ADB's Work in Bhutan

Bhutan’s gross domestic product grew by an estimated 3.5% in 2021, reversing a deep 10.1% contraction in 2020 owing to the strict coronavirus disease (COVID-19) containment measures imposed by the government.

Bhutan’s economy experienced rapid annual average growth of 7% between 1988 and 2018. This growth was driven mainly by the construction and operationalization of large hydropower projects. The national poverty rate declined from 23% in 2007 to 8.2% in 2017 due to improvements in access to basic infrastructure and social services. Bhutan has made significant progress in terms of increasing life expectancy, expanding immunization rates, and raising school enrollment. It is on track to graduate from the United Nations’ list of least-developed countries by 2023.

The Asian Development Bank (ADB) is one of Bhutan’s largest sources of official development assistance, with average annual lending of $52.1 million—$25.6 million loans and $26.5 million grants—from 2018 to 2021. ADB’s support is aligned with several key development objectives of Bhutan’s 12th Five-Year Plan, 2018–2023, including strengthening technical and vocational education programs, health services, water supply, and urban amenities. The active portfolio as of 31 December 2021 comprised 14 projects and programs totaling $389.05 million. The energy sector has the highest share in terms of lending volume followed by water and urban, agriculture and natural resources, finance, transport, health, and education.

To date, ADB has committed 196 public sector loans, grants, and technical assistance totaling $1.1 billion to Bhutan. Cumulative loan and grant disbursements to Bhutan amount to $799.08 million. These were financed by regular and concessional ordinary capital resources, the Asian Development Fund, and other special funds. ADB’s ongoing sovereign portfolio in Bhutan includes 9 loans and 10 grants worth $345.9 million.

In 2021, ADB provided $60 million in loans and grants to Bhutan. These included a $30 million loan to strengthen financial institutions and promote financial inclusion, and a $24 million loan and $6 million grant to support the Government of Bhutan’s efforts to provide safe and affordable housing.

ADB provided $3.75 million in technical assistance to Bhutan in 2021. These technical assistance projects helped conduct due diligence for new projects, implement ongoing projects, and support needed institutional reforms and capacity building. The assistance included $0.5 million to support the strengthening of the financial market, $1.3 million to help prepare a renewable energy program, $0.5 million for a skills development program, $1 million to help provide affordable housing, and $0.5 million to help reform the financial sector.

Operational challenges. ADB is ready to increase lending to expand energy, urban, transport, and water infrastructure; facilitate policy reforms to diversify the economy and catalyze the private sector; and promote human capital development. The government’s capacity to design and implement large development projects needs to be strengthened, as does project readiness in terms of design quality, procurement planning, safeguards due diligence, and implementation capacity. Bhutan’s rugged terrain, poor road network, and skills deficit pose additional challenges for designing and implementing projects. While the Government of Bhutan has undertaken reforms to simplify licensing requirements, facilitate public–private partnerships, and promote foreign direct investment, Bhutan’s private sector remains underdeveloped. ADB will promote synergies in its sovereign and nonsovereign operations in Bhutan to boost private investment in agribusiness, health, and the capital market.

Khuruthang Middle Secondary School students attend an electrical elective class. Photo: Sonam Phuntsho/ADB

Knowledge Work

ADB’s knowledge work for the government in 2021 included strategic studies on policy reforms, improving the pension system, and increasing access to finance, as well as sector studies to support operations. The report Overcoming COVID-19 in Bhutan: Lessons From Coping with the Pandemic in a Tourism-Dependent Economy assessed the government’s financial relief measures for those most affected by the pandemic and programs and other interventions to address the impact of COVID-19. A study is underway to assess the economic cost of gender-based violence in Bhutan and suggest preventive measures.

  ADB Projects in Bhutan Project data sheets for loans, grants, TAs

Future Directions

ADB’s pipeline of projects for 2022–2024 includes policy-based and project loans to facilitate economic recovery, undertake policy and sector reforms to diversify the economy and catalyze private sector investment; pursue green, resilient, and inclusive infrastructure development; and modernize the technical and vocational education training system. Two upcoming projects will promote gender equality and social inclusion. A program loan will support fiscal reform, improve public sector governance through policy and regulatory reforms, and help create an environment conducive to the private sector. ADB will assist Bhutan to expand its solar and wind energy capacity and diversify its energy sources beyond hydropower. It will also provide $10 million from the Asia Pacific Vaccine Access Facility and a grant to fund COVID-19 vaccines for children, booster shots for adults, and improve containment measures