRC/RAA/Gen(3)/2017/2230.

(2) DRC will have operationalized the direct and sales tax modules of RAMIS. Document required: Report on the operationalization of the tax modules of RAMIS, certified by the director of DRC.

Complied with. DRC Director certified the report on the operationalization of tax modules of RAMIS, which was submitted on 15 March 2017 with letter No. DRC/RAMIS/2017/2231.

(3) ** The taxpayer information call center will have become operational. Document required: Status report on the operation of the taxpayer information call center, certified by the director of DRC.

Complied with. DRC Director certified the status report on the operation of the tax payer information call center, which was submitted on 15 March 2017 with letter No. DRC/PIS-ADM/2017/2232.


(4) ** MOF will have i) published a calendar for issuance of government debt securities for FY2017 and ii) issued government debt securities following the calendar. Document required: i) Calendar for FY2017, certified by the secretary of the MOF and ii) Letter from the secretary of MOF that issuances in FY2017 were conducted in accordance with the calendar.

Complied with. (i) Secretary of MOF certified the T-Bill issuance calendar for FY2017, which was published on RMA and MOF websites and on Kuensel newspaper on 1 July 2016 and submitted with Office Order No. MoF/DPA/DMD/ADB-SEMP II/2016/521 on 12 August 2016.

14. Secretary of MOF submitted an Office Order No. MoF/DMEA/DMD/ADB-SEMP II/2017/565 on 1 March 2017, detailing information on the issuances of T-Bills conducted as per the calendar during July 2016–February 2017 and stating that the issuances for the remainder of FY2017 will be conducted in accordance with the calendar.

(5) RMA will have notified financial institutions of new money market instruments to develop the inter-financial institutions lending market. Document required: Notification on the new money market instruments, certified by the governor of RMA.

Complied with. The RMA Governor issued Notification No. RMA/RSD/MMI-2016-17/2731 on 3 January 2017 to BOBL, BNBL, Druk PNB, T-Bank and BDBL, RICBL, Bhutan Insurance Limited, NPPF, Royal Securities Exchange of Bhutan on guidelines for the certificates of deposit, which were approved during 119th RMA Board Meeting on 23 November 2016. The Registrar of Companies under MoEA in pursuant to the Provisions of the Companies Act, 2016 notified the guidelines for commercial papers on 15 March 2015 to the companies and other business entities via letter No. MOEA/CR-ADB/2017/162. The notification was published on the Kuensel newspaper on 16 March 2017.

(6) RMA will, as part of the annual onsite inspection, have assessed the compliance with the macroprudential regulations for at least three financial institutions.

Complied with. The RMA Governor certified and submitted the inspection report that assessed the compliance with the macroprudential regulations for

24 Appendix 3


Document required: Inspection report, certified by the governor of RMA.

BOBL, BNBL and RICBL on 19 January 2017 with letter No. RMA/FRSD/29/2016-17/3007.

(7) RMA will have prepared an assessment report on the implementation of its liquidity management and stress testing framework by the Bank of Bhutan Limited and Bhutan National Bank Limited. Document required: Assessment report, certified by the Governor of RMA.

Complied with. The RMA Governor certified submitted the assessment report on implementation of RMA’s liquidity management and stress testing framework for BOBL and BNBL on 1 March 2017 with letter No. RMA/FRSD/29/2016-17/3616.

(8) RMA will have published a financial stability report in 2016 for FY2015. Document required: Financial stability report, certified by the governor of RMA.

Complied with. The RMA Governor certified and submitted the Financial Stability

Report for FY2015 on 1 March 2017 with letter No. RMA/FRSD/29/2016-17/3615.

The report was published on the RMA website at

https://www.rma.org.bt/Financial%20stability%20report.jsp.

Output 2: Strengthened Financial Sector Development Medium-Long-Term Objective: To promote investment-driven economy in order to rebalance the growth, and to reorient and diversify the economic base.


(9) The National Pension Policy will have been approved by the Cabinet, and the NPPF Board will have approved the Strategic Plan, and (ii) NPPF will have increased its membership by at least 5%. Document required: i) National Pension Policy certified by the Cabinet Secretariat as having been approved by the Cabinet, and NPPF Strategic Plan, certified by the chief executive officer of NPPF as having been approved by the NPPF Board, and ii) Letter from the chief executive officer of NPPF certifying the increase in membership.

Complied with. (i) The Cabinet Secretariat submitted a letter No.C-3/120/549 certifying that the government has approved the National Pension and Provident Fund Policy on 21 December 2016, which was previously endorsed by the NPPF Board during its 84th meeting on 13 October 2015. The NPPF Strategic Plan was approved by the NPPF Board during its 79th meeting on 24 December 2014. Subsequent revisions were made to the Strategic Plan following the approval of the National Pension and Provident Fund Policy by the Cabinet and the document was certified and submitted by the NPPF chief executive officer with letter No. OD-01/ADB/2017/2350.

