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. Developing a vibrant private sector is key to diversifying Bhutan’s economy, generating more broad-based growth, and creating sustainable jobs.

Bhutan's capital, Thimphu.

ADB has been supporting Bhutan since 1982, mostly concentrating its efforts on programs and projects in energy, transport, finance, and urban development.

Since 1982, ADB has committed loans totaling $564.06 million, grants of $269.22 million, and technical assistance worth $56.48 million for Bhutan. Cumulative loan and grant disbursements to Bhutan amount to $631.7 million. These were financed by regular and concessional ordinary capital resources (OCR), and the Asian Development Fund.

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

In November 2019, ADB approved a policy-based loan of $30 million for the first subprogram of the Financial Market Development Program. The program supports the government with institutional reforms, while improving the technical capacity of the country’s regulatory and financial institutions. The program addresses key binding constraints in the finance sector by developing the nonbank financial system, strengthening the stability and integrity of the financial system, and promoting financial inclusion. ADB has also approved a $500,000 technical assistance grant to support capacity building and knowledge work related to reforms under the program.

Staff of the Dagachhu Hydropower Plant doing routine checks.

ADB is ensuring sustained progress in areas critical to gender equality and the well-being of Bhutanese women. It is doing so through its operations in health, education, skills development, and, perhaps more significantly, the integration of gender elements into urban sector projects. In line with Sustainable Development Goal target 5.4, ADB conducted a study in 2019 to measure unpaid care work in Bhutan. This study was then presented to the government as a tool for gender policy relevance and application. As a key partner of the Women in Power Sector Professional Network in South Asia (WePOWER), ADB established the first country-level chapter in South Asia. Through WePOWER, the bank is helping promote inclusion of women in the energy sector by driving science, technology, engineering, and mathematics education for women; recruitment, development, and retention of women; and policy and institutional change in favor of women.

Nonsovereign Operations

As a catalyst for private investments, ADB provides financial assistance to nonsovereign projects and financial intermediaries. Total commitments from ADB’s own funds (in equity and direct loans) in 2019 amounted to $3.00 billion for 38 transactions in economic and social infrastructure, the finance sector, and agribusiness. ADB also actively mobilizes cofinancing from commercial and concessional sources. In 2019, ADB mobilized $3.28 billion of long-term cofinancing and $3.69 billion of cofinancing in trade finance, microfinance, and supply chain finance programs. Total outstanding balances and commitments of nonsovereign transactions funded by ADB’s own resources stood at $13.78 billion as of 31 December 2019.

Financing Partnerships

Financing partnerships enable ADB’s development 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 Finance Program and Supply Chain Finance Program.

ADB began cofinancing operations in Bhutan in 1983. Since then, sovereign cofinancing commitments for Bhutan have amounted to $71.53 million for 9 investment projects and $20.63 million for 18 technical assistance projects. Nonsovereign cofinancing for Bhutan has amounted to $3.10 million for one investment project and $1.3 million for two technical assistance projects.

Projects Cofinanced, 1 January 2014–31 December 2018

Operational Challenges

With a widely dispersed population and insufficient road networks, Bhutan faces accessibility 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 some of the 17 national priorities of the government’s Twelfth Five Year Plan, 2018–2023. ADB will continue its support for 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 in hydropower as well as in non-hydropower areas. The bank also continues to support Bhutan in developing and strengthening its capital and financial markets to ensure financial inclusion.

ADB Country Director Kanokpan Lao-Araya explains how ADB works with Bhutan to support its development and its unique goal of gross national happiness

Future Directions

ADB will expand economic opportunities in Bhutan by continuing to support infrastructure development (particularly for energy, transport, water, and urban infrastructure), trade facilitation, skills development, and finance sector development.

To make growth more inclusive, ADB will help improve Bhutan’s national and cross-border connectivity as well as its infrastructure in regional growth centers, health systems, education, skills development, and agriculture. ADB will continue to support initiatives in private sector development, governance, and capacity development. Nonlending assistance will focus on the country’s agribusiness, energy, transport, and social services.

To support regional cooperation, ADB has included four South Asia Subregional Economic Cooperation projects in its country operations business plan, 2020–2022 for Bhutan.