Bhutan: Critical Development Constraints

C
o
u
n
t
r
y

D
i
a
g
n
o
s
t
i
c
s

S
t
u
d
i
e
s
Bhutan
Critical
Development
Constraints
Country Diagnostics Studies
Bhutan
Critical
Development
Constraints
zo1AsIunDeveIomenLBunk,AusLruIIunAgencyIornLernuLIonuIDeveIomenL,undJuunnLernuLIonuICooeruLIonAgency
AIIrIghLsreserved.PubIIshedInzo1.
PrInLedInLhePhIIIInes.
SBNq;8-qz-qzq-zqq-(PrInL),q;8-qz-qzq-zq-o(PD)
PubIIcuLIonSLockNo.RPT16-z
CuLuIogIng-In-PubIIcuLIonDuLu
AsIunDeveIomenLBunk,AusLruIIunAgencyIornLernuLIonuIDeveIomenLundJuunnLernuLIonuICooeruLIonAgency
CounLrydIugnosLIcssLudIes:BhuLuncrILIcuIdeveIomenLconsLruInLs
MunduIuyongCILy,PhIIIInes:AsIunDeveIomenLBunk,zo1.
1.EconomIcdeveIomenL.z.BhuLun..AsIunDeveIomenLBunk..AusLruIIunAgencyIornLernuLIonuIDeveIomenL..
JuunnLernuLIonuICooeruLIonAgency.
The vIews exressed In LhIs ubIIcuLIon ure Lhose oI Lhe uuLhors und do noL necessurIIy reecL Lhe vIews und oIIcIes oI Lhe AsIun
DeveIomenLBunk(ADB)orILsBourdoIGovernorsorLhegovernmenLsLheyreresenL,LheAusLruIIunAgencyIornLernuLIonuI
DeveIomenL(AusAD),orLheJuunnLernuLIonuICooeruLIonAgency(JCA).
ADB,AusAD,undJCAdonoLguurunLeeLheuccurucyoILheduLuIncIudedInLhIsubIIcuLIonunducceLnoresonsIbIIILyIoruny
consequenceoILheIruse.
BymukIngunydesIgnuLIonoIorreIerenceLouurLIcuIurLerrILoryorgeogruhIcureu,orbyusIngLheLermcounLryInLhIs
documenL,ADB,AusAD,undJCAdonoLInLendLomukeunyjudgmenLsusLoLheIeguIoroLhersLuLusoIunyLerrILoryorureu.
ADB,AusAD,undJCAencourugerInLIngorcoyIngInIormuLIonexcIusIveIyIorersonuIundnoncommercIuIusewILhroer
ucknowIedgmenLoIADB,AusAD,undJCA.UsersureresLrIcLedIromreseIIIng,redIsLrIbuLIng,orcreuLIngderIvuLIveworksIor
commercIuIuroseswILhouLLheexress,wrILLenconsenLoIADB,AusAD,undJCA.
n LhIs reorL, $ reIers Lo US doIIurs unIess oLherwIse secIhed.
AsIunDeveIomenLBunk
6ADBAvenue,MunduIuyongCILy
1oMeLroMunIIu,PhIIIInes
TeI+6z6zqqqq
ux+6z66zqqq
www.udb.orgJeconomIcs
AusLruIIunAgencyIornLernuLIonuIDeveIomenL
GPOBox88;
CunberruACTz6o1,AusLruIIu
TeI+61z6zo6qooo
ux+61z6zo6q88o
www.uusuId.gov.uu
JuunnLernuLIonuICooeruLIonAgency
NIbunchoCenLerBuIIdIng,-z,NIbun-cho,
ChIyodu-ku,Tokyo1oz-8o1z,Juun
TeI+81--zz6-q;81
www.jIcu.go.jJengIIshJ
B
hutcnzozo:AVisionjorPecce,ProsperitcndHcppinessembodIesLhedeveIomenLhIIosohy
oIHIsMujesLyKIngJIgmeSIngyeWungchuckundseLsouLdIrecLIonsLhuLwIIIenubIeBhuLunLo
execuLeLhIshIIosohywhIIeuLLhesumeLImereLuInIngILscommILmenLLoILsdIsLIncLIvemodeI
oI hurmonIous und buIunced deveIomenL. The vIsIon, whIch Is hIghIIghLed In BhuLuns zo1o
economIcdeveIomenLoIIcy,seeksLobrIngLogeLherdesIrubIIILyundIeusIbIIILy,sIgnIIyIngLhuL,
wILhwIsdom,undersLundIng,undIoresIghL,LhecounLrycunmeeLLhechuIIengesoIchungeundmodernIzuLIon
und bequeuLh Lo IuLure generuLIons u nuLIon LhuL every BhuLunese wIII be roud oI. AL Lhe core oI Lhe
governmenLsusIruLIonsIIesucceIeruLInggrowLhundoverLyreducLIon.ThesegouIsurereuIIzubIerovIded
LhuL Lhe consLruInLs Lo IncIusIve economIc deveIomenL ure IdenLIhed und uddressed Lhrough ImIemenLuLIon
oIurorIuLeoIIcIesInLhemedIumundIongLerm.
BhuLun, us Lhe reorL noLes, hus underLuken In Lhe IusL decude u number oI key InILIuLIves, whIch
resuILedIngrossdomesLIcroducLgrowLhruLesuverugIng8.q%durIngzoo1zo11.WehoeLoImroveLhe
economIcerIormunceevenIurLherwILhmoreInvesLmenLInLhehydroowersecLorLoIncreusehydroower
generuLIon cuucILy Lo ubouL seven LImes Lhe resenL IeveI by zozo. We huve IIkewIse InvesLed In key
economIc InIrusLrucLure und servIces und socIuI und humun deveIomenL, uIIowIng us Lo even suruss our
LurgeLoIreducIngLheoverLyheudcounLruLeLo1%byzo1,undLouchIevevIsIbIerogressInmeeLIngoLher
MIIIennIumDeveIomenLGouILurgeLs.
TheGovernmenLoIBhuLun,however,IsuwureoIremuInIngchuIIengesLoLurnInggrowLhmoreresIIIenL
und IncIusIve. DesILe Lhe hIgh ruLes oI economIc growLh, Lhe growLh remuIns nurrowIy bused; vuInerubIe
LosecLoruIshocksundcycIIcuIswIngs;undunubIeLocreuLeudequuLejobs,esecIuIIyIorLhegrowIngyouLh
ouIuLIon. or our vIsIon oI uchIevIng ro-oor und equILubIe deveIomenL, we need Lo LrunsIorm our
economy InLo u more dIversIhed und broud-bused one-whIch cun generuLe roducLIve und decenL emIoymenL
oorLunILIesIoruIIBhuLunese.ThedeveIomenLgusbeLweenLhedIsLrIcLsundhIghInequuIILyucrossIncome
grousuIsoremuInuconcern.
ThereorLuIsorovIdesInsIghLsLhuLcunheIenrIchdeveIomenLcooeruLIonbeLweenLhegovernmenL
und our deveIomenL urLners. n urLIcuIur, we hIghIy urecIuLe Lhe consuILuLIve rocess LhuL Lhe sLudy
udoLed Lo ensure LhuL vIews oI uII Lhe key sLukehoIders were Luken InLo uccounL In dIugnosIng Lhe crILIcuI
consLruInLs oI Lhe BhuLunese economy. The governmenL gruLeIuIIy ucknowIedges Lhe suorL oI Lhe AsIun
DeveIomenLBunk,AusLruIIunAgencyIornLernuLIonuIDeveIomenL,undJuunnLernuLIonuICooeruLIon
AgencyInLheLImeIyconducLoILhesLudy.
Lam Dorji
SecreLury
MInIsLryoIInunce
Foreword
ROYAL GOVERNMENT OF BHUTAN
MINISTRY OF FINANCE
TASHICHHO DZONG
Bhutan: Critical Development Constraints
iv
Preface
T
hehIIosohyoIgrossnuLIonuIhuInessIsunIqueLoBhuLun,undhusbeenLhecenLeroIILs
socIoeconomIc oIIcIes In sLrIvIng Lo buIunce Lhe sIrILuuI und muLerIuI weII-beIng oI ILs cILI-
zens. BhuLun beIIeves LhuL IL Is ossIbIe Lo embruce Lhe benehLs oI modernIzuLIon wILhouL beIng
overwheImed by neguLIve Inuences whIIe uL sume LIme muInLuInIng u dIsLIncL IdenLILy LhuL Is
recognIzedundresecLedbyLheresLoILheworId.
BhuLunhusuchIevedsLronggrowLh,uLununnuuIuverugeoI;.8%durIng1q81zo11,undILsercuILu
grossdomesLIcroducLhusmoreLhunquInLuIed,Irom$z;1Lo$1,qq6durIngLhesumeerIod.Hydroower
deveIomenL hus been Lhe muIn drIver oI Lhe growLh. The governmenLs conscIous eIIorLs Lo InvesL In
socIoeconomIc rogrums huve heIed reduce overLy In Lhe counLry. WILh ILs soIId erIormunce, BhuLun
husbeenoneoILheIusLesLgrowIngeconomIesInLheSouLhAsIuregIonundLheursuILIorenvIronmenLuI
susLuInubIIILyundIncIusIveeconomIcgrowLhueursLobewILhInreuch.
AIongwILhuIILheseosILIvedeveIomenLs,BhuLunhusrecognIzedLhuLILneedsLoconLInueILseIIorLs
LomukegrowLhresIIIenLLoexLernuIundInLernuIIucLors.ThIsIncIudessLeInguILseIIorLsLomukeILs
economIc growLh more IncIusIve und Lo ensure LhuL Lhe benehLs oI growLh ure more wIdeIy dIsLrIbuLed.
ThereorLhutcn:CriticclDetelopmentConstrcintsIsLImeIy,usLheGovernmenLoIBhuLunIsnow
In Lhe rocess oI reurIng Ior ILs eIevenLh Ive Yeur PIun. Bused on rIgorous unuIysIs, Lhe reorL IdenLIhes
LhemosLcrILIcuIconsLruInLsIucIngLheeconomyunddIscussesoIIcyoLIonsLoussIsLLhegovernmenLInILs
endeuvorLouchIevesLrong,buIunced,undresIIIenLgrowLhLhuLIsuIsoIncIusIve.orBhuLunLoucceIeruLe
economIc growLh und overLy reducLIon, IL hus Lo Lu InLo new or uddILIonuI drIvers oI growLh LhuL cun
exIoIL Lhe counLrys comuruLIve udvunLuge. The reorL uIso hIghIIghLs oLenLIuI new drIvers, whIch cun
heIcomIemenLBhuLunsconLInuIngeIIorLsIorIncIusIveundsusLuInubIesocIoeconomIcdeveIomenL.
We gruLeIuIIy ucknowIedge Lhe hnuncIuI suorL Irom Lhe GovernmenL oI AusLruIIu Lhrough Lhe
AusLruIIuAsIun DeveIomenL Bunk (ADB) SouLh AsIu DeveIomenL PurLnershI ucIIILy under Lhe
DeveIomenLPurLnershIProgrumIorSouLhAsIu,wILhuddILIonuIussIsLunceIromLheJuunnLernuLIonuI
CooeruLIon Agency (JCA). The sLudy wus joInLIy conducLed by Lhe GovernmenL oI BhuLun, ADB, und
JCA. AssIsLunL ChIeI EconomIsL Cyn-Young Purk, EconomIc AnuIysIs und OeruLIons SuorL DIvIsIon,
EconomIcs und Reseurch DeurLmenL oI ADB rovIded Lhe oversIghL und overuII dIrecLIon Ior Lhe sLudy.
TheworkwuscoordInuLedbyYokoNIImIundKee-YungNumoIADB.TomokINILLu,KuLsuoMuLsumoLo,
MoLoyukI TukuhushI, Ayumu OhshImu, Jun YumuzukI, Yusuke TukuhushI, und DuIsuke Lo coordInuLed
Lhe reseurch on behuII oI JCA. The reorL wus reured by Kee-Yung Num, Muhummud Ehsun Khun,
Yoko NIImI, GIIberLo M. IunLo, MurIu Rowenu M. Chum, und PuuIo RodeIIo M. HuIIII. The work benehLLed
IrombuckgrounduersreuredbyuLeumoIconsuILunLscomrIsIngTenzInChhoedu,ekeyDorjI,DII
Muyu RuI, Rohun SumurujIvu, TukuyukI Urude, und Bruce WInsLon. PeLer ChoynowskI, rIs CIuus, ULsuv
Kumur, und PuuI Vundenberg rovIded vuIuubIe commenLs In hnuIIzIng Lhe reorL. The reuruLIon Ior
Lhe reorL wus ussIsLed by RegInu Buromu, ArIene EvungeIIo, Amudor orondu, MurIu MeIIssu GregorIo,
Chapter 1. Introduction
v
uwrenceNeIsonGuevuru,RonuIdoco,yndreeMuIung,ShuronuyePIzu,IIIbeLhPooL,MurkRomuruog,
EmmunueISunAndres,undRhInuRIccIoez-ToIenLIno.ThereorLwusedILedbyJIIIGuIedeVIIIu;IuyouL
undLyeseLLIngwerebyMIkeCorLes.
The GovernmenL oI BhuLun rovIded suorL LhroughouL LhIs sLudy In numerous cuucILIes.
n urLIcuIur, we Lhunk SecreLury um DorjI, MInIsLry oI Inunce, und Governor Duw TenzIn, RoyuI
MoneLury AuLhorILy, Ior LheIr InsIghLs und guIdunce uL every sLe oI Lhe sLudy. We ure uIso gruLeIuI Ior
LhesuorLundIeedbuckreceIvedIromTenzInChezung,G.B.CheLLrI,PushuIuIChheLrI,UgyenChoden,
EdenDemu,PemuDechunDorjee,ChoILshoEudeIDorjI,NImDorjI,RInchenDorjI,GouIGIrI,Kunzung
humu, Kurmu hendu, Tshewung Norbu, TushI PeIden, JuI Nuruyun Prudhun, Kurmu RInzIn, Sonum
TushI, Sonum TenzIn, Kencho ThInIey, Yungchen TshogyeI, TundIn Wungchuk, Dechen WungdI, KInIey
WungdI,undoLherswhosenumesmuyhuvebeenInudverLenLIyomILLedhere;undIromnumerousugencIes,
IncIudIngLheMInIsLryoIInunce,RoyuIMoneLuryAuLhorILyoIBhuLun,NuLIonuISLuLIsLIcsBureuu,Gross
NuLIonuIHuInessCommIssIon,MInIsLryoIEconomIcAIIuIrs,MInIsLryoIubourundHumunResources,
und MInIsLry oI AgrIcuILure und oresLs. InuIIy, our Lhunks uIso go Lo Lhe reresenLuLIves oI Lhe LhInk
Lunks, deveIomenL urLner reresenLuLIves, Lhe dIsLrIcLs, cIvII socIeLy, und rIvuLe secLor reresenLuLIve
orgunIzuLIons LhuL urLIcIuLed In Lhe workshos, Ior LheIr suorL und InLeresL In Lhe sLudy. We uL ADB
IookIorwurdLoconLInuedundroducLIvedIuIoguewILhLheGovernmenLoIBhuLunInursuIngunugendu
oIIncIusIvegrowLhundsusLuIneddeveIomenLInBhuLun.
Changyong Rhee
ChIeIEconomIsL
EconomIcsundReseurchDeurLmenL
AsIunDeveIomenLBunk
Juan Miranda
DIrecLorGeneruI
SouLhAsIuDeurLmenL
AsIunDeveIomenLBunk
Preface
vi
Contents
Foreword iii
Preface iv
Abbreviations and Acronyms vii
Highlights ix
1 Development Performance 1
1.1. The Bhutanese Economy 2
1.2. Trends in Poverty and Inequality 12
1.3. Conclusion 15
Appendix A. Methodology 16
2 Critical Constraints to Bhutans Growth 18
2.1. Cost of Finance 20
2.2. Social Returns to Investments 29
2.3. Appropriability of Returns to Investments 41
2.4. Conclusion 62
3 Critical Constraints to Reducing Poverty and Inequality 65
3.1. Poverty and Inequality Diagnostics Framework 65
3.2. Productive Employment Opportunities 66
3.3. Human Capabilities 70
3.4. Uneven Playing Field 85
3.5. Social Safety Nets 91
3.6. Conclusion 91
Appendix B. Analyzing the Probability of Not Being Poor 93
4 Drivers of Inclusive Growth for Bhutan 95
4.1. Existing Drivers of Growth in Bhutan 95
4.2. Emerging Growth Drivers for Bhutan 104
4.3 Conclusion 110
5 Policy Recommendations 112
5.1. Critical Constraints to Inclusive Growth 112
5.2. Policy Recommendations on Critical Constraints to Growth 113
5.3. Policy Recommendations to Support Drivers of New Growth 124
5.4. The Way Forward 129
References 130
Chapter 1. Introduction
vii
Abbreviations and Acronyms
ADB Asian Development Bank
APIC Agency for Promotion of Indigenous Crafts
BBEIS Bangladesh Bureau of Educational Information and Statistics
BCSEA Bhutan Council of Secondary Education Assessment
BDFC Bhutan Development Finance Corporation
BHU basic health unit
BPO business process outsourcing
CERD Centre for Educational Research and Development
DOA Department of Agriculture
DTMP district transport master plan
ECB external commercial borrowings
ESCAP United Nations Economic and Social Commission for Asia and the Pacic
FAO Food and Agriculture Organization
FDI foreign direct investment
FY scal year
FYP ve year plan
GDP gross domestic product
GGLS group guarantee lending scheme
GNHC Gross National Happiness Commission
ICT information and communications technology
IDI ICT Development Index
IFC International Finance Corporation
IMF International Monetary Fund
IT information technology
ITES information technology-enabled services
JICA Japan International Cooperation Agency
KPO knowledge process outsourcing
MOAF Ministry of Agriculture and Forests
MOE Ministry of Education
MLHR Ministry of Labour and Human Resources
MSMEs micro, small, and medium enterprises
MWHS Ministry of Works and Human Settlements
NSB National Statistics Bureau
Nu ngultrum
O&M operation and maintenance
PPP publicprivate partnership
PRC Peoples Republic of China
viii
PwC PricewaterhouseCoopers
REC Royal Education Council
RICB Royal Insurance Corporation of Bhutan
RMA Royal Monetary Authority
RNR Renewable Natural Resources
RSMP Road Sector Master Plan
SIL small individual loans
SITC Standard International Trade Classication
TCB Tourism Council of Bhutan
TTI technical training institute
TVET technical and vocational education and training
WDI World Development Indicators
WHO World Health Organization
Weights and Measures
GWh gigawatt-hour
ha hectare
kg kilogram
km kilometer
km
2
square kilometer
kV kilovolt
kW kilowatt
kWh kilowatt-hour
m meter
mm millimeter
MVA megavolt-ampere
MW megawatt
Abbreviations and Acronyms
Highlights
ix
Highlights
B
huLun, whIch Is sILuuLed In Lhe eusLern HImuIuyus, Is u smuII, mounLuInous, und IundIocked
counLrybeLweenLhePeoIesReubIIcoIChInuundndIu.DesILechuIIengInggeogruhyund
IImILedconnecLIvILyLoLhegIobuImurkeLs,BhuLunmunugedLoLrunsIormILseIIIrombeIngu
cIosed,usLoruI,undsubsIsLenceeconomyInLouruIdIygrowIngIowmIddIe-IncomecounLry
bymunugIngILsnuLuruIresourceendowmenLundunIockIngILshydrooweroLenLIuI.BhuLuns
deveIomenL erIormunce hus been guIded by ILs hIIosohy oI gross nuLIonuI huInessoI sLrIvIng
Lo buIunce sIrILuuI und muLerIuI udvuncemenL Lowurd LoLuI weII-beIng Lhrough Iour IIIurs: susLuInubIe
und equILubIe economIc growLh und deveIomenL, reservuLIon und susLuInubIe use oI Lhe envIronmenL,
reservuLIonundromoLIonoIcuILuruIherILuge,undgoodgovernunce.Thus,BhuLunsoIIcymukershuve
beenuImIngLouchIevehurmonyundbuIunceInLheeconomIcdeveIomenLrocess.
BhuLunexerIencedsLrongeconomIcgrowLhdurIngzoo1zo11,wILhILseconomygrowInguLununnuuI
uveruge oI 8.q%. ThIs growLh hus uIIowed Lhe governmenL Lo suorL overLy reducLIon InILIuLIves und
udvunce socIuI deveIomenL. nvesLmenLs In vurIous socIuI rogrums enubIed Lhe governmenL Lo uchIeve
severuIMIIIennIumDeveIomenLGouILurgeLseurIIerLhunscheduIed.ThIs,however,doesnoLmeunLhuL
overLy hus been erudIcuLed. nequuIILy remuIns u sIgnIhcunL Issue ucross urbun und ruruI ureus In regIons
unddIsLrIcLs,undhusevendeLerIoruLeducrossIncomegrous.
Hydroower deveIomenL, whIch sLurLed In Lhe mId-1q8os, und Lhe subsequenL exorL oI surIus
eIecLrIcILyLondIu,huveIurgeIysusLuInedLhegrowLh.BhuLunseconomIcouLIookremuInsIuvorubIeInLhe
medIumLerm,buLheuvydeendenceoncuILuI-InLensIvehydroowerdeveIomenLhusLIedLhecounLrys
sourceoIgrowLhLousecLorLhuLrovIdesonIyIImILedemIoymenLoorLunILIes.ReIIunceoneIecLrIcILy
exorLsLondIuusLhemujorsourceoIIoreIgnexchungehusuIsoIeILLheeconomyvuInerubIeLoswIngsIn
ndIusbusInesscycIes.SecLorsnoLbusedonnuLuruIresourcesremuInIurgeIyunderdeveIoedexceL,Lo
someexLenL,LourIsmundoLherservIcesucLIvILIessuchusLrunsorL,sLoruge,undcommunIcuLIonsusweII
us hnunce, Insurunce, reuI esLuLe, und busIness servIces. The rIvuLe secLor remuIns smuII und Iuces muny
hurdIesLoconLrIbuLIngLoIuLureeconomIcgrowLh.
or BhuLun Lo move beyond Lhe Iow mIddIe-Income urudIgm, whIch hus been eurned Irom nuLuruI
resourceendowmenLs,LouchIevehIgherundmoresLubIegrowLhLhuLIsIncIusIve,LhecounLryseconomy
Highlights
x
needs Lo be LrunsIormed. The economy needs Lo become broud-bused wILh more dIverse growLh drIvers
so LhuL IL cun generuLe more roducLIve und decenL emIoymenL oorLunILIes. BhuLun Iuces muILIIe
consLruInLs Lo uchIevIng Lhese objecLIves. Key consLruInLs IncIude (1) InudequuLe und oor quuIILy
InIrusLrucLure, urLIcuIurIy In LrunsorL und connecLIvILy, und esecIuIIy In Lhe ruruI ureus; (z) nurrow hscuI
suce, urLIcuIurIy In Lhe medIum Lo Iong Lerm; () Iuck oI uccess Lo hnunce by mIcro, smuII, und medIum
enLerrIses (MSMEs); (q) resence oI murkeL IuIIures LhuL IImIL roducL dIversIhcuLIon und comeLILIon;
und () IImILed und unequuI uccess Lo quuIILy educuLIon (urLIcuIurIy secondury, LerLIury, und vocuLIonuI
educuLIon),undIubormurkeLmIsmuLches.
The sLudy IdenLIhes new drIvers oI growLh LhuL cun heI BhuLun exIoIL ILs comuruLIve udvunLuges und
dIversIIy ILs economy whIIe muInLuInIng hIgh ruLes oI growLh. RemovIng Lhe consLruInLs IdenLIhed ubove
Is uIso essenLIuI Ior deveIoIng new drIvers oI growLh. WhIIe Lhe currenL growLh engInes (hydroower,
LourIsm, und ugrIcuILure) wIII IIkeIy susLuIn BhuLuns economIc growLh In Lhe shorL Lo medIum Lerm,
deveIoIngnewgrowLhdrIverscouIdoIIeroorLunILIesLocomIemenLundsuorLBhuLunsursuILoI
u more buIunced, IncIusIve, und susLuInubIe growLh und socIoeconomIc deveIomenL. The ossIbIe new
drIversoIgrowLhIncIudeInIormuLIonundcommunIcuLIonsLechnoIogy(CT)undcIeunmunuIucLurIngLhuL
wIII enguge MSMEs. To hnd u buIunce beLween mInImum envIronmenLuI ImucL, commercIuI vIubIIILy, und
socIuI ImucL, Lhe IoIIowIng munuIucLurIng IndusLrIes huve been IdenLIhed us oI hIgh rIorILy Ior deveIoIng
ucIeunmunuIucLurIngsecLor:(1)hundIcruILs,(z)IoodrocessIng,()munuIucLureoIhydroower-reIuLed
urLsundmuInLenunce,und(q)munuIucLureoICT-reIuLedurLs.ThegovernmenLrecognIzesLheneedLo
rovIdeunenvIronmenLconducIveLoencourugIngmorerIvuLesecLorInvesLmenL,usunessenLIuIsource
oI growLh In Lhe IuLure. The TenLh Ive Yeur PIun uIhrms LhIs core sLruLegy oI vILuIIzIng IndusLry Ior overLy
reducLIon,reIyIngheuvIIyonhowLherIvuLesecLorerIormsunddeIIvers,wILhInLheconLexLoIemowerIng
MSMEsIorIndusLrIuIexunsIonundemIoymenLgeneruLIon.
Some oIIcy oLIons LhuL muy heI guIde Lhe course oI BhuLuns IuLure growLh ure descrIbed In Lhe
IoIIowIngLexL.EncourugIngIy,munyoILhemureuIreudyurLoILhegovernmenLsdeveIomenLugendu.
Providing Adequate and Good Quality Access Infrastructure
BhuLun`s dIIhcuIL LerruIn oses chuIIenges Lo rovIdIng udequuLe InIrusLrucLure und key ubIIc servIces
LhroughouLLhecounLry.TheIImILeduvuIIubIIILyoIInIrusLrucLure,esecIuIIyInLrunsorLundconnecLIvILy,
husbeenumujorhurdIeLoIncIusIvegrowLh,humerIngLheuccessLoeconomIcoorLunILIes.
BhuLunneedsLodeveIo,LhroughuconsuILuLIverocess,unInsLILuLIonuIIrumeworkLhuLeIIecLIveIy
consoIIduLes Lhe roIes oI und cuucILy Ior sLruLegIc IunnIng, coordInuLIon, und monILorIng wILhouL
cenLruIIzIngLheImIemenLuLIonundmuInLenunceresonsIbIIILIesIorInIrusLrucLureIucIIILIesundservIces.
TheIrumeworkIsurLIcuIurIyneededInLheLrunsorLsecLorwhereucomrehensIveussessmenLoIcuucILy
buIIdIng Is requIred uL uII IeveIs oI governmenL, wILh u urLIcuIur Iocus on Lhe cuucILy Lo Iun, desIgn,
consLrucL,undmuInLuInroudundreIuLedInIrusLrucLure.TheRoudSecLorMusLerPIunzoo;zoz;urgenLIy
needs Lo be exunded Lo cover InvesLmenLs In new und exIsLIng rouds uL Lhe nuLIonuI und dIsLrIcL IeveIs,
cuucILyundInsLILuLIonbuIIdIng,oeruLIonundmuInLenunce,undreguIuLoryreIuLedmuLLers.
To enhunce connecLIvILy, BhuLun cun benehL Irom IusL-LruckIng Lhe consLrucLIon undJor ImrovemenL
oILhehIghrIorILyroudrojecLs,suchusLheThImhuPhuenLshoIIngHIghwuy,LheThImhuTrushIgung
HIghwuy,souLhernsegmenLsoILheEusLWesLHIghwuy,undLheNorLhSouLhHIghwuy.RoudmuInLenunce
cun be susLuIned by suorLIng Lhe communILIes In consLrucLIng und muInLuInIng Iurm rouds Lhrough
(1)desIgnIngroudsundreIuLedInIrusLrucLureLhuLureLechnIcuIIysoundundcIImuLeresIIIenL,(z)buIIdIng
cuucILyIorconsLrucLIonundmuInLenunce,und()suorLIngInvesLmenLonucosL-shurIngbusIs.
Highlights
xi
ExundIngundmodernIzInguIrLrunsorLIucIIILIeswouIdheIImroveussengerservIcesundsuIeLy
sLundurds.nLernuLIonuIIInkswILhoLherAsIunhubsundregIonuIcenLerscunbeexIoredLhroughcode-
shure ugreemenLs wILh oLher uIrIInes und Lhrough bIIuLeruI uIr LrunsorL ugreemenLs wILh oLher regIonuI
desLInuLIonsLoserveLheIncreusIngLourIsLurrIvuIs,busInessLruveIers,undcurgoservIcesbeLweenPuround
regIonuIdesLInuLIons.
Creating a Comfortable Fiscal Space
BhuLun`s hscuI oIIcy hus been generuIIy rudenL, buL more hscuI suce Is needed Lo meeL Lhe growIng
demund Ior InIrusLrucLure und socIuI sendIng. TogeLher wILh Increused debL servIcIng, Lhese sendIng
rogrums huve become mujor budgeL ILems Ior ImIemenLIng Lhe currenL hve yeur Iun.
OnLheexendILuresIde,LhegovernmenLneedsLocomrehensIveIyrevIewuIIexendILures,IncIudIng
cuILuI und recurrenL exendILures us weII us subsIdIes, Lo uscerLuIn how Lo Imrove ILs uIIocuLIve und
oeruLIonuI eIhcIencIes. mIemenLIng u medIum-Lerm exendILure Irumework Lo IncIude u -yeur roIIIng
budgeLcunreuIIsLIcuIIyIInkresourceconsLruInLsLoexendILurerequIremenLsundheIImroveresource
uIIocuLIon und redIcLubIIILy oI sendIng. or Lrunsurency und uccounLubIIILy, BhuLun muy wIsh Lo
consIder ImIemenLIng un e-rocuremenL sysLem und u comuLerIzed uccounLIng sysLem LhuL exLends
LoLhedIsLrIcLsundIowerIeveIsoIgovernmenL.
On Lhe revenue sIde, ImIemenLIng Lhe Revenue AdmInIsLruLIon MunugemenL nIormuLIon SysLem
wouId IucIIILuLe e-hIIng oI Lux reLurns und onIIne uymenL oI Luxes, und sLrengLhen revenue mobIIIzuLIon.
The governmenL needs Lo revIew Lhe Lux sLrucLure und consIder oLher Lux meusures, such us u unIIorm
vuIue-uddedLux,LoenhuncedomesLIcrevenuemobIIIzuLIon.mIemenLIngsomeIormoIcosLrecoveryIor
somegovernmenL-rovIdedservIcescunuIsoheIIundgovernmenLoeruLIons.
Enhancing Access to Finance, Particularly by MSMEs
Access Lo und cosL oI hnunce conLInues Lo be u crILIcuI consLruInL Lo rIvuLe InvesLmenL, esecIuIIy Ior
MSMEs.MSMEsuccessLocredILIsIImILedbyInsLILuLIonuIundInIrusLrucLureshorLIuIIs.
SLrengLhenIngLhecredILInIormuLIonsysLemLoIncIudeexundedcoverugeoILheCredILnIormuLIon
Bureuu wIII uddress Lhe InIormuLIon usymmeLry robIems LhuL humer MSMEs` uccess Lo hnunce.
nLroducIng credIL rIsk guurunLee IucIIILIes Ior MSMEs cun reduce Lhe cosL oI hnuncIng Ior boLh MSMEs und
hnuncIuI InsLILuLIons und encouruge Lhem Lo do more busIness. n uruIIeI, vurIous Iorms oI mIcrohnunce
IendIng cun be exIored, IncIudIng ussocIuLIons, communILy und vIIIuge bunkIng, und cooeruLIves, Lo
brouden Lhe reuch oI mIcrocredIL IucIIILIes. The use oI CT und InnovuLIve urouches such us mobIIe
bunkIng LechnoIogy cun heI exLend Lhe reuch oI Lhe bunkIng secLor. DeveIomenL und use oI eIecLronIc
uymenLsysLemInIrusLrucLurecunuIsoheIImroveLhedomesLIcuymenLsysLemundromoLerIvuLe
secLorgrowLh.
BeLLermunugemenLoIInLernuLIonuIreservesIsnecessuryLoIucIIILuLeInLernuLIonuILrudeLrunsucLIons.
A comIorLubIe IeveI oI reserves In Lhe currency used In such LrunsucLIons shouId be muInLuIned. BhuLun
couIdreusonubIyhuveubouLo%%oIILsreservesInLhendIunruee,gIvenLheumounLoILrunsucLIons
Lhe counLry hus wILh ndIu. OLher reIorms LhuL huve been InILIuLed In Lhe ureus oI hnuncIuI dereguIuLIon und
IIberuIIzuLIon, such us enLry oI IoreIgn bunks, shouId be conLInued Lo ucceIeruLe hnuncIuI deveIomenL und
Imrove Lhe eIhcIency oI IendIng InsLILuLIons.
Highlights
xii
Addressing Market Failures to Encourage Product
Diversication and Competition
BhuLun`s exorL buskeL cun be churucLerIzed us reIuLIveIy sohIsLIcuLed buL InsuIhcIenLIy dIversIhed,
concenLruLIng In onIy u Iew core roducLs, und Lhus rovIdIng IILLIe oorLunILy Lo exund roducLIve
cuubIIILIes Lo new roducL cuLegorIes. MurkeL IuIIures muy dIscouruge InvesLmenL In new economIc
ucLIvILIesbecuuseenLerIngInLonewIInesoIbusInesswIIIrequIreunewseLoIcuubIIILIes,whIchurecosLIy
LoucquIre.
SecIhc oIIcy ucLIons ure needed Lo uddress Lhe roducL- or IndusLry-secIhc consLruInLs. The oIIcy
ucLIons und u new IndusLrIuI oIIcy Irumework need Lo be IormuIuLed Lhrough reguIur ubIIcrIvuLe
oIIcy dIuIogue. Then Lhe Irumework needs Lo be mude oeruLIonuI und cuucILy Lo ImIemenL IL buIIL In
LhereIevunLmInIsLrIesundIunnIngbodIes.LIsImorLunLLobeubIeLoIdenLIIysecLorsLhuLresenLLhe
greuLesL oorLunILy und vuIue Ior dIversIhcuLIon, IdenLIIy roducLs under Lhese secLors us good sLruLegIc
beLs, und uLLrucL IoreIgn dIrecL InvesLmenL Lo guIn u IooLhoId und deveIo Lhe cuubIIILIes necessury Ior
LheseroducLs.ThegovernmenLcouIdromoLeLechnoIogyLrunsIerusucenLerIeceoIIoreIgnInvesLmenL
oIIcy.AnyconcessIonssuchusLuxbreuks,however,shouIdcomewILhcIeurerIormunceIndIcuLorsund
sunseLcIuuses.
Improving Access to Quality Education and
Addressing Labor Market Mismatch
The governmenL hus been LukIng severuI meusures Lo Imrove Lhe quuIILy oI educuLIon Lhrough
consLrucLIng new schooIs, exundIng und ugrudIng exIsLIng ones, decenLruIIzIng educuLIon monILorIng
und suorL servIces, und ugrudIng Lhe quuIIhcuLIons und comeLency oI Leuchers. BhuLun hus successIuIIy
uchIeved unIversuI educuLIon, buL uccess Lo educuLIon remuIns IImILed und unequuI urLIcuIurIy uL Lhe
secondury und LerLIury IeveIs, und Lhe quuIILy oI educuLIon remuIns un Issue. The skIIIs IeveI oI BhuLuns
IuborIorceIsIow,urLIcuIurIyumongoorundruruIworkers.SkIIIsshorLugesundIubormurkeLmIsmuLch
consLruIneconomIcgrowLhunddeveIomenLoILherIvuLesecLor.
mrovIng Lhe quuIILy oI educuLIon shouId sLurL wILh un evuIuuLIon oI Lhe currIcuIum und reIuLed
reIormsuIreudyImIemenLed,LodeLermIneLhegusundureusLhuLneedLobesLrengLhenedoruddressed.
TeucherLruInIngunddeveIomenLrogrumsusweIIusrovIsIonoIurorIuLeIncenLIvescunheIImrove
LhecomeLencyoILeuchers,whIchIuysuIurgeurLInImrovIngLhequuIILyoIeducuLIon.ReducIngLhe
schooIs burden oI udmInIsLruLIve Lusks cun uIso heI Leuchers und udmInIsLruLors Iocus on Lhe core Lusk
oILeuchIng.
TechnIcuIundvocuLIonuIeducuLIonundLruInIngIoroorhousehoIdsundwomencunbeexundedby
IncreusIngLheunnuuIenroIImenLInLheLechnIcuILruInIngInsLILuLes.ThIsmuybeuccomIIshedbyrovIdIng
schoIurshIs und oLher hnuncIuI IncenLIves. Through Imroved vuIues educuLIon, beLLer remuneruLIon,
undenhuncedservIcecondILIons,LechnIcuIoccuuLIonsshouIdberomoLedusuvuIuedcureerchoIce.n
sLrengLhenIng und modernIzIng Lhe counLrys LerLIury IeveI und LechnIcuI und vocuLIonuI educuLIon und
LruInIngInsLILuLIons,LhegovernmenLcunuseusbenchmurksreuLubIeIeurnIngInsLILuLIonsInLheregIon
undLheworId,undesLubIIshuoIyLechnIcunIversILyLobroudenLherungeoIcoursesuvuIIubIe.
Highlights
xiii
AsysLemLoIInkjobseekerswILhuvuIIubIeemIoymenLoorLunILIesundIuLureskIIIsrequIremenLs
shouIduIsobeuLInIuceLouddressLheskIIIsmIsmuLch.
Promoting New Drivers of Growth
DeveIoIngnewgrowLhdrIverswouIdenhuncechuncesoIuchIevIngmorebuIunced,susLuInubIe,und
IncIusIvegrowLh.RemovIngconsLruInLsLorIvuLeInvesLmenLscouIdbecrILIcuILoLhesuccessIuIuseoInew
growLhdrIvers.
ThroughurorIuLeCTeducuLIonrogrums,LhegovernmenLcouIdromoLeCTusunewdrIveroI
growLh.SucheducuLIonrogrumscouIdIncIudedeveIomenLoIsoILwureIorknowIedgerocessouLsourcIng
ucLIvILIes. The governmenL couId encouruge hrms Lo conLrIbuLe knowIedge und LeuchIng resources und
rovIde InLernshI oorLunILIes Ior sLudenLs. n urLnershI wILh busIness rocess ouLsourcIng (BPO)
hrms, Lhe governmenL couId ImIemenL un urLIcuIuLed LruInIng und educuLIon rogrum LhuL Is LuIIored Lo
Lhe BPO hrms` needs. To deveIo Lhe BPO IndusLry, suorL InIrusLrucLure Is needed und governmenL couId
consIder IIcensIng one or more InLernuLIonuI guLewuy oeruLors Ior busIness servIces, such us Ior Ieused-
IIne servIces, InLernuLIonuI cuII LermInuLIon, und ouLgoIng InLernuLIonuI LruIhc. The governmenL couId uIso
esLubIIshunInIormuLIoncenLerLoserveusununchorIordeveIoInge-governmenLservIces.
ndeveIoIngucIeunmunuIucLurIngsecLor,LheroIesoIundcoordInuLIonumongInsLILuLIonscreuLedLo
heIdeveIoLheMSMEsecLorshouIdberevIewed.NewmurkeLsshouIdbeexIoredLhroughurLIcIuLIon
In InLernuLIonuI Lrude IuIrs und urLnershIs wILh overseus reLuII chuIns und deurLmenL sLores. The
governmenLcouIdengugeInInLernuLIonuIreseurchunddeveIomenLconsorLIuundurLnershIsLoeIIecL
LrunsIeroIknowIedgeundLechnoIogyLowurddeveIoIngLheIocuImunuIucLurIngIndusLry.TheenucLmenL
oIunenLerrIseregIsLruLIonbIIIcunbeursued,sLreumIInIngLheregIsLruLIonundIIcensIngroceduresIor
enLerrIses,undIssuIngerIodIcmonILorIngreorLsonMSMEs.
Development Performance
1
Chapter 1
B
huLun,IocuLedInLheeusLernHImuIuyus,
Is u smuII IundIocked counLry beLween
Lhe PeoIes ReubIIc oI ChInu (PRC)
und ndIu. VIrLuuIIy Lhe enLIre counLry
Is mounLuInous. The souLhern border
wILh ndIu Is uL un eIevuLIon oI ubouL oo meLers,
undLhenorLhernborderwILhLhePRCreuchesover
;,oomeLers.
DesILe chuIIengIng geogruhy und IImILed
connecLIon Lo Lhe gIobuI murkeLs, Lhe counLry
munuged Lo IgnILe und susLuIn sLrong economIc
growLhbyunIockIngILshydrooweroLenLIuI.Thus,
hydroower hus been u mujor engIne oI growLh In
BhuLun.ThecounLryhusunesLImuLedhydroower
oLenLIuI oI o,ooo meguwuLLs (MW), oI whIch
z,;6o MW hus been IdenLIhed us LechnIcuIIy
IeusIbIe Ior deveIomenL (GNHC zooq). However,
Lhe counLry hus deveIoed 1,q88 MW Lhus Iur,
hurnessIngonIyubouL6%oIILsoLenLIuI.
BhuLun uchIeved sLrong growLh, wILh ILs reuI
gross domesLIc roducL (GDP) growLh uverugIng
ubouL ;.8% durIng 1q81zo11 (Igure 1.1).
1
DurIng
Lhe sume erIod, Lhe counLrys er cuILu GDP
more Lhun quInLuIed, Irom Nu1,o;8 In 1q81 Lo
Nu6q,;;Inzo11.
A serIes oI Lhe governmenL`s hve-yeur Iuns
(YPs) huve seL ouL Lhe rIorILy rogrums Lo sLeer
LheBhuLuneseeconomyLouchIeveLhIsremurkubIe
growLh(Box1.1).BhuLunIscurrenLIyImIemenLIng
1
The spikes in real GDP growth rates in 19871988, 2007, and 2010
can be attributed to the construction and start of commercial
operations of hydroelectric power plants.
ILs TenLh YP (zoo8zo1), whIch hus overLy
reducLIon us ILs overurchIng gouI. The TenLh YP
uIms Lo uchIeve susLuInubIe overLy reducLIon
Lhrough sLrengLhenIng Lhe InvesLmenL cIImuLe
und hIgh economIc growLh. The overuII overLy
reducLIon sLruLegy wIII IncIude romoLIng broud-
bused growLh Ior emIoymenL oorLunILIes und
boosLIngcrILIcuIsecLorssuchusugrIcuILure,LourIsm,
undruruIenLerrIses.ocusedmeusuresonrIvuLe
secLor deveIomenL ure InLended Lo chunneI more
resources und InvesLmenLs Ior susLuInubIe und
buIunced growLh, emIoymenL generuLIon, und un
IncreusedIIvIngsLundurdIorruruIhousehoIds.
On Lhe buck oI sLrong growLh erIormunce,
BhuLun hus mude sIgnIhcunL rogress In overLy
reducLIonundhumundeveIomenLsInceLhe1qqos
us Lhe governmenL InvesLed In key economIc und
socIuI InIrusLrucLure und servIces. The counLrys
mucroeconomIc munugemenL hus been rudenL
und, wILh sLrong revenues Irom hydroeIecLrIcILy,
Lhe governmenLs InvesLmenLs In socIuI und
humun deveIomenL uIIowed Ior Lhe counLrys
vIsIbIe rogress Lowurd uchIevIng MIIIennIum
DeveIomenL GouIs. BhuLun hus uIso exerIenced
some roIound chunges In ILs oIILIcuI sysLems
sInce Lhe hrsL democruLIc eIecLIons heId In zoo;.
nonedecude,LhecounLrymovedIromunubsoIuLe
monurchy Lo u consLILuLIonuI monurchy und
urIIumenLury democrucy wILh Lhe udoLIon oI
ILs ConsLILuLIon In zoo8.
z
DurIng Lhe democruLIc
2
The move toward democracy began in 1998 when the countrys
fourth monarch, King Jigme Singye Wangchuck, by a royal decree,
devolved his executive powers to a Council of Ministers elected by
the representatives of the National Assembly.
2
LrunsILIon, Lhe governmenL subscrIbed Lo Lhe
rIncIIes oI gross nuLIonuI huIness whIch
underInsBhuLunsdeveIomenLobjecLIves.
TubIe
1.1oIIersubrIeIsummuryoIBhuLunssocIoeconomIc
deveIomenLdurIngLheIusLzdecudes.
3
The Government of Bhutan subscribes to the concept of gross
national happiness and its four pillars: (1) promotion of sustainable
and equitable socioeconomic development, (2) environmental
conservation, (3) preservation and promotion of culture, and
(4) establishment of good governance. These pillars are further
articulated in the nine domains by which progress in Bhutan is now
assessed: living standards, health, education, culture, ecological
integrity, community vitality, time use, good governance, and
psychological well-being.
1.1. The Bhutanese Economy
BhuLunhusregIsLeredImressIvegrowLhIorLhe
IusL decudes, wILh unnuuI growLh ruLes uverugIng
1o.z%InLhe1q8os,.1%InLhe1qqos,und8.%In
Lhezooos.BhuLunsercuILureuIGDPgrowLhruLe,
whIch uveruged .q% In Lhe sume decudes, uIso
comures IuvorubIy wILh LhuL oI oLher SouLh AsIun
economIes (Igure 1.z). rom u hIgh oI ;.1% In Lhe
1q8os, BhuLuns ruLe dIed Lo q.;% In Lhe 1qqos.
AILerzooo,LhecounLryrecoveredundregIsLeredu
.q% uveruge er cuILu reuI growLh, mukIng IL Lhe
IusLesLgrowIngeconomyInLheregIon.
Table 1.1. Selected Socioeconomic Indicators of Bhutan
1990 2000 2005 2010 2011
Real GDP (in 2000 Nu million) 12,150.68 19,735.78 28,879.35 45,397.51 49,260.51
GDP Growth Rate (%) 10.88 6.93 7.12 11.68 8.51
Population 484,732 580,330 634,982 696,000 708,000
Real GDP per Capita (in 2000 Nu) 25,066.78 34,007.86 45,480.59 65,226.31 69,576.99
GDP per Capita Growth Rate (%) 8.90 5.03 5.21 9.59 6.67
Poverty Incidence (%) 31.7 (2003) 23.2 (2007) 11.5 (2012)
Gini Coecient 0.468 (2003) 0.350 (2007) 0.426 (2012)
GDP = gross domestic product, Nu = Ngultrum.
Note: Poverty incidence in this table is based on Bhutans national poverty line. In the absence of a 2012 national poverty line as of this study, the 2007 poverty
line was used to estimate the 2012 poverty incidence. Accordingly, 2012 prices were adjusted to 2007 prices for consistency. The Gini coecient is the most
commonly used measure of inequality. It varies between 0 (reecting complete equality) and 1 (indicating complete inequality).
Source: Based on the Bhutan Living Standard Surveys (NSB 2007a, ADB and NSB 2013), and NSB data (provided by the Ministry of Finance in May 2013).
GDP = gross domestic product, Nu = Ngultrum.
Source: National Statistics Bureau (provided by the Ministry of Finance in May 2013).
Figure 1.1. Bhutans Per Capita Real GDP (2000 Nu, left axis) and Real GDP Growth Rate (%, right axis),
19812011
0
20,000
50,000
10,000
40,000
30,000
60,000
70,000
80,000
5
20
5
0
15
10
25
30
35
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
Per capita real GDP Real GDP growth rate
3
Box 1.1. Bhutans Five-Year Plans
S
teering Bhutan into remarkable growth through the years has been its series of ve-year plans (FYPs). These FYPs, the
rst of which was implemented in 1961, give a glimpse into the high priority programs of the Government of Bhutan.
The rst three FYPs (spanning 19611976) provided the foundation for economic development and growth by investing
in economic and social infrastructure. Major eorts were focused on expanding the road network, establishing education
and health infrastructure, and increasing agricultural production. The Fourth FYP (19761981) furthered government
attention to education; forestry; and public works, which included roads and water supply. The

Fifth FYP (19811987)
identied hydropower development as a major source of revenue and driver of growth. With strengthening internal
revenue generation and achieving self-reliance objectives, the government prioritized revenue generating activities
in industries, forests, tourism, and power. The Sixth FYP (19871992) stressed the governments special concern for the
rural populace through high priority programs such as rural housing, resettlement, enhancement of rural incomes, and
a widespread distribution of public services and utilities. While agriculture had the highest share in the plan budget,
power and trade and industry received higher shares than they had in the Fifth FYP. The Sixth FYP retained a high priority
on self-reliance objectives, and renewed the commitment to human resource development and domestic resource
mobilization.
The Seventh FYP (19921996) emphasized further the goal of self-suciency. The government undertook initiatives that
were based on the principles of sustainability, eciency and development of the private sector, peoples participation and
decentralization, human resource development, and regionally balanced development. Social services, communications,
and agriculture took more than 50% of the plan budget. During this period, the government privatized many resource
mobilization and service industries and corporatized agencies involved in airlines, post, nancial institutions, and
municipalities; established technical assistance programs for the private sector; simplied the rules and regulations for
imports and exports; and liberalized the licensing system to encourage and promote free enterprise.
The Eighth FYP (19972002) was again anchored on the goal of self-reliance that largely depended on continued progress
being made in human resource development and the application of technology suited to Bhutans development needs.
In this plan, gross national happiness was rst mentioned in the context of human development. The Eighth FYP
basically followed through on the framework of the Seventh FYP, with national security and preservation and promotion
of cultural and traditional values as added principles. Power, social services, and roads were accorded almost 40% of the
Eighth FYP budget.
To provide a long-term vision for development, the government formulated and released Bhutan 2020: A Vision for Peace,
Prosperity, and Happiness, which sets out the national goals, broad targets, and overall policy principles for the 20 years
following its release in 2000. The concept of gross national happiness was again emphasized and translated into the
following objectives: human development, preservation of culture and heritage, balanced and equitable development,
improved governance, and environmental conservation.
To further realize the concept of gross national happiness, the government prepared the 2004 National Poverty
Reduction Strategy, which supported the Ninth FYP (20022007). This plan sought to (1) improve the quality of life
and income, especially for the poor, by implementing rural access programs; (2) promote private sector growth;
(3) strengthen governance and increase domestic revenues; (4) promote culture and environmental conservation;
and (5) achieve rapid growth and transformation. Fiscal decentralization and devolution of some public services and
decision-making powers to the local level were key strategies of the Ninth FYP. Policies were geared toward a liberalized
and globalized economy with an enhanced participation of private sector.

The Tenth FYP (20082013) rearms the gross national happiness concept.

It has poverty reduction as its overarching
goal, targeting to reduce the poverty headcount rate from 23.2% in 2007 to 15.0% by 2013. The plan targets annual growth
rates above 8% and emphasizes the need to (1) vitalize the economy through increased investments in hydropower,
tourism, manufacturing, and information and communications technology; (2) balance regional development and
manage the rapid pace of urbanization; (3) address the root causes of rural poverty; (4) invest in human capital; and (5)
ensure good governance. The root causes of poverty are seen as remoteness of many populations, marginal landholdings,
and lack of commercial orientation of agricultural production. These are to be redressed through rural connectivity
projects, distribution of royal land to landless people, and greater commercialization of agricultural production. The
government is also seeking to create employment opportunities outside of the hydropower sector for an additional
75,000 people during the Tenth FYP period.
Source: Authors.
4
AILhough BhuLun wus noL hIL dIrecLIy by Lhe
gIobuI hnuncIuI crIsIs oI zoo8, Lhe sIowIng oI
neIghborIng economIes ImucLed BhuLun Lhrough
reduced LourIsm receILs
q
und Lhe eIecLrIcILy secLor
exerIenced u neguLIve growLh oI z.q% In zooq
(NSBzo11b).
ThesLeeIundIerro-sIIIconIndusLrIes
wereuIsohIL.ThereuIGDPgrowLhruLedecIInedLo
q.;%und6.;%Inzoo8undzooq,resecLIveIy.The
growLh,however,reboundedLo11.8%Inzo1o,when
consLrucLIon oI Lhe PunuLsungchhu hydroower
rojecLsLurLed.ReuIGDPgrew.6%Inzo11.
6
1.1.1. Growth by Source of Production
BhuLun conLInues Lo LrunsIorm InLo u modern
economy, wILh Lhe IndusLry und servIces secLors
growIng more ruIdIy Lhun Lhe ugrIcuILure secLor.
AgrIcuILurehuddomInuLedBhuLunsouLuLuunLII
1qq.ThedeveIomenLoIhydroresourcesenubIed
IndusLry Lo overLuke ugrIcuILures shure In Lhe
economysouLuL.WILhLheconLInueddeveIomenL
oI hydroower rojecLs, IndusLrys shure oI GDP
jumedIrom1z%In1q81Loqq%Inzo11.ndusLrys
shure rose shurIy In 1q8; und In zoo;, reecLIng
LhegovernmenLdrIveIorhydroowerdeveIomenL
4
Based on data from RMA (2012a) Annual Report 20102011, tourism
receipts decreased from 4.4% of GDP in 2008 to 3.8% in 2009, and
3.5% in 2010.
5
According to RMA (2012a), total sales of major hydropower plants
decreased by 7.5% in 2009.
6
Estimates based on data from World Bank, WDI, accessed January
2013.
und reIuLed consLrucLIon ucLIvILIes. SImIIurIy, Lhe
exunded rovIsIon oI ubIIc servIces und uLIIILIes
In 1q861qqo, Lhe deveIomenL oI InIrusLrucLure
(urLIcuIurIyInLhe1qqos),undLhesurgeInLourIsm
ucLIvILIes In 1qqz und In Lhe zooos roeIIed Lhe
growLhoILheservIcessecLor.rom1q81Lozo11,Lhe
servIcessecLorIncreusedILsshureoIGDPIromo%
Loqz%whIIeugrIcuILuresshuredecIInedIrom8%
Lo1q%(Igure1.).
Industry. TubIe 1.z (. 6-;) shows LhuL Lhe
IndusLry secLor grew Lhe IusLesL, uL uveruge unnuuI
ruLesoIz8%,8%,und11%InLhe1q8os,1qqos,und
zooos,resecLIveIy.Thus,IndusLryhusconLrIbuLed
more Lhun qo% unnuuIIy Lo GDP growLh In Lhe
IusL decudes (und more Lhun o% In Lhe zooos),
IncreusIngILsshureoIGDPIromzo%InLhe1q8os
Lo qz% In Lhe zooos. The secLors Ieu hus IurgeIy
LrunsIormed Lhe economIc Iundscue In BhuLun
Irom un ugrIcuILure-bused economy Lo one LhuL Is
IndusLry-Ied.
The Chhukhu Hydroower ProjecL, BhuLuns
hrsL megu ower rojecL, wus commIssIoned
Ior commercIuI oeruLIon In 1q86.
;
SInce Lhen,
IndusLryhussLeudIIyIncreusedILsGDPshure.The
governmenL conLInued Lo ursue Lhe deveIomenL
oIhydroowerInzoo;,undIndusLryhusemergedus
7
Commissioning of a power plant generally signals start of its
commercial operation. Commissioning involves testing and
verifying power plant operations against the plants intended
rated capacity and other design specications.
GDP = gross domestic product.
Note: Data for Maldives cover 19952010, hence estimated average annual growth rates were from 19962000 to 20012011.
Source: Calculations based on data from World Bank, WDI, accessed 9 January 2013.
Figure 1.2. Average Annual Growth Rate of Per Capita Real GDP, 19812011 (%)
19912000 19811990 20012011 19812011
Bhutan Bangladesh India Maldives Nepal Sri Lanka
0
2
1
3
4
5
6
7
8
4
Based on data from RMA (2012a) Annual Report 20102011, tourism
receipts decreased from 4.4% of GDP in 2008 to 3.8% in 2009, and
3.5% in 2010.
5
According to RMA (2012a), total sales of major hydropower plants
decreased by 7.5% in 2009.
6
Estimates based on data from World Bank, WDI, accessed January
2013.
5
umoredomInunLIuyerLhunservIces.AsLhemujor
growLh drIver, Lhe hydroower secLor consLILuLes
ubouL zo% oI BhuLuns economy, und growLh In
eIecLrIcILy roducLIon und reIuLed consLrucLIon
uccounLed Ior ubouL one-LhIrd oI GDP growLh In
zo1o(Mzo11).
WILhIn Lhe IndusLry secLor, Lhe eIecLrIcILy, gus,
und wuLer suIy subsecLor wus u Lo conLrIbuLor
LoGDPInLhe1q8osundLhezooos.ThesubsecLor
regIsLered u hIgh growLh ruLe oI 6.% und
conLrIbuLed z;.o % Lo GDP growLh In 1q811qqo,
us Lhe Chhukhu hydroeIecLrIc ower IunL wus
commIssIoned Ior commercIuI oeruLIon In 1q86.
8
The subsecLor uguIn regIsLered u hIgh growLh ruLe,

uL 1.% In zoo1zo11, uccounLIng Ior 16.6% oI
GDP und conLrIbuLIng z.8% Lo GDP growLh. The
IuII commercIuI oeruLIon oI Lhe TuIu hydroower
rojecL In zoo; conLrIbuLed Lo Lhe subsecLors
growLh In reuI Lerms oI 86.q% LhuL yeur. ndeed,
8
The commissioning of Chhukha hydroelectric power plant in
1986 contributed to the electricity subsectors growth of more
than 1,500%, resulting in the subsectors share of 7% in GDP that
year (from a low of 0.5% of GDP in the previous year). In 1987, the
subsector grew by 396%, increasing its share of GDP to 21%. Since
then, its share of GDP has not gone below 10%.
Source: Calculations based on data from UNdata (data.un.org) and NSB (2012).
Figure 1.3. Sector Shares of GDP, 19812011 (%)
0
40
30
10
60
50
20
70
Agriculture Industry Services
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
Source: Calculations based on data from UNdata (data.un.org) and NSB (2012).
Figure 1.4. Industrys Shares of GDP, 19812011 (%)
0
15
10
25
20
5
30
Electricity, gas, and water supply Construction Manufacturing
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
6
Lhe subsecLor hus cIuImed Lhe IurgesL shure oI
GDP umong Lhe IndusLry subsecLors sInce zoo;,
wILh un unnuuI uveruge oI zz.1% Ior zoo;zo11
(Igure1.q,.).
BhuLuns hydroower generuLIon cuucILy
Is rojecLed Lo rIse IurLher, Ior exumIe wILh Lhe
Iunned Duguchu hydroower rojecL uddIng
1z6 MW by zo1q. The governmenLs TenLh
YP uIso emhusIzed IurLher deveIomenL oI
hydroower resources Ior exorL us u core urL
oI BhuLuns economIc deveIomenL sLruLegy (Box
1.1). The governmenL Iuns Lo Increuse Lhe secLors
conLrIbuLIon Lo GDP Irom 1;.6% In zo1o Lo over
o% by zo1, und Lo udd 1o,ooo MW cuucILy by
zozo. Hydroower deveIomenL und consLrucLIon
wIIIIIkeIyremuInLheIusLesLgrowIngsecLorsoILhe
economyInLheIoreseeubIeLImehorIzon.
TheconsLrucLIonsubsecLor,onLheoLherhund,
grew ruIdIy In Lhe 1qqos, uL zz.%, conLrIbuLIng
ubouL z% Lo GDP growLh durIng LhuL erIod.
ConsLrucLIon Lhen grew moderuLeIy durIng zoo1
zo11, uL 8.o% unnuuIIy. SLIII, IL regIsLered un
uverugeshureoI1.o%InGDPInLhesumeerIod,
Lhe second hIghesL In Lhe IndusLry secLor und LhIrd
ucross uII subsecLors, us IL conLrIbuLed ubouL 1%
Lo GDP growLh durIng LhuL erIod. BuL growLh
Table 1.2. GDP by Sector and Sectoral Contribution to GDP Growth
Sectors
Amount (Nu million, constant 2000 prices)
1981 1985 1990 1995 2000 2003 2005 2006 2007 2008 2009 2010 2011
Agriculture 2,917 3,610 4,735 4,834 5,289 5,854 6,043 6,196 6,246 6,291 6,458 6,478 6,578
Industry 586 760 3,301 4,880 6,950 10,031 10,621 11,560 16,263 17,249 17,871 20,115 20,931
Mining and
Quarrying
44 98 124 281 315 402 447 531 650 780 726 788 979
Manufacturing 393 371 826 1,258 1,619 1,967 2,214 2,469 3,087 3,349 3,580 4,302 4,616
Electricity, Gas, and
Water Supply
16 31 1,983 2,394 2,255 3,213 3,259 4,312 8,061 9,110 8,893 9,389 8,872
Construction 134 260 368 948 2,761 4,449 4,701 4,248 4,466 4,010 4,672 5,635 6,464
Services 1,489 1,835 3,721 4,323 7,072 8,786 11,176 12,087 12,820 13,420 15,200 17,045 19,638
Wholesale and
Retail Trade
432 398 424 497 882 1,378 1,878 1,901 1,976 1,993 2,116 2,540 3,028
Hotel and
Restaurant
11 17 19 70 88 129 186 246 264 384 335 348 491
Transport,
Storage, and
Communications
258 386 796 1,184 1,800 2,007 2,661 2,857 3,083 3,247 3,547 3,942 4,790
Financial
Intermediation
63 105 205 336 761 1,080 1,846 2,285 2,505 2,645 2,824 3,109 3,912
Real Estate 133 228 331 416 631 691 708 720 772 783 814 832 894
Business Services 0 0 0 0 0 0 0 0 5 20 24 32 35
Public
Administration
0 0 0 0 1,779 2,412 2,618 2,574 2,561 2,640 3,179 3,602 3,485
Community, Social,
and Personal
Services
592 702 1,945 1,820 1,035 975 1,134 1,338 1,476 1,521 2,171 2,445 2,794
Other Services 0 0 0 0 96 114 144 166 178 187 191 195 210
GDP 4,992 6,205 11,756 14,037 19,312 24,671 27,840 29,843 35,330 36,960 39,530 43,638 47,148
= data not available, GDP = gross domestic product, Nu = ngultrum.
Source: Estimates based on data of UNdata (data.un.org) and NSB (2012).
7
oI consLrucLIon hud been erruLIc In zoo1zo11
eukIngInzoo1undzooz.LgrewmoreLhunz%
InLhosezyeurs(wILhLheconLInuIngconsLrucLIonoI
LheTuIuhydroowerIunL),
q
sIowedInLheIoIIowIng
yeur,undLhenconLrucLedIoryeurs(zoo,zoo6,
zoo8). The subsecLor Lhen rebounded sLrongIy,
growIngby16.%Inzooq,zo.6%Inzo1ound1q.;%
In zo11. HIgh growLh In zooqzo11 wus muInIy
due Lo consLrucLIon ucLIvILIes oI megu hydroower
rojecLssuchusLhe1,zooMWPunuLsungchhu,Lhe
9
The construction subsector grew by 27%, 41%, and 40% in 1998,
1999, and 2000, respectively, coinciding with the construction of
Tala hydropower plant.
1,ozoMWPunuLsungchhuInWungduePhodrung,
und Lhe ;zo MW Mungdechhu In Trongsu.
1o
ThIs
growLh momenLum Is execLed Lo conLInue und
drIveLheoveruIIgrowLhoILheeconomyIorLhenexL
Iew yeurs. TogeLher, eIecLrIcILy und consLrucLIon
subsecLors uccounLed Ior uImosL q% oI GDP In
zoo;zo11.
The sLeudy growLh oI Lhe munuIucLurIng
subsecLor durIng zoozo11 uIso conLrIbuLed
10
NSB. Statistical Yearbooks of Bhutan for 2010 and 2011.
Average Annual Growth (%) Average Annual Share in GDP (%)
Average Annual Contribution to
GDP Growth (%)
19811990 19912000 20012011 19811990 19912000 20012011 19811990 19912000 20012011
5.54 1.11 2.00 51.76 34.02 20.07 27.05 7.34 4.63
27.79 7.73 10.54 20.03 32.77 42.08 41.35 48.31 50.22
16.90 9.78 10.86 1.34 1.78 1.79 1.34 2.53 2.38
17.83 6.96 9.99 6.61 8.20 8.68 9.13 10.50 10.77
63.53 1.30 13.26 8.59 15.57 16.60 26.98 3.61 23.77
15.98 22.32 8.04 3.49 7.23 15.01 3.90 31.68 13.30
10.14 6.63 9.73 28.20 33.21 37.86 31.60 44.35 45.14
1.06 7.59 11.86 5.83 3.95 5.81 0.58 6.06 7.71
6.75 16.38 16.90 0.21 0.43 0.74 0.13 0.91 1.45
13.50 8.50 9.31 5.75 8.76 9.08 7.83 13.29 10.74
16.63 14.03 16.05 1.62 2.62 6.22 2.20 7.36 11.32
9.31 6.65 3.22 3.03 2.95 2.35 2.68 3.97 0.94
0.02 0.00 0.00 0.13
6.30 0.92 8.60 0.00 23.55 6.13
12.12 (6.12) 9.45 11.77 13.53 4.54 18.17 -12.05 6.32
7.33 0.05 0.49 0.00 1.27 0.41
10.17 5.09 8.45 100.00 100.00 100.00 100.00 100.00 100.00
8
Lo IndusLrys Iurge shure oI GDP. DurIng Lhe IusL
decude, IL conLrIbuLed 11% Lo GDP growLh und
uccounLedIorunuImosLq%shureoIGDP.However,
growLh In LhIs secLor wus ruLher nurrowIy bused
In Lhe cemenL, chemIcuIs, Iood, wood-bused, und
meLuIsIndusLrIes.
11
Services. The servIces secLor uIso exhIbILed

