The grant amount of USD 16.1M will be released by this year

Agreement: The Asian Development Bank (ADB) will release USD 36.2M (million) to strengthen the Bhutanese economy in the fiscal year 2015-16.

Finance minister Namgay Dorji and ADB vice president Wencai Zhang signed the agreement towards that end in Thimphu yesterday afternoon.

The total commitment will be disbursed in two tranches – the grant component of USD 16.1M will be disbursed within 2015, and the loan portion of USD 20.1M will be disbursed by March 2016.  The loan component carries an interest of one percent per annum for the first eight years, and 1.5 percent per annum thereafter, with a total repayment period of 24 years.

This is the second phase of ADB support under the Strengthening Economic Management Programme that supports measures to boost government revenues through improved revenue financial administration.

During the signing, lyonpo Namgay Dorji thanked the ADB for the support and said that Bhutan was in need of financial assistance.  Though a major portion of the country’s debt arose from the hydropower projects, which is outside the regular budget, lyonpo said the debt situation was a concern for the government. 

“The assistance has come at a right time when the financial year had just begun,” lyonpo said.

ADB vice president Wencai Zhang said the bank was exploring other areas of cooperation with Bhutan, and added that ADB’s assistance could increase by 2017. “We want to see how we can increase support to Bhutan,” he said, adding that the bank was interested to help the government’s technical and vocational education and training (TVET) programme.

A press release on the ADB’s website stated that the assistance will help finance a larger share of the capital and infrastructure needs using Bhutan’s own resources, and lower its dependence on external concessional loans and grants.

To enhance financial stability, the programme will strengthen regulations and oversight of the financial sector.  It will also provide financial coverage to the government until the impact of the policy reforms gains traction and its own resources are generated through the programme.

The programme is also expected to help boost the country’s financial sector development with support targeted at nonbank financial institutions such as pension funds, and the equity and bond markets to diversify financial products and services.  The press release added that the programme would support approval of regulations on branchless banking and micro-finance; expansion of mobile banking services into rural areas; and a financial literacy program to promote financial inclusion and help mobilise savings.  The assistance programme is will also help improve the Credit Information Bureau that will help improve access to finance for entrepreneurs.

A study will also be carried out into securitising Bhutan’s hydropower revenues to further raise the government’s capacity in funding new infrastructure by accessing international bond markets.

The ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.

MB Subba