Bhutan Country Overview

October 2009

Overview | Development Challenges | World Bank Assistance to Bhutan | Looking Toward the Future

OVERVIEW

The Kingdom of Bhutan is a small landlocked country in South Asia, located in the eastern Himalayas, bordered by India and China. Bhutan is home to a population of about 687,000, spread over an area of approximately 47,000 sq. km., with about 70 percent of the land area under forest cover. Much of the population lives in the central highlands, and almost two-thirds are classified as rural inhabitants. The terrain is mostly hilly, with alpine peaks in the north, and some sub-tropical plains in the south. Per capita gross national income (GNI), one of the highest in South Asia, has consistently risen from $730 in 2000 to $1,900 in 2008.

The country has seen significant political changes and transitions in recent years. Bhutan’s political system has evolved from an absolute monarchy into a constitutional monarchy, following a decade of planning and consultations. After 34 years on the throne, the Fourth King, Jigme Singye Wangchuck, stepped down on December 9, 2006, in favor of his son, Jigme Khesar Namgyel Wangchuck. The Constitution was prepared, following a process led by the Chief Justice, involving widespread public consultations within Bhutan, and with the international community. The new democratic system comprises a National Council and a National Assembly, the latter based on political party affiliations. Elections for the National Council were held on December 31, 2007, while elections for the National Assembly were held on March 24, 2008.

On September 21, 2009, an earthquake with a magnitude of 6.3 on the Richter Scale struck eastern Bhutan. Because of the remoteness of the areas hit, details were slow to arrive but the Royal Government reports that 12 deaths, 22 injuries, and 1,046 homes were damaged in nine districts. A technical needs assessment team comprised of UNDP, OCHA, and the World Bank will visit the affected areas beginning October 2nd.

DEVELOPMENT CHALLENGES

Bhutan’s development has been rapid. Until the 1950s, Bhutan isolated itself from the rest of the world, and its dispersed rural population depended on subsistence agriculture. Once it opened to the outside world in the 1960s, Bhutan embarked on a far-reaching development strategy that has been articulated in the country’s 10th Five-Year Plan (10FYP). The 10FYP (2008-2013) is currently under implementation, and constitutes the basis for the country’s Poverty Reduction Strategy Paper. The Plan’s overall objective is to reduce poverty from 23.2 percent in 2007 to 15 percent by 2012-13.

Bhutan is characterized by good progress in human development, particularly in urban areas, and the increasing availability and use of public services throughout the country. However, these changes have been slower to reach the more remote, hard-to-reach areas due to the rugged terrain and limited trained human resources. The expansion of infrastructure is an absolute requirement for the broader economic and social transformation of the country. Despite the rapid expansion of the road network, more than 50 percent of the population lives half a day’s walk from the nearest motor road. Only 57 percent of the population in rural areas has access to electricity. The country has a significant feasible hydropower potential of around 23,760 MW, of which just a little over 5 percent only has been tapped so far.

Over the past decade, social indicators have improved. Infant mortality per 1,000 live births has been reduced from 106 in 2000 to 84 in 2007. Maternal mortality rates in 2007 were estimated at 440 deaths per 100,000 live births, compared to 500 in the South Asia region as a whole. Literacy and education enrollment rates have also risen. Unlike much of the rest of South Asia, primary school enrollment among girls is higher than boys in many urban areas, and nationwide almost half of primary school students are girls. Property rights are also much more equal than in most of South Asia, with women rather than men inheriting property in some areas. However, there is a growing incidence of youth unemployment. As youth comprise almost 59 percent of the population, adequate job creation will depend on robust private sector development, combined with initiatives to increase skills and employability.

WORLD BANK ASSISTANCE TO BHUTAN

Bhutan became a member of the World Bank in 1981. Through the International Development Association (IDA), the World Bank’s concessionary lending affiliate that provides interest-free loans, the Bank began its program of assistance in the early 1980s.

There are currently seven ongoing projects for a net commitment of $73 million. The current project portfolio is focusing on education, health, private sector, and rural development. In addition, a Development Policy Financing for Institutional Strengthening was disbursed in June 2009 in the amount of $20.2 million.

Name of Project	Board Approval	Amount	Expected Closing Date
Institutional Capacity Building Project for Procurement	6/10/2008	$1.5 million	6/30/2011
Decentralized Rural Development	3/01/2005	$7.0 million	12/31/2010
Sustainable Land Management	1/17/2006	$7.7 million	12/31/2012
Second Rural Access Project	4/10/2007	$10.0 million	10/10/2012
Private Sector Development	6/20/2007	$8.0 million	6/30/2012
Education Development Project	8/21/2003	$32.6 million	12/31/2009
HIV/AIDS and STI Prevention	6/17/2004	$5.8 million	12/31/2009

There is growing global focus on the Millennium Development Goals, including ensuring environmental sustainability and achieving universal primary education by 2015. Bhutan has already achieved some of the goals and has concrete plans and the commitment to achieve the others.

Bhutan became a member of the International Finance Corporation (IFC), the World Bank’s private sector development arm, in December 2003. The IFC has a total committed investment portfolio of $8.8 million. The advisory portfolio includes corporate advice and access to finance service. IFC is in the process of opening an office in Bhutan and is interested in exploring opportunities to provide to the government and expanded investment support to the private sector. MIGA is seeking Bhutan’s membership as the only remaining non-member South Asian state.

LOOKING TOWARD THE FUTURE

The World Bank has appointed a Country Representative who will take up permanent residence in Bhutan in November. The Representative will better support implementation of the Bank-financed program in the country and strengthen dialogue across a range of issues.

Currently under preparation for Fiscal Year 2010, which ends June 30, 2010, is an $8 million investment in an urban development project. In addition, a new Country Assistance Strategy is under preparation and will build on the Royal Government’s 10FYP which serves as its Poverty Reduction Strategy Paper.

The Bank’s program of analytical and advisory activities (AAA) will aim to be responsive to the country’s needs and focuses on capacity constraints. The CAS includes a flexible AAA program characterized by a limited number of formal activities, programmatic non-lending technical assistance in selected areas, and just-in-time AAA to respond to emerging demands of the government.

All dollar figures are in US dollar equivalents.