sLrong erIormunce In Lhe IusL decudes. ServIces
mude u subsLunLIuI conLrIbuLIon Lo GDP growLh,
esecIuIIyInLhe1qqos,durIngwhIchILconLrIbuLed
qq%LoGDPgrowLh.ServIcesgrewuLunnuuIruLesoI
1o%,;%,und1o%InLhe1q8os,1qqos,undzooos,
resecLIveIy, Lhereby IncreusIng ILs shure In GDP
Iromz8%InLhe1q8osLouImosL8%InLhezooos
(TubIe1.z).
TourIsm heIed sur Lhe deveIomenL oI Lhe
servIces secLor, IncIudIng hoLeIs, resLuurunLs,
LrunsorL, und communIcuLIons, urLIcuIurIy uILer
Lhe LourIsm IndusLry wus rIvuLIzed In 1qq1 (Dorj
zoo1).
1z
WhIIe BhuLun ursued u hIgh-vuIue,
Iow-ImucL urouch Lo LourIsm, Lhe number oI
LourIsLs Increused Irom z,1o6 (resuILIng In $z.
mIIIIon In LourIsm revenues) In 1qq1, Lo z;,1q6
(rovIdIng $.o mIIIIon LourIsm revenues) In
zo1o.
1
ThIs uIso romoLed reIuLed deveIomenLs
In LeIecommunIcuLIons und LrunsorL.
1q
Thus,
Lhe LrunsorL und communIcuLIons subsecLor
conLrIbuLed 1% Lo GDP growLh In Lhe 1qqos, und
ubouL11%InLhezooos.
11
NSB. Statistical Yearbook of Bhutan 2011.
12
The government has adopted a policy of "high-valuelow-volume/
impact" tourism since the 1970s. The Bhutan Tourism Corporation,
which organized the tours and operated the transport services and
nearly all the accommodation facilities. Prior to that, all tourists
were considered as guests of the Bhutan Tourism Corporation,
which organized the tours and operated the transport services,
and nearly all the accommodation facilities.
13
Calculations based on data from Dorji (2001) and NSB (2010).
14
Bhutans rst satellite international link was established in
1990 with the installation of the Earth satellite station and an
international gateway switch in Thimphu. By March 1999, all 20
district headquarters had access to telecommunications services.
Bhutan Post increased its types of services to include international
express mail, domestic express mail, fax mail, fax money order,
post overnight courier, and the Bhutan Post Express Passengers
services. Currently, there are 125 postal services, each catering to
5,175 Bhutanese people on average. The country established the
rst television network and started Internet Services in June 1999.
Paro International Airport was inaugurated in April 1999. Progress
continued in the 2000s with the launch of cellular mobile (B Mobile)
services in November 2003. The Bhutan Telecom Authority has
now connected all 20 districts (dzhongkhags) by cellular services
(NSB. Statistical Yearbook of Bhutan 2007).
The communILy, socIuI, und ersonuI servIces
cuLegory
1
IsuIsoumujorconLrIbuLorLoLheservIces
secLor, IncreusIng In reuI Lerms by q% In zooq
Lhen sIowIng Lo 1q% In zo11, wILh socIuI servIces
beIng vIewed wILh ImorLunce In Lhe IusL decude.
Due Lo Increused exendILure on comensuLIon oI
emIoyees und oLher reIuLed uIIowunces, ubIIc
udmInIsLruLIon grew by 1;% on uveruge In zooq
und zo1o. TogeLher, Lhese Lwo subsecLors grew by
ubouL 8%, conLrIbuLIng ubouL 1z% Lo GDP growLh
und resuILIng In u shure oI ubouL 1% oI GDP In
zoo1zo11.
Agriculture. MeunwhIIe, ugrIcuILures
conLrIbuLIonLogrowLhdecIInedconsIderubIy,Irom
ubouL z;% In Lhe 1q8os Lo ubouL % In Lhe zooos.
n Lhe 1q8os, ugrIcuILure uccounLed Ior more Lhun
huIIoILhecounLrysGDP,uLz%.BuLboLhIndusLry
und servIces ouLerIormed ugrIcuILure durIng Lhe
IusL z decudes. GrowLh In ugrIcuILure deceIeruLed
Irom6%InLhe1q8osLo1%InLhe1qqosundz%In
Lhezooos.AgrIcuILuresshureInGDPhusdecIIned
Iromz%InLhe1q8osLozo%InLhezooos(TubIe
1.z).NeverLheIess,ugrIcuILurewIIIconLInueLobeun
ImorLunL source oI roducLIon Ior BhuLun, IurgeIy
domInuLedbycros,IoIIowedbyIIvesLock.
Comured wILh oLher SouLh AsIun economIes,
BhuLuns currenL secLoruI comosILIon oI GDP Is
unIque. WhIIe Lhe oLher economIes In Lhe SouLh
AsIunregIonweredomInuLedbyLheservIcessecLor
Inzoo1zo11,IndusLrywusBhuLunsIurgesLsecLor
(domInuLed by hydroower und consLrucLIon) In
LermsoIILsshureInGDP,uLqz%(Igure1.).And
LhemunuIucLurIngsubsecLoruccounLsIoronIyover
u hILh oI BhuLun`s IndusLry secLor, Lhe IowesL In Lhe
regIon, whIIe In BungIudesh, ndIu, und SrI unku,
munuIucLurIng uccounLs Ior more Lhun o% oI Lhe
IndusLrysecLor.
1.1.2. Growth by Expenditure Components
Igure 1.6 shows Lhe LrunsIormuLIon oI Lhe
BhuLunese economy on Lhe exendILure sIde. The
shure oI househoId consumLIon In LoLuI GDP
decreusedIromuImosL;%In1q81Loq%Inzo11
us Lhe oLher exendILure comonenLs, urLIcuIurIy
gross cuILuI IormuLIon und governmenL sendIng,
grew IusLer. ConsLrucLIon ucLIvILIes reIuLed Lo
15
These include social security, education, health, and environmental
protection services.
11
NSB. Statistical Yearbook of Bhutan 2011.
12
The government has adopted a policy of high-valuelow-volume/
impact tourism since the 1970s. The Bhutan Tourism Corporation,
which organized the tours and operated the transport services and
nearly all the accommodation facilities. Prior to that, all tourists
were considered as guests of the Bhutan Tourism Corporation,
which organized the tours and operated the transport services,
and nearly all the accommodation facilities.
13
Calculations based on data from Dorji (2001) and NSB (2010).
14
Bhutans rst satellite international link was established in
1990 with the installation of the Earth satellite station and an
international gateway switch in Thimphu. By March 1999, all 20
district headquarters had access to telecommunications services.
Bhutan Post increased its types of services to include international
express mail, domestic express mail, fax mail, fax money order,
post overnight courier, and the Bhutan Post Express Passengers
services. Currently, there are 125 postal services, each catering to
5,175 Bhutanese people on average. The country established the
rst television network and started Internet Services in June 1999.
Paro International Airport was inaugurated in April 1999. Progress
continued in the 2000s with the launch of cellular mobile (B Mobile)
services in November 2003. The Bhutan Telecom Authority has
now connected all 20 districts (dzhongkhags) by cellular services
(NSB. Statistical Yearbook of Bhutan 2007).
9
hydroower deveIomenL conLrIbuLed Lo ruId
growLh In InvesLmenL In Lhe 1q8os und 1qqos,
IncreusIng Lhe shure oI InvesLmenL In GDP over
LIme. The shure oI governmenL sendIng In GDP
uIso Increused sLeudIIy, Irom 1;% In 1q81 Lo z1%
In zo11. WILh ersIsLenL Lrude dehcILs, neL exorLs
conLInueLoconLrIbuLeneguLIveIyLoGDPgrowLh.
Household Consumption. DomesLIchouse-
hoId consumLIon regIsLered u sLrong growLh oI
;.o%InLhezooosIoIIowIngmoderuLeexunsIons
oIq.8%InLhe1q8osund.%InLhe1qqos.WILhILs
domInunL shure In GDP, Lhe growLh oI househoId
consumLIon conLrIbuLed q1%, qq%, und 8% Lo
GDPgrowLhInLhe1q8os,Lhe1qqos,undLhezooos,
resecLIveIy(TubIe1.).TubIe1.qIurLherIIIusLruLes
LhuLhousehoIdexendILureonservIcesIncreused,
16
reecLIng u beLLer quuIILy oI IIIe ussocIuLed wILh

hIgher Income, whIIe LheIr consumLIon on
nondurubIe und durubIe goods decIIned modesLIy.
BhuLunese househoIds sLIII send u reIuLIveIy Iurge
shureoILheIrconsumLIon(q6%oILoLuIhousehoId
consumLIon durIng zoo1zo11) on nondurubIe
goods such us Iood und nonuIcohoIIc beveruges;
cIoLhIng und IooLweur; und uIcohoIIc beveruges,
Lobucco, und nurcoLIcs. ExendILure on durubIe
goods (housIng, wuLer, eIecLrIcILy, gus, und oLher
IueIs; und IurnIshIngs, househoId equImenL, und
rouLIne home muInLenunce) comrIses ubouL 1%
oILoLuIhousehoIdconsumLIon.
16
Services include transport, restaurants and hotels, health,
communications, education, and recreation and culture.
Sources: Estimates based on data of UNdata (data.un.org); NSB (2012); and World Bank, WDI, accessed 9 January 2013.
Figure 1.5. Average Shares of Major Production Sectors in GDP, 20012011 (%)
Source: Estimates based on data sourced through UNdata (data.un.org) and NSB (2012).
Figure 1.6. GDP by Expenditure Component, 19812011 (%)
1981 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
40
20
20
0
40
60
80
100
120
140
Household nal consumption expenditure General government nal consumption expenditure
Gross capital formation Net exports

0
20
40
60
80
100
Agriculture Industry (except manufacturing) Manufacturing Services
Bangladesh Bhutan India Maldives Nepal Sri Lanka
10
Government Consumption. The growLh
oI governmenL consumLIon hus been ucceIeruLIng
Lhrough Lhe IusL decudes, IncreusIng ILs shure In
GDP Irom 1;% In Lhe 1q8os Lo zz% In Lhe zooos.
GovernmenL consumLIon conLrIbuLed 1q%, 6%,
und zo% Lo GDP growLh, resecLIveIy, In Lhe sume
erIods (TubIe 1.). The shure oI governmenL
sendIng on socIuI servIces (heuILh und educuLIon)
hus Increused sLeudIIy, uccounLIng Ior more Lhun
one-LhIrd oI LoLuI governmenL consumLIon In
zo11 und demonsLruLIng Lhe governmenL rIorILy
uccordedLohumundeveIomenL(TubIe1.).
Table 1.3. Average Shares of Expenditure Components in GDP and their Contribution to GDP Growth (%)
Consumption Government Investment Net Exports
Period
Ave.
Growth
Rate
Share
of
GDP
Cont.
to GDP
Growth
Ave.
Growth
Rate
Share
of
GDP
Cont.
to GDP
Growth
Ave.
Growth
Rate
Share
of
GDP
Cont.
to GDP
Growth
Exports
Growth
Rate
Imports
Growth
Rate
Share
of
GDP
Cont.
to GDP
Growth
19811990 4.8 65.2 40.7 5.2 16.6 13.9 8.2 35.8 35.0 18.4 8.4 -17.6 10.4
19912000 3.5 54.5 44.3 7.3 19.9 35.5 9.3 41.0 90.6 5.2 10.3 -15.4 -70.4
20012011 7.0 43.6 37.9 7.5 22.0 19.2 10.0 50.8 64.3 11.9 10.1 -16.3 -21.4
Ave. = average, Cont. = contribution, GDP = gross domestic product.
Source: Estimates based on Bhutans data from UNdata (data.un.org) and NSB (2012).
Table 1.4. Share of Goods and Services in Total Household Consumption, 20012011
Type 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Ave.
Non-
Durable
Goods
53.3 49.1 44.3 43.5 43.7 43.6 44.6 45.3 45.3 45.3 45.3 45.7
Durable
Goods
31.4 31.8 31.5 32.1 32.3 32.5 29.5 29.9 29.9 29.9 29.9 31.0
Services 8.3 10.9 14.9 15.0 14.6 14.4 18.2 17.3 17.3 17.3 17.3 15.1
Miscella-
neous
7.0 8.1 9.3 9.4 9.4 9.4 7.7 7.5 7.5 7.5 7.5 8.2
Source: Estimates based on data from UNdata (data.un.org) and NSB (2012).
Table 1.5. Government Expenditures by Function, 20082011 (% of total)
Sectors
Current Expenditure Capital Expenditure
2008 2009 2010 2011 2008 2009 2010 2011
Social Services 30.2 32.5 35.0 35.3 16.2 19.7 19.3 20.6
Health 9.9 10.2 10.6 10.5 6.9 8.1 6.1 5.0
Education 20.3 22.3 24.4 24.8 9.3 11.6 13.2 15.6
Economic Services 17.1 16.4 16.8 16.4 33.5 37.3 50.5 52.8
Agriculture 10.4 10.3 10.7 10.2 7.1 11.5 13.3 15.9
Mining, manufacturing, and
industries
1.3 1.0 1.1 1.2 0.6 0.7 0.5 0.4
Transport and communications 3.5 3.1 3.1 3.0 20.5 17.4 28.7 22.9
Energy 0.4 0.4 0.4 0.4 4.1 6.0 6.0 10.6
Other economic services 1.5 1.6 1.5 1.7 1.2 1.8 2.1 3.0
Public Order and Safety Services 6.7 7.4 6.8 7.7 0.8 3.3 3.3 3.3
Religion and Culture Services 3.3 4.5 4.0 3.7 2.3 2.8 3.4 4.3
Housing and Public Amenities 2.5 2.7 2.6 2.1 6.1 6.1 6.6 5.2
General Public Services 40.2 36.5 34.8 34.8 41.1 30.9 16.8 13.8
General public service 22.5 20.8 17.4 18.6 23.6 30.9 12.0 9.8
National debt services 17.7 15.7 17.4 16.3 17.2 - 4.7 4.0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Note: In terms of government capital expenditures (which contribute to the investment component of GDP), about 40% went to economic services in 2008
2010, more than 50% of which went to transport and communications services. These capital expenditures only account for government budget outlay; thus,
the construction activities for hydropower projects that are mostly nanced by India are not accounted for in Table 1.5 as they are considered o-budget.
Sources: Ministry of Finance (various years).
11
Investment. nvesLmenL exhIbILed sLrong
growLhLhroughLhedecudes,buoyedbyconsLrucLIon
ucLIvILIes urLIcuIurIy Ior hydroower rojecLs.
nvesLmenL conLrIbuLed % Lo GDP growLh In Lhe
1q8os, q1% In Lhe 1qqos, und 6q% In Lhe zooos,
Lhus IncreusIng ILs shure In GDP Irom 6% In Lhe
1q8osLo1%InLhezooos(TubIe1.).
Net Exports. Through neguLIve growLh, neL
exorLs conLInue Lo subLrucL Irom GDP on Lhe
exendILure sIde. The deveIomenL oI hydroower
rojecLs sLurLIng In Lhe 1q8os boosLed hydroower
exorLs Lo ndIuIor exumIe, wILh un exorL
surge In 1q8; IoIIowIng Lhe commercIuI oeruLIon
oI Chhukhu hydroeIecLrIc ower IunL In 1q86.
ExorLs Increused over LIme, drIven by exorLs oI
hydroower und meLuI roducLs, buL ImorLs huve
beenrIsIngusweII,drIvenbyIncreusedInvesLmenL
In equImenL und cuILuI us weII us InIrusLrucLure.
ToLuI ImorLs oI goods ure IurgeIy domInuLed by
Iour muIn grous oI roducLs: (1) muchInery und
LrunsorLequImenL,whIchIncIudesmuchIneryIor
excuvuLIon und consLrucLIon und muInLenunce oI
hydroower IunLs, wILh un unnuuI uveruge shure
oI zq% oI LoLuI ImorLs; (z) munuIucLured goods
(rImurIIy Iron und sLeeI und LexLIIe roducLs),
wILh u shure oI zq% er unnum; () mIneruI IueIs,
IubrIcunLs, und reIuLed muLerIuIs, wILh shure oI
16%yeurIy;und(q)rIce,whIchdomInuLedLheIood
grouswILhununnuuIuverugeshureoI1o%oILoLuI
ImorLs er unnum.
1;
ConverseIy, hydroower hus
become Lhe mosL ImorLunL exorL, uccounLIng Ior
q.z% oI LoLuI exorLs In zoozo1o (Igure 1.;).
AurL Irom concenLruLIon on hydro exorLs, Lrude
hus been muInIy wILh ndIu. n zoozo11, more
Lhun Iour-hILhs oI LoLuI exorLs wenL Lo ndIu, und
more Lhun Lhree-hILhs oI ImorLs cume Irom ndIu
(Igure1.8).
The exendILure uLLern oI Lhe BhuLunese
economy exhIbILs dIsLIncLIve IeuLures (Igure 1.q).
Among SouLheusL AsIun economIes, BhuLun hus
Lhe IowesL shure oI rIvuLe consumLIon In GDP,
whIIe Lhe shures oI governmenL consumLIon und
InvesLmenL In GDP ure Lhe hIghesL. ThIs reecLs Lhe
ruId IndusLrIuIIzuLIon oI Lhe BhuLunese economy,
drIven muInIy by InvesLmenL In hydroower
deveIomenL und governmenL suorL Ior socIuI
17
Based on 20052011 data from UN Comtrade, accessed 16 January
2013.
Source: UNComtrade, accessed 16 January 2013.
Figure 1.8. Bhutans Exports and Imports,
20052011 ($ million)
2005 2006 2007 2008 2009 2010 2011
1,200
800
1,000
400
600
200
0
200
400
600
800
Exports to the World Exports to India
Imports from the World Imports from India
Source: UNComtrade data as of December 2012. 2010 electricity
exports data based on IMF (2011).
Figure 1.7. Bhutans Electricity Exports,
20052010 ($ million)
Total exports Electricity exports
2005 2006 2007 2008 2009 2010
0
200
400
600
800
Note: Average shares data for the Maldives are from 20012005.
Sources: World Bank, WDI, accessed 9 January 2013; UNdata (data.
un.org); and NSB (2012).
Figure 1.9. Average Shares of Major Expenditure
Components in GDP, 20012011 (%)
80
0
20
20
40
60
40
60
80
120
100
140
Net Exports Investment
Government Consumption
Bangladesh Bhutan India Maldives Nepal Sri Lanka
12
InIrusLrucLure.NeLexorLsureneguLIveInuIISouLh
AsIun economIes, wILh BhuLun huvIng Lhe second
IurgesL Lrude dehcIL uILer NeuI.
1.2. Trends in Poverty
and Inequality
BhuLun hus mude ImressIve rogress In
overLyreducLIonundweIIureImrovemenLonLhe
buckoIsLrongeconomIcgrowLhundLhegovernmenL
eIIorLs Lo boosL ruruI deveIomenL und buIId
socIuI InIrusLrucLure. The SIxLh YP (1q8;1qqz)
rIorILIzed rojecLs Ior Lhe ruruI ouIuce und Lhe
SevenLh (1qqz1qq6) und EIghLh (1qq;zooz)
YPs Iocused on deveIoIng humun resources
LhroughInvesLIngInsocIuIInIrusLrucLure,IncIudIng
hosILuIs, schooIs, udmInIsLruLIve buIIdIngs, und
sewuge IucIIILIes (us weII us rouds und ower
subsLuLIons).
18
n Lhe zooos, Lhe governmenL
IncororuLed Lhe conceL oI gross nuLIonuI
huInessInLhesubsequenLYPsundLhenuLIonuI
overLy reducLIon sLruLegy, whIch emhusIzes
socIoeconomIcdeveIomenL,reservuLIonoIcuILure
undLheenvIronmenL,undgoodgovernunce.
The overLy IncIdence IeII Irom z6% In zoo
Lo 1o% In zoo; usIng Lhe $1.z-u-duy overLy IIne
reIerence.ThIsdoubIe-dIgILdecIIneIsuIsoobserved
InLhe$z-u-duyoverLyIIne.BhuLunsoverLyreduc-
LIonruLeIromzooLozoo;wusLhehIghesLInSouLh
AsIu,undILsoverLyIncIdencewusLhesecondIowesL
(TubIe1.6).
EsLImuLes usIng Lhe nuLIonuI overLy IIne
show u more modesL decIIne reIuLIve Lo Lhe hgures
esLImuLedusIng$1.z-und$z-u-duyoverLyIInes.
1q
PoverLyIncIdencedecreusedbyubouL1zercenLuge
oInLsbeLweenzoo;undzo1z,orununnuuIuveruge
decIIne oI uL IeusL z ercenLuge oInLs. The ruLe oI
overLy reducLIon even breuched Lhe governmenLs
LurgeL under Lhe TenLh YP. ThIs Is sIgnIhcunL und
comurubIe Lo Lhe recenL erIormunce oI oLher
18
The government spent Nu2,816 million on social services during
the Seventh FYP, or about 7% of GDP (IMF Government Financial
Statistics, accessed January 2013).
19
These estimates come with some caveats. In the absence of a 2012
national poverty line as of this study, the 2007 poverty line was
used in estimating poverty incidence using 2012 Bhutan Living
Standards Survey data. Accordingly, 2012 prices were adjusted to
2007 prices for consistency.
deveIoIng counLrIes In AsIu, such us Lhe PRC
undVIeLNum.
zo
AILhough u downwurd Lrend Is cIeur In Lhe

uggreguLe esLImuLes, subnuLIonuI esLImuLes eILher
ucrosssuLIuIboundurIesorbeLweensocIoeconomIc
subgrousshowuvurIedIcLure.Igure1.1oreorLs
Lhe overLy IncIdence Ior urbun und ruruI ureus
seuruLeIy.nLheubsoIuLenumberoILheoor,Lhe
ruruI ureu hud u Iurger reducLIon gIven Lhe hIgh
InILIuI IeveIs. The mujorILy oI Lhe oor In BhuLun
(ubouLq;%Inzo1z)ureInLheruruIureu.SImIIurIy,
Lhe ercenLuge oI overLy reducLIon wus much
greuLer In Lhe ruruI ureu (Lhe decIIne wus ubouL
q8%)LhunInLheurbunureu(ubouLzq%)Iromzoo;
Lozo1z.
The overLy esLImuLes uL Lhe geogruhIcuI or
communuI IeveI exhIbIL sImIIur Lrends (Igures
1.1o und 1.11). WhIIe overLy decIIned In boLh
urbun und ruruI ureus beLween zoo; und zo1z,
Lhe reducLIon ruLe wus greuLer In ruruI ureus Lhun
urbun ureus In uII regIons buL Lhe cenLruI regIon,
where Lhe overLy reducLIon ruLe wus greuLer In
urbun ureus. mrovemenL In overLy reducLIon
wusmosLromInenLInLheruruIureuoILheeusLern
regIon, where Lhe overLy IncIdence droed by
ubouL zo ercenLuge oInLs, or by 1%. ncreusIng
Lrude ucLIvILy neur Lhe ndIun border muy huve
conLrIbuLedLoLhIs.NeverLheIess,LheeusLernregIon
sLIII hus Lhe hIghesL overLy IncIdence In BhuLuns
ruruIureus.ThemoreouIouswesLernregIonuIso
hus u reIuLIveIy hIgh shure oI LoLuI overLy desILe
Lhe generuIIy Iow overLy IncIdence wILhIn Lhe
regIon.MoreLhunq%oILheLoLuIouIuLIonIIves
In Lhe wesLern regIon, buL Lhe regIon uccounLs Ior
onIy ubouL o% oI LoLuI ouIuLIon In overLy. n
conLrusL, Lhe eusLern regIons ouIuLIon shure Is
onIyz8%,buLILsshureInLoLuIoverLyIsreIuLIveIy
IurgeuLubouLqo%(TubIe1.;).
PoverLy IncIdence und ILs chunges over LIme
uIso vury sIgnIhcunLIy umong dIsLrIcLs (TubIe 1.;).
DIsLrIcLs where economIc cenLers ure IocuLed huve
Lhe IowesL overLy IncIdences. Gusu, Puro, und
20
Poverty incidence in the PRC declined from 28% (2002) to 13%
(2008) using the $1.25-a-day poverty line, from 51% (2002) to
30% (2008) using the $2-a-day poverty line, and from 5% (1998)
to 3% (2004) using the national poverty line. Poverty incidence
in Viet Nam declined from 28% (2004) to 17% (2008) using the
$1.25-a-day poverty line, from 57% (2004) to 43% (2008) using the
$2-a-day poverty line, and from 20% (2004) to 15% (2008) using
the national poverty line.
18
The government spent Nu2,816 million on social services during
the Seventh FYP, or about 7% of GDP (IMF Government Financial
Statistics, accessed January 2013).
19
These estimates come with some caveats. In the absence of a 2012
national poverty line as of this study, the 2007 poverty line was
used in estimating poverty incidence using 2012 Bhutan Living
Standards Survey data. Accordingly, 2012 prices were adjusted to
2007 prices for consistency.
13
Sources: Calculations based on the Bhutan Living Standards Surveys in
NSB (2003), NSB (2007a), and ADB and NSB (2013).
Figure 1.10. Urban and Rural Poverty,
2007 and 2012 (%)
Sources: Calculations based on the Bhutan Living Standards Surveys in
NSB (2003), NSB (2007a), and ADB and NSB (2013).
Figure 1.11. Poverty Incidence by Region,
2007 and 2012 (%)
Table 1.6. Poverty Incidence using Poverty Lines for South Asian Countries (%)
Country
National Poverty Line $1.25-a-Day Poverty Line $2-a-Day Poverty Line
Previous Latest Previous Latest Previous Latest
Bangladesh 40.0 (2005) 31.5 (2010) 50.5 (2005) 43.3 (2010) 80.3 (2005) 76.5 (2010)
Bhutan 23.2(2007) 11.5(2012) 26.2(2003) 10.2(2007) 49.5(2003) 29.8(2007)
India 37.2 (2005) 29.8 (2010) 41.6 (2005) 32.7 (2010) 75.6 (2005) 68.7 (2010)
Nepal 30.9 (2004) 25.2 (2011) 53.1 (2003) 24.8 (2010) 77.3 (2003) 57.3 (2010)
Pakistan 23.9 (2005) 22.3 (2006) 22.6 (2006) 21.0 (2008) 61.0 (2006) 60.2 (2008)
Sri Lanka 15.2 (2007) 8.9 (2010) 14.0 (2002) 7.0 (2007) 39.7 (2002) 29.1 (2007)
Sources: World Bank, WDI, accessed 9 January 2013; Bhutan Living Standards Surveys cited in NSB (2007a) and ADB and NSB (2013) for estimates under the
national poverty line of Bhutan. In the absence of 2012 national poverty line as of this study, the 2007 poverty line was used. Accordingly, 2012 prices were
adjusted to 2007 prices for consistency.
2007 2012
Bhutan Urban Rural
0
10
5
15
20
30
35
25
2007 2012
Urban Rural
Western Eastern Central
Urban Rural Urban Rural
0
10
5
15
20
30
40
35
25
Table 1.7. Poverty Incidence by District,
2003, 2007, and 2012 (%)
Region and
District 2007 2012
Population
Share
(2012)
Share
in Total
Poverty
(2012)
Western Region 17.1 7.6 45.5 30.09
Chhukha 20.3 6.4 9.4 5.24
Gasa 4.1 0.0 0.5 0.00
Haa 13.2 2.6 1.5 0.34
Paro 3.9 0.5 5.4 0.22
Punakha 15.6 7.3 3.8 2.39
Samtse 46.8 26.1 9.4 21.33
Thimphu 2.4 0.4 15.5 0.57
Central Region 22.8 13.4 26.1 30.38
Bumthang 10.9 4.3 2.3 0.85
Dagana 31.1 23.0 3.3 6.63
Sarpang 19.4 4.2 5.9 2.17
Trongsa 22.2 16.7 2.3 3.31
Tsirang 13.9 14.5 3.3 4.12
Wangdue
Phodrang
15.8 12.8 5.8 6.47
Zhemgang 52.9 24.2 3.3 6.84
Eastern Region 33.5 16.0 28.4 39.53
Lhuentse 43.0 35.9 2.4 7.59
Mongar 44.4 16.5 6.5 9.35
Pemagatshel 26.2 12.4 3.8 4.11
Samdrup
Jongkhar
38.0 16.1 5.4 7.47
Trashigang 29.3 13.2 7.5 8.60
Trashiyangtse 14.3 10.0 2.8 2.41
Source: Calculations based on the Bhutan Living Standards Surveys in NSB
(2007) and ADB and NSB (2013).
14
ThImhu dIsLrIcLs, whIch ure Lhe cuILuI und muIn
commercIuI cenLers In Lhe counLry, hud overLy
IncIdencesbeIow1%Inzo1z.NoLubIy,LhesecenLers
ure uII In BhuLuns wesLern regIon. Puro, ThImhu,
undHuudIsLrIcLshudLheIurgesLdecIInesInoverLy,
byubouL88%,8z%,und8o%,resecLIveIy,beLween
zoo;undzo1z.PockeLsoIoverLyuresLIIIevIdenL
und ure Iound In remoLe und IsoIuLed dIsLrIcLs.
SumLse In Lhe wesLern regIon uccounLs Ior ubouL u
hILh oI LoLuI overLy In Lhe counLry: ubouL u quurLer oI
LhedIsLrIcLsouIuLIonIsoor.OLherdIsLrIcLswILh
hIghoverLyIncIdencesureDugunuundZhemgung
In Lhe cenLruI regIon und huenLse In Lhe eusLern
regIon.SImIIurIy,usLudyusIngzoo;BhuLunIvIng
SLundurdsSurveyduLuIoundLhuLoverLyIsmuInIy
ururuIhenomenon.
z1
AmoredeLuIIedchurucLerIzuLIonoIoverLycun
be mude Lhrough househoId survey duLu. TubIe 1.8
reorLs overLy IncIdence by Lhe churucLerIsLIcs oI
househoId heuds. A reIuLIveIy Iurge roorLIon oI
BhuLuns househoIds huve IemuIe heudsubouL
zq% oI uII househoIds In zo1z. The mujorILy oI
Lhese women huve mIgrunL souses workIng In
oLher dIsLrIcLs. The resL ure wIdows (ubouL 18% oI
Lhe househoIds heuded by IemuIes) und dIvorced
or seuruLed women (q% oI such househoIds).
HousehoIdsheudedbymuIeshuveIuredbeLLerLhun
Lhose heuded by IemuIes, us Lhe Iormer showed
greuLeroverLyreducLIonLhunLheIuLLerIromzoo;
Lozo1z.
HousehoIdheudseducuLIonuLLuInmenLsueur
LobeunImorLunLIucLorInoverLyreducLIon.TubIe
1.8 shows LhuL u vusL mujorILy oI househoId heuds,
ubouL6q%,huvehudnoIormuIeducuLIonundLhey
uccounLed Ior ubouL q1% oI househoIds In overLy.
PoverLy IncIdence decreuses exonenLIuIIy us Lhe
IeveI oI educuLIon Increuses. PoverLy IncIdence Is
sIgnIhcunLIy Iower umong househoIds heuded by
eoIewILhseconduryorhIghereducuLIon.
21
The study by Santos and Ura (2008) estimated multidimensional
poverty in Bhutan by applying the methodology by Alkire and
Foster (2007) using the 2007 Bhutan Living Standard Survey data
(NSB 2007). Five dimensions are considered for estimations in
both rural and urban areas (income, education, room availability,
access to electricity, and access to drinking water) and two
additional dimensions are considered for estimates in rural areas
only (access to roads and land ownership). In rural areas, the study
found that poverty in education, electricity, room availability,
income, and access to roads contribute in similar shares to overall
multidimensional poverty, while poverty in land ownership
and water have relatively smaller contributions to overall
multidimensional poverty.
PoverLy Is uIso Inuenced by househoId
heuds emIoymenL sLuLus und Lhe emIoymenL
secLor. HousehoIds whose heuds ure emIoyed
In ugrIcuILure or ure unemIoyed uccounLed Ior
more Lhun q% oI LoLuI overLy. PoverLy IncIdence
umong househoIds whose heuds ure emIoyed In
IndusLry or servIces Is generuIIy Iow. HousehoIds
whose heuds ure emIoyed In servIces uIso showed
LheIurgesLroorLIonuIdecIIneInoverLy(byubouL
6q%)beLweenzoo;undzo1z,IoIIowedbyhousehoIds
whose heuds ure enguged In ugrIcuILure (by
ubouLqq%).
The dIsLrIbuLIon oI Incomes ucross quInLIIe
grous deLerIoruLed beLween zoo; und zo1z,
IncreusIng InequuIILy. Igure 1.1z shows LhuL Lhe
exendILureshure
zz
oILherIchesLquInLIIeIncreused
Irom q.1% In zoo; Lo o.o% In zo1z. n conLrusL,
LheshureoILheboLLomquInLIIesdecreused,Lhough
murgInuIIy, Irom 6.;% Lo 6.z%, durIng Lhe sume
erIod.TheexendILureshuresoILhesecond,LhIrd,
und IourLh quInLIIes IIkewIse decreused. OveruII,
22
Income distribution is measured here by examining the
expenditure shares.
Table 1.8. Poverty Incidence by Household Heads
Gender, Education, and Employment,
2007 and 2012 (%)
Characteristic 2007 2012
Population
Share
(2012)
Share
in Total
Poverty
(2012)
Sex
Male 24.2 10.8 71.4 67.2
Female 20.9 13.2 28.6 32.8
Educational Attainment
None 29.5 16.3 64.1 90.6
Primary 15.6 6.3 14.0 7.6
Secondary 1.3 1.6 11.6 1.6
Higher
secondary 0.5 0.2 5.7 0.1
Tertiary 0.0 0.2 4.6 0.1
Sector of Employment
Unemployed 30.6 16.4 17.5 24.9
Agriculture 32.4 18.1 43.7 68.6
Industry 8.1 7.6 1.2 0.8
Services 5.6 1.8 37.7 5.8
Source: Calculations based on the Bhutan Living Standards Surveys in NSB
(2007) and ADB and NSB (2013).
15
Income dIsLrIbuLIon remuIns hIghIy unequuI wILh
sLrong growLh huvIng IILLIe ImucL on Lhe ooresL
quInLIIe. As Lhe rIchesL quInLIIe cuLures o% oI
LoLuIIncome,LheLoLwoquInLIIesgurnermoreLhun
Lwo-LhIrdsoILoLuIIncomesInLhecounLry.
ncomeInequuIILyIsuIsoseverebeLweenurbun
und ruruI ureus. MehLu (zoo;) Iound LhuL Lhe
uveruge monLhIy er cuILu Income In urbun ureus
IsuImosLq.LImesLhuLInruruIureus.MehLunoLed
LhuLIncomeInequuIILywushIgherInLheurbunureus
Lhun In Lhe ruruI ureus (wILh o.8 GInI coeIhcIenL
comured wILh Lhe ruruI ureus o.6). The sLudy
noLed LhuL Lhe uLLern oI ownIng roducLIve usseLs
(81% oI Lhe roducLIve usseLs were concenLruLed
In Lhe urbun ureus) cun exIuIn Income dIsurILIes
ucrossdIsLrIcLs,buckedbyLheuLLernoIbunkIoun
dIsbursemenLs beIng skewed Lowurd Lhe more
rogressIvedIsLrIcLs.
The hIgh InequuIILy observed Is comurubIe
Lo LhuL In oLher SouLh AsIun counLrIes. TubIe 1.q
resenLs InequuIILy IndIcuLors ucross SouLh AsIun
economIes.BhuLunrunksLhehIghesL.
1.3. Conclusion
BhuLun hus mude ruId socIoeconomIc
rogress In Lhe IusL decudes desILe ILs dIIhcuIL
LerruIn und wIdeIy dIsersed ouIuLIon. Ls
sLrong growLh erIormunce, even In Lhe mIdsL
oI Lhe zoo8 gIobuI hnuncIuI crIsIs, IndIcuLes
LhuL, wILh conLInued good munugemenL, BhuLun
Is on ILs wuy Lo beIng un uer mIddIe-Income
economy. BhuLuns deveIomenL erIormunce hus
been guIded by ILs hIIosohy oI gross nuLIonuI
huInessoI sLrIvIng Lo buIunce sIrILuuI und
muLerIuI udvuncemenL Lhrough Iour IIIurs:
susLuInubIe und equILubIe economIc growLh und
deveIomenL, reservuLIon und susLuInubIe use oI
Lhe envIronmenL, reservuLIon und romoLIon oI
cuILuruI herILuge, und good governunce. DeLuIIed
oIIcIes und governmenL InLervenLIons Lo suorL
ILsdeveIomenLwerebusedonuserIesoIYPsund
LheIr hrm ImIemenLuLIon.
Hydroower deveIomenL, whIch sLurLed
In Lhe mId-1q8os, und Lhe subsequenL exorL oI
surIus eIecLrIcILy Lo ndIu huve IurgeIy susLuIned
Lhe growLh BhuLun hus uchIeved over Lhe yeurs
und IundumenLuIIy LrunsIormed Lhe sLrucLure
oI BhuLuns economy. However, Lhe counLrys
economIc growLh hus become deendenL on Lhe
hydroowerrojecLcycIeundreIuLedconsLrucLIon.
OLher secLors remuIn reIuLIveIy underdeveIoed
exceL Lo some exLenL servIces (LourIsm und oLher
servIces ucLIvILIes such us LrunsorL, sLoruge, und
communIcuLIons; us weII us hnunce, Insurunce, reuI
esLuLe,undbusInessservIces).AILhoughugrIcuILure
conLInuesLoemIoyneurIy6o%oILheIuborIorce,
LhesecLorsshureoIundconLrIbuLIonLoLoLuIouLuL
huve been overLuken by IndusLry und servIces
sInce1qq;.
BhuLuns reIuLIveIy sLrong growLh heIed
reduce overLy und udvunce socIuI deveIomenL.
The governmenLs InvesLmenLs In socIuI und
humun deveIomenL uIIowed IL Lo meeL u number
oI ILs MIIIennIum DeveIomenL GouI LurgeLs
eurIIer Lhun scheduIed. However, BhuLuns overLy
und InequuIILy IndIcuLors remuIn hIgh, esecIuIIy
In remoLe und IsoIuLed dIsLrIcLs ucross ILs Lhree
muIn regIons. A mujorILy oI Lhe oor sLIII resIde
Source: Calculations based on Bhutan Living Standards Surveys in NSB
(2007), ADB and NSB (2013).
Figure 1.12. Expenditure Shares by Quintile,
2007 and 2012 (%)
Poorest 2nd
0 20 40 60 80 100
2007
2012
3rd 4th Richest
Table 1.9. Inequality in South Asian Countries (%)
Country Year Gini
Share
of Top
20%
Share of
Bottom
20%
Bangladesh 2010 32.1 41.4 8.9
Bhutan 2012 42.6 50.0 6.2
India 2005 33.4 42.4 8.6
Maldives 2004 37.4 44.2 6.5
Nepal 2010 32.8 41.5 8.3
Pakistan 2008 30.0 40.0 9.6
Sri Lanka 2007 40.3 47.8 6.9
Sources: World Bank, WDI, accessed 9 January 2013; ADB and NSB (2013).
16
In Lhe ruruI ureus, where oorLunILIes Ior
emIoymenL ouLsIde ugrIcuILure ure IImILed.
DeIIvery oI socIuI servIces Lo remoLe und IsoIuLed
dIsLrIcLs Is IImILed und cosLIy, whIch uIso
conLrIbuLesLoLhehIghIeveIoIInequuIILy.
BhuLuns economIc ouLIook remuIns IuvorubIe
InLhemedIumLerm.However,ILsnurroweconomIc
buse Ieuves ILs economy vuInerubIe Lo cycIIcuI
swIngs In cerLuIn secLors. or exumIe, economIc
growLhsIowswhenLhereIsnonewconsLrucLIonor
uddILIonuI roducLIon In Lhe ower subsecLor. The
growLh Is noL beIng Ied by roducLIvILy Imrove-
menLs In some core secLors or new InvesLmenLs In
oLherrIvuLesubsecLors.TherIvuLesecLorremuIns
smuII und Iuces muny hurdIes Lo rovIdIng sources
Ior IuLure economIc growLh. n LhIs regurd, Lhe
governmenL hus recognIzed Lhe need Lo rovIde un
envIronmenL LhuL encouruges more rIvuLe secLor
InvesLmenL, us un essenLIuI source oI growLh In Lhe
IuLure. The TenLh YP uIhrmed LhIs core sLruLegy
oI vILuIIzIng IndusLry Ior overLy reducLIon by
reIyIng heuvIIy on how Lhe rIvuLe secLor erIorms
unddeIIvers,undbyemowerIngmIcro,smuII,und
medIum enLerrIses Ior IndusLrIuI exunsIon und
emIoymenLgeneruLIon.
SusLuInIng BhuLuns currenLIy sound growLh
momenLum couId uIso be consLruIned by Lhe
counLrys vuInerubIIILy Lo chunges In Lhe exLernuI
envIronmenL, urLIcuIurIy In ndIus economy
becuuse mujor InvesLmenL deends on ndIun
IundIng und Lhe ndIun murkeL. The chuIIenge
Is Lo undersLund Lhe consLruInLs Lo dIversIIyIng
InvesLmenLs LhuL cun Ieud Lo u more broud-
busedgrowLh.
ThIs sLudy roceeds wILh Lwo InLerreIuLed
objecLIves In suorL oI Lhe governmenLs gouI oI
overLyreducLIonLhroughsusLuInubIedeveIomenL
und IncIusIve growLh. The hrsL Is Lo IdenLIIy und
rIorILIze Lhe crILIcuI consLruInLs Lo medIum- Lo
Iong-LermeconomIcgrowLh,equILubIedeveIomenL,
und overLy reducLIon In BhuLun. The second Is Lo
rovIde recommenduLIons LhuL oIIcymukers cun
consIderInuddressIngLheconsLruInLsundusInuL
IorLheIormuIuLIonoILheEIevenLhYP.
The sLudy Is orgunIzed us IoIIows. ChuLers z
und IdenLIIy und dIscuss Lhe crILIcuI consLruInLs
Lo growLh und Lo reducIng overLy und InequuIILy.
The growLh dIugnosLIcs Iocus on socIuI reLurn Lo
InvesLmenL, rIvuLe urorIubIIILy, und cosL oI
hnunce. The overLy und InequuIILy dIugnosLIcs
exumIne emIoymenL oorLunILIes, humun
cuubIIILIes,uccessLoInIrusLrucLureundroducLIve
usseLs, und rovIsIon oI udequuLe suIeLy neLs.
n consuILuLIon wILh Lhe governmenL, ChuLer
q IdenLIhes oLenLIuI drIvers oI new growLh:
hydroower, ugrIcuILure, InIormuLIon LechnoIogy,
mIcro und smuII coLLuge IndusLrIes, und LourIsm.
ChuLer summurIzes Lhe hndIngs und dIscusses
oIIcy ImIIcuLIons Ior susLuInIng Lhe economIc
guInsundromoLIngumoreequILubIeshurIngoILhe
guInsIromgrowLh.
Appendix A. Methodology
ThesLudysIrumeworkIsbusedonLheIncIusIve
growLh conceL resenLed In Igure A.1. ncIusIve
growLh Is growLh LhuL noL onIy generuLes economIc
oorLunILIes,buLuIsoensuresequuIuccessLoLhem
by uII members oI u socIeLy. GrowLh Is consIdered
Lo be IncIusIve onIy when IL uIIows uII members
oI u socIeLy Lo urLIcIuLe In, conLrIbuLe Lo, und
benehL Irom Lhe growLh rocess on un equuI busIs
regurdIessoILheIrIndIvIduuIcIrcumsLunces(AIIund
Sonzoo;).Hence,udeveIomenLsLruLegybusedon
Lhe IncIusIve growLh conceL Is unchored on Lhree
oIIcy IIIurs: (1) creuLe und exund economIc
oorLunILIes Lhrough hIgh und susLuIned growLh,
(z) ensure equuI uccess Lo oorLunILIes Ior uII
members oI u socIeLy Lhrough socIuI IncIusIon, und
() rovIde udequuLe socIuI suIeLy neLs Lo ensure
mInImum economIc weII-beIng. AII Lhree oIIcy
IIIursneedLobesuorLedbygoodgovernunceund
InsLILuLIons (Zhuung zoo8). SeveruI requIremenLs
needLobemeLInorderLosuLIsIyeuchoILheLhree
IIIursoILheIncIusIvegrowLhsLruLegy.
Thus, Lhe sLudy uLLemLs Lo dIugnose Lhe
consLruInLsLhuLmuybecurLuIIIngeIIorLsLogeneruLe
hIgh, susLuIned, und broud-bused growLh Lo creuLe
jobs und oorLunILIes, und Lo muke Lhe growLh
IncIusIve.ToLhIsend,LhesLudyemIoysLhegrowLh
dIugnosLIcs Irumework (us resenLed In ChuLer z)
Lo dIugnose consLruInLs Lo growLh, und Lhe overLy
und InequuIILy reducLIon dIugnosLIcs Irumework
(usresenLedInChuLer)LodIugnoseIucLorsLhuL
muy be IImILIng Lhe uce oI overLy reducLIon und
IncIusIvenessoILheeconomIcgrowLh.
17
Figure A.1. Inclusive Growth Concept
Maximize Economic
Opportunities
Governance and
Institutions
Ensure Minimum
Economic Well-Being
Inclusive Growth
Ensure Equal Access to
Economic Opportunities
Poverty Reduction
Source: ADB (2007).
18
Chapter 2
Critical Constraints to
Bhutans Growth
B
huLuns IusL economIc growLh hus been
drIven IurgeIy by sLrong InvesLmenL
ussocIuLed wILh deveIomenL oI
hydroower. BhuLun InvesLmenL ruLes
(meusured In Lerms oI ILs gross cuILuI
IormuLIon or InvesLmenL IncIusIve oI derecIuLIon
us u ercenLuge oI gross domesLIc roducL |GDP|)
huvebeenLhehIghesL(exceLInzoo;)umongSouLh
AsIuncounLrIes(Igurez.1).
n BhuLun, gross domesLIc cuILuI IormuLIon
(GDC) hus been weII over o% oI GDP sInce Lhe
1q8os (Igure z.z). Hydroower rojecLs requIre
subsLunLIuI ouLIuys und uccounLed Ior more Lhun
%oILheLoLuIInvesLmenLsInzo1o.
BhuLun sLurLed consLrucLIng mInI und mIcro
hydroeIecLrIc ower IunLs In Lhe 1q6os; Lhe
hrsL mInI hydroeIecLrIc IunL wus commIssIoned
In JushInu, ThImhu In 1q6;. The hrsL mujor
hydroeIecLrIc rojecL In Chhukhu wus deveIoed
bused on u bIIuLeruI ugreemenL In 1q;q beLween
BhuLunundndIuLomeeLBhuLunsdomesLIcower
demund und exorL ILs excess eIecLrIcILy Lo ndIu.
ConsLrucLIon oI Lhe Chhukhu hydroeIecLrIc ower
IunL sLurLed In 1q;q und IL wus commIssIoned
In 1q86. ConsLrucLIon oI more Lhun u dozen oII-
grId mIcro und mInI hydroower IunLs conLInued
durIng Lhe 1q8os und 1qqos Lo suIy ower Lo
remoLevIIIugesundhumIeLsneurnuLIonuIhIghwuys.
DurIng1qq;zooq,LwomedIum-sIzedhydroower
Source: ADB (2012c); for 2011 data for gross domestic capital formation, Statistical Yearbook of Bhutan 2012, NSB (various years).
Figure 2.1. Investment Rates in South Asia, 19902011 (% of GDP)
0
40
30
10
60
50
20
70
India Sri Lanka Nepal Bhutan Bangladesh
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Critical Constraints to Bhutans Growth
19
rojecLs (Lhe KurIchu rojecL und Lhe Busochu
hydroower rojecL) were commIssIoned. SeveruI
megu hydroower rojecLs ure comIng on sLreum
us weII. ConsLrucLIon oI Lhe TuIu hydroeIecLrIc
rojecLoI1,ozomeguwuLL(MW)InsLuIIedcuucILy
sLurLed In 1qq; und IL wus commIssIoned In zoo6.
ConsLrucLIon oI Lhe PunuLsungchhu hydroower
rojecL In Wungdue Phodrung, Lhe Mungdechhu
rojecL In Trongsu, und Lhe Duguchhu rojecL In
DugunusLurLeddurIngzoo8zo11.
Hydroower rojecLs, by LheIr very nuLure,
requIre u sIzeubIe InvesLmenL u IronL wILh Iong
gesLuLIon erIods. As u resuIL, BhuLun exerIences
eIsodesoIIumyInvesLmenL.orexumIe,rIorLo
Lhe commIssIonIng oI Chhukhu, Lhe uveruge shure
oI GDC In GDP Irom 1q811q86 wus ;%. AILer
ChhukhuwuscommIssIoned,LheshureoIGDCIn
GDP decreused Lo q% durIng 1q8;1qq1. GDC
rebounded uILerwurds, eukIng uL 6o% In zooq
und Lhen sLubIIIzed uL ubouL qz% oI GDP durIng
zoo;zooq,beIoreIncreusInguguInLo%Inzo1o
undq%Inzo11onuccounLoILhePunuLsungchhu,
Mungdechhu,undDuguchhuhydroowerrojecLs.
BhuLunsgrowLhrosecLIorLhenexL1oyeurs
wIII IIkeIy be underInned by IurLher deveIomenL
oIILsumIehydroowerresources.SeveruIrojecLs,
mosLIy hnunced by ndIu, ure scheduIed Lo be
comIeLedundcommIssIonedIoroeruLIondurIng
zo1zo18.
1
When commIssIoned, Lhe IunLs
wIII quudruIe BhuLuns hydroower generuLIng
cuucILy,IromLheexIsLIng1,q8oMW(RMAzo11u).
z
Heuvy reIIunce on one mujor secLor und

IndusLry und one domInunL economIc urLner Ior
LrudeundIubor,however,mukesBhuLunvuInerubIe
Lo secLoruI und exLernuI shocks (ADB zo1ou).
ndusLrIuIdeveIomenL,oLherLhunLhehydroower
secLor,husbeenIImILed,unduneconomIcdownLurn
InndIuorchungesInLhequuIILyoILhereIuLIonshI
beLween Lhe Lwo counLrIes wouId huve u mujor
Inuence on Lhe BhuLunese economy (ADB zo1ob).
Thus, Lhere Is u sLrong need Ior BhuLun Lo
brouden ILs IndusLrIuI buse und dIversIIy economIc
ucLIvILy by IucIIILuLIng rIvuLe secLor deveIomenL
us Lhe engIne oI growLh und by modernIzIng Lhe
economy. A RoyuI MoneLury AuLhorILy (RMA)
reorL recognIzed mukIng Lhe rIvuLe secLor Iuy u
more IvoLuI roIe In Lhe economy us un ImorLunL
1
These include the Dagachhu hydropower project, which is
scheduled to be completed and commissioned by April 2014, the
Punatsangchhu I hydropower project, by November 2016, and
the Punatsangchhu II and Mangdechhu hydropower projects by
December 2017 and September 2017, respectively.
2
Bhutans hydropower potential is estimated at 30,000 MW, of
which 23,760 MW has been estimated as being technologically
and economically feasible. At present, a little over 1,480 MW or
about 5% of that potential has been harnessed (RMA 2011a).
Source: Estimates based on data sourced for gross domestic capital formation through UNdata (data.un.org) and NSB (2012); and for real GDP growth,
through World Bank, WDI.
Figure 2.2. Bhutans GDP and Investment Growth, 19812011 (%)
20
10
0
40
30
10
60
50
20
70
Real GDP growth (annual %) Real gross domestic capital formation growth (annual, %) Gross domestic capital formation (% of GDP)
19811985 19861990 19911995 19962000 2002 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011
20
deveIomenL chuIIenge (RMA zooq).
AILhough
rIvuLesecLordeveIomenLwusLheIocusoIBhuLuns
SIxLh Ive Yeur PIun (YP), Ior 1q8;1qqz, durIng
whIch Lhe governmenL rIvuLIzed Lhe LourIsm
IndusLry,LrunsorLservIces,undroudInIrusLrucLure
und muInLenunce, und dIvesLed u sIgnIhcunL orLIon
oI ILs hoIdIngs In sLuLe enLerrIses, rIvuLe secLor
ucLIvILy remuIns IImILed (BerLeIsmunn SLIILung
zo1o, UN zoo6). The mIcro, smuII, und medIum
enLerrIses (MSMEs), whIch comrIse us much us
q8% oI Lhe rIvuLe secLor, conLInue Lo be enguged
InIow-vuIueundIow-roducLIvILyInvesLmenLssuch
us hundIcruILs und Incense, whIch conLrIbuLe very
IILLIe Lo BhuLuns LoLuI exorLs, do noL conLrIbuLe
sIgnIhcunLIy Lo Lhe nuLIonuI economy, und Lhus LyIIy
Lhe Iuck oI dIversIhcuLIon oI ILs economIc ucLIvILIes
(BerLeIsmunn SLIILung zo1o). On u osILIve noLe,
however,uWorIdBunk(zo1ob)reorLonBhuLuns
InvesLmenL cIImuLe hInLs uL u beLLer ouLIook Ior Lhe
rIvuLe secLor. MedIum-sIzed hrms In BhuLun suw
suIes Increuse by 6% und emIoymenL by z%
beLween zoo6 und zoo8. urge hrms oI 1oo or more
workersregIsLeredLheIusLesLIncreusesInsuIesund
emIoymenL.
q
EIIorLs huve been mude Lo encouruge rIvuLe
InvesLmenL und urLIcIuLIon. One such eIIorL Is un
ucLIve governmenL dIvesLILure rogrum Ior rIvuLI-
zIng muny mujor sLuLe enLerrIses. PrIvuLIzuLIon
covers ouLrIghL suIe, urLIuI mInorILy ownershI,
munugemenL conLrucLIng, Ieuse munugemenL,
commercIuIIzuLIon, und cororuLIzuLIon. SIx ubIIc
enLerrIses huve been broughL under Lhe oIIcy
oI cororuLIzuLIon, whIch meuns Lhey no Ionger
receIve grunLs or subsIdIes Irom Lhe governmenL:
KuenseICororuLIon,BhuLunBroudcusLIngServIces
CororuLIon, BhuLun TeIecom CororuLIon, BhuLun
PosL, oresLry DeveIomenL CororuLIon, und
BhuLun Power CororuLIon; und 11 oLher ubIIc
enLerrIseswereIuIIyrIvuLIzedordIvesLedbyzooq
(Punkujzooq).
3
In the Annual Report (20092010), the RMA noted in the last decade,
however, liberalizing public sector enterprises, and government
incentives in the form of tax and tari exemptions, have not yet
resulted in the desired eect of boosting growth of the private
sector with regard to overall GDP, diversication of revenue, or
employment generation (RMA 2004).
4
A few large rmssuch as Penden Cement Authority Ltd., the
Bhutan Board Products Ltd., Bhutan Carbide and Chemicals
Ltd., the Bhutan Ferro Alloys Ltd., and Bhutan Agro Industries,
Ltd.comprise the manufacturing industry. A number of small
manufacturing rms concentrate on food processing activities
and microenterprises play a prominent role in forest-based and
agro-based activities (Billetoft 2010). The sector also covers small
unregistered activities such as weaving, wall hangings (thanka),
paintings, and clay works (RMA 2012a).
BhuLuns economy, whIIe growIng, uIso
Iuces IImILed oLIons Ior creuLIng jobs. EconomIc
growLh Is drIven by Lhe ower secLor, buL neILher
IL nor ussocIuLed ower-InLensIve IndusLrIes creuLe
udequuLe jobs (WorId Bunk zooqu). EmIoymenL
generuLIonInLheubIIcsecLorIsuIsoIImILed(WorId
Bunk zooqu). GovernmenL secLor emIoymenL
recordedununnuuIuverugegrowLhoI6.%durIng
zoo-zo1o (NSB vurIous yeurs), buL Is noL suIhcIenL
Lo uccommoduLe Lhe Iurge number oI secondury
schooIgruduuLesenLerIngLheIubormurkeL.urLher
deveIomenL oI Lhe rIvuLe secLor Is essenLIuI Lo
rovIde jobs Ior Lhe growIng Iubor Iorce und Lo
mukegrowLhmoreIncIusIve.
Hence,ILIscrILIcuILo
romoLe rIvuLe secLor InvesLmenLs Lo modernIze
undImroveBhuLunsroducLIvecuucILy.
WhIIe BhuLuns InvesLmenL ruLe Is execLed
Lo remuIn hIgh und muy Increuse IurLher, mosL oI
Lhe InvesLmenLs ure IIkeIy Lo conLInue Lo go InLo
hydroower. The chuIIenge Is Lhus Lo romoLe
rIvuLe secLor InvesLmenL In oLher secLors LhuL
wIII heI dIversIIy Lhe IndusLrIuI buse, creuLe job
oorLunILIes, und romoLe IncIusIve growLh. The
dIugnosLIcs Lree resenLed In Box z.1 Iuys ouL Lhe
urouch IoIIowed In LhIs chuLer Lo exumIne Lhe
consLruInLsLoIncIusIvegrowLh.
2.1. Cost of Finance
ThecosLoIborrowIngInBhuLunIshIghreIuLIve
Lo LhuL In comuruLor counLrIes. Ls reuI domesLIc
InLeresLruLehusbeen;.q%whIIeLhuLInLheresLoI
SouLh AsIus hus runged Irom 1.q% Lo .% In zo11
(Igure z.). BhuLuns reuI domesLIc InLeresL ruLe
wus urLIcuIurIy hIgh In Lhe zooos, rungIng Irom
;.6%Lo11.6%.
$FFHVVWRDQGFRVWRIQDQFHFRQWLQXHVWREH
a critical constraint to private investment,
especially to MSMEs.
WhIIe Iurger cororuLe InvesLors do noL
seem Lo Iuce consLruInLs on IundIng, MSMEs huve
dIIhcuILy uccessIng hnunce. ThIs Is shown In Lwo
successIve surveys, Lhe hrsL by Lhe WorId Bunk
und nLernuLIonuI Inunce CororuLIon (C) In
5
In its Annual Report (20032004), the RMA observed that in the
last decade, however, liberalizing public sector enterprises, and
government incentives in the form of tax and tari exemptions,
have not yet resulted in the desired eect of boosting growth of
the private sector with regard to overall GDP, diversication of
revenue, or employment generation (RMA 2004).
21
Box 2.1. Growth Diagnostics Framework
The diagnostics approach applied in this study broadly follows the growth diagnostics framework developed by
Hausmann, Rodrik, and Velasco (2005). The growth diagnostics approach provides a consistent framework for identifying
the most critical or binding constraints to growth and for discerning the priorities and sequence of policies required
to ignite and sustain growth. The tool is an approach to economic reforms by identifying the most critical constraints
to growth and prioritizing the reform agenda. This diers from the traditional approach of providing a laundry list
of policies, as implied by the Washington consensus. Instead, the growth diagnostics approach recognizes that the
economic and political environment diers a great deal among developing countries. There is no one-size ts-all solution
to development problems and, therefore, the ordering of policy priorities contingent on country-specic circumstances
is critically important. Further, countries at an early stage of development may not have adequate capacity to implement
a wide array of policy reforms at the same time. With the diagnostics approach, reforms can start with easing a few critical
areas that truly constrain growth. The approach thus oers a practical tool for policymakers and development planners
to use in formulating country-specic growth strategies. The application of growth diagnostics is one of the eorts in the
search for a new approach to growth strategy after the Washington consensus was questioned.
The growth diagnostics approach starts with a set of proximate determinants of growth, investigates which of these
pose the greatest impediments or are the most critical constraints to higher growth, and gures out specic distortions
behind the impediments. The point of departure of the inquiry is a standard endogenous growth model in which growth
depends on the social return to accumulation, private appropriability of this social return, and the cost of nancing. Each
of these three broad determinants of growth is in turn a function of many other factors, which can be presented in a
problem tree (Box Figure 2.1.1).
The problem tree provides a framework for diagnosing critical constraints to growth. The diagnosis starts by asking what
keeps the level of private investment and entrepreneurship low. Is it low social return to investment, inadequate private
appropriability of the social return, or high cost of nancing? If it is low social return, is that due to insucient levels
of complementary factors of productionin particular, human capital, technical know-how, and/or infrastructure? If
the impediment is poor private appropriability, is it due to macro vulnerability, high taxation, poor property rights and
contract enforcement, laborcapital conicts, information and learning externalities, and/or coordination failures? If high
cost of nance is the problem, is it due to low domestic savings, poor intermediation in the domestic nancial markets,
or poor integration with external nancial markets?
Box Figure 2.1.1 Growth Diagnostics Framework
continued on next page
Low levels of private investment
and entrepreneurship
Low return to economic activity
Low social returns Low appropriability Bad international nance Poor local nance
Poor
geography
Poor
infrastructure
Low human
capital
High cost of nance
Low domestic
savings
Poor
intermediation
Government
failures
Market
failures
Macro risks:
nancial,
monetary, scal
instability
Micro risks:
property rights,
corruption, taxes
Coordination
externalities
Information
externalities:
self-discovery
22
zooq, und Lhe second by Lhe WorId Bunk (zo1ob).
RuruIIy bused mIcroenLrereneurs und Iurmers,
In urLIcuIur, consIder Ioun requIremenLs Lo be
InsurmounLubIe und huve Lo conLend wILh Lhe hIgh
cosLoIInIormuIIouns.
OI Lhe zzq hrms LhuL resonded Lo Lhe WorId
Bunk und C EnLerrIse Survey, z1.;% oI MSMEs
cIuImed LhuL uccess Lo hnunce Is u crILIcuI consLruInL.
OI hrms (smuII- und medIum-sIzed) surveyed by Lhe
WorIdBunknvesLmenLCIImuLeAssessmenL,o.%
hud Lhe sume resonse (Igure z.q). MSMEs muke
u Lhe buIk oI BhuLunese rIvuLe hrms.
SmuII-scuIe borrowers hnd Lhe rIncIuI
requIremenL Ior LrudILIonuI coIIuLeruI Lo be u
mujor hurdIe. BhuLuns coIIuLeruI-bused bunkIng
sysLem LyIcuIIy reIIes on morLguges oI LILIed reuI
roerLy or muchInery und equImenL Lo secure u
Ioun. Under u coIIuLeruI-bused bunkIng sysLem, u
borrower muy noL be ubIe Lo geL u Ioun desILe Lhe
uvuIIubIIILy oI secIuI hnuncIng schemes. PersonuI
usseLs ure Lhe mosL IrequenLIy used coIIuLeruI In
BhuLun, IoIIowed by muchInery und equImenL,
und Iund und buIIdIngs; uccounLs receIvubIe und
InvenLorIes ure noL wIdeIy used (WorId Bunk
zo1ob). OLher obsLucIes IncIude rocedures und
documenL requIremenLs such us Lhe submIssIon oI
u busIness regIsLruLIon or IIcense, und InIormuLIon
LhuL LyIcuI Iurmers und mIcroenLrereneurs huve
dIIhcuILy rovIdIng.
Thus, Iurmers und ruruIIy bused enLerrIses
uLuwILhLhehIghcosLoIInIormuIIouns.nIormuI
money Ienders, IormIng ubouL o% oI Lhe credIL
murkeL,huvebecomeLhesourceoIIounsIorbuyIng
At each node of the problem tree, the diagnosis looks for signals that would help answer the question. The two types of
diagnostic signals that one can look for are price signals and nonprice signals. Examples of price signals are returns to
education, interest rates, and cost of transport. For example, if education is undersupplied, returns to skills/education
would be high and unemployment of skilled people would be low. If investment is constrained by savings, interest rates
would be high and growth would respond to changes in available savings (for example, inows of foreign resources). If
poor transport link is a serious constraint, bottlenecks and high private costs of transport would be evident.
The use of nonprice signals is based on the idea that when a constraint binds, the result is activities designed to get
around it. For example, high taxation could lead to high informality (e.g., underreporting of income, resulting in lower
tax revenues); poor legal institutions could result in high demand for informal mechanisms of conict resolution and
contract enforcement; and poor nancial intermediation could lead to internalization of nance through business
groups. Cross-country and cross-period benchmarking and results of business surveys are useful means to gauge
whether particular diagnostic evidence signals a binding constraint for the country concerned.
Sources: Hausmann, Rodrik, and Velasco (2005); Authors.
Box 2.1. continued
Source: World Bank, WDI, accessed January 2013.
Figure 2.3. Real Domestic Interest Rates (%)
20
15
5
0
10
15
10
5
20
India Maldives Sri Lanka Nepal Bhutan Bangladesh
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
23
ugrIcuILure InuLs und coIng wILh emergencIes,
such us sIckness, deuLh, und cro IuIIure.
6
They
churge nomInuI InLeresL ruLes rungIng Irom % Lo
1o%ermonLh.
;
ThegovernmenLhusrecognIzedLhuLcoIIuLeruI-
bused commercIuI bunk Iouns wIII noL be ubIe Lo
resond Lo Lhe MSMEs credIL demunds. L hus,
LhereIore, munduLed Lhe BhuLun DeveIomenL
Inunce CororuLIon (BDC)
8
Lo enguge In mIcro,
smuII,undruruIugrIcuILureIendIng.Boxz.zrovIdes
InIormuLIon on Lhe BDC`s hnuncIuI roducLs und
LheIr corresondIng InLeresL ruLes. AILhough Lhe
BDC hus been oeruLIng sInce 1q88 us Lhe muIn
ugrIcuILuruI credIL InsLILuLIon, IL hus noL been ubIe
Lo subsLunLIuIIy meeL Lhe hnuncIng requIremenLs oI
ILsInLendedborrowers.
q
AgrIcuILureengugesubouL
;o%oIBhuLunsouIuLIon,buLLheBDCrovIdes
credIL Lo Iess Lhun zo% oI Lhe secLors 86,zo
IumIIIes. Ls shure In Lhe counLry`s LoLuI hnuncIuI
6
The monastic institutions that had substantial revenue collections
of their own also lend money, grains, and dairy produce to
creditworthy individuals or families. However, the informal
moneylenders provide the bulk of loans in the rural areas.
7
Per RMA, this is based on the Bhutan nancial inclusion survey of
household nancial practices and strategies conducted through
focus group discussion by the World Bank in 2012.
8
A Royal Charter established the BDFC on 31 January 1988 to
provide agricultural credit in the agriculture and rural areas. Under
the Financial Services Act, the RMA has the legal authority to
mandate nancial institutions to do priority sector lending (RMA
2011b).
9
The BDFC operates under the Company Registration Act 2000 and
Financial Institution Act 1992 (Pathak 2010).
Large rms
0 5 10 15
Percent of rms
20 25 30 35
Political Instability
Telecommunications
Crime, Theft, and Disorder
Electricity
Corruption
Courts
Customs and Trade Regulations
Business Licensing and Permits
Access to Land
Practices of Competitors in the Informal Sector
Inadequately Educated Workforce
Tax Administration
Labor Regulations
Tax Rates
Transport
Hiring Foreign Workers
Access to Finance
Medium rms Small rms All rms
Source: World Bank (2010b).
Figure 2.4. Constraints Identied by Firms, 2010
Box 2.2. Bhutan Development Finance
Corporations Interest Rates and
Financial Products
A
s of early 2013, the Bhutan Development and
Finance Corporation (BDFC) was the countrys only
nancial institution mandated to provide agriculture
loans and micronance loans. The BDFC provides
rural credit to farmers at 10%13% interest rates per
annum. It has 22 branches and 3 regional oces.
a
The
BDFC has three agricultural loan products: the Group
Guarantee Lending Scheme (GGLS), Small Individual
Loan (SIL), and Commercial Agricultural Loan.
The Group Guarantee Lending Scheme (GGLS). An
adaptation of the Grameen
b
microcredit model, the
GGLS is designed especially for small-scale farmers
and microentrepreneurs. No collateral is required and
the maximum loan size was originally Nu50,000 (or
about $925), which was later increased to Nu100,000
($1,850). In practice, the actual loan size is very small,
at Nu5,000 ($93). A solidarity group of 37 members
is formed and the loan is disbursed with each group
member providing a loan guarantee. Clients must
deposit Nu50 ($0.93) per month as compulsory
savings and 5% of every loan is retained and deposited
in a compulsory savings account. The client can also
participate in a voluntary savings account and other
schemes.
24
usseLswusubouLIessLhun%usoIDecemberzoo8
(PuLhuk zo1o). The BDC oIIers u IImILed runge
oI hnuncIuI roducLs Lo ILs LurgeL cIIenLeIe. WhIIe
uvuIIubIIILy oI secIuI hnunce schemes muy be u
good sLurL, IL does noL necessurIIy guurunLee beLLer
credILuccessIbIIILy.
The resL oI LhIs secLIon exumInes Lhe IucLors

