ADB commits loans and grants worth USD 1.1bn to Bhutan

13th FYP and the ADB

Country partnership ended in 2023 and assessments for a new strategy has already begun

The Asian Development Bank’s (ADB) country partnership strategy for Bhutan ended in 2023, and preparatory work for a 2024–2028 strategy has started including sector and thematic assessments. The new strategy will build on the achievements under the current one to reinforce its successes and augment investments. The new strategy will be aligned with the government’s 13th Five-Year Plan (FYP) which aims to develop Bhutan into a sustainable and prosperous economy. The ADB is deepening its commitment to Bhutan’s economic growth with a series of impactful loans, grants, and technical assistance projects totaling USD 1.2 billion (B).

To support the preparation of Bhutan’s 13th FYP for 2024–2028, ADB helped prepare a comprehensive growth diagnostic study on constraints to Bhutan’s economic growth. The study complements ADB’s private sector development initiative in Bhutan, which includes preparation of a road map for public–private partnerships, a diagnostic study on state-owned enterprises (SOEs) as a precursor to the preparation of an SOE strategy, a draft bankruptcy bill, a draft competition bill, and an investment opportunities study.

ADB supported the preparation of implementation road maps for the National Adaptation Plan of Action (NAPA) and the development of a resource mobilization strategy. ADB also continued to support the National Statistics Bureau’s (NSB) efforts to transition from conducting an annual labor force survey to quarterly ones. This support resulted in the publication of the first quarterly report in November 2023. ADB purchased 500 online course licenses from edX for government officials, staff, and students at the Royal University of Bhutan (RUB) for training on macroeconomic forecasting and data analysis.

As of 31 December 2023, ADB has committed 207 public sector loans, grants, and technical assistance totaling USD 1.2B to Bhutan. ADB’s current sovereign portfolio in Bhutan includes 13 loans and 8 grants worth USD 353.1 million (M). Cumulative sovereign loan and grant disbursements to Bhutan amount to USD 914.76M. These were financed by regular and concessional ordinary capital resources, the Asian Development Fund, and other special funds.

In 2023, ADB approved a USD 5M project readiness financing facility to support preparations for two green power projects: the Bunakha hydropower project (180 MW), and the Nyera Amari hydropower project (404 MW).

For Bhutan’s education sector, ADB provided a USD 30M loan to improve access to and expand the coverage of the country’s technical and vocational education and training. The loan is supplemented by a USD 2M grant from the Japan Fund for Prosperous and Resilient Asia and the Pacific, and a USD 3.5M grant from the Government of Canada.

A USD 1.7M regional technical assistance project funded by ADB’s Technical Assistance Special Fund, supporting Bhutan and Nepal, will help strengthen climate change adaptation and resilience in the Hindu Kush Himalaya region and will set the stage for providing Bhutan with knowledge solutions on climate-resilient investment planning, development, and risk management.

However, the regional bank points out that poor connectivity limits access to ADB’s project sites, which are scattered across different parts of the country. Bhutan’s small market and limited pool of suppliers, contractors, and skilled workers add to complexity in project implementation. To address frequent staff changes at ADB’s counterpart agencies, the bank is working closely with the government to enhance the implementation capacity of national and local agencies and staff. ADB continues to train staff from implementing and executing agencies on procurement processes, safeguards, financial management, and results management.

Moreover, Bhutan’s economy is unable to generate the required number of jobs due to the country’s small private sector, the dominance of state-owned enterprises, and dependence on the capital-intensive hydropower sector. Overall unemployment rate was 3.5% in 2023, with youth unemployment at 15.9%.

The lack of adequate job opportunities force many working-age nationals to migrate to advanced economies. Between June 2022 and September 2023, around 16,000 Bhutanese (2% of the population) left for Australia for education and work opportunities. The ADB is working closely with the Government of Bhutan to put the country back on its strong, pre-pandemic growth path.

By Tashi Namgyal, Thimphu