Under the current Country Partnership Strategy, outcomes have been satisfactory and notable advances have been made in each of the four CPS results areas. Notably, substantial progress has been made in improving the business environment, reforming regulatory frameworks, encouraging public-private partnership through strategic infrastructure and support access to financial services. Achievements have been made in employment and skills development, particularly though the Timphu TechPark investment. Progress has been made improving rural livelihoods through access to markets, road connectivity, and agricultural productivity and in improving the availability of urban municipal services, particularly in Thimphu. Key milestones have been achieved in strengthening institutional capacity in the area of public financial management and procurement. Steps have been taken to strengthen disaster management capacities. Awareness and understanding of Bhutan’s nutrition status have been raised through robust and timely analytical work in this crucial area.
Economic Diversification, Job Creation, and Financial Inclusion
Investment Climate: Overall progress in improving the business and regulatory environment has been substantial. Dialogue to support the increased use of public-private partnerships, grounded in the Bank-financed Investment Climate Report recommendations, has fostered a series of reforms now reflected in the country’s economic development and foreign direct investment (FDI) policies. These recognize that unless the business enabling environment is improved, the private sector’s potential as an engine for growth cannot be unleashed. Reforms and simplifying regulatory procedures for businesses and foreign direct investment have been initiated, placing Bhutan above regional averages. IFC assisted the government with optimization of its company registration process and now is working to improve the efficiency of business entry. Updated FDI rules and regulations have been prepared for implementation under an amended FDI policy (2010).
Private-Public Partnerships: Progress toward improving private sector participation for strategic infrastructure has been significant. Bank technical assistance has resulted in finalizing Bhutan’s PPP policy and the overarching framework which describes PPPs’ goals and objectives. The framework provides assurances for private sector investment and helps ensures transparency, competition, and regulation in the awarding of PPP projects. This technical assistance has also helped improve client capacity by bringing global good practices and, in particular, understanding of the private sector’s willingness and capacity to participate in PPP transactions in the future. The Bank-financed Thimphu TechPark, the country’s first IT park, has been a flagship pilot for public-private partnerships in infrastructure and service delivery in Bhutan.
Financial Sector: Good progress has been made in strengthening financial infrastructure and improving financial inclusion. The Bank has supported analytical work through a Financial Inclusion Focus Group Survey which provided household-level evidence on access to finance in urban and rural communities. Building on the assessment of the Bhutan’s financial sector, the government has prepared a Financial Inclusion Policy which draws up policy objectives, strategies, and an action plan to increase financial inclusion. This report provides demand-side evidence previously unavailable in Bhutan for informing government policy regarding financial inclusion. Simultaneously, IFC has provided training for senior officials of the Royal Monetary Authority (RMA) and leading financial institutions, along with advisory services to the Bank of Bhutan and Bhutan National Bank on risk management, IT strategy, and long-term development strategies.
Corporate Governance: Progress toward improving the corporate governance to state-owned enterprises (SOEs) is on track. Training has been provided to the 60 out of 65 Druk Holding and Investment (DHI) company directors in an internationally renowned institute. DHI has developed a performance monitoring system for six of its companies.
Employment and Skills Development
Good progress has been made toward improving skills development and increasing productive employment opportunities. Under the Private Sector Development Project, which established the Thimphu TechPark, a total of 1,034 secondary and tertiary graduates have been trained. Approximately 804 Bhutanese graduates between the ages of 19 and 24 years, with equal representation between young men and women across Bhutan’s 20 districts, are now working in the IT/ITES sector. The cost to the government per job created under the project has been estimated to be in the range of $1,000, which is highly satisfactory per regional and global standards. Private sector led training approaches have been successful in changing vocational training strategies adopted by the government in other sectors. These include output-based matching grants to private sector training firms, industry linkage training and employment programs, and international train-the-trainer (TTT) programs to build capacity and standards among local private sector training companies.
Institutional capacity has been strengthened to facilitate labor market entry and employment among Bhutanese youth. Through innovative skills development and PPP models, training has been provided to approximately 100 youth in the tourism and hospitality sectors. A draft National Employment Policy has been prepared and awaits Cabinet approval. This policy is expected to create conditions for the achievement of full, productive, and voluntary employment for people, particularly youth, and ensure a coordinated approach to unemployment. It will also address the requirement of producing an adequately skilled workforce that matches the requirements of the job market. Enforcement of the Labor and Employment Act (2007) through supporting rules and regulations is already taking place and can now be extended to occupational health and safety. Improving employment conditions in the private sector is a critical part of facilitating sustained employment.
Sustainable Urban-Rural Development
Urban Development: Finance reform for the new municipal administrations managing Bhutan’s two largest cities, Thimphu and Phuntsholing, is progressing well with the recent finalization of the draft Municipal Finance Policy, approved in July 2012. Based on a broad-reaching reform agenda, selected priority measures are now being implemented in both cities. Initial work to provide basic municipal services in northern areas of the Thimphu valley, including roads, piped water, and sewage, is under way.
