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World Bank Supports Urban Development in Bhutan

April 29, 2009

WASHINGTON, April 29, 2009 ─ The World Bank today approved a $12 million IDA credit to Bhutan, designed to improve infrastructure services in parts of the capital city of Thimphu where no formal services are currently available.
Bhutan has experienced rapid social and economic growth in the past couple of decades, which has fueled urbanization. Since 2000, the country’s urban population has grown at about 4.7 percent per year. It now accounts for about a third of the total population, and is expected to reach 50 percent by 2020. Thimphu, by far the country’s biggest city with about 80,000 residents, is struggling to manage the urban expansion. The newly extended areas in the north and south of the city are underdeveloped and lack basic urban infrastructure.
The Second Urban Development Project will finance development of basic infrastructure in the northern areas of Thimphu, including roads, storm water drainage, water supply, sewerage, and street lighting. The project builds on the experiences of the first Urban Development Project, approved by the Bank in 1999, with an IDA credit amount of $10.8 million. The project helped to develop urban infrastructure as well as strengthen local government’s project management in ten small and medium-sized towns.
There is an urgent need to accommodate Bhutan’s rapidly increasing urban population and to develop policies and institutions to facilitate and manage urban growth,” said Toshiaki Keicho, World Bank Sr. Urban Environment Specialist. “This project will make significant contribution to the equitable and sustainable expansion of urban services through developing critical infrastructure and by strengthening the financial and institutional capacity of the responsible local authorities.”
Specifically, the project will support Bhutan’s municipal reform program by strengthening municipal finance and management in Thimphu and Phuentsholing. Further, it will help implement the country’s new legal framework for urban local governments, including the establishment of an effective intergovernmental fiscal transfer system.
The credit from the International Development Association, the World Bank’s concessionary lending arm, has 20 years to maturity with a 10-year grace period; it carries a service charge of 0.75 percent.

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