Regions and Countries

	Table of Contents
p. 7 of 20 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Bhutan

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II. Country Operational Strategy

A. The COS

45. The objective of the previous COS, which was prepared in July 1991, was to assist Bhutan's efforts to diversify the economy, with emphasis on strengthening the capacity for economic management and development administration; improving physical and social infrastructure; promoting private sector development; and protecting the environment. To avoid unduly straining Bhutan's administrative and debt-servicing capacity, ADB has limited its loan assistance to relatively small magnitudes. It has primarily played a catalytic role in mobilizing additional resources and cofinancing, particularly on grant terms, using technical assistance for the preparation of development projects, and supporting necessary institutional development. The ADB's strategy fully recognizes Bhutan's strong commitment to preserving its environment and all Bank assistance is compatible with this objective.

46. A new COS, which was formulated in close consultation with the Government, has been finalized in 2000 after discussion at the Board¹². The new COS aims to support poverty reduction in Bhutan by promoting economic growth and social inclusiveness. Although the low Bhutanese income generally reflects widespread income poverty, the kind of abject poverty seen in some parts of Asia as a result of such low incomes is not evident in Bhutan. The Government's social welfare policies over many years have resulted in relatively widespread social well-being. Therefore, the main thrust of poverty reduction efforts under the COS is to enable the Government's commitment to be realized under the strategic theme of improving the quality of life for all.

47. To make a small program effective, ADB has to be selective and not try to spread available resources too thinly or to dissipate them through supporting too many objectives. ADB's overarching objective of poverty reduction¹³ will be addressed through the income and employment generation impact of private sector-led development, brought about by an improved policy setting and more efficient financial intermediation. This will be complemented more specifically by ADB interventions to (i) reduce physical infrastructure constraints; (ii) develop domestic skills' base; (iii) improve urban environment; and (iv) support sustainable provision of quality social services. The new COS does not differ fundamentally from the previous one; in fact, it seeks to maintain continuity with it, especially with those thrusts that are considered to have as a positive development impact.

B. Progress in COS Implementation

48. The previous COS has provided a good basis for the Bank's operational program in Bhutan and for coordinating its work with other donor agencies in the country. Considering the country's limited debt-servicing capacity, the Bank has had to be highly selective in its interventions. The Government has also been careful in submitting projects for loan assistance to the Bank, and has been constantly exerting efforts to use aid effectively

49. The lack of necessary data on poverty has precluded a definitive analysis of poverty for Bhutan. In order to effectively implement ADB's poverty reduction strategy and the new COS, the Government is undertaking a joint poverty assessment with ADB¹⁴ in close consultation with all stakeholders to establish a benchmark profile for formulating, monitoring, and evaluating future interventions in poverty reduction. Given the COS preparation represented the first-ever formalized discussion on what is poverty in the Bhutan context, and more importantly, secured Government's commitment to address the notion of poverty, ADB has undertaken a lead role among other donors, which have expressed their full support, to initiate and continue the dialogue with the Government on poverty reduction. As such, the development of the Government's necessary institutional capabilities to generate reliable and timely data for monitoring and evaluating impacts of development activities on poverty reduction is a crucial dimension among the priorities identified in the new COS.

C. Poverty Reduction Partnership Agreement

50. The joint poverty assessment will be discussed at a workshop to be organized by the Government. This is to ensure a wide range of stakeholder participation in the process. Based on the poverty assessment and analysis together with the outcomes of the workshop, a country specific poverty reduction strategy will be adopted to guide the future ADB operations in Bhutan. The Partnership Agreement for Poverty Reduction between the Government and ADB will be finalized early 2001 to (i) set out a long-term vision of poverty reduction; (ii) define immediate and medium-term goals; (iii) determine concrete short-term actions; and (ii) monitoring and evaluation arrangements, which would effectively guide the allocation of ADB's resources and future interventions.

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