ADB Assistance to Help Bhutan Put Finances on Sound Footing

Bhutan Finance Minister Lyonpo Wangdi Norbu (left) and ADB's Director General for South Asia Department Juan Miranda

MANILA, PHILIPPINES – The Asian Development Bank (ADB) has approved a grant and loan totaling $35 million to help the Government of Bhutan fill a resource gap in its finances and allow it to continue to develop its economy.

“Bhutan’s economy is growing strongly. Under the program, the government commits to undertaking policy reforms to ensure that the growth is sustainable and can continue to support provision of necessary services to its people,” said Juan Miranda, ADB’s Director General for the South Asia Department.

Economic growth has averaged 8% per year over 2001-2011 and has increased demand for consumer imports. Sales of hydropower – Bhutan’s main export – are expected to continue at current levels until 10 planned hydropower plants come on stream in the run up to 2020.

Bhutan’s largest trading partner, India, provides 75% of Bhutan’s imports and takes 90% of its exports. Since this trade is conducted in Indian rupees, Bhutan is now suffering a severe shortage of the Indian currency. This rupee crunch, caused by the rapid buildup in public spending, poor liquidity management, and a lack of savings instruments could cause a sudden slowdown in the economy if it not addressed soon.

ADB forecasts Bhutan’s economy to grow 8.4% in the current fiscal year ending June 30, 2013 with inflation projected at 10.5%.

ADB’s assistance, approved on 21 March 2013, consists of a grant of $20.81 million and a loan of SDR9.2 million.

Bhutan has been a member of ADB since 1982 and, exclusive of this latest loan, has received total lending of $284.27 million.  ADB, Bhutan’s largest multilateral development partner, will open an office in the capital, Thimphu, later this year. In 2012, Bhutan came top in ADB’s Country Performance Assessment, which ranks countries according to the quality of the loan portfolio, policies and institutions, governance, and macroeconomic and structural policies.