15. ii) The NPPF chief executive officer submitted letter No. OD-01/ADB/2017/2350 certifying the increase in membership of NPPF by 5.15% (2,644 new members) from 51,333 in July 2015 to 53,977 in 28 February 2017.

(10) ** The Prospectus Approval Committee under the Registrar of Companies (comprising, among others, representatives of the MoEA and RMA) will have prepared a report on the legal, regulatory, and institutional requirements for, and feasibility of, establishing a separate securities exchange commission. Document required: Report certified by the Registrar of Companies.

Complied with. The feasibility report on establishing independent securities regulator, certified by the Prospectus Approval Committee, was submitted by the Registrar of Companies on 23 November 2016 with letter No. MoEA/CR-ADB/2016/862.

(11) ** Based on its review of international experience, MOF will have prepared a report on the legal, regulatory, and institutional requirements for, and feasibility of, securitization of Bhutan’s hydropower revenues. Document required: Report, certified by the Secretary of the MOF.

Complied with. The feasibility report on the enabling environment for the securitization of hydropower receivables, certified by the Secretary of MOF, was submitted on 12 August 2016 with the Office Order No. MoF/DPA/DMD/ADB-SEMP II/2016/520.

https://www.rma.org.bt/Financial%20stability%20report.jsp

Appendix 3 25


D. Promoting Financial Inclusion

(12) RMA will have approved a regulatory and supervisory framework to improve financial inclusion and adopted regulations such as branchless banking and deposit-taking microfinance. Document required: i) Regulations comprising the regulatory and supervisory framework, certified by the Governor of RMA and ii) Letter from the Governor of RMA certifying that the regulations have been adopted.

Complied with. The agent banking rules and regulations were approved on 24 October 2016. The deposit-taking microfinance regulations were approved during 120th Board meeting held on 29 December 2016. The adopted rules and regulations, certified by the RMA Governor, were submitted with letter No. RMA/FRSD/29/2016-17/3617 on 24 January 2017.

(13) ** Bhutan Development Bank Limited will have substantially implemented Gewog banking services in non-urban areas. Document required: Status report on the implementation, certified by the managing director of BDBL.

Complied with. The BDBL managing director (chief executive officer) certified and submitted the implementation report for agent and branchless banking, extending financial services to gewogs in non-urban areas on 15 March 2017 with letter No. BDBL/ITD/42/2017.

(14) ** RMA will have developed and implemented a financial literacy program in consultation with stakeholders with a focus on gender equity. Document required: Report on the implementation of the financial literacy program, certified by Governor of RMA.

Complied with. The RMA Governor certified and submitted the implementation report of the financial literacy program on 14 March 2017 with letter No. RMA/FRSD/29/2016-2017/3942.


(15) An oversight unit for the credit reporting system will have been established. Document required: i) Circular/order on the establishment of the oversight unit, and ii) Attachment on the composition and terms of reference of the oversight unit, both certified by the Governor of RMA or other relevant regulator.

Complied with. i) The Governor of RMA submitted a circular No. RMA/FRSD/93/2016-2017/420 dated 1 August 2016 on the establishment of the oversight unit for CIB under the non-bank unit of FRSD with letter No. RMA/FRSD/93/2016-2017/419.

16. The Governor of RMA submitted office order No. RMA/FRSD/32/2015-2016/419 dated 28 July 2016 on the composition and terms of reference of the oversight unit with letter No. RMA/FRSD/93/2016-2017/419.

(16) ** CIB will have substantially implemented the business plan. Document required: Status report on the implementation, certified by the chief executive officer of the CIB.

Complied with. The chief executive officer of CIB certified and submitted the implementation report for the business plan on 16 February 2017 with letter No. CIB/2017/57.

26 Appendix 4

TECHNICAL ASSISTANCE COMPLETION REPORT

TA Number, Country, and Name: Amount Approved: $700,000

TA 8901-BHU: Supporting Implementation of Strengthening Economic Management Program II

Revised Amount: $1,310,000

Executing Agency: Department of Public Accounts

Source of Funding: TASF-V and Financial Sector Development Partnership Special Fund

Amount Undisbursed:

$29,248

Amount Utilized:

$1,280,752

TA Approval Date:

TA Signing Date:

Fielding of First Consultants:

