Bhutan and ADB

ADB's Work in Bhutan

Bhutan is one of the fastest-growing economies in South Asia and has more than halved its poverty rate since 2007. However, the challenge remains for Bhutan to expand its economic base and make growth more inclusive, especially for unemployed youth and women. In the aftermath of the coronavirus disease (COVID-19) pandemic, a key policy priority is prompt but sustainable economic recovery.

Bhutan's capital, Thimphu.

The Asian Development Bank (ADB) has been supporting Bhutan since 1982, concentrating its efforts mostly on programs and projects in energy, transport, finance, and urban development.

Since 1982, ADB has committed loans totaling $584.06 million, grants of $269.22 million, and technical assistance worth $57.23 million for Bhutan.

Bhutan is eligible for concessionary OCR lending. The country can also access additional Asian Development Fund grants and concessionary OCR lending from ADB’s disaster risk reduction mechanism to supplement projects.

To strengthen Bhutan’s finance sector, which plays a critical role in domestic resource mobilization, ADB approved $30 million for the second subprogram of the Financial Market Development Program, along with a $20 million Rural Finance Development Project. In a monumental step toward tapping domestic resource mobilization, ADB supported the government in issuing its first sovereign bond in September 2020.

Staff of the Dagachhu Hydropower Plant doing routine checks.

ADB is continuing its efforts to achieve sustained progress in areas critical to gender equality and social inclusion in the country. It is doing so through integration of strategies to enhance equitable access to social services and women’s empowerment in its health, education, skills development, public finance, and urban sector projects. ADB also completed an assessment of gender equality and social inclusion in Bhutan in 2020 to inform and integrate gender issues more systematically into the design and implementation of ADB-financed operations.

Nonsovereign Operations

As a catalyst for private investments, ADB provides financial assistance to nonsovereign projects and financial intermediaries. Total commitments in loans and equity investments from ADB’s own funds in 2020 amounted to $1.4 billion for 38 transactions in economic and social infrastructure, finance sector, and agribusiness. ADB also actively mobilizes cofinancing from commercial and concessional sources. In 2020, ADB mobilized $1.9 billion of long-term project cofinancing and $3.3 billion of cofinancing through its Trade and Supply Chain Finance Program and Microfinance Program. Total outstanding balances and commitments of nonsovereign transactions funded by ADB’s own resources stood at $14.3 billion as of 31 December 2020.

Financing Partnerships

Financing partnerships enable ADB’s financing partners, governments or their agencies, multilateral financing institutions, and commercial organizations to participate in financing ADB projects. The additional funds are provided in the form of loans and grants, technical assistance, and other nonsovereign cofinancing such as B loans, risk transfer arrangements, parallel loans and equity, guarantee cofinancing, and cofinancing for transactions under ADB’s Trade and Supply Chain Finance Program and Microfinance Program.

ADB began cofinancing operations in Bhutan in 1983. Since then, sovereign cofinancing commitments for Bhutan have amounted to $74.53 million for 10 investment projects and $22.63 million for 19 technical assistance projects. Nonsovereign cofinancing for Bhutan has amounted $3.1 million for one investment project and $1.3 million for one technical assistance project.

In 2020, Bhutan received $3 million grant cofinancing from the Japan Fund for Poverty Reduction for the Alternative Renewable Energy Pilot Project.

A summary of cofinanced projects is available at Bhutan: Cofinancing.

Trade reforms are helping the Himalayan Kingdom of Bhutan open up its market, grow the economy, and improve prospects for businesses.

Operational Challenges

With a widely dispersed population and insufficient road networks, Bhutan faces issues for both passenger and freight transport. Likewise, poor border-crossing infrastructure creates bottlenecks in trade and logistics flows. Infrastructure, communications, and public service delivery are among the 17 national priorities of the government’s Twelfth Five Year Plan, 2018–2023. ADB will continue to support infrastructure development under its country partnership strategy, 2019–2023 for Bhutan.

As Bhutan moves toward middle-income status, the need to develop its private sector and financial markets has become more important in achieving diversified growth. ADB has been supporting private sector projects and public– private partnerships, development and strengthening of capital and financial markets to ensure financial inclusion, and domestic resource mobilization.

Future Directions

Given the economic downturn associated with the COVID-19 pandemic, ADB will continue supporting Bhutan to strengthen public sector and macroeconomic management and human capital development. Initiatives in public sector management and health sector development will be important to manage the pandemic and enhance resilience against future health hazards and socioeconomic shocks. Given that access to an effective vaccination program is critical for sustainable recovery, ADB will support the government in procuring and delivering coronavirus vaccines through its Asia Pacific Vaccine Access Facility. Meanwhile, skills development investments will help expedite recovery in tourism and address youth unemployment.

To support regional cooperation, ADB has included two South Asia Subregional Economic Cooperation projects in its country operations business plan, 2021–2023 for Bhutan.