Impact: A well-functioning financial system that supports basic capital and investment needs as well as Bhutan's longer-term economic objectives.
Outcome: A deeper and more stable capital market.
(i) Restructuring and enhanced ICT capacity of NPPF. The first output will support NPPF to assess reorientation of its business plan since NPPF will have to discontinue retail lending from June 2014. This would entail developing modalities for alternative investment of pension funds in line with international best practices conducive to the Bhutanese environment. This output will also enhance the information and communication technology (ICT) capacity of NPPF through procurement of a $120,000 Data Center and Disaster Recovery System that will crucially ensure user data security and mitigate risks such as database corruption, hardware failures, and those due to natural disasters.
(ii) Establishment of regulatory and supervisory framework for fund management industry. The second output will assist RMA in setting a regulatory and financial supervisory policy that strikes the right balance in formulating effective fund management industry regulations and rules that would enhance effective regulation and supervision of fund management companies thereby ensuring the stability of the Bhutanese financial system. Training will also be provided to enhance RMA staff expertise both at the management level and the departmental level in terms of drafting fund management industry regulations as well as ensuring effective implementation of these regulations.
(iii) Formulation of a capital market master plan. The third output will assist RMA, MOF, RSEBL, brokerage firms, fund management companies, and other capital market intermediaries to formulate a master plan that charts the future direction of the Bhutanese capital market for the next 10 years from 2013 through 2022. This master plan aims to develop the Bhutanese capital market by providing clarity of vision and objectives to the capital market stakeholders as well as recommendations to be implemented in the medium- and long-term. The master plan would also provide support to establish the foundation of a corporate bond market and that of a fund management industry. It is intended to ensure that the capital market is well-positioned to support Bhutan's economic development and wealth creation among the urban and rural populace.
(iv) Establishment of regulatory and supervisory framework for Domestic Credit Rating Agency. The fourth output will assist RMA in setting a regulatory and supervisory framework (including an operating license regime) for establishing a Domestic Credit Rating Agency (DCRA) in Bhutan. The output would also support the credit rating agency regulators both at the management and the supervisors level to enhance their capacity building in understanding and introducing the appropriate level of regulation and supervision for rating agencies. The eventual establishment of a DCRA would add an important dimension to the capital market by catalyzing the enhanced supply and demand of equities and bonds as well as promoting entry of foreign investment funds.
(v) Strengthened public debt management. The fifth output will strengthen public debt management practices within MOF by building on work initiated by the World Bank (i.e. formulation of a public debt management reform plan in November 2011) with a focus on implementing a medium-term debt management strategy that would focus on debt monitoring (including forecasting debt repayments), timely short-term bond issuance according to maturity profiles and currency denominations to stagger payment streams over the medium-term to avoid spikes in debt payments and asset liability mismatches, and encompass measures to develop and maintain an efficient market for government securities that would be pivotal in helping to create a liquid domestic debt market. Support will also be provided to ensure MOF's successful issuance of rupee denominated bonds in India to alleviate the rupee liquidity crunch facing the country.
(vi) Supporting capacity for upcoming Strengthening Economic Management Program. The sixth output will provide resources to support implementation of key reform actions under the upcoming Strengthening Economic Management Program which will be considered by the Board in early 2013. The output will facilitate a stable and sustainable high growth rate over the medium to long term by curtailing excessive domestic credit growth, limiting rapid expansion of public spending, and enhancing the scope for liquidity management. This output also includes activities helping the government in exploring the possible subscription of an international sovereign credit rating.