TA Completion Date Original: 31 Dec 2016

Actual: 30 Jun 2017

2 Jun 2015 9 Jul 2015 14 Oct 2015 Account Closing Date Original: 31 Dec 2016

Actual: 1 Sep 2017

Description A capacity development technical assistance was attached to Strengthening Economic Management Program II (SEMP II), the Program, to support its implementation and ensure its sustainability. The Program is fully aligned with ADB’s country partnership strategy, 2014-2018 and draws lessons from SEMP I. The TA was approved along with the Program on 2 June 2015 and funded from ADB’s Technical Assistance Special Fund (TASV-V) in the amount of $700,000. The executing agency of the TA was the Department of Public Accounts of the Ministry of Finance. After the establishment of the Department of Macroeconomic Affairs (DMEA) in MOF on 21 September 2016, the responsibility for managing borrowing, grants and on-lending for government got vested with DMEA and it became the new executing agency for SEMP II and the attached TA. Expected Impact, Outcome, and Outputs The impact of the TA was the successful implementation of SEMP II. The outcome of the TA was (i) to improve capacity for effective macroeconomic management and to strengthen financial sector institutions in Bhutan, and (ii) to support the government in complying with all of the program’s policy conditions. The TA outputs were to strengthen the key institutions responsible for the following reforms (i) developing a calendar for issuance of government debt securities; (ii) preparation of guidelines for collecting property taxes based on poverty valuation methodology; (iii) implementing the financial literacy program (iv) building NPPF capacity in asset valuation and actuarial services; (v) conducting feasibility studies on establishing an SEC, and on securitization of hydropower revenues , (vi) building capacity of Registrar of Companies in support of establishing an SEC, (vi) providing training and implementation support to BDBL to introduce mobile and branchless banking; (vii) strengthening CIB and supporting it in the implementation of its business plan; and (v) operationalizing a taxpayer information call center. Delivery of Inputs and Conduct of Activities The TA was originally estimated to cost $800,000 including $100,000 from the government as counterpart support. Additional funding from the Financial Sector Development Partnership Special Fund in the amount of $500,000 and from TASF-V in the amount of $110,000 were approved on 10 August 2015 and 20 June 2016, respectively. Early on, the need for additional funding for the ICT-related components of CIB and taxpayer information call center had been recognized. Upon TA completion, total TA amount was $1,310,000 with 97.8% fund utilization. Originally, 27 person-months of consultancy was planned but due to the expanded scope of the TA, 36 person-months was added. 3 consulting firms and 1 individual consultant were recruited to deliver the required TA outputs. Two consultants, a capital market expert and a securitization expert, were hired using the TA8280-BHU Capital Market Development to support the objectives of SEMP II. The consultants’ terms of reference were formulated in close consultation with stakeholders. TA was planned to close on 31 December 2016 but was extended by 6 months to 30 June 2017. The extension was due to additional consultations needed to develop the property valuation method-based property taxes proposal and to complete the procurement of IT equipment and development of related software for the tax information call center. All individual consultants and consultancy firms were recruited in accordance with ADB’s Guidelines on the Use of Consultants, 2013. All disbursements under the TA were made in accordance with ADB's Technical Assistance Disbursement Handbook (2010, as amended from time to time). Procurement was undertaken for the ICT equipment and software for the call center, CIB and BDBL and in accordance with ADB’s Procurement Guidelines (2013, as amended from time to time). Upon TA completion, all planned activities had been completed. The performance of ADB was satisfactory. The first consulting firm was recruited through quality and cost-based selection and provided 18.76 person-months of work inputs through 7 experts. The firm was rated excellent in its PER. The individual consultant, a Financial Literacy and Gender Expert provided 310 person-days of inputs. He made close collaboration with the Royal Monetary Authority (RMA), Bhutan

