BRIEF

The Kingdom of Bhutan and the World Bank Group: Realizing Prosperity for the Bhutanese People

August 2, 2017

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Meeting between the Prime Minister and the World Bank Country Director, Qimiao Fan, and the South Asia Operations Director, Akihiko Nishio (June 2017)


The Kingdom of Bhutan (Bhutan) and the World Bank Group (WBG) have a long-term relationship, and it has been evolving in recent years with the establishment of the Country Office. Bhutan became a member of the World Bank (International Bank for Reconstruction and Development [IBRD] and International Development Association (IDA)) in 1981 followed by its membership in the International Finance Corporation (IFC) in 2003, and the Multilateral Investment Guarantee Agency (MIGA) in 2014. The Bhutan Country Office was established in 2011 is represented by the Resident Representative (Yoichiro Ishihara) under the supervision of the Country Director (Qimiao Fan) for Bangladesh, Bhutan and Nepal and is based in Bangladesh.

The WBG’s partnership with Bhutan is fully aligned with the country’s development visions such as the Constitution, Bhutan Vision 2020 and the 11th five-year plan (FYP). The partnership is articulated in WBG’s Country Partnership Strategy (CPS) for FY2015-2019. The CPS is organized under three results areas: (a) improving fiscal and spending efficiency; (b) increasing private sector growth and competitiveness; and (c) supporting green development. The Royal Government of Bhutan and the WBG jointly conducted the Performance and Learning Review (PLR). The PLR assessed the implementation progress of the CPS to date, and based on the assessment, made necessary adjustments to the program for the remaining period of the strategy. Consultations were condcuted with the Government, representatives from the private sector, CSOs and development partners. The World Bank doubled its country allocation to $100 million, with more favorable terms between 2017 and 2020. To support Bhutan’s development with the increased availability of IDA financing on more favoriable terms, the World Bank has started strategic discussions with the Government to ensure alignment with the government preparations of the 12th FYP.

The World Bank’s operations are conducted through three channels: IDA credit, grants and trust-funded activities and, Advisory Services and Analytics (ASAs). As of August 2017, the World Bank has successfully delivered its second (in a series) of Development Policy Credit 2 ($24 million) and has two ongoing projects under implementation with IDA credits: Second Urban Development Project ($29 million, until 2019) and Remote Rural Communities Development Project ($9 million until 2018). To complement the projects with IDA credits, the World Bank provides support through more than 10 grants / trust-funded activities including Improving Resilience to Seismic Risk ($1.3 million), Bhutan Reducing Emissions from Deforestation and Forest Degradation Readiness Project ($3.8 million) and Sustainable Financing for Biodiversity Conservation and Natural Resource Management Project ($4 million), Global Agriculture Food Security Program ($8 million), Hydromet Services and Disaster Resilience Regional Project ($3.8 million), Bhutan BLSS Economic Census ($0.7 million) and the Preparation of Strategic  Program of Climate Resilience ($1.5 million). All of these activities are underpinned by ASAs. The World Bank, for example, has conducted Public Expenditure and Financial Accountability (PEFA) Assessment,  and an in-depth study on Labor, and is in the process of finalizing the Investment Climate Assessment and Agribusiness Policy Note. Further, the World Bank will soon operationalize the Multi-Donor Fund on Public Financial Management (PFM) – supported by the European Union and Austria. 


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The signing of the Bhutan Development Policy Credit on March 10, 2017 at the Ministry of Finance. 


IFC has been working with the Government in several areas. It continues to help the implementation of Bhutan’s high-value-low impact tourism policy with investments in both foreign and domestic private companies. These transactions mark the first foreign direct investment (FDI) after a formal policy was issued, and the first external commercial borrowing availed by a fully private Bhutanese company. In 2012 IFC supported the financial sector through an equity infusion of $28.5 million into a local systemic commercial bank—marking the partnership the largest FDI in Bhutan to date. In 2016 IFC reduced about half of its stake thereby making the deal the first major equity buy-back transacted at the local stock exchange. The IFC is assisting with the improvement of financial infrastructure and financial inclusion by supporting the Credit Information Bureau and the Central Registry, providing risk management support, environmental and social policy support, and other policy related work. It has trade lines with commercial banks to help small- and medium-enterprises to import critical equipment into Bhutan.  IFC invested $3 million of its funds and $6 million from the Global Agriculture and Trade Finance Program in a hazelnut plantation program—which is expected to enhance the incomes of 15 percent of Bhutan’s population, mostly the poorer subsistence farmers in rural Bhutan. IFC provided advisory services in a range of areas including improvement in the investment climate such as in licensing, promoting FDI, and enhancing access to finance. The IFC helped infrastructure development in the transport sector by advising the municipality of Thimphu to issue a concession concluding the first major public-private partnership transaction in the urban space. The IFC continues to support Bhutan’s economic development through private sector solutions.

For further information, please contact Yoichiro Ishihara (Resident Representative, yishihara@worldbank.org) and Tenzin Lhaden (Operations Officer, tlhaden@worldbank.org).


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Signing of the US$8 million grant for the Food Security and Agriculture Productivity Project. (May 18, 2017 at the Ministry of Agriculture and Forest)



Experts

Yoichiro Ishihara

Resident Representative & Senior Country Economist for Bhutan

Tenzin Lhaden

Economist for Bhutan