ADB’s fresh support to Bhutan

ADB is a major donor to Bhutan
ADB is a major donor to Bhutan

The Asian Development Bank (ADB) is providing fresh support to Bhutan to strengthen its economy.

ADB has approved loan and grant assistance totaling $36.2 million for the second phase of the Strengthening Economic Management Programme. The first phase helped the Government of Bhutan overcome a liquidity crunch and to stabilise the economy in fiscal year 2013, according to ADB.

“To move beyond hydropower-dependent growth and transition to a more balanced and inclusive socioeconomic development model, Bhutan needs to improve its macroeconomic management and develop its financial sector to support the private sector and infrastructure investment,” said Cigdem Akin from ADB’s South Asia Department. “The assistance for budget support will provide financial coverage to the government until the impact of the policy reforms gains traction and its own resources are generated through the programme. This will, over time, help Bhutan achieve its employment and poverty reduction goals by maintaining sustainable growth.”

The second phase of the programme will support measures to boost government revenues through improved revenue administration. This 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 program will strengthen regulations and oversight of the financial sector.

The programme will also help boost 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. It will 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. Expanded coverage and services of the Credit Information Bureau 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 to fund new infrastructure by accessing international bond markets.

ADB’s loan and grant comes from its concessional Asian Development Fund. The assistance will be disbursed in two tranches, as policy actions are carried out over the program implementation period of 18 months. A separate ADB technical assistance grant of $700,000 will also be extended to boost the capacity of key institutions responsible for carrying out the reforms.

The Government of Bhutan is providing counterpart support of $49.3 million.

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