Appendix 4 27

Development Bank Limited (BDBL), CIB, and other relevant stakeholders i.e. Ministry of Education, financial institution, business associations, media, gender-focused NGOs, schools and local communities in developing a financial literacy program. The expert was rated excellent in the PER. The second consulting firm, with 15 person-months of ICT specialists was recruited through single-source selection for software enhancement in CIB from Credit Verdict to Silver Blade 2.0. The engagement was a continuation of the work started with the TA7881-BHU Developing a Revenue Administration Management Information System. This firm was also rated excellent. The third consulting firm was recruited through international competitive selection to provide support for the tax payer call center. The firm provided 18 person-months through 6 IT experts. The firm was rated excellent because it delivered all the required outputs within the contract budget and duration and was able to effectively manage the changes in its terms of reference. Beyond its terms of reference, the firm also upgraded the RMS software of Thimphu Thromde. DPA, and later DMEA, were instrumental in the effective and efficient achievement of the TA’s planned outputs. Both DPA and DMEA provided strong leadership and ownership to the Program and TA. Clear communication was established to ensure smooth implementation of the TA despite its complexities and changes in scope. Evaluation of Outputs and Achievement of Outcome The program outputs of (i) macroeconomic management improved, and (ii) financial sector development strengthened were fully achieved with support from the TA, although the program closure date had to be extended by 6 months due to certain procurement delays and political and administrative constraints in actions relating to submission of PVM-based property tax rates to the Parliament. The program outcome indicators, namely (i) gross official reserves in months of merchandise import coverage sustained at not less than 13 months by end of Q4 2016 (ii) fiscal deficit within the prescribed level of 3% of GDP achieved by end of Q4 2016, and (iii) non-performing loan ratio of banks reached 10% or less by end of Q4 2016 were also fully achieved. The first consulting firm successfully supported the government in the following: (i) developing a calendar for issuance of government debt securities; (ii) preparation of guidelines for collecting property taxes based on poverty valuation methodology; (iii) introduction of mobile and branchless banking; (iv) strengthening CIB and implementation of the CIB Business Plan; (v) operationalizing a taxpayer information call center; and (vi) preparation of policies, systems and processes for collection of property valuation methodology - based property taxes In Thimphu Thromde. In addition, the firm also provided capacity building workshops to participants from the Department of Public Accounts (DPA) and Department of Revenue and Customs (DRC) of the Ministry of Finance, and Thimphu Thromde, and conducted training events at BDBL, Richen school and with merchants on financial literacy program. The individual Financial Literacy and Gender Expert proactively took initiatives in identifying demographic groups and income segments with a focus on low-income population and women. He conducted seminars with government and nongovernment stakeholders in coordination with RMA and partner institutions in order to develop a national financial literacy action plan. As part of the awareness campaign, the expert designed contents, creative concepts and campaign activities to promote the financial services and products offered by banks and capital markets and ensured that at least 50% of the people reached were women. The expert worked with BDBL on designing measures and administering activities for improving rural and low-income women’s access to finance while implementing Gewog mobile and branchless banking services on non-urban areas. All these interventions were highly appreciated by the communities and beneficiaries. The project team received several requests for continued support on the financial literacy program and to cover more participants in other non-urban areas. The second consulting firm delivered the solution development, customization, configuration, data migration and system integration of Silver Blade 2.0 including some enhancements, conducted user training, software testing and ensured a successful go-live of the CIB software and enhancements. The third consulting firm delivered a technical call logger system and a mechanism that would enable the call center agents access to RAMIS TA on a selective basis. Through a contract variation, the terms of reference was expanded to include the development of an integrated inbound and outbound call center software for call management under the supervision of the DRC. The firm also provided support to Thimphu Thromde in the system enhancement of their Revenue Management System (RMS). Under the capacity building initiatives, the attached TA benefited more than 300 participants, enhancing the sustainability of reforms. The following trainings were conducted: (i) Training programs for NPPF: 5-day training on asset valuation methodologies (38 participants),1-day workshop on pension funding, actuarial valuation and asset-liability management (31 participants), and 10-day international training in Malaysia on actuarial and financial valuation; actuarial statistics; computerized pension and asset-liability modeling, and application of International and Bhutanese Accounting Standards (3 officials).

28 Appendix 4

(ii) Capacity building of RMA and ROC: 1-day workshop on the International Organization of Securities Commissions principles of securities regulation (26 participants), visits organized for five officials from ROC, RMA and MOF to SECs in the Philippines, and in Thailand to study international best practices in securities market regulation and supervision of listed companies; attendance by ROC in March 2016 at a conference in Nepal on corporate and business law reforms and good governance; and a 10-day training program conducted for three officials from ROC at the Bangkok School of Management on best practices and standards in corporate law, capital markets, securities law; corporate governance; and applications of technology in regulation of corporate entities and capital markets. (iii) Workshops on securitization of hydropower revenues: a workshop on principles of securitization was conducted for 20 participants, and 2-day workshop was conducted with 30 participants from MOF, RMA, financial sector, Druk Holdings and Investment, and Druk Green Power Corporation. (iv) Capacity building of CIB: 6 staff members from CIB were provided extensive training on the technical and functional operations of the new system, customer and financial sector portfolio and risk analysis, and scoring and fraud detection methodologies; and 56 representatives from the Bhutanese financial sector were also trained. (v) Trainings in taxpayer information call center software operation: 6 call center staff were trained. (vi) Workshop on pilot study in Thimphu Thromde on property valuation methodology for 21 participants. (vii) Workshops on cash forecasting and approach for T-bill auction calendar: Workshop on the suggested approach for issuance of T-Bill auction calendar with DPA, DNB, DRC, PPD, and RMA; and workshop on forecasting of receipts, payments and cash flows for 6 participants from DRC, TMD and DPA. Overall Assessment and Rating The TA is rated highly relevant, highly effective, efficient, and most likely sustainable, which contribute to the overall rating of highly successful. The TA was highly relevant in supporting the innovative and distinguishing feature of financial inclusion and financial literacy program under SEMP II besides other policy actions in continuation of the first program. It was highly effective in the delivery of outputs, and in building capacity of the implementing agencies. The TA not only effectively supported the achievement of all related tranche actions under the SEMP II but went beyond its mandate to update RMS of Thimphu Thromde, which has been quite effective in improving its revenue collections. The implementation was efficient because of the timely completion of the outputs. The extension in TA was due to extension of SEMP II and was due to reasons outside the TA purview. Cost savings of $38,000 were generated within the allocated budget due to the quality and cost-based consultant recruitment. The TA is most likely sustainable as the establishment of information and communication technology-based systems in DRC, Thimphu Thromde, and CIB; institutional strengthening, and extensive capacity building under the TA helped the government develop the technical skills to continue the reforms. Major Lessons The success of the TA was due to a strong commitment from the government towards reforms, clearly defined deliverables matching the policy actions of the program, selection of teams with appropriate skills, a proper oversight and monitoring mechanism, effective coordination between consulting team and counterpart staff, and regular reviews by ADB and the government. Problems were identified and resolved in a timely manner, and resources were promptly replaced whenever required. The sustainability of reform measures after program completion indicates that institution-building and training can be very effective for the creation of a durable impact. Recommendations and Follow-Up Actions DRC would need assistance in incorporating goods and services tax in RAMIS and for making the call center more effective. The call center software may need to be linked with RAMIS with adequate security rights and firewalls. It may be useful to follow up on the implementation of PVM-based property tax methodology in Thimphu and other municipalities. RMA may need support for institutionalization of liquidity management and stress testing framework with allocation of specific resources for an annual review. Branchless banking may need more support for further expansion. Further initiatives towards financial inclusion such as introduction of financial literacy literature in school curriculum can be supported. Suggestions on securitization of hydropower revenues can be carried forward. CIB is in a growth stage and further support to the bureau may provide immediate benefits.