InuencIng Lhe cosL und uccess oI hnunce und
wheLher Lhey ure u consLruInL Lo boosLIng rIvuLe
secLorInvesLmenL.
Gross domestic savings remain inadequate to
support the growth of investments, pushing
XSWKHFRVWRIERUURZLQJ
BhuLun generuIIy hus IuvorubIe IeveIs oI gross
domesLIc suvIngs comured wILh Lhose oI ILs SouLh
AsIuncomuruLors(Igurez.).However,BhuLuns
grossdomesLIcsuvIngssLurLedLodIusLhecounLry
begun Lo IeeI Lhe ImucL oI Lhe gIobuI hnuncIuI crIsIs
In zoo8, IummeLIng Lo ubouL 16.1% In Lhe sume
yeur. BhuLun sLurLed Lo recover In zooq und zo1o,
buLwussLIIIbeIowLhere-crIsIsIeveI.
A comurIson oI BhuLuns suvIngs und
InvesLmenL ruLes IndIcuLes LhuL Lhe InvesLmenL
ruLe ouLsLrIs Lhe domesLIc suvIngs ruLe. BhuLuns
domesLIc suvIngs comrIsed onIy .;% oI GDP
whIIe InvesLmenL wus z.% In zo1o (Igure z.6).
A mujor shure oI Lhese InvesLmenLs Is InLended Ior
Lhe hydroower secLor, Lhe mujorILy oI whIch hus
been underLuken by Lhe governmenL.
1o
ncreused
governmenL sendIng muy huve some crowdIng
ouL eIIecL on rIvuLe InvesLmenL us weII, gIven Lhe
IImILed domesLIc IundIng sources. ow domesLIc
suvIngs vIs-u-vIs hIgh InvesLmenL demund couId
ush u Lhe IeveI oI InLeresL ruLes, uLLIng uwurd
ressure on Lhe cosL oI borrowIng Iuced by
rIvuLe hrms.
,QHIFLHQWGRPHVWLFQDQFLDOLQWHUPHGLDWLRQ
FRQWULEXWHVWRWKHKLJKFRVWRIERUURZLQJIRU
SULYDWHUPV
A good IndIcuLor Ior ussessIng Lhe eIhcIency oI
Lhe bunkIng secLor Is Lhe sreud beLween IendIng
und deosIL ruLes. The wIder Lhe sreud, Lhe more
10
Bhutans Economic Development Policy document acknowledges
that economic growth is largely nanced by external aid, and that
the biggest impetus to the economic growth is still provided by
foreign aid and large-scale hydropower projects (GNHC 2010: 1, 3).
Under the GGLS scheme, 1,356 groups were formed
from 1999 to 2003, with a total loan disbursement
of Nu4.2 million ($77,778) and total savings of Nu1.4
million ($25,925) in the same period. The GGLS product
has not been performing as expected in Bhutan. This
could be due to the wide dispersal of the countrys
small population, inadequate social mobilization,
greater importance given to the mortgage, and lack
of a specialized unit to administer the GGLS. The BDFC
has recently initiated testing a joint liability model
under group guarantee in ve of its branches.
Small Individual Loan. The BDFC provides SILs of less
than Nu100,000 ($1,850), with interest rates of 12%
14% per annum. The BDFC requires land or a house
as collateral. The amount of the loan is equivalent
to the value of the mortgaged property. Loan terms
and maturity vary with the purpose of the loan. For
example, a loan for potato has a 1-year maturity but a
loan for an apple orchard can be repaid in 3 years with
quarterly installments.
If a borrower achieves a good performance status,
meaning the loan taken is fully paid back, the
borrower is eligible for commercial agriculture loans
with the same interest rate. The SIL has the largest
share of the BDFC agriculture credit and micronance
program.
Commercial Agricultural Loan. This product was
designed primarily for commercial farmers and
clients who have graduated from the SIL category.
The loan amount is 1.5 times larger than the value of
the mortgaged property. Loans are below Nu100,000
($1,850) and the interest rate ranges from 13% to15%
per annum.
Mobile Banking. This is not a separate product but a
technique the BDFC uses to deliver nancial services
directly to households. BDFC sta members collect
loan application forms, loan installments, and savings
at a xed venue on a xed monthly date. This does not
entail the use of cellular mobile phone in banking.
Note: The exchange rate used here is $1:Nu54.
a
BDFC. http://www.adfiap.org/members/BDFC/BDFC.htm, accessed
14 January 2013.
b
Muhammad Yunus introduced the Grameen lending technique to provide
microcredit to poor women in Bangladesh in 1976. Under the Grameen
Bank lending technique, small credit amounts are given to identied
groups of low-income (poor) borrowers without requiring collateral, or
fulllment of any legal instrument. The group loan is secured by a group
guarantee, that is, a joint liability scheme (which was later dispensed with).
Currently, the Grameen Bank has 8.35 million borrowers, 97% of which are
women. Its loan recovery rate is reported at 97%.
Source: Pathak (2010).
Box 2.2. continued
25
Source: ADB, Statistical Database System, accessed 18 January 2013.
Figure 2.5. Gross Domestic Savings of South Asia, 19852010 (% of GDP)
0
30
20
5
45
40
35
25
15
10
50
India Sri Lanka Nepal Bhutan Bangladesh
1985 1990 1995 2000 2002 2001 2003 2004 2005 2006 2007 2008 2009 2010
Source: ADB. Statistical Database System, accessed 18 January 2013.
Figure 2.6. Bhutans Savings and Investment Rates (% of GDP)
Gross domestic savings Gross capital formation
1985 1990 1995 2000 2002 2001 2003 2004 2005 2006 2007 2008 2009 2010
0
40
30
10
60
50
20
70
Source: IMF, International Financial Statistics, accessed January 2013.
Figure 2.7. Spread between Lending and Deposit Rates, South Asia (%)
8
4
0
8
4
12
Maldives Sri Lanka Nepal Bhutan Bangladesh
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
26
IneIhcIenL Is Lhe hnuncIuI InLermedIuLIon, ImIyIng
u hIgher cosL oI borrowIng und Lhus ImedIng
rIvuLeInvesLmenL.ThesreudbeLweenIendIngund
suvIngs ruLes In BhuLun hus been generuIIy sLubIe
(Igurez.;,.z)und,exceLInzoo1undzoo,hus
beenhIgherLhunLheInLeresLruLesreudsInLheresL
oI Lhe regIon. The InLeresL ruLe sreuds In BhuLun
huvenurroweduIILLIeInrecenLyeurs,Irom1o.%In
zoo8Loq.%Inzo11,onuccounLoIsLrongersuvIngs
mobIIIzuLIonundressureLoreduceIendIngruLesIn
vIewoImorecomeLILIon.
SInce 1qqq, Lhe RMA hus IuIIy IIberuIIzed Lhe
InLeresLruLesIorboLhdeosILsundIouns,LoromoLe
more comeLILIon und Imrove Lhe InLerIuy oI
murkeL Iorces. ThIs hus uIIowed hnuncIuI InsLILuLIons
Lo deLermIne LheIr own deosIL und IendIng ruLes.
However, Lhe eIIecL oI Lhe dereguIuLIon oI InLeresL
ruLesIn1qqqhusbeendubIous.AurLIromLhesIIghL
ImrovemenLs oI Lhe sreud, boLh deosILs und
IendIng ruLes remuIn sLIcky und IendIng ruLes ure
sIgnIhcunLIy hIgher Lhun deosIL ruLes, suggesLIng
Lhe Iuck oI comeLILIon or even coIIusIon umong
Lhe bunks. The RMA noLed LhuL such sLIckIness
In Lhe InLeresL ruLes muy be ImervIous Lo growLh,
InuLIon, und overuII IIquIdILy condILIons oI Lhe
economy (RMA zo11b)
.
Ive domesLIc bunks ure
oeruLIng(1) Bunk oI BhuLun Ld., (z) BhuLun
DeveIomenLBunkLd.,()BhuLunNuLIonuIBunk
Ld., (q) Druk PNB Ld., und () T-Bunk Ld. The
IusL Lwo begun oeruLIons onIy In zo1o. AILhough
LhenewbunksureIIkeIyLomukeLhecredILmurkeL
more comeLILIve und muy heI brIng down Lhe
sreuds, Lhe BhuLunese credIL murkeL remuIns u
IendersmurkeLwhereIenderscunchurgewhuLever
ruLesLhemurkeLcunbeur.
5HFHQW QDQFLDO UHIRUPV DLPHG DW
VWUHQJWKHQLQJ WKH QDQFLDO V\VWHP DQG
SURPRWLQJFRPSHWLWLRQDQGHIFLHQF\LQWKH
EDQNLQJVHFWRU
BhuLun`s hnuncIuI secLor hus undergone
severuI reIorms sInce Lhe enucLmenL oI Lhe RMA
AcL In 1q8z und ILs umendmenL In zo1o. The mosL
recenL und sIgnIhcunL hnuncIuI reIorms IncIude Lhe
InuncIuIServIcesAcLoIzo11,whIchemowersLhe
RMA Lo deuI wILh hnuncIuI InnovuLIons Lo meeL Lhe
dIverse hnuncIuI needs oI Lhe rIvuLe secLor und Lhe
generuI ubIIc. Box z. rovIdes deveIomenLs In
Lhe hnuncIuI secLor reIorms In BhuLun. The RMA
coIIuboruLed wILh hnuncIuI InsLILuLIons Lo Iower
bunk churges Ior hnuncIuI LrunsucLIons. The RMA`s
Issuunce In zo1o oI commercIuI bunkIng IIcenses
Box 2.3. Financial Sector Reforms in Bhutan
F
ollowing the enactment of the Financial Services
Act of 2011, the Royal Monetary Authority (RMA)
initiated drafting several regulations related to the
nancial sector. The rst set of regulations was aimed
at nancial service providers related to insurance
and securities businesses, such as fund management
companies, insurance brokers, securities brokers, and
investment advisers. The second set of regulations
was related to corporate governance applicable to
all nancial institutions, any other licensees licensed
by the RMA, and all companies listed on the Royal
Securities Exchange of Bhutan Limited.
Other key regulations that the RMA has drafted to
strengthen the nancial system and make it more
inclusive include Micronance Regulations, E-Money
Issuers Regulations, Agent Regulations, Fund
Management Regulations, Anti-Money Laundering
Regulations, and the establishment of a fund
management company and a re-insurance company
in Bhutan (RMA 2011a). The RMA has also adopted the
twin strategy of creating a better nancial architecture
and promoting nancial education and training to make
the nancial system more ecient and dynamic (RMA
2012c). Other major nancial reforms prior to 2012
include (1) the issuance of regulations for branchless
banking, (2) delegation of the release of foreign
exchange for current transactions to commercial banks,
(3) launching of Bhutans credit information bureau,
(4) implementation of the National Electronic Fund
Transfer System and Bhutan Financial Switch System,
(5) introduction of base rates for nancial institutions,
(6) promotion of nancial literacy, and (7) drafting of a
nancial inclusion policy for Bhutan.
In 2012, major nancial reforms initiated include
(1) implementation of the RMA Short Term Liquidity
Adjustment Window Facility to provide short-term
liquidity to banks that are decient in liquidity; (2)
issuance of the Circular on Foreign Currency explicitly
stating the Indian rupees status as a foreign currency
to address the growing external imbalances with
India; (3) for the stock exchange, implementation of
an integrated system that enables online trading;
provides real-time market information for investors;
and consists of an automated trading system, an
electronic depository system, a clearing and settlement
system, a broker back-oce system, an initial public
oering engine, and a market surveillance system; (4)
installation of a software system to monitor trade ows;
(5) establishment of a training institute for banking
and nance; and (6) establishment of a central registry
to encourage secured transactions and ease collateral
requirements for loans.
Sources: RMA (2011a, 2012a, 2012c).
27
Lo Lhe Lwo new bunks (Druk PNB und T-Bunk)
InLroduced more comeLILIon InLo Lhe emergIng
BhuLun hnuncIuI sysLem.
BhuLun`s hnuncIuI InsLILuLIons exhIbILed
reIuLIveIy sLrong resIIIence us Lhey munuged
Lo render robusL erIormunce umId Lhe gIobuI
economIc sIowdown. DurIng zooqzo11, Lhe
cuILuI-Lo-usseLs ruLIo oI BhuLuns bunks hovered
uboveq%onuveruge,whIchIsuboveLhemInImum
sLundurd (8%) seL by Lhe Bunk Ior nLernuLIonuI
SeLLIemenLs. The soundness IndIcuLors oI Lhe
bunkIng secLor uIso Imroved us domesLIc bunks
enhunced LheIr LechnIques Ior Ioun screenIng,
Ioun recovery, und orLIoIIo munugemenL. The
nonerIormIngIounruLIo(Igurez.8)decIInedIrom
18.%InzooqLo;.8%Inzo1z(RMAzo1zu,zo1zb).
RMA reIorms und new reguIuLIons ueur Lo huve
conLrIbuLedLoLheImrovedrIskmunugemenLund
bunkIngresIIIence.
'HVSLWH WKH YLVLEOH LQFUHDVH LQ GRPHVWLF
credit during 2008 and 2010, as a percentage
of GDP, domestic credit remains low
compared with that in other countries in the
region.
BhuLun`s domesLIc credIL Increused sIgnIhcunLIy
durIng zooqzo11, rIsIng Lo un uveruge qo.;% oI
GDP, u Irom 1z.8% durIng zoo1zoo8. PrIor Lo
zoo1,LheshureoIdomesLIccredILInGDPwusvery
Iow,uverugIngq.8%durIng1q8zooo.TheoveruII
growLhInrIvuLesecLorcredILhusbeendueLoLhe
exunsIon oI Iouns Ior buIIdIng und consLrucLIon
(whIch muke u zq% oI Lhe commercIuI bunks
Ioun orLIoIIo), IoIIowed by ersonuI und oLher
Iouns (1q%), munuIucLurIng (1q%), und Lrude und
commerce (1%), wILh Lhe resL uIIocuLed Lo oLher
secLors (RMA zo1zu). DomesLIc bunks conLInue Lo
rovIde Iouns Lo munuIucLurIng hrms, muInIy Lo
severuI exorL-orIenLed hrms, whIch huve sound
cush ows. n zo11, Lhe Ioun orLIoIIo oI commercIuI
bunks shows LhuL Lhe buIk oI credIL exunsIon Is
due Lo IendIng Lo Lhe buIIdIng und consLrucLIon
secLors, Ior ersonuI (consumer) Iouns, und Lo bIg
munuIucLurIng hrms (RMA zo1zu).
DesILe Lhe sIgnIhcunL Increuse durIng zoo8-
zo11, domesLIc credIL us u ercenLuge oI GDP
In BhuLun remuIns one oI Lhe IowesL umong Lhe
regIonuI economIes (Igure z.q). n zo11, BhuLuns
domesLIccredILwusrecordeduLqq.z%oIGDP,nexL
LoSrIunku(q6.z%).
ThereIuLIveIyIowIeveIoIdomesLIccredILurLIy
reecLs oor hnuncIuI InLermedIuLIon. Bunks ure Lhe
chIeI source oI hnuncIng In BhuLun, us Lhere ure very
Iew uILernuLIve hnuncIng InsLrumenLs und uccess Lo
InLernuLIonuI hnunce Is negIIgIbIe. RecognIzIng such
druwbucks, Lhe TenLh YP IdenLIhes broudenIng
und deeenIng oI Lhe hnuncIuI secLor us u key
deveIomenLchuIIenge.
Access Lo credIL Is u crILIcuI consLruInL Lo
smuII-scuIe borrowers. SmuII-scuIe borrowers,
such us MSMEs, Iurmers, und oLher ruruIIy bused
borrowers, hnd IL dIIhcuIL Lo obLuIn IormuI Iouns.
medImenLsIncIuderoceduruIunddocumenLury
requIremenLs und submIssIon oI ucceLubIe
coIIuLeruI. Hence, Lhe smuII-scuIe borrowers Iose
ouLLoLhemoreesLubIIshedundIurgercororuLIons,
whIch ure Lhe bunks reIerred cIIenLs. The WorId
NPL = nonperforming loan.
Sources: RMA (various years), RMA (2012b).
Figure 2.8. Nonperforming Loans of Financial Institutions (Nu million)
2006 2007 2008 2009 2010 2011 2012
0 0
30,000
20,000
10,000
40,000
50,000
60,000 20
18
16
14
12
10
8
6
4
2
Total NPL Total loans Ratio
L
o
a
n

a
m
o
u
n
t
R
a
t
i
o

(
%
)
28
BunkundC(zooq)EnLerrIseSurveyreorLsLhuL
;% oI BhuLun`s surveyed hrms hud noL uIIed Ior
uIounInzoo8uILhoughLheyneededone.OILhese
hrms, 1;% dId noL uIy becuuse Lhey consIdered
uIIcuLIon rocedures Loo comIex und dIIhcuIL Lo
undersLund.
The BDC, whIch wus seL u In 1q88 Lo
ussIsL mIcro, smuII, und ruruI ugrIcuILure IendIng,
comrIses buL u smuII urL oI BhuLun`s hnuncIuI
sysLemundhusnoLbeenubIeLogrowusIusLusoLher
hnuncIuI InsLILuLIons. AL Lhe end oI June zoo8, Lhe
BDC heId 8.o% oI Lhe hnuncIuI secLor`s usseLs und
1z.8% oI Lhe Ioun orLIoIIo, umounLIng Lo Nu.
bIIIIon ($;;o mIIIIon) und Nu1q.oz bIIIIon ($q;
mIIIIon),resecLIveIy.
11
AILhoughLheBDCuIonehus
qq.z% oI LoLuI InvesLmenL In ugrIcuILure, Lhe shure
oI ugrIcuILure In Lhe LoLuI InvesLmenL oI hnuncIuI
InsLILuLIons remuIns onIy ubouL z%. The secLoruI
dIsLrIbuLIon oI uII hnuncIuI InsLILuLIons` InvesLmenL
orLIoIIos (PuLhuk zo1o) IndIcuLes LhuL Lhe IurgesL
shure oI Lhe credIL conLInues Lo go InLo buIIdIng
und consLrucLIon (q1%), IoIIowed by ersonuI und
oLherIouns(z;%),munuIucLurIng(zz%),Lrudeund
commerce (8%), und ugrIcuILure (wILh Lhe IowesL
shure,uLz%).
060(V DFFHVV WR FUHGLW LV OLPLWHG E\
institutional and infrastructure shortfalls.
n uddILIon Lo overuII credIL uvuIIubIIILy,
IImILeduccessLocredILmuyuIsosLemIromIendIng
11
Using the 2008 exchange rate of Nu43.50:$1, based on World Bank,
WDI.
InsLILuLIons` conservuLIve urouch Lo hnuncIuI
InLermedIuLIonundweukcuucILIes,suchusuIuckoI
IumIIIurILy wILh eIIecLIve Ioun recovery LechnIques,
InsuIhcIenLIy LruIned sLuII, u IImILed number oI
urorIuLe hnuncIuI roducLs und servIces, und
sLrucLuruI concerns such us dIIhcuIL geogruhy und
wIde dIsersuI oI Lhe ouIuLIon. n BhuLun, hnuncIuI
InsLILuLIons ubIIILy Lo ussess borrowers credIL
worLhIness muy uIso be consLruIned by InudequuLe
InsLILuLIonuI suorL Ior credIL InIormuLIon. n
generuI, bunks wIIIIngness Lo Iend deends on Lhe
quuIILy oI InIormuLIon LhuL Is uccessIbIe Lo Lhem
und LheIr ubIIILy Lo undersLund und munuge rIsks
In Lhe credIL murkeLs. ImILed credIL InIormuLIon
ubouL smuII-scuIe borrowers conLrIbuLes Lo Lhe
Iow IeveI und hIgh cosLs oI credIL uvuIIubIe Lo
Lhem, us hnuncIuI InsLILuLIons ure conservuLIve In
IendIng Lo Lhe smuII-scuIe borrowers und churge
hIgher InLeresL ruLes Lo comensuLe Ior Lhe Iuck oI
InIormuLIon und erceIved rIskIness oI borrowers
who muy Iuck u credIL hIsLory. To uddress LhIs, Lhe
RMA Iuunched BhuLun`s hrsL credIL InIormuLIon
bureuuInSeLemberzooq.
The dIIhcuIL mounLuInous LerruIn und oor
connecLIvILy In ruruI ureus uIso conLrIbuLe Lo hIgh
overheud und LrunsucLIon cosLs und Ieud Lo u hIgh
cosL oI borrowIng und oor credIL uccessIbIIILy
In remoLe ureus. n zo11, BhuLun hud onIy z.1q
commercIuI bunk brunches er 1,ooo squure
kIIomeLers.
1z
UndersLundubIy, mosL commercIuI
bunks (us weII us ensIon Iunds und Insurunce
12
Based on the International Monetary Funds Financial Access
Survey database, accessed February 2013.
Figure 2.9. Domestic Credit Provided by the Banking Sector, South Asia (% of GDP)
10
30
10
70
50
90
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
29
comunIes) ure concenLruLed In urbun ureus wILh
commercIuIundIndusLrIuIborrowersusLheIrmuIn
cIIenLeIe.nconLrusL,LheBDC,whIchIsmunduLed
by Lhe governmenL Lo hnunce ugrIcuILure und oLher
rIorILy secLors, Is conIronLed wILh geogruhIc
chuIIengesLhuLhumerILseIIorLsLoreuchILsLurgeL
cIIenLeIe.ThecosLoIIendIngIsIowerIorLheIurger
bunksoeruLIngInurbunureusLhunIorLheBDC.
To serve u remoLe cIIenLeIe, Lhe BDC und
oLher bunks need Lo Imrove LheIr oeruLIng und
udmInIsLruLIvecuucILIes,comeuwILhInnovuLIve
hnuncIuI roducLs und servIces, und deveIo more
eIIecLIve ouLreuch LechnIques, such us mobIIe
bunkIng LechnoIogy. The RMA hus suggesLed
LhuL hnuncIuI InsLILuLIons deuIIng wILh uII secLors
synchronIze LheIr oIIcIes und coordInuLe Lo
Imrove uccess Lo hnunce. mroved coordInuLIon
oI Lhe ugrIcuILuruI credIL InsLILuLIons wILh Lhe
governmenLs renewubIe nuLuruI resources secLors
In uII dIsLrIcLs hus greuL oLenLIuI Lo enhunce Lhe
rohLubIIILy und vIubIIILy oI ugrIcuILuruI hnuncIng
ucLIvILIes.
1
$FFHVV WR LQWHUQDWLRQDO QDQFLDO PDUNHWV LV

HPHUJLQJEXWLVVWLOOOLPLWHG
CommercIuI borrowIng ouLsIde BhuLun wus
revIousIy muInIy IImILed Lo borrowIng Irom ndIu
Lo hnunce hydroower rojecLs. DesILe growIng
demund Ior InvesLmenL Iunds In BhuLun, domesLIc
credILLoLherIvuLesecLorhusdecIInedbyq.q%Lo
$1q.6 mIIIIon In zooq Irom zoo8, und by unoLher
1z.%Lo$1z.8mIIIIonInzo1o(RMAzo11c).
Due Lo IImILed credIL uvuIIubIIILy In BhuLun,
more borrowIng Ior domesLIc InvesLmenL needs
hus come Irom exLernuI Lhun Irom domesLIc
sources. To meeL Lhe growIng credIL demund und
rovIde more oorLunILIes Ior rIvuLe secLor
deveIomenL, Lhe BhuLun MInIsLry oI Inunce
uIIowed exLernuI commercIuI borrowIngs (ECBs)
by Lhe rIvuLe secLor In ArII zo1o. The ECB
guIdeIInes, however, Imose some IImILuLIons
on such borrowIng, IncIudIng (1) ECBs wIII noL
be guurunLeed by Lhe GovernmenL oI BhuLun;
(z) hnuncIuI InsLILuLIons, unIncororuLed comu-
nIes, IndIvIduuIs, LrusLs, nongovernmenL orgunI-
zuLIons,undcooeruLIvescunnoLuvuIIoIECBs;und
()ECBscunnoLbeusedIorInvesLIngInLhecuILuI
murkeL, ucquIrIng u comuny, InvesLIng In reuI
13
The renewable natural resources sectors comprise agriculture,
livestock, and forestry (RMA 2011b).
esLuLe, ucquIrIng Iund, rovIdIng workIng cuILuI,
reuyIngdomesLIcIouns,undmeeLIngoLhergeneruI
cororuLeuroses.
n summury, Lhe cosL oI hnunce Is u consLruInL.
The reuI InLeresL ruLes In BhuLun ure hIgher Lhun
Lhose In oLher counLrIes In Lhe regIon und LhIs
Imedes rIvuLe secLor ucLIvILy. Moreover, uccess
Lo InLernuLIonuI murkeLs Ior exLernuI commercIuI
borrowIng Is IImILed whIIe reguIuLIons und
guIdeIInes on exLernuI commercIuI borrowIng ure
exLensIve.ThIs,combInedwILhLheIucLLhuLBhuLun
hus onIy hve domesLIc commercIuI bunks, mukes Lhe
counLryuIendersmurkeLLhuLcunreIerLoIendLo
Iurge, exorLed-orIenLed munuIucLurIng hrms. Such
u murkeL severeIy IImILs Lhe uvuIIubIIILy oI credIL
Ior MSMEs, whIch uccounL Ior q8% oI Lhe rIvuLe
secLor. ThIs ImInges on Lhe ubIIILy oI Lhe rIvuLe
secLor Lo venLure und dIversIIy InLo new economIc
ucLIvILIes. Access Lo und Lhe hIgh cosL oI hnunce Is
Lhus u crILIcuI consLruInL IucIng BhuLuns eIIorLs Lo
romoLerIvuLeInvesLmenLouLsIdehydroower.
2.2. Social Returns to Investments
owIeveIsoIrIvuLeInvesLmenLundeconomIc
vIbruncymuybeuLLrIbuLedLoInudequuLereLurnsLo
economIcucLIvILy.ThesereLurnsuredeLermInedby
Lhe socIuI reLurns (benehLs Lo socIeLy) Lo InvesLmenL,
dIscussedInLhIssecLIon,undbyLheruLeoIrIvuLe
urorIubIIILyoIreLurns,whIchIsdIscussedInLhe
IoIIowIng secLIon. The socIuI reLurns ure Inuenced
by Lhe rovIsIon oI key suorLIng InuLs LhuL
enhunce Lhe roducLIvILy oI rIvuLe InvesLmenL.
Key suorLIng ubIIc InvesLmenLs IncIude Lhose
In humun cuILuI, InIrusLrucLure, und oLher ubIIc
servIces.TheyrovIdebusInesseswILhuroducLIve
workIorce, eIhcIenL LrunsorL, Iow-cosL und reIIubIe
energy, und eIIecLIve LeIecommunIcuLIons, umong
oLherLhIngs.
BhuLuns socIuI reLurns Lo InvesLmenL ure
on ur wILh Lhose In NeuI buL beIow Lhose oI ILs
oLher SouLh AsIun neIghbors, uILhough BhuLuns
socIuI reLurns huve Imroved In Lhe IusL z decudes
(Igure z.1o). There ure severuI ossIbIe reusons
Ior LhIs, IncIudIng Iow ubIIc InvesLmenL or ubIIc
InvesLmenLs LhuL ure oorIy dIrecLed und LhereIore
rovIde weuk suorL Lo rIvuLe InvesLmenL. The
IoIIowIng subsecLIons exumIne Lhese Issues In
reIuLIonLohumuncuILuIundInIrusLrucLure.
30
2.2.1. Human Capital
,QYHVWPHQWLQKXPDQFDSLWDOLVKLJKEXWWKH
TXDOLW\RIWKHOHDUQLQJHQYLURQPHQWLVZHDN
nrecenLyeurs,BhuLunhussoughLLosLrengLhen
humun cuILuI by exundIng educuLIon rovIsIon.
The hrsL 11 yeurs oI educuLIon, Irom rImury Lhrough
Iower und mIddIe secondury schooI, ure Iree, und
uccess Lo hIgher secondury und LerLIury educuLIon
Is Iree Ior sLudenLs who meeL sLuLed ucudemIc
grudes(Sherubzooq).ThegovernmenLoeruLes81
rImuryundz8seconduryschooIs,suIemenLed
by zq rIvuLe und z61 communILy schooIs. AL Lhe
LerLIury IeveI, BhuLun hus 1 unIversILy, ; vocuLIonuI
schooIs, und ;q; nonIormuI cenLers oI IeurnIng
(BerLeIsmunnSLIILungzo1o).
BhuLuns exendILure on educuLIon, uL 6.;%
oI GDP, wus Lhe hIghesL ruLe In Lhe regIon In zo1o
(Igure z.11). Under Lhe TenLh YP, educuLIon,
heuILh, und humun resource deveIomenL uccounL
IormoreLhunuquurLeroILheLoLuIIunbudgeL.n
uddILIon, LruInIng und cuucILy buIIdIng rogrums
ure rovIded by mInIsLrIes, IocuI governmenLs, und
dIsLrIcL und bIock udmInIsLruLIons. BIIuLeruI und
muILIIuLeruI urLners uugmenL Lhe governmenLs
budgeL wILh InvesLmenLs und LurgeLed rogrums.
MuchoILheexunsIonIneducuLIonIsrecenLundIL
muyLukesomeyeursIorLhegovernmenLseducuLIon
eIIorLs Lo Luke IuII eIIecL. The Increused Iocus on
educuLIonhusruIsedenroIImenLruLes.NeLrImury
schooIenroIImenLIncreusedIrom61%Lo88%InLhe
Source: ADB (2012c).
Figure 2.11. Expenditure on Education (% of GDP)
0
4
2
8
6
10
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: Social returns are the ratio of the real growth rate of gross domestic product to gross capital formation as a percentage of gross domestic product.
Source: Based on data from ADB (2012c).
Figure 2.10. Social Returns to Investments (%)
1995 1990 2000 2005 2010
Bhutan Bangladesh India Nepal Sri Lanka
0
10
20
30
40
50
31
decude Lo zo11. NeL secondury enroIImenL rose by
unevengreuLermugnILude,Iromzz%Loq%durIng
LhesumeerIod(WorIdBunk,WD).
DesILeLheIncreusedexendILure,LhequuIILy
oI educuLIon remuIns Iow. A recenL ussessmenL by
Lhe RoyuI EducuLIon CouncII (REC) noLed u wIde
gu beLween Lhe currenL und Lhe desIred sLuLe
In quuIILy oI educuLIon ouLcomes und rocesses
(REC und EducuLIonuI nILIuLIves zoo8). SLudenLs
erIorm beIow execLuLIons oI LheIr grude IeveI In
boLh busIc und udvunced ucudemIc skIIIs und Iuck
busIc communIcuLIon und unuIyLIcuI skIIIs. Box z.q
summurIzes Lhe reorL`s hndIng. As un ouLcome
oI Lhe quuIILy robIem und u Iegucy oI under
rovIsIon,BhuLunhusLheIowesLuduILIILerucyruLe
undsecondIowesLyouLhIILerucyruLeInSouLhAsIu
(Igurez.1z).
The BhuLun CouncII oI Secondury EducuLIon
AssessmenL Lruces Lhe rooL cuuse oI Lhe quuIILy
robIem Lo Lhe IounduLIon oI educuLIonLhe
rImury IeveI. Gus In uchIevemenL revuII In Lhe
key ureus oI Iunguuge und muLhemuLIcs. DesILe
consIderubIe InvesLmenL In currIcuIum reIorm
und Leucher LruInIng, meun scores In IILerucy
umong grude 6 uIIs, Ior exumIe, Imroved onIy
murgInuIIyInrecenLyeurs(BCSEAzo11).
1q
The quuIILy Issue Is uIso dIrecLIy IInked Lo Lhe

comeLencyundmoruIeoILeuchers.AnRECsLudy
conhrmed LhuL Leuchers ure dehcIenL In subjecL
knowIedge und In edugogy (TubIe z.1). n Lhe
AnnuuISLuLusoISLudenLeurnIng,LheRECreorLed
14
From 2003 to 2011, the score increased from 26.00 to 26.81 out of
50.00.
Box 2.4. Quality of Education in Bhutan
T
he following points characterize education in
Bhutan:
% The overall level of performance of most students is
low, just above a passing grade.
% Many students do not possess the minimum
expected competencies in core subjects at their
grade level.
% A majority of students are unable to understand
core concepts and apply knowledge to real life
situations.
% Outcomes between schools vary. Students
in private schools perform best and those in
community primary schools perform worst.
% Graduates lack basic analytical and communications
skills and the attitudes needed as entry-level
professionals.
% Teaching consists mostly of teachers instructing
students in the textbook content without enabling
them to comprehend and demonstrate their
learning.
% Teacher-led chalk-and-talk, lack of proper
instructional resources, and lack of real
measurement of learning are observed in most
classrooms.
% Schools lack good quality processes for developing
teachers capacity, the autonomy and resources to
initiate academic improvement, and the essential
physical infrastructure to support learning.
% The support systems for schools need considerable
strengthening in areas of teacher preparation,
curriculum standards and resources, and incentives
for quality.
Source: CERD (2009).
Figure 2.12. Literacy Rates
Sri Lanka (2010)
Nepal (2009)
Maldives (2006)
India (2006)
Bhutan (2005)
Bangladesh (2005)
0 20 40 60 80 100
a. Adult Literacy Rate (% of population 15+)
Source: ADB, Statistical Database System, accessed January 2013.
Sri Lanka (2010)
Nepal (2010)
Maldives (2007)
India (2007)
Bhutan (2007)
Bangladesh (2010)
0 20 40 60 80 100
b. Youth Literacy Rate (% of population 15-24)
32
Ior grudes q, 6, und 8 LhuL Lhe IeveI oI IeurnIng In
BhuLunwusIowerLhunuverugeInLernuLIonuIIeveIs
(REC und EducuLIonuI nILIuLIves zoo8). However,
BhuLunssLudenLsIeveIoIIeurnIngwushIgherLhun
LhuL oI sLudenLs In ndIun governmenL schooIs, buL
IowerLhunLhuLInrIvuLeschooIs.
1
The REC Iound evIdence oI beLLer ouLcomes,
hIgher quuIILy rucLIces, und InnovuLIve InILIuLIves
In ockeLs wILhIn BhuLun. Some rIvuLe und
governmenL schooIs demonsLruLed beLLer sLudenL
erIormunce,beLLerInsLrucLIonuIIeudershIbyLhe
rIncIuI, und Imroved LeuchIng rucLIces Lhun
wus Lhe cuse In oLher schooIs (CERD zooq). WhIIe
LhIs uugurs weII Ior Lhe counLry, such Imroved
erIormunceneedsLobecomeLhenormInmosL,II
noLuII,IeurnIngInsLILuLIonsInLhecounLry.
%KXWDQVODERUIRUFHODFNVWKHHGXFDWLRQDQG
VNLOOVWKHPDUNHWUHTXLUHV
The Iegucy oI InudequuLe educuLIon LrunsIuLes
InLo Iow humun cuILuI umong Lhe workIorce.
AbouL 6q% oI workers durIng zooqzo11 hud noL
comIeLed rImury educuLIon (TubIe z.z). They
IurgeIyconsIsLoIworkersInugrIcuILureundIoresLry,
whIchuccounLIoruImosL6o%oILheLoLuIworkIorce
(MHRvurIousyeurs).
The Iuck oI skIIIed workers Is u sIgnIhcunL
consLruInL Ior busInesses. AbouL 11% oI hrms
surveyed by Lhe WorId Bunk und C consIdered
Lhe counLrys InudequuLeIy educuLed workIorce u
mujor consLruInL Lo LheIr oeruLIons. ThIs wus Lhe
LhIrd mosL ImorLunL consLruInL uILer uccess Lo
hnunce und Lux ruLes (WorId Bunk und C zooq).
A governmenL survey uL Lhe hgure sIIghLIy hIgher,
uL 1% (Igure z.1). AnoLher survey Iound o%
oI Iurge und zq% oI medIum hrms consIder skIIIs
u consLruInL, wILh 1o% oI hrms consIderIng IL Lhe
bIggesLobsLucIeLheyIuce(WorIdBunkzo1ob).
Even Lhe educuLed youLh, who comrIse Lhe
mujorILy oI Lhe unemIoyed, Iuck Lhe emIoyubIe
skIIIs,knowIedge,oruLILuderequIredbyLheIubor
murkeL (BIIIeLoIL zo1o). A LruIned workIorce Is
needed Ior enLerrIses Lo be comeLILIve. ReIorms
Lo Lhe educuLIon sysLem ure needed, LhereIore, Lo
deveIo u currIcuIum reIevunL Lo meeLIng Lhe skIIIs
requIredbyLherIvuLesecLor(WorIdBunkzo1ob).
15
Assessment Survey Evaluation Research Center,
www.asercenter.org
Source: MLHR (2010).
Figure 2.13. Perceived Reasons Hampering the
Growth of Business
0% 5% 10% 15% 20% 25% 30%
Privately owned establishments
Government owned establishments
Lack of Skilled
Manpower
Lack of Land
Competition from
Other Firms
Lack of Demands
for Goods and
Services
Table 2.1. Findings from Teachers Needs Assessment
for Preprimary through Grade 4
Areas Issues
General Teachers harbor misconceptions that are
being passed on to students.
Teachers are attuned more to mechanical
learning and less to teaching for genuine
understanding.
Language Teachers are able to retrieve explicitly stated
facts, but fail to make connections among
them.
Math Teachers understand numbers, but are weak
in algebra and understanding the topics and
teaching tools.
Source: REC, Educational Initiatives, and Ministry of Education (2009).
Table 2.2. Education Level of Employees,
20092011 (000)
Level of Education Completed 2009 2010 2011
None 206 202 206
Primary 34 35 33
Junior High 15 16 16
High 21 24 26
Higher Secondary 12 14 18
Some Undergraduate 0.3 1.0 0.6
Bachelors 5 8 10
Masters and Above 2 2 2
Nonformal 12 12 9
Monastic 6 7 4
Total 312 321 324
Sources: NSB (various years).
33
7KH VKDUH RI SHRSOH ZLWK KLJKOHYHO VNLOOV
falls short of the level required for a modern
economy.
The skIIIs shorLuge Is noL conhned Lo Iower
LechnIcuI skIIIs buL exLends Lo roIessIons In
engIneerIng, medIcIne, nursIng, und LeuchIng. or
exumIe, BhuLun currenLIy Iuces un ucuLe shorLuge
oIcIvIIengIneers.OnIy8%oIuIIgruduuLesInzo11
hudunengIneerIngdegree(Igurez.1q).AccordIng
Lo Lhe TenLh YP, euch dIsLrIcL Is Lo huve Lhree
docLors buL onIy huII Lhe dIsLrIcLs uchIeved LhIs
LurgeL In zo11.
16
The shorLuge oI engIneerIng und
medIcuI gruduuLes Is due Lo Lhe IImILed ooI oI
cundIduLes quuIIIyIng Lo sLudy In Lhese rogrums.
ThIs underIInes Lhe robIem oI quuIILy In rImury
undseconduryeducuLIon.
To uddress Lhe skIIIs gu, Lhe counLry hus
esLubIIshed severuI LechnIcuI schooIs. A schooI Ior
consLrucLIon wus seL u In Lhe 1q6os IoIIowed by
sIx LechnIcuI LruInIng InsLILuLes In zoo, rovIdIng
courses In musonry, curenLry, IumbIng, und
eIecLrIcuI skIIIs. RecenLIy, courses In heuvy vehIcIe
drIvIng und eIecLronIcs were InLroduced. n
uddILIon, Lwo InsLILuLes were esLubIIshed Lo Leuch
LrudILIonuIcruILundurLskIIIs.
1;
nuqz-yeurerIod,
1q;ozo11, LechnIcuI LruInIng InsLILuLes LruIned
onIy q,161 LechnIcIuns. GIven LhuL over zq,ooo
16
Bhutan has 20 administrative and judicial districts (dzhongkhags).
The next lower level is a group of villages (geogs).
17
The institutes teach the 13 traditional arts and craftsthe zorig
chusum.
exuLrIuLeLechnIcIunsurecurrenLIyemIoyedInLhe
counLry,LhedomesLIcskIIIsguremuInsenormous
(TubIez.).
SkIIIed workers come muInIy Irom ndIu und
NeuI und LheIr shure In Lhe workIorce Is rIsIng
doubIIng Irom 8% Lo 16% beLween zooq und zo1o
(Igure z.1). A recenL survey Iound LhuL IoreIgn
workers uccounLed Ior u hILh or more oI uII workers
In huII oI Lhe surveyed enLerrIses (WorId Bunk
zo1ob). A hILh oI Lhe hrms surveyed IndIcuLed
dIIhcuILy uccessIng IoreIgn workers us u mujor or
severeobsLucIeLoLheIroeruLIons.TherequIreduse
oI LhIrd-urLy ugenLs, IIcensed by Lhe governmenL,
Lo hIre unskIIIed IoreIgn workers Is cosLIy und
cumbersome.
The BhuLun ubor MurkeL SLudy reured by
Lhe REC In zooq reILeruLed Lhe shorLuge oI skIIIed
workers us u mujor concern. The shorLuge couId
InLensIIy by zozo (REC zooq). The consLrucLIon
und ower generuLIon IndusLrIes muy Iuce u 1%
shorLuge oI vocuLIonuIIy LruIned LechnIcIuns und,
II Lhe reIerence oI LechnIcuI LruInIng InsLILuLe
Sources: BBEIS online (Bangladesh), Ministry of Labour and Human
Resources (Bhutan), Ministry of Statistics and Program Implementation
(India), UNESCO Institute for Statistics (Nepal), University Grants
Commission (Sri Lanka), all accessed March 2012.
Figure 2.14. Engineering Graduates
(% of total graduates)
Bhutan
(2011)
Nepal
(2009)
Bangladesh
(2009)
India
(2007)
Sri Lanka
(2008)
0
5
10
20
25
15
Table 2.3. Total Technicians Trained
Source Period No.
Graduates from the Royal
Technical Institute
19702002 1,484
Graduates from Technical
Training Institutes
20032011 2,677
Total Graduates 19702011 4,161
Expatriate Technicians as of March 2012 24,823
Skills Gap about 90%
Source: Administrative records (MLHR).
Source: Statistical Yearbook 2011 (NSB various years).
Figure 2.15. Share of Foreign Workers in
Total Employment (%)
2008 2009 2010
0
5
10
20
15
34
gruduuLes Ior whILe-coIIur jobs conLInues, Lhe
scurcILymuyworsen.
To uddress Lhese muILIIe concerns, BhuLuns
VIsIonzozoundLheTenLhYPrecognIzedLheneed
Ior humun cuILuI InvesLmenL. The governmenL
underLukes Lhese Iuns bused on ILs exerIence
LhuL Lhe deveIomenL oI humun cuILuI resuILed
In subsLunLIuI rogress Lowurd meeLIng BhuLuns
LurgeLs under Lhe MIIIennIum DeveIomenL GouIs
und conLrIbuLed Lo ILs reuIIzuLIon oI gross nuLIonuI
huIness.
ALLemLs Lo IosLer economIc dIversIhcuLIon by
movIng Lowurd u more knowIedge-drIven economy
cun be gIeuned Irom Lhe ThImhu TechnoIogy
Purk und EducuLIon CILy rojecLs (ADB zo11u).
To Imrove uccess Lo educuLIon, vocuLIonuI und
educuLIon InsLILuLes oeruLIng ouLsIde Lhe muIn
cILIesureuccordedIncomeLuxhoIIduysIoruLo1
yeurs.ExemLIonsIromsuIesLuxundcusLomsduLy
ure rovIded Ior schooI conveyunces, LexL books,
sLuLIonery, IurnILure und hxLures, und educuLIon-
reIuLed consLrucLIon muLerIuIs. I InLernuLIonuI
suorL Is uvuIIubIe, Lhe governmenL rovIdes
IundIng Ior seIecLed sLudenLs Lo sLudy ubroud,
usuuIIyIorudvunceddegrees.MIddIe-cIusschIIdren
ureIncreusIngIysenLLosLudyInndIuundThuIIund
wILh Lhe cosL borne by LheIr IumIIIes (BerLeIsmunn
SLIILungzo1o).
n summury, InudequuLe humun cuILuI
deveIomenL Is u consLruInL. DesILe eIIorLs Lo
ImroveenroIImenLruLesuLrImuryundsecondury
IeveIs,umujorILyoILheIuborIorceremuInsIIIILeruLe.
SkIIIsgusersIsLdesILeeIIorLsLoImroveLechnIcuI
LruInIng; Lhe shorLuge oI LruIned workers humers
busInesses. TogeLher, Lhese concerns resenL u
bIndIngconsLruInLonrIvuLesecLorInvesLmenLund
InhIbIL dIversIhcuLIon oI Lhe IndusLrIuI buse.
2.2.2. Infrastructure
The zo1o EconomIc und SocIuI Survey oI AsIu
und Lhe PucIhc (ESCAP zo1o) noLed LhuL BhuLun
hus one oI Lhe AsIu und PucIhc regIon`s IowesL In-
IrusLrucLurecomosILescores,uLo.o(Igurez.16).
The InIrusLrucLure comosILe score Is u meusure
cuLurIngusecLsoILrunsorLInIrusLrucLure(roud,
ruIIwuy, und uIr LrunsorL densILy); InIormuLIon
und communIcuLIons LechnoIogy InIrusLrucLure
(LeIehoneundInLerneLdensILy);energyuvuIIubIIILy
(InLensILy oI energy use); und bunkIng InIrusLruc-
Lure(densILyoIbunkbrunches).BhuLunrunksubove
ILs cIosesL neIghbor, NeuI, wILh whIch IL shures
sImIIurLoogruhy.
OnLheosILIvesIde,recenLInvesLmenLcIImuLe
und enLerrIse surveys
18
dId noL consIder uccess Lo
ower, wuLer, und LeIecommunIcuLIons servIces In
BhuLun Lo be u mujor consLruInL, gIven LhuL such
uccessIsreIuLIveIybeLLerLhunInoLhercounLrIesIn
Lhe regIon. However, Lhe zo1o nvesLmenL CIImuLe
AssessmenL oInLed Lo roud LrunsorL us u mujor
InIrusLrucLure robIem due Lo Iosses urIsIng Irom
Iund LrunsorL dIIhcuILIes, us IndIcuLed by qo% oI uII
surveyed hrms und ;o% oI Lhe Iurge hrms surveyed.
ThIs Is consIsLenL wILh Lhe hndIngs oI Lhe WorId
Bunk und C EnLerrIse Survey, whIch IndIcuLes
LhuL BhuLun Is reIuLIveIy beLLer oII by regIonuI und
worId sLundurds wILh regurd Lo deIIvery oI ower,
wuLer,undLeIecommunIcuLIonsservIces(TubIez.q).
TheresuILsoILhesesurveysIndIcuLeLhuLrovIsIon
oIInIrusLrucLureIsbeLLerInureuswherebusInesses
ure IocuLed Lhun In oLher ureus, such us ruruI und
remoLe regIons where Iurge roorLIons oI Lhe
ouIuLIonIIve.
7UDQVSRUW1HWZRUNV
Geographic isolation is a major cause of
poverty and underdevelopment in Bhutan.
18
World Bank (2010b) and World Bank and IFC (2009).
Lao PDR = Lao Peoples Democratic Republic, PNG = Papua New Guinea,
PRC = Peoples Republic of China.
Source: ESCAP (2010).
Figure 2.16. Infrastructure Composite Scores
in Asia, 2007
PNG
Nepal
Lao PDR
Cambodia
Bhutan
Mongolia
Bangladesh
Pakistan
Philippines
Indonesia
Maldives
India
Viet Nam
Sri Lanka
Thailand
PRC
Malaysia
Macau, China
Hong Kong, China
Korea, Rep. of
Japan
Singapore
0 0.1 0.2 0.3 0.4 0.5 0.6
Index score
35
BhuLuns uccess Lo InLernuLIonuI murkeLs Is
IImILed becuuse oI Lhe need Ior LrunsIL IucIIILIes
Lhrough neIghborIng counLrIes, whIch Increuses
Lhe cosL oI LrunsorL. Reseurch hus shown LhuL
IundIocked counLrIes Lend Lo Lrude Iess Lhun oLher
counLrIes wILh sImIIur churucLerIsLIcs becuuse oI
IImILedoorLunILIesLoexundInLonewucLIvILIes.
HIghLrunsorLcosLsuIsoreduceLhecomeLILIveness
oI BhuLuns exorLs. A Iurge segmenL oI Lhe ruruI
ouIuLIon hus IImILed uccess Lo murkeLs und key
socIuIservIcesbecuuseoILhehurshLoogruhyund
LheIImILedreuchoILhedomesLIcLrunsorLsysLem.
ThIsconsLruInsLhedeIIveryoIubIIcservIcesusweII
usrIvuLesecLorgrowLh;uccessremuInsurobIem
InremoLeureus(WorIdBunkzo1ob).
The WorId Bunks ogIsLIc PerIormunce
ndex gIves BhuLun u Iow runk In Lerms oI overuII
IogIsLIcserIormunce1o;oI1counLrIesundIn
Lerms oI Lhe quuIILy oI Lrude und LrunsorL-reIuLed
InIrusLrucLure (TubIe z.), where IL Is runked 11;
(WorIdBunkzo1z).BhuLunsInIrusLrucLurerunkIng
Is Lhe second IowesL In SouLh AsIu, nexL Lo NeuI.
BhuLunsLrudeussesLhroughIundbordercrossIng
osLsshuredwILhndIu.ThemujorhIghwuyIInkIng
BhuLunLondIugoesLhroughPhuenLshoIIngundu
Iew border Lowns. Trude wILh BungIudesh, ndIu,
NeuI, und LhIrd counLrIes usses Lhrough Lhe
muIn border crossIng osLs In Lhe souLh: GeIehu,
NgungIum, PhuenLshoIIng, Sumdru Jongkhur,
und SumLse. ThIs IndIcuLes Lhe crILIcuI ImorLunce
oI Lhe roud neLwork In BhuLun, whIch LyIcuIIy Is
u serIes oI norLhsouLh hIghwuys orIgInuLIng Irom
LhesouLhernbordercrossIngosLsundconnecLIng
LoouIuLIoncenLersInLhehIIIs.nLhesouLh,eusL
wesLconnecLIonsuregeneruIIymudeLhroughndIu
due Lo Lhe dIIhcuIL LerruIn und Iong LruveI LImes
wILhInBhuLun(ADBzo11b).
ndIu Is BhuLuns IurgesL Lrude urLner,
uccounLIngIormoreLhun8o%oILrudevuIue.NeurIy
uII Lrude Is conducLed by roud Lo or Lhrough ndIu,
exceL Ior smuII voIumes oI uIr IreIghL. AII exorLs
LoundImorLsIromLhIrdcounLrIesLrunsILLhrough
KoIkuLuJHuIdIu PorL, reuchIng BhuLun Lhrough
PhuenLshoIIng (ADB zo11b). BhuLun hus no Iund
IInkwILhLhePeoIesReubIIcoIChInu(PRC).The
muIn Issues LhuL InhIbIL Lrude exunsIon IncIude
excessIve deIuys uL orLs, IneIhcIencIes uL Iund
border crossIngs, IImILs on Lhe rouLes uIIowed Ior
LrunsILcurgo,undIImILsonLheuseoILheIundIocked
counLrys own LrunsorL comunIes. mrovIng
LrunsorL neLworks wIII Ieud BhuLun Lo beLLer
connecLruruIureuswILhdomesLIcmurkeLsundwIII
esLubIIshbeLLerundsLrongerLrudIngoorLunILIes
wILhoLhercounLrIesInLheregIon.
5RDG1HWZRUNVBhuLunsruruIroudneLwork
remuIns IImILed In Lerms oI boLh connecLIvILy und
coverugeqo%oILheouIuLIonhudnorouduccess
us oI zoo; (Donnges, Edmonds, und Johunnessen
zoo;). AroxImuLeIy z1% oI BhuLunese ruruI
househoIds huve Lo wuIk Ior 1q hours Lo Lhe
neuresL uII-seuson roud und unoLher z1% huve Lo
sendmoreLhunhuIIuduy.
1q
PeoIeInubouL;%oI
19
World Bank. Bhutan Transport Sector-Challenges. http://
go.worldbank.org/WYC3V28GA0
Table 2.4. Infrastructure Indicators
Infrastructure Bhutan Region
All
Countries
Power Outages (# per month) 0.8 33.9 7.0
Outage duration
(hours per outage) 2.4 4.1 4.9
Value Lost Due to Power
Outages (% of sales) 4.3 10.1 5.0
If Generator Used, Electricity
from Generator (%) 5.9 24.7 21.1
Time to Obtain an Electrical
Connection (days from
application for
connection) 14.8 42.6 34.3
Average Incidents of Water
Insuciency (# per month) 2.7 2.8 1.4
Shortages duration
(hours per event) 2.9 7.6 12.3
Time to Obtain a Water
Connection (days) 22.1 64.2 32.4
Delay in Obtaining a
Telephone Landline
Connection (days) 6.1 31.2 22.3
Source: World Bank and IFC (2009).
Table 2.5. Logistics Performance Index Rankings
(of 155 countries)
Country
Overall LPI
Rank
Infrastructure
Rank
India 46 56
Sri Lanka 81 89
Maldives 104 93
Bhutan 107 117
Nepal 151 149
LPI = logistics performance index.
Note: Bangladesh is not included in the 2012 LPI Report.
Source: World Bank (2012).
36
LhemosLvuInerubIevIIIugegrous(eos)
zo
beIIeve
LhuL Imroved uccess Lo rouds wouId reduce LheIr
IoodInsecurILy.
z1
OnIy1zoILhezovIIIugegrous
ureservedbymoLorubIerouds(GNHCzo11b).MuIe
LrunsorL, u mujor meuns oI LrunsorL In vIIIuge
grous noL connecLed by rouds, cosLs ubouL $ er
Lon-kIIomeLer(km)comuredwILh$o.1erLon-km
bymoLorIzedvehIcIeonuroud.
BhuLuns Roud SecLor MusLer PIun (RSMP)
ouLIInes Lhe secLors rogrums und rojecLs u
Lo Lhe yeur zoz;. The RSMP Iocuses on sLruLegIc
connecLIvILy Lhrough consLrucLIon oI Lrunk rouLes
und IncIudes exunsIon und muInLenunce oI
nuLIonuIhIghwuys,dIsLrIcLrouds,undIeederrouds.
However, LhIs wIII be uddressed In Lhe EIevenLh
YP.MeunwhIIe,rouddensILyhusbeenIncreusIng
sIncezoodueLoconsLrucLIonoIIurmrouds.WhIIe
roud densILy wus onIy ubouL 1.6 km er squure
kIIomeLer oI urubIe und dIsosubIe Iund In zoo,
zz
LhedensILyhuduImosLdoubIed(IncreusedbyubouL
qo%) by zo11. The uddILIonuI rouds, however, ure
mosLIy unuved. The roorLIon oI uved rouds
decIIned by zz ercenLuge oInLs durIng zoo
zo11 (Igure z.1;) becuuse oI Lhe ruId Increuse In
unuvedrouds(Igurez.18).
20
A geog refers to a group of villages in Bhutan. Geogs form a
geographic administrative unit below districts (dzhongkhags).
21
Ministry of Agriculture and World Food Programme (2005).
22
Arable and disposable land includes meadows, agricultural land,
and settlement areas, and accounts for only 7% of Bhutans total
land area of 3.84 million hectares.
The roorLIon oI Iurm rouds, whIch connecL
IurmIund ureus und vIIIuges Lo un exIsLIng roud oI
equuI or hIgher cIussIhcuLIon, Increused sIgnIhcunLIy
Irom q% Lo q% durIng zoo zo11 (Igure z.18).
The shure oI dIsLrIcL rouds uIso Increused, uIbeIL
modesLIy,Irom1o%Lo1%,durIngLhesumeerIod.
Igure z.1q shows Lhe ucceIeruLIon oI Iurm roud
densILyInrecenLyeurs,wILhLhesLeeesLrIsedurIng
zo1ozo11.
HIghwuys In BhuLun ure generuIIy Iong und
nurrow wILh shur curves und sLee grudIenLs.
They ure usuuIIy buIIL IoIIowIng Iund conLours
wILh u mInImum number oI brIdges becuuse oI Lhe
dIIhcuIL Loogruhy, resource consLruInLs, und u
conservuLIve envIronmenL oIIcy. BhuLun hus z;z
brIdges, oI whIch 18 ure ermunenL und 11q ure
Lemorury. The LoLuI IengLh oI uII brIdges Is 8,1z
meLers(m),IncIudIng,6qmoILemoruryBuIIey
susensIon brIdges. The hIghwuys ure susceLIbIe
Lo IundsIIdes und heuvy snowIuII und, Lhus, Lo
uccIdenLs.undsIIdesundsnowIuIIcunbIockcrILIcuI
rouds,uIIecLIngeconomIcucLIvILyundLheweIIureoI
househoIdsundbusInesses(MWHSzo1o).
The rovIsIon oI roud servIces, wheLher
consLrucLIon oI new rouds or rehubIIILuLIon oI
exIsLIng ones, Lo desIred sLundurds und servIce-
ubIIILy Is exLremeIy dIIhcuIL und cosLIy. BhuLun
runked Lhe hIghesL umong seIecLed AsIun
economIes In zoo; In budgeL Ior muInLenunce und
rehubIIILuLIon oI rouds (Igure z.zo), uL ubouL 8%
oIgrossnuLIonuIroducL(Donnges,Edmonds,und
Johunnessenzoo;).However,muchmoreneedsLo
bedone.
km = kilometer, km
2
= square kilometer.
Source: Calculations based on NSB (various years).
Figure 2.17. Road Density and Provision of Paved Roads
0
0.5
2.0
1.5
1.0
2.5
3.0
3.5
0
30
10
20
40
50
60
Paved roads
D
e
n
s
i
t
y

