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Social Protection: Bhutan

Labor and Social Protection: Bhutan
Overview: Transportation in South Asia

Bhutan’s changing demographics, urbanization and economic developments have potential future implications on poverty for particular groups such as young adults. Unemployment is on the rise because the slow-growing private sector is not able to absorb this newly educated workforce. Bhutan’s social protection system comprises mainly a civil service pension system, but the country is giving increasing attention on linking young people to employment opportunities and expanding coverage of social security to the informal sector.

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Overview

Bhutan’s 10th Five-Year Plan (2008/09–2012/13) was approved in 2008 and constitutes the Poverty Reduction Strategy Paper. The Plan’s strategic framework gives the operationalization of “gross national happiness” top priority, as well as achieving the MDG targets and accelerating poverty reduction.

Another key priority for the government of Bhutan in the forthcoming decades is to help create high quality jobs for labor market entrants while simultaneously enhancing the productivity of the workforce. Human resources are limited in both public and private sectors, and the lack of a vigorous private sector limits employment possibilities, especially for youth.

Youth unemployment is a recurring concern of the Bhutanese Government and one that was a central part of the political discourse during the past elections. With a large share of GDP flowing through the government and policy measures seeking to limit the expansion of the civil service, ensuring adequate job creation for growing cohorts of school leavers is a key concern. It is projected that during the 10th FYP period, there will be an annual outflow of 12,000 school leavers from classes X and XII who will be looking for jobs, to be joined by around 1,900 students graduating from vocational training institutes and tertiary education institutions, as well as approximately 4,000 migrants who will move from rural areas in search for urban jobs.

Challenges

Bhutan does not have any public safety net programs. Bhutanese rely on inter-household transfers in cash or in kind, family support, migration, and borrowing. However:

• As education, income, migration and urbanization increase, traditional family systems may become less reliable as a source for support. Bhutan has begun to witness social problems among youth.To counteract these possible developments, particularly focusing on youth, the Government may need to place greater emphasis on measures to improve the employability of youth.
• There is also a growing number of at risk youth that do not find their way into society and the labor market. The Government is expanding youth related activities (e.g. through the Youth Development Fund) beyond the typical training and education programs, but funding for these alternative, second chance programs are scarce.
• The current pension scheme that mainly covers public sector workers is not financially sustainable in its current form. While there are funds set aside to cover the growing pension liabilities, projections reveal a long run actuarial deficit. The fund is invested within Bhutan and suffers from low returns and illiquidity.
• The Labor Law 2007 mandates extensions to pension/provident fund coverage. However, the current scheme is designed for a formal, wage-based workforce and would not be easily extended to the vast majority of Bhutanese workers.
• The poor may also be less able to take advantage of the opportunities of general growth, migration and private sector development.

World Bank Support

The Bank is supporting the Government of Bhutan in two specific social protection areas:: improving labor market outcomes and strengthening the country’s pension scheme through analytical and advisory services and financial assistance

Analytical and Advisory Activities
- Bhutan: Youth and Employment; Summary Report on the Technical Assistance for the Royal Government of Bhutan.” Vermehren, Vodopivec and Weber.

Lending
- Bhutan Development Policy Grant/Credit for Institutional Strengthening


Last updated: 2010-02-26




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