ADB and Bhutan: Looking beyond 40 years of development journey

Staff Reporter

As Bhutan and Asian Development Bank prepare to celebrate 40 years of partnership in 2022 and prime for the implementation of the country partnership strategy “Bhutan 2019-2023”, the Bank’s Development Effectiveness Brief looks at some of the major achievements in the last five years.

ADB is Bhutan’s largest multilateral development partner. In February 2020, the Bank’s total commitments to the country had reached USD 927.12 million, spread across 200 projects and technical assistance initiatives. Besides nonphysical interventions that have supported capacity building and policy dialogue to improve financial management and support good governance, among others, the physical investments focused heavily on energy, transport, and water and other urban infrastructure and services.

Although Bhutan’s economy has been expanding at an average of seven percent per year from 1998 to 2018, the country’s economic expansion has been “driven narrowly by the hydropower sector and skewed toward a single trade partner”, calling for urgent diversification of its economy. Towards that end, The Bank’s support to Bhutan aimed at distributing the benefits of its economic transformation across the population, aligned closely with the nation’s development vision.

 

What does it all mean?

According to the brief, over the next five years, ADB will help foster economic diversification and reduce disparities as its cumulative portfolio in Bhutan crosses USD 1 billion mark. It will also support increased resilience to climate change by providing targeted support in disaster risk reduction and associated areas.

Bhutan 2019-2023 has been designed carefully in line with Bhutan’s 12th Plan and ADB’s Strategy 2030 to achieve dynamic economic growth to foster a resilient and diversified economy, improved connectivity to provide access to information and markets, and inclusiveness through more equitable socioeconomic development.

ADB’s support in 2014–2018 focused on clean energy, roads and aviation transport, and urban infrastructure by leveraging on its comparative advantage in these sectors “to make Bhutan’s growth more inclusive.” The bank’s support helped the government to increase access to finance to enable people to open businesses and helped communities develop the skills they needed to participate meaningfully in the economy. And, among others, the banks helped establish 13 childcare centres, signed 31 sustainable business agreements against a target of 20, and trained 386 government staff to use the web-based gender monitoring system.

In the transport sector, the bank’s total financing in Bhutan accounts for 20.2 percent, making it the second largest sector of assistance after the energy sector (37.2). The brief highlights that as of December 2019, ADB had implemented a total of 30 transport projects and technical assistance with cumulative financing reaching USD 178.42 million. Some 199.8 km of roads were constructed or upgraded, upgraded three airports to improve safety and security, and built one dry port to improve the country’s trade efficiency.

In the urban planning and design too, the Bank’s support has been significant. According to the brief: “Without proper planning, Bhutan’s rapid urban migration threatens essential services, including water, sanitation, and hygiene, at the same time increasing traffic congestion.”

As Bhutan’s population continues to move to urban centres, the Bank’s focus has been on helping Bhutan plan, construct, and manage vibrant urban centres. From 2006 to 2016, the Bank implemented the Urban Infrastructure Development Project which helped transform the way of life in three urban areas— Dagana, Phuentsholing, and Thimphu.

Land pooling, which Thimphu Thrompon applauded as the most successful collaboration with the Bank, encouraged landowners to share plots of their land on which to develop public urban goods to support a more vibrant urban community. Highlights of the brief show that 96,840 people benefited from the project 63,360 people benefited from new roads 64,642 people received a new supply of safe water 37.2 km of improved road and drainage were constructed.

In the energy sector, tha Bank supported the construction of nearly one-tenth of all installed power generation capacity in the country. The Green Power Development Project built the 126 MWp Dagachhu Hydroelectric Plant that supplies about 515 GWh of power to India each year. In 2015–2019, the Dagachhu plant generated an average of USD16.5 million per year in power export sales to India. It also installed 163 solar power systems in the country and launched the Nikachhu Hydropower Project.

The Bank’s strategy 2030 emphasises tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability.

ADB also completed projects and technical assistance amounting to more than USD 77 million to support economic reforms, good governance, and a more dynamic financial sector. The assistance helped Bhutan regain macroeconomic stability, following a major liquidity crisis in 2012. The Bank assisted the country to develop a revenue administration management information system, which has helped the revenue and customs department streamline tax collection and reduce associated costs.

Recognising that sustainable improvements to governance and macroeconomic management take time, ADB has been providing “systematic” on-going support to strengthen Bhutan’s economy and diversify its private sector.

 

Where is collaboration headed?

According to the development brief, given the likelihood of an economic downturn due to coronavirus pandemic, ADB look at continuing its support to Bhutan to strengthen public sector and macroeconomic management and human capital development. “Interventions in public sector management and health sector development will be important to manage the current pandemic, and to enhance resilience against similar health hazards in the future and to restore macroeconomic stability and vulnerability against economic shocks. Skills development interventions will help expedite recovery in the tourism sector and address the youth unemployment problem.”

The Bank has already committed to invest in transport infrastructure, clean energy infrastructure, and urban and water systems, good governance and further economic reforms in line with the 12th  Plan.

Gem Lao-Araya, ADB’s first country director of Bhutan Resident Mission of South Asia Department, summed up succinctly the future of collaboration between the Bank and Bhutan at the launching of the Development Effectiveness Brief in Thimphu yesterday: “Our goal is to try to accomplish a more inclusive, sustainable and resilient development outcomes for the people of Bhutan … In the 11th Plan, ADB approved and delivered assistance amounting to USD 455 million … We look forward to continuing this successful partnership to achieve a just, harmonious and sustainable society, a prosperous, inclusive and resilient Bhutan.”

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