(
k
m
/
k
m
2
)
S
h
a
r
e

o
f

p
a
v
e
d

r
o
a
d
s

(
%
)
Road density
2005 2006 2007 2008 2009 2010 2011
37
Air Transport. BhuLuns uIr LrunsorL
IucIIILIes ure busIc. BhuLun hus onIy one InLer-
nuLIonuI uIrorL. L Is uL Puro, In u dee vuIIey uL
ubouL z,zoom ubove seu IeveI und surrounded
by hIIIs rIsIng Lo ubouL q,8oom. The urouch
InLo Puro Is enLIreIy vIsuuI us Lhe uIrorL Iucks
InsLrumenLIundIngIucIIILIes.ThereIore,oeruLIons
ure IImILed Lo duyIIghL hours und cun be dIsruLed
IrequenLIy by udverse weuLher condILIons (ADB
zo11b). DurIng Lhe wInLer monLhs unLII mId-Muy,
hIgh veIocILy wInds dIsruL IghL oeruLIons In Puro
InLheuILernoons.TheseIImILuLIonshuveImucLed
Lhe commercIuI vIubIIILy oI uIrIInes. DrukuIr Is Lhe
IeudIng rovIder oI InLernuLIonuI LruveI In und ouL
oI BhuLun. The number oI ussengers DrukuIr
currIes decIIned by z.1% Lo 11q,1o In zoo8 Irom
Note: The share of expressways is too small to appear on the gure.
Sources: Calculations based on NSB (various years).
Figure 2.18. Provision of Roads by Type (%)
2005 2006 2007 2008 2009 2010 2011
0
40
20
60
80
100
Farm road Forest road Access road Power tiller track
District road Feeder road Urban road National highway
Lao PDR = Lao Peoples Democratic Republic, PNG = Papua
New Guinea, PRC = Peoples Republic of China.
Source: Donnges, Edmonds, and Johannessen (2007).
Figure 2.20. Maintenance Budgets as Percentage of
Gross National Product
Indonesia
PNG
Mongolia
PRC
Philippines
Lao PDR
Cambodia
Thailand
Viet Nam
Bhutan
0 5 10 15 20 25 30 35 40
%
km = kilometer, km
2
= square kilometer.
Sources: Calculations based on NSB (various years).
Figure 2.19. Road Density by Type of Road (km/km
2
)
0.0
0.8
0.6
0.2
1.2
1.0
0.4
1.4
Power tiller track Access Forest
2005 2006 2007 2008 2009 2010 2011
District Urban Farm Feeder National highway Expressway
38
LherevIousyeur,
z
undbyunoLhero.q%Lo118,o8q
In zooq. The decIIned ussenger ow In zoo8-zooq
reecLs In urL u decIIne In Lhe number oI LourIsLs
vIsILIngBhuLunInzooqusLhecounLryIeILLhesIIIover
eIIecLs Irom Lhe gIobuI hnuncIuI crIsIs. However, Lhe
decIInewusrImurIIycuusedbyshurdrosInuIew
ureus oI oeruLIon (Ior exumIe, beLween DeIhI und
KuLhmundu und beLween Bungkok und KoIkuLu).
ThenumberoIDrukuIrussengersLhenIncreusedLo
1z,61(uby1z.%)Inzo1oundLo166,z6q(uby
unoLherz.q%)Inzo11.
To Increuse uIr LruIhc ucross BhuLun, domesLIc
uIrsLrIs wILh busIc IucIIILIes huve been deveIoed.
Two new domesLIc uIrorLs wILh 1,zoo m runwuys
(suILubIe Ior smuII Lo medIum Lurboro uIrcruIL)
ure oeruLIng uL YonghuIIu (TrushIgung) und
BuLhbuIuLhung (BumLhung). One more domesLIc
uIrorLwusInuuguruLeduLGeIehuInOcLoberzo1z.n
zo11,LhegovernmenLIIcensedTushIAIrLorovIdeuIr
servIces.However,TushIAIrLemorurIIysusended
ILs domesLIc oeruLIons sLurLIng zo1z due Lo oor
murkeL condILIons und Iow LruIhc voIume IeudIng Lo
hnuncIuI Iosses.
BhuLuns suIeLy und nuvIguLIon equImenL und
sLrucLures Ior uIr LrunsorL ure InudequuLe. AIrorL
LermInuI cuucILy und reIuLed InIrusLrucLure cun
bureIy uccommoduLe Lhe IncreusIng LruIhc durIng
euk LourIsL seusons. The number oI InLernuLIonuI
ussengers Is execLed Lo Increuse consIderubIy In
boLhLheshorLundIongerLerm,resuILIngInIncreusIng
ressureonLheuIrorLIucIIILIesuLPuro.nuddILIon
LoLhehysIcuIImrovemenLsneededuLLheuIrorL,
Lhe number oI IghLs oeruLIng needs IncreusIng
Lhrough boLh hIgher IrequencIes on exIsLIng rouLes
undLheInLroducLIonoInewdesLInuLIonsundcurrIers
(ADBzo11b).
Electricity Infrastructure
As oI zooq, BhuLun hud u LoLuI InsLuIIed
cuucILy oI ubouL 1,q88 MW Irom hydroower
sources. ThIs reresenLs onIy ubouL % oI Lhe
counLrysLoLuIesLImuLedo,oooMWoIhydroower
oLenLIuI, or 6% oI Lhe z,;6o MW IdenLIhed us
LechnIcuIIy IeusIbIe (GNHC zooq). The governmenL
Iuns Lo Increuse hydroower generuLIon cuucILy
Lo 1o,ooo MW, ubouL seven LImes Lhe resenL IeveI,
byzozo.
23
In 2008, Drukair slashed its ight frequency on several routes during
the lean season to deal with the increased cost of aviation turbine
fuel in FY2007/08 (Dendup 2008).
TheubundunceoIhydrooweruIIowsBhuLunLo
meeLILscurrenLdomesLIcdemundIoreIecLrIcILyund
exorLexcessenergyLondIu,generuLIngsubsLunLIuI
revenues.romzoo1Lozoo6,BhuLungeneruLedun
unnuuIuverugeoIz,zooMWoIeIecLrIcILy.WILhLhe
oeruLIon oI PunuLsungchhu und TuIu hydroower
IunLs, suIy cuucILy Increused by 18o% In zoo8
und, by zo1o, Lhe counLrys eIecLrIcILy generuLIon
cuucILywusubouL;,oooMW(Igurez.z1).SeveruI
hydroowerrojecLsurecurrenLIyInLheIeIIneLo
IurLher Increuse BhuLuns roducLIon oI energy Ior
domesLIcuseundexorL.
As oI Murch zo1, BhuLun uchIeved un overuII
eIecLrIhcuLIon ruLIo oI qo% (on-grId und oII-grId).
The governmenL uIms Lo uchIeve IuII eIecLrIhcuLIon
byendoIzo1(GNHCzo11b).ThecosLoIexundIng
dIsLrIbuLIonneLworksLoruruIureusIshIghbecuuse
oI dIIhcuIL LerruIn und Iow ouIuLIon densILIes.
SubsLunLIuI uddILIonuI InvesLmenL In neLwork
exunsIon Is necessury Lo enhunce Lhe uccessIbIIILy
oI ruruI communILIes, In urLIcuIur Lo ower Irom
roosedhydroowerrojecLs.
EIecLrIcILy generuLIon In BhuLun deends
heuvIIy on ruInIuII durIng Lhe monsoon, wInLer
snowIuII, und on gIucIer-Ied sLreums. ShorLuge oI
owerbecomesuconcerndurIngdrywInLermonLhs
sInce uII Lhe currenL hydroower IunLs ure oI run-
oI-Lhe-rIver Lye, und muy requIre ImorLuLIon oI
eIecLrIcILy Irom ndIu unLII Lhe new hydroower
IunLs ure commIssIoned. ThereIore, Lhe sources
oI generuLIon need Lo be dIversIhed, IncIudIng
deveIomenL oI reservoIr schemes, Lo comensuLe
IorLheseusonuIIImILuLIons.
As shown In TubIe z.6, BhuLun churges Lhe
IowesLdomesLIceIecLrIcILyLurIIIruLesInAsIu,uLonIy
Nuo.8Nuz.q1 ($o.o16$o.oqq
zq
) er kIIowuLL-
hour(kWh).ThIsIsdesILeLhereguIurIncreusesIn
LurIII ruLes sInce zoo. The ruLes ure sIgnIhcunLIy
beIow Lhe uveruge cosL oI suIy, esLImuLed uL
Nu1.;qNuq.z1 ($o.o$o.o8) er kWh. AbouL
qo%oIBhuLunseIecLrIcILyexorLsuresoIdLondIu
uLNu1.q8Nuz.oerkWh.
The governmenL subsIdIes Lo domesLIc
consumers ure rovIded Lhrough Lhe rIcIng oI Lhe
royuILy energy (I.e., royuILy energy Is rIced Iower
Ior domesLIc consumLIon). or Lhe hscuI yeurs
(Ys) zo1oJ11zo1zJ1, Lhe governmenL uIIocuLed
24
Conversion is based on Nu1 = $0.183, the exchange rate as of 10
November 2012.
39
unnuuI subsIdIes oI Nuqqq mIIIIon Lo Iow-voILuge
consumers und Nu1zz mIIIIon Lo medIum-voILuge
consumers. HIgh-voILuge consumers receIved u
NuqqmIIIIonsubsIdyInzo1obuL,begInnIngInJuIy
zo11,hIgh-voILugeconsumerswerechurgedLheIuII
cosL oI suIy. There Is no subsIdy Ior urbun und
IndusLrIuIconsumers.
Becuuse oI Iow LurIII ruLes und uccessIbIIILy Lo
eIecLrIcILy, BhuLuns eIecLrIcILy consumLIon er
cuILu Is Lhe hIghesL In SouLh AsIu (Igure z.zz).
EIecLrIcILy consumLIon er cuILu grew by un
uverugeoI11%unnuuIIyIromzoozLozooq,undIs
execLedLoucceIeruLewILhLheIunnedIncreuseIn
Lhe eIecLrIhcuLIon ruLe.
MW = megawatt.
Sources: NBS (various years).
Figure 2.21. Electricity Generated
-
2,000
1,000
5,000
4,000
3,000
6,000
7,000
8,000
20
0
20
40
60
80
Electricity generated (MW, left-hand scale) Growth (%, right-hand scale)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Table 2.6. Bhutans Electricity Tari Structure, August 2010 to June 2013
Unit Slab
Aug 2010/ June 2011 Aug 2011/ June 2012 Aug 2012/ July 2013
(Nu/kWh except as noted)
Low Voltage 0100 kWh 0.85 0.85 0.85
101300 kWh 1.47 1.54 1.62
300+ kWh 1.94 2.04 2.14
Bulk 1.94 2.04 2.14
Medium Voltage Energy Charge 1.63 1.71 1.79
Demand Charge 95 Nu/kW 105 Nu/kW 115 Nu/kW
High Voltage Energy Charge 1.51 1.54 105
Demand Charge 85 Nu/kW 105 Nu/kW 105 Nu/kW
Wheeling 0.111 0.111 0.111
kW = kilowatt, kWh = kilowatt-hour, Nu = ngultrum.
Source: Bhutan Electricity Authority (2010).
Telecommunications
Comured wILh oLher SouLh AsIun counLrIes,
BhuLun wus reIuLIveIy IuLe In deveIoIng ILs
InIormuLIon und communIcuLIons LechnoIogy. The
counLry`s hrsL LeIehone neLwork wus esLubIIshed
In 1q6, Lhe hrsL LeIevIsIon neLwork und InLerneL
servIceswererovIdedsLurLIngIn1qqq,undceIIuIur
honeservIceswereIuunchedInzoo.AsoIzo1o,
BhuLun hud ubouL z6,oo hxed LeIehone IInes,
8,6; hxed broudbund InLerneL users, und qq,oo
mobIIehonesubscrIbers.AsoIzo1,uIIzooILhe
vIIIugegroushudceIIuIurneLworkcoverugeundby
LheendoIMurchzo1uIIvIIIugesInLhegrouswIII
huvebeencovered(ThInIeyzo1).
40
TeIecommunIcuLIons hus been uccorded hIgh
rIorILy In BhuLuns deveIomenL Iuns. The sLuLe-
owned BhuLun TeIecom Is Lhe IeudIng rovIder oI
mobIIe und InLerneL servIces. WILh Lhe enLry oI Lhe
rIvuLeIy-owned TushI CeII, Lhe murkeL Ior mobIIe
servIces muy become more comeLILIve, IeudIng
Lo Imroved servIces und ossIbIy Iower cosLs Ior
Lhe consumers. n Lhe zo1o nvesLmenL CIImuLe
AssessmenL, onIy z.q% oI uII hrms surveyed (z.;%
oI smuII hrms und q.6% oI medIum-sIzed hrms)
consIdered LeIecommunIcuLIons us u consLruInL
(WorIdBunkzo1ob).
Irrigation
AILhough BhuLun hus u Iurge oLenLIuI Ior
hydroower deveIomenL becuuse oI ILs ubundunL
hydroower resources, Lhe oLenLIuI Ior IrrIguLIon
IsIImILedusmosLrIversuredeeIyIncIsedInLoLhe
Iundscue. The ImorLunce oI IrrIguLIon cunnoL be
IgnoredusuddycrossuchusrIceundcereuIsneed
usLeudysuIyoIwuLer.BhuLunsIrrIguLedureuhus
Increused consIderubIy Irom ubouL q,ooo hecLures
In 1q6z Lo qo,ooo hecLures In 1qq8. As oI Junuury
zo11,LhecounLryhud1,qq6IrrIguLIonschemes,wILh
uLoLuIIengLhoI,;6zkm(TubIez.;).
SInce 1qqz, IrrIguLIon In BhuLun hus been
governed by u nuLIonuI IrrIguLIon oIIcy. The
oIIcy Iocuses muInIy on Lhe munugemenL usecLs
oI IrrIguLIon, urLIcuIurIy on Lhe ImorLunce oI
sLrengLhenIng IocuI orgunIzuLIons und orgunIzIng
wuLer user ussocIuLIons. PubIIc exendILure und
deveIomenLussIsLuncehuvebeenIImILed,however,
IorIurLherdeveIomenLoILhesecLor.IIunduseIs
noL munuged roerIy, chungIng Iund use uLLerns
Table 2.7. Irrigation Schemes: Number and Length as
of January 2011
District
Irrigation
Schemes (#)
Total Length
(km)
Bumthang 29 54.03
Chhukha 60 140.53
Dagana 59 130.27
Gasa 16 41.50
Haa 13 27.93
Lhuentse 67 245.65
Mongar 67 161.28
Paro 131 374.07
Pemagatshel 12 25.35
Punakha 105 341.08
Samdrup Jongkhar 42 102.54
Samtse 19 53.11
Sarpang 282 380.70
Thimphu 40 132.30
Trashiyangtse 41 107.47
Trashigang 46 117.25
Trongsa 88 283.60
Tsirang 220 452.73
Wangdue Phodrang 115 499.27
Zhemgang 44 91.82
Total 1,496 3,762.47
km = kilometer.
Source: Ministry of Agriculture and Forests (various years).
kWh = kilowatt hour.
Sources: NSB (various years) for Bhutan data; World Bank, WDI, for other countries.
Figure 2.22. Electricity Consumption Per Capita (kWh)
0
400
200
1,200
1,000
600
1,600
1,400
800
1,800
India Pakistan Sri Lanka Nepal Bhutan Bangladesh
2008 2001 2002 2003 2004 2005 2006 2007 2009
41
broughL ubouL by BhuLuns deveIomenL muy
dImInIshroducLIveIundureuunddecreuseyIeIds.
nIrusLrucLure, esecIuIIy connecLIvILy,
remuIns u crILIcuI consLruInL Lo growLh und
IncIusIveness. nIrusLrucLure, such us ower,
wuLer, und LeIecommunIcuLIons, Is reIuLIveIy
weII-deveIoed In urbun ureus; however, In Lhe
ruruI und remoLe ureus, Lhe rovIsIon oI ower,
wuLer, und LeIecommunIcuLIons servIces sLIII
needs enhuncemenL. BeLLer LrunsorL neLworks, In
urLIcuIurrouds,ureneededInurbunundruruIureus
Ior romoLIng economIc und socIuI deveIomenL
Lhrough uccessIbIIILy und by enhuncIng Lrude. ThIs
muy IncIude deveIoIng u Iund IInk wILh Lhe PRC
und exundIng Lhe cuucILy oI BhuLuns uIrorLs.
To romoLe economIc und socIuI deveIomenL oI
ruruIundremoLeureus,LheowerLrunsmIssIonund
dIsLrIbuLIonneLworksneedLobeexundedundLhe
IrrIguLIonsysLemssLrengLhened.
2.3. Appropriability of Returns
to Investments
SeveruI oIIcIes huve been romuIguLed und
chungedsInceLhenewgovernmenLwusesLubIIshed
In zoo8. The EconomIc DeveIomenL PoIIcy
zo1o, IscuI ncenLIves zo1o, und oreIgn DIrecL
nvesLmenL PoIIcy zo1o conLuIn Lhe hscuI und
economIc uckuges LhuL romIse rIvuLe secLor
growLh, numerous emIoymenL oorLunILIes,
und nuLIonuI economIc seII-reIIunce (MInIsLry
oI EconomIc AIIuIrs zo1o, MInIsLry oI Inunce
zo1o).TheEconomIcDeveIomenLPoIIcyzo1o,In
urLIcuIur,uImsLodIversIIyLheeconomy,generuLe
emIoymenL oorLunILIes, romoLe exorLs und
enLrereneurshI, und enhunce economIc seII-
reIIunce. L uIso emhusIzes susLuInubIe deveIo-
menLsoLhuLeconomIcgrowLhIsnoLuchIeveduLLhe
cosL oI envIronmenLuI degruduLIon. These oIIcIes
wereromuIguLedwILhLheobjecLIveoIesLubIIshIng
LheIeguIundreguIuLoryIrumeworkLhuLcunensure
LherIvuLesecLorLhuLILsInvesLmenLswIIIgeneruLe
udequuLe reLurns desILe rIsks LhuL emunuLe Irom
governmenLundormurkeLIuIIures.
2.3.1. Macroeconomic Risks
BhuLuns mucroeconomIc munugemenL hus
been busIcuIIy sound wILh reIuLIveIy Iow InuLIon
und u modesL hscuI osILIon, buL ersIsLenL currenL
uccounL dehcILs und IusL-rIsIng ubIIc debLs ure
emergIngusImorLunLconsLruInLsLoLhemedIum-
LermouLIook.
,QDWLRQKDVEHHQNHSWDWPDQDJHDEOHOHYHOV
EXW WKH ODFN RI PRQHWDU\ FRQWURO FRXOG EH D
concern.
BhuLun hus been ubIe Lo kee generuIIy Iow
und sLubIe InuLIon ruLes-umong Lhe IowesL In
SouLh AsIu. SInce zooo, InuLIon ruLes, meusured
InLermsoILhegrowLhoIILsconsumerrIceIndex,
huve generuIIy sLuyed uL munugeubIe IeveIs, beIow
8%. nuLIon, however, Increused In zoo8 uL 8.%
undInzo11uL8.q%,muInIydueLoIncreusesInLhe
rIces oI Iood, cIoLhIng, IooLweur, und LrunsorL
(Igurez.z).
The RMA hus been enLrusLed wILh Lhe
resonsIbIIILy oI conducLIng moneLury oIIcy by
Lhe RMA AcL 1q8z. However, Lhe RMA hus very
Sources: ADB (2012b, 2012c).
Figure 2.23. Ination (annual %)
10
5
15
10
0
30
20
25
5
35
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
42
IImILedLooIswILhwhIchLodoso.WILhILscurrency,
Lhe nguILrum, egged uL ur Lo Lhe ndIun ruee,
BhuLuns moneLury oIIcy hus been devoLed Lo
muInLuInIng Lhe eg, whIch hus rendered Lhe RMA
unubIe Lo use domesLIc InLeresL ruLes Lo conLroI
InuLIon und InuLIonury execLuLIon. As Lhe ndIun
rueecIrcuIuLesIreeIyundservesusIeguILenderIn
BhuLun, IL Is uIso dIIhcuIL Ior Lhe RMA Lo conLroI
money suIy Ior Lhe urose oI mucroeconomIc
munugemenL.nLhIsconLexL,LheRMAskeyoIIcy
InsLrumenLs huve been IImILed Lo u Iew meusures,
IncIudIng seLLIng Lhe cush reserve und sLuLuLory
IIquIdILy requIremenLs, seIIIng RMA bIIIs, und
uIIowIngbunksLomuInLuInsIzubIeIoreIgnexchunge
buIunces.
HIgh InuLIon In ndIu, esecIuIIy Iood rIce
InuLIon, remuIns u concern Lo BhuLun us Lhe mujor
shure oI ILs ImorLs ure Irom ndIu. AIso, BhuLuns
currencyegwILhndIuuIIowsudIrecLLrunsmIssIon
oI InuLIon Irom ndIu. BhuLun`s InuLIon ruLes
huve generuIIy been Iower Lhun ndIus due Lo Lhe
dIIIerence In Lhe comosILIon oI Lhe consumLIon
buskeL und Lhe Iower rIce oI IueIs becuuse oI
subsLunLIuI governmenL subsIdIes. NeverLheIess,
BhuLun`s InuLIon ruLes merIL conLInued monILorIng
In Lhe neur Lerm us InuLIonury ressure hus buIIL u
on ruId credIL growLh In recenL yeurs und InuLIon
In ndIu Increused (GNHC zo11b). BhuLun muy
exerIence IurLher sIIIover eIIecLs us Lhe ndIun
ruee hus derecIuLed IoIIowIng ILs economIc
sIowdown, ushIng Lhe ImorL rIces u. The
AsIun DeveIomenL Bunk redIcLs LhuL uILer gIobuI
commodILy rIce hIkes ushed BhuLun`s InuLIon
Loreuch8.6%InYzo11und1o.z%InYzo1z,Lhe
counLry`s InuLIon ruLe wIII moderuLe Lo q.% In
Y zo1 due Lo u LIghL hscuI sLunce udoLed by Lhe
governmenL und u cIum down on credIL growLh.
nuLIon Is execLed Lo euse IurLher Lo ;.q% In Y
zo1qusLheIoreIgnexchungeosILIonreIuxes(ADB
zo1zb,zo1).
:LWK WKH OLPLWHG DYDLODELOLW\ RI PRQHWDU\
tools at Bhutans disposal, liquidity manage-
ment may place undue rigidity on the
provision of credit for the private sector.
WhIIemuInLuInIngLheeg,BhuLunsmoneLury
oIIcy Irumework Is uIso uImed uL munugIng
overuII bunkIng secLor IIquIdILy. The muIn urose
oI IIquIdILy munugemenL Is Lo uvoId shur und
excessIve IIquIdILy ucLuuLIons In Lhe hnuncIuI
sysLem. ExcessIve IIquIdILy In Lhe bunkIng secLor
couId resuIL In Iess rudenL IendIng ucLIvILIes
und Ieud Lo un Increuse In nonerIormIng usseLs.
urLhermore, ruId exunsIon oI credIL Ior
consumLIon couId Ieud Lo Increused ImorLs
und worsen currenL uccounL dehcILs, hence
rIskIng hnuncIuI InsLubIIILy by deIeLIng IoreIgn
exchungereserves.
ThecushreserveruLIoIsLhemuInLooILheRMA
hus used Lo dumen Lhe buIIdu oI InuLIonury
ressureundmunugehIghcredILgrowLh.TheruId
growLh In Iouns Lo Lhe buIIdIng und consLrucLIon
secLor und consumers In recenL yeurs hus exerLed
InuLIonury ressure In BhuLun. n uddILIon Lo Lhe
credILreserveruLIo,bunksuresubjecLLousLuLuLory
IIquIdILy ruLIo oI zo%, whIIe nonbunk hnuncIuI
InsLILuLIonsuresubjecLLousLuLuLoryIIquIdILyruLIo
oI1o%.
z
nresonseLoLheruIdcredILgrowLhund
growIng InuLIonury ressure, Lhe RMA decIded Lo
muInLuInLIghLmoneLurycondILIonsby(1)seLLIngLhe
cush reserve requIremenL uL 1;% (revIousIy IL wus
1%)sLurLIngInAugusLzoo8unddIsconLInuIngLhe
uymenL oI InLeresL on IL, und (z) muInLuInIng Lhe
rovIsIonIng requIremenLs oI o% Ior subsLundurd
und6o%IordoubLIuIIounsIorLhehIghesLexosed
secLors. The RMA conLInued Lo mo u excess
IIquIdILy by IssuIng q1-duy Treusury BIIIs (RMA
zo11u).
The IeveI oI excess IIquIdILy hus decIIned
consIderubIy(InIucLregIsLerIngushorLIuIIInzo11),
Irom Nuq.q bIIIIon ($q6.z mIIIIon) In zo1o Lo
neguLIve Nu1.1 bIIIIon ($z.6 mIIIIon) In zo11, us
LheRMAhusLukenmeusuresLouddresshIghcredIL
growLh und Lo Iower excess IIquIdILy (TubIe z.8).
The IeveIs oI boLh Lhe credIL reserve und sLuLuLory
IIquIdILy ruLIos Increused shurIy durIng Lhe sume
erIod. The IIquIdILy LIghLenIng meusures und Lhe
subsequenLrIseInLheIeveIoIborrowIngruLesmuy
huve heIed Lume Lhe InuLIonury ressure, buL Lhey
muy huve uIso consLruIned Lhe umounL oI IounubIe
Iunds In Lhe reuI secLor (RMA zo11b). GIven Lhe
IImILed Iunds, bunks nuLuruIIy reIer Lo Iend Lo
Iurger enLerrIses, whIch Lend Lo be Iess rIsky und
cun resenL evIdence oI subsLunLIuI cush ows, e.g.,
exorL-orIenLed hrms und Iurge IocuI IndusLrIes. As
such, LIghL IIquIdILy munugemenL In Lhe bunkIng
secLor mukes hnuncIng oI MSMEs exLru chuIIengIng.
25
The statutory liquidity ratio requirement is applied to all nancial
institutions, which thus must maintain a minimum liquidity at all
times to meet anticipated and contingent obligations in the form
of quick assets (RMA 2012a).
43
ThecurrenLmoneLurymunugemenLIrumework
Lo suorL Lhe eg does noL uIIow domesLIc credIL
Lo grow beyond u secIhc IImIL whIIe Lhe ImorL-
reIIunL economy Is consLunLIy runnIng shorL oI
ndIun ruees.
z6
WhIIe Lhe munugemenL oI overuII
bunkIngsecLorIIquIdILyhusbeenunImorLunLLooI
In BhuLun Ior muInLuInIng bunkIng und hnuncIuI
sLubIIILy,LhIsmuyIuceudIsroorLIonuLeIyundue
consLruInL on Lhe uvuIIubIIILy oI bunk credIL Ior
MSMEsundsmuIIrIvuLeborrowers.
To uddress Lhe LIghL IIquIdILy sILuuLIon In
boLh ndIun ruees und nguILrums, Lhe RMA
recenLIy ImIemenLed Lwo rounds oI cush reserve
requIremenLreducLIon:Irom1;%Lo1o%InMurch
zo1z, und IurLher Lo % In June zo1z. ThIs muy
guurunLee LhuL hnuncIuI InsLILuLIons huve uccess
Lo Iunds Lo suorL commILLed IendIng. However,
sources oI Iunds Ior hnuncIuI InsLILuLIons und ubIIc
und rIvuLe enLerrIses remuIn IImILed, wILh much
26
The RMA pointed out that scal and monetary expansion resulted
in the deteriorating balance of payments with India, which has
placed increasing pressure on Bhutans limited rupee reserves.
The RMA is, thus, forced to safeguard the exchange rate peg
with India. The rupee shortfall in the banking system in the late
2000s has contributed to banks low liquidity. In 2011, the RMA
resorted to short-term borrowing of Rs8 billion at 10% per annum
through an overdraft facility of the State Bank of India to meet the
rupee shortage in the banking system and to support economic
transactions in lieu of the peg with the rupee. The RMA has also
sold $200 million to liquidate some of its short-term debt and to
meet the large debt service payments on the Kurichu and Tala
hydropower plants due in January 2012 (RMA 2011b).
oI Lhe InjecLed shorL-Lerm IIquIdILy unuvuIIubIe Ior
Iong-LermIendIng(RMAzo1zu).
BhuLunsmoneLuryoIIcyshouIduIsoconsIder
howbesLLomunugeLheuceoIcredILgrowLhwILhouL
comromIsIng Lhe mucroeconomIc und hnuncIuI
sLubIIILy. Meusures couId IncIude deveIoIng
more exIbIe LooIs Ior IIquIdILy munugemenL (Ior
exumIe, LurgeLIng Lhe credIL demund ruLher Lhun
LhesuIydIrecLIy),nonbunkIngsecLors,undoLher
hnuncIuI murkeLs, und exundIng oorLunILIes Ior
exorLgrowLhundIoreIgndIrecLInvesLmenLInLhe
reuIsecLor.
)LVFDOSROLF\KDVEHHQJHQHUDOO\SUXGHQWEXW
WKHUHLVDQHHGWRFUHDWHPRUHVFDOVSDFHWR
meet the growing demand for infrastructure
and social spending.
BhuLun reorLed ucLuuI hscuI surIus oI ubouL
Nu1.6 bIIIIon or z.1% oI GDP In Yzo1o, whIch Is
un ImrovemenL Irom Lhe overuII surIus durIng
Yzoo;-zooq. BhuLun`s hscuI osILIon comures
IuvorubIy wILh LhuL oI ILs regIonuI eers, whIch
uveruged u dehcIL oI 8.z% oI GDP In zo1o (WorId
Bunk zo11). DurIng zoo6zooq, BhuLun exercIsed
hscuI dIscIIIne beLLer Lhun ILs neIghbors, wILh Lhe
overuII hscuI buIunce LurnIng Lo u surIus sInce
Yzoo; (Igure z.zq). The ImrovemenL In Lhe
overuII buIunce oI Yzo1o cun be uLLrIbuLed Lo u
subsLunLIuIIncreuseoIgrunLsIromLheGovernmenL
oIndIuundunIncreuseInLuxrevenue.
Table 2.8. Excess Liquidity and Sterilization by Instrument, end of June (Nu million)
Items 2007 2008 2009 2010 2011
Quick Assets of Commercial Banks (CBs) 9,457.2 8,311.8 9,191.1 13,257.2 10,131.4
Cash in Hand 217.1 619.4 412.9 605.9 1,007.1
Gold and Precious Metals, of which:
Current deposits of banks 7,371.8 5,180.8 5,342.7 8,108.9 6,207.9
Demand deposits held in CBs in Bhutan 245.0 350.5 1,126.0 2,247.1 1,178.9
Demand deposits held in CBs in India 398.3 643.0 509.7 1,241.3 683.4
Bhutan government bonds 577.0 577.0 1,054.0 1,054.0 1,054.0
Royal Monetary Authority Securities 121.1 414.2 745.8
Capital Fund 2,344.7 2,672.0 3,214.0 5,707.0 6,382.3
Statutory Liquidity Ratio Position 4,938.7 5,186.3 6,593.0 8,877.9 11,262.2
Excess Liquidity/Shortfall (13) 4,518.5 3,125.6 2,598.1 4,379.4 (1,130.8)
Amount of Sterilization 3,101.4 4,148.8 6,001.9 6,846.9 8,286.8
Cash Reserve Ratio 2,889.3 3,734.6 5,256.0 6,846.9 8,286.8
Bhutan Government T-Bills 121.1 414.2 745.8
= data not available, CB = commercial bank, Nu = ngultrum.
Source: RMA (2012a).
44
GovernmenL exendILure hus been growIng
us Lhe governmenL hus sLeed u ILs InvesLmenL
In InIrusLrucLure und socIuI servIces. AdequuLe
rovIsIon oI InIrusLrucLure und socIuI servIces Is
crucIuI Lo uchIeve susLuIned hIgh growLh, by crow-
dIng In rIvuLe secLor InvesLmenL und generuLIng
hIgherroducLIvILy.
BhuLuns LoLuI governmenL exendILure,
meusuredusuercenLugeoIGDP,IsreIuLIveIyhIgh
umong SouLh AsIun economIes, uverugIng ubouL
zq% oI GDP durIng zoo1zo1o. AddILIonuI budgeL
uIIocuLIonsIorboLhcurrenLundcuILuIexendILures
huve Iuced LoLuI governmenL exendILures ubove
z%oIGDPInzoo8zo1o.
TubIe z.q exemIIhes how much more Iunds
Lhe governmenL wouId requIre Lo ucceIeruLe ILs
InIrusLrucLure deveIomenL. CurrenLIy, ubouL
% oI Lhe counLrys LoLuI roud neLwork oI 8,1oo
km Is uved. ResurIucIng 1 km oI roud In BhuLun
wouId requIre ubouL $16,8z.
z;
I Lhe governmenL
endeuvors Lo doubIe Lhe shure oI uved rouds (In
Lhe LoLuI roud neLwork) Lo, Ior exumIe, ;o% In
27
In lieu of blacktopping, cost data for which are lacking. Road
blacktopping normally costs more than road resurfacing.
yeurs (keeIng Lhe LoLuI roud neLwork consLunL), IL
wouIdneedubouL$q;.8mIIIIonInIundIngorubouL
$q.6 mIIIIon er yeur (usIng Lhe roud resurIucIng
cosL).ConsLrucLIngnewroudswouIdrequIreuImosL
$1oo,oooerkIIomeLer(WorIdBunkzoo6).
BhuLun hus muInLuIned u good hscuI osILIon
on Lhe buck oI sLrong growLh oI domesLIc revenues
und u sIgnIhcunL ImrovemenL In Lhe Lux eIIorL.
BuL,InLhemedIum-LoIong-Lerm,LhegovernmenLs
nurrow hscuI suce couId become u crILIcuI consLruInL
Lo hnuncIng ubIIc exendILure LhuL Is needed Lo
susLuInundenhuncegrowLh.
*RYHUQPHQW UHYHQXH KDV LPSURYHG EXW
D QDUURZ WD[ EDVH DQG LPSHUIHFW WD[
DGPLQLVWUDWLRQFRQWLQXHWREHDFRQFHUQ
BhuLuns LoLuI governmenL revenue us u
ercenLuge oI GDP uveruged ubouL zo% durIng
zooozo11, whIch Is Lhe second hIghesL In Lhe
regIon nexL Lo Lhe MuIdIves. DurIng zoo;zo11,
LoLuI governmenL revenue reuched zz% oI GDP
due Lo Increused Lux revenue Irom Lhe new
hydroower rojecLs (Igure z.z). GovernmenL
revenue grew ruIdIy durIng mosL oI Lhe zooos,
und LoLuIed Nu1;. bIIIIon ($;q.1 mIIIIon) In zo11
(Igurez.z6).
Figure 2.24. Fiscal Balance (% of gross domestic product)
24
21
9
12
18
0
6
3
15
3
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Table 2.9. Department of Roads Estimated Costs of Routine Maintenance and Resurfacing
Routine Maintenance Resurfacing (7-year cycle)
Total km Cost/km ($) Cost/Annum ($) Km/Year Cost/km ($) Cost/Annum ($)
2,120 1,029.2 2,182,000.0 226 16,852.3 3,808,620.0
km = kilometer.
Note: Based on an annual maintenance cost of Nu109.1 million covering 2,120 km of roads, and resurfacing cost of Nu190.431 million covering 226 km of roads,
at Nu50/$1. Roads include national highways, district roads, feeder roads, and urban roads.
Sources: World Bank (2004b, 2006).
45
RevenuesIromLuxeshuveIncreusedIromq.q%
oIGDPInzoo6Lo16.1%Inzo11.ndeed,BhuLuns
Lux erIormunce hus Imroved sIgnIhcunLIy
sInce zoo; und exceeded LhuL oI ILs SouLh AsIu
comuruLors In Yzo1oJ11 (Igure z.z;). The
sIgnIhcunL Increuse In Lux revenue In Yzo1oJ11 cun
be uLLrIbuLed Lo Lhe more Lhun doubIe Increuse In
cororuLe Income Lux, Irom Nuz. bIIIIon Lo Nu.1
bIIIIon,owIngLoLhecommencemenLoIcoIIecLIonoI
cororuLe Luxes Irom Lhe TuIu hydroower rojecL.
Tux revenues In Yzo1oJ11 comrIsed ubouL 66%
oILheLoLuIgovernmenLrevenue.CororuLeIncome
Lux(whIchLoLuIedNu.1bIIIIon);excIseduLy(Nu1.6
bIIIIon); busIness Income Lux Irom Lour oeruLors,
conLrucLors, und oLher mIsceIIuneous busIness
enLILIes (Nu1.1 bIIIIon); und ersonuI Income Lux
(Nu;oq.q mIIIIon) huve uIso conLrIbuLed Lo Lhe
Lux revenue. Revenue coIIecLed Irom suIes Lux und
ImorLduLyLoLuIeduImosLNu1.qbIIIIon.
28
However, Lhe governmenL revenue erIor-

munce hus been voIuLIIe, reecLIng In urL u nurrow
LuxbuseundLheIImILedscoeoIeconomIcucLIvILy.
ThehydroowersecLorhusbeenumujorsourceoI
Lhe governmenL revenue und Is subjecL Lo u Iong-
Lerm rojecL cycIe und seusonuIILy. BhuLuns Lux
eIIorLsurecommendubIe,undLheLuxudmInIsLruLIon
couId be Imroved IurLher. GrowLh oI governmenL
revenueIssIowIngInzoo8zo1odueLoudecIIneIn
coIIecLIon Irom nonLux revenue sources und oLher
mIsceIIuneous receILs. urLher revenue meusures,
Lhrough broudenIng Lhe Lux buse und ImrovIng
28
Based on data from the Department of Revenue and Customs
forwarded by the Ministry of Finance in May 2013.
Figure 2.25. Total Government Revenue (% of gross domestic product)
0
15
10
30
20
25
5
35
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Nu = ngultrum.
Figure 2.26. Total Government Revenue (Nu million)
0
4,000
10,000
2,000
8,000
6,000
12,000
14,000
18,000
16,000
10
30
0
20
10
40
50
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
Total revenue (Nu million)
R
e
v
e
n
u
e

(
N
u

m
i
l
l
i
o
n
)
G
r
o
w
t
h

(
%
)
Growth (%)
46
Lux coIIecLIon, ure necessury Lo ensure udequuLe
hscuI suce.
9RODWLOHUHYHQXHDQGDLGRZVFDVWDVKDGRZ
RQWKHPHGLXPWHUPVFDORXWORRN
oreIgn uId hus been un ImorLunL source
oI hscuI revenue In BhuLun. GrunLs covered, on
uveruge, ubouL q.q% oI LoLuI exendILure durIng
zoo;-zo1z. n zo1z, grunL suorL heIed hnunce
6.q% oI LoLuI exendILure owIng Lo u shur rIse
In uId ows und Increused commILmenLs Irom
deveIomenL urLners. n zo1z, Lhe umounL oI
IoreIgn grunLs reuched $z8q.z mIIIIon (Nu1.
mIIIIon),or16%oIGDP(Igurez.z8).
nLernuLIonuI uId ows, however, ure execLed
Lo decIIne us BhuLun reuIIzes u hIgher IeveI oI er
cuILu gross nuLIonuI Income on Lhe buck oI ILs
sLrong economIc growLh. The RMA Annucl Report
zoopzo:o recognIzes LhuL Lhere Is no ussurunce
LhuL Lhe umounL oI IoreIgn grunLs wIII conLInue
Lo Increuse (RMA zo11u). Due Lo Lhe ImendIng
decIIne oI uId und grunL ows, BhuLun wIII need Lo
boosL ILs Lux eIIorLs subsLunLIuIIy goIng Iorwurd.
Igure z.zq shows how Lhe hscuI dehcIL wIII wIden
II grunL revenues ure ussumed Lo decreuse sLurLIng
In zo1, even II Lux revenues ure ussumed Lo
grow unnuuIIy by 16.q% und nonLux revenues by
q.o%, whIIe exendILures ure ussumed Lo grow by
1.8%unnuuIIy.
$ KHLJKWHQHG OHYHO RI SXEOLF GHEW SRVHV D
ULVN RI PHGLXPWHUP GHEW GLVWUHVV LI QRW
addressed properly.
BhuLunsubIIcdebLgrewruIdIyInLhezooos:
ILmoreLhunquudruIedIrom$1;1.mIIIIon(Nu;.;
Sources: ADB (2012c). Data for Bhutan are from the Department of Revenue and Customs forwarded by the Ministry of Finance in
May 2013.
Figure 2.27. Tax Revenue (% of gross domestic product)
0
5
15
10
20
India Maldives Sri Lanka Nepal Bangladesh
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Bhutan
Nu = ngultrum.
Source: RMA (2013).
Figure 2.28. Government Budget (Nu billion)
2007 2008 2009 2010 2011 2012
0
10
20
30
40
Total expenditure and net lending Foreign grants
47
bIIIIon) In zooo Lo ubouL $;18.q mIIIIon (Nuq.8
bIIIIon) In zooq (Igure z.o). AbouL 61% oI LoLuI
debL wus Incurred by Lhe hydroower rojecLs.
However, Lhe ruId rIse uIone does noL currenLIy
seem Lo LhreuLen debL susLuInubIIILy gIven Lhe
counLrys soIId economIc erIormunce, successIuI
ImIemenLuLIon oI hydroower rojecLs, und LheIr
commercIuIvIubIIILy.
ndeed, BhuLuns ubIIc debL ueurs under
conLroI, wILh ILs shure oI GDP gruduuIIy IuIIIng
Irom uImosL 8o% In zoo Lo ;% In zooq (Igure
z.1). There ure some mILIguLIng cIrcumsLunces
Ior BhuLuns ubIIc debL rIsk: (1) mosL oI ndIus
Iouns Lo BhuLun were on concessIonuI Lerms;
(z) BhuLuns hydroower secLor Is seII-IIquIduLIng
und commercIuIIy vIubIe due Lo Lhe sLrong energy
demund Irom ndIu, Lhereby mILIguLIng Lhe rIsks
oI deIuuIL or InubIIILy Lo reuy Lhose IoreIgn
obIIguLIons, und mILIguLIng Lhe cosL oI borrowIng;
und () BhuLun hus u good Lruck record In rojecL
ImIemenLuLIonundhusmuInLuInedgoodLIeswILh
ILsmujorcredILor,LheGovernmenLoIndIu.
GIven Lhe ruId rIse In ubIIc debL, however,
cIose monILorIng oI Iong-Lerm debL susLuInubIIILy
Is wurrunLed. The nLernuLIonuI MoneLury und
rojecLs LhuL Lhe ubIIc debL wIII rIse IurLher,
exceedIng11o%oIGDPInYzo1qJ1usuresuILoI
InvesLmenLs In Lhe hydroower secLor und rIsIng
Nu = ngultrum.
Note: The following growth rates have been assumed based on the 20012010 average: 13.8% for expenditures, 16.9% for tax revenues,
9.0% for nontax revenues, and 12.3% for grant revenues. The gure also shows two more scenarios for grant revenues: reduction by 25
% and 50% annually starting 2013, and no grants at all starting 2013.
Source: Calculations based on IMF, International Financial Statistics, accessed January 2013.
Figure 2.29. Bhutan Government Revenues and Expenditures
(with expected reduction in grant revenues, Nu billion)
10
15
25
20
45
40
30
55
50
35
60
Revenues (with no reduction in grants) Revenues without grants
Revenues (with 25% reduction in grants) Revenues (with 50% reduction in grants) Expenditures
2012 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015
Nu = ngultrum.
Figure 2.30. Total Bhutan Government Debt (Nu billion, current)
0
20
10
30
40
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
48
currenL sendIng (M zo11). The nLernuLIonuI
MoneLuryundsdebLsusLuInubIIILyunuIysIsshows
u moderuLe buL sLIII sIgnIhcunL rIsk oI debL dIsLress.
Assuch,debLmunugemenLremuInsurIorILyoIIcy
oI Lhe governmenL, us sLIuIuLed under ILs currenL
YP. EIhcIenL debL munugemenL und Imroved
revenue generuLIon ure essenLIuI Lo uvoId hscuI
shockInLheIuLure.
:LGHQLQJ FXUUHQW DFFRXQW GHFLWV UHTXLUH
more prudent macroeconomic management
DQG FORVH PRQLWRULQJ RI H[WHUQDO QDQFLQJ
ULVNV
BhuLun`s ersIsLenL currenL uccounL dehcILs
wILh ILs mujor LrudIng urLner, ndIu, LogeLher
wILhLhenguILrumegLoLhendIunruee,remuIn
u muIn source oI vuInerubIIILy Ior Lhe counLrys
hnuncIuI sysLem (BerLeIsmunn SLIILung zo1o). rom
1qqo unLII zo1o, umong SouLh AsIun economIes,
BhuLun regIsLered reIuLIveIy Iurge currenL uccounL
dehcILs, uverugIng 8.8% oI GDP. Comured wILh
oLher counLrIes In SouLh AsIu, BhuLuns currenL
uccounL buIunce (us u ercenLuge oI GDP) hus uIso
been hIghIy voIuLIIe, swIngIng Irom u dehcIL oI
uImosL o% oI GDP In zoo Lo u surIus oI 1.8%
oI GDP In zoo;. BhuLuns currenL uccounL buIunce
deLerIoruLed shurIy uguIn durIng zoo8zo1o,
reversIng Lo u dehcIL oI 1q.% oI GDP ($1qz.
mIIIIonorNu8.8bIIIIon)Inzo1o(Igurez.z).ThIs
deLerIoruLIonInzo1owusdueLousubsLunLIuILrude
dehcIL und sIow growLh In Lhe servIces und InvIsIbIes
uccounLs(RMAzo11u).
The mosL recenL RMA hgures showed LhuL
BhuLun`s currenL uccounL dehcIL In Yzo1oJ11
wIdenedLozz.z%oIGDPIurgeIybecuuseLheLrude
dehcIL worsened Irom $oq.o mIIIIon Lo $o.
mIIIIon (Nu1.q bIIIIon Lo Nuz. bIIIIon). ExorL
growLh hus been unubIe Lo kee uce wILh ImorL
Figure 2.31. Central Government Debt, Total (% of gross domestic product)
0
10
40
30
20
80
70
50
100
90
60
110
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Figure 2.32. Current Account Balance (% of gross domestic product)
40
20
25
30
35
15
5
0
10
15
10
5
20
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
49
growLh, urLIcuIurIy ImorLs Irom ndIu, whIch
Increused by q.q% (RMA zo1zu).
The resenL
AsIunDeveIomenLBunkrojecLIonsshowLhuLLhe
currenL uccounL dehcIL wIII IIkeIy ersIsL uL ubouL
zo% oI GDP In Yzo1 und Yzo1q, drIven by
sLrong demund Ior ImorLs reIuLed Lo hydroower
deveIomenL(ADBzo1).
TheRMAshouIdsLeuILseIIorLsLomonILor
exLernuI hnuncIng rIsks und muInLuIn udequuLe
IoreIgn reserves Lo ensure hnuncIuI sLubIIILy. As u
new hydroower rojecL cycIe Is sLurLIng, ImorLs
wIII conLInue Lo grow und currenL uccounL dehcILs
wIII wIden. ThIs wIII necessILuLe hnuncIng Lhe dehcIL
Lhrough u combInuLIon oI cuILuI Inows Irom
ndIu Ior ower IunL consLrucLIon, deveIomenL
ussIsLunce ows, IoreIgn dIrecL InvesLmenL, und
borrowIng. urLhermore, exLernuI hnuncIuI rIsks
muy urIse II IoreIgn uId ows dro und exunsIonury
hscuI und moneLury oIIcIes conLInue. PrudenL
mucroeconomIc munugemenL und eIIorLs Lo
enhunce domesLIc hnuncIng wIII be crILIcuI Lo ensure
mucroeconomIc und hnuncIuI sLubIIILy.
2.3.2. Microeconomic Risks
Government effectiveness is gradually
improving.
GovernmenL eIIecLIveness Is uIIecLed by
Lhe quuIILy oI ubIIc servIce rovIsIon und Lhe
bureuucrucy, Lhe comeLence oI cIvII servunLs, Lhe
Indeendence oI Lhe cIvII servIce Irom oIILIcuI
ressure, und Lhe credIbIIILy oI Lhe governmenLs
commILmenL Lo oIIcIes. The WorId Bunks onIIne
WorIdwIde Governunce ndIcuLors score more
Lhun zoo counLrIes on governmenL eIIecLIveness.
The muIn Iocus oI Lhe IndIcuLors Is on Lhe InuLs
requIred Ior Lhe governmenL Lo be ubIe Lo roduce
und ImIemenL good oIIcIes und deIIver ubIIc
goods. n Lhe IndIcuLors runkIng, BhuLun scores
Lhe hIghesL umong Lhe SouLh AsIun economIes.
AILhough ILs ercenLIIe runkIng droed Lo q
In zooq Irom ILs euk oI ;8 In zooo, IL hus been

ImrovIng gruduuIIy durIng zoo6zo11, reuchIng
;o.6Inzo11(Igurez.).
The Government of Bhutan has stepped up
HIIRUWVWRIXUWKHUFXUEFRUUXSWLRQ
BhuLun conLInues Lo be one oI Lhe IeusL
corruL counLrIes In SouLh AsIu. The WorId Bunks
WorIdwIde Governunce ndIcuLors reorL LhuL
BhuLun conLInues Lo Ieud Lhe regIon In Lerms oI
conLroIoIcorruLIon.ThecounLrysercenLIIerunk
remuIned uL ; In zooq und zo1o, Lhen droed
sIIghLIy Lo ;.q In zo11 (Igure z.q). BhuLuns
corruLIon erceLIon Index, us meusured by
Trunsurency nLernuLIonuI, Imroved Irom .o Lo
.;(onuscuIeoI1o).AccordIngIy,ILsrunkImroved
IromqqLh(oI18o)InzooqLo6Lh(oI1;8)Inzo1o
(T zo11). n Lerms oI hrms` InIormuI uymenLs
Lo ubIIc oIhcIuIs, BhuLun runks Lhe IowesL In Lhe
regIon(WorIdBunkzo1ob).
WhIIe some corruLIon exIsLs In BhuLun, IL Is
Iow reIuLIve Lo regIonuI und uII-counLry IeveIs. As
shown In TubIe z.1o, corruLIon Is consIdered us u
busIness consLruInL umong 6% oI Lhe hrms In Lhe
EnLerrIse Survey (WorId Bunk und C zooq).
BhuLunsAnLI-CorruLIonCommIssIon,esLubIIshed
In zoo6, hus IdenLIhed mIsuse oI resources, brIbery
Source: World Bank, WGI, accessed November 2012.
Figure 2.33. Government Eectiveness (percentile rank)
0
30
20
10
70
60
40
90
80
50
100
1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
50
undcoIIusIon,undneoLIsmussomemujorIormsoI
corruLIonencounLeredInLhecounLry.
The governmenL remuIns commILLed Lo
rooLIng ouL corruLIon In Lhe bureuucrucy. An
IncreusIng number oI cuses huve been reIerred Lo
Lhe AnLI-CorruLIon CommIssIon us IL dIIIgenLIy
romoLes uwureness oI ILs roIe. The rosecuLIons
ure un IndIcuLIon LhuL Lhe courLs ucLIveIy enIorce
unLIcorruLIon IegIsIuLIon (BerLeIsmunn SLIILung
zo1o).ConcurrenLIy,LheRoyuIAudILAuLhorILyhus
sLeed u eIIorLs Lo conducL uudILs, urLIcuIurIy
uL Lhe dIsLrIcL IeveI, where Iuck oI knowIedge
oI governmenL busIness rocesses cuuses
IneIhcIencIes und ossIbIe muIIeusunce. n uddILIon,
LheMInIsLryoIInunceIsrevIewIngLherocuremenL
munuuI In vIew oI sLrong evIdence Irom Lhe RoyuI
AudIL AuLhorILy LhuL Lhe consLrucLIon secLor hus
InherenL sLrucLuruI dehcIencIes In rocuremenL
(ADBzooq).
%KXWDQV SROLWLFDO VLWXDWLRQ LV VWDEOH ZLWK
the rule of law mostly upheld.
BhuLun runks Lhe hIghesL In Lerms oI oIILIcuI
sLubIIILy In Lhe regIon, uILhough ILs ercenLIIe runk
cumedownquILeubILIromoverqodurIngLhemId-
zooos Lo ubouL ; In Lhe IuLe zooos (Igure z.).
RecenL InvesLmenL surveys conhrm LhuL oIILIcuI
InsLubIIILy Is noL consIdered u sIgnIhcunL consLruInL
LodoIngbusInessInBhuLun.
n Murch zoo8, Lhe counLry heId ILs hrsL
nuLIonuI eIecLIons, wILh u voLer LurnouL oI ;q.q%.
ocuI eIecLIons LrunsIred euceIuIIy In Junuury
zo11undLheLrunsILIonrocessLouIuIIurLIcIuLory
democrucyhusroceededsLeudIIy.
or u counLry In LrunsILIonhuvIng chunged
Irom u monurchy Lo u urIIumenLury democrucy
onIy In zoo8BhuLun comures IuvorubIy wILh ILs
SouLh AsIun neIghbors In Lerms oI Lhe ruIe oI Iuw.
LmuInLuInedILsercenLIIerunkuLubouL6odurIng
zoozo11. Ls voIce und uccounLubIIILy hus uIso
beenImrovIngsIIghLIysIncezoo,LhoughILIeIILo
zInzo11IromqInzo1o(Igurez.).
The Indeendence oI BhuLuns judIcIury wus
hrmIy und exIIcILIy esLubIIshed under Lhe JudIcIuI
ServIce AcL oI zoo;. The judIcIury hud esLubIIshed
ILsIndeendenceLhroughuserIesoIdecIsIonsInLhe
1qqos.WhIIeLheconsLILuLIonmunduLesuseuruLIon
oIowers,LheresIduuIuuLhorILyundresLIgeoILhe
Table 2.10. Bhutans Corruption Indicators (%)
Corruption Bhutan Region
All
Countries
Firms Expected to Make
Informal Payment to Public
Ocials to Get Things
Done
10.1 37.3 25.3
Firms Expected to Give Gifts
to Get an Operating
License
1.4 19.9 15.0
in Meetings with Tax
Ocials
2.5 31.3 15.6
to Secure a Government
Contract
7.0 27.8 23.5
Firms Identifying Corruption
as a Major Constraint
6.0 33.6 35.9
Source: World Bank and IFC (2009).
Figure 2.34. Control of Corruption (percentile rank)
1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
30
20
10
70
60
40
90
80
50
100
51
monurchuIsoserveusuowercenLer(BerLeIsmunn
SLIILungzo1o).
The WorId Bunk (zo1ob) nvesLmenL CIImuLe
AssessmenL reorLs LhuL BhuLun enjoys u suIe und
sLubIe envIronmenL. Among BhuLuns comuruLor
counLrIes, IL hus Lhe IowesL shure oI hrms uyIng Ior
securILyundreIuLIveIyIowIossesdueLorobberyund
vunduIIsm. OnIy % oI hrms In BhuLun reorLed
uyIng Ior securILy comured wILh Lhe o% SouLh
AsIun uveruge. Irms In BhuLun uIso huve Lhe
IowesLerceLIonoIcrIme,LheIL,unddIsorderusu
consLruInL Lo doIng busIness-Iess Lhun % oI hrms
erceIve LhIs us u mujor obsLucIe, comured wILh
z1%umongLhecomuruLorcounLrIes.
*OREDO FRPSHWLWLYHQHVV DQG HDVH RI GRLQJ
EXVLQHVVH[KLELWQDVFHQWSURJUHVV
nLermsoIeuseoIdoIngbusIness,usshownIn
Igurez.6,BhuLunsoveruIIrunkhusdeLerIoruLed
Irom 1z6Lh (oI 18) In zooq Lo 1q8
Lh
(oI 18) In
zo1z und remuIns Lhe IowesL In Lhe regIon (WorId
BunkundCzo1,zo1o).ThedecIIneInLhezo1z
runkIng Is muInIy becuuse no new reIorms were
underLukenInzo1z.
BhuLun Iures reIuLIveIy weII In Lerms oI cosL
oIsLurLIngubusIness,uL6.%oIIncomeercuILu
(comured wILh Lhe uveruge oI z1.6% Ior SouLh
AsIu), buL Lhe rocess In BhuLun Is more LedIous,
requIrIng8roceduresund6duys,comuredwILh
; rocedures und 1q duys on uveruge Ior counLrIes
InSouLhAsIu.ConLrucLenIorcemenLLukeszzduys
Lo comIeLe, wILh q; rocedures uL u cosL oI onIy
o.1%oIucIuIm,versusunuverugeoI1,o;duys,q
rocedures,unducosLoIz;.z%oIucIuImIoroLher
counLrIes In Lhe regIon. BhuLun hus Imroved Lhe
Figure 2.35. Other Governance Indicators (percentile rank)
Voice and accountability Rule of law Political stability
1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
30
20
10
70
60
40
90
80
50
100
Source: Doing Business reports (World Bank and IFC 2010, 2011, 2012, 2013).
Figure 2.36. Ease of Doing Business in Bhutan
2009
0 50 100 150 200
Enforcing Contracts
Paying Taxes
Registering Property
Starting a Business
Getting Credit
Dealing with Construction Permits
Protecting Investors
Trading Across Borders
Resolving Insolvency
2010 2011 2012
52
mosL In Lhe euse oI enIorcIng conLrucLs sInce zoo
(WorIdBunkundCzo1).
The counLry uIso Iures reIuLIveIy weII In Lerms
oI duys Lo obLuIn u busIness IIcense, bused on Lhe
nvesLmenLCIImuLeAssessmenLIorBhuLun(WorId
Bunk zo1ob). ObLuInIng u busIness IIcense Lukes
1q duys on uveruge In BhuLun, versus Lhe z;-duy
gIobuI uveruge. WhIIe securIng busIness IIcenses
und ermILs Is noL IdenLIhed us u mujor busIness
envIronmenL consLruInL, IL sLIII runked 6Lh oI 1
consLruInLsundwusIucedevenhIgherInLheLrude
secLor.
PuyIng Luxes In BhuLun runks ;1 ouL oI 18 In
Lhe DoIng BusIness Survey (WorId Bunk und C
zo1).BhuLunhusreIuLIveIyhIghLuxruLes,runkIng
q1sLoI18economIes.TuxruLesoILenrunkumong
LhehIghesLconsLruInLsLodoIngbusInessInBhuLun.
TheWorIdBunkundCs(zooq)EnLerrIseSurvey
runks Lux ruLes us Lhe Lo consLruInL consIdered by
uII hrms In BhuLun, second onIy Lo uccess Lo hnunce.
n Lhe WorId Bunks zo1o nvesLmenL CIImuLe
AssessmenL Ior BhuLun, more Lhun 16% oI uII hrms
IndIcuLed Lux ruLes us u consLruInL. BhuLuns LoLuI
Lux ruLe oI qo.8% oI rohL Is Lhe LhIrd hIghesL In Lhe
regIon, uILer ndIu und SrI unku (PwC, C, und
WorIdBunkzo11).ThIsdoesnLnecessurIIysuggesL
LhuL BhuLun shouId Iower Lux ruLes, esecIuIIy
gIven Lhe uncerLuInLy over Lhe medIum-Lerm
hscuI susLuInubIIILy, buL, II hIgh Lux ruLes ure noL
muLchedbyuhIghIeveIoIubIIcservIces,LhegIobuI
comeLILIveness oI Lhe hrms oeruLIng In BhuLun
wIII suIIer. The governmenL couId useIuIIy Luke u
hurdIookuLLhequuIILyoIubIIcservIcesrovIded
IorLheLuxesuId.
Some subIndIcuLors, such us uyIng Luxes,
geLLIngcredIL,unddeuIIngwILhconsLrucLIonermILs
showed some ImrovemenL durIng zooqzo1z,
whIIe Lhe resL deLerIoruLed. RemurkubIy, BhuLun
runkedLheIowesLInLermsoIresoIvIngInsoIvency,us
ILIucksLherequIsILeIeguIundreguIuLoryIrumework.
A deteriorating regulatory quality is a
EXVLQHVVFRQVWUDLQW
TheerceLIonoIreguIuLoryquuIILyInBhuLun
hus decIIned vIs-u-vIs oLher SouLh AsIun counLrIes.
BhuLunsercenLIIerunkdroedIromueukoI
InzooLoonIy11Inzo11,LheIowesLInLheregIon
(Igurez.;).
IrmsInBhuLungeneruIIyIncurhIghcosLsIor
reguIuLory comIIunce. A sIgnIhcunL umounL oI Lhe
LIme oI hrms` senIor munugemenL (16%) Is senL
deuIIng wILh reguIuLIons. SLrIngenL reguIuLIons on
LheLrunsorLoIgoodswILhInLhecounLrywereuIso
IdenLIhed us u mujor burrIer Lo doIng busIness, und
conLrIbuLe Lo Lhe Iosses LhuL u hIgh ercenLuge oI
hrms In BhuLun ussocIuLed wILh ground LrunsorL
cosLs(WorIdBunkzo1ob).
MIcroeconomIc rIsks In generuI muy noL be
u severe consLruInL In BhuLun. The governmenL,
however, couId consIder uddressIng emergIng
concernsubouLLhebusInessreguIuLIonenvIronmenL
und reguIuLory quuIILy, IncIudIng rocedures Ior
resoIvIng InsoIvency. ResoIuLIon oI Lhese Issues
wIII heI reduce Lhe cosL oI doIng busIness und
umeIIoruLeburrIersLorIvuLesecLorInvesLmenL.
Figure 2.37. Regulatory Quality (percentile rank)
1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
30
20
10
70
60
40
90
80
50
100
53
2.3.3. Market Failures
0DUNHW IDLOXUHV ZKHUHE\ VRFLDO UHWXUQV
exceed private returns to investment, can
lead to underinvestment.
ExLernuIILIes cun cuuse murkeL IuIIures by
comromIsIng Lhe rIce mechunIsm, whIch Is Lhen
unubIeLoLukeInLouccounLLheIuIIsocIuIcosLsund
socIuI benehLs oI economIc ucLIvILIes. Huusmunn
und RodrIck (zoo) urgue LhuL InLroducIng u
new Lye oI roducL undJor uddIng u new good
Lo Lhe exorL buskeL generuLes whuL Is reIerred Lo
us Lhe InIormuLIon exLernuIILy. or exumIe, II
u newIy InLroduced good or uIIcuLIon oI u new
LechnoIogy Is successIuI, IL cun be eusIIy coIed In
deveIoIng counLrIes due Lo Lhe ubsence oI uLenL
roLecLIon. n such cuses, Lhe rewurds oI success
ure shured by InvesLors who enLer onIy when Lhe
InILIuI enLrereneurs ucLIvILy hus been successIuI.
ConverseIy, In cuse oI IuIIure, Lhe cosLs ure borne
soIeIy by Lhe hrsL InvesLor. OLher kInds oI murkeL
IuIIures muy urIse due Lo coordInuLIon IuIIures
zq
und IeurnIng-by-doIng exLernuIILIes.

o
By IowerIng
execLed rIvuLe reLurns Lo InvesLmenL, murkeL
IuIIures muy InhIbIL enLrereneurs Irom venLurIng
InLo newer segmenLs oI Lhe munuIucLurIng secLor
undconsequenLIydeLerrIvuLeInvesLmenL,Lhereby
sIowIng or hInderIng sLrucLuruI LrunsIormuLIon,
whIchIsukeyLosusLuInedIong-LermgrowLh.
Bhutans low value-added and concentrated
manufacturing sector might indicate that
PDUNHWIDLOXUHVPD\EHDWZRUN
DesILe sLrong growLh In BhuLuns IndusLry,
ILs erIormunce hus been IurgeIy drIven by
Lhe hydroower und consLrucLIon subsecLors.
MunuIucLurIngremuInsureIuLIveIysmuIIsubsecLor,
uccounLIng Ior onIy ubouL one-hILh oI Lhe IndusLry
secLor.ThenurrowIybusedmunuIucLurIngsubsecLor
Is uIso domInuLed by u Iew mujor oeruLors und
muny smuII munuIucLurIng IunLs concenLruLed In
29
Coordination failures occur when a project requires many
complementary investments to be protable and private
investment might not be forthcoming because of the lack of
complementary public goods.
30
Learning externalities exist when a rm is not fully able to capture
the return on investments made in building the capacity of its
workforce as the investments may spillover to third parties if
trained workers move to a new employer, domestically or outside
the country.
Iood rocessIng und coLLuge IndusLrIes, Lhe IuLLer
owIng Lo BhuLuns good LImber resources und
IuvorubIeugrIcuILuruIcondILIons.
The level of production diversity and
sophistication is a good gauge of a countrys
long-term prospects.
EconomIc growLh und deveIomenL Is uccom-
unIed by successIuI sLrucLuruI LrunsIormuLIon.
EurIIer IILeruLure hus Iocused on Lhe roIe oI
munuIucLurIng exorLs In IucIIILuLIng sLrucLuruI
LrunsIormuLIon whereby Lhe economy moves
LowurdhIghvuIue-uddedsecLorsundImrovIngLhe
counLrys Iong-Lerm economIc rosecLs. A
key InsIghL Irom Lhe IILeruLure on sLrucLuruI
LrunsIormuLIon Is LhuL, In Lhe Iong run, u
counLrys Income Is deLermIned by Lhe nuLure
(I.e., Lhe sohIsLIcuLIon) und Lhe vurIeLy (I.e., Lhe
dIversIhcuLIon) oI Lhe roducLs IL mukes und exorLs
successIuIIy(HuusmunnundKIIngerzoo6;HIduIgo
eLuI.zoo;;Huusmunn,Hwung,undRodrIkzoo;).
AcounLrywILhusohIsLIcuLedexorLbuskeLIsIIkeIy
LohuveuccumuIuLeducomIexrungeoIroducLIve
cuubIIILIes. SImIIurIy, u dIversIhed exorL buse
IndIcuLesuwIderungeoIroducLIvecuubIIILIes.As
such, u sohIsLIcuLed und dIversIhed exorL buskeL
suggesLs Lhe counLry hus greuLer cuubIIILIes Lo
roduce more LechnoIogIcuIIy udvunced goods und
moveuLhevuIuechuInoverLIme,henceoIIerIngu
beLLerIong-LermrosecLIoreconomIcgrowLhund
deveIomenLLhunIsLhecuseIorcounLrIeswILhIess
sohIsLIcuLedunddIversebuskeLs.
%KXWDQV H[SRUW EDVNHW LV DPRQJ WKH PRUH
VRSKLVWLFDWHG RQHV LQ WKH UHJLRQ EXW VKRZV
little progress in its technological content.
EIecLrIcILy hus been BhuLuns Lo exorL In
LheIusLzdecudes.ExorLsoImIneruIIueIs(whIch
IncIude eIecLrIcILy) exunded Irom ubouL z% oI
LoLuI exorLs In Lhe eurIy 1qqos Lo ubouL q% In
zoo8zooq (Igure z.8). The munuIucLured
goods cuLegory, whIch IncIudes meLuI roducLs
undcemenL,husconsIsLenLIyLukenmoreLhunzo%
oI LoLuI exorLs, reuchIng uImosL o% In Lhe mId-
zooos beIore IuIIIng Lo ubouL zo% In zoo8zooq.
oodexorLs,onLheoLherhund,IncreusedLoubouL
z6%oILoLuIexorLsInzoo8zooqdueLoIncreused
exorLs oI sIces, urLIcuIurIy gInger In zoo8.
MeunwhIIe,chemIcuIundchemIcuIroducLs,whIch
huduhIghshureoILoLuIexorLsInLheeurIy1qqos,
54
huvedecreusedLouccounLIoronIyubouL%oILoLuI
exorLsInzoo8zooq.
AroducLssohIsLIcuLIoncunbemeusuredby
Lhe PRODY Index, whIch Is Lhe uveruge exorLIng
counLrIesGDPercuILuweIghLedbyeuchcounLrys
reveuIed comuruLIve udvunLuge Ior Lhe exorLed
commodILy.
1
The sohIsLIcuLIon oI u counLrys
exorLbuskeLcunLhenbemeusuredbyEXPY,whIch
IsLheweIghLedsumoILhePRODYvuIuesoIuIILhe
roducLs LhuL u counLry exorLs, wILh Lhe weIghLs
beIngLheshureoIeuchcommodILyInLhecounLrys
31
Sophistication of a product (PRODY) is the income level associated
with the products that a country exports. Following Hausmann,
Hwang, and Rodrik (2007), PRODY is calculated as follows:

PRODY
i
=
x GDPPC
C
,
xval
ci
xval
ci
xval
ci
xval
ci
c
c
i
i ( )

where XVAL
CI
is the export value of product I by country C and
GDPPCc is gross domestic product per capita in country C.
LoLuI exorLs.
z
SohIsLIcuLIon cuLures Lhe Income
conLenLoIucounLrysexorLbuskeL.AhIghervuIue
oI EXPY IndIcuLes LhuL Lhe counLry hus ucquIred
comIex cuubIIILIes LhuL muke IL eusIer Lo exorL
evenmoresohIsLIcuLedroducLs.
AsrecenLIyusLheeurIy1qqos,BhuLunsexorL
buskeL wus Lhe mosL sohIsLIcuLed In SouLh AsIu,
evenmoresoLhunLhuLoIndIu(Igurez.q).ThIs
wus IurgeIy becuuse BhuLun hud u hIgh shure oI
chemIcuI und chemIcuI roducLs und mIneruI IueIs
(whIchIncIudeeIecLrIcILy)InILsexorLbuskeLInLhe
eurIy1qqos(Igurez.8).However,usLheshureoI
chemIcuIundchemIcuIroducLshusIuIIenoverLIme,
sohusLheoveruIIexorLsohIsLIcuLIonuILhoughIL
IssLIIIumongLhehIghesLInLheregIon.
32
The measure of sophistication of a countrys export basket (EXPY) is
from Hausmann, Hwang and Rodrik (2007). It is a weighted average
of the sophistication level of the products that a country exports,
weights being share in the countrys exports. It is calculated
as follows:
EXPY
c
=
x PRODY
i
,
xval
ci
xval
ci
i
i

where XVAL
C I
is the export value of product I by country C.
n.e.s. = not elsewhere stated.
Note: Classication based on 1-digit Standard International Trade Classication (SITC) Revision 2. For each period, average shares are shown.
Source: Estimates based on datasets from UNComtrade, accessed December 2012.
Figure 2.38. Bhutans Average Export Values, Selected Periods (% of total)
0 10 20 30 40 50 60 70 80 90 100
20082009
20052007
19981999
19911994
Chemical and chemical products
Manufacturing goods Machinery and transport equipment
Miscellaneous manufactured articles Miscellaneous manufactured articles, n.e.s.
Food Beverages and tobacco
Crude materials Mineral fuels
Animal and vegetable oils
55
The reuson behInd Lhe hIgh sohIsLIcuLIon
oI BhuLuns exorL buskeL vIs-u-vIs comuruLor
counLrIes In Lhe regIon Is LhuL (Igure z.qo)
BhuLuns buskeL hus u Iurge shure (uImosL o%) oI
hIgh und medIum PRODY roducLs LhuL ure ubove
Lhe qoLh ercenLIIe In Lhe PRODY dIsLrIbuLIon.
33
The products are divided into ve groups based on the quintiles
to which they belong in terms of the distribution of the
sophistication level of the products. Group 1 is the top quintile, i.e.,
products whose sophistication level is above the 80th percentile.
Group 2 comprises products with sophistication level between
60th and 80th percentiles, group 3 is made of products with
PRODY between the 40th and 60th percentiles, and group 4 is
the second quintile with products of sophistication level between
the 20th and 60th percentiles. Group 5 is the bottommost
quintile, comprising products with sophistication level below the
20th percentile.
BhuLun hus Lhe second hIghesL shure (more Lhun
8%) oI exorL roducLs In Lhe hIgh PRODY grou
(grous 1 und z), und Lhe hIghesL shure (more
Lhun qo%) In Lhe medIum PRODY grou (grou
). ThIs Is muInIy becuuse chemIcuIs und chemIcuI
roducLs, whIch ure IncIuded In hIgh und medIum
PRODY grous, used Lo be umong BhuLuns mujor
exorLs In Lhe eurIy 1qqos und eIecLrIcILy, whIch Is
In grou , Is BhuLuns Lo exorL. n comurIson,
oLhercounLrIesInLheregIon(exceLndIuundLhe
MuIdIves)huveureIuLIveIyIurgeshure(8o%qo%)
oIIowsohIsLIcuLIonroducLs(I.e.,grousqund).
The overuII sohIsLIcuLIon IeveI oI BhuLuns
exorLs hus been sLugnunL (Igure z.q).
DIsuggreguLIng BhuLuns exorL buskeL by PRODY
grousshowsLhuLLheshureoIhIghIysohIsLIcuLed
Notes: For each period, average shares are shown. No export data are available for Bangladesh in 1999 and 20082009; Nepal, 20052008; Pakistan,
1994; and Sri Lanka, 1998.
Source: Authors estimates based on datasets from UNComtrade, accessed January 2013.
Figure 2.39. Sophistication of Export Baskets in South Asian Countries, Selected Periods
19911994 19981999 20052007 20082009
0
6,000
4,000
2,000
8,000
10,000
12,000
14,000
India Maldives Sri Lanka Nepal Pakistan Bhutan Bangladesh
(
2
0
0
5

$
)
Notes: No export data are available for Bangladesh in 20082009 and Nepal in 20052008. Groups 15 are the quintiles of the PRODY distribution.
Group 1 is the top quintile and Group 5, the bottom quintile.
Figure 2.40. Disaggregation of Exports by Technological Sophistication Group,
20052009 Average (% of total)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Sri Lanka
Pakistan
Nepal
Maldives
India
Bhutan
Bangladesh
Group 2 (PRODY between 14,123 and 18,746) Group 3 (PRODY between 9,729 and 14,124)
Group 4 (PRODY between 5,056 and 9,730) Group 5 (PRODY less than 5,057)
Group 1 (PRODY greater than 18,745)
56
roducLs In LoLuI exorLs hus decIIned Irom un
uveruge oI zz% In 1qq11qqq Lo onIy 6% In zoo8
zooq(Igurez.q1).BuLruIdexunsIonoIPRODY
grou , whIch IncIudes eIecLrIcILy, hus heIed
BhuLun Lo muInLuIn Lhe overuII sohIsLIcuLIon IeveI
oI ILs exorLs. The shure oI PRODY grou In
BhuLunsexorLroducLsIncreusedIromubouL1%
oI LoLuI exorLs In 1qq11qqq Lo over qz% oI LoLuI
exorLsIrom1qqqon.
Moreover, although Bhutan successfully
exports some sophisticated products, the
FRXQWU\V FDSDELOLWLHV WR SURGXFH UHPDLQ
XQGHUH[SORLWHG GXH WR D ODFN RI SURGXFWLRQ
diversity.
ProducLIve cuubIIILIes ure oILen roducL-
secIhc. Such cuubIIILIes IncIude knowIedge
ubouL Lhe roducL, hysIcuI usseLs, InLermedIuLe
InuLs,IuborreIuLIons,IuborLruInIngrequIremenLs,
LechnoIogy, murkeLIng, InIrusLrucLure, roerLy
rIghLs, reguIuLory requIremenLs, und oLher ubIIc
goods. A counLry LhuL hus umussed roducLIve
cuubIIILIesInoneroducLmuyhuveucomuruLIve
udvunLuge In roducIng whuL Lhe PRODY Index
Lerms neurby roducLs, whIch use sImIIur
cuubIIILIes. However, II Lhere ure Iew neurby
roducLs und Lhe exIsLIng roducLs ure noL weII
connecLedLhuL Is, Lhe counLrys currenL seL oI
cuubIIILIescunnoLbeeusIIyuIIcubIeInroducIng
oLher roducLs-Lhe counLry wIII hnd IL dIIhcuIL
Lo exund ILs roducL cuLegorIes. n LhIs conLexL,
LrunsIerubIIILy oI LechnoIogy ucross roducLs cun
be guuged by Lhe IeveI oI Lhe counLrys roducLIon
Notes: Groups 15 are the quintiles of the PRODY distribution. Group 1 is the top quintile and Group 5, the bottom quintile.
Source: Authors estimates based on datasets from UNComtrade, accessed January 2013. For each period, average shares are shown.
Figure 2.41. Disaggregation of Exports by PRODY Group for Bhutan, Selected Periods (% of total)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
20082009
20052007
19981999
19911994
Group 2 (PRODY between 14,123 and 18,746) Group 3 (PRODY between 9,729 and 14,124)
Group 4 (PRODY between 5,056 and 9,730) Group 5 (PRODY less than 5,057)
Group 1 (PRODY greater than 18,745)
dIversILy und Lhe roxImILy oI ILs roducLs Lo Lhe
core cIusLer oI roducL suce. Box z. (. 8-q)
rovIdes Lhe roducL suce unuIysIs Ior BhuLuns
exorLsusIngLheroducLsucemus.
BhuLuns exorL buskeL hus IImILed dIversILy,
wILh u Iew roducLs LhuL ure In reIuLIveIy
sohIsLIcuLedcuLegorIesbuLureIurIromLhecore
cIusLer oI roducL suce. ThIs cun be exumIned by
IookIng uL Lhe number oI roducLs LhuL BhuLun
exorLssuccessIuIIy.
q
OnecunsuyucounLryexorLs
u roducL successIuIIy when Lhe roducLs shure
In Lhe counLrys LoLuI exorLs ure Iurger Lhun ILs
shure In Lhe worId Lrude. ThIs Is uIso reIerred Lo us
u counLrys reveuIed comuruLIve udvunLuge Ior
exorLIngLhuLroducL.
ThenumberoIroducLsIorwhIchBhuLunhus
ureveuIedcomuruLIveudvunLugehusremuInedIow
overLheyeurscomuredwILhoLhercounLrIesInLhe
regIon (Igure z.qz). urLher, Lhe dIversIhcuLIon oI
34
Hidalgo et al. (2007) propose using the number of
products exported with revealed comparative advantage
as a measure of diversication. Revealed comparative
advantage (RCA) is dened, based on Balassa (1965), as:
RCA
c i
=
,
xval
ci
xval
ci
xval
ci
xval
ci
c
i
i, c

where xval
ci
is the value of the exports of country c in the
product i. RCA is larger than one.
57
BhuLunsexorLbuskeL,I.e.,LhenumberoIexorLed
roducLs wILh reveuIed comuruLIve udvunLuge,
hus noL chunged much In Lhe IusL zo yeurs
(;commodILIesIn1qq1Loq1commodILIesInzooq).
MosL oI Lhe roducLs wILh reveuIed comuruLIve
udvunLugesInce1qq1ureugrIcuILuruIroducLsund
ruwmuLerIuIs.
BhuLunsexorLbuskeLuIsoIncIudesuIImILed
number oI core roducLs.
Core roducLs
consIsL oI chemIcuIs, muchInery, und meLuIs, und
on uveruge ure consIdered more sohIsLIcuLed
und requIre u wIder und more comIex runge oI
cuubIIILIes Lhun oLher roducLs. The number oI
core roducLs LhuL BhuLun exorLed wILh reveuIed
comuruLIveudvunLugeIncreusedIromIn1qq1Lo
1oInzooqbuLremuInssmuIIvIs-u-vIscomuruLor
counLrIes.SIxoILhe1ocoreroducLsuremeLuIsund
ure chemIcuIs, whIch Ied Lo Lhe hIgh vuIue oI Lhe
sohIsLIcuLIon runkIng oI BhuLuns exorL buskeL
(Igurez.q).
%KXWDQV H[SRUW EDVNHW LQGLFDWHV OLPLWHG
WHFKQLFDO WUDQVIHUDELOLW\ RI LWV FXUUHQW VHW
RI FDSDELOLWLHV DQG KHQFH WKH SUHVHQFH RI
PDUNHWIDLOXUHV
BhuLuns exorL buskeL cun be churucLerIzed
us reIuLIveIy sohIsLIcuLed buL InsuIhcIenLIy
dIversIhed. The Iuck oI dIversILy In BhuLun`s exorLs,
esecIuIIy wILh concenLruLIon In onIy u Iew core
35
The denition of core products is from Hidalgo et al (2007).
= no export data.
Note: No export data are available for Bangladesh in 1999 and 2009 and for Nepal in 2005.
Figure 2.42. Average Product Diversication: Products with Comparative Advantage,
1991, 1999, 2005, and 2009 (all products)
1991
50
37
27
35
76
94
44
194
34
101
95 96
78
46
29
240
120118
41
23
224
121
126
116

177
1999 2005 2009
0
100
50
150
200
250
300
India Maldives Sri Lanka Nepal Pakistan Bhutan Bangladesh
roducLs,IendsIILLIeoorLunILyIorLhecounLryLo
exund ILs roducLIve cuubIIILIes Lo new roducL
cuLegorIes.AsLhecurrenLseLoIcuubIIILIesIseusIIy
LrunsIerubIe,newroducLswIIIrequIreunewseLoI
cuubIIILIes. AcquIrIng u new seL oI cuubIIILIes Is
cosLIy und LhIs muy dIscouruge InvesLmenL In new
economIc ucLIvILIes. As such, murkeL IuIIures ure u
crILIcuIconsLruInLInLheconLexLoIBhuLun.
The Tenth FYP espouses a national industrial
policy and strategy that aims to expand and
diversify Bhutans industrial and export
EDVH LQFUHDVH SURGXFWLYLW\ DQG YDOXH
addition, and retain an accelerated pace of
hydropower development.
UnderLheTenLhYP,IndusLrIuIIzuLIonexLends
beyond Lhe munuIucLurIng secLor, Lo encomuss
oLher economIc ucLIvILIes such us hydroower,
LourIsm,cuILuruIIndusLrIes,undInIormuLIonund
communIcuLIons LechnoIogy. CuILuruI IndusLrIes
InvoIves Lhe creuLIon und roducLIon oI goods und
servIces LhuL ure cuILuruI In nuLure und deuI wILh
herILuge,IILeruLure,erIormIngurLs,undLhemedIu.
The TenLh YP uIso cuIIs Ior suorL Ior cuILuruI
hundIcruILsundLexLIIesundIormIneruIsLhuLneed
LoberocessedbeIoreexorLIng.TheYPseeksLo
esLubIIsh IndusLrIuI esLuLes und urks und secIuI
economIc zones Lo sLrengLhen Lhe munuIucLurIng
buse. n romoLIng susLuInubIe IndusLrIuI deveIo-
menL, Lhe governmenL wIII Iocus on MSMEs,
cooeruLIves,undwomenenLrereneurs.
58
Box 2.5. Product Space Analysis
H
ausmann and Klinger (2006) pioneered product space analysis as a methodology to analyze structural transformation
of an economy. They specically analyzed a key aspect of structural transformationproduct diversication.
Furthermore, Hidalgo et al (2007) created a mapping of products across global economies (Box Figure 2.5.1). This accounts for
proximity by computing the probability of a country having a comparative advantage in one product given its comparative
advantage in another product. Proximity measures capabilities that are used to produce one product, capabilities that
can also be used to produce another product. (Capabilities could include knowledge about the product, physical assets,
intermediate inputs, labor relations, labor training requirements, technology, marketing, infrastructure, property rights,
regulatory requirements, and other public goods.) Hidalgo et al. explain further using the analogy that the product space
is a forest, with trees as the products and monkeys as rms. A monkey can easily jump to nearby (proximate) trees but
needs to exert a gargantuan eort to transfer to far away trees. If the monkey is in the clustered portion of the forest, the
monkey has more opportunities to jump from one tree to another. The stock of capabilities accumulated jumping from
tree to tree will serve the monkey well in the future. In summary, the capabilities that rms learned in producing several
products (diversication) can lead to the development of more high-end products (sophistication).
Hidalgo et al. (2007) measured the distance (proximity) of each pair of products and developed the concept of product
space. They applied network theory to visualize the distance between products by their relative similarities in needed
capabilities. Hidalgo et al. used an international trade dataset based primarily on the Standard International Trade
Classication (SITC) Revision 2 disaggregated at the 4-digit level. Data were available for 773 products. The node size is
proportional to the world trade value. The map is highly heterogeneous, with the dense part representing many products
that are closely connected to each otherparticularly machinery, chemicals, and capital-intensive products. This indicates
the ease with which rms can move from one commodity to another. In the periphery, products such as natural resources,
primary products, and agricultural products are weakly connected to others. This indicates diculty of moving from these
products to other products
Box Figure 2.5.1. Product Space
Oil
Cereals
Fishing
Garments
Metallurgy
Textiles
Chemicals
Electronics
Vehicles
Mining
Tropical
Agriculture
Animal
Agriculture
Forest
Products
59
Box Figure 2.5.2 shows the product space maps for Bhutan by plotting Bhutans exports on the product space map
shown in Box Figure 2.5.1. The following gure shows the product space at four points in time. As discussed in the
main text, Bhutans exports are far away from the core of the product space. Thus, even though Bhutan has some
complex capabilities and is successfully exporting some sophisticated products, there are no products nearby, i.e., the
capabilities used in those products are not easily transferrable to other products. Bhutans orientation in the product
space has not changed much over time.
Notes: Black squares represent export products with revealed comparative advantage (RCA 1). Refer to Box Figure 2.5.1 for colors and sizes of circles,
and sizes of nodes.
Source: Estimates based on datasets from UNComtrade, accessed January 2013, and the product space program from Hidalgo et al. (2007).
Box Figure 2.5.2. Bhutan Product Space Maps
1991 1999
2005 2009
60
The product space analysis for Bhutans
H[SRUWV FDQ VXJJHVW D VHW RI QHDUE\
products with a high strategic value.
The roducL suce unuIysIs cun be used Lo
IdenLIIy roducLs LhuL ure noL currenLIy exorLed
wILh reveuIed comuruLIve udvunLuge buL LhuL ure
neurby, reIuLIveIy sohIsLIcuLed, und huve u hIgh
sLruLegIc vuIue. These ure shown In Igures z.q
und z.qq.
6
Igure z.q shows Lhe roducLs LhuL
ureneurby,uLumIddIedIsLunce,orIuruwuy
;
Irom
Lhe seL oI roducLs currenLIy exorLed successIuIIy,
undLhuLuremoresohIsLIcuLed(I.e.,huveuhIgher
PRODY) Lhun Lhe currenL overuII sohIsLIcuLIon oI
BhuLuns exorL buskeL (I.e., EXPY). or exumIe,
mIIkundduIryroducLs(suchuscheeseundcreum),
meuLs, und wooI ure umong Lhe neurby roducLs
wILh hIgher sohIsLIcuLIon, buL ure noL beIng
IuIIy exIoILed und ure noL beIng IncIuded In Lhe
governmenLs LurgeL roducLs. As Lhese roducLs
ure more sohIsLIcuLed Lhun Lhe currenL uveruge,
venLurIng InLo Lhem couId Increuse Lhe overuII
sohIsLIcuLIonoIBhuLunsexorLbuskeL.
The Lo zo roducLs wILh Lhe hIghesL PRODY
Ior euch oI Lhe neurby, mIddIe, und Iur uwuy
cuLegorIes ure resenLed In Igure z.q us orunge
doLs. or comurIson, Lhe secLors LurgeLed under
LheTenLhYPureuIsoshown(InbIuckundgrey).
8
WhIIeLhereuresomeoverIusInLheneurbyundLhe
LurgeL roducLs, such us some meLuI roducLs und
IerLIIIzers,mosLoILheLurgeLedsecLorsureeILheruL
36
Given the landlocked nature of Bhutan, Standard International
Trade Classication (SITC) 2-digit code 03 (Fish) was excluded from
the analysis. Also, as Bhutan is not a known exporter of oil and gas,
SITC 2-digit codes 33 (petroleum and petroleum products) and 34
(gas) were excluded.
37
In a path-dependent view of development, as is the case under
product space analysis, the kind of products a country produces is
important to the process of structural transformation. This means
the orientation of a country within the product space is important,
i.e., whether it is in the dense or the sparse part of the product
space. This matters for successfully exporting a new product and
the ease with which the current capabilities in the economy can
be adapted to a new product. If a product is in the dense part
of the product space, it is easier to nd products that use similar
capabilities. In other words, a product with high density is nearby
other products. Distance is thus the inverse of density.
38
As the sectors targeted under the Tenth FYP fall into very broad
categories, all products within those sectors, at the SITC 2-digit
level, have been assumed to be targeted for the purpose of this
exercise. As a result, the exercise here may be overstating the
targeted products. The sectors considered to be targets, in terms of
the SITC-2digit codes, are crude fertilizer and crude minerals (27),
metalliferous ores (28), textile yarn and fabrics (65), nonmetallic
minerals (66), iron and steel (67), nonferrous metals (68), and
manufactures of metals not elsewhere specied (69).
mIddIe or Iur uwuy dIsLunces. CreuLIng InvesLmenL
oorLunILIesLoroduceundexorLLheseroducLs
cunheIBhuLunLoexundILsroducLIvecuubIIILIes
undenhunceILsIong-LermgrowLhrosecLs.
AnoLher ImorLunL quesLIon couId be whIch
roducLs huve Lhe hIghesL oLenLIuI Ior uIIowIng
BhuLuns roducLIon Lo eusIIy move Lo oLher
roducLs. ThIs Is meusured usIng whuL Huusmunn
undKIInger(zoo6)reIerLousLhesLruLegIcvuIue.
The sLruLegIc vuIue oI u roducL meusures how Lhe
execLedvuIueoIunexIoILedoorLunILIeschunges
II BhuLun were Lo successIuIIy exorL, I.e., ucquIre
reveuIed comuruLIve udvunLuge, In u urLIcuIur
roducL.
q
The sLruLegIc vuIue oI u roducL Is u
roxy Ior Lhe sIIIovers derIved Irom successIuIIy
exorLIng LhuL urLIcuIur roducL. NoL uII roducLs
wouId huve Lhe sume ImucL Ior IuLure growLh.
ProducLs LhuL ure In Lhe core oI Lhe roducL suce
ureweIIconnecLedLooLherroducLsundexorLIng
such roducLs wouId meun LhuL Lhese cuubIIILIes
couIdbeusedInuvurIeLyoIoLherroducLs.noLher
words, by successIuIIy exorLIng cerLuIn roducLs,
LheroducerscouIduIyLheucquIredcuubIIILIes
LoroduceoLherroducLs.SuchroducLsuresuIdLo
huveuhIghsLruLegIcvuIue.
Igurez.qqhIghIIghLsLheLozoroducLswILh
Lhe hIghesL sLruLegIc vuIue Ior euch oI Lhe neurby,
mIddIe, und Iur uwuy cuLegorIes (shown In orunge
doLs). WhIIe Lhere ure some overIus (such us
meLuI roducLs) beLween Lhe Lo zo roducLs LhuL
ure neurby und huve u hIgh sLruLegIc vuIue und Lhe
roducLs LurgeLed under Lhe TenLh YP (shown In
bIuck und grey), muny oLhers (e.g., mIIk und duIry
roducLs such us cheese und creum, und some oIIs
underIumes)urenoLInLheLurgeLgroubuLhuveu
hIghsLruLegIcvuIueundureneurbyLoLhecurrenLseL
oIcuubIIILIes.SuccessIuIIyexorLIngLheseroducLs
(I.e.,ucquIrIngreveuIedcomuruLIveudvunLuge)cun
heI Increuse BhuLuns roducLIve cuubIIILIes Lo
roduceoLherroducLsoveruerIodoILIme.
39
The strategic value of each unexploited product (product j) is the
potential contribution of that product to the open forest if it is
assumed to be exported with comparative advantage. It can be
dened as

Strategic Value
j
=

(1 - x
i
)%PRODY
i
,
i j
i j
i
j

where x
i
= 1 if the product i has comparative advantage, and x
i
= 0
if the product i does not have comparative advantage.
61
%KXWDQVFXUUHQWFDSDELOLWLHVKRZHYHUVHHP
limited relative to those of other developing
economies in Asia, presenting further
FKDOOHQJHVRISURGXFWGLYHUVLFDWLRQ
BhuLuns unexIoILed oorLunILIes (uIso
shown In Igures z.q und z.qq) ure Iur uwuy
when comured wILh Lhose oI oLher counLrIes.
BhuLuns neurby roducLs ure even IurLher uwuy
Irom Lhe Iur uwuy roducLs oI uII Lhe comuruLor
Legend: orange circles = top 20 products in terms of PRODY of each density group
black circles = Bhutans target products for diversication
dark gray circles = products with PRODY higher than EXPY
light gray circles = products with PRODY lower than EXPY
Notes: Distance is measured as the log of the inverse of density (discussed further below). The three distance groups created are (1) the nearby group
with distance less than 0.75 standard deviation below the average of all unexploited products; (2) the middle group with distance between 0.75
standard deviations around the average; and (3) the far away group with distance at least 0.75 standard deviation above the average. The grey circles
represent the unexploited opportunities, i.e., products that are currently not exported with revealed comparative advantage. Among the unexploited
products, only those with a level of sophistication (PRODY) higher than that of Bhutans export basket (EXPY) (dark gray circles) were considered for
selection as target products (black circles) for diversication.
Density for a product i is dened as the sum of proximities between product i and all products that are exported with comparative advantage, scaled
by the sum of all proximities leading to product i (Path i): By denition, density ranges between 0 and 1. The closer the density of a product is to 1, the
nearer the product is to the countrys current export basket.
Density
i
=
j (comparative advantage)
i j
i j
j (all)
Where is equal to proximity and Y is equal to path.
Proximity is equal to
i j
= mi n { P( x
i
= 1| x
j
= 1) , P( x
j
= 1| x
i
= 1) } ,
Where xi = 1 implies that, for every country C and commodity i, revealed comparative advantage (RCA
ci
) > 1.
Source: Estimates based on export database from UNComtrade, accessed September 2012.
Figure 2.43. Top 20 Products with the Highest Level of Sophistication, 2009 (selected by PRODY)
2.0
2.816> mean: 2.999
Middle Nearby Far Away
(mean-75%SD)
<3.182
(mean+75%SD)
2.5 3.0 3.5 4.0
0
20,000
30,000
10,000
40,000
P
R
O
D
Y

(
2
0
0
5

$
)
Distance
EXPY = 8,534
62
counLrIes(exceLLheMuIdIves),usshownInIgure
z.q.Thus,BhuLunsroducLIvecuubIIILIesureLoo
IImILedIorILLoenLerInLonewneurbyroducLsund
ure even more IImILed Ior exorLIng Lhe roducLs
LhuLureIuruwuy.ThIsruIsesuquesLIonubouLhow
much BhuLun cun benehL Irom Lhe seL oI unexIoILed
roducLs. An unswer Is LhuL IL wouId be mosL eIhcIenL
IorBhuLunLoIocusonIyonLheneurbyroducLs
Lhe mosL sohIsLIcuLed ones or Lhe ones wILh Lhe
mosL oLenLIuI Ior sIIIovers (I.e., hIgh sLruLegIc
vuIue)orsomecombInuLIonLhereoI.
2.4. Conclusion
TheBhuLuneseeconomyIsexecLedLoconLInue
ILs hIgh growLh uLh buL more needs Lo be done Lo
susLuInLhIshIghgrowLh.DIugnosIsoIkeyusecLsoI
Lhe economy hus IdenLIhed hve crILIcuI consLruInLs
LhuL cun deruII ILs growLh-Iuck oI uccess Lo hnunce,
Iow educuLIon ouLcome, InudequuLe LrunsorL
neLwork, nurrow hscuI suce, und resence oI
murkeLIuIIures(TubIez.11).
Legend: orange circles = top 20 products in terms of PRODY of each density group
black circles = Bhutans target products for diversication
dark gray circles = products with PRODY higher than EXPY
light gray circles = products with PRODY lower than EXPY
Notes: Distance is measured as the log of inverse of density. The three distance groups created are (1) the nearby group with distance less than 0.75
standard deviation below the average of all unexploited products, (2) the middle group with distance between 0.75 standard deviations around
the average, and (3) the far away group with distance at least 0.75 standard deviation above the average. The gray circles represent the unexploited
opportunities, i.e., products that are currently not exported with revealed comparative advantage. Among the unexploited products, only those with a
level of sophistication (PRODY) higher than that of Bhutans export basket (EXPY) (dark gray circles) were considered for selection as target products (black
circles) for diversication.
Source: Estimates based on export database from UNComtrade, accessed September 2012.
Figure 2.44. Top 20 Products with the Highest Spillover Eect, 2009 (selected by strategic value)
2.0
2.816> mean: 2.999
Middle Nearby Far Away
(mean-75%SD)
<3.182
(mean+75%SD)
2.5 3.0 3.5 4.0
0
20,000
30,000
10,000
40,000
P
R
O
D
Y

(
2
0
0
5

$
)
Distance
EXPY = 8,534
63
Notes: Distance is measured as the log of the inverse of density. Orange lines represent the level of EXPY for Bhutan and grey lines for comparator countries.
Orange circles represent Bhutans unexploited products and grey circles represent comparator countries.
Source: Estimates based on datasets from UN Comtrade, accessed January 2013.
Figure 2.45. Unexploited Opportunities, 2009
Bhutan and Peoples Republic of China
Bhutan and Maldives
P
R
O
D
Y

(
2
0
0
5

$
)
Bhutan and Pakistan
Distance
Bhutan and India
Bhutan and Nepal
Bhutan and Sri Lanka
40,000
20,000
30,000
10,000
0
40,000
20,000
30,000
10,000
0
40,000
20,000
30,000
10,000
0
64
Table 2.11. Summary of Diagnosis of Constraints to Growth
Broad
Determinants
of Growth
Factors Aecting
Determinants
of Growth
Why is the Factor a Constraint to
Growth?
Critical Constraint or
Not?
Likely to
Impact
Inclusiveness?
Cost of Finance Access to nance % High real domestic interest rate
(because of low savings and limited
competition)
% Few alternative nancing options
(banks are the chief source)
% Negligible access to international
nance
% Inecient and ineective domestic
nancial intermediation
Critical (particularly for
micro, small, and
medium enterprises and
rural agriculture lending)
9
Social Returns
to Investments
Human capital % Low quality of education
% Labor force lacks adequate
education and necessary skills
% Shortage of high-level skills and
presence of skills gap.
Critical
9
9
9
Transport network % Mountainous geography
% Inadequate transport facilities
% Limited reach of the domestic
transport system
% Limited access to regional and
global markets
% Delays at ports
% Ineciencies at land border
cros-sings
Critical (particularly for
rural areas)
9
9
9
9
Electricity % Shortage of power during dry
winter months
Not critical
Telecommunications % Minimal competition Not critical
Irrigation % Limited funds for further develop-
ment
Not critical
Appropriability
of Returns to
Investments
Macroeconomic
risks
% Deteriorating scal balance
% Ination levels manageable but
continue to be a concern
% Volatile current account balance
% Increasing public debt
% High government expenditure
relative to gross domestic product
Critical (in the medium to
long term)
9
Microeconomic risks % Increasing cases of corruption
% Decline in regulatory quality
% High tax rates
Not critical
Market failures % Low technological content in
industry and lack of innovation
% Lack of diversity in the export
basket, limiting technical
transferability of production
capabilities
Critical
Critical Constraints to Reducing Poverty and Inequality
65
Chapter 3
Critical Constraints to Reducing
Poverty and Inequality
n decudes, BhuLun hus successIuIIy

reduced overLy Lhrough hIgh growLh und
Imroved socIuI rogrums. The shure oI Lhe
ouIuLIonIIvIngbeIowLhenuLIonuIoverLy
IIneIeIIIromz.z%Lo11.%InLheyeursLo
zo1z-u sIgnIhcunL uchIevemenL. WhIIe Lhe decIIne
wus more subsLunLIuI In ruruI Lhun In urbun ureus,
16.z% oI ruruI InhubILunLs remuIned oor uL Lhe
endoILheerIod,whIIeonIy1.z%oILheouIuLIon
In urbun ureus remuIned oor. ncome InequuIILy
wIdened, however, und Income dIsurILy remuIns
hIghreIuLIveLooLherurLsoISouLhAsIu.
ThIs chuLer IdenLIhes oLenLIuI burrIers Lo
IurLherreducLIonoIoverLyundIncomeInequuIILy
In BhuLun. The burrIers muy IncIude (1) u Iuck oI
roducLIve und decenL emIoymenL oorLunILIes;
(z) unequuI uccess Lo economIc oorLunILIes
such us educuLIon, heuILh, und oLher IucLors; und
()InudequuLesocIuIsuIeLyneLs.
3.1. Poverty and Inequality
Diagnostics Framework
A dIugnosLIcs urouch cun be emIoyed
Lo unuIyze usecLs oI economIc deveIomenL, In
uddILIon Lo growLh. The sume meLhods ure used In
conducLIngudeLuIIedunuIysIsLodeLermInebIndIng
consLruInLs und rIorILIze oIIcy resonses. n LhIs
chuLer, dIugnosLIcs ure used Lo IdenLIIy crILIcuI
consLruInLsLoreducIngoverLyundInequuIILy,und
LhusLoenhuncIngLheIncIusIvenessoIgrowLh.
GrowLh Is IncIusIve when uII segmenLs oI
socIeLy cun urLIcIuLe In und benehL Irom Lhe
oorLunILIes creuLed by growLh, whIIe receIvIng
udequuLe roLecLIon Irom economIc shocks und
LrunsILIons(AIIundSonzoo;).UsIngudIugnosLIcs
urouch, u dIugnosLIcs Lree cun Lruce key IucLors
Lo deLermIne Lhe bIndIng consLruInLs Lo greuLer
IncIusIon(Igure.1).
The uvuIIubIIILy oI roducLIve und decenL
emIoymenL oorLunILIes Is u key Lo ensurIng
IncIusIon.BuLeoIeneedLobeubIeLouccessLhese
oorLunILIes.nequILubIeuccesscunbeuLLrIbuLubIe
Lo weuk humun cuubIIILIes undJor un uneven
IuyIng heId, boLh oI whIch cun revenL eoIe Irom
urLIcIuLIngInLhegrowLhrocess.CerLuIngrous
oIeoIemuyhuveweukerhumuncuubIIILIesLhun
oLhers, urLIy due Lo unequuI uccess Lo educuLIon,
heuILh, cIeun wuLer, und oLher servIces. nequILy
In uccessIng oorLunILIes cun uIso be cuused by
unequuI uccess Lo InIrusLrucLure und roducLIve
usseLs, such us Iund und credIL. n geogruhIcuIIy
chuIIengedcounLrIessuchusBhuLun,InIrusLrucLure
Iuys u key roIe In romoLIng IncIusIon. ncIusIon
uIsorequIresLhuLgovernmenLrovIdessocIuIsuIeLy
neLsLomILIguLeLheeIIecLsoIexLernuIundLrunsILory
IIveIIhood shocks us weII us Lo meeL Lhe mInImum
needsoIduIIyIIIe(Zhuungzoo8).
The dIugnosLIcs Irumework uIso suggesLs
LhuL euch oI Lhe dehcIencIes jusL noLed (weuk
humun cuubIIILIes, uneven IuyIng heId, und
InudequuLe socIuI suIeLy neLs) muy, In Lurn, be
cuusedbydeeerIucLors,IncIudIngmurkeLIuIIures,
66
governmenL IuIIures Lo deIIver udequuLe ubIIc
servIces,undvurIousIormsoIsocIuIdIscrImInuLIon
und excIusIon. The key roIe oI Lhe governmenL In
romoLIngIncIusIvenessIsLouddressLhesemurkeL,
InsLILuLIonuI,undoIIcyIuIIures.
3.2. Productive Employment
Opportunities
BhuLuns growLh In recenL yeurs hus been
bused on cuILuI-InLensIve hydroower generuLIon,
unIndusLryLhuLcreuLesureIuLIveIyIImILednumber
oIjobs.TheconsLrucLIonoIowerInsLuIIuLIonsund
oLherInIrusLrucLure,uIongwILhLheLrunsorLsecLor,
IsmoreIuborInLensIve.TheseIInkugesLoLhehydro
secLorhuveLhuscreuLedemIoymenLoorLunILIes
In suorLIng ucLIvILIes. OveruII, however, Lhe
emIoymenL-generuLIngeIIecLsoIgrowLhhuvebeen
muLed und unemIoymenL hus rIsen. Job quuIILy
hus shown IImILed ImrovemenL durIng Lhe IusL
yeurs(RMAzo1zu).
AgrIcuILure Is Lhe muIn emIoyer, uccounLIng
Ior6z%oILheIuborIorce.ServIcesemIoyunoLher
zq% und IndusLry mukes u Lhe remuInIng q%. n
LheyeursLozo11,IndusLrysshureoIemIoymenL
rose by 1.6 ercenLuge oInLs und servIces by 1.o
ercenLuge oInL. ThIs IndIcuLes u gruduuI shIIL
In emIoymenL uLLerns, IoIIowIng sLrucLuruI
LrunsIormuLIon, Irom ugrIcuILure Lo oLher secLors.
EconomywIde Iubor roducLIvILy Is reIuLIveIy hIgh,
drIvenbyLhecuILuIInLensILyoIIndusLry,undIson
ur wILh SrI unku buL o% hIgher Lhun ndIu und
LwIce Lhe IeveI In BungIudesh. ubor roducLIvILy
Increused consIderubIy durIng Lhe zooos, drIven
by Lhe IndusLrIuI secLor (Igure .z). n eIIecL,
Increused Iubor roducLIvILy In IndusLry reecLs
hIgh reLurns Lo cuILuI. n conLrusL, ouLuL er
workerInugrIcuILureundservIceshussLugnuLedor
decIIned durIng Lhe IusL decude (Igure .). ThIs
Is worryIng, gIven LhuL over qo% oI Lhe Iubor Iorce
Is enguged In Lhese secLors und Lhe IImILed use oI
cuILuI meuns LhuL roducLIvILy uIIecLs Income
moredIrecLIy.
Figure 3.1. Diagnostics Framework for Constraints to Reducing Poverty and Inequality
Slow Rate of Poverty Reduction
and High Inequality
Lack of productive and decent
employment opportunities
Inadequate social
safety nets
Unequal access
to opportunities
Low economic growth due
to low levels of private
investment and
entrepreneurship
(follow the Growth
Diagnostics Framework)
Unequal access to
employment
opportunities
(follow the Unequal
access to opportunities
branch)
Uneven playing eld
- Unequal access to
infrastructure
- Unequal access to
productive assets (credit,
land)
Weak human capabilities
- unequal access to
education
- unequal access to health
- unequal access to other
social services
Exclusion
- Geographlcal excluslon
- Lconomlc excluslon
- Soclal excluslon
Inadequate public service delivery
- Llmlted resources
- Poor targetlng
- Poor governance
Market failures
Source: Asian Development Bank, Economics and Research Department.
67
Labor Market Dynamics
BhuLun hus u comIex Iubor murkeL.
1
A young
ouIuLIonoIschooIIeuversundurIseInIuborIorce
urLIcIuLIon huve Increused Iubor suIy. ndeed,
Iubor Iorce urLIcIuLIon rose sIgnIhcunLIy, Irom
6q%Lo;%durIng1qqzo1o.
z
nuddILIon,muny
IoreIgners enLer Lhe counLry Lo Luke LechnIcuI jobs
Ior whIch BhuLunese do noL ossess Lhe requIsILe
1
Unless otherwise indicated, gures in this section are from Bhutans
Labour Force Survey reports (MLHR various years).
2
In contrast, labor force participation declined in other South
Asian countries, except for the Maldives, between 1990 and 2010.
Bhutan now has the second highest rate in the region (World Bank
WDI, accessed January 2013).
skIIIs.oreIgnersuIsooccuymunuuIosILIonsLhuL
Lhe IocuI ouIuLIon Is noL InLeresLed In hIIIng.
On Lhe demund sIde, Lhe growLh rocess hus
creuLedjobs,buLnoLenoughLoubsorbLheIncreused
suIy. UnemIoymenL hus rIsen us u resuIL, Irom
ubouL 1.q% In zoo1 Lo ubouL z.1% In zo1z (Igure
.q). ThIs Is sLIII Iow, und unemIoymenL Is
urLIcuIurIyIowumongLheruruIouIuLIonwhere
IL Is neur 1.%und Lhe oorer segmenLs oI urbun
socIeLy.TheIowunemIoymenLIsexIuInedbyLhe
IuckoIsocIuIsecurILy,soLhuLmosLuduILsdonoLhuve
Lhe oLIon oI noL workIng. The Iow unemIoymenL
ruLe muy, LhereIore, musk consIderubIe under-
emIoymenL. ndeed, ubouL 1% oI eoIe cIussIhed
usemIoyedInzo1zworkedIessLhunqohourser
Note: Labor productivity is dened as gross domestic product (or output) per worker, in constant 2000 prices.
Source: Calculation based on World Bank, WDI, accessed January 2013.
Figure 3.2. Labor Productivity, South Asia ($)
0
7,000
6,000
8,000
9,000
5,000
4,000
3,000
2,000
1,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Nu = ngultrum.
Note: Labor productivity is dened as sector output per worker.
Source: Estimates based on UNdata (data.un.org), MLHR (various years), and NSB (2012).
Figure 3.3. Labor Productivity by Sector (Nu 000, constant 2000 prices)
Industry Agriculture Services
2000 2002 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
700
600
400
900
800
500
300
100
200
1,000
68
week.(SomeoILheunderemIoyedmuyoLLowork
urLLIme.)
n urbun ureus, jobIessness Is much hIgher,
huvIng rIsen sInce Lhe mId-zooos und reuchIng
.% In zo1z. YouLh unemIoymenL wus ;.z% In
zo1zundIncIudesmunyeducuLedurbundweIIers.
AbouL z% oI Lhe urbun unemIoyed huve hIgher-

secondury educuLIon und u IurLher z% huve
LerLIuryeducuLIon(Igure.).MunyyoungeoIe
do noL huve skIIIs Ior Lhe jobs on oIIer, however,
und muny LechnIcuI osILIons ure hIIed by workers
IromndIuundoLherurLsoISouLhAsIu.BhuLunese
youLh Lend noL Lo be InLeresLed In Lhese jobs und
LhusdonoLobLuInLherequIredskIIIs.nsLeud,Lhey
LruIn Ior und seek hIgher uyIng whILe-coIIur jobs,
esecIuIIyIngovernmenL,whereemIoymenLIsnoL
exundIng suIhcIenLIy Lo ubsorb Lhem uII. ThIs skIIIs
(undmoLIvuLIon)mIsmuLchheIsLoexIuInLherIse
oI urbun unemIoymenLu mujor chuIIenge IucIng
oIIcymukers. HIgher urbun unemIoymenL muy
uIsobeuIIecLedbymIgruLIonIromruruIureus.
q
RegurdIngLhenuLureoIemIoymenL,jusLover
;o% oI Lhe workIorce consIsLs oI own-uccounL und
IumIIyworkers(TubIe.1).ThIsercenLugechunged
very IILLIe durIng Lhe 6 yeurs Lo zo1z. The Iuck oI
chunge suggesLs LhuL growLh hus hud IILLIe ImucL
recenLIy In creuLIng more sLubIe und roducLIve
emIoymenL. The vusL mujorILy oI own-uccounL
und IumIIy emIoymenL Is InIormuI, uILhough
some own-uccounL workers ure roIessIonuIs. The
remuInIng o% oI Lhe workIorce consIsLs mosLIy
oI uId workers. They LyIcuIIy huve more reguIur
Income, beLLer socIuI roLecLIon, und Imroved
rosecLs Ior cureer deveIomenL. A Iook uL Lhe
rohIe oI occuuLIons IndIcuLes mIxed Lrends In job
quuIILy. The shure oI roIessIonuI, LechnIcuI, und
reIuLedworkersIncreusedIrom;.q%Loq.6%InLhe
6yeursLozo1z,uILhoughILwushIgheruL1z.o%In
zo11.DurIngLhesumeerIod,LheshureoIIow-IeveI
servIcejobsIncreusedIrom6.%Loq.1%,uILhough
IL IeII Lo jusL .;% In zo11. GeneruIIy, Lhe buIk oI
occuuLIons ure In IurmIng und oLher rImury
occuuLIons. Igure .6 IndIcuLes LhuL ubouL 18%
oILoLuIemIoymenLIswILhLhegovernmenL,ubIIc
cororuLIons,orurmedIorces,undubouLzz%IsIn
LherIvuLenonIurmsecLor.
3
About 7.3% of people with higher secondary education and 6.1%
of those with tertiary education were unemployed in 2012.
4
Districts that include urban centers (Gasa, Paro, Punakha, and
Thimphu) experienced a minimum 6% net intake of migrants
during 20002005 (Oce of the Census Commissioner 2006).
Thus, uccess Lo emIoymenL oorLunILIes
vurIes ucross IocuLIon und educuLIonuI uLLuInmenL,
us weII us by gender (Igures .;.q).
UnemIoymenL Is hIgh In urbun ureus, where IL
uIIecLsLheeducuLedyouLhdIsroorLIonuLeIy.ThIs
reecLs boLh u skIIIs und moLIvuLIon mIsmuLch und u
weuILhIucLor(munyeducuLedyouLhcunuIIordLobe
unemIoyed).nruruIureus,unemIoymenLIsIow
buL Lhe degree oI underemIoymenL und InIormuI
work (own-uccounL und IumIIy work) Is hIgher.
UneducuLedeoIeuremoreIIkeIyLobeInIormuIIy
emIoyed Lhun educuLed eoIe. Women ure
urLIcuIurIy dIsudvunLuged, IucIng hIgher IeveIs oI
unemIoymenL,underemIoymenL,undInIormuIILy
Lhunmen.
Sources: Labour Force Survey reports (MLHR various years).
Figure 3.4. Unemployment Rate in Urban
and Rural Areas (%)
2001 2003 2004 2006 2010 2011 2009 2012
0
5
6
3
2
1
4
8
7
Urban Rural Bhutan
Source: Labour Force Survey report (MLHR 2012).
Figure 3.5. Distribution of Unemployed People,
by Education Level, 2012 (%)
No schooling Primary
0 10 20 30 40 50 60 70 90 80 100
Rural
All areas
Urban
Secondary
Higher secondary Tertiary
69
Table 3.1. Characteristics of Employed People (%)
2006 2011 2012
Sector of Employment
Agriculture 62.8 60.2 62.4
Industry 7.6 9.2 8.5
Services 29.6 30.6 29.1
Nature of Employment
Agriculture: Own-account
workers
29.9 19.5
Agriculture: Family workers 25.8 39.5
Nonagriculture: Own-account
workers
11.9 10.2
Nonagriculture: Family workers 3.3 1.7
Total own-account and
family workers
70.9 70.9
Regular paid employees 23.4 24.0 23.8
Casual paid employees 5.8 4.2 3.6
Piece/contract paid workers 0.6 1.6
Employer 0.2 0.2 0.1
Occupation
Professional, technical,
and related workers
7.9 12.0 9.6
Administrative, executive,
and managerial
1.0 1.4 1.9
Clerical 2.6 2.2 1.8
Sales 9.2 9.8 8.3
Farmers, shers, hunters,
loggers, and related workers
60.6 59.1 61.9
Craftspeople, production-
process workers
8.7 9.6 5.2
Service workers
a
6.3 3.7 9.1
Armed forces 3.8 2.2 2.1
Sex
Male 56.7 52.6 49.0
Female 43.3 47.4 51.0
Age
Youth (age 1524) 19.6 15.5 13.5
Prime adult (age 2544) 51.3 55.1 53.8
Mature adult (4564) 29.1 29.3 32.7
Educational Attainment
No schooling 69.2 66.3 65.6
Primary 12.4 10.5 10.6
Lower secondary 13.4 13.5 13.7
Higher secondary 3.1 5.7 5.7
Tertiary 1.9 3.9 4.4
= not available.
a
Most service workers are employed in menial jobs e.g., as laborers in mining,
construction, and personal and protective services.
Sources: Labour Force Survey reports (MLHR various years).
INGO = international nongovernment organization, NGO = non-
government organization.
Source: Labour Force Survey Report 2012 (MLHR various years).
Figure 3.6. Employment by Type of Enterprise,
2012 (%)
Government Public operation Private operation
Armed forces
NGO/INGO
Private business Agri farming
Source: Calculations based on the Labour Force Survey Report 2012
(MLHR various years).
Figure 3.7. Informal Employment and
Underemployment Rate, by Area, Gender, and
Education Level, 2012 (%)
Underemployment Informal employment
B
h
u
t
a
n
U
r
b
a
n
R
u
r
a
l
Area Sex Educational attainment
M
a
l
e
F
e
m
a
l
e
N
o

s
c
h
o
o
l
i
n
g
P
r
i
m
a
r
y
S
e
c
o
n
d
a
r
y
T
e
r
t
i
a
r
y
H
i
g
h
e
r

s
e
c
o
n
d
a
r
y
0
40
20
60
80
100
70
3.3. Human Capabilities
UnequuI uccess Lo oorLunILIes muy resuIL
when cerLuIn segmenLs oI Lhe ouIuLIon huve
weuker humun cuubIIILIes Lhun oLhers, urLIy due
LounequuIuccessLoeducuLIonundheuILhservIces.
AnoLher IucLor Is udverse heuILh condILIons, whIch
muy be exucerbuLed by unequuI uccess Lo socIuI
servIcessuchuscIeunwuLerundsunILuLIon.
3.3.1. Education
EducuLIon Is un ImorLunL conLrIbuLor Lo
humuncuubIIILIes,rovIdIngskIIIsneededLouccess
roducLIve emIoymenL und Imrove househoId
Income und weIIure. ormuI educuLIon In BhuLun
wus onIy InLroduced uL Lhe sLurL oI Lhe IrsL Ive
Yeur PIun, In Lhe eurIy 1q6os. GIven ILs reIuLIveIy
youngeducuLIonsysLem,LhuLLhegovernmenLshus
Source: Calculations based on the Labour Force Survey Report 2012 (MLHR various years)
Figure 3.8. Unemployment Rate, by Area, Region, Gender, Age, and Education Level, 2012 (%)
0
2
4
6
8
B
h
u
t
a
n
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
1
5
-
2
4
2
5
-
4
4
4
5
-
6
4
6
5
+
Area Region Sex Age group Educational attainment
M
a
l
e
F
e
m
a
l
e
N
o

s
c
h
o
o
l
i
n
g
P
r
i
m
a
r
y
S
e
c
o
n
d
a
r
y
T
e
r
t
i
a
r
y
H
i
g
h
e
r

s
e
c
o
n
d
a
r
y
Notes: A person is considered to have work or be employed if for at least 1 hour in the 7 days prior to the survey, the person either (1) farmed, shed,
hunted, gathered fruits, etc.; (2) worked for money, prot, or business; or (3) did unpaid work at a friends or relatives enterprise or farm. People who are
not employed but are actively looking for a job or tried to start a new business or were available for work are considered as unemployed. People available
for work included those who said they were available if they were oered work but believed there was no work available, and those who were not looking
for work cited the following among their reasons: temporary illness, they perform seasonal work, no appropriate work available, waiting for results of
application for employment, and waiting to be recalled to previous work. All others who did not work because of house/family duties, studying, age (young
or old) or retirement status, permanent disability, and other reasons are treated as unavailable for work, and therefore part of the economically inactive
population.
Sources: Estimates based on the Bhutan Living Standards Surveys (NSB 2007; ADB and NSB 2013).
Figure 3.9. Unemployment, Underemployment, and Informal Employment Rate, by District (%)
0
40
20
60
80
100
C
h
h
u
k
h
a
G
a
s
a
H
a
a
P
a
r
o
P
u
n
a
k
h
a
B
u
m
t
h
a
n
g
D
a
g
a
n
a
S
a
r
p
a
n
g
T
r
o
n
g
s
a
Western region Central region Eastern region
S
a
m
t
s
e
T
h
i
m
p
h
u
T
s
i
r
a
n
g
W
a
n
g
d
u
e

P
h
o
d
r
a
n
g
Z
h
e
m
g
a
n
g
M
o
n
g
a
r
P
e
m
a
g
a
t
s
h
e
l
S
a
m
d
r
u
p

J
o
n
g
k
h
a
r
T
r
a
s
h
i
g
a
n
g
T
r
a
s
h
i
y
a
n
g
t
s
e
L
h
u
e
n
t
s
e
Underemployment, 2007 Informal employment, 2012 Unemployment, 2012
71
ensured uccess Lo busIc educuLIon Is noLeworLhy.
NeverLheIess,remuInInggushuveLobeuddressed
Lo uchIeve unIversuI uccess, urLIcuIurIy uL Lhe
seconduryundLerLIuryIeveIs.
The educuLIon IeveI oI BhuLuns Iubor Iorce
remuIns Iow, urLIcuIurIy umong eoIe resIdIng
In ruruI ureus und Lhe eusLern regIon, und umong
womenundLheoor.TheImorLunceoIeducuLIon
Is underIIned by Lhe resuILs Irom Lhe regressIon
unuIysIs oI Lhe deLermInunLs oI overLy dIscussed
In Lhe AendIx Lo LhIs chuLer. Igure .1o
IIIusLruLes Lhe very smuII shure oI Lhe BhuLunese
ouIuLIon LhuL Is educuLed. n zo1z, uImosL ;o%
oI Lhe ouIuLIon uged 1 yeurs und oIder hud noL
receIved uny educuLIon. Moreover, Iess Lhun zo%
were schooIed ubove Lhe rImury IeveI. PeoIe In
ruruIureusundLheeusLernregIon,usweIIuswomen
und househoIds In Iower Income bruckeLs, hud Lhe
hIghesLruLesoInoeducuLIon.
Igure.11emhusIzesLheeducuLIonguInLhe
workIng ouIuLIon by regIon, gender, und Income
grou. ThIs Is meusured by Lhe yeurs oI schooIIng
uLLuIned reIuLIve Lo Lhe yeurs oI busIc educuLIon
euchBhuLuneseshouIdreceIve.
ComIeLIonoIboLh
5
Article 16 of the Constitution of Bhutan states that free education
shall be provided to all children of schooling age up to the tenth
standard (i.e., secondary level).
Source: Estimates based on ADB and NSB (2013).
Figure 3.10. Educational Attainment among People Aged 15 and Over,
by Region and Socioeconomic Group, 2012 (%)
0
40
20
60
80
100
B
h
u
t
a
n
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
Area Region Sex Expenditure quintile
M
a
l
e
F
e
m
a
l
e
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
No education Primary Secondary Higher secondary Tertiary
Note: Highest education attained relative to the compulsory years of schooling.
Figure 3.11. Quality of Labor Supply, by Region and Socioeconomic Group, 2012 (%)
0
20
10
30
40
50
B
h
u
t
a
n
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
Area Region Sex Expenditure quintile
M
a
l
e
F
e
m
a
l
e
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
72
und househoId survey duLu subsLunLIuLe LhIs
observuLIon. NeL enroIImenL In busIc educuLIon
;
Increused by 1q ercenLuge oInLs In zoo6zo1z

(Igure.1).AguInsLoLhercounLrIesInLheregIon,
BhuLuns rogress becomes becomes even more
sIgnIhcunL (Igure .1q). Ls neL enroIImenL ruLe Ior
rImury educuLIon wus Lhe regIons hIghesL durIng
zo11zo1z.
Bhutan has made good progress with
providing universal education and
7
Basic education includes 7 years of primary (including preprimary)
and 4 years of secondary education.
rImuryundseconduryeducuLIonwouIdresuILInu
erIecLscore(I.e.,1oo%).Igure.11showsLhuL,on
uveruge,LheworkIngouIuLIon(uged1undoIder)
hus hnIshed Iess Lhun yeurs oI schooIIng, or ubouL
z% oI Lhe requIred 11 yeurs oI busIc educuLIon.
PeoIeInurbunureushuvemoreyeursoIeducuLIon,
uLqz%oILherequIremenL,LhunLhoseInruruIureus,
uL 1%. Men huve u z8% comIeLIon ruLe, whIch Is
uImosL 1o ercenLuge oInLs hIgher Lhun LhuL Ior
women.AcrossexendILurequInLIIes,eoIeInLhe
ooresL quInLIIe uchIeved onIy 1o% oI Lhe requIred
yeurs oI schooIIng, whIch Is ubouL one-IourLh oI
whuLLhoseInLhehIghesLquInLIIeuchIeved.
NurrowIng Lhe observuLIon Lo Lhe emIoyed
ouIuLIon, Igure .1z hIghIIghLs Lhe ImorLunce
oI educuLIon In securIng roducLIve emIoymenL.
The workers In Lhe IormuI secLor ure more IIkeIy
LohuvereceIvededucuLIon(ubouL;%)LhunLhose
InInIormuIemIoymenL.Over6o%oILheIormuIIy
emIoyed workers huve more Lhun rImury
educuLIon,wILhubouLq%huvInghIghersecondury
or LerLIury educuLIon. As shown In Lhe hgure, Lhe
roorLIon oI eoIe wILh more Lhun rImury
educuLIon decreuses drusLIcuIIy (Lo ubouL zq%) Ior
LheenLIreworkIngouIuLIon.EvIdenLIy,educuLIon
Is crILIcuI Ior uccessIng oorLunILIes und securIng
guInIuIemIoymenL.
The enroIImenLruLeuLuIIIeveIshusIncreused
sLeudIIydurIngLheIusLdecude.
6
BoLhudmInIsLruLIve
6
Most of the discussions in this section refer to net enrollment rates,
which measure the enrollment of the ocial school-age group for
a given level of education as a percentage of the population in that
group, unless otherwise specied.
Source: Bhutan Labour Force Survey Report 2012 (MLHR 2012).
Figure 3.12. Educational Level, by Employment
Status, 2012 (%)
0 20 40 60 80 100
Employed
Formal
sector
No schooling Primary Secondary
Higher secondary Tertiary
Source: MOE (various years).
Figure 3.13. Basic Education Net Enrollment Rate (%)
2006 2007 2008 2010 2011 2009 2012
0
60
80
20
40
120
100
Basic education Primary education
Note: Data used, with the year indicated in the parentheses, are as
follows when not for the year indicated in the legend: Bangladesh
(1999), Nepal (1999), Pakistan (2001) and Sri Lanka (2001) for 2000
gures; Bangladesh (2004), Bhutan (2006), and Nepal (2004) for 2005
gures; and Bangladesh (2009), India (2008), Maldives (2010), and Sri
Lanka (2010) for 2011 gures.
Sources: Ministry of Education, various years (for Bhutan); ADB (2008,
2012c) Key Indicators for Asia and the Pacic (for Bangladesh and
Nepal); World Bank, World Development Indicators (for other countries),
accessed January 2013.
Figure 3.14. Primary Net Enrollment Rate for
South Asian Countries (%)
0
60
80
20
40
100
2005 2011 2000
Bhutan Bangladesh India Maldives Nepal Pakistan Sri Lanka
73
increasing access to primary education,
EXW DFFHVV LV VWLOO OLPLWHG DQG XQHTXDO
particularly at the secondary and
tertiary levels.
EsLImuLes Irom househoId survey duLu
conhrm BhuLun`s rogress In uccess Lo educuLIon
Irom zoo Lhrough zo1z. Igures .1.18 reorL
neL enroIImenL ruLes In zoo, zoo;, und zo1z
by regIon und socIoeconomIc grou Ior vurIous
IeveIs oI educuLIon. or rImury educuLIon, neL
enroIImenLreuchedubouLq1%Inzo1z,unIncreuse
oI18ercenLugeoInLsIromzoound6ercenLuge
oInLs Irom zoo; (Igure .1). The Increuse wus
greuLesL umong eoIe resIdIng In ruruI ureus
und Lhe cenLruI regIon us weII us umong women,
ImIyIng LhuL uccess Lo rImury educuLIon hus
becomemoreequILubIeInrecenLyeurs.Thus,uccess
LorImuryeducuLIonIsgeneruIIyequuIucrossureus,
regIons,undgenders,uILhoughunurrowdIsurILyIn
enroIImenLersIsLsbeLweenexendILurequInLIIes.
Secondury enroIImenL uIso rose (Igure .16).
AL Lhe nuLIonuI IeveI, IL Increused Irom uroxImu-
LeIy z% Lo ;% durIng zoozoo; und Lo %
In zo1z. A reIuLIveIy sLrong Increuse wus observed
uguIn In ruruI ureus und umong IemuIes, wILh Lhe
IuLLer even surussIng Lhe neL enroIImenL oI muIes
In zoo; und zo1z. Access Lo secondury educuLIon
remuIned InequILubIe, however, us enroIImenL wus
reIuLIveIy Iower umong Lhose who resIded In Lhe
ruruIureus.WhIIeLheneLenroIImenLruLewusubouL
68%Inurbunureus,ILwusubouLq;%InruruIureus.
BuLLhedIsurILyhusnurroweducrossregIons(q%
In Lhe wesLern regIon, % In Lhe eusLern regIon,
und1%InLhecenLruIregIon).WhIIeenroIImenLsIn
IowerexendILurequInLIIegroushuvebeenrIsIng
uL u IusLer ruLe Lhun In oLher quInLIIes, dIIIerences
InenroIImenLruLesumongexendILurequInLIIesure
sLIIIuconcern.nzo1z,LheenroIImenLruLeIorLhe
rIchesLquInLIIesLooduLubouL;o%whereusLhuLIor
LheooresLquInLIIewusubouLz%.
EnroIImenL ruLes Ior hIgher secondury und
LerLIury educuLIon remuIn Iow, uILhough Lhey rose
Irom q.o% In zoo Lo 1o.% In zoo; und Lo z1.%
In zo1z Ior hIgher secondury educuLIon und Irom
1.6%InzooLo1o.%Inzo1zIorLerLIuryeducuLIon
(Igures.1;und.18).AccessLohIghersecondury
undLerLIuryeducuLIonwusmuchIessequILubIeLhun
IorrImuryorseconduryschooIIng.NeLenroIImenL
ruLes were generuIIy Iower umong eoIe IIvIng In
ruruI ureus und Lhe cenLruI und eusLern regIons,
und umong Iower exendILure quInLIIes. However,
BhuLun hus been successIuI In uddressIng gender
dIsurILyInschooIurLIcIuLIonuLuIIIeveIs.
Igures .1q.zz (. ;;6) reorL neL
enroIImenLruLesInzoo,zoo;,undzo1zbydIsLrIcL
Ior vurIous IeveIs oI educuLIon. The uLLerns ure
sImIIurLoLhoseoIIgures.1.18.PrImuryschooI
enroIImenLImrovedmosLumongLhedIsLrIcLswILh
reIuLIveIy Iower enroIImenL ruLes In eurIIer yeurs,
IncIudIng Dugunu, Gusu, SumLse, und TsIrung
(Igure .1q). Gusu even uchIeved 1oo% rImury
neL enroIImenL ruLe In zo1z. DurIng zoo;zo1z,
Source: Estimates based on the Bhutan Living Standards Surveys (NSB
2003, 2007a; ADB and NSB 2013).
Figure 3.15. Primary Net Enrollment Rate,
by Region and Socioeconomic Group (%)
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
Region Expenditure quintile
M
a
l
e
F
e
m
a
l
e
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
B
h
u
t
a
n
Area Sex
0
40
20
60
80
100
2007 2012 2003
Sources: Estimates based on the Bhutan Living Standards Surveys (NSB
2003, 2007a; ADB and NSB 2013).
Figure 3.16. Secondary Net Enrollment Rate, by
Region and Socioeconomic Group (%)
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
M
a
l
e
F
e
m
a
l
e
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
B
h
u
t
a
n
Area Sex
0
50
40
30
20
10
60
70
80
2007 2012 2003
74
neLenroIImenLdecIInedonIyInBumLhung,whereIL
wussLIIIhIgherLhunInzoo,uIbeILmurgInuIIy.or
secondury educuLIon, enroIImenL ruLes were ubove
o% In onIy 1o dIsLrIcLs, und ubove 6o% In Iour
dIsLrIcLs: PemuguLsheI 6q%, Puro 6%, ThImhu
68% und BumLhung ;q% (Igure .zo). Igures
.z1 und .zz uIso conhrm LhuL uccess Lo hIgher
seconduryundLerLIuryeducuLIonwusIessequILubIe
LhunuccessLorImuryundseconduryeducuLIon.
Some factors prevent children from
attending school in Bhutan.
TubIes.zund.(.;;)summurIzeLhemuIn
reusons Ior chIIdren noL uLLendIng schooI. or
rImury schooI, Lhe mosL common reusons IncIude
udmIssIon requIremenLs,
8
schooI-reIuLed cosLs (Loo
cosLIy), need Lo work, Iuck oI InLeresL, und IIIness.
q
DIsLunce Lo Lhe neuresL rImury schooI Is u muIn

reuson ruruI resondenLs cILed Ior noL uLLendIng
schooI (% oI ruruI resondenLs) whIIe no urbun
resondenLs cILed LhIs us u reuson. AIIordubIIILy
Is murgInuIIy more oI un Issue Ior boys (1;.6%)
Lhun gIrIs (1;.1%). RemurkubIy, u reIuLIveIy hIgh
ercenLuge oI resondenLs beIongIng Lo hIgher
exendILure quInLIIes sLuLed uIIordubIIILy us Lhe
muInreusonIornoLsendIngLheIrchIIdrenLoschooI.
ThemuInreusonsIornoLuLLendIngsecondury
schooI ure sIIghLIy dIIIerenL Irom Lhose Ior noL
uLLendIngrImuryschooI(TubIe.,.;;).nzo1z,
Lhe mosL common burrIer wus uIIordubIIILy, wILh
ubouL z6% oI resondenLs sLuLIng LhIs us Lhe muIn
reuson,IoIIowedbyLheneedLoworkwILhz%.ThIs
suggesLs LhuL Lhe oorLunILy cosL oI sLudyIng Is
reIuLIveIyhIghumongoIderchIIdren.OLhercommon
resonsesIncIudeIuckoIInLeresLundIumIIyIssues.
n conLrusL Lo Lhe cuse oI rImury educuLIon, more
IemuIesLhunmuIesurenoLuLLendIngschooIdueLo
uIIordubIIILy,LhoughLhedIIIerenceIsverymurgInuI.
uck oI InLeresL Is un Issue urLIcuIurIy In urbun
ureus und umong muIes. On Lhe oLher hund, Lhe
need Lo work Is un Issue urLIcuIurIy In ruruI ureus
undumongIemuIes.AroxImuLeIy11%oIIemuIes
(uguInsL6%oImuIes)donoLuLLendschooIbecuuse
oIIumIIyreusons.
AIIordubIIILy emerged us Lhe Lo reuson Ior
noL uLLendIng schooI, urLIcuIurIy uL Lhe secondury
IeveI,undcouIdbedueLoLhereIuLIveIyhIghcosLoI
educuLIon In BhuLun. The esLImuLed unnuuI cosL oI
educuLIonersLudenLuLLheseconduryIeveIrunges
Irom Nu1,ooo Lo ubouL Nuqq,oooubouL $z1
Lo $1,oo
1o
(Igure .z, . ;8). odgIng cosLs udd
sIgnIhcunLIy Lo Lhe LoLuI exense, und sendIng on
schooIIngIncreuseswILhLheIeveIoIeducuLIon.
8
A study on enrollment and retention strategies by the Ministry of
Education in 2009 lists verication of the childs health card and the
identication cards of parents as requirements for school admission
(MOE 2009). The study mentions that these requirements have
been simplied to encourage school participation in recent years.
9
While the main reason in Table 3.2 is under/over age, this refers
primarily to underage, i.e., that children have not yet reached the
age required for admission.
10
Using the 2011 exchange rate of $1:Nu46.67, from World Bank,
WDI, accessed March 2013.
2003, 2007a; ADB and NSB 2013).
Figure 3.17. Higher Secondary Net Enrollment Rate,
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
M
a
l
e
F
e
m
a
l
e
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
B
h
u
t
a
n
Area Sex
0
50
40
30
20
10
60
2007 2012 2003
2003, 2007a; ADB and NSB 2013).
Figure 3.18. Tertiary Net Enrollment Rate,
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
M
a
l
e
F
e
m
a
l
e
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
B
h
u
t
a
n
Area Sex
0
20
15
10
5
25
2007 2012 2003
75
Access to vocational education remains
limited in Bhutan.
Numerous rogrums huve soughL Lo Increuse
Lhe InLuke InLo vocuLIonuI educuLIon buL resuILs
huvebeenIImILed.CombInedenroIImenLInLhesIx
LechnIcuI LruInIng InsLILuLes und Lwo InsLILuLes Ior
LrudILIonuI urLs und cruILs (zori chusum)
11
rose
11
Zorig chusum refers to the 13 traditional visual arts and crafts that
Bhutanese have practiced for generations. These include painting,
carving, sculpture, calligraphy, carpentry, gold- and silversmithing,
bamboo work, wood turning, weaving and embroidery, pottery,
blacksmithing, masonry, and incense-stick making.
Irom 8oo Lo 1,zq sLudenLs durIng zoo6zo11.
However,LhIsIsequIvuIenLLoonIyz%oIsecondury
sLudenLs.
1z
As noLed eurIIer, Lhe LechnIcuI LruInIng
InsLILuLes LruIned onIy q,161 sLudenLs In Lhe enLIre
erIod 1q;ozo11. The governmenL Is Lhe chIeI
rovIder oI vocuLIonuI educuLIon, whereus Lhe z;
regIsLered rIvuLe LruInIng rovIders In BhuLun
ure conhned Lo InIormuLIon und communIcuLIons
LechnoIogyundreIuLedcourses(Chhoeduzo1z).
12
The zorig chusum institutes were added in 2007 and 2008.
Sources: Estimates based on the Bhutan Living Standards Surveys (NSB 2003, 2007a).
Figure 3.19. Primary Net Enrollment Rate, by District (%)
0
40
20
60
80
100
C
h
h
u
k
h
a
G
a
s
a
H
a
a
P
a
r
o
P
u
n
a
k
h
a
B
u
m
t
h
a
n
g
D
a
g
a
n
a
S
a
r
p
a
n
g
T
r
o
n
g
s
a
S
a
m
t
s
e
T
h
i
m
p
h
u
T
s
i
r
a
n
g
W
a
n
g
d
u
e

P
h
o
d
r
a
n
g
Z
h
e
m
g
a
n
g
M
o
n
g
a
r
P
e
m
a
g
a
t
s
h
e
l
S
a
m
d
r
u
p

J
o
n
g
k
h
a
r
T
r
a
s
h
i
g
a
n
g
T
r
a
s
h
i
y
a
n
g
t
s
e
L
h
u
e
n
t
s
e
2007 2012 2003
Sources: Estimates based on the Bhutan Living Standards Surveys (NSB 2003, 2007a; ADB and NSB 2013).
Figure 3.20. Secondary Net Enrollment Rate, by District (%)
0
40
20
60
80
100
C
h
h
u
k
h
a
G
a
s
a
H
a
a
P
a
r
o
P
u
n
a
k
h
a
B
u
m
t
h
a
n
g
D
a
g
a
n
a
S
a
r
p
a
n
g
T
r
o
n
g
s
a
S
a
m
t
s
e
T
h
i
m
p
h
u
T
s
i
r
a
n
g
W
a
n
g
d
u
e

P
h
o
d
r
a
n
g
Z
h
e
m
g
a
n
g
M
o
n
g
a
r
P
e
m
a
g
a
t
s
h
e
l
S
a
m
d
r
u
p

J
o
n
g
k
h
a
r
T
r
a
s
h
i
g
a
n
g
T
r
a
s
h
i
y
a
n
g
t
s
e
L
h
u
e
n
t
s
e
2007 2012 2003
76
The quality of education is improving.
The quuIILy oI educuLIon uIIecLs emIoyubIIILy
und oLenLIuI eurnIngs, whIch ure crILIcuI Ior
reducIng overLy und InequuIILy. The governmenL
hus been LukIng severuI meusures Lo Imrove
Lhe quuIILy oI educuLIon Lhrough consLrucLIng
new schooIs, exundIng und ugrudIng exIsLIng
ones,
1
decenLruIIzIng educuLIon monILorIng und
13
During the Ninth Fifth Year Plan, 128 new schools were constructed
(GNHC 2009).
ThuL BhuLun hus so Iew LechnIcIuns muy
be urLIy Lhe resuIL oI rejudIce uguInsL munuuI
Iubor,InurLIcuIurumongLheyoungerouIuLIon.
The orIgIn oI LhIs rejudIce cun be Lruced Lo
Lhe begInnIng oI Lhe modern educuLIon sysLem,
when Lhe rImury urose oI schooIIng wus Lo
uIIow eoIe Lo Ieuve LheIr Iurms und Luke sLuII
osILIons wILhIn Lhe bureuucrucy und oLher
governmenLInsLILuLIons.PreIerenceIorcIvIIservIce
emIoymenLoverIurmundmunuuIworkhusgrown
usLheIormerguurunLeesuIIIeLImesourceoIIncome
(Chhoeduzo1z).
Figure 3.21. Higher Secondary Net Enrollment Rate, by District (%)
0
40
20
60
C
h
h
u
k
h
a
G
a
s
a
H
a
a
P
a
r
o
P
u
n
a
k
h
a
B
u
m
t
h
a
n
g
D
a
g
a
n
a
S
a
r
p
a
n
g
T
r
o
n
g
s
a
S
a
m
t
s
e
T
h
i
m
p
h
u
T
s
i
r
a
n
g
W
a
n
g
d
u
e

P
h
o
d
r
a
n
g
Z
h
e
m
g
a
n
g
M
o
n
g
a
r
P
e
m
a
g
a
t
s
h
e
l
S
a
m
d
r
u
p

J
o
n
g
k
h
a
r
T
r
a
s
h
i
g
a
n
g
T
r
a
s
h
i
y
a
n
g
t
s
e
L
h
u
e
n
t
s
e
2007 2012 2003
Figure 3.22. Tertiary Net Enrollment Rate, by District (%)
0
15
10
5
20
25
30
C
h
h
u
k
h
a
G
a
s
a
H
a
a
P
a
r
o
P
u
n
a
k
h
a
B
u
m
t
h
a
n
g
D
a
g
a
n
a
S
a
r
p
a
n
g
T
r
o
n
g
s
a
S
a
m
t
s
e
T
h
i
m
p
h
u
T
s
i
r
a
n
g
W
a
n
g
d
u
e

P
h
o
d
r
a
n
g
Z
h
e
m
g
a
n
g
M
o
n
g
a
r
P
e
m
a
g
a
t
s
h
e
l
S
a
m
d
r
u
p

J
o
n
g
k
h
a
r
T
r
a
s
h
i
g
a
n
g
T
r
a
s
h
i
y
a
n
g
t
s
e
L
h
u
e
n
t
s
e
2007 2012 2003
77
Table 3.2. Reasons for Not Attending Primary School, by Region and Socioeconomic Group, 2012 (%)
Sub-
group
Qualication Issues
Too
Costly
Need to
Work
Family
Issues Distance
Lack of
Interest Illness
Poor
Quality of
Teaching Other
Under/
Over Age
Did not
Qualify
Bhutan 28.9 12.4 17.4 9.6 3.0 4.0 7.2 6.6 0.0 11.1
Area
Urban 29.8 11.2 15.4 1.8 5.3 0.0 10.6 16.7 0.0 9.3
Rural 28.7 12.5 17.7 10.7 2.6 4.6 6.7 5.1 0.0 11.4
Region
Western 25.8 15.1 15.8 6.4 5.5 8.9 5.2 6.8 0.0 10.5
Central 34.8 12.9 17.2 13.7 1.8 6.8 5.1 0.0 7.6
Eastern 27.0 8.2 19.6 9.5 0.7 1.5 10.3 7.9 0.0 15.3
Sex
Male 29.3 10.3 17.6 9.8 4.7 2.8 7.6 6.4 0.0 11.5
Female 28.4 14.3 17.1 9.3 1.3 5.1 6.9 6.9 0.0 10.7
Expenditure Quintile
Poorest 24.5 8.0 19.0 14.0 1.3 5.4 10.5 6.7 0.0 10.6
Second 25.6 18.6 19.1 4.1 2.8 6.7 1.9 4.0 0.0 17.4
Third 28.6 20.7 13.5 10.1 3.9 0.0 4.2 13.7 0.0 5.3
Fourth 53.0 6.5 11.7 4.3 5.5 0.0 12.3 0.0 0.0 6.8
Richest 39.9 0.0 22.0 0.0 13.9 0.0 0.0 7.1 0.0 17.2
Source: Calculations based on the Bhutan Living Standards Survey 2012 (ADB and NSB 2013).
Table 3.3. Reasons for Not Attending Secondary School, by Region and Socioeconomic Group, 2012 (%)
Sub-
group
Qualication Issues
Too
Costly
Need to
Work
Family
Issues Distance
Lack of
Interest Illness
Poor
Quality of
Teaching Other
Under/
Over Age
Did not
Qualify
Bhutan 4.0 1.7 26.1 25.0 8.7 1.2 16.0 4.6 0.3 12.5
Area
Urban 2.9 0.0 37.6 14.3 5.8 0.0 18.9 5.8 1.4 13.3
Rural 4.2 2.1 23.5 27.5 9.4 1.5 15.3 4.3 0.0 12.3
Region
Western 2.2 1.0 31.1 23.7 7.0 1.3 17.2 4.7 0.5 11.1
Central 5.9 0.0 26.8 28.4 12.1 2.7 10.9 7.9 0.0 5.4
Eastern 5.6 3.9 17.6 24.8 9.2 0.0 17.5 2.1 0.0 19.4
Sex
Male 5.1 2.6 26.0 21.3 5.7 0.0 20.0 4.0 0.0 15.4
Female 3.1 1.0 26.2 28.0 11.2 2.2 12.8 5.1 0.5 10.2
Poorest 4.1 1.3 18.2 33.1 11.7 0.0 14.5 6.0 0.0 11.2
Second 8.8 0.0 26.2 18.1 5.9 0.0 16.8 6.9 1.3 16.1
Third 1.9 4.0 15.6 27.3 6.8 8.6 22.3 0.0 0.0 13.6
Fourth 0.0 0.0 47.3 18.4 9.0 0.0 11.5 3.3 0.0 10.4
Richest 2.7 6.7 35.5 16.3 5.5 0.0 18.9 2.7 0.0 11.7
Source: Calculations based on the Bhutan Living Standards Survey (ADB and NSB 2013).
78
Note: The early 2000s gures are 2006 for Bangladesh; 2000 for Bhutan,
India, and Nepal; and 2003 for the Maldives. The latest gures are 2009
for Bangladesh, Nepal and Sri Lanka; 2010 for Bhutan; 2006 for India;
and 2008 for the Maldives.
Figure 3.25. Expenditure per Primary Student,
in South Asian Countries (% of GDP per capita)
0
10
15
5
20
Latest Early 2000s
Bhutan Bangladesh India Maldives Nepal Sri Lanka
suorL servIces, und ugrudIng Lhe quuIIhcuLIons
und comeLency oI Leuchers (GNHC zooq).
SLudenL:Leucher ruLIos vury In Lhe runge oI zo
und ure Iow reIuLIve Lo ruLIos In oLher counLrIes
In Lhe regIon. BhuLuns ruLIo Is comurubIe Lo SrI
unkus Ior rImury und secondury schooIs und Is
Iower Lhun ruLIos In denseIy ouIuLed counLrIes
suchusBungIudesh,ndIu,undPukIsLun.
BhuLuns ImrovemenL In Lhe educuLIon IeveI
oI rImury und secondury educuLIon Leuchers Is
ImressIve. The shure oI Leuchers wILh bucheIors
degrees Increused Irom 6% Lo % durIng zoo6
zo1z (Igure .zq). One meusure oI Lhe quuIILy oI
educuLIon Is sLudenLs erIormunce In nuLIonuI
exumInuLIons. SLudenLs who huve comIeLed 11
yeurs oI busIc educuLIon Luke Lhe BhuLun CerLIhcuLe
Ior Secondury EducuLIon exumInuLIon und Lhose
who huve comIeLed hIgher secondury educuLIon
Luke Lhe BhuLun HIgher Secondury EducuLIon
CerLIhcuLe exumInuLIon. The resuILs deLermIne enLry
LohIghereducuLIonIeveIs,udmIssIonLoresLIgIous
schooIsesecIuIIyuLLheLerLIuryIeveI,undeIIgIbIIILy
Lo IImILed governmenL schoIurshIs. The uss ruLe
oI Lhose LukIng Lhe BhuLun CerLIhcuLe Ior Secondury
EducuLIon hus Imroved conLInuousIy durIng Lhe
IusL decude, Irom 8o% In zooo Lo q;% In zooq.
The uss ruLe Ior Lhe BhuLun HIgher Secondury
EducuLIon CerLIhcuLe decIIned In zoo;, buL Lhen
IncreusedLoq1%byzooq(MOEvurIousyeurs).
Government expenditure on education
remains relatively low.
BhuLuns ubIIc exendILure on rImury
educuLIon, us u ercenLuge oI gross domesLIc
roducL er cuILu, Is Lhe second IowesL In SouLh
AsIu, nexL Lo SrI unku (Igure .z). Per sLudenL
exendILure,reIuLIveLoercuILuIncome,decIIned
durIng zooozo1o. WhIIe BhuLuns exendILure
er sLudenL In secondury educuLIon, reIuLIve Lo er
cuILu Income, remuIns Lhe hIghesL In Lhe regIon,
Lhe exendILure wus reduced sIgnIhcunLIy beLween
zoooundzo1o(Igure.z6).
UnequuI dIsLrIbuLIon oI schooIs ucross Lhe
counLry Is un ImorLunL IucLor In Lhe dIsurILy In
uccess Lo educuLIon, esecIuIIy beyond rImury
schooIIng.AsseenInIgure.z;,LhedIsLrIbuLIonoI
mIddIe und hIgher secondury schooIs Is sIgnIhcunLIy
skewed Lowurd urbun und semIurbun ureus.
1q
The IImILed uvuIIubIIILy oI ruruI schooIs Is urLIy

14
Available data do not allow per capita comparison of school
availability by location.
Nu = Ngultrum.
Source: 2012 Annual Education Statistics (MOE various years).
Figure 3.23. Estimated Annual Cost of Education
per Student, 2011 (Nu)
With board and lodging Without board and lodging
Primary Lower
secondary
Middle
secondary
Higher
secondary
0
20,000
10,000
30,000
40,000
60,000
70,000
50,000
Source: MOE (various years).
Figure 3.24. Educational Background of Teachers (%)

0
20
40
60
80
100
Higher secondary Bachelors degree Masters degree
2006 2007 2008 2009 2010 2011 2012
79
resonsIbIeIorLheIowenroIImenLInruruIureus.As
reorLed In TubIes .z und ., dIsLunce Lo schooI
wuscILedusoneoILhemuInreusonsIorchIIdrennoL
uLLendIngschooI,urLIcuIurIyInruruIureus.
3.3.2. Health
Access to healthcare is a constraint to
UHGXFLQJ SRYHUW\ DQG LQHTXDOLW\ EXW LV
not critical.
HeuILh Is u key conLrIbuLIng IucLor Lo humun
cuubIIILIes,usoorheuILhcunrevenLeoIeIrom
workIngundcunudverseIyuIIecLLheIrroducLIvILy.
HeuILh ouLcomes huve been ImrovIng In Lhe
IusL Iew decudes In resonse Lo Lhe governmenLs
eIIorLs uL enhuncIng uccess Lo heuILhcure servIces
(TubIe .q). IIe execLuncy uL bIrLh hus Increused
Irom Lo 6; yeurs In Lhe IusL z decudes, whIIe
InIunL, chIId, und muLernuI morLuIILy ruLes huve uII
decreused.ThereducLIonInLhemuLernuImorLuIILy
ruLe wus urLIcuIurIy remurkubIe, IuIIIng Lo uImosL
one-hILh In zo1o Irom Lhe ruLe In 1qqo.
BhuLunsrogressInheuILhuLsILonLruckLo
meeL ILs MIIIennIum DeveIomenL GouI LurgeLs by
zo1. Comured wILh oLher SouLh AsIun counLrIes,
BhuLunIuresweIIucrossurungeoIIndIcuLors(TubIe
.).NeverLheIess,roomIorImrovemenLremuIns.
or exumIe, BhuLun hus Lhe LhIrd hIghesL InIunL
und chIId morLuIILy ruLes In Lhe regIon, uILer ndIu
und PukIsLun. The IImILed uccess Lo revenLIve und
Note: The latest gures are 2008 for Nepal and 2010 for Bangladesh,
Bhutan, and India.
Source: World Bank, WDI, accessed18 January 2013.
Figure 3.26. Expenditure per Secondary Student, in
South Asian Countries (% of GDP per capita)
0
40
60
20
80
Latest 2000
Bhutan Bangladesh India Nepal
Source: 2011 Annual Education Statistics (MOE various years).
Figure 3.27. Distribution of Schools by Location,
2011 (%)

0
20
40
60
80
100
Remote Very remote
Urban Semi-urban Semi-remote
Dicult
Extended
classrooms
Community
primary
Primary Lower
secondary
Middle
secondary
Higher
secondary
Table 3.4. Health Outcomes in Bhutan
Year
Life
Expectancy
at Birth
(years)
Infant
Mortality
(per 1,000
live births)
Child
Mortality
(per
1,000 live
births)
Maternal
Mortality
(per
100,000
live births)
1990 53 96 139 940
1995 57 79 111 650
2000 61 65 89 420
2005 65 53 71 260
2011 67 42 54 180
Note: The 2011 gures for maternal mortality rates are for 2010.
Source: World Bank, WDI, accessed 18 January 2013.
Table 3.5. Health Outcomes of South Asian
Countries, Latest Figures
Country
Life
Expectancy
at Birth
(2012,
years)
Infant
Mortality
(2011, per
1,000 live
births)
Child
Mortality
(2011, per
1,000 live
births)
Maternal
Mortality
(2010, per
100,000
live births)
Bangladesh 69 37 46 240
Bhutan 68 42 54 180
India 66 47 61 200
Maldives 77 9 11 60
Nepal 69 39 48 170
Pakistan 66 59 72 260
Sri Lanka 75 11 12 35
South Asia 66 48 62 220
Lower
Middle-
Income,
Worldwide
66 46 62 260
80
curuLIve heuILhcure servIces und Iuck oI uwureness
oIgoodchIIdcureundhygIenerucLIcesuLLheIumIIy
IeveIconLrIbuLeLoLhehIghermorLuIILy,esecIuIIyIn
ruruIureus.
The reIuLIveIy hIgh InIunL und chIId morLuIILy
ruLes cun be Lruced wILh nuLrILIon Issues. nsuIhcIenL
InLuke oI roLeIn, energy, und mIcronuLrIenLs
IncreusesLherIskoIdIseuseundeurIydeuLh.Igure
.z8reorLsLhenuLrILIonuIsLuLusoIchIIdrenunder
undLheIncIdenceoIIowbIrLhweIghL.DesILesome
ImrovemenL sInce 1qqq, sLunLIng Is sLIII common
umong BhuLunese chIIdren. L wus observed In
uroxImuLeIyq%oIchIIdrenunderugeInzo1o,
IndIcuLIng Lhe revuIence oI chronIc muInuLrILIon.
AILhoughLheroorLIonoIunderweIghLchIIdrenIs
reIuLIveIyIow,ILhusdecIInedonIymurgInuIIyIrom,
1q% In 1qqq Lo 1% In zoo8. The reducLIon wus
greuLer In Lhe IncIdence oI Iow bIrLh weIghL, whIch
decIIned by 8% beLween 1qqq und zoo8. OI mosL
concern, however, Is Lhe sIgnIhcunL Increuse In Lhe
IncIdenceoIwusLIngbeLween1qqqundzo1o.
TubIe .6 suggesLs, however, LhuL Lhe
nuLrILIonuIsLuLusoIchIIdrenInBhuLunIsIurbeLLer
LhunLhuLoIoLherchIIdrenInSouLhAsIuBhuLuns
IncIdencesoImuInuLrILIonundIowbIrLhweIghLure
Iess Lhun Lhe uveruges In SouLh AsIu. BhuLun uIso
erIorms reIuLIveIy weII In comurIson wILh oLher
IowermIddIe-IncomecounLrIesInLheworId.
Disparities in health status are apparent
across the country and among socio-
economic groups.
DuLuIromLhezo1oBhuLunMuILIIendIcuLor
Survey
1
IndIcuLe LhuL InIunL morLuIILy ruLes ure
sIgnIhcunLIy Iower umong gIrIs Lhun boys (NSB
zo11u).ChIIdrenInurbunureusundInLhewesLern
und cenLruI regIons huve beLLer chunces oI survIvuI
LhunLhoseInruruIureusundInLheeusLernregIon.
The dIIIerence beLween urbun und ruruI ureus Is
urLIcuIurIy sIgnIhcunL: ubouL 1 InIunLs er 1,ooo
IIve bIrLhs do noL survIve In urbun ureus, buL q
InIunLser1,oooIIvebIrLhsdonoLsurvIveInruruI
ureus. Sumdru Jongkhur und TrushIgung dIsLrIcLs
InLheeusLernregIonhuveexceLIonuIIyhIghInIunL
morLuIILy ruLes. n conLrusL, Gusu, Huu, und Puro
dIsLrIcLs In Lhe wesLern regIon huve reIuLIveIy Iow
InIunL morLuIILy ruLes. The InIunL morLuIILy ruLe
Is dIrecLIy correIuLed wILh Lhe moLhers educuLIon
IeveI und househoId weuILh: Lhe ruLe decreuses
consIderubIyusLhemoLherseducuLIonIeveIundLhe
IIvIngsLundurdsrIse.
16
The IncIdence oI sLunLIng Is uIso greuLer In
ruruI ureus. ChIIdren In Lhe eusLern regIon ure, on
uveruge, Iess nourIshed Lhun Lhose In Lhe wesLern
und cenLruI regIons. n urLIcuIur, chIIdren Irom
huenLse,PemuguLsheI,undTrushIgungdIsLrIcLsIn
LheeusLernregIonIureworsL.AsInLhecuseoIInIunL
morLuIILy ruLes, Lhe revuIence oI muInuLrILIon Is
greuLer umong chIIdren whose moLhers ure Iess
educuLedorumongLhoseIromIowerweuILhquInLIIe
grous(NSBzo11u).
5HODWLYHO\ KLJK OHYHOV RI SXEOLF VSHQGLQJ RQ
health have improved health outcomes.
As one oI ILs mujor LhrusLs In uchIevIng gross
nuLIonuIhuIness,LhegovernmenLhusbeengIvIng
hIgh rIorILy Lo heuILhcure. As u LesLumenL Lo Lhe
governmenLs commILmenL, ubIIc sendIng on
heuILh hus been muInLuIned uL ubouL 1z% oI LoLuI
governmenLexendILureInrecenLyeurs,LrunsIuLIng
Loq%oIGDP(Igure.zq).ReuIercuILusendIng
husuIsoIncreusedsLeudIIysInceLhemId-zooos.
15
This nationally representative survey was carried out by the
National Statistics Bureau with the support of the United Nations
Childrens Fund (UNICEF) and the United Nations Population
Fund. This survey resembles the Multiple Indicator Cluster Survey
(developed by UNICEF) and the Demographic and Health Survey.
It is intended to monitor the countrys progress on the Millennium
Development Goals.
16
In the Bhutan Multiple Indicator Survey Report 2010 (NSB 2011a), a
wealth index was constructed based on proxy indicators of welfare
to identify income groups.
Note: For the latest gures, malnutrition estimates are for 2010 while
low birth weight estimates are for 2008.
Source: WHO, Global Health Observatory Data Repository, accessed 18
January 2013.
Figure 3.28. Nutritional Status of Children under 5
and Low Birth Weight Incidence (%)
0
40
50
20
30
10
60
Latest 1999
Stunting Wasting Underweight Low birth weight
81
BhuLuns uIIocuLIon Lo ubIIc heuILh Is much
hIgher Lhun LhuL oI oLher counLrIes In Lhe regIon
(Igure.o).AsushureoIGDP,BhuLunssendIng
IsmoreLhunLwIceLhuLoINeuIundmoreLhunLhree
LImes LhuL oI BungIudesh, ndIu, und SrI unku.
urLhermore, IL Is more Lhun LwIce Lhe uveruge
sendIngoIIowermIddIe-IncomecounLrIes.
$FFHVV WR EDVLF KHDOWKFDUH IDFLOLWLHV DQG
VHUYLFHV KDV EHHQ LQFUHDVLQJ DFURVV WKH
country in recent years.
ThesusLuInedbudgeLurysuorLLoheuILhhus
LrunsIuLedInLounenhuncedrovIsIonoIheuILhcure
servIces ucross Lhe counLry. or exumIe, Igure
.1 shows ImrovIng ImmunIzuLIon coveruge oI
InIunLsdurIngLheIusLdecudeubouLq%oIInIunLs
receIvedusLundurdseLoIvuccInuLIonsInzo1o.The
sIgnIhcunL reducLIon In Lhe InIunL morLuIILy ruLe
cun be uLLrIbuLed, uL IeusL urLIy, Lo Lhe hIgh ruLe
oI ImmunIzuLIon, whIIe Lhe remurkubIe decreuse In
muLernuImorLuIILycunbeuLLrIbuLedLoLheImroved
rovIsIon oI muLernuI heuILhcure. Igure .z
reorLs uccess Lo ussIsLed bIrLh deIIvery und Igure
.showsuccessLounLenuLuIcureIorSouLhAsIun
Table 3.6. Nutritional Status of Children and Low Birth Weight Incidence, South Asian Countries (%)
Country Year
Malnutrition (children under 5)
Low Birth Weight Stunting Underweight Wasting
Bangladesh 2007 16.1 12.1 2.9 21.6 (2006)
Bhutan 2010 13.3 3.2 2.0 9.9 (2010)
India 2006 23.8 17.4 6.8 27.6 (2006)
Nepal 2011 26.3 8.1 2.9 21.2 (2006)
Sri Lanka 2009 4.6 3.9 1.9 16.6 (2007)
South Asia 2011 39.0 33.2 16.0 30.0 (2000)
Lower Middle-Income,
Worldwide
2011 35.7 24.3 12.8 22.3 (2000)
Source: World Bank, WDI, accessed 21 January 2013
Source: Calculations based on World Bank, WDI, accessed 21 January 2013.
Figure 3.29. Public Health Expenditure in Bhutan (2000 $)
%
0
40
30
10
60
50
20
70
0
14
12
8
6
4
2
18
16
10
20
Government expenditure share GDP share Per capita spending
2002 2001 2000 2003 2004 2005 2006 2007 2008 2009 2010
Figure 3.30. Public Health Expenditure
in South Asian Countries, 2010 (% of GDP)
Bhutan
Maldives
Nepal
Sri Lanka
India
Bangladesh
Pakistan
South Asia
Lower Middle
Income Worldwide
0 1 2 3 4 5
82
Note: The latest gures are 2010 for Bangladesh and Bhutan; 2009 for
the Maldives; 2008 for India; 2007 for Pakistan and Sri Lanka; and 2006
for Nepal.
Figure 3.33. Pregnant Women Receiving Antenatal
Care, in South Asian Countries (%)
0
60
80
40
20
100
Latest 2000/01
Bhutan Bangladesh India Maldives Nepal Sri Lanka Pakistan
Source: NSB (2011a).
Figure 3.34. Maternal Healthcare, by Region and
Socioeconomic Group, 2010 (%)
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
Region Wealth index quintile
N
o
n
e
P
r
i
m
a
r
y
S
e
c
o
n
d
a
r
y
+
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
B
h
u
t
a
n
Area
Mothers
education
Pregnant women receiving antenatal care
Births attended by skilled health personel
0
60
80
40
20
100
counLrIes.BhuLunsImrovedrovIsIonoImuLernuI
heuILhcure beLween zooo und zo1o Is remurkubIe
comured wILh Lhe erIormunce oI oLher counLrIes
InLheregIon.TheshureoIbIrLhdeIIverIesussIsLed
by skIIIed heuILh workers Increused sIgnIhcunLIy-
by1;z%durIngLhIserIod.BhuLunsq1%Increuse
In uccess Lo unLenuLuI cure wus uIso Lhe greuLesL In
LheregIon.
WILhIn BhuLun, regIons und socIoeconomIc
grous huve equuI uccess Lo unLenuLuI cure buL
dIsurILy exIsLs In Lhe uccess Lo roIessIonuI
ussIsLunce Ior bIrLh deIIvery (Igure .q). or
exumIe, skIIIed heuILh ersonneI uLLended ubouL
qo% oI bIrLh deIIverIes In urbun ureus, buL onIy
q%oIdeIIverIesInruruIureus.AIowerercenLuge
oI bIrLh deIIverIes were ussIsLed In Lhe cenLruI
und eusLern regIons Lhun In Lhe wesLern regIon.
Moreover, Lhe hIgher Lhe moLhers educuLIon IeveI
und Lhe househoIds weuILh, Lhe greuLer Is Lhe
IIkeIIhood LhuL bIrLh deIIvery wIII be ussIsLed by
skIIIedheuILhersonneI.
n generuI, BhuLunese seek medIcuI uLLenLIon
or vIsIL heuILhcure IucIIILIes when Lhey ure III or
Injured. More Lhun 8% oI eoIe who becume III
soughL some kInd oI medIcuI uLLenLIon In In zoo
und zoo;, uILhough LhIs ruLe droed Lo 68% In
zo1z(TubIe.;).TheLubIeuIsoshowsLhuLmodern
BCG = Bacillus Calmette Guerin vaccine for tuberculosis, DTP3 =
three required doses of vaccine for diphtheria, tetanus, and pertussis
(whooping cough).
Source: WHO, Global Health Observatory Data Repository, accessed 21
January 2013.
Figure 3.31. Immunization Coverage
of 1-Year-Old Infants (%)
2000 2003 2002 2001 2004 2006 2005 2008 2009 2007 2010
70
85
90
75
80
100
95
Hepatitis B BCG Polio DTP3 Measles
Note: The latest gures are 2010 for Bangladesh and Bhutan; 2009 for
the Maldives; 2008 for India; 2007 for Pakistan and Sri Lanka; and 2006
for Nepal.
Figure 3.32. Births Attended by Skilled Health
Personnel, in South Asian Countries (%)
0
60
80
40
20
100
Latest 2000/01
Bhutan Bangladesh India Maldives Nepal Sri Lanka Pakistan
83
medIcuI rucLIce Is reIerred In BhuLun over
LrudILIonuIorIndIgenousrucLIces,wILhIessLhun1%
oI resondenLs oLIng Ior u LrudILIonuI rucLILIoner
In zo1z. MedIcIne Is uIso uccessIbIe, us ubouL 8z%
oIeoIewhobecumeIIIorInjuredLookmedIcuLIon
Lo remedy LheIr IIIness In zoo;, un ImrovemenL
Irom ubouL ;q% In zoo (no duLu were uvuIIubIe
Iorzo1z).
AImosLuIIBhuLuneseeoIevIsILhosILuIsundJ
orbusIcheuILhunILs(BHUs)whenLheybecomeIIIor
InjuredundLhIsIsconsIsLenLucrossLhecounLryund
LheexendILurequInLIIes(TubIe.8).BHUsureLhe
counLrys mosL common heuILhcure IucIIILIes. The
roorLIon oI eoIe who vIsIL hosILuIs or BHUs
In ruruI ureus Is hIgher Lhun LhuL In urbun ureus.
AILhough generuIIy smuII, Lhe roorLIon oI eoIe
who consuIL LrudILIonuI rucLILIoners Is hIgher In
urbunLhunInruruIureus.
$FFHVVLELOLW\ WR KHDOWKFDUH IDFLOLWLHV QHHGV
improving in rural and remote areas, and
WKH QXPEHU RI PHGLFDO ZRUNHUV QHHGV WR EH
increased.
The usuuI mode oI reuchIng heuILhcure
IucIIILIesIsbyIooL,whIchImIIesLheyurereIuLIveIy
uccessIbIe. As seen In Igure ., ubouL Lhree-hILhs
oI househoIds reuch hosILuIs und BHUs on IooL.
PhurmucIes ure Iess uccessIbIe, us onIy 1 oI every
househoIdscunreuchLheseIucIIILIesonIooL.Among
dIsLrIcLsundevenwILhIndIsLrIcLs,however,LhereIs
ugreuLvurIuLIonIndIsLuncesLoheuILhcureIucIIILIes
(Igure.6).DeendIngonLhedIsLrIcL,reuchIngu
IucIIILy cun Luke z1 mInuLes Lo u IILLIe more Lhun z
hours.HeuILhIucIIILIesInhIghIyurbunIzeddIsLrIcLs
undLosomeexLenLInsmuIIdIsLrIcLs(I.e.,BumLhung,
huenLse, Puro, Punukhu, und ThImhu) ure more
uccessIbIe. The dIsLunce wILhIn Iurge dIsLrIcLs
und In IsoIuLed ureus vurIes wIdeIy (I.e., Huu,
Sumdru Jongkhur, Trongsu, und Zhemgung). The
governmenL,LhereIore,needsLoconLInueILseIIorLs
uLrovIdIngunIversuIheuILhcureservIcesucrossLhe
counLry, by IncreusIng Lhe rovIsIon oI heuILhcure
InIrusLrucLure und enhuncIng uccessIbIIILy Lo IL.
OneeIIorLIsLheheuILhheIcenLerLhegovernmenL
Iuunched In zo11. The heuILh heI cenLer rovIdes
Table 3.7. Household Medical Practices (%)
2003 2007 2012
Became Ill or Injured 15.1 15.4 16.8
People Who Became Ill Sought Medical Attention Through
Hospital/basic
health unit
70.5 73.9
66.4
Traditional
practitioner
8.2 6.4
0.4
Private doctor/
nurse/pharmacist
2.9 3.4
0.0
Other 3.8 2.2 1.5
Took Medication 74.1 81.8
= data not available.
Source: Calculations based on Bhutan Living Standards Surveys (NSB 2007,
ADB and NSB 2013).
Table 3.8. Type of Healthcare Facilities Accessed,
2012 (%)
Hospital/
Basic
Health
Unit
Indig-
enous
Centers
a
Private
Health
Practitioner
Traditional
Practitioner Others
Bhutan 97.2 0.6 0.1 0.2 2.0
Area Type
Urban 95.1 1.0 0.0 0.2 3.6
Rural 97.9 0.4 0.1 0.2 1.5
Region
Western 97.2 0.8 0.1 0.2 1.6
Central 99.1 0.5 0.0 0.1 0.3
Eastern 95.6 0.3 0.1 0.2 3.8
Poorest 97.0 0.6 0.0 0.2 2.2
Second 98.0 0.2 0.2 0.1 1.5
Third 97.1 0.5 0.0 0.4 2.0
Fourth 96.7 0.7 0.1 0.1 2.4
Richest 97.0 0.9 0.0 0.1 2.1
a
Indigenous centers provide traditional medical services and products.
Source: Calculations based on ADB and NSB (2013).
BHU = basic health unit.
Figure 3.35. Means of Accessing Health Facilities,
2012 (%)
0 20 40 60 80 100
Pharmacy
Hospital/
BHU
Foot Vehicle Both Others
84
Note: The dots indicate the mean travel time and the lines connect the maximum and minimum travel time taken to reach hospitals or basic health units.
Figure 3.36. Travel Time to Hospital or Basic Health Unit, 2012 (minutes)
0
140
120
160
180
200
40
20
60
80
100
C
h
h
u
k
h
a
G
a
s
a
H
a
a
P
a
r
o
P
u
n
a
k
h
a
B
u
m
t
h
a
n
g
D
a
g
a
n
a
S
a
r
p
a
n
g
T
r
o
n
g
s
a
S
a
m
t
s
e
T
h
i
m
p
h
u
T
s
i
r
a
n
g
W
a
n
g
d
u
e

P
h
o
d
r
a
n
g
Z
h
e
m
g
a
n
g
M
o
n
g
a
r
P
e
m
a
g
a
t
s
h
e
l
S
a
m
d
r
u
p

J
o
n
g
k
h
a
r
T
r
a
s
h
i
g
a
n
g
T
r
a
s
h
i
y
a
n
g
t
s
e
L
h
u
e
n
t
s
e
Table 3.9. Health Workers in South Asian Countries (per 100,000 people)
Country Year Hospital Beds Physicians
Community
Health Workers
Nurses and
Midwives Dentists Pharmacists
Bangladesh 2007 30 (2005) 30 33 27 2 6
Bhutan 2007 180(2011) 2 10 24 3 4
India various 90 (2005) 65 (2009) 5 (2005) 100 (2008) 8 (2008) 52 (2006)
Maldives 2007 430 (2009) 160 227 445 1 82
Nepal 2004 500 (2006) 21 63 1 1
Pakistan 2009 60 (2010) 81 6 56 6 8
Sri Lanka 2007 310 (2004) 49 (2006) 193 8 4
= data not available.
Source: WHO, Global Health Observatory Data Repository, accessed 21 January 2013.
Emergency Resonse und HeuILhcure HeIIIne
servIces Lhrough u LoII-Iree number, und hus 61
umbuIunces In ; IocuLIons ucross Lhe counLry
(MeenuundYusuduzo11).
AILhough uccess Lo heuILhcure IucIIILIes
seems udequuLe, Lhe quuIILy oI servIces rovIded
Is u concernIn urLIcuIur, due Lo Lhe Iuck oI
heuILhcure workers. TubIe .q shows LhuL Lhere ure
onIy z hysIcIuns, zq nurses und mIdwIves, und
1o communILy heuILh workers er 1oo,ooo eoIe
In BhuLun. The ruLIos oI denLIsLs und hurmucIsLs
ure uIso Iow, uL und q er 1oo,ooo, resecLIveIy.
The ruLIos ure uIso Iow comured wILh Lhose oI
oLher counLrIes In Lhe regIon. BhuLuns ruLIos oI
hysIcIuns, nurses, und mIdwIves ure Lhe IowesL In
LheregIon.LsruLIooIcommunILyheuILhworkersIs
LheLhIrdIowesLnexLLondIuundPukIsLun.
3.3.3. Other Social Services
EnsurIng equuI uccess Lo suIe drInkIng wuLer
undsunILuLIonIucIIILIesIsoneoILhemosLeIIecLIve
wuysLorevenLcommondIseuses,suchusdIurrheu
und dysenLery. uck oI such uccess Increuses Lhe
chunceoIconLrucLIngIIIness.
Although the provision of sanitation
facilities needs to improve, it may not pose
a critical constraint to reducing poverty and
inequality.
DuLuIromLhezo1oBhuLunMuILIIendIcuLor
Survey (NSB zo11u) show LhuL, In zo1o, uccess Lo
suIedrInkIngwuLerwusunIversuIIyhIghInBhuLun
(Igure .;). n conLrusL, uccess Lo Imroved
sunILuryIucIIILIeswusvurIeducrossLhecounLryund
85
RecognIzIng Lhe ImorLunce oI roud neLworks
Ior ensurIng broud-bused economIc growLh und
overLy reducLIon, urLIcuIurIy In ruruI ureus, Lhe
governmenL hus cureIuIIy IuId down oIIcIes und
rogrumsLoImroveuccessLoroudsInLhecounLry.
As dIscussed In ChuLer z, Lhe roud neLwork hus
IncreusedInrecenLyeurs.ThedIsLrIbuLIon,however,
remuIns unequuI, wILh sIgnIhcunL dIsurILy ucross
Lhe counLry und exendILure grous. Roud densILy
Is urLIcuIurIy hIgh In Chhukhu, Mongur, Puro,
PemuguLsheI,Punukhu,undTsIrungdIsLrIcLs(Igure
.8). DIsurILy uIso exIsLs In Lhe dIsLrIbuLIon oI
nuLIonuIunddIsLrIcLrouds(Igure.q).
DuLu Irom Lhe zoo; und zo1z BhuLun House-
hoIdIvIngSLundurdsSurveysshowsImIIursLorIes
(NSB zoo;, ADB und NSB zo1). Igure .qo
reorLsLhemedIunLImeLukenLoreuchLheneuresL
ushuIL roud on IooL. The hgure exIIcILIy shows
LhuL uccess Lo ushuIL rouds Increused by ubouL
;% uL Lhe nuLIonuI IeveI beLween zoo; und zo1z,
whIIe conhrmIng Lhe unequuI dIsLrIbuLIon. Access Lo
rouds Is much beLLer In urbun Lhun In ruruI ureus.
WhIIeeoIeInruruIureusLukeubouLomInuLesLo
reuch Lhe neuresL ushuIL roud, urbunILes Luke onIy
ubouL z mInuLes. Moreover, househoIders In Lhe
eusLernregIonLukeubouLhuIIunhourLoreuchLhe
neuresLushuILroud,buLeoIeInLhewesLernund
cenLruI regIons Luke onIy ubouL o.1 und o.z hours,
resecLIveIy.
On u osILIve noLe, beLween zoo; und zo1z,
LruveI LIme Lo Lhe neuresL ushuIL roud decreused
more In ruruI ureus Lhun In urbun ureus. The
reducLIonruLewusLhehIghesLInLheeusLernregIon,
where connecLIvILy Is Lhe worsL umong Lhe Lhree
ILsweuILhquInLIIes,buLhussLeudIIyIncreuseddurIng
LheIusLdecude.AbouLqq%oIurbunbuLonIy;%oI
ruruIhousehoIdshuveuccessLoImrovedsunILuLIon
IucIIILIes. Among Lhe Lhree regIons, househoIds In
Lhe wesLern regIon huve beLLer uccess (ubouL 81%)
LhunLhoseIIvIngInLhecenLruIoreusLernregIons(uL
6q% und z%, resecLIveIy). NeurIy uII househoIds
(ubouLqq%)IromLherIchesLquInLIIehuveuccessLo
ImrovedsunILuLIonIucIIILIesversusonIy%Irom
Lhe ooresL quInLIIe. These hgures suggesL Lhe need
Ior conLInued governmenL eIIorLs Lo Imrove Lhe
rovIsIon oI sunILuLIon IucIIILIes In dIsudvunLuged
urLsoILhecounLry.
3.4. Uneven Playing Field
To IeveI Lhe IuyIng heId, Lhe governmenL hus
LoensureequuIuccessLoeconomIcoorLunILIes
e.g., Lo InIrusLrucLure, roducLIve usseLs such us
Iund, und credILucross Lhe counLry und socIo-
economIcgrous.
3.4.1. Infrastructure
BhuLunsLerruInoseschuIIengesLorovIdIng
udequuLe InIrusLrucLure und connecLIng dIIIerenL
urLsoILhecounLry.TheuvuIIubIIILyoIInIrusLrucLure
uIIecLs eoIes uccess Lo economIc oorLunILIes
und Lo key ubIIc servIces such us educuLIon
undheuILh.
$FFHVV WR NH\ LQIUDVWUXFWXUH SDUWLFXODUO\
roads, remains unequal and limited in rural
areas, and is a critical constraint to the
inclusiveness of growth.
Source: Estimates based on NSB (2011a).
Figure 3.37. Access to Improved Water Source and Sanitation Facility,
by Region and Socioeconomic Group, 2010 (%)
B
h
u
t
a
n
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
Area Region Wealth quintile
P
o
o
r
e
s
t
S
e
c
o
n
d
M
i
d
d
l
e
R
i
c
h
e
s
t
F
o
u
r
t
h
0
40
20
60
80
100
Access to improved sanitation facilities Access to improved water sources
86
regIons. WhIIe uccessIbIIILy umong exendILure
quInLIIesImrovedbeLweenzoo;undzo1z,oorer
househoIds sLIII Lend Lo huve Iess uccess Lo rouds
LhunbeLLer-oIIones.
$FFHVVWRNH\HFRQRPLFDQGSXEOLFIDFLOLWLHV
LVQRWHTXDOO\GLVWULEXWHGDFURVVWKHFRXQWU\
and among expenditure groups.
Igures .q1 und .qz show Lhe medIun LruveI
LImeLukenLoreuchmurkeLsundbunks,resecLIveIy.
BoLh hgures show LhuL, uL Lhe nuLIonuI IeveI, Lhe
LruveI LIme decreused beLween zoo; und zo1z,
whIch cun be urLIy uLLrIbuLed Lo Lhe enhunced
rovIsIonoIrouds.TubIe.1oreorLsLhecommon
meuns Lo reuch key economIc und ubIIc IucIIILIes.
n uccessIng murkeLs und ugrIcuILuruI exLensIon
cenLers, mosL resondenLs wuIk. AddILIonuI meuns
oI LrunsorL ure oILen needed Lo reuch bunks und
dIsLrIcLgovernmenLheudquurLers.
mroved uccessIbIIILy Lo murkeLs, economIc
cenLers, und bunks, however, Is noL unIversuI.
n zo1z, urbun resIdenLs Look ubouL o.z hours
Lo reuch u murkeL (no ImrovemenL Irom zoo;)
whereus ruruI resIdenLs needed ubouL o. hours
(u o% reducLIon Irom zoo;); greuLer dIsurILy Is
uIso observed Ior uccessIng bunks, uILhough ruruI
resIdenLs uccess LImes Imroved Irom z.o Lo 1.
hoursbeLweenzoo;undzo1z.AhugeImrovemenL
In LruveI LIme Lo murkeLs und bunks wus recorded
InLheeusLernregIon.WhIIeLruveILImeLomurkeLs
km = kilometer, km
2
= square kilometer.
Source: Estimates based on the 2012 Statistical Yearbook of Bhutan (NSB various years).
Figure 3.38. Road Density: All Roads, by District, 2012 (km/km
2
)
0
60
50
40
30
20
10
70
80
90
C
h
h
u
k
h
a
G
a
s
a
H
a
a
P
a
r
o
P
u
n
a
k
h
a
B
u
m
t
h
a
n
g
D
a
g
a
n
a
S
a
r
p
a
n
g
T
r
o
n
g
s
a
S
a
m
t
s
e
T
h
i
m
p
h
u
T
s
i
r
a
n
g
W
a
n
g
d
u
e

P
h
o
d
r
a
n
g
Z
h
e
m
g
a
n
g
M
o
n
g
a
r
P
e
m
a
g
a
t
s
h
e
l
S
a
m
d
r
u
p

J
o
n
g
k
h
a
r
T
r
a
s
h
i
g
a
n
g
T
r
a
s
h
i
y
a
n
g
t
s
e
L
h
u
e
n
t
s
e
Source: Estimates based on the 2012 Statistical Yearbook of Bhutan (NSB various years).
Figure 3.39. Types of Roads, by District, 2012 (%)
0
60
40
20
80
100
C
h
h
u
k
h
a
G
a
s
a
H
a
a
P
a
r
o
P
u
n
a
k
h
a
B
u
m
t
h
a
n
g
D
a
g
a
n
a
S
a
r
p
a
n
g
T
r
o
n
g
s
a
S
a
m
t
s
e
T
h
i
m
p
h
u
T
s
i
r
a
n
g
W
a
n
g
d
u
e

P
h
o
d
r
a
n
g
Z
h
e
m
g
a
n
g
M
o
n
g
a
r
P
e
m
a
g
a
t
s
h
e
l
S
a
m
d
r
u
p

J
o
n
g
k
h
a
r
T
r
a
s
h
i
g
a
n
g
T
r
a
s
h
i
y
a
n
g
t
s
e
L
h
u
e
n
t
s
e
Forest road Farm road Power tiller track Access road
National highway Expressway Urban road District road
87
und bunks Imroved umong eoIe In Lhe Iower
exendILurequInLIIesbeLweenzoo;undzo1z,wIde
dIsurILyersIsLs.LIs,LhereIore,ImorLunLIorLhe
governmenL Lo Imrove connecLIvILy, urLIcuIurIy
IorruruIundremoLeureus,LoensureequuIuccessLo
economIcoorLunILIes.
$FFHVV WR HOHFWULFLW\ LQFUHDVHG VLJQLFDQWO\
during the last decade, particularly in rural
DQG UHPRWH DUHDV EXW GLVSDULWLHV UHPDLQ
across the country and among expenditure
groups.
The shure oI househoIds wILh uccess Lo
eIecLrIcILyIncreusedIromubouLq%InzooLoubouL
qz%Inzo1z(Igure.q).BecuuseLhemujorILyoI
urbunhousehoIdsuIreudyhuduccessLoeIecLrIcILyIn
zoo,mosLoILheImrovemenLLookIuceInruruI
ureus, where Lhe eIecLrIhcuLIon ruLe hus more Lhun
LrIIedbeLweenzooundzo1z.Thezo1zesLImuLes
show LhuL ubouL 8;% oI househoIds huve uccess
Note: The bars show the median travel time. Calculations are based on the subsample of the respondents (about 89% and 78% of the samples in 2007 and
2012, respectively) who provided the travel time to the nearest asphalt road on foot (rather than other transport means).
Source: Estimates based on Bhutan Living Standards Surveys (NSB 2007, ADB and NSB 2013).
Figure 3.40. Travel Time to the Nearest Asphalt Road on Foot, by Region and
Expenditure Quintile (hours)
B
h
u
t
a
n
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
Area Region Expenditure quintile
P
o
o
r
e
s
t
S
e
c
o
n
d
M
i
d
d
l
e
R
i
c
h
e
s
t
F
o
u
r
t
h
0.0
1.0
0.5
1.5
2.0
2.5
2012 2007
Sources: Estimates based on NSB (2007), ADB and NSB (2013).
Figure 3.41. Travel Time to Market, by Region and
Expenditure Quintile (median travel times, hours)
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
B
h
u
t
a
n
Area
0.0
1.50
2.00
1.00
0.50
2.50
2012 2007
Sources: Estimates based on NSB (2007), ADB and NSB (2013).
Figure 3.42. Travel Time to a Bank, by Region and
Expenditure Quintile (median travel times, hours)
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
B
h
u
t
a
n
Area
0.0
3.0
2.0
3.5
2.5
1.5
1.0
0.5
4.0
2012 2007
Table 3.10. Households Access to Economic
and Public Facilities, 2012 (%)
Means of
Travel
Economic Facilities Public Facilities
Market Bank
District
Government
Headquarters
Agriculture
Extension
Center
Foot 65.3 29.7 19.6 74.2
Vehicle 19.5 37.9 42.0 15.3
Both 12.1 27.0 32.6 9.2
Other 3.2 5.5 5.8 1.4
88
Sources: Estimates based on NSB (2003, 2007a, 2011a), ADB and NSB (2013).
Figure 3.43. Households with Electricity, by Region (%)
0
40
50
20
10
30
60
70
80
90
100
Bhutan Urban Rural Western Central Eastern
Area Region
2003 2007 2010 2012
Sources: Estimates based on NSB (2003, 2007a), ADB and NSB (2013).
Figure 3.44. Households with Electricity, by
Expenditure Quintile (%)
Poorest Second
Expenditure quintile
Third Fourth Richest
2007 2012 2003
0
20
40
60
80
100
Lo eIecLrIcILy In ruruI ureus. n Lhe wesLern regIon,
ubouLq%oIhousehoIdshuveuccessLoeIecLrIcILy,
comuredLoubouLqo%und88%oIhousehoIdsIn
LhecenLruIundeusLernregIons,resecLIveIy.
DIsurILy uIso ersIsLs umong exendILure
quInLIIes (Igure .qq). AILhough oor househoIds
benehLLed mosL Irom Lhe ImrovemenL beLween
zoo und zo1z, Lhey hud Iess uccess Lo eIecLrIcILy
Lhun beLLer-oII househoIds. WhIIe ubouL q8% oI
househoIds In Lhe rIchesL quInLIIe hud uccess Lo
eIecLrIcILy, ubouL ;;% hud uccess In Lhe ooresL
quInLIIe.ThegovernmenLhuscommILLedLorovIde
uIIhousehoIdsuccessLoeIecLrIcILybyzo1,however.
More hydroower rojecLs ure Lo be Iuunched In
IIne wILh Lhe BhuLun SusLuInubIe Hydroower
DeveIomenLPoIIcy(GNHCzo1o).
3.4.2. Land
$FFHVVWRODQGPD\QRWEHDFULWLFDOFRQVWUDLQW
WRLQFOXVLYHQHVVDVWKHSRRUDSSHDUQRWWREH
precluded from owning land.
or counLrIes such us BhuLun, where Lhe
mujorILyoILheouIuLIonureengugedInugrIcuILure,
oneoILhemosLImorLunLroducLIveusseLsIsIund.
GIven Lhe counLrys LoogruhIcuI IeuLures, uccess
LoroducLIveIundIsIImILedbecuuseonIyubouL;%
oI Lhe LoLuI Iund ureu Is urubIe. Igure .q shows
LhuLubouL66%oIhousehoIdsundLheuverugeIund-
ownershIIs1.hecLures.OwnershIIsconcenLruLed
InruruIureus,where8oI1ohousehoIdsownIund.
Igure .q comures IundownershI ucross
Lhe secLors In whIch Lhe househoId heud Is
enguged. WhIIe uImosL uII househoIds enguged In
ugrIcuILureownIund(ubouLqz%),onIyubouL8%
oI househoIds workIng In euch oI Lhe IndusLry und
servIces secLors ossess Iund. The IundownershI
roorLIonIsuIsogreuLerumonghousehoIdsInLhe
Iower exendILure quInLIIes Lhun Lhose In Lhe qLh
und rIchesL quInLIIes. NeurIy q In 1o househoIds
In Lhe ooresL quInLIIe own Iund, buL onIy ubouL
In 1o In Lhe rIchesL quInLIIe own Iund. n Lerms oI
ureu,househoIdsworkIngInIndusLryundJoroorer
househoIdsLendLoownIurgerIundureus.
und dIsLrIbuLIon seems Lo huve worsened
beLween zoo und zo1z. The GInI coeIhcIenL Ior
Iund dIsLrIbuLIon Increused Irom o.q6 In zoo Lo
o.6qq In zo1z, whIch Is uIso IIIusLruLed by orenz
curves(Igure.q6).nLermsoILenuresLuLus,mosL
89
IundhoIdIngs ure oeruLed by LheIr owners (Igure
.q;)ucrossuIILheexendILurequInLIIes;however,
Lhe shure oI Ieused-ouL Iund Is hIgher umong
househoIdsInrIcherquInLIIesundLhuLoIIeused-In
IundIshIgherumongoorerhousehoIds.
n uddILIon Lo IundownershI, househoIds
uccess Lo roducLIve Iund Is ImorLunL. n Lhe
BhuLun IvIng SLundurds Surveys, IundownershI
Is cIussIhed by Lye-dry und weL. WeL Iund reIers
LoroducLIveurubIeIundLhuLmuybeIrrIguLed,und
In Lhe currenL reorL Is Lermed roducLIve Iund.
OwnershI oI roducLIve Iund Is shown In Igure
.q8. OnIy ubouL ;% oI househoIds huve uccess
Lo roducLIve Iund. The ercenLuge oI roducLIve
IundownershI Is noLIceubIy hIgher umong cerLuIn
subgrous, IncIudIng Lhose enguged In ugrIcuILure,
ruruI househoIds, eoIe resIdIng In Lhe cenLruI
regIon,undIowerexendILurequInLIIes.
3.4.3. Credit
(TXDOLW\RIDFFHVVWRIRUPDOQDQFLDOVHUYLFHV
has improved and is not a critical constraint
to reducing poverty and inequality.
EnsurIng uccess Lo credIL ucross secLors
Is crILIcuI Ior enhuncIng Lhe IncIusIveness oI
economIc growLh. CredIL enubIes oor househoIds
Lo Luke udvunLuge oI economIc oorLunILIes,
meeL duIIy needs, und coe wILh shocks. InuncIuI
InLermedIurIeschunneIIundsIromeoIewhohuve
suvIngsLoLhosewhohuveroducLIveusesIorLhem.
BuL InIormuLIon usymmeLry InherenL In hnuncIuI
InLermedIuLIon (LhuL Is, borrowers generuIIy know
more ubouL LheIr InvesLmenL rojecLs und LheIr
Sources: Estimates based on NSB (2003, 2007a), ADB and NSB (2013).
Figure 3.46. Lorenz Curves of Landholdings,
2003, 2007, and 2012
2007 2012 2003
0
0.2
0.4
0.6
0.8
1
0 0.2 0.4 0.6 0.8 1
P
r
o
p
o
r
t
i
o
n

o
f

l
a
n
d

o
w
n
e
d

(
%
)
Proportion of households with lands (%)
Figure 3.45. Landownership, by Region
and Socioeconomic Group, 2012
A
g
r
i
c
u
l
t
u
r
e
I
n
d
u
s
t
r
y
S
e
r
v
i
c
e
s
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
Region Sector Wealth index quintile
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
B
h
u
t
a
n
Area
0
80
90
70
60
50
40
30
10
20
100
Average land area Households with land
%
H
e
c
t
a
r
e
s
0.8
1.0
0.6
0.4
1.4
1.2
0.0
0.2
1.6
Note: Leased out = land leased by owner to someone else; leased in =
land leased from someone else.
Figure 3.47. Households Land Tenure Pattern,
2012 (%)
0 20 10 40 30 60 50 80 70 100 90
Bhutan
Poorest
Richest
2nd
3rd
4th
Own operated Leased out
Leased in Other
Figure 3.48. Ownership of Productive Land,
by Region and Socioeconomic Group, 2012
A
g
r
i
c
u
l
t
u
r
e
I
n
d
u
s
t
r
y
S
e
r
v
i
c
e
s
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
Region Sector Wealth index quintile
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
B
h
u
t
a
n
Area
0
40
50
30
20
10
60
2012 2007
P
e
r
c
e
n
t
H
e
c
t
a
r
e
s
0.5
0.6
0.4
0.3
0.8
0.7
0.0
0.2
0.1
0.9
90
BDFC = Bhutan Development Finance Corporation; RICB = Royal Insurance Corporation of Bhutan.
Source: Estimates based on NSB (2007).
Figure 3.49. Sources of Credit, by Region and Socioeconomic Group (%)
0
40
20
60
80
100
B
h
u
t
a
n
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
Area Region Sector Expenditure quintile
A
g
r
i
c
u
l
t
u
r
e
S
e
r
v
i
c
e
s
I
n
d
u
s
t
r
y
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
Bank BDFC/RICB Relative/friends Others
BDFC = Bhutan Development Finance Corporation; RICB = Royal Insurance Corporation of Bhutan.
0
40
20
60
80
100
B
h
u
t
a
n
U
r
b
a
n
R
u
r
a
l
W
e
s
t
e
r
n
C
e
n
t
r
a
l
E
a
s
t
e
r
n
P
o
o
r
e
s
t
S
e
c
o
n
d
Area Region Sector Expenditure quintile
A
g
r
i
c
u
l
t
u
r
e
S
e
r
v
i
c
e
s
I
n
d
u
s
t
r
y
T
h
i
r
d
F
o
u
r
t
h
R
i
c
h
e
s
t
Bank BDFC/RICB Relative/friends Others
a. 2007
b. 2012
IIkeIIhoodoIreuyInguIounLhundoIenders)muy
resenL u sIgnIhcunL hurdIe Lo uccess Lo credIL In
munydeveIoIngcounLrIes.
Igure.qqshowsLhuLuccessLocredILLhrough
IormuI hnuncIuI InsLILuLIons hus Imroved Irom
zoo; Lo zo1z. AbouL q1% oI eoIe who uvuIIed
oI Iouns Look Lhem Irom IormuI InLermedIurIes
such us bunks, Lhe BhuLun DeveIomenL Inunce
CororuLIon (BDC), und Lhe RoyuI nsurunce
CororuLIon oI BhuLun (RCB) In zo1zu huge
ImrovemenL Irom onIy ubouL qq% In zoo;. ThIs
muy be uLLrIbuLed Lo Lhe IuunchIng In IuLe zooq
oI BhuLun`s hrsL credIL InIormuLIon bureuu, whIch
becume IuIIy oeruLIonuI In zo1o, Lo uddress Lhe
robIemoIcredILInIormuLIonusymmeLry.Theshure
oI bunk IendIng Lo ruruI househoIds Is, however,
sLIIIsmuIIcomuredwILhLhuLoIurbunhousehoIds
desILeLheIurgeroorLIonoIruruIhousehoIdsLhuL
ownIundLhuLmuybeuseduscoIIuLeruI.ThesmuII
shuresuggesLsLhuLoLherIucLors,suchusuvuIIubIIILy
oIbunkbrunchesInLheruruIureusundburdensome
documenLuLIon requIremenLs, muy uIso be uL Iuy.
NoneLheIess,ILIsencourugIngLonoLeLheIncreuseIn
ruruIhousehoIdsLukIngIounsIromBDCundRCB
beLween zoo; und zo1z. The shure oI borrowIng
Irom IrIends und reIuLIves shurIy decIIned ucross
ureus,secLors,undexendILuregrous.SLIII,uccess
LoIormuIcredILIsgreuLerInurbunureusundumong
beLLer-oII househoIds. Igure .qqu IIIusLruLes
91
LhuL, In zoo;, oorer househoIds were more IIkeIy
Lhun rIcher ones Lo borrow Irom InIormuI sources
Ior LheIr credIL needs, buL Igure .qqb shows LhIs
sILuuLIon hus been IurgeIy reduced, und more Lhun
Lhree-IourLhs oI Lhe ooresL quInLIIe househoIds
wILhIounswereubIeLoborrowIromIormuIsources
Inzo1z.
3.5. Social Safety Nets
Recent government initiatives on the
provision of safety nets are encouraging.
Igure .o reorLs governmenL exendILure
on socIuI securILy und weIIure Ior SouLh AsIun
counLrIes. WhIIe BhuLuns uIIocuLIon Ior socIuI
roLecLIon wus Iess Lhun z% oI GDP In zo1o, IL Is
In Lhe runge oI LhuL rovIded by oLher counLrIes In
LheregIon.
The sLruLegIc Irumework oI BhuLuns TenLh
Ive Yeur PIun Is hInged on ILs overurchIng gouI
oI reducIng overLy. DurIng Lhe IusL decude, Lhe
counLry ImIemenLed severuI socIuI roLecLIon
InILIuLIves. UnIversuI heuILh coveruge und Iree
educuLIon Ior schooI-uged chIIdren were uL In
Iuce rIor Lo Lhe zooos, und severuI socIuI oIIcy
sLruLegIes were uIso InILIuLed durIng Lhe zooos,
IncIudIng socIuI Insurunce, Iubor roLecLIon, und
housIng subsIdIes. The BhuLun NuLIonuI Humun
DeveIomenL ReorL zo11 noLes LhuL Lhe socIuI
Insurunce meusures IncIude Lhe zooz NuLIonuI
PensIon und ProvIdenL und, whIch wus seL u Lo
rovIde ensIon munugemenL servIces Ior cIvII
servunLs,IncIudIngeoIeemIoyedInsLuLe-owned
enLerrIses joInL-secLor comunIes, Lhe mIIILury,
und Lhe oIIce (GNHC zo11u). ubor roLecLIon
meusuresIncIudeLhezoo;uborundEmIoymenL
AcL, whIch guurunLees Lo roLecL Lhe InLeresLs oI
workers,urLIcuIurIyIorLenureundroerworkIng
condILIons. AIIordubIe housIng wus mude uvuIIubIe
byLheNuLIonuIHousIngDeveIomenLPoIIcy,whIch
wusuIsoImIemenLedInzooz.
ThegovernmenLhusuIsoImIemenLedoIIcIes
LurgeLIng cerLuIn underrIvIIeged grous (Choden
zo1o). n zooq, Lhe NuLIonuI CommIssIon Ior
Women und ChIIdren wus esLubIIshed secIhcuIIy
Lo uLLend Lo Lhe roLecLIon oI BhuLunese women
und chIIdren Irom uII Iorms oI dIscrImInuLIon,
exIoILuLIon, und ubuse. The CommIssIon Is
munduLedLoensureLhuLLhecounLryscommILmenLs
Lo InLernuLIonuI und regIonuI convenLIons und
LreuLIes (e.g., Lhe ConvenLIon on Lhe RIghLs oI
ChIIdren und Lhe ConvenLIon on EIImInuLIon oI
DIscrImInuLIon uguInsL Women) ure IuIhIIed. The
YouLhDeveIomenLund,esLubIIshedIn1qq8,hus
suorLed youLh rogrums und InsLILuLIons. The
rogrums IncIude educuLIon schoIurshIs Ior Iess
IorLunuLe chIIdren und secIuI ussIsLunce Lo youLh
who need rehubIIILuLIon Irom uddIcLIon Lo uIcohoI
unddrugs.
3.6. Conclusion
EIIorLs Lo reduce overLy und InequuIILy
huve mude heudwuy, urLIcuIurIy In Lhe rovIsIon
oI heuILhcure und socIuI servIces. AddILIonuI
Figure 3.50 Government Expenditure on Social Security and Welfare (% of GDP)
0
2
1
4
3
5
2008 2001 2000 2002 2003 2004 2005 2006 2007 2009 2010 2011
92
Lusks need Lo be uccomIIshed Ior BhuLun Lo
uchIeve more IncIusIve growLh. DIugnosIs oI key
socIoeconomIc usecLs IdenLIhed Lhe IoIIowIng
us crILIcuI consLruInLs: IImILed oorLunILIes Lo
roducLIve und decenL emIoymenL; oor quuIILy
oI educuLIon und dIsurILy In Lhe uvuIIubIIILy Lo IL;
undoorconnecLIvILy,urLIcuIurIyInLheruruIureus
(TubIe.11).
Table 3.11. Summary of Diagnosis of Constraints to Reducing Poverty and Inequality
Broad Determinants
of Poverty and
Inequality
Factors Aecting Poverty
and Inequality
Why Factor Constrains
Reduction of Poverty and
Inequality
Critical
Constraint ?
Impact
on
Growth
Productive and
Decent Employment
Opportunities
Employment opportunities % Internal migration from
rural to urban areas
% Limited generation of jobs
and development of the
formal sector
% Mismatch between
demand and supply of
employment opportunities
% Low productivity in the
agriculture sector
Critical
9
9
9
9
Access to
Opportunities
Human
capabilities
Education % Low level of education of
the labor force, particularly
among people residing in
rural areas and the eastern
region, women, and
relatively poor households
% Limited and unequal access
to education particularly at
the secondary level and
above
% Limited access to vocational
education
% Shortage of vocation and
manual workers as the
young population prefers
white-collar jobs
Critical
9
9
9
9
Health % Infant and child mortality
rates decreased but still
high by regional standards
% Some disparity in health
status across the country
and among socioeconomic
groups
% Room for improving
accessibility to healthcare
in rural and remote areas
% Dearth of healthcare
workers
No
Other social
services
% Partial access to sanitation
facilities in rural areas and
among the poor
No
Uneven access to
infrastructure
and productive
assets
Infrastructure,
particularly roads
% Access remains unequal
and limited in rural areas
Critical
9
Land % Some deterioration in the
distribution of landGini
coecient increased by
0.022 percentage points
No
Credit % Equality of access to formal
nancial services has
improved
No
Social Safety Nets Social safety nets % Limited allocation for social
protection
No
93
Appendix B. Analyzing the
Probability of Not Being Poor
TheBhuLunIvIngSLundurdsSurveyzo1zcun
be used Lo IdenLIIy crILIcuI consLruInLs Lo reduce
overLyundInequuIILy.UsIngInIormuLIonuvuIIubIe
Irom Lhe survey, IL Is ossIbIe Lo unuIyze Lhe
robubIIILy oI noL beIng oor (I.e., beIng nonoor).
The esLImuLIon resuILs cun heI rovIde guIdunce
Lo IdenLIIy crILIcuI consLruInLs Lo reducIng overLy
undInequuIILy.TheunuIysIswusdonebyesLImuLIng
u IogIL modeI. The choIce oI deLermInIng IucLors Is
u combInuLIon oI IocuLIon vurIubIes, demogruhIc
churucLerIsLIcs, und uccess vurIubIes. These ure
consIsLenLwILhLheusuuIIndIcuLorsusedInoverLy
sLudIes. TubIe A shows Lhe resuILs oI Lhe unuIysIs.
The modeI rovIdes u reusonubIy good esLImuLe oI
LheIIkeIIhoodoInoLbeIngoor,undLheurumeLer
esLImuLesyIeIdLheexecLedsIgns.TheosILIvesIgn
Table A3. Probability of Being Nonpoor
Parameter
Coecient
Estimate
Standard
Error z
Marginal Eect
(dy/dx)
Location (Western region = control)
Central region 0.2012 0.1251 1.61 0.0054
Eastern region 0.3986 0.1214 3.28 *** 0.0112
Urban 0.4398 0.1975 2.23 ** 0.0107
Household Heads Characteristics
Male 0.0350 0.1075 0.33 0.0009
Age 0.0074 0.0217 0.34 0.0002
Age (squared) 0.0000 0.0002 0.16 0.0000
Marital status (not married) 0.0720 0.1372 0.52 0.0018
Years of education 0.0992 0.0240 4.14 *** 0.0026
Formally employed 0.8840 0.2266 3.90 *** 0.0202
Other Demographics
Family size 0.2616 0.0202 12.93 *** 0.0067
Dependency burden 0.3784 0.2321 1.63 0.0098
Access Variables
Housing materials
Strong roof 0.3659 0.1393 2.63 *** 0.0110
Strong walls 0.4506 0.1069 4.21 *** 0.0133
Strong ooring 0.0086 0.1017 0.08 0.0002
Electricity 0.5140 0.1278 4.02 *** 0.0163
Safe drinking water 0.2008 0.1104 1.82 * 0.0055
Sanitation 1.3757 0.3810 3.61 *** 0.0255
Own land 0.0942 0.1808 0.52 0.0024
Distance to nearest facility (time, ln)
Paved road 0.1210 0.0406 2.98 *** 0.0031
Hospital or basic health unit 0.1279 0.0460 2.78 *** 0.0033
Bank 0.1767 0.0551 3.21 *** 0.0046
Constant 4.6735 0.7017 6.66 ***
Number of observations 8,968
Pseudo R
2
0.2383
* = 10% , ** = 5%, *** = 1% level of signicance, ln = natural logarithm.
Notes: z is the ratio of the coecient to the standard error of the respective independent variable. The z value is used to test against a two-sided alternative
hypothesis that the coecient is not equal to zero (i.e., whether the coecient is statistically signicant or not). dy/dx indicates the marginal eects of the
independent variables for the logit regression model (a measure of the change of the dependent variable from 0 to 1 when x increases by 1).
94
oI coeIhcIenLs (In Lhe second coIumn, exceL Lhose
LhuL deuI wILh dIsLunce) IndIcuLes LhuL Lhe vurIubIe
Increuses Lhe robubIIILy oI beIng nonoor (I.e.,
Increuses Lhe robubIIILy oI beIng oor) whIIe Lhe
neguLIve sIgn ImIIes LhuL Lhe vurIubIe reduces Lhe
robubIIILyoIbeIngnonoor.
Key observuLIons IndIcuLe LhuL househoIds In
Lhe eusLern regIon ure more IIkeIy Lo be oor Lhun
eoIeIromLheoLherregIons,whIIeeoIeInurbun
ureus huve u hIgher robubIIILy oI noL beIng oor
Lhun eoIe In ruruI ureus. urge househoIds undJ
orLhosewILhuhIgherruLIooIdeendency(LheruLIo
oIchIIdrenundLheeIderIyLouduILs)uremoreIIkeIy
Lobeoor.TheesLImuLIonresuILscIeurIyshowLhe
ImorLunce oI educuLIon, us Lhe educuLIon IeveI oI
househoIdheuds(meusuredbyLhenumberoIyeurs
oIIormuIschooIIng)IncreusesLheIIkeIIhoodLhuLu
househoIdwIIInoLbeoor.
The modeI uIso verIhes Lhe udvunLuge oI IormuI
emIoymenL us shown by Lhe osILIve sIgn oI Lhe
urumeLer esLImuLe. n BhuLun, uccess vurIubIes
ueur Lo be sLrong roxy IndIcuLors oI muLerIuI
weII-beIng. HousehoIds wILh housIng muLerIuIs
such us sLrong rooIs und wuIIs ure Iess IIkeIy Lo be
oor.AccessLoeIecLrIcILy,IedwuLer,undsunILury
LoIIeLsureuIsoosILIveredIcLorsoInoLbeIngoor.
The ImorLunce oI credIL Is uIso reecLed In Lhe
modeI, us househoIds wILh beLLer uccess Lo bunks
(meusured by Lhe LIme Luken Lo reuch u bunk) ure
Iess IIkeIy Lo be oor. SImIIurIy, u househoId wILh
beLLeruccessLoroudsundhosILuIsIsIessIIkeIyLo
beoor.
Drivers of Inclusive Growth for Bhutan
95
Chapter 4
Drivers of Inclusive
Growth for Bhutan
T
he muIn sources oI BhuLuns robusL
economIc erIormunce huve been
InvesLmenL In hydroower und growLh
In hydroower-reIuLed consLrucLIon
und servIces. Heuvy deendence on
hydroower exIoILuLIon hus conhned Lhe counLry`s
economy Lo nurrowIy bused growLh und IImILed
emIoymenL oorLunILIes. ReIIunce on eIecLrIcILy
exorLs Lo ndIu us Lhe mujor source oI IoreIgn
exchunge hus uIso mude Lhe economy vuInerubIe
Lo swIngs In ndIus busIness cycIes. n Lhe Ionger
Lerm, jobIess growLh und deendence on one
secLor Ior growLh ure unsusLuInubIe, wIII Ieud Lo
Income dIsurILIes, und wIII IrusLruLe Lhe eIIorLs
oI IncreusIng numbers oI educuLed youLh seekIng
guInIuIemIoymenL.TheunLIcIuLedIuLuredecIIne
In exLernuI uId und grunLs hus underscored Lhe
ImorLunce oI uddressIng Lhe nurrowIng hscuI suce
IssueunddIversIIyIngLheeconomy.
or more broud-bused und IncIusIve growLh,
BhuLun wIII need Lo Lu new drIvers oI growLh. A
more dIversIhed economy wIII uL Lhe counLry on
u more sLubIe und susLuInubIe growLh uLh und
generuLe roducLIve emIoymenL oorLunILIes
Ior Lhe ouIuLIon. How Lhen, shouId BhuLun
beLLerosILIonILseIILoensureILseconomIcIuLure?
ThIs chuLer uLLemLs Lo unswer Lhe quesLIon by
(1) revIewIng Lhe economIc erIormunce oI secLors
LhuL ure currenL drIvers oI growLh; (z) ouLIInIng
new, emergIng drIvers LhuL cun ucceIeruLe growLh
LhuL Is susLuInubIe und IncIusIve; und () oIIerIng
oIIcyoLIonsLosuorLundudvuncenewgrowLh
engInesLhuLuresourcesoInewemIoymenL.
4.1. Existing Drivers
of Growth in Bhutan
The muIn drIvers oI growLh In BhuLun huve
been Lhe energy secLor (secIhcuIIy hydroower),
LourIsm, und ugrIcuILurereIerred Lo us Lhe
exIsLIng growLh drIvers. The deveIomenL oI
hydroower und LourIsm Iuyed un ImorLunL roIe
In roeIIIng BhuLun uIong u hIgher growLh uLh,
whIIeugrIcuILure,whIchhusIuggedInerIormunce,
husbeenLhemuInsourceoIIncomeInruruIureus.
The energy secLor uccounLed Ior uroxImuLeIy
zo%oILheeconomy,undgrowLhInroducLIonund
reIuLed consLrucLIon hus uccounLed Ior one-LhIrd
oI gross domesLIc roducL (GDP) growLh. TourIsm
Is u reIuLIveIy more recenL growLh drIver und hus
consIderubIe oLenLIuI Ior Lhe IuLure. WhIIe LourIsL
urrIvuIshuvebeenIncreusIngsIncezoo1,Lheybegun
Lo ucceIeruLe ruIdIy onIy Irom zo1o, und LourIsm
conLrIbuLedubouL;%LoGDPInzo1o.AgrIcuILures
shureoIGDPhusbeendecIInIngIusL,buLLhesecLor
husLheoLenLIuIIorhIgherroducLIvILywILhroer
deIoymenL oI InnovuLIve IurmIng meLhods und
InIrusLrucLure. WILh uImosL 6o% oI Lhe workIorce
deendIng on ugrIcuILure, IL couId muke u much
IurgerconLrIbuLIonLoeconomIcgrowLh.
4.1.1. Energy Sector
Hydropower. Hydroower domInuLes Lhe
ower secLor In BhuLun. L Iuys u crucIuI roIe In
BhuLunssocIoeconomIcdeveIomenLbyrovIdIng
cIeun, reIIubIe, und uIIordubIe eIecLrIcILy Ior
domesLIc use. BhuLun Is uIso u neL ower exorLer.
96
ubouL z88 MW durIng Lhe wInLer und dry seusons
(DecemberMurch).ThIsIowcuucILycunnoLmeeL
LhesysLemeukdemunddurIngLhewInLerunddry
seusons. n zo1o, ubouL z MW oI IndusLrIuI Ioud
wussheddurIngLhewInLermonLhs.PowerImorLs
Irom ndIu, esecIuIIy In Lhe wInLer, huve become
IncreusIngIy dIIhcuIL Lo urrunge us ndIu hus ILs own
ower shorLuges In Lhese monLhs. WInLer ower
shorLugesureLhusexecLedLoworsenundwIIIonIy
be uIIevIuLed In zo16 when Lhe PunuLsungchhu
hydroowerIunL(1,zooMW)comesonIIne.
n zoo8, BhuLun ugreed wILh ndIu Lo deveIo
und exorL 1o,ooo MW oI cuucILy by zozo.
PunuLsungchhu Is IncIuded under LhIs bIIuLeruI
Irumework, uIong wILh q oLher Iurge hydroower
rojecLsLhuLureuLvurIousdeveIomenLsLugeswILh
Lhe ndIun governmenL und BhuLunese enLerrIses
(TubIeq.1).
n uddILIon Lo Lhe bIIuLeruI urrungemenLs,
BhuLuns deveIomenL sLruLegy consIders vurIous
hnuncIng mechunIsms Lhrough ubIIc-rIvuLe
urLnershIs,InurLIcuIurIormedIum-undsmuII-
sIze rojecLs. The Duguchhu hydroower rojecL
(1z6 MW), broughL on IIne In zoo8, wus Lhe hrsL
ubIIcrIvuLeurLnershIInIrusLrucLurerojecLIn
BhuLun. The rojecL wus deveIoed on commercIuI
Lerms und wIII conLrIbuLe Lo governmenL revenue
LhroughLuxes,dIvIdends,undroyuILIes.AcceIeruLIng
LhedeveIomenLoIhydroowerIorexorLwIIIbeoI
sLruLegIc sIgnIhcunce Lo Lhe susLuIned growLh oI Lhe
BhuLuneseeconomy.
5XUDO(OHFWULFDWLRQAILhoughBhuLunhus
uneLowersurIusLoexorL,mosLruruIresIdenLs
BhuLun exorLs 8o% oI Lhe ower IL generuLes
unnuuIIy Lo ndIu; Lhe remuInIng zo% meeLs
domesLIcconsumLIonneeds.TuxesunddIvIdends,
muInIyIromhydroowercomunIes,uIsoconsLILuLe
Lhe IurgesL source oI nuLIonuI revenue (more
Lhun qo% oI governmenL revenue). Hydroower
deveIomenLundeIecLrIcILyexorLshuvesLeudIusLIy
underInnedLheruIdgrowLhoIBhuLunseconomy
undgeneruLedgovernmenLresourcesIorsocIuIund
oLherInvesLmenLs.
BhuLuns hydroIogy und Loogruhy combIne
Lo gIve u Iurge hydroower oLenLIuI oI z,;6o
meguwuLLs (MW).
1
The currenL LoLuI InsLuIIed
hydroower generuLIon sLunds uL 1,q88 MW,
whIch uccounLs Ior ubouL qq% oI Lhe nuLIons LoLuI
InsLuIIed eIecLrIcILy generuLIon cuucILy oI 1,o6
MW. (The LoLuI IncIudes InsLuIIed cuucILy oI soIur
hoLovoILuIco.oq MWund dIeseI1;.q MW).
CurrenLIy, z8 hydroower IunLs ure oeruLIng, oI
whIchureIurgeIunLswILhInsLuIIedcuucILIesoI
uL IeusL zo MW und z ure smuII, mInI, und mIcro
IunLs wILh InsLuIIed cuucILIes oI over 1 MW u Lo
1o MW, over 1oo kIIowuLLs u Lo 1 MW, und equuI
LoorIessLhun1ookIIowuLLs,resecLIveIy.TheIurge
hydroower IunLs ure Chhukhu, Busochu und ,
KurIchu,undTuIu,wILhuLoLuIInsLuIIedcuucILyoI
1,q8oMW.
Becuuse uII oI Lhe IunLs ure run-oI-rIver,
LoLuI generuLIon cuucILy dros drumuLIcuIIy Lo
1
The terrain descends from 7,554 meters above sea level in the
north to less than 100 meters in the southern foothills. The annual
average rainfall varies between 500 millimeters (mm) and 2,000
mm in the north to 5,000 mm in the south.
Table 4.1. Hydropower Projects, 20082024
Project Capacity (MW/GWh) Construction Schedule Development Mode
Punatsangchhu I 1,200/5,671 20082016 Intergovernmental projects
Punatsangchhu II 1,020/4,357 20102017 Intergovernmental projects
Mangdechhu 720/2,924 20102017 Intergovernmental projects
Sankosh Storage 2,560/6,267 20142021 Intergovernmental projects
Amochhu 540/1,835 20142022 Intergovernmental projects
Kuri-Gongri 3,200/13,855 20152024 Intergovernmental projects
Chamkharchhu I 770/3,253 20142023 Joint-venture projects
Bunakha 180/1,669 20142022 Joint-venture projects
Wangchu 570/2,526 20142022 Joint-venture projects
Kolongchu 600/2,593 20142022 Joint-venture projects
GWh = gigawatt-hour, MW = megawatt.
Source: MOF (2012).
97
donoLhuveuccessLoeIecLrIcILy.OnIyqo%oIruruI
househoIds use eIecLrIcILy us LheIr muIn source oI
IIghLIngversus q6% oI urbun househoIds. WILh
Lhe exunsIon oI eIecLrIhcuLIon In Lhe ruruI ureus,
eIecLrIcILy Irom hydroower und soIur sources
wIII reIuce kerosene und IueIwood und enhunce
energy und socIuI securILy. Becuuse ubouL ;o% oI
Lhe ouIuLIon IIves In ruruI ureus und ouIuLIon
densILyIsIow,LhecosLoIInvesLmenLInundoeruLIon
und muInLenunce oI eIecLrIcILy suIy Is hIgh. uck
oI InIrusLrucLure und unIuvorubIe LerruIn uIso ose
sIgnIhcunL chuIIenges Lo uchIevIng eIecLrIcILy
IoruII.
To uIIevIuLe overLy und sLImuIuLe IncIusIve
economIc deveIomenL, Lhe governmenL sLurLed
Iurge-scuIe ruruI eIecLrIhcuLIon rojecLs under
ILs SIxLh Ive Yeur PIun (YP) 1q881qq. AII
subsequenL YPs IncIuded ruruI eIecLrIhcuLIon us
one oI Lhe key deveIomenL eIemenLs. PreIImInury
resuILs oI Lhe zo1z BhuLun IvIng SLundurds
Survey IndIcuLe LhuL Lhe counLry hus uchIeved
eIecLrIhcuLIon oI qz% oI ILs househoIds (ADB und
NSB IorLhcomIng). The governmenL execLs Lo
uchIeve 1oo% eIecLrIhcuLIon oI househoIds by Lhe
endoIzo1(ThInIeyzo1).
OeruLIng subsIdIes ure essenLIuI Lo ensure Lhe
susLuInubIIILy oI exundIng ruruI eIecLrIhcuLIon. n
BhuLun,subsIdIesurereguIuLedundrovIdedIrom
royuILyrevenuesIromowerexorLsusedLocross-
subsIdIze eIecLrIcILy LurIIIs, In urLIcuIur Ior ruruI
domesLIc cusLomers. The governmenL dIsLrIbuLes
Lhe remuInIng revenues Irom exorLIng ower Lo
suorL socIoeconomIc gouIs such us Imroved
heuILh und educuLIon, us weII us InIrusLrucLure
deveIomenLsuchusruruIroudsundbrIdges.Thus,
uchIevIng IncIusIve economIc growLh und overLy
reducLIon Lhrough ruruI eIecLrIhcuLIon Is sLrongIy
reIuLedLoeIecLrIcILyexorLs.
Government Initiatives. The governmenLs
deveIomenL sLruLegy recognIzes LhuL deveIomenL
oI Lhe energy secLor wIII Iuy u cenLruI roIe In
romoLIng (1) hscuI revenues Irom ower exorLs,
(z) economIc deveIomenL wILh overLy reducLIon,
() buIunced regIonuI growLh wILh Lhe eIecLrIhcuLIon
oIruruIcommunILIes,und(q)IndusLrIuIInvesLmenL
bused on reIIubIe suIy oI eIecLrIcILy. To uchIeve
Lhese objecLIves, Lhe sLruLegy uIso recognIzes Lhe
ImorLunce oI ImrovIng Lhe InsLILuLIonuI cuucILy
oI ower secLor enLILIes, exundIng Lhe reuch oI
Lhe ower LrunsmIssIon und dIsLrIbuLIon neLworks
InLoruruIureus,undIncreusInggeneruLIoncuucILy
LhroughInvesLmenLsInexorL-orIenLedhydroower
deveIomenL.
To romoLe hydroower exorL, Lhe
governmenLs oI BhuLun und ndIu enLered InLo
u memorundum oI undersLundIng Ior muLuuI
cooeruLIon. The memorundum IncIudes 1o Iurge
hydroowerrojecLsLoLuIIng1o,oooMWoIInsLuIIed
cuucILy (TubIe q.1) under bIIuLeruI hnuncIng Irom
LheGovernmenLoIndIuundLhroughjoInLvenLures
wILhndIunubIIcsecLorenLerrIses.ToucceIeruLe
hydroowerdeveIomenLonususLuInubIebusIs,Lhe
GovernmenL oI BhuLun hus uIso esLubIIshed oIIcy
und InsLILuLIonuI Irumeworks, such us ubIIc
rIvuLeurLnershIsIorLheurLIcIuLIonoIrIvuLe
IndeendenL ower roducers. These exorL-
orIenLedrojecLsureImorLunLLosusLuInBhuLuns
economIcgrowLh.
Current Issues.GIvenLhuLBhuLunhusugreed
wILh ndIu Lo deveIo und exorL 1o,ooo MW oI
cuucILy by zozo und gIven Lhe sheer sIze oI Lhese
hydroowerrojecLs,LheenergysecLorwIIIconLInue
Lo be Lhe muIn drIver oI economIc growLh Ior Lhe
IoreseeubIe IuLure. n Lhe usL, domesLIc suvIngs
were InudequuLe Lo hnunce hydroower rojecLs
und wIII conLInue Lo be so. DomesLIc suvIngs ruLes
uveruged ubouL z% oI GDP durIng zoo1zo1o,
subsLunLIuIIy Iess Lhun Lhe ruLe oI InvesLmenL.
ThereIore, Lhese rojecLs wIII IurgeIy be hnunced
by IoreIgn Iunds, muInIy Irom ndIu, whIch wIII
IncreuseBhuLunsdebLburden.
ThedebL-Lo-GDPruLIoIsrojecLedLorIseIrom
ubouL q% In hscuI yeur (Y) zoo8Joq Lo ubouL
8o% In Yzo1zJ1 (WorId Bunk zo1ou). ThIs ruLIo
wIIIIIkeIyrIseIurLher.However,uImosLq8%oILhe
counLrysdebLsureowedLondIu,undureservIced
uuLomuLIcuIIybyhydroowerreceILs.Hydroower
rojecLs brIng sLrong growLh dIvIdends, boosLIng
Lhe uveruge reuI GDP growLh und exorLs. The
exLernuI debL servIce ruLIo us u shure oI exorLs oI
goodsundservIcesIsexecLedLodecIIneIrommore
Lhun 1q% Lo beIow 1% durIng Yzo1zJ1. A joInL
nLernuLIonuIMoneLuryundundWorIdBunkdebL
susLuInubIIILy unuIysIs suggesLed moderuLe rIsk
oI debL dIsLress durIng Yzoo8JoqYzoz8Jzq
(WorIdBunkzo1ou).
4.1.2. Tourism
Due Lo ILs ruId Increuse In recenL yeurs,
LourIsmIsunemergIngdrIveroIgrowLh(Igureq.1).
nLernuLIonuILourIsmurrIvuIsIncreusedIromuIow
98
buse oI z8; In 1q;q Lo 6q,oz8 hIgh-end vIsILors
In zo11.
z
Igure q.1 IIIusLruLes Lhe growLh oI hIgh-
end vIsILor urrIvuIs In BhuLun Irom zoo1 Lo zo11.
TourIsm uccounLed Ior 6.8% oI GDP In zo1o, hus

sIgnIhcunLIy conLrIbuLed Lo Lhe deveIomenL oI Lhe
servIcesecLor,undoIIersoorLunILIesLoubsorbun
IncreusIngIyeducuLedIuborIorce.
AroxImuLeIy qo% oI vIsILors Lo BhuLun ure
InLeresLed In Lhe counLrys rIch cuILuruI herILuge
und coIorIuI IesLIvuIs. Peuk LourIsL seusons ure
usuuIIyuroundLImessuchusLhePuroundThImhu
IesLIvuIs. Tour oeruLors huve uggressIveIy
murkeLeduLLendunceuLLheseIesLIvuIs,resuILIngIn
Lhe IncreusIng numbers oI vIsILors In recenL yeurs.
However, uccommoduLIng Lhe Increused vIsILors
durIng euk seusons hus been u chuIIenge Ior Lhe
secLor. A number oI sLruLegIes ure uvuIIubIe Lo
uchIeve Lhe umbILIous LurgeLs, uILhough Lhe resuILs
muy be IImILed by Lhe ubsorLIve cuucILy oI Lhe
counLrys InIrusLrucLure, cuILure, securILy, und
envIronmenL.
Government Initiatives.Boxq.1seLsouLover
zo InnovuLIve LourIsm roducLs und urouches Lo
uddress Lhe seusonuIILy Issue und sreud Lhe benehLs
oI Lhe LourIsm secLor. The roducLs ure consIsLenL
wILh BhuLuns hIgh-vuIue, Iow-ImucL urouch.
They ure dIvIded InLo Iour cuLegorIes: nuLure,
cuILure, weIIness, und oLher. Some were IdenLIhed
2
Tourists in Bhutan that are considered high end arrive by air and
are paying the governments tourism tari. The total tourist arrival
gures do not include the high-end regional tourist arrivals by
land (1,728 in 2011).
3
High-end regional tourists (from Bangladesh, India, and the
Maldives) were included in the gures in 2010 and 2011 but not in
prior years. High-end regional tourists are dened as arrivals by air
and staying in a minimum of a three-star accommodation.
In zoo (or eurIIer) In Lhe SusLuInubIe TourIsm
DeveIomenL SLruLegy, und some oI Lhe roducLs
huve noL yeL been IuIIy ursued (DeurLmenL oI
TourIsmzoo).
The zo1o EconomIc DeveIomenL PoIIcy oI
BhuLun cuIIed Ior sreudIng Lhe benehLs (oI
LourIsm) Lo u Iurger roorLIon oI Lhe ouIuLIon
Lhrough Lhe creuLIon oI Iorwurd und buckwurd
IInkuges und dIversIhcuLIon oI IIveIIhood
oorLunILIesesecIuIIyIorconLrIbuLIonLoLheruruI
economy(GNHCzo1o:.1;).Thezo1zDIugnosLIc
TrudenLegruLIonSLudyuImedLoboIsLerLhevuIue
chuIns IInkIng LourIsm Lo BhuLuns Iubor murkeL,
househoIds, und Iurmers, Lo (1) IImIL Lhe ow oI
LourIsm-reIuLed eurnIngs ouLsIde oI Lhe counLry,
(z)rovIdeIncomeundemIoymenLoorLunILIes
IoroorhousehoIds,und()IncreuseGDP(MInIsLry
oI EconomIc AIIuIrs zo1z). AL resenL, Lhere ure
Iew quIck hxes Ior Lhe currenL weuk IInkuges und
vuIue chuIn comIexILIes, whIch urIse due, umong
oLherLhIngs,LoIowvIsILorvoIumesundsmuII-sIzed
IundhoIdIngs. NeverLheIess, where Lhere Is verIhubIe
murkeL demund, Lhe scoe Ior sLrengLhenIng
suIy chuIns shouId exIsL Lhrough InnovuLIve und
LurgeLedsuorL.
The GovernmenL oI BhuLun druILed u LourIsm
bIIILhuLuImsLoorgunIzeundIncreuseLourIsmund
uddress (1) Lhe coordInuLIon und cIurILy oI roIes
beLween dIIIerenL governmenL ugencIes under Lhe
Iuws governIng LourIsm resources, munugemenL,
IunnIng;(z)gusundoverIusreIuLIngLoIunnIng,
consLrucLIon, InvesLmenL, coordInuLIon, enLerrIse
reguIuLIon, und securILy; und () decenLruIIzuLIon.
ThegovernmenLesLubIIshedLheRoyuInsLILuLeIor
TourIsm und HosILuIILy In ThImhu In OcLober
zo1o. The InsLILuLe wus creuLed Lo sLrengLhen Lhe
skIIIs und cuucILy oI Lhe LourIsL secLors mIddIe-
undhIgh-IeveIhumunresources.
TheTourIsmCouncIIoIBhuLun(TCB)husbeen
ucLIve In murkeLIng und romoLIng BhuLun us u
LourIsm desLInuLIon. RecenL InILIuLIves IncIude Lhe
IdenLIhcuLIon oI ubIIc reIuLIons ugencIes In seIecLed
sourcemurkeLs,LruveIundLourIsmIuIrsshowcusIng
BhuLun, und coIIuboruLIve meusures Lo hosL medIu
ersonneIonIumIIIurIzuLIonvIsILsoILruveIugenLs.
AddILIonuI eIIorLs huve IncIuded uIyIng Brund
BhuLun Lo Lhe LourIsm secLor. The TCB roosed
LhuL BhuLun be osILIoned us u curbon-neuLruI
desLInuLIon, communIcuLIng Lo Lhe gIobuI murkeL
LhuL Lhe counLry Is u neL sequesLer oI curbon, und
Source: TCB (2012a).
Figure 4.1 Visitor Arrivals in Bhutan, 20012011
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
60,000
70,000
50,000
40,000
30,000
20,000
10,000
N
o
.

o
f

v
i
s
i
t
o
r

a
r
r
i
v
a
l
s
99
hus been LukIng roucLIve meusures Lo romoLe u
curbon-neuLruILourIsmsecLor.
q
Current Issues. EIIorLs Lo deveIo BhuLuns
LourIsm secLor need Lo uddress Iour key Issues:
(1) Lhe nurrow runge oI LourIsm roducLs,
(z) IImILed uccess Lo uIr LrunsorL, () un InexIbIe
LurIII und royuILy oIIcy, und (q) IImILed murkeLIng
undromoLIon.
HIsLorIcuIIy, Lhe runge oI LourIsm roducLs In
BhuLun Iocused on cuILuruI sILes und IesLIvuIs In
PuroundThImhu.WhIIeLheseroducLshuvebeen
consIsLenLwILhLheoIIcyoIrovIdIngunuuLhenLIc
exerIence Ior vIsILors, oLher roducLs huve been
IessexIored,resuILIngInshurseusonuIeuksund
unbuIuncedundunequuIdeveIomenLoILhesecLor.
The reIuLIveIy coId wInLers und weL summers LhuL
dIsruL IghL scheduIes und cuuse IundsIIdes LhuL
bIock rouds conLrIbuLe Lo Lhe seusonuIILy robIem.
Box q.1 resenLs LourIsm roducL oIIerIngs Lo
uddress Lhese Issues. Muny vIsILors Irom ndIu
come Lo BhuLun Lo escue Lhe summer heuL, whIch
suggesLsLhuLgrowLhoIregIonuILourIsmcouIdheI
oIIseLLheseusonuIILyoILourIsmInBhuLun.
ConsIderubIe growLh In InLernuLIonuI uIr
ussenger LruIhc Is execLed In Lhe shorL und Iong
Lerms, uLLIng ressure on Lhe onIy InLernuLIonuI
uIrorL, uL Puro. DrukuIr hus been Lhe soIe
InLernuLIonuI oeruLor InLo Puro. As noLed In
ChuLerz,uIrorLIucIIILIesurebusIcundoeruLIons
ure condILIonuI on Lhe weuLher. Moreover, Puro
nLernuLIonuI AIrorL Is In u dee vuIIey uL ubouL
z,zoomeLers(m)uboveseuIeveIundIssurrounded
by euks us hIgh us ,oo m. The runwuy Is z,z6
m Iong. The urouch InLo Puro Is by vIsuuI IghL
ruIesu seL oI reguIuLIons LhuL uIIow u IIoL Lo
oeruLe un uIrcruIL In weuLher condILIons generuIIy
cIeur enough Lo uIIow Lhe IIoL Lo see where Lhe
uIrcruIL Is goIng. Thus, oeruLIons ure IImILed Lo
duyIIghL hours und ure oILen dIsruLed by bud
weuLher. Puro nLernuLIonuI AIrorL needs Lo be
ugruded und exunded Lo Increuse ILs hundIIng
cuucILyIromoLo6ooussengerserduy.OLher
ImrovemenLs needed IncIude runwuy wIdenIng;
suIeLy, securILy, und nuvIguLIonuI ImrovemenLs;
4
As proposed in the TCB (2012b) Tourism Strategy and Development
Plans, 20132018, and the Ministry of Economic Aairs (2012)
Diagnostic Trade Integration Study. Communicating the countrys
unique environmental policies is a sound tourism strategy and
complements the high priority accorded to environmental
conservation.
und uddILIonuI urkIng Ior Iund vehIcIes. To
Increuse Lhe uIr LruIhc InLo Puro, IghLs on exIsLIng
rouLesneedLobemoreIrequenL,newrouLesshouId
be InLroduced Irom oLher oInLs oI orIgIn, more
currIersneedLobeuIIoweduccess,undLheDrukuIr
eeL needs exundIng undJor ILs currenL uIrcruIL
needsLobemoreIrequenLIyused.
VIsILorsoILenmIsconsLrueLheuII-IncIusIveLurIII
Ior LourIsLs us un enLrunce Iee onIy. The one rIce
oIIcy Lends Lo IImIL IncenLIves Ior Lour oeruLors
Lo comeLe und ugrude servIces, und conhnes Lhe
benehLs oI Lhe secLor Lo u Iew hoLeIs und resLuurunLs,
wILh IILLIe ImucL on Lhe ruruI economy. Box q.z
descrIbes Lhe LourIsm LurIII und royuILy oIIcy.
Box 4.1. Innovative Tourism Products and
Approaches to Address Seasonality and Further
Develop Tourism
Nature
N1. Community-based trekking routes
N2. Lodge-based trekking routes
N3. Winter trekking routes
N4. Hot springs (tsachhu)
N5. Wildlife tours
N6. Bird watching
N7. Flower tours
N8. Buttery tours
N9. Tour bicycling/mountain bicycling
Wellness
W1. Traditional medicine (for preventive medicine
and chronic diseases)
W2. Health tourism at moderate altitudes
W3. Meditation
Culture
C1. Festivals (tsechus) in less-traveled regions/seasons
C2. Living Buddhism
C3. Farm stays
C4. Textile tours
Others
O1. Meetings, incentives, conventions, and exhibitions
O2. Education
O3. International lm production
O4. High-end regional tourism
O5. Domestic tourism
Sources: Department of Tourism (2005: pp. 13770), Ministry of Economic
Aairs (2012: p. 96), TCB (2012b).
100
WhIIerIvuLesecLoroeruLorsureuIIowedLodeducL
murkeLIngexensesIromLheIrLuxubIeIncome,LhIs
Is IImILed Lo z% oI ussessed gross rohL
.
OLher IucLors uIIecLIng LourIsm ure (1) sub-
sLundurd uccommoduLIon, Iow occuuncy, und
5
Regulation of the Department of Revenue and Customs.
IImILed LruveI oLIons; (z) oor quuIILy InIrusLruc-
Lure; () skIIIs und knowIedge shorLuges umong
LourIsm-reIuLed workers; und (q) InconsIsLenL
LourIsm oIIcy und ILs weuk dIssemInuLIon und
coordInuLIon umong sLukehoIders InvoIved
InLourIsm.
HoLeI occuuncy vurIes wIdeIy beLween Lhe
euk und Ieun LourIsm seusons. Ive-sLur hoLeIs
(;.6% oI Lhe LoLuI hoLeI beds) huve un occuuncy
ruLe In Lhe euk monLh oI 6q.1% und un uveruge
unnuuI occuuncy ruLe oI 1.o%; whIIe Iour-sLur
hoLeIs (1q.o% oI Lhe LoLuI hoLeI beds) huve ;q.6%
und qo.;%, resecLIveIy.
6
The vuIue Ior money oI
Lhe uccommoduLIon Is Iow, LhuL Is, Lhe $1o$zz
rooms In BhuLun ure ucLuuIIy vuIued uL $8o
$1oo by InLernuLIonuI sLundurds. AbouL zq% oI
InLernuLIonuI vIsILors In zo11 Iound Lhe quuIILy oI
hoLeIs Lo be uveruge. And, wILh LourIsms LurIII
sLrucLure, LourIsLs huve u IImILed choIce oI hoLeIs
undILInerurIes.
Roud connecLIvILy Is oor In BhuLun. Rouds
Lo und In Lhe cenLruI und eusLern regIons huve
revenLed Lhe deveIomenL oI LourIsm InLo Lhe
wesL. WhIIe LourIsLs ure now uIIowed Lo enLer
und exIL uL Sumdru Jongkhur In souLheusLern
BhuLun, GeIehu In Lhe souLh cenLruI ureu, und
PhuenLshoIIng In Lhe souLhwesL, roud condILIons
ure oor In Lerms oI wIdLh, uIIgnmenL, und
surIuce condILIon. n cILIes und Lowns, IncIudIng
ThImhu, Lhe quuIILy oI sIdewuIks und edesLrIun
uLhs Is uIso oor. ResondenLs Lo Lhe TCB
(zo11) unnuuI exIL survey IdenLIhed severuI oLher
InIrusLrucLure Issues. The muIn ones IncIude oor
gurbuge conLroI und munugemenL, oor ubIIc
LoIIeLs und resLrooms, Iuck oI credIL curd und
ATM IucIIILIes, resence oI sLruy dogs, und oor
InLerneLundcommunIcuLIonsIucIIILIes.
BoLh Lhe ubIIc und rIvuLe secLors Iuck
quuIIhed und exerIenced LourIsm roIessIonuIs.
UndersLundIng oI Lhe murkeL-orIenLed dynumIcs
oI Lhe IndusLry Is IImILed, und InLerreLers und
Lour guIdes IuII shorL oI execLuLIons. UnskIIIed
workers ure oorIy LruIned, receIve Iow wuges,
und work Iong hours (1 hours er duy, 6 duys
er week). nconsIsLenL secLor oIIcIes muke
coordInuLIon chuIIengIng umong muny govern-
menLugencIesundrIvuLesLukehoIdersInvoIvedIn
LourIsm uccommoduLIon, enLerLuInmenL, hnuncIuI
servIces,LouroeruLIons,undLrunsorLenLerrIses.
6
October is the peak month.
Box 4.2. Bhutans Tourism Tari
and Royalty Policy
A
key feature of Bhutans high-value, low-impact
approach is the tari and royalty policy adopted
by the government. Tourists now pay $250 per day
to enter the country during the peak months (March,
April, May, September, October, November),
a
which
was increased for the rst time in two decades from
$200 per day in 2012 (the $200/day still applies in
o-peak months).
b
The one price policy all-inclusive
tari is applied to each international visitor, to be
booked through a tour agent. This tari covers a
triple-sharing occupancy stay in four-, ve-, and
seven-star hotels and special personalized activities,
plus supplements if any.
As of 2011, the top 12 tour operators accounted for
approximately 50% of the market and the top 6 for
about 30% of the market. The $250 tari includes
$25 as the overseas tour agents commission, $65
as royalty to the government, and 2% advance
payment of the business tax ($3.20); the remaining
$156.80 goes to the tour operator in local currency,
from which it must provide the minimum services
(accommodation, transport, guide, and meals). The
total average daily spending per visitor to Bhutan has
been estimated at $330 (2008), which is exceeded by
only a few top tourist destinations (Iceland, Peru, and
Switzerland); similarly, the average length of stay (at
7.5 days in 2011) is exceeded by only a few top tourist
destinations (French Polynesia, Kenya, Peru, and
Sri Lanka).
a
The charging of a tari of this magnitude for entry into a country may be
unique, although some countries (e.g., Botswana, Ecuador, Kenya, and
Rwanda) charge similarly high taris for overnight stays in national parks.
b
Certain discounts are available, e.g., there is no charge for children up to
5 years old and children 612 years old accompanied by elders/guardians
are given a 50% discount on daily rates and a 100% discount on the royalty;
full-time students below the age of 25 holding valid identity cards from
their academic institutions receive a 25% discount on daily rates; a 50%
discount on the royalty is given after the 8th night and a 100% discount
on the royalty is given after the 14th night.
Sources: (1) Interviews conducted during eld visit to Bhutan, 1227 January
2012 by a Japan International Cooperation Agency (JICA) study team;
(2) documents emailed by the Tourism Council of Bhutan Secretariat to
the JICA study team on 18 January 2012; and (3) TCB. Travel Requirements.
http://www.tourism.gov.bt/plan-your-trip/travel-requirements, accessed
on 16 February 2012
101
ImILedquunLILuLIveLooIsresLrIcLLheussessmenLoI
LourIsmsImucLonBhuLunseconomyundhumer
Lhe ubIIILy Lo roduce uccuruLe esLImuLes und,
hence,LoIucIIILuLemorereIevunLoIIcyIormuIuLIon.
4.1.3. Agriculture
BhuLun hus u LoLuI Iund ureu oI 8,qq squure
kIIomeLers,ubouL;o%oIwhIchIscoveredbyIoresL
und11%byshrubs.TheureusuILubIeIorugrIcuILuruI
roducLIon Is IImILed by Lhe sLee und rugged
LerruIn, Lhe uILILude, und Lhe hIgh rIorILy gIven
Lo muInLuInIng IoresL cover. OnIy ubouL % oI Lhe
Iund Is cuILIvuLed und 1% Is IrrIguLed. OI Lhe % oI
cuILIvuLed Iund, 6z% oI LhuL Is ruInIed (lcmzhin);
z8% Is IrrIguLed, Lerruced Iund (chhuzhin), used
rImurIIy Ior rIce cuILIvuLIon; und Lhe resL Is used
IorhorLIcuILure.
;
unduseundugrIcuILuruIucLIvILIes
In BhuLun ure Inuenced by Lhe dIverse cIImuLe
und Loogruhy. n Lhe hIgher uILILudes, IurmIng
Is deendenL on ruIsIng IIvesLock; LemeruLe
IruIL cros; und cros such us oLuLo, buckwheuL,
wheuL, und burIey. urLher souLh, Lowurd Lhe
subLroIcuI ureus, rIce und muIze domInuLe Lhe
IurmIngsysLem.
8
DesILe Lhe IImILed ureu used Ior ugrIcuILure,

LhemujorILyoILheouIuLIonIsengugedInIurmIng
7
Figures are based on the land cover assessment made under
the Land Cover Mapping Project (2010) of the Department of
Agriculture, as reported in the Statistical Yearbook of Bhutan 2011
(NSB various years). Data for irrigated land are as of 2007, based on
World Bank WDI, accessed 30 January 2012.
8
Department of Agriculture, Ministry of Agriculture and Forests
website.
ucLIvILIes. Thus, ugrIcuILure remuIns crILIcuI In
IosLerIng economIc und IncIusIve growLh. AILhough
ugrIcuILures growLh und conLrIbuLIon Lo GDP hus
decIIned sInce Lhe 1q8os, Lhe IuLesL unnuuI growLh
ruLeoI11%Inzo1oIsromIsIngusILIsLhehIghesL
ruLe recorded In Lhe IusL decudes. AgrIcuILures
conLrIbuLIon Lo GDP growLh uIso rose shurIy In
zo1o(Igureq.z).
mroved yIeIds oI cerLuIn cros, uIong wILh
severuIgovernmenLInILIuLIves,huvesurredrecenL
growLh.TheWorIdoodProgrummeuLLrIbuLesLhe
yIeId ImrovemenL Lo beLLer ugrIcuILuruI rucLIces,
IncIudIngInLegruLedesLmunugemenLundImroved
IrrIguLIonservIces.DeurLmenLoIAgrIcuILure(DOA)
oIhcIuIs uLLrIbuLe Lhe roducLIvILy growLh rImurIIy
LoLheuseoImodernhIgh-yIeIdIngvurIeLIesoIseeds
LhuLLheRenewubIeundNuLuruIResourcesReseurch
DeveIomenL CenLers huve deveIoed. The use
oI more eIhcIenL roducLIon LechnoIogIes, such
us herbIcIdes Ior weed conLroI, nILrogen IerLIIIzer
Ior beLLer yIeIds, und Iurm mechunIzuLIon (ower
LIIIers,reuers,undLhreshers),uddsLoLheIncreuse
InyIeIds.
BhuLun hus been ImorLIng some oI ILs Iood.
q
DesILe Imroved yIeIds, BhuLun hus exerIenced

