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Annual Report 2002 : South Asia

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Bhutan

Economic performance

Real GDP growth in Bhutan continued to increase, from 6.6% in 2001 to 7.7% in 2002, mainly due to the impact of hydropower projects on construction activities. Agriculture, traditionally the slowest-growing sector, grew at 2.5%, the industry sector by 12.1%, and the services sector by 8.0%. The inflation rate decreased from 3.6% in 2001 to 2.7% in June 2002, its lowest level since 1999. Low inflation in India helped stabilize prices in Bhutan, particularly for nonfood products.

In FY2002 (ending 30 June 2002), domestic revenue exceeded current expenditure and financed capital expenditure by 1.2% of GDP. The overall government deficit decreased to 6.8% of GDP in FY2002, compared with 11.8% in FY2001. In FY2002, the trade account deficit narrowed, due to increased export of power to India and a decline in imports from India as some hydropower projects neared completion. However, the current account went from surplus in FY2001 to deficit in FY2002 mainly because of a substantial decrease in the net income flow—reflecting lower interest income of the financial sector deposits held abroad. Bhutan’s foreign exchange reserves stood at $317 million, equivalent to
20 months of merchandise imports.

ADB operations

Operational strategy: ADB’s strategy was refined in 2002 to reflect the partnership agreement signed by Bhutan and ADB in 2001. In line with the country’s Ninth 5-Year Plan (July 2002–June 2007), the strategy focuses on rural infrastructure, financial sector, and private sector development. The strategy targets rural poverty reduction by developing rural infrastructure, providing basic social services, creating an enabling environment for private sector development, and improving urban services.

Policy dialogue: Policy dialogue focused on promoting private sector development by undertaking a feasibility study for establishing an industrial estate and a dry port; rationalizing and strengthening bank and nonbank financial institutions; continuing to liberalize foreign trade and investment regulations; and formulating transparent legislation and regulatory procedures. ADB also supports the Government’s efforts at improving domestic resource mobilization, including cost recovery of public service delivery of health and urban services.

Loans and technical assistance: No loans were approved in 2002. Five technical assistance totaling $1.9 million were approved (see tables 24 and 25 in the Statistical Annex).

Project implementation: Since joining ADB in 1982, Bhutan has received 18 loans totaling $101.8 million, of which 6 were active at the end of 2002. Contract awards totaled $15.1 million, bringing the cumulative figure to $80.7 million. The contract awards ratio for 2002 was 59.0%—higher than the ADB-wide average of 22.6%. Disbursements in 2002 totaled $13.9 million, bringing cumulative disbursements to $74.7 million. The disbursement ratio was 43.3%—higher than the ADB-wide average of 22.2% (see tables 14–23 in the Statistical Annex).

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