Bhutan and ADB

ADB's Work in Bhutan

Bhutan is one of the fastest-growing economies in South Asia. Economic growth has averaged 7.5% a year over the past 3 decades and the country’s poverty rate was cut more than half in a decade, falling from 23% in 2007 to 8.2% in 2017. Yet, 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 a more broadbased growth, and creating sustainable jobs.

Overlooking view of Bhutan.

Since 1982, ADB has supported Bhutan through various programs, mainly in energy, transport, finance, and urban development. ADB has committed loans totaling $534.06 million, grants of $269.22 million, and technical assistance of $53.75 million for the country.

Cumulative loan and grant disbursements to Bhutan amount to $540.2 million. These were financed by regular and concessional ordinary capital resources (OCR), and the Asian Development Fund.

Floods and riverbank erosion threaten lives and livelihoods and disrupt connectivity with nearby communities

ADB has also approved a $10 million Secondary Towns Urban Development Project in June 2018. The project’s outputs will (i) improve water supply in three secondary towns of Samdrup Jongkhar, Sarpang, and Trashigang; (ii) improve sewerage in Samdrup Jongkhar; (iii) develop drainage and road infrastructure in Sarpang’s new satellite town; and (iv) support the strengthening of institutional capacity for management, operation, and maintenance of municipal infrastructure assets and develop water tariff guidelines.

Bhutan is the only country in South Asia with surplus energy available for export. Its potential hydropower output is estimated at 30,000 megawatts, and only about 5% of that is developed.

ADB has also approved two grant projects to support the government’s efforts in social sector development. Approved in August 2018, the $15 million grant for Skills Training and Education Pathways Upgradation Project will support the government in expanding and upgrading the technical and vocational education and training system for modern, diversified, and job-oriented skills development. The project will facilitate the government’s efforts in accelerating the development of a skilled workforce to meet the economic needs for competitiveness and sustained growth. Approved in October 2018, the $20 million grant for Health Sector Development Program will (i) support improvements in public health care service delivery, especially in underserved areas; (ii) help achieve equitable health financing and sustainable Bhutan Health Trust Fund—the core mandate of which is to support primary health care primarily by financing vaccines and essential medicines; and (iii) improve the management and governance of Bhutan’s health information system to support primary health care and patient management, disease surveillance for increased health security, and overall sector management efficiency.

As Bhutan scales up efforts to enhance its vocational education sector, ADB is providing support to upgrading the Khuruthang Technical Training Institute in Western Bhutan.

ADB has also approved two technical assistance grants of $500,000 each to support capacity building of the Ministry of Health and the Ministry of Labour and Human Resources.

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 2018 amounted to $3.14 billion for 32 transactions in economic and social infrastructure, the finance sector, and agribusiness. ADB also actively mobilizes cofinancing from commercial and concessional sources. In 2018, ADB mobilized $3.17 billion of long-term cofinancing and $3.99 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 $12.7 billion as of 31 December 2018.

Cofinancing

ADB began cofinancing operations in Bhutan in 1983. Since then, cumulative direct value-added official cofinancing commitments for Bhutan have amounted to $71.53 million for 9 investment projects and $21.93 million for 19 technical assistance projects.

Cumulative direct value-added commercial cofinancing for Bhutan has amounted to $3.1 million for one investment project.

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 bordercrossing infrastructure creates bottlenecks in trade and logistics flows. Infrastructure, communications, and public service delivery is one of the 17 national key results areas under the recently launched government’s Twelfth Five Year Plan, 2018–2023. ADB will continue its support in infrastructure development under the new ADB country partnership strategy, 2019–2023 for Bhutan.

As Bhutan moves toward middleincome status, the need to develop its private sector 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.

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, and finance sector development.

ADB’s Green Power Development Project aims to provide regional clean power trade and renewable energy access for the poor

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 also included four South Asia Subregional Economic Cooperation projects in the Country Operations Business Plan, 2019–2021.

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