ADB-Bhutan Partnership

Construction workers at the Dagachhu Hydropower Development in Bhutan, which forms part of the Asian Development Bank’s Green Development Power Project. Energy is one of ADB’s priority sectors in Bhutan. Photo by: ADB / CC BY-NC-ND In recent years, Bhutan has achieved tremendous progress in strengthening its economy, almost halving its poverty rate from 23.2 percent in 2007 to just 12 percent in 2012. Despite having landlocked borders and limited access to trade networks, the South Asian country managed to sustain an average 7.3 percent growth in gross domestic product from 2008 to 2013 by harnessing its hydropower resources. Successes in gender equity and women’s reproductive health, increased participation in primary and secondary education, and the continued decline of maternal mortality are also among the country’s most significant achievements in the past decade. The Asian Development Bank states that in order to stay on its path toward development, Bhutan must diversify its hydropower-driven economy. Limited job opportunities left 7.3 percent of the youth unemployed in 2012, with joblessness particularly prevalent among young women. The bank and the government of Bhutan recognize the need to strengthen the country’s private sector in addressing such gaps and achieve sustained, inclusive development. But with limited access to finance, underdeveloped infrastructure especially in the transport sector, and a mismatch between labor force training and available employment opportunities, private sector growth remains stunted. Bhutan is currently implementing its 11th five-year plan, which will be carried out until 2018. Its main goals are to achieve self-sufficiency and environmentally sustainable socio-economic development. ADB is fully committed to help the South Asian country achieve these goals and has designed its partnership strategy around the government’s objectives. Funding levels ADB supports Bhutan through its Asian Development Fund and delivers assistance in the form of loans and grants. Indicative ADF allocations for Bhutan for fiscal years 2014 to 2017 amount to $179 million. The total budget for this partnership period, which extends to fiscal 2018, has yet to be finalized and will depend on the availability of resources. Funding allocations may be adjusted based on the findings of future annual country performance reviews. Additional financing is likely to be drawn from the ADF subregional pool, which supports projects aimed at bolstering regional cooperation and integration. Previous allocations from ADF loans, grants and other special funding mechanisms of ADB are broken down below. Funding priorities ADB has aligned its partnership strategy for Bhutan with the country’s 11th five-year plan, which hinges on the following pillars: - Inclusive economic growth. - Environmental sustainability. - Regional cooperation and integration. The bank will support these pillars mainly by contributing to activities that aim to increase access to employment, develop renewable power sources, and enhance local and regional trade. Consequently, ADB’s areas of engagement for the 2014–2018 funding period will be in the energy, finance, transportation, water and urban development sectors. The bank’s sectoral targets are as follows: Listed below are average annual allocations by sector for 2009–2013. Last July, ADB approved the South Asia Subregional Economic Cooperation Road Connectivity Project. In Bhutan, the $69 million program will broaden access to economic opportunities and social services by building roads that connect to remote areas in the eastern part of the country, which is situated near the Indian border. Other approved ADB initiatives in Bhutan include: - Strengthening the Royal Monetary Authority's Regulatory Capacity for Nonbank Financial Institutions - Improved Urban Environmental Infrastructure Project - Adapting to Climate Change through Integrated Water Resources Management - Promoting Clean Energy Development in Bhutan Devex analysis The South Asian country has proven in recent years that it has the ability to be progressive. But risks in delivering aid to the lower-middle-income country, however minimal, still remain. ADB notes that while the country generally has more solid public financial management systems compared with other developing countries, public procurement at the local level remains challenging. Bhutanese institutions still lack the capacity to implement procurement rules and regulations to the letter. The government likewise has difficulty in carrying out the more complicated procurement processes and a propensity for corruption still remains. To temper these risks, ADB intends to continue working closely with the government and carry out activities to build capacity and bolster control mechanisms of public sector agencies. The bank also recently established a resident mission in Bhutan and expects to drastically improve its portfolio management through heightened coordination with implementing agencies on the ground. Steps will also be taken toward advancing practices in contract management, disbursement, procurement and financial management especially at the local level. The Organization for Economic Cooperation and Development places ADB funding among the top three sources of official development assistance to Bhutan, next only to the World Bank’s International Development Association and Japan. With recently approved projects and a new partnership strategy, ADB is set to deliver long-term assistance to the South Asian country. Contact Asian Development Bank Email: