Catalog

	Table of Contents
p. 5 of 38 BACK | NEXT Country Reports Afghanistan Azerbaijan Bangladesh Bhutan Cambodia People’s Republic of China Cook Islands Fiji Islands India Indonesia Kazakhstan Kiribati Republic of Korea Kyrgyz Republic Lao People’s Democratic Republic Malaysia Maldives Marshall Islands Federated States of Micronesia Mongolia Myanmar Nauru Nepal Pakistan Papua New Guinea Philippines Samoa Solomon Islands Sri Lanka Tajikistan Thailand Tonga Turkmenistan Tuvalu Uzbekistan Vanuatu Viet Nam

Annual Report 2001

---

Bhutan

Economic performance

While Bhutan’s real GDP growth was robust in calendar year 2001, reaching an estimated 6.5%, this figure hides a relatively wide variation in sectoral performance. Growth in agriculture, traditionally the slowest-growing sector, recorded an estimated 4.8%, while growth in the industry and services sectors reached estimated rates of 8.0% and 6.3%, respectively. Major hydropower and industrial projects prompted expansion in construction, and growth in transport and communications was dynamic. However, the performance of mining and manufacturing was disappointing. Tourism, though not identified separately in the national accounts, gained increasing importance despite being adversely affected by the 11 September events.

Because of the fixed exchange rate between Bhutan’s ngultrum and the Indian rupee, trends in inflation in Bhutan have traditionally paralleled those in India. That said, the country’s inflation rate fell substantially in FY2000 and remained steady in FY2001 at 3.6%, largely due to reduced food prices. The Government has traditionally pursued a prudent fiscal policy, with current expenditure being financed completely from domestic revenues. While Bhutan’s fiscal deficit increased to 5.1% of GDP in FY2001 from 4.1% in FY2000 as a result of increased capital investment for hydropower and industrial projects, domestic revenue is expected to increase as major projects are commissioned over the coming months and power export tariffs are raised in the long run. In FY2001, the trade and current account deficits increased to 22.6% and 27.5% of GDP, respectively. However, capital inflows—mostly in the form of grants—have continued to exceed by some margin the deficits in the country’s trade and current accounts. The net effect of these trends has boosted Bhutan’s foreign exchange reserves significantly over time. As of June 2001, foreign exchange reserves stood at $294 million, equivalent to 16 months of merchandise imports.

ADB operations

Operational strategy: In the context of Bhutan, reducing poverty will require continued economic growth, and extending the coverage of health, education, and other facilities to all segments of society. ADB supports poverty reduction in Bhutan by promoting economic growth and social inclusiveness through interventions in physical and social infrastructure, private sector development, employment creation, and improved economic management. In particular, ADB promotes income and employment-generating activities through private sector-led development, brought about by an improved policy setting and more efficient financial intermediation; upgraded road transport and expanded power transmission and distribution; and strengthened vocational, technical, and basic skills. To implement the country strategy effectively, ADB assisted the Government’s first study on poverty. Published by the Government in December 2001, the study examines the nature and extent of poverty in Bhutan and its geographical distribution. The study’s findings are expected to contribute to improved national data relating to poverty. While the findings will not change the focus of ADB’s country strategy, these will be taken into account in future project design and implementation.

Policy dialogue: In implementing the country strategy, policy dialogue focused on promoting private sector development; improving the efficiency of public service delivery and cost recovery; and establishing administrative and technical capacity for analyzing and monitoring poverty, and formulating and evaluating poverty interventions. ADB will continue to support the Government's efforts in providing an enabling environment for private sector development by rationalizing and strengthening banking and financial institutions; continuing to liberalize foreign trade, exchange, and investment regulations; liberalizing interest rates to reflect the true underlying cost of resource mobilization, intermediation, and risk; and formulating transparent legislation and regulatory procedures. In the power sector, key policy objectives include pursuing financial viability and sustainability of power operations through corporatizing the Department of Power. ADB also supports the Government’s ongoing efforts for improving domestic resource mobilization, including cost recovery of public service delivery in the health and urban services. ADB’s operational program also includes a comprehensive household living standard survey.

Loans and technical assistance: One loan of $7 million for basic skills development was approved in 2001. Five technical assistance grants totalling $2.1 million were also approved, of which four were advisory and one was for preparing a rural electrification and network expansion project.

Project implementation: Since joining ADB in 1982, Bhutan has received 18 loans, of which 7 were active at the end of 2001. Contract awards totaled $6.0 million, bringing the cumulative figure to $63.9 million. The contract award ratio was 24.5%, significantly higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $6.7 million, bringing cumulative disbursements to $60.8 million. The disbursement ratio was 16.9%, lower than the ADB-wide average of 20.5%.

In October 2001, a country portfolio review mission assessed key portfolio performance indicators and, in particular, annual contract awards and disbursement projections. Based on the review, an action plan was developed for improving project implementation and administration, as well as the overall performance of the Bhutan project portfolio. Improvements to project monitoring and reporting were discussed with project directors. Procurement briefings and a project administration workshop were also conducted during the year for project directors and line ministry officials.

____________________________

Back Bangladesh	Next Cambodia