CIB= Credit Information Bureau; DPA= Department of Public Accounts; DNB= Department of National Budget; DRC= Department of Revenue and Customs; PPD= Policy and Planning Division; ICT= information and communication technology; PVM= property valuation methodology; RAMIS = Revenue Administration and Management Information System; RMS= Revenue Management System; RMA = Royal Monetary Authority; ROC= Registrar of Companies; TA = technical assistance; T-bill = treasury bill; TASF= Technical Assistance Special Fund; TMD= Treasury Management Division. Prepared by: Navendu Karan Designation and Division: Senior Public Management Economist, SAPF

Analyn Bravo Associate Project Analyst, SAPF In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

Appendix 5 29

ACHIEVEMENTS OF SEMP II AND ITS CONTEXTUAL RELEVANCE IN PROVIDING CONTINUITY TO THE REFORMS INITIATED UNDER SEMP I

Related Policy Action in

SEMP I Policy Action in SEMP II TA Support in SEMP II Achievements Indications of Sustainability



T2-A7: MOF, in coordination with MOWHS, will have approved the rules and regulations on property valuation methodology (PVM). T2-A8: MOWHS will have piloted implementation of PVM in at least one municipality (Phuentsholing).

T2-A1: The property tax rates based on the property valuation methodology will have been submitted to Parliament, and the policies, systems and processes which are necessary to collect property tax using the new rates will have been completed within the municipality of Thimphu.

Piggybacked TA 8901-BHU Supporting Implementation of Strengthening Economic Management Program II

PVM-based property tax rates for Thimphu municipality were submitted by the Cabinet to the Parliament on 15 February 2017. However, the property tax rate proposals could not be introduced for the other 19 thromdes because Supreme Court writ issued in 15 August 2016 declared the dzongkhag (administrative and judicial district) thromdes “unconstitutional. These thromdes will be in a position to submit their own tax proposals when they are fully constituted as per the requirements of the Local Government Act. This action was rated “Partially Complied” The policies, systems and processes necessary to collect property tax using the new rates have been completed within the municipality of Thimphu, However, implementation is awaiting approval from Parliament of PVM-based revised rates. The ICT-based revenue management system (RMS) was modified and synchronized with the requirements of PVM-based taxation. Efficiency enhancement measures such as digitization of property records through RMS have helped Thimphu Thromde expand its tax base which is evident from a significant enhancement of revenues. Property tax collection in Thimphu jumped by almost 70% in one year - from Nu19.9 million in FY2014-2015 to Nu. 33.8 million in FY2015-2016

Property tax collection increased further by 22% to Nu41.3 million in FY2016-2017. The municipality is aiming towards self-reliance in a few years. (Source: Thimphu Thromde)

T1-A3: DRC will have prepared and approved the System Requirement Specification (blueprint) for the internal revenue component of RAMIS.

T2-A2: DRC will have operationalized the direct and sales tax modules of RAMIS.

TA 7881-BHU Developing a Revenue Administration Management Information System

Direct and sales tax modules of RAMIS were operationalized. Combined with the economic recovery, RAMIS helped improve the domestic tax revenue mobilization from Nu16.2 billion in FY2014 (pre-RAMIS) to Nu18.4 billion in

Tax revenue has increased further to Nu21.7 billion in FY2017 (Source: RMA Annual Report 2016-2017 p.35)

30 Appendix 5

Related Policy Action in SEMP I

Policy Action in SEMP II TA Support in SEMP II Achievements Indications of Sustainability

FY2015, and Nu20.1 billion in FY2016 (RAMIS implementation period)

T2-A3: Building on the approved Debt Management Action Plan, MOF, in coordination with RMA, will prepare and approve a strategy paper on development of government securities market. T2-A4: MOF an RMA will have implemented the strategy paper on development of government securities market

T2-A4: MOF will have (i) published a calendar for issuance of government debt securities for FY2017 and (ii) issued government debt securities following the calendar.


