THIMPHU, 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 Program. The first phase helped the Government of Bhutan overcome a liquidity crunch and to stabilize the economy in fiscal year 2013.
“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 program. This will, over time, help Bhutan achieve its employment and poverty reduction goals by maintaining sustainable growth.”
The second phase of the program 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 program 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 microfinance; expansion of mobile banking services into rural areas; and a financial literacy program to promote financial inclusion and help mobilize 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 securitizing 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.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.