Bhutan has embarked on a far-reaching development strategy that has been articulated in a series of five-year national development plans. The Tenth Five-Year Plan’s (2008-2013) objective, founded on the principles of Bhutan’s unique development philosophy of achieving increased ‘Gross National Happiness’, is to reduce poverty to 15 percent by 2012-13 from 23.2 percent in 2007. At the same time, Bhutan remains vulnerable to macroeconomic volatility because of its dependence on hydropower revenues and external assistance, as well as potential overheating from higher development spending and credit growth. Balancing development with tradition and the increasing availability and use of public services throughout the country have been priorities. The expansion of infrastructure is an absolute requirement for the broader economic and social transformation of the country. There is also a growing incidence of youth unemployment, which has tripled since 1999.
The first World Bank Representative to Bhutan took up residence in Thimphu in November 2010 and the first country office in Bhutan was inaugurated in March 2011. A new joint Bank-International Finance Corporation (IFC) Country Partnership Strategy (CPS) (2010) includes the following areas of engagement: (i) economic diversification, job creation and financial inclusion; and (ii) spatial planning and public services. There are currently seven ongoing International Development Association (IDA)-financed projects for a net commitment of US$73 million. The current project portfolio is focusing on education, health, private sector, and rural development. In addition, a Development Policy Credit for US$24 million was signed in March 2011. There is growing global focus on the Millennium Development Goals, including ensuring environmental sustainability and achieving universal primary education by 2015. Bhutan is not only on track to achieve most of the original MDGs; in some cases, it is also committed and has concrete plans to achieve the “MDGs +.” For example, in education, the target is to reach 90 percent enrollment in basic education by 2013.
• The net primary school enrollment and primary completion rates are 92 percent and 90.2 percent, respectively (2009) compared with a primary school completion rate of 76 percent in 2006. The net enrollment in basic education (up to grade 10) is 75 percent.
• Construction of eight new priority feeder roads totaling 129 kilometers, benefitting 3,400 households in 39 villages. This project developed and adopted an Environmental Code of Practice for rural road construction, which is now being adopted in other sectors.
• Urban services, such as water supply, roads, and other civil works were improved in ten district towns: (i) 55,000 people over twenty years have received improved infrastructure services; and (ii) 1,993 households have new water connections.
• Strengthening of urban planning and management capacity at the national and local levels and improving urban services, such as water supply, urban roads, and other civil works in expanding areas of the capital city, Thimphu.
Bhutan became a member of the World Bank in 1981. Through the International Development Association (IDA), the Bank began its program of assistance in the early 1980s. There are currently seven ongoing projects for a net commitment of US$73 million. The current project portfolio is focusing on education, health, private sector, and rural development. The recently-signed Development Policy Credit-1 builds on three previous development policy operations. The main objectives of the most recent operation are to strengthen institutions by promoting good governance through sound fiscal and public financial management and procurement and strong accountability institutions; foster dynamic labor markets, ensure skills match, and generate employment; and expand access to infrastructure in an environmentally sustainable manner.
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 US$8.8 million. The advisory portfolio includes corporate advice and access to finance services. The IFC is co-located in the Bank office in Thimphu and provides the Royal Government with expanded investment support to the private sector.
The World Bank has close collaboration with Bhutan’s other bilateral and multilateral development partners and seeks to ensure complementarily in the planning and coordination of donor assistance. Joint missions with the Danish International Development Agency (Danida) have been carried out twice to review both the health and education sectors overall. The Global Fund to Fight AIDS, Tuberculosis and Malaria has now been involved for the last 18 months.
Toward the Future
The new CPS builds on the areas of strategic focus, taking into account lessons learned during the past four years while responding to new priorities for the Royal Government, emerging challenges and strategic opportunities. While strengthening the Bank’s and the Royal Government’s commitment to results-based planning, the focus going forward will be on both growth and the quality of growth, emphasizing ‘wealth and well-being.’ The Bank’s engagement with Bhutan should be increasingly along the lines of a middle-income country.