On 1 July 2016, MOF introduced a calendar for issuance of T-bills in FY2017-2018.

Annual calendar for T-bills was issued for FY2017-2018. The calendar for FY2018-2019 will be issued at the end of June 2018.

T1-A1: DRC will have approved a plan to establish a taxpayer information call center, including taxpayer services to be provided, and staff, budget, and IT infrastructure requirements.


An information call center was launched on 6 March 2017 for improved taxpayer services and better compliance. Within 1 week of operation, the call center received 500 queries from over 400 callers and most of the queries were related to the use of RAMIS and tax payment or refund status. The number of staff interacting directly with taxpayers has reduced from 70 in FY2013-2014 to 45 in FY2015-2016.

The call center received 3070 calls in 2017. However, two call center employees have resigned and currently an HR reorganization plan for the call center is under consideration. The plan also envisages upgradation of the call center to a common facilities center for G2C services with a walk-in option. Source: DRC

T2-A3: The taxpayer information call center will have become operational.




T1-A7: RMA will have set up a FPC on macroprudential regulations.

T1-A2: RMA will have notified the public of the disclosure requirements under its macroprudential regulations.

TA 8284-REG Supporting Financial Stability in Bhutan and the Maldives

RMA has notified the disclosure requirements under macroprudential regulations, and also submitted an assessment report based on annual on-site inspection for the compliance of MPRs by Bank of Bhutan Limited (BOBL), Bhutan National Bank Limited (BNBL) and Royal

The annual on-site inspections have been repeated for FY2015-2016 and FY2016-2017.

Appendix 5 31



T2-A9: The FPC will have prepared and finalized the macroprudential policy paper and its corresponding rules and regulations that will cover, among others, (i) countercyclical capital buffer for banks, (ii) loan-to-value and loan-to-income restrictions, (iii) sectoral capital requirements, (iv) minimum ceiling on leverage ratio of banks, (v) time-varying capital provisioning and margin requirements, (vi) restrictions on distributions of profit, and (vii) debt-to-equity ratio for the policy paper; and the rules will have been approved by RMA. T2-A10: RMA will have pilot implemented recommendations of the policy paper on macroprudential regulations.

T2-A6: RMA will, as part of the annual on-site inspection, have assessed the compliance with the macroprudential regulations for at least three financial institutions.


Insurance Corporation of Bhutan Limited (RICBL) as of December 2015.1

T2-A7: RMA will have prepared an assessment report on the implementation of its liquidity management and stress testing framework by the Bank of Bhutan Limited and Bhutan National Bank Limited.


RMA prepared an assessment report on the implementation of its liquidity management and stress testing framework by the Bank of Bhutan Limited and Bhutan National Bank Limited under SEMP II, which provided important insights into the resilience of the Bhutanese banking system under extreme stress scenarios using single and multi-factor sensitivity analysis

Going forward, RMA claims that it will conduct stress testing on need basis because a comprehensive review requires significant resources.

T1-A3: RMA will have established a committee tasked with monitoring the stability of the financial sector.


RMA established a committee tasked with monitoring the stability of the financial sector

.

T2-A8: RMA will have published a financial stability report in 2016 for FY2015.


A financial stability report was published in 2016 for the year 2015

The financial stability report has NOT been published for the years 2016 and 2017

T2-A5: RMA will have notified financial institutions of new money market instruments to develop the inter-financial institutions lending market.

Piggybacked TA 8901-BHU Supporting Implementation of Strengthening Economic Management Program II and TA 8280-BHU Capital Market Development

Two new money-market instruments (MMIs) viz. certificates of deposit (CD), and commercial papers (CP) were approved and notified by RMA and the Registrar of Companies respectively. The trading and settlement of both these instruments are managed by the RSEB. Druk Holding and Investments (DHI) was the first corporate entity to issue CPs worth N. 870 million on 24 March 2017.

During 2017, there have been CP issuances by Nubri Capital Pvt Ltd, Druk Green Power Corporation (DGPC) and State Trading Corporation of Bhutan Ltd (STCB) as shown in Table1.

1 MPRs are comprised of (i) countercyclical capital buffer requirements; (ii) loan-to-value and loan-to-income restrictions, applicable to housing, consumer and vehicle

loans; (iii) sectoral capital requirements; (iv) minimum ceiling on leverage ratio; (v) time-varying capital provisioning, and minimum margin requirements; (vi) restrictions on distribution of profit; (vii) the debt–equity ratio; and (viii) disclosure requirements, including information on Tier 1 and Tier 2 capital; risk weighted assets; and loans classified by sectoral composition, quality, counter-party, as well as interest and credit risk, among others. The MPRs became effective on 1 November 2014 except for the time-varying capital provisioning and disclosure requirements, which were implemented from 1 January 2016. RMA also complemented the MPRs with the approved Credit Policy, 2015.