Rural Livelihoods: Substantial progress has been made in improving rural livelihoods by improving market access and agricultural productivity in rural communities in Bhutan. The Bank has helped increase community irrigation plans, small-scale infrastructure, and agricultural extension services in six project districts. These initiatives have led to better access to markets, a reduction in transportation costs and better access to agricultural services. Travel time to the nearest motorable road has been reduced by 50%. Access to all-season feeder roads has been constructed and improved in 100% of the target project areas under the Second Rural Access Project (RAP-2). An innovative environment friendly road construction approach was successfully piloted and mainstreamed under RAP-2.
Sustainable Land Management: Impressive achievements have been made in sustainable land management (SLM) practices. The Bank’s contribution has demonstrated a successful approach to participatory management of land and land resources through the active involvement of local communities. This has facilitated better understanding of how to prevent erosion and stem productive soil loss using new and varied sustainable land management technologies and practices. It has also facilitated the institutionalization of successful SLM practices now encapsulated under the government’s five-year national development plans.
Disaster Risk Management (DRM): The Bank has supported activities to improve disaster management capacities within key DRM agencies in coordination with the Department of Disaster Management, Ministry of Home and Cultural Affairs. The government has prepared a draft Disaster Management Bill which will support improved disaster risk management and response activities in a more systematic and streamlined manner. Search and rescue training, financed by the Bank, was carried out to strengthen capacity for responding to disasters. Technical assistance from the Bank contributed to capacity building in the Department of Disaster Management and other counterparts through a national-level training program and Bhutanese participation in international conferences and seminars on disaster management. A draft national action plan for schools and hospitals has been prepared and recommendations presented to relevant ministries and other government and civil society bodies.
Access to Quality Public Services
Higher Education: Analytical work carried out by the Bank to the tertiary education sector in Bhutan aims to support improved quality assurance and accreditation of college and university-level programs, as well as guide policymaking in this area. Policy recommendations for the tertiary education sector will contribute to Bhutan’s national strategy of creating a knowledge-based society. The study complements a Bank-supported public expenditure review (PER) of the human development sectors (health and education). The PER will help the government understand expenditure trends and support decision-making for ensuring that public spending has the most impact for these key sectors, while simultaneously reducing inefficiencies.
Health and Nutrition: Improvements have been made in understanding and creating awareness of Bhutan’s challenges in the areas of health and nutrition. The early findings of analytical work carried out through the Bhutan National Nutrition Assessment and Gap Analysis were presented to the government in October 2012. This included assessment of the current nutrition status of Bhutan, key determinants of malnutrition, as well as current programs, gaps, opportunities, and implementation challenges.
Other analytical work in the health sector has been supported by the Bank, including the country’s first-ever National Health Accounts (NHA) estimates, a study costing health facilities, a study using GIS tools on selected health indicators and their dependence on social and geographical determinants to health, and a rapid assessment of the pilot of Special Consultation Services (SCS). The human development PER also incorporates findings from these studies.
Public Financial Management (PFM): Progress has been made in strengthening fiduciary systems and public financial management. The Bank supported a Public Financial Management Accountability Assessment (PEFA) which identified key areas for improving public financial management. Based on the results of the PEFA, the government has prepared an action plan prioritizing PFM reform measures, including predictability and control in budget execution, and improved accounting recording and reporting. The Public Expenditure Management System (PEMS) and Multi-Year Rolling Budget (MYRB) approach were also introduced and rolled out in across government agencies.
Procurement: Steps have been taken to increase transparency and efficiency in the system of public procurement. The Bank has helped formulate short-term recommendations for the Use of Country Systems (UCS). The Bank has also supported a Procurement User’s Guide, strengthening the Public Procurement Policy Division (PPPD), creating an independent bid review body, publishing contract awards immediately after award, and revising standard bidding documents for goods and works.
Significant progress has been made in the enhanced use of country systems. All Bank-financed projects now fully use Bhutan’s own PFM system for budgeting, accounting, internal control, and financial reporting. This has resulted in capacity building of the main institutions of accountability across the government.
Investment: Since Bhutan joined IFC in 2003, IFC has made investments in high-end tourism infrastructure and put into place a Global Trade Finance Program (GTFP) with two of the country’s largest commercial banks. IFC has made progress in developing a pipeline of potential investments during the ongoing CPS period, including two in the financial sector, one in hydropower, and another in agribusiness. IFC continues to look for potential areas for investment in these and other sectors, including telecommunication, health, education, and tourism.
Advisory: IFC’s advisory services have been active for several years. Notable programs recently completed or ongoing include:
- Transaction structuring of public-private partnerships for infrastructure projects in the transport sector;
- Urban transit for Thimphu and Phuntsholing;
- Development of a multi-level parking facility in Thimphu as a PPP; and
- A pre-feasibility viability assessment of a combined inter-city and intra-city bus terminal as a PPP.
IFC’s program to improve the investment climate in Bhutan includes assistance on policy issues ranging from foreign direct investment to licensing, improving process efficiency (e.g., project approvals, environmental clearances), and introducing best practices for information sharing for business development. IFC is also supporting financial sector capacity building through policy notes on national payment systems, training on trade finance and targeted advisory assistance for Bhutan’s two largest banks. A corporate governance program for the financial sector is being planned. Finally, IFC is engaged in a number of ongoing and planned feasibility studies, including for special economic zones (completed), power trading company (ongoing), and non-bank financial institutions (planned), as well as a diagnostic study for the national airline, Drukair.