Bhutan Must Broaden Its Growth Sources to Meet 2020 Development Goals - Study

A new ADB study on Bhutan shows the country needs to expand its private sector and plug education gaps holding back job creation and greater income equality.

MANILA, PHILIPPINES – Bhutan’s strong growth over the past 30 years has set it on the path to becoming an upper-middle-income economy by 2020, but the small, land-locked nation needs to broaden its growth sources if it is to reach that national goal, says a new Asian Development Bank (ADB) country study.

“Bhutan has been one of the fastest-growing economies in South Asia but it relies heavily on hydropower exports. To move to the next level, the country will need to expand its private sector and plug the education and skills gaps which hold back job creation and greater income equality,” said Juan Miranda, Director General of ADB’s South Asia Department.

On the back of strong growth performance in the past few decades, Bhutan has met a number of its Millennium Development Goals well ahead of schedule. Economic growth averaged 7.8% annually from 1981 to 2012. However, the country’s heavy concentration on hydropower poses risks to economic stability and resilience,  and limits employment opportunities.

The ADB study, Bhutan: Critical Development Constraints, identifies five key constraints to achieving broad-based and inclusive growth that need to be addressed in the short to medium term: a narrow and largely uncompetitive economy, limited government finances, low access to finance especially for small- and mid-sized firms, inadequate and poor quality infrastructure, and poor and unequal access to education that fails to provide the training that employers need.

While the hydropower sector continues to be an important driver for growth, the study identifies information and communications technology and clean manufacturing such as food processing or hydropower parts production as potential new sources of growth.

Improving transport networks and other critical infrastructure for better connectivity will be key to furthering private sector investment and development.

To ensure government funds are available for its development-related spending, there is a need to revisit tax structures and administration to boost revenues. To encourage more private sector investment, the country could look at new credit risk guarantees and other instruments to help firms find financing. In the education sector, an overhaul of school curricula and improved technical and vocational training would better equip young people for jobs.

Bhutan has been a member of ADB since 1982 and as of 2013, had received $237.7 million in ADB loans to support sustainable development.