32 Appendix 5



However, there are not enough takers of CDs currently.



T2-A12: RMA will have completed a Capital Markets Master Plan that charts the strategic development of capital markets over the next 10 years.

T1-A4: The NPPF Board will have approved risk-based investment guidelines.


NPPF board approved risk-based investment guidelines

T2-A9: The National Pension Policy will have been approved by the Cabinet, and the NPPF Board will have approved the Strategic Plan; and (ii) NPPF will have increased its membership by at least 5%.


The National Pension Policy was approved by the Cabinet NPPF board approved a corporate strategic plan 2017-2020 (CSP) which has been operationalized. The CSP consists of two strategy papers that extend the defined contribution scheme and improve the sustainability of the defined benefit pension scheme. NPPF has also been successful in raise its membership beyond the program target of 5%, from 51333 members in July 2015 to 53977 members in February 2017

CSP 2017-2020 aims to expand mandatory coverage to all public servants (including elementary and general personnel service and contract employees, totaling 4,112) and local government employees (1,420) and also targets the national workforce (3,502) that are paid the minimum wage and engaged in road maintenance and construction. NPPF coverage has further expanded to 55610 members by May 2018.

T1-A5: Regulations for the public issue of shares will have become effective.

TA 8280-BHU Capital Market Development

The regulation for public issuance of shares has become effective after the enactment of Companies Act 2016

T1-A6: MOF will have approved and started implementation of the BAS and IFRS.


Complied with

T2-A10: The Prospectus Approval Committee under the Registrar of Companies (comprising, among others, representatives of the MoEA and RMA) will have prepared a report on the


While the regulation for public issuance of shares has become effective, the role of the envisaged Securities Exchange Commission (SEC) is currently being handled jointly by ROC (for primary issuances) and RMA (for secondary trading).

A proposal for vesting both regulatory domains under one office is under consideration, which will effectively operationalize the SEC.

Appendix 5 33



legal, regulatory, and institutional requirements for, and feasibility of, establishing a separate securities exchange commission.

T2-A11: Based on its review of international experience, MOF will have prepared a report on the legal, regulatory, and institutional requirements for, and feasibility of, securitization of Bhutan’s hydropower revenues.


A report was submitted by MOF on 12 August 2016, addressing (i) the feasibility of establishing special purpose vehicles and creating asset-backed securities in and outside of Bhutan; (ii) cash-flow projections of the existing hydropower projects to develop financial models for Indian-rupee-based bond issuance; and (iii) other sources of securitization, such as mortgages.


D. Promoting Financial Inclusion

T1-A8: RMA will have prepared and approved an action plan for improving the retail to wholesale deposit ratio. T2-A11: RMA will have implemented the key recommendations of the action plan.

T2-A12: RMA will have approved a regulatory and supervisory framework to improve financial inclusion and adopted regulations such as branchless banking and deposit-taking microfinance.


RMA approved the agent banking regulations during 118th Board meeting held on 24 October 2016 and the deposit-taking microfinance regulations during 120th Board meeting held on 29 December 2016. Agent banking regulations came into effect on 4 November 2016, while deposit-taking microfinance institutions regulations came into effect on 3 January 2017. The latter allows such institutions to receive regular deposits from the public and use these funds for microloans not exceeding Nu500,000, and conduct activities such as money transmission services, insurance services as an agent, and electronic banking. As of date, three microfinance institutions have registered as deposit-taking microloan institutions with RMA viz. Respect, Educate, Nurture, and Empower Women (RENEW), the Bhutan Association of Women Entrepreneurs (BAOWE), and Rural Enterprise Development Corporation Limited (REDCL).

While no license has been issued by RMA to the deposit-taking microfinance institutions so far, the process is in advanced stage for RENEW and is awaiting clearance on system integration with RMA’s Druk MicroFin banking platform.

T2-A13: BDBL will have substantially implemented Gewog banking services in non-urban areas.


Bhutan Development Bank Limited (BDBL) was the first bank to provide branchless banking services in Gewogs (groups of villages). The following services are being offered under branchless banking by BDBL (i) deposit (ii) loan repayment (iii) cash withdrawals, (iv) balance enquiry, and (v) mini statement.

As an update, Bank of Bhutan Limited has also started agent banking services along with mobile banking services.

