ADB to Promote Economic Diversification for Poverty Reduction in New Strategy for Bhutan

News Release | 3 October 2005

MANILA, PHILIPPINES) - ADB will promote poverty reduction in Bhutan through economic diversification, in its new five-year Country Strategy and Program (CSP) (2005-2010) for the country endorsed by ADB's Board of Directors.

ADB's lending program, which will amount to about US$96 million over the first three years of the CSP, will support projects addressing policy, reform, capacity building, and institutional strengthening in four core sectors: transport, power, urban development, and financial and private sector development.

ADB undertook its CSP in consultation with other development partners to ensure that all sectors of the economy were adequately covered. The sectors were selected to boost development impact and in line with Government priorities for the use of ADB assistance, as well as on the basis of past performance of ADB projects.

"The CSP will help Bhutan broaden its economic base so that economic growth generates jobs and has strong linkage with the rural population," says Richard Vokes, a Director in ADB's South Asia Department.

"It will address constraints to private sector development, including the need to improve transport networks, expand access to electrification and social services, develop more competitive financial markets, create a better environment for small and medium enterprises, and promote tourism."

Bhutan is a mountainous landlocked country with a national poverty rate of 32% and where more than half of the population is a half day's walk from the nearest road. The economy depends heavily on hydropower, accounting for 45% of national revenues.

With 50,000 youths expected to enter the labor market and another 20,000 people expected to migrate from rural to urban areas in the next few years, diversifying the country's economic base by promoting greater private sector participation in the development process is central to the Government's growth and poverty reduction strategy.

ADB is proposing five loans for 2006-2008, addressing urban municipal development, financial sector, small and medium enterprise/microcredit, and rural electrification and renewable energy.

They will be complemented by a technical assistance grant program totaling $4 million focusing on strengthening institutions and capacity, and project preparation.

"The CSP is designed to focus on managing for development results," Mr. Vokes adds. "It will facilitate the achievement of the Millennium Development Goals in Bhutan as well as specific commitments in each sector, with goals, targets and indicators to which ADB assistance operations will contribute."

ADB began lending operations in Bhutan in 1983. By the end of March this year, ADB had funded 19 projects amounting to $111.2 million, and 90 technical assistance activities with a cumulative value of $33.7 million.

ADB assistance in key sectors has contributed to steady achievements in Bhutan, particularly in transport, power, and urban infrastructure, where it is the lead development partner.

CSPs define ADB's medium-term development strategy as agreed with the country. A CSP update is usually prepared every year taking into account the continued relevance of the CSP, its implementation, and ADB's operational program.