34 Appendix 5



BDBL is managing community information centers (CICs) in 20 districts and has deployed a total of 198 POS terminals in these centers. In addition, 25 POS terminals have been deployed outside the CICs at farmer shops, merchant outlets, a school, and have also been given to BDBL employees to reach out in remote areas. Out of these, ADB TA supported BDBL’s procurement of 100 POS terminals and a smart card printer. Public awareness campaigns were carried out through CICs. ADB TA also supported BDBL in legal framework for agent management, and RMA in drafting the regulations for agent banking. As a result of these initiatives, new customer enrollment in agency and branchless banking increased by 10,962 during August 2014–February 2017, with transactions reaching Nu74 million in deposits, Nu56 million in withdrawals, and Nu80 million in loan repayments, reflecting an increase in savings. Of the 10,425 individuals enrolled in agency banking via POS, 5,436 were women and 4,989 were men.

T2-A14: RMA will have developed and implemented a financial literacy program in consultation with stakeholders with a focus on gender equity.


RMA submitted the financial literacy program implementation report on 14 March 2017. The program was designed to create aware among different sociaoeconomucA video showcasing the FLP achievements was presented at the 5th Asian Youth Forum during 2-7 May 2017. 2 The ownership by the government was evident during the stakeholder workshop organized on 18 December 2015, which was chaired by the Governor of RMA and attended by 37 participants from RMA, Ministry of Education, Ministry of Agriculture and the financial sector. A financial literacy action plan was developed during this workshop using the results of a financial literacy survey. Print and audio-visual FLP campaign materials were created based on this action plan and disseminated via traditional media and social media using internet to banks, 30 schools,

RMA set up a Financial Inclusion and Literacy Unit at Governor’s office in January 2017, and also constituted functional groups viz. policy working group, stakeholder representative group, and 20 Dzongkhag focal groups. In addition, RMA instituted a pilot program called Students Business Seedling (SBS) program at Desi High School and launched Youth Ethics School Banking Program in four pilot recipients including 3 schools out of which 1 caters to special need

2 The video ran alongside the 50th ADB Annual Meeting in Yokohama, Japan. http://www.youthforasia.com/adb-projects/video-documentation/.

http://www.youthforasia.com/adb-projects/video-documentation/

Appendix 5 35



nongovernment organizations, government agencies, and CICs. Financial literacy clubs were established in six pilot schools in five districts across Bhutan, starting with Global Money Week celebrations led by RMA during 4–20 March 2016. Financial literacy outreach sessions for over 300 girls were conducted, and banks visited pilot schools to provide information on financial services and to open savings accounts for 340 students. During 1–4 September 2016, in collaboration with the Bhutan Scouts Association, RMA and BDBL, bank accounts were opened for 250 scouts with seed money of Nu100 per student provided by the attached ADB TA. This was supported with a significant media outreach including newspaper articles in national newspapers, airing of radio messages, distribution of 3,500 copies of Youth and Finance magazine to schools and college graduates, disseminating FLP materials using the RMA webpage and FLP Facebook page. Financial literacy manuals were also disseminated through BDBLs branchless banking network, and in collaboration with local non-government organizations like RENEW and Rural Education and Development Global that are active among rural communities particularly women. During RENEW’s entrepreneurship day celebration on 30 September 2016, those entrepreneurs who had received micro-finance loans from RENEW presented their experience to participants that primarily comprised women audience.

(hearing impaired) and 1 youth volunteer group. Among other initiatives, the National Financial Inclusion Strategy 2018-2020, and the National Financial Literacy Strategy Framework 2018-2022 are in the final stage of formulation and targeted to be implemented with effect from July 2018



T1-A7: RMA will have approved regulations which will (i) govern the establishment, organization and operation of a credit reporting system; (ii) establish the conditions for credit reporting; and (iii) specify the roles of

CIB regulations were approved by RMA.

36 Appendix 5



participants, and other relevant information.

T2-A15: An oversight unit for the credit reporting system will have been established. T2-A16: CIB will have substantially implemented the business plan.


An oversight unit for the credit reporting system has also been established under the non-bank unit of the Financial Regulation and Supervision Department of CIB in line with RMA circular dated 1 August 2016 to this effect. The oversight unit will strengthen the credit reporting system, consumer protection, and data security. The CIB upgraded its operating software, which was successfully launched on 12 January 2017 by the Finance Minister. Along with the software, the ICT hardware infrastructure was also upgraded under the TA. The new software allows processing of credit information in real time in larger volumes and under a shorter timeframe and introduces new products and services such as portfolio monitoring, alert monitoring, and mobile applications. The new system can collect information from telecoms, insurance providers and utility companies and share data with microloan institutions. Male users of CIB services increased by 21% from 30,185 in 2014 to 40,017 in 2016. Female users of CIB services increased by 9.8% from 18,478 in 2014 to 20,279 in 2016.

Male users of CIB services have further by 14% from 40,017 in 2016 to 45661 in 2017. Female users of CIB services further increased by 18% from 20,279 in 2016 to 23981 in 2017.

strengthening economic management program ii: program … · 2018-08-03 · revenue management and...

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