Iood shorLuges, urLIcuIurIy oI Iood derIved Irom
9
Bhutans imports of rice from India declined from 24,739 tons in
2005 to 6,218 tons in 2009.
Sources: Calculations based on data from World Bank, WDI, accessed 30 January 2012; NSB (2011b).
Figure 4.2. Agriculture in Bhutans Economy, 19822010
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2009 2010
0 0
30
20
10
40
50
60 12
10
8
6
4
2
Share of GDP Contribution to GDP growth Growth rate
S
h
a
r
e

o
f

G
D
P

(
%
)
G
r
o
w
t
h

r
a
t
e

(
%
)
102
cros.
1o
BoLh ure evIdence oI unmeL demunds und
emhusIze Lhe need Lo deveIo LechnoIogIes Lo
ugrude ugrIcuILures roducLIvILy. GreuLer scoe
Ior ImrovIng eIhcIencIes exIsLs II Iurmers Increuse
economIesoIscuIeLhroughcoIIecLIvemechunIsms,
such us communuI use oI muchInery und equI-
menL. BeLLer IunnIng und uIIocuLIon oI Iund use
cun heI Increuse roducLIvILy. mroved roduc-
LIvILy wIII heI soIve Issues oI Iood shorLuges
und Imrove Lhe IIvIng sLundurds oI Lhe
generuIouIuce.
Government Initiatives. SeveruI DOA
InILIuLIves suorLed Lhe drumuLIc 11% growLh
oI ugrIcuILure In zo1o. IrsL, Lhe DOA InILIuLed
commercIuI rIce roducLIon In Surung dIsLrIcL
(dzhonlhc) Lo suIy good quuIILy brunded
rIce Lo BhuLunese con sumers. n urLIcuIur, over
zo hecLures (hu) In Chuzergung und over zqo
hu In UmIIng were broughL under cuILIvuLIon oI
Imroved rIce vurIeLIes (boLh communILIes ure In
Surung).Second,IurmersweresuorLedLhrough
subsIdIzed mechunIzuLIon, suIy oI good quuIILy
seeds,undLruInIngInvurIousugronomIcrucLIces.
ThIrd,urIcemIIIwILh1.LonserhourcuucILywus
InsLuIIed In Chuzergung. AroxImuLeIy 6q Lons
oI uddy wus coIIecLed Ior rocessIng In Junuury,
mIIIed, und Lhe rIce wus Lhen murkeLed uround
Lhe counLry. The DOA wIII be reIIcuLIng sImIIur
InILIuLIvesInoLherdIsLrIcLsLouchIeve6%rIceseII-
suIhcIency by Lhe end oI Lhe TenLh YP. The TenLh
YP uIso seeks Lo enubIe Iurmers Lo overcome
overLy In conjuncLIon wILh rogrums und sLru-
LegIes desIgned Lo comIemenL Lhe overurchIng
gouI oI seII-suIhcIency In rIce roducLIon.
To uchIeve susLuInubIe use oI nuLuruI
resources Ior equILubIe socIuI und economIc weII-
beIng, Lhe MInIsLry oI AgrIcuILure und oresLs
(MOA)sLrIvesLorovIdeudequuLeuccessLoIood
undnuLuruIresourcesundIuysdownLheIoIIowIng
secLorobjecLIves:
(1) enhunce susLuInubIe ruruI IIveIIhoodby
IncreusIng Iood roducLIon, enhuncIng
cushIncomeInLheruruIouIuLIon,und
conLrIbuLIngLooverLyuIIevIuLIon;
10
Among the coping mechanisms of poor rural households are
sale of potatoes (a major cash crop), fruit, forest products and
by-products, and vegetables; engaging in o-farm activities (e.g.,
weaving); hiring out bullocks, horses, and mules; exchanging
labor for food, such as a share of the crop; and relying on cash
remittances of employed members of the households (2009 data
from Ministry of Agriculture and Forests various years).
(z) conserve und romoLe susLuInubIe
uLIIIzuLIonoIIoresLundwuLerresources
Lhrough ussurIng Lhe Iong-Lerm
susLuInubIIILyoIhydroower,LourIsm,und
nuLuruI resource-bused IndusLrIes, und
economIcdeveIomenLoIboLhurbunund
ruruIouIuLIons;
() romoLe susLuInubIe use oI urubIe
ugrIcuILure und usLure Iund resources
byIncreusIngLheroducLIvILyundcurryIng
cuucILy oI usLure Iunds Lo reduce
Lhe robIem oI muILIIe use oI IoresL
resources;und
(q) enhunce Iood securILyby ensurIng Lhe
uvuIIubIIILyoIundsecureuccessLoIood.
Three sLruLegIes ure Lo be emIoyed In Lhe
ugrIcuILure secLor, whIch Is uIso known us Lhe
renewubIenuLuruIresources(RNR)secLor.TheOne
Geog Three ProducLs urouch Lo IunnIng wus
emIoyed In Lhe RNR Iun hurmonIzuLIon exercIse
where 1- roducLs ure IdenLIhed Ior every vIIIuge
grou (eo) Lo Iocus on. ProducL choIces deend
on murkeL uvuIIubIIILy und Lhe geogs oLenLIuI. The
LhreesLruLegIesure:
(1) LurgeLed murkeLIngmurkeLIng mechu-
nIsmsundInLeIIIgencewIIIbeemIoyedLo
orIenLroducLIonLowurdmeeLIngmurkeL
demunds und Lo encouruge Lhe shIIL Irom
subsIsLenceLomurkeL-drIvenIurmIng;
(z) Imroved uccessbeLLer connecLIvILy wIII
IucIIILuLe ouLow oI enhunced roducLIon
und Inow oI Iurm InuLs; und
() enhunced roducLIonLhe besL rucLIces
und mosL suILubIe LechnoIogIes wIII
be used Lo enhunce roducLIon Lo
evenLuuIIy meeL Lhe rImury objecLIve oI
IoodsecurILy.
The DOA IdenLIhed cenLruI rogrums Lo ensure
IoodsecurILyundLoIncreuseIurmerIncomes.Among
Lhe cenLruI rogrums ure Lhe cenLers
11
LhuL rovIde
11
The centers include the Agriculture Machinery Center, National
Post Harvest Center, and National Seed Center based in Paro, and
the National Soil Services Center and National Plant Protection
Center based in Thimphu. The National Mushroom Center based
in Yusipang currently reports directly to the DOA Horticulture
Division. The Central Machinery Unit based in Bumthang leads farm
road construction and reports directly to the Engineering Division
of DOA.
103
exLensIon und reseurch servIces In consuILuLIon
wILh Lhe RenewubIe NuLuruI Resources Reseurch
DeveIomenLCenLers.SomeoILheuccomIIshmenLs
In RNR durIng Lhe hrsL huII oI Lhe TenLh YP ure
usIoIIows:
Under Lhe One Geog Three ProducLs sLruLegy,
ubouL 61 hIgh-rIorILy roducLs were IdenLIhed
bused on Lhe ugro-cIImuLIc condILIons oI
euchgeog.
The governmenL encouruged IoreIgn dIrecL
undrIvuLesecLorInvesLmenLInRNR,sLurLIng
wILh u mounLuIn huzeInuL venLure, on 6;
hu In Lhe eusLern regIon. A memorundum oI
undersLundIng Ior Lhe hrsL coIIee IunLuLIon
In SumLse wus sIgned wILh SumheI Norbu
PrIvuLe Ld., Ior whIch 1z1 hu were IdenLIhed.
Seven more urLIes huve exressed InLeresL In
coIIuboruLIngInRNR.
BhuLun meL ILs InLernuI demund Ior eggs. MIIk
und mIIk roducLs ure now suIIed Lo ubouL
18Lowns.
Three one-sLo Iurmer shos huve been
esLubIIsheduLsLruLegIcIocuLIons.
SusLuInubIe Iund munugemenL rucLIces huve
beenmuInsLreumedInuIIdIsLrIcLs.
The DeurLmenL oI AgrIcuILuruI MurkeLIng
und CooeruLIves wus esLubIIshed Lo uIIgn Lhe
erLInenLInsLILuLIons.
A bIoexIoruLIon und reseurch unIL wus
esLubIIshed In Lhe NuLIonuI BIodIversILy
CenLre Ior bIorosecLIng. Memorundu oI
undersLundIng Ior bIorosecLIng were sIgned
wILh NImuru GeneLIc SoIuLIons (MuIuysIu) und
QuunLumPhurmuceuLIcuIs(SwILzerIund).
AgrIcuILuremuchInerycenLerswereesLubIIshed
InLhreegeogs.
BhuLun uchIeved o% rIce seII-suIhcIency In Lhe
hrsL huII oI Lhe TenLh YP. The LurgeL Is 6% rIce
seII-suIhcIency by Lhe end oI Lhe YP, buL Lhe
mIdLermrevIewInzo11IndIcuLedLhuLLhesecLor
muyonIyuchIevebyLheendoILheTenLhYP
erIod(GNHCzo11b).
Current Issues. BhuLuns cros consIsL
muInIy oI cereuIs und Lhey ure usuuIIy roduced
wILh Iew urchused InuLs. BhuLuns ugrIcuILure Is
churucLerIzed by subsIsLence IurmIng. CuILIvuLIon
Is rImurIIy underLuken wILh unImuI und humun
Iubor, und IImILed muchInery wILh u Iow IeveI
oI LechnoIogy. Purchused InuLs ure IImILed Lo
Imroved seeds und smuII umounLs oI IerLIIIzer
und esLIcIdes, Ior whIch seusonuI credIL Is oILen
used. SoII IerLIIILy deends rImurIIy on Lhe use oI
Iurmyurd munure und comosL. umIIy survIvuI
Is Lhe muIn objecLIve oI subsIsLence IurmIng, buL
does noL recIude Lhe ossIbIIILy oI murkeLIng
someroduce.
Some Issues revuIIIng In ugrIcuILure ure Lhose
erLuInIng Lo Iurm InuLs, LechnoIogIes, wIIdIIIe
uLLucks, esLs und dIseuses, cIImuLe chunge,
ruruIurbun mIgruLIon, und IundhoIdIng sIzes.
1z
UgrudIngugrIcuILureroducLIonIromsubsIsLence
Lo commercIuI IurmIng requIres suorL In Lhe
IormoIIurmInuLs.However,LhegovernmenLhus
decreused Lhe dIsLrIbuLIon oI IerLIIIzers und seeds
In Lhe IusL yeurs (TubIe q.z).
1
Heuvy reIIunce on
oIder vurIeLIes oI seeds reduces IunL vIgor und
IImILs uccess Lo new und hIgher oLenLIuI vurIeLIes.
The Druk Seed CororuLIon (reIuced by Lhe
NuLIonuI Seed CororuLIon In zo1o) hud IImILed
cuucILy Ior seed muILIIIcuLIon und condILIonIng,
conLrIbuLIng Lo Lhe decIInIng dIsLrIbuLIon oI
Imroved vurIeLIes durIng zoozooq. However,
Lhe demund Ior IunL roLecLIon chemIcuIs Is
growIng becuuse oI Lhe reIuLIveIy Iow cosL, euse oI
LrunsorL,undhIghImucL,urLIcuIurIyIorIruILund
vegeLubIeroducLIon.
The Iow IeveI oI LechnoIogy In Lhe secLor Is
reecLed In Lhe Iow mechunIzuLIon IeveI. n Lhe hrsL
huII oI Lhe TenLh YP, Lhe governmenL suIIed
Lo Lhe dIsLrIcLs u LoLuI oI ,z unILs oI muchInery,
IncIudIng 1zz ower LIIIers und 188 rIce mIIIs. or
zodIsLrIcLs,LhegovernmenLrovIded1qoeruLIons
und muInLenunce LruInIng sessIons, InsLuIIed 1;8
Iurm muchInes, und reuIred u IurLher 16; Iurm
muchInes. Comured wILh oLher SouLh AsIun
counLrIes, however, BhuLun hus u Iow IeveI oI Iurm
mechunIzuLIon (LogeLher wILh AIghunIsLun und
BungIudesh).
1q
ThIs Is urLIy becuuse Lhe counLrys
Loogruhy humers rovIsIon oI comrehensIve
IurmmechunIzuLIon.
12
The government cites the following reasons for the low level
of crop productivity, particularly in rice: subsistence farming,
shortage of arable land and farm labor, low cropping intensity,
inadequate irrigation, and crop losses to pests and wild animals.
A recent study reports that farmers cite the following top ve
issues: (1) crop losses due to wild animals, (2) crop losses due
to pests and diseases, (3) insucient irrigation supply, (4) labor
shortage, and (5) land shortage (Ministry of Agriculture and Forests
2010. Technology Adoption, Agricultural Productivity and Road
Infrastructure in Bhutan, cited in Christensen 2011).
13
The Ministry of Agriculture and Forests extension system
coordinates and monitors the distribution of seed, fertilizer,
pesticides, and herbicides to farmers.
14
Based on World Bank, WDI Online, accessed January 2012.
104
Lo urbun ureus urLIcuIurIy by muIes resuILed In
LheIncreusedreIIunceonwomenLoworkonIurms
(ChrIsLensen zo11). GreuLer reIIunce on u IemuIe
workIorce currIes u rIsk oI Iower roducLIon us
BhuLunsIurmsuseIILLIemechunIzuLIonundrequIre
greuLhysIcuIsLrengLh.
AroxImuLeIy;o%oILhereusonsreorLedIor
Iood shorLuges were dIrecLIy reIuLed Lo Iund beIng
InudequuLeundunroducLIve.AbuIunceneedsLobe
IoundbeLweenLheoIIcyoImuInLuInIng6o%oILhe
IundunderereLuuIIoresLcover(Boxq.)undLhe
oIIcyoIenvIronmenLuIconservuLIon,soLhuLLhese
do noL conIcL wILh roducLIvILy, commercIuIIzuLIon,
und Iood securILy objecLIves. urmIng In BhuLun Is
chuIIengIng us smuII IundhoIdIngs und Lhe rugged
Loogruhy wILh sLee sIoes muke IurmIng Iubor
InLensIve und mechunIzuLIon dIIhcuIL (Tobguy
zoo6). SLIII, some ruruI Iunds ure IeIL uncuILIvuLed
owIngLoLheshorLugeoIIurmIubordueLoruruI-Lo-
urbunmIgruLIon.
AmujorILyoILheIurmersownuIImILedumounL
oI Iund. WhIIe onIy one oI hve ruruI househoIds Is
IundIess, LrudILIonuI Iurms ure usuuIIy very smuII,
rungIngIrom1hu.SevenoI1oruruIhousehoIds
own Iess Lhun z hu. Such Iund dIsLrIbuLIon hInders
Lhe ugrIcuILure secLor Irom LukIng udvunLuge oI
economIes oI scuIe, whIch couId ruIse roducLIon.
ShurecroIng umong Lhe IundIess Iurmers hus
ImededugrIcuILuruIroducLIvILyusshurecroers
huve IILLIe IncenLIve Lo Increuse yIeIds, muxImIze
croIngInLensILy,undInvesLInIundImrovemenLs.
TheuLchydeveIomenLoIroudneLworksund
oLher InIrusLrucLure resLrIcLs uccess Lo Iurm InuLs
und murkeL oorLunILIes. However, IrrIguLIon
deveIomenL shows ImressIve rogress us Lhe
number oI IrrIguLIon sysLems Increused by uImosL
1%Lo1,qq6undLheLoLuIIengLhhusbeenexLended
by1q%Lo,;6z.q;kIIomeLersInJunuuryzo11Irom
June zo1o. YeL, IrrIguLIon remuIns InsuIhcIenL,
coverIng onIy 1% oI Lhe LoLuI Iund ureu. Access Lo
hnunce Is uIso u mujor Issue Ior Lhe secLor II IL Is Lo
LrunsIormIromsubsIsLenceLocommercIuIIurmIng.
4.2. Emerging Growth
Drivers for Bhutan
To dIversIIy Lhe economy whIIe muIn-
LuInIng hIgh ruLes oI growLh, uddILIonuI drIvers oI
growLh LhuL cuILuIIze on BhuLuns comuruLIve
ncreusIng cro Iosses In recenL yeurs huve
been uLLrIbuLed Lo esL uLLucks und dIseuse,
gIobuI wurmIng, erruLIc ruInIuII, wIndsLorms,
droughLs, ushoods, und IundsIIdes. n zo11, un
unrecedenLed dry seII In PemuguLsheI, one oI
BhuLuns ooresL dIsLrIcLs In Lhe eusL, desLroyed
hundreds oI hecLures oI muIze, IeudIng Lo u seed
shorLugeIorLhenexLcrooImuIze(NumgyeIzo11).
WILh BhuLuns oIIcy Lo muInLuIn exLensIve IoresL
cover,ugrIcuILuruIIundsurescuLLeredInLheIoresLs
und Lhus susceLIbIe Lo wIId unImuIs. The BhuLun
NuLIonuI ood SecurILy SLruLegy Puer (zoo)
reorLedLhuLwIIdunImuIsdumuge11%oImuIze,8%
oI wheuL, ;% oI rIce, und 6% oI oLuLo cros every
yeur.
1
DesILeLhIs,IowrIorILyIsgIvenLoreseurch
onmeusuresLhuLwouIdreducecrodumugecuused
bywIIdIIIe,esLs,unddIseuses.essLhun1%oILhe
RNRbudgeLIorLheTenLhYPIsuIIocuLedLoLhese
robIems.ThecurrenLreseurchugendumuyhuveLo
be revIewed Lo sLrengLhen ILs IInk Lo Iurmers reuI
needs(ChrIsLensenzo11).
emuIe urLIcIuLIon In ugrIcuILure hus
Increused,exIuInIngLhesIIghLIncreuseInLheruruI
workIorceIromzoo1Lozo1o.MIgruLIonIromruruI
15
Cited in Duba, Gurung, and Ghimiray (2006).
Table 4.2. Public Supply and Distribution of
Farm Inputs
Input 20052006 20072008 20092010
%
Change
Fertilizer (tons)
Urea 1,610.75 1,399.27 1,219.28 24.3
Suphala 964.85 1,042.23 838.08 13.1
SSP 450.60 602.35 411.55 8.7
MOP 14.66 29.15 9.75 33.5
Butachlor 264.62 266.02 279.79 5.7
Seed (tons)
Cereal and
legumes
107.31 111.04 86.95 19.0
Potato seed 229.70 120.62
Vegetable
seed
7.45 2.86 2.44 67.2
Plant Chemicals (kilograms)
Fungicides 2,515.00 4,100.00 3,423.00 36.1
Herbicides 809.00 5,380.00 3,004.00 271.3
Insecticides 2,521.00 7,734.00 4,875.00 93.4
= not available, MOP = muriate of potash, SSP = single superphosphate.
Source: Ministry of Agriculture and Forestry, cited in Christensen (2011).
105
udvunLuge need Lo be IdenLIhed. ThIs reorL uLs
IorLh Lwo emergIng drIvers oI growLh. The hrsL Is
InIormuLIon und communIcuLIons LechnoIogIes
(CT) und Lhe second, cIeuner munuIucLurIng,
In urLIcuIur, Lhrough mIcro, smuII, und medIum
enLerrIses. These Lwo oIIer oorLunILIes LhuL ure
comIemenLuryLoBhuLunsursuILoIIncIusIveund
susLuInubIesocIoeconomIcdeveIomenL.Igureq.
mus Lhe exIsLIng und emergIng drIvers revenue
und job creuLIon oLenLIuI, In uddILIon Lo LheIr
envIronmenLuIImucLs.
As BhuLun mukes sLrIdes In educuLIon, CT
couId ubsorb Lhe IncreusIng number oI gruduuLes.
Box 4.3. Bhutans National Constitution, Article 5
1. Every Bhutanese is a trustee of the Kingdoms natural resources and environment for the benet of the present and
future generations and it is the fundamental duty of every citizen to contribute to the protection of the natural
environment, conservation of the rich biodiversity of Bhutan, and prevention of all forms of ecological degradation
including noise, visual, and physical pollution through the adoption and support of environment friendly practices
and policies.
2. The Royal Government shall:
(a) Protect, conserve, and improve the pristine environment and safeguard the biodiversity of the country;
(b) Prevent pollution and ecological degradation;
(c) Secure ecologically balanced sustainable development while promoting justiable economic and social
development; and
(d) Ensure a safe and healthy environment.
3. The Government shall ensure that, in order to conserve the countrys natural resources and to prevent degradation of
the ecosystem, a minimum of sixty percent of Bhutans total land shall be maintained under forest cover for all time.
4. Parliament may enact environmental legislation to ensure sustainable use of natural resources and maintain
intergenerational equity and rearm the sovereign rights of the State over its own biological resources.
5. Parliament may, by law, declare any part of the country to be a National Park, Wildlife Reserve, Nature Reserve,
Protected Forest, Biosphere Reserve, Critical Watershed, and such other categories meriting protection.
Sources: Constitution of the Kingdom of Bhutan. http://oag.gov.bt/wp-content/uploads/2010/05/Constitution _of_Bhutan.pdf; http://www.wipo.int/wipolex/
en/text.jsp?le_id=167955
ICT = information and communications technology.
Note: Size of the bubble shows the potential for job creation. Manufacturing is shown in orange bubbles and nonmanufacturing in white bubbles.
Source: Based on material provided by a JICA study team.
Figure 4.3. Mapping of Growth Drivers
R
e
v
e
n
u
e

p
o
t
e
n
t
i
a
l
Domestic market
Regional market
Breakeven for:
Global market
Clean (less damaging to the environment)
Base
metal
Mineral
Tourism
Hydropower
Bio
medical
ICT
parts
Hydro
related
parts
Chemical
Finance
Other
Services
(ICT, education,
health)
Handicraft
Crop
Agro
product
Paper
106
ConcurrenLIy,CTIsumeunsLomukegrowLhmore
IncIusIve us IL exLends InIormuLIon und uccess Lo
ruruIureus.AndcIeunermunuIucLurIng,whIchoILen
InvoIves mIcro, smuII, und medIum enLerrIses,
uIsoheIswILhruruIdeveIomenLusILcreuLesjobs
und uses IndIgenous roducLs. The ImucL oI CT
und cIeun munuIucLurIng on Lhe envIronmenL Is
reIuLIveIy IImILed, whIch Is weII suILed Lo BhuLuns
ursuILoIenvIronmenLuIundcuILuruIreservuLIon.
4.2.1. Information and
Communications Technology
TheCTDeveIomenLndexIsoneoILhemosL
common und InLernuLIonuIIy recognIzed Indexes
used Lo comure overuII CT secLor erIormunce
umong counLrIes. The Index runks BhuLun 11q
Lh
oI 1z counLrIescuLegorIzed us u Iow CT
DeveIomenLndexcounLry.WILhInSouLhAsIu,IL
IsrunkedIourLhoIsevencounLrIes.TheuIIcuLIon
oICTreducesLheconsLruInLsoILImeundsuceIn
un economy und conLrIbuLes Lo economIc growLh.
ThereIore,IncreusedCTuseInBhuLunIsexecLed
Lo conLrIbuLe Lo growLh In ugrIcuILure, IndusLry,
und servIces, us weII us Lo Imrove Lhe eIhcIency oI
LrunsorL,IncreuseuccessLocuILuI,undsLrengLhen
LheuIIcuLIonoIknowIedge.
16
VoIce und duLu communIcuLIons servIces ure
currenLIyLhemosLcommonCTservIcesInBhuLun.
They ure rovIded by Lwo comunIes, Lhe sLuLe-
ownedBhuLunTeIecomundrIvuLeIyownedTushI
CeII. The monooIy oI BhuLun TeIecom ended
In zoo; und Lhe ensuIng duooIy yIeIded ruId
growLhInmobIIeLeIehonyservIcesunddecreuses
In rIces.
1;
CurrenLIy, Lhe LeIecom servIces ure
mukIng sIgnIhcunL conLrIbuLIons Lo Lhe economy.
The LeIecom servIce rovIders emIoy ;; eoIe
dIrecLIyundubouLunoLherqooIndIrecLIy.TeIecom
servIces ure uIso beIng exorLed In Lhe Iorm oI
roumIng servIces Lo IoreIgn oeruLors whose
cusLomers vIsIL BhuLun. WILh chunges In Lhe
16
The ICT sector in Bhutan includes manufacturing and services
industries whose products capture, transmit, or display data and
information electronically. The sector includes related activities of
manufacturing; the wholesale and retail trade; communications;
business services (such as call centers, software development,
website development and hosting, multimedia, information
technology [IT] consulting, and disaster recovery). Information
technology training is excluded from the ICT sector denition
(Samarajiva 2012).
17
A 7-year exclusivity period began with the licensing of Tashi Cell
in 2007.
wuy servIces Ior Lhe LhIrd generuLIon oI mobIIe
LechnoIogy ure rovIded Lo domesLIc und roumIng
cusLomers,LeIecomrevenuesmuyIncreuse.
SIgnIhcunL new economIc und emIoymenL
oorLunILIescouIdbecreuLedIILheCTsubsecLor
deveIoed beyond Lhe suIy oI convenLIonuI
LeIecom servIces. The Lwo currenL oeruLors
BhuLun TeIecom und TushI CeIIcun exund LheIr
ucLIvILIes Lo rovIde more broudbund connecLIvILy
und more-Lhun-voIce servIces LhuL cusLomers
cun use dIrecLIy Irom LheIr hones. MobIIe money
servIcIng Is Lhe mosL romInenL domesLIc servIce
und hus Lhe greuLesL oLenLIuI Ior new growLh.
nsLunLuneous LrunsmIssIon cuubIIILy Is necessury
IorservIcessuchusduLucenLers(IncIudIngdIsusLer
recovery servIces), busIness rocess ouLsourcIng
(BPO), und knowIedge rocess ouLsourcIng
(KPO), und mosL Iorms oI soILwure roducLIon.
These ure hIghIy deendenL on Lhe uvuIIubIIILy oI
LeIecommunIcuLIons connecLIvILy, Lhe reIIubIIILy oI
owersuIy,undLhequuIILyoILheworkIorce.
undIockedBhuLuncurrenLIyurchusesLrunsIL
servIces, buL new deveIomenLs In InLernuLIonuI
connecLIvILy suggesL LhuL Lhe counLry couId be
u rovIder. Due Lo IncreusIng concerns over Lhe
unreIIubIIILy oI underseu cubIes connecLIng AsIu
Lo Euroe und NorLh AmerIcu, u reIIubIe buck-u
cubIeconnecLIonIsnecessury.BecuuseconsIderubIe
oIILIcuI und engIneerIng chuIIenges huve been
overcome In IuyIng hundreds oI kIIomeLers oI
cubIe,IncIudInguerIuIcubIe,ucrossLheHImuIuyus,
rosecLsIorLerresLrIuIcubIebeLweenndIuundLhe
PeoIesReubIIcoIChInuureLhereIoreromIsIng.
ThIsresenLsunoorLunILyIorBhuLunbecuuseoI
ILsoIILIcuIsLubIIILycomuredLooLherureuswILhIn
LheregIon.
DuLu cenLers huve Lhe mosL rIgorous
requIremenLs In Lerms oI InsLunLuneous, Iurge-
voIume, und reIIubIe eIecLronIc connecLIvILy und
eIecLrIcILy;LheymusLnoLbesubjecLLoowerouLuges
or ucLuuLIons. They consume Iurge umounLs oI
owerIorcomuLIngundgeneruLeIurgeumounLsoI
heuLLhuLrequIreexLensIveuseoIuIrcondILIonIng.
18
WILh Lhe gIobuI concern ubouL cIImuLe chunge,

duLu cenLers reIer Iuces oIIerIng eIecLrIcILy Irom
renewubIesourcesundrequIrIngIesscooIIng,such
usBhuLun.
18
For example, major data centers Google and Amazon give primacy
to the availability of low-cost and highly reliable electricity.
107
ThereureessenLIuIIyLwokIndsoIduLucenLers.
One hus mussIve cuucILy und communIcuLIons
requIremenLs, Lo reduce LIme und cosLs Lo rocess
querIes. The oLher Is Lhe dIsusLer recovery cenLer,
whIch Is sIIghLIy Iess demundIng oI bundwIdLh
cuucILy buL no Iess demundIng oI reIIubIIILy. n
boLhcuses,cIIenLsIndIsLunLIocuLIonsmusLbeubIe
Lo InLerucL wILh duLu us Lhough IL Is In Lhe sume
remIsesusLheyure.TubIeq.IIsLsdesIgnsLundurds
IorduLucenLers.
ReIIubIe LeIecom connecLIvILy Is u necessILy
Ior Lhe BPO und KPO IndusLrIes, und Lo u Iesser
exLenLIorsoILwureexorLs.YeL,LherequIremenLsoI
redunduncy oI medIu (more Lhun one hber cubIe),
redunduncy oI suIIers (more Lhun one oeruLor
who cun suIy Ieused IInes), und ucceLubIe
quuIILy und rIce IeveIs uIy Lo uII. Two rIncIuI
modeIs exIsL Ior deveIoIng Lhese exorL-orIenLed
InIormuLIonLechnoIogy(T)undT-enubIedservIces
(TES)IndusLrIes:
(1) Local entrepreneurdriven model.
ocuIIy owned und oeruLed comunIes
deveIo soILwure Ior exorL und IocuI
consumLIon und underLuke BPO,
KPO, duLu cenLer, und dIsusLer-recovery
servIces Ior cusLomers ubroud us weII us
wILhInLhecounLry.
(z) Foreign-direct-investmentdriven
model.TundTESenLerrIsesureowned
und oeruLed by IoreIgn enLILIes und Lhe
IocuIInuLsureskIIIedworkers,IucIIILIes,
und ussocIuLed servIces. ThIs modeI hus
Lwo vurIunLs: (u) cuLIve oeruLIons In
whIchLheIocuIenLILyhusnoresonsIbIIILy
IorbusInessdeveIomenL,reIyIngenLIreIy
onLheurenLenLerrIseIorworkorders;
und (b) noncuLIve oeruLIons In whIch
Lhe oeruLIng enLILy, whIch Is IoreIgn-
owned, hus comIeLe resonsIbIIILy over
busIness deveIomenL und muInLenunce
oIcusLomerreIuLIonshIs.
CounLrIes generuIIy uLLemL Lo udoL boLh
modeIs. BhuLun ueurs Lo currenLIy Iocus on Lhe
modeI Ied by IoreIgn dIrecL InvesLmenL (D), buL
BhuLunsTurkshowsLhuLLhereIsroomIorboLh
urouches.AooIoIworkerswILhurorIuLeskIIIs
und IocuI enLrereneurshI ure key requIremenLs
Ior boLh modeIs, uILhough Lhe D-drIven modeI
muyemhusIzeLheIuLLerIess.AskIIIedworkIorceIs
LhemosLcrILIcuIIucLorInuLLrucLIngDLoLheTund
TESIndusLrIes.WhIIeLheTESsegmenLInusmuII
counLry such us BhuLun couId IoIIow eILher oI Lhe
D-drIven vurIunLs, u dynumIc soILwure IndusLry
Is unIIkeIy Lo emerge wILhouL IocuI enLrereneurs.
ocuIenLrereneurshuveIncenLIvesLodeveIoLhe
skIIIsoIIocuIemIoyees.
Government Initiatives.TheBPOsegmenLIs
emergIng,usILwuscenLruILoLhegovernmenLsIun
IndeveIoIngLheTurkundLocreuLeemIoymenL
oorLunILIes.ThemosLsuccessIuIBPOueursLo
be u qo-emIoyee medIcuI LrunscrILIon oeruLIon
LhuL Is urL oI u IocuI congIomeruLe. AILhough u
Iew smuII hrms huve exILed, severuI ure sLIII ucLIve
In ThImhu. The governmenLs rImury Iocus Is
Lo uLLrucL Lo Lhe T urk un unchor LenunLone
whose resence wIII uLLrucL oLher busInesses Lo
become LenunLs. The secondury Iocus Is Lo deveIo
IocuIenLrereneurs.nsmuIIcounLrIeswILhIImILed
ooIsoIoLenLIuIemIoyees,ILIsrudenLLoIdenLIIy
undIocusonhIgh-vuIuenIchessuchusKPO.NIche
LechnoIogy ureus In BhuLun uIso IncIude dIgILuI
medIu (In Lhe ureu oI medIu und enLerLuInmenL),
mobIIe uIIcuLIons, und usecLs oI BPO such us
LrunscrILIonIromvIdeoLoLexL.
Table 4.3. Illustrative Tier Requirements for
Data Centers
Tier Requirements
1 Single nonredundant distribution path serving the
IT equipment
Nonredundant capacity components
Basic site infrastructure guaranteeing 99.671%
availability
2 Meets or exceeds all Tier 1 requirements
Redundant site infrastructure capacity compo-
nents guaranteeing 99.741% availability
3 Meets or exceeds all Tier 1 and Tier 2 require-
ments
Multiple independent distribution paths
serving the IT equipment
All IT equipment must be dual-powered and fully
compatible with the topology of a sites architec-
ture
Concurrently maintainable site infrastructure
guaranteeing 99.982% availability
4 Meets or exceeds all Tier 1, Tier 2, and
Tier 3 requirements
All cooling equipment is independently dual-
powered, including chillers and heating,
ventilating, and air-conditioning systems
Fault-tolerant site infrastructure with electrical
power storage and distribution facilities guaran-
teeing 99.995% availability
IT = information technology.
Source: ADC Telecommunications (2006).
108
BhuLunsbusInesscIImuLehusbeenImrovIng.
The T urk InILIuLIve resuILed In Lhe ImIemen-
LuLIonoIoIIcychungesreIevunLLoLheTundTES
IndusLrIes. ocuLIng or sLurLIng u u soILwure hrm,
BPO oeruLIon, or duLu cenLer Is now eusIer wILh
Lhe sucIous und desIgned-Ior-uII-T-uroses
T urk. The T urk Is oLImuIIy IocuLed wILhIn
ThImhu,buLuIsowILheusyuccessLoLheuIrorLIn
Puro. However, Lhe remoLeness oI BhuLun und Lhe
dIIhcuILIes oI geLLIng Lo ThImhu remuIn chuIIenges.
Current Issues. MurkeL comeLILIon und
InnovuLIon ure IuckIng. The duooIIsLIc IndusLrIuI
sLrucLuremuynoLbeconducIveLoruIdInnovuLIon
In new more-Lhun-voIce servIces beIng oIIered
on mobIIe IuLIorms. CurrenL IeveIs oI mobIIe
LeIe-hone eneLruLIon ure uIso Iower Lhun Lhey
shouIdbe.TheIssuunceoIuLhIrdIIcensehusbeen
roosedususoIuLIon,noLwILhsLundIngLhe;-yeur
excIusIvILy erIod IIcensIng ugreemenL wILh TushI
CeII In zoo;, whIch exIres uL Lhe end oI zo1.
However, Lhe smuII sIze oI Lhe murkeL wurrunLs
cuuLIon. Among 11 counLrIes wILh ouIuLIons oI
Iess Lhun 1 mIIIIon (IIke BhuLun), ; sLIII huve onIy
one oeruLor. OnIy BhuLun, Lhe MuIdIves, Sumou,
und VunuuLu huve Lwo. None huve more Lhun Lwo
oeruLors. GumbIu, wILh u ouIuLIon LwIce LhuL
oI BhuLun, Is Lhe smuIIesL counLry Lo huve IIcensed
Lhree oeruLors (nLernuLIonuI TeIecommunIcuLIon
UnIon zoo6). Meusures Lo enhunce murkeL
comeLILIon und hrms` comeLILIveness need Lo
be ucLIveIy exIored. uck oI InIormuLIon shurIng
umong Lhe governmenL, CT enLerrIses, user
enLerrIses und InsLILuLes oI hIgher IeurnIng on
Lhe comeLencIes requIred In Lhe CT IndusLry hus
resuILed In u mIsmuLch beLween Lhe CT LuIenL
deveIoedundLheCTcuubIIILIesexecLedbyLhe
CTIndusLry.
SkIIIedIuborIorLheCTsecLorIsInshorLsuIy.
The T und TES IndusLrIes requIre educuLed undJ
orLruInubIeyoungeoIebecuuseLhenecessuryT
skIII seLs ure rureIy Iound umong IndIvIduuIs uged
und ubove. BhuLuns LerLIury educuLIon sysLem
IsdeveIoIngruIdIyundLhenumberoIbucheIors
degree hoIders wIII IIkeIy Increuse. TubIe q.q
rovIdesuIorecusLoIgruduuLesuLozozo.
WhIIe LerLIury educuLIon muy noL be requIred
Ior BPOs, IL Is ImorLunL Ior KPO und soILwure
IndusLrIes. A LyIcuI ooI oI LuIenL Ior KPOs, such
us churLered hnuncIuI unuIysLs or urchILecLs, Is hurd
Lo hnd In BhuLun. ThIs does noL seem Lo be u bIndIng
consLruInL now, us Lhe KPO secLor Is yeL Lo reuIIze
ILs oLenLIuI. However, buIIdIng humun resources
LukesLImeundugoodheudsLurLwouIdheIreure
Lhe BhuLunese Lo embruce Lhe oorLunILIes LhuL
LhIsnewknowIedgenIcherovIdes.
NeverLheIess, Lhe quuIILy oI educuLIon Is u
mujor Issue, esecIuIIy Ior Lhe soILwure segmenL.
There Is u shorLuge oI hIgh-quuIILy comuLer
scIenceundengIneerInggruduuLes,uILhougheIIorLs
Lo brouden uccess Lo educuLIon huve been under
wuy. More eIIorL Is needed Lo Imrove Lhe quuIILy
oIeducuLIon.
4.2.2. Clean Manufacturing
BhuLunhusbeenuImIngLouchIeveuseII-reIIunL
economy und IuII emIoymenL by zozo. n vIew
oI BhuLuns oIIcy oI envIronmenLuI conservuLIon,
Lhe munuIucLurIng secLor Is execLed Lo rovIde
hIgh-vuIue, Iow-voIume ouLuL. ew IndusLrIes,
however, quuIIIy us growLh drIvers Lo uchIeve
Lhese gouIs.
1q
ThIs secLIon dIscusses Lhree LhuL
show romIse: (1) hundIcruILs, (z) ugro-bused
munuIucLurIng, und () hydroower- und CT-
reIuLed urLs und muInLenunce. ThIs shorL IIsL reecLs
Lhe dIIhcuILy oI IosLerIng cIeun munuIucLurIng.
TubIe q. resenLs u reIImInury secLor evuIuuLIon
oIeconomIcundsocIuIusecLs.
19
The Regulation for the Environmental Clearance of Projects
prepared by the National Environmental Commission Secretariat
identied six industries that do not require environmental
clearance: (1) arts, handicrafts, and quilts; (2) carpets and
textiles (not using dyes); (3) candles and incense; (4) food
processing (potato chips and noodles); (5) organic fertilizers; and
(6) bioengineering.
Table 4.4. Projected Number of Graduates in the
Tertiary Level, 20122020
Year Graduates
2012 2,406
2013 2,597
2014 2,463
2015 3,290
2016 4,034
2017 4,476
2018 4,886
2019 5,127
2020 4,763
Source: Chhoeda (2012).
109
Table 4.5. Clean Manufacturing Sector Evaluation
a
Crops include orange, cardamon, potato, apple, cordyceps, rice, matsutake
and lemongrass.
= yes, x = no, = yes or no, x~ = between yes and no but leaning to no,
Env = environmental, GNH = gross national happiness, ICT = information and
communications technology.
Note: Manufacturing sectors are highlighted.
Source: Ministry of Economic Aairs (2012).
Handicrafts. WhIIe Lhe conLrIbuLIon hundI-
cruILs muke Lo overuII ouLuL Is smuII, Lhe secLor
cun Iuy u roducLIve roIe due Lo ILs synergy wILh
LourIsm, one oI Lhe counLrys sLruLegIc secLors. n
zooq, Lhe hundIcruILs secLor rovIded % oI LoLuI
emIoymenL (ubouL 8,oo eoIe) und 6% oI Lhe
ruruI ouIuLIon Is enguged In hundIcruILs durIng
seusonsoIIILLIecuILIvuLIonucLIvILIes.AIso,LhesecLor
Is un ImorLunL source oI emIoymenL Ior women
InruruIureus.ThegovernmenLhusbeenromoLIng
Lhe secLor In 1 IdenLIhed urLs und cruILs us ure
LrudILIonuI roducL cuLegorIes (e.g., scuILIng,
weuvIng, embroIdery, wood curvIng, shoemukIng,
und meLuI work), und hus been rovIdIng skIII
LruInIngInLwoInsLILuLes.
n zo11, Lhe DeurLmenL oI Trude oI Lhe
MInIsLry oI EconomIc AIIuIrs esLubIIshed Lhe
Agency Ior PromoLIon oI ndIgenous CruILs (APC)
LoromoLehundIcruILs.
zo
APChusoeneducruILs
20
The following initiatives in the crafts sector were included: (1)
creation of an autonomous agency, APIC; (2) product innovation
and design; (3) enhancement of distribution and crafts products; (4)
craft clusters and product areas; (5) development of a micro, small,
and medium enterprise policy under the Ministry of Economic
Aairs; and (6) marketing and promotion (e.g., implementation of
a certication system).
buzuur (consIsLIng oI ;8 shos Ior cruILs und z Ior
Iood ILems) In Lhe cILy cenLer, InvILIng reLuIIers
Irom ucross Lhe counLry. APC Is IunnIng Lo move
Lhe buzuur Irom ILs Lemorury sILe Lo Lhe suburbs
In Lhe nexL hscuI yeur, und Lo more Lhun doubIe ILs
currenLsIze.
AnoLher APC InILIuLIve Is u cerLIhcuLIon sysLem
IorhundIcruILroducLs.AseuIoIorIgInIsrendered
LosuIIersoIroducLswILhmoreLhun6o%oILhe
vuIue udded In BhuLun (In IIne wILh ruIes oI Lhe
WorIdTrudeOrgunIzuLIon).AseuIoIquuIILyundu
seuIoIexceIIencewIIIbeInLroducedshorLIy.These
meusures ure execLed Lo enhunce roIessIonuIIsm
umong Lhe urLIsuns scuLLered ucross Lhe counLry,
whIchevenLuuIIywIIIuLLrucLLourIsLswhoureIookIng
IorroducLsLhuLureuuLhenLIcuIIyBhuLunese.
Agro-Based Manufacturing (Iood roces-
sIng). AnoLher oLenLIuI drIver oI cIeun
munuIucLurIng Is Lhe ugro-bused Iood rocessIng
IndusLry,whIchusesIocuIIngredIenLs(IorexumIe,
IruILs, vegeLubIes, duIry roducLs, herbs, und
mIneruIwuLer).ThIsIndusLrycunmukeLhemosLoI
BhuLunsbrundIng,IocusIngonLhecounLryscIeun
und nuLuruI Imuge. SInce Lhe counLry romoLes
hIgh-end LourIsm, LhIs IndusLry cun suIy
hoLeIs, weIIness cenLers, und reLuII shos, uddIng
exLru vuIue LhuL Is noL necessurIIy requIred Ior
domesLIcconsumLIon.
WhIIe Lhere ure uIreudy Iurge-scuIe, sLuLe-
owned enLerrIses such us BhuLun Agro ndusLry,
LhereIsuIsooLenLIuIIorsmuIIundcommunILy-or
cooeruLIve-bused busInesses. One successIuI cuse
Is BIo BhuLun, u rIvuLeIy owned comuny LhuL
sLurLedInzoo;,wILhsuorLIromHeIveLus(SwIss
nLercooeruLIon).BIoBhuLunsLurLedwILhuIemon
gruss busIness In coIIuboruLIon wILh u Iurmers
grou In eusLern BhuLun und hus exunded Lhe
roducL IIne Lo IncIude sIces, gInger, Leu, honey,
und hundmude sou. BIo BhuLuns unIqueness IIes
In ILs busIness modeIIL rovIdes Iurmers grous
wILh reIevunL uckuges IncIudIng IucIIILIes und
LruInIng. Then IL buys ruw muLerIuIs Irom Lhe
IurmersgroususweIIushuII-rocessedmuLerIuIs
IromoLhersuIIers.Thus,evensmuII-scuIeIurmers
cunbeInLegruLedInLoLhesuIychuIn,wILhuccess
LonuLIonwIdeorevenoverseusmurkeLs.
Hydropower- and ICT-Related Manufac-
turing.MunuIucLurInguccounLsIorq6%oIBhuLuns
exorL vuIue, buL II buse meLuIs und mIneruIs ure
excIuded,LheshureIsonIy6%.TheroducLvurIeLy
Sector
Share in
Exports
Revenue
Potential
Job
Creation
GNH
Impact
Env
Impact
Hydropower 34%
Base Metals
and Related
Articles
32% x x x
Minerals 8% x x x
Chemicals 5% x x x
Tourism 5%
Crops
a
3% x~ x~
Agro Product 0.3% x~ x~
Handicrafts <0.1% x
Handmade
Paper
<0.1% x x
Other Services
(ICT, Education,
Health)
<0,1% x~ x~
110
IsIImILedduemuInIyLoLhecosLdIsudvunLugesvIs-
u-vIs ndIu. n generuI, Lhe munuIucLurIng secLor
In BhuLun Is Iocked InLo reIuLIveIy Iow-vuIue-
udded roducLs. RegIsLered busIness enLILIes ure
concenLruLed In urbun ureus, wILh Lhe mujorILy
enguged In mIneruI, IoresL, und ugrIcuILure-bused
busInesses.TheyureuIsoverysmuII:mosLoILhem
ure cIussIhed us mIcro und smuII enLerrIses.
TrunsIormuLIon oI Lhe munuIucLurIng secLor
couIdheIreduceLhevuInerubIIILyoILheeconomy
Lo InLernuLIonuI crIses. PoIIcIes couId useIuIIy
Iocus on sLrengLhenIng Lhe economIc sLrucLure by
ucceIeruLIng ImorL subsLILuLIon und by IncreusIng
LhecuucILyLoexorL.OnesecLorLhuLcouIduchIeve
boLh uIms Is hydroower-reIuLed urLs und reIuLed
muInLenunceusLhereIsuIreudyudomesLIcmurkeL
Ior Lhese goods und servIces. The knowIedge LhuL
hus been ucquIred Irom IunnIng, consLrucLIng,
undoeruLInghydroowerIunLscunbeemIoyed
domesLIcuIIy und couId be exorLed Lo regIonuI
murkeLs In ndIu, NeuI, und erhus beyond Lhe
regIon.Norwuy,whIchhushydroowerusoneoIILs
coresecLors,rovIdesugoodexumIe.TuIngLhe
hydroower urLs und reIuLed muInLenunce couId
oenoorLunILIesIorBhuLunLodIversIIyundgrow
Lhe munuIucLurIng und servIces secLors und Lhus
Imrove Lhe exLernuI buIunce by reducIng ImorLs
undexundIngexorLs.
MunuIucLurIng urLs Ior CT-reIuLed equI-
menL cun uIso rovIde un oorLunILy Lo suve und
eurn IoreIgn currency. One sLe LhuL cun be Luken
InureIuLIveIyshorLLImeIsuddIngvuIueLoexIsLIng
resources, such us IerrosIIIcon, In Lhe conLexL oI
ongoIngCTdeveIomenL.
Current Issues.DeveIoIngcIeunermunuIuc-
LurIng requIres uddressIng muny Issues, IncIudIng
geogruhy und comeLILIveness, ubsence oI u cIeur
IndusLrIuI vIsIon, und InsuIhcIenL secLor oIIcy
coordInuLIon.
BhuLuns munuIucLurIng secLor Iuces chuI-
IengIng cIrcumsLunces, urLIy becuuse oI Lhe
counLrys IundIocked sILuuLIon. Even comured Lo
oLher IundIocked economIes, BhuLuns uccess Lo
neIghborIng counLrIes und, Indeed, Lhe resL oI Lhe
worId Is IImILed. BhuLun shures borders onIy wILh
Lhe PeoIes ReubIIc oI ChInu und ndIu und hus
very dIIhcuIL LooIogy Ior muInLuInIng connecLIvILy.
ExunsIon oI Lrude reIuLIonshIs beyond ndIu, ILs
currenL domInunL Lrude urLner, Is consLruIned by
IImILed uIr und border uccess. Moreover, Lhe smuII
sIzeoIBhuLunsdomesLIcmurkeLdoesnoLuIIowIor
exIoILuLIon oI economIes oI scuIe und dIIIerences
In Iubor cosL uL BhuLun uL u sIgnIhcunL cosL
dIsudvunLugewILhresecLLondIu.
PoIIcymukers couId useIuIIy deveIo u cIeur
vIsIon Ior Lhe overuII IndusLrIuI sLrucLure. To
oIIcymukersureIumIIIurwILhoIIcyLooIsLhrough
numerous consuILuLIons wILh deveIomenL
urLners. The oIIcy IormuIuLIon rocess Is oILen
bIused Lowurd u boLLom-u urouch, whIch muy
noL uIIow Ior InLersecLoruI coordInuLIon. EIIecLIve
oIIcy desIgn requIres un economy-wIde vIsIon.
AccordIngIy,LhedesIgnIorucIeunermunuIucLurIng
secLor needs Lo be revIewed In Lhe conLexL oI
Lhe overuII economy Lo uvoId dIsLorLIons In Lhe
uIIocuLIonoIresources.
nIormuIILy und IrugmenLuLIon Is LyIcuI In
smuII-scuIe cIeuner munuIucLurIng, such us Lhe
hundIcruILs IndusLry. MosL shos In Lhe cruILs
buzuur seII Lhe sume roducLs, someLImes mIxIng
IocuI roducLs wILh Lhose Irom ndIu und NeuI
und wILh nonLrudILIonuI roducLs. ExerLIse In
murkeLIng, udverLIsIng, roducL deveIomenL, und
dIsLrIbuLIon Is IImILed, urLIcuIurIy In IrugmenLed
smuII busInesses. The exorL oLenLIuI oI some
roducLs LhuL couId be comeLILIve In regIonuI or
gIobuImurkeLsIsLhusnoLIuIIydeveIoed.
OLher sIgnIhcunL hurdIes Lo deveIoIng
cIeuner munuIucLurIng IncIude uccess Lo hnunce,
humun cuILuI, und InIrusLrucLure, esecIuIIy Ior
connecLIvILy. PrevIous chuLers IdenLIhed Lhese
crILIcuI consLruInLs Lo uchIevIng susLuIned hIgh
und IncIusIve economIc growLh In BhuLun. urLher
deveIomenL oI currenL und new growLh drIvers
requIres oIIcy, reguIuLory, und InsLILuLIonuI
reIormsLoIucIIILuLeundIosLerudynumIceconomy
drIvenbyLherIvuLesecLor.
4.3. Conclusion
BhuLuns economIc LrunsIormuLIon durIng
Lhe IusL decudes hus been remurkubIe, buL ILs
economy Is sLIII nurrowIy bused wILh IImILed job
creuLIon. BhuLuns sLrong growLh hus been drIven
by hydroower, LourIsm, und ugrIcuILure. uLure
growLh rosecLs resL on Lhese currenL growLh
drIvers, und on new growLh engInes. Two new
growLh engInes uIIcubIe Ior BhuLun ure CT und
cIeuner munuIucLurIng. AdvuncIng und creuLIng
new vuIue udded und jobs Lhrough Lhese drIvers
111
cun rovIde Lhe economy wILh uLhwuys Lo udded
economIc growLh LhuL Is susLuInubIe und IncIusIve,
undIncreusedemIoymenL.
medImenLs Lo Lhe successIuI use oI Lhe
Lwo drIvers IncIude Lhe cosL oI und uccess Lo
hnunce, und Iow IeveIs oI rIvuLe InvesLmenL
und enLrereneurshI. The cosL oI und uccess
Lo hnunce ure crILIcuI Ior smuII-scuIe borrowers,
whIch comrIse much oI Lhe LourIsm, ugrIcuILure,
und cIeuner munuIucLurIng secLors. ow IeveIs oI
rIvuLe InvesLmenL und enLrereneurshI muy be
uLLrIbuLed Lo InsuIhcIenL socIuI reLurns Lo InvesL-
menL und uccess Lo economIc oorLunILIes,
whIch requIre InvesLmenL In educuLIon (humun
cuILuI) und InIrusLrucLure, esecIuIIy In LrunsorL.
By reIuxIng some oI Lhese crILIcuI consLruInLs,
BhuLun cun unIeush ILs oLenLIuI Ior enLrere-
neurshI und rIvuLe secLor deveIomenL und
Lhus creuLe roducLIve und decenL emIoymenL
oorLunILIes, urLIcuIurIy Ior IncreusIng numbers
oIeducuLedyouLhseekIngguInIuIemIoymenL.
RecognIzIng Lhe ImorLunce oI rIvuLe secLor
deveIomenL us Lhe key Lo hIgh und susLuIned
economIcgrowLh,LhegovernmenLhusemhusIzedIn
ILsYPsLheneedLocreuLeunenubIIngenvIronmenL
IorenLrereneurshIundrIvuLesecLordeveIomenL.
EsecIuIIy In ILs TenLh YP (zoo8zo1), Lhe
governmenLhIghIIghLedLhedeveIomenLoIcreuLIve
IndusLrIesundmIcro,smuII,undmedIumenLerrIses.
osLerIng u sLubIe und redIcLubIe InvesLmenL
cIImuLe Is essenLIuI Ior rIvuLe secLor deveIomenL.
The busIs oI sLubIIILy und redIcLubIIILy comes Irom
mucroeconomIc sLubIIILy, Lhe ruIe oI Iuw, u skIIIed
und roducLIve Iubor Iorce, udequuLe und uccessIbIe
InIrusLrucLure, und sLrong governunce bused on
Lrunsurency und uccounLubIIILy. CounLry und
secLor-secIhc crILIcuI consLruInLs Lo rIvuLe secLor
deveIomenL cun be uddressed Lhrough eIIecLIve
reIorms evoIved Lhrough ubIIcrIvuLe dIuIogue Lo
IdenLIIyurorIuLeoIIcIesundInsLILuLIonuIreIorms
LhuL cun encouruge enLrereneurshI und romoLe
rIvuLeInvesLmenL.
112
Chapter 5
Policy Recommendations
nusunoIdecudes,BhuLunhusundergone
consIderubIe LrunsIormuLIon, Irom u
usLoruI und subsIsLence-IeveI economy,
Lo u Iow mIddIe-Income counLry. JudIcIous
mucro munugemenL und uLIIIzuLIon oI
ubundunL hydro resources huve roeIIed Lhe
counLrysgrowLh.
SusLuIned growLh hus Ied Lo sIgnIhcunL
rogressInoverLyreducLIonundhusenhuncedLhe
ouIuLIons humun deveIomenL. urLhermore,
LheudoLIonoIuconsLILuLIonundLheInLroducLIon
oI u urIIumenLury democrucy In zoo8 murked
u successIuI socIooIILIcuI LrunsILIon. A common
vIsIonoIuchIevIngugreenundseII-reIIunLeconomy
susLuIned by un T-enubIed knowIedge socIeLy
und guIded by Lhe hIIosohy oI Gross NuLIonuI
HuIness bInds u sLubIe und urLIcIuLory oIILy
(GNHCzo1o).
ToIurLherILsremurkubIegrowLhundsuccessIuI
overLy reducLIon, BhuLun sLIII Iuces consIderubIe
deveIomenL chuIIenges LhuL Lhe governmenL
muy wIsh Lo consIder when reurIng ILs EIevenLh
Ive Yeur PIun (YP). Among Lhe mosL erLInenL
chuIIengesureeconomIcgrowLhLhuLIshIngedonu
nurrow buse, u noL urLIcuIurIy dIversIhed economy,
IImILed roducLIve economIc ucLIvILIes ouLsIde Lhe
hydroower secLor, deendence on exLernuI uId
ow, reIuLIveIy hIgh Income InequuIILy, und Iuck
oI guInIuI emIoymenL Ior un IncreusIng number
oIyouLhs.
CreuLIng u LrunsurenL und conducIve
envIronmenL Ior busIness und InvesLmenL Is u
key Lo uchIevIng broud-bused, susLuInubIe, und
IncIusIve growLh. ThIs wIII requIre deuIIng wILh
crILIcuI consLruInLs Lo rIvuLe secLor deveIomenL.
GrowLh In rIvuLe InvesLmenLs In Lurn cun Ieud Lo
job creuLIon LhuL Is beyond Lhe hydroower secLor,
drIvIngeconomIcgrowLh.AndbeLLerLurgeLedsocIuI
exendILurewIIIbeuLLhecoreoIsLruLegIesLomuke
Lhe benehLs oI growLh more IncIusIve.
5.1. Critical Constraints
to Inclusive Growth
The sLudy used u dIugnosLIcs urouch Lo
IdenLIIy Lhe mosL crILIcuI consLruInLs Lo economIc
growLh und Lo reducLIon oI overLy und Income
InequuIILy In BhuLun. OvercomIng Lhe consLruInLs
wIII ush Lhe economy onLo u hIgher und more
susLuInubIe growLh uLh, und resuIL In wIder und
more equILubIe uccess Lo oorLunILIes und benehLs
generuLed by u growIng economy. The crILIcuI
consLruInLsLoIncIusIvegrowLhure
(1) nurrow hscuI suce;
(z) InudequuLe und oor quuIILy InIrusLruc-
Lure;
() IImILed und unequuI uccess Lo quuIILy
educuLIon (urLIcuIurIy Lo secondury,
LerLIury, und vocuLIonuI educuLIon), und
IubormurkeLmIsmuLch;
(q) Iuck oI uccess Lo hnunce by mIcro, smuII,
undmedIumenLerrIses(MSMEs);und
() resenceoImurkeLIuIIures.
113
n uddILIon, Lhe sLudy IdenLIhed new drIvers
oI growLh LhuL couId muke IL more broud-bused
und IncIusIve. WhIIe Lhe currenL growLh engInes,
IncIudIng hydroower, LourIsm, und ugrIcuILure,
couId Imrove roducLIvILy und hence IurLher
ucceIeruLe BhuLuns economIc growLh, deveIoIng
new drIvers wouId oIIer chunces Lo uchIeve more
buIunced, susLuInubIe, und IncIusIve growLh.
Two ossIbIe new drIvers IncIude InIormuLIon
und communIcuLIons LechnoIogy (CT) und cIeun
munuIucLurIng,undremovIngconsLruInLsLorIvuLe
InvesLmenLs couId be crILIcuI Ior romoLIng Lhese
newdrIvers.
5.2. Policy Recommendations
on Critical Constraints to Growth
5.2.1. Creating a Comfortable Fiscal Space
The GovernmenL oI BhuLun udoLed Lhe
BudgeL PoIIcy und IscuI rumework SLuLemenL by
LhePubIIcInunceAcL,whIchwusussedInzoo;Lo
romoLe rudenL mucroeconomIc munugemenL Lo
beLLer coe wILh voIuLIIe governmenL revenue und
exendILure. n reurIng Lhe budgeL Ior hscuI yeur
(Y) zo1zJ1, Lhe governmenL IoIIowed rudenL
budgeLury guIdeIInes, IncIudIng exendILure
ruLIonuIIzuLIon meusures, susLuInubIe hscuI buIunce,
undoLhermeusures(MInIsLryoIInuncezo1z).The
Irumework envIsIons movIng Lo muILIyeur roIIIng
budgeLs und uchIevIng Iong-Lerm hscuI oIIcy
gouIsLoensureconLInuedmucroeconomIcsLubIIILy
InBhuLun.
As Lhe governmenL rIorILIzes cuILuI
exendILureLoexundInIrusLrucLureundrovIsIon
oI socIuI servIces, consIderuLIon Is due Lo Lhe
quesLIons ruIsed regurdIng wheLher Lhe currenL
sLrucLure oI ubIIc hnunce cun suorL Lhe counLry`s
medIum- Lo Iong-Lerm hscuI susLuInubIIILy. The
overuII hscuI osILIon hus been generuIIy sound sInce
zoo;.BuLLhecounLrysLoLuIubIIcdebLIsexecLed
Lo rIse under mosL scenurIos shown by sensILIvILy
unuIysIs.WILhInLhenexL1oyeurs,LhegovernmenL
envIsuges consLrucLIng us muny us 1o hydroower
rojecLs, buIIdIng over z,ooo kIIomeLers oI rouds,
rovIdIng eIecLrIcILy Ior Lhe enLIre ouIuLIon,
und IncreusIng sendIng Ior Lhe socIuI secLor.
The TenLh YP uIso resenLs Lhe governmenLs
uggressIve ubIIc rogrums, IncIudIng Lhe Iun
Lo ruLcheL u InvesLmenLs In heuILh, educuLIon,
und generuI InIrusLrucLure; Lhe esLubIIshmenL oI
InsLILuLIonsLosuorLLhenewdemocruLIcsysLem;
und decenLruIIzuLIon. TogeLher wILh Increused
debLservIcIng,Lheserogrumshuvebecomemujor
budgeLILemsIorLheYPImIemenLuLIon.
n BhuLun, governmenL sendIng IInked Lo
hydroower deveIomenL hus been u muIn drIver
oI growLh. ndeed, u mujorILy oI Lhe ubIIc debL
Is due Lo hydroower deveIomenL. The reLurns
Irom Lhe hydroower rojecLs huve heIed boosL
domesLIc revenue, whIch cun now IuIIy cover Lhe
currenL exendILure. NeverLheIess, Lhe currenL
budgeL sLrucLure reIIes subsLunLIuIIy on conLInued
InLernuLIonuI uId ows,
1
whIchmuynoLbesusLuIned
uLLhecurrenLhIghIeveIs.
z
Assuch,ILIsImeruLIve
IorLhegovernmenLLoeIIecLIveIymobIIIzedomesLIc
resources.nLhemedIumLerm,exundIngrevenue
undrIorILIzIngsendIngurenecessuryLoIImILLhe
ubIIcdebLbuIIdu.
The governmenL recognIzes LhuL IL hus Lo
ucceIeruLe Lhe budgeLury und Lux reIorm eIIorLs In
order Lo creuLe u comIorLubIe hscuI suce Ior IuLure
deveIomenL sendIng.
WhIIe hscuI IncenLIves

romoLe InvesLmenLs und jobs creuLIon, Lhe
governmenL needs Lo consIder, In IuLure reIorm
eIIorLs, Lhe eIhcIency oI hscuI IncenLIve schemes
gIven Lo comunIes. The NuLIonuI Revenue ReorL
zo11 IndIcuLed revenue Ioregone urIsIng Irom hscuI
IncenLIvesumounLIngLouImosLNuz.obIIIIon($qz.q
mIIIIon), und ubouL Nuz mIIIIon ($11.8 mIIIIon)
due Lo Lhe exemLIon oI cerLuIn orgunIzuLIons
Irom suIes Luxes (MInIsLry oI Inunce zo11u). The
esLImuLedrevenueIoregoneInzo11wusubouL1q%
oILoLuInuLIonuIrevenue.
DurIngzooqzo11,LheGovernmenLoIBhuLun
mude IuudubIe rogress In Lux reIorm, whIch wIII
heI Imrove ILs hscuI osILIon. The hrsL Lux bIII wus
ussed In zo11 durIng Lhe ;Lh Summer SessIon oI
Lhe IrsL PurIIumenL. The bIII covered Lhe revIsIon
1
The Annual Financial Statements of the Government for the year
ended June 2011 reported the following breakdown of total
government receipts for the year, which already showed a decline
in grants: internal revenue (44.4%), grants (26.7%), borrowing
(7.9%), recovery of loans (4.8%), and others (16.2%). Others
comprises mostly dividends from state-owned enterprises and
companies with government shareholdings, and interest receipts
from corporations.
2
The government also recognized that continued availability of
foreign aid ows cannot be assured with Bhutan becoming a
middle-income country (GNHC 2010).
3
In particular, the Ministry of Finance (2011b) identied a need to
revisit tax structures and administrations to enhance domestic
revenue.
114
und ruLIonuIIzuLIon oI cusLoms duLIes; suIes Lux
on seIecLed goods such us uIcohoI, vehIcIes, sure
urLs, und recIous meLuIs (goId und sIIver); und
excIse duLy on domesLIcuIIy munuIucLured uIcohoI.
DurIng Lhe 6Lh SessIon oI Lhe IrsL PurIIumenL In
November zo1o, cerLuIn rovIsIons oI Lhe ncome
TuxAcLzoo1reIuLedLoenLerLuInmenLexensesund
hnes on nonhIers were uIso umended (MInIsLry oI
Inuncezo11u).
OveruII, In uddILIon Lo Lhe currenL eIIorLs Lo
exundLhecounLryseconomIcbuse,LhegovernmenL
couId conLInue Lo enhunce ILs sources oI hnunce und
IdenLIIy new ones. To sLrengLhen Lhe counLry`s hscuI
osILIon, shorL-Lo-medIum- und medIum-Lo-Iong-
LermmeusuresureroosedIorconsIderuLIon.Box
.1 resenLs some secIhc oIIcy recommenduLIons
on uL IeusL Lwo IronLsrevenue mobIIIzuLIon und
LuxuLIonundrudenLgovernmenLexendILures.
Box 5.1. Strengthening the Government Fiscal Position
Key Steps for Improving Allocative and
Operational Eciencies Key Steps for Improving Revenue Mobilization
Short- to Medium-Term Measures
1. Comprehensively review all expenditure items to
identify a set or categories of expenditure items that
should be phased out based on agreed policy and
priorities of the government.
2. Comprehensively review subsidies to consumers,
sectors, and state-owned enterprises to improve
spending eciency.
a
3. Adopt a policy for implementing a medium-term
expenditure framework to realistically link resource
constraints to expenditure requirements.
4. Formulate a 3-year rolling budget that includes
capital and recurrent expenditures to improve
resource allocation and predictability of spending.
5. Prioritize all capital and recurring expenditures
based on agreed priorities in the Medium-Term
Development Plan.
6. Identify nonperforming or losing state-owned
enterprises that can be restructured, privatized, or
retired.
7. Analyze the functional classication of expenditures
to ascertain inconsistencies between actual resource
allocations and responsibilities of the public sector
8. Analyze the funding and composition of
expendituresreview personnel and operating
expenditures, trends in real levels of salaries, and
other uncategorized expenditures.
9. Review recurrent cost implications, especially of new
capital expenditures, and ensure that explicit or
implied expenditure commitments are factored into
projections.
10. Adopt for each sector an expenditure ratio (per unit
cost) that is within acceptable or comparable levels
internationally.
11. Improve the nancial management information
system to help control aggregate spending and the
decit; strategically prioritize expenditures across
policies, programs, and projects; and better use
budgeted resources.
12. Introduce and implement an e-procurement system
and a computerized accounting system for trans-
parency and accountability.
13. Improve the monitoring of the scal position of
state-owned enterprises and lower-level govern-
ments.
Tax Revenues
1. Produce tax expenditure statements that contain
details of tax concessions, benets, and incentives
given to taxpayers to enhance scal transparency.
b
2. Computerize tax administration and records,
including setting up a tax registry, collection
monitoring, tax audits, and other items.
3. Introduce selective tax audits using sampling
techniques and train personnel on tax audits.
4. Implement the Revenue Administration Manage-
ment Information System, a web-based real-time
data management system being developed with
Asian Development Bank assistance to facilitate
e-ling of tax returns and online payment of taxes.
Nontax Revenues
1. Consider organizing a consultative group meeting
among development partners for the retention of
grant funds and revenues for development projects.
2. Maximize tourism revenues by further unleashing
the potential of the tourism industry while
maintaining the low-volume and high-value
tourism policy.
115
5.2.2. Providing Adequate Infrastructure
nLernuI LrunsorL InIrusLrucLure Is ImorLunL
Ior IundIocked counLrIes such us BhuLun (uye eL
uI. zooq). GeogruhIc IsoIuLIon Is u mujor cuuse oI
overLy und underdeveIomenL In some dIsLrIcLs.
AbouLqo%oILheouIuLIonhudnorouduccessus
oIzoo;.WhIIerouddensILyuImosLdoubIedbeLween
zoo und zo11, Lhe uddILIonuI rouds ure mosLIy
unuved,undLhusurevuInerubIeLoIundsIIdesund
IrequenLbIockuges.PoorconnecLIvILybrIngsubouL
chuIIengesLouccessIngregIonuIundgIobuImurkeLs.
mrovIng LrunsorL neLworks und oLher
crILIcuI InIrusLrucLure wIII enubIe BhuLun Lo huve
beLLer connecLIvILy beLween ruruI ureus und
domesLIc murkeLs, und Lo esLubIIsh beLLer LrudIng
oorLunILIes In Lhe regIon. AvuIIubIIILy oI oLher
InIrusLrucLureservIces,suchusowerundIrrIguLIon,
Is uIso ImorLunL Lo encouruge rIvuLe secLor
InvesLmenL LhuL wIII heI reduce Lhe cosL oI doIng
busIness und encouruge deveIomenL oI MSMEs
Lo rovIde IIveIIhood oorLunILIes, esecIuIIy Ior
eoIe IIvIng In ruruI und Iur-ung ureus.
Short- to Medium-Term Measures
Theneur-LermmeusuresureusIoIIows:
(1) General
(u) ExIore,LhroughsLudIesundsLukehoIder
consuILuLIons,oLIonsIormovIngLowurd
unInsLILuLIonuIIrumeworkLhuLeIIecLIveIy
consoIIduLes Lhe roIes oI und cuucILy
Ior sLruLegIc IunnIng, coordInuLIon,
und monILorIng wILhouL cenLruIIzIng
Lhe ImIemenLuLIon und muInLenunce
Medium- to Long-Term Measures
1. Complete the phasing out of subsidies provided to
sectors, programs, or entities identied for the
phase-out.
2. Expand the implementation of an e-procurement
system to districts and lower levels of government.
3. Expand and mainstream the application of the
medium-term expenditure framework process to all
sectors and levels of government.
Tax Revenues
1. Broaden the corporate income tax base by reducing
and/or eliminating specic exemptions, tax
incentives, and deductions.
c
2. Simplify the tax system and remove distortions by
aligning the top personal and corporate income tax
rates.
3. Consider introducing an imputation tax system to
avoid the double taxation of corporate income.
4. Apply the incorporated companies tax rules to all
businesses.
d

5. Replace the sales tax with a uniform value-added tax
that applies to a comprehensive and broad base to
raise tax collection and lower the current volatility of
tax revenues due to seasonal variations in hydro-
power production.
6. Negotiate and ratify a double tax agreement with
India and other major economic partners to avoid
double taxation, and cancel the duty refund
procedure on imports from India.
7. Remove tax concessions for selected sectors, e.g.,
civil servants.
Nontax Revenues
1. Consider privatizing some state-owned enterprises
that have inecient operations and rely heavily on
government subsidies.
2. Consider some form of cost recovery for some
services provided by government to partly fund its
operations.
a
Current subsidies (excluding tax concessions) are large. In scal year (FY) 2011/12 they amounted to about 2% of gross domestic product, which is about
the same as government expenditure on public order and safety.
b
Tax expenditure statements would complement subsidy payments already listed in the national budget.
c
In FY2010/11, scal incentives amounted to 14% of national revenue or 3.2% of gross domestic product (Ministry of Finance 2011a).
d
Under an imputation system, taxes paid by companies are considered as paid on behalf of its shareholders, i.e., credits are attached to dividends for
income tax that has been paid at the company level.
Source: Authors.
Box 5.1. continued
116
resonsIbIIILIes. n urLIcuIur, Lhe
governmenL muy exIore Lhe IeusIbIIILy
oI creuLIng u Lwo-LIer sysLem whereIn
Lhe muIn rouds und hIghwuys ure In Lhe
domuIn oI u sIngIe nuLIonuI ugency und
Lhe resonsIbIIILy Ior Lhe IocuI, ruruI,
und urbun rouds resLs wILh Lhe IocuI
governmenLs.
(b) UnderLuke u comrehensIve ussessmenL
oIcuucILybuIIdIngneedsInLheLrunsorL
secLor, uL nuLIonuI, dIsLrIcL, vIIIuge grou
(eo),undvIIIugeIeveIs,wILhuurLIcuIur
Iocus on Lhe cuucILy Lo Iun, desIgn,
consLrucL,undmuInLuInroudundreIuLed
InIrusLrucLure. AIso, IdenLIIy sLes uImed
uL deveIoIng Lhe skIIIs und cuubIIILIes
oI Lhe IocuI conLrucLors Lo desIgn und
underLuke consLrucLIon und muInLenunce
conLrucLsoIsmuIIundmedIumsIzes.
(2) Road transport
(u) RevIew Lhe Roud SecLor MusLer PIun,
zoo;zoz;, und exund IL Irom beIng
u rIorILy IIsL oI Ieeder rouds Lo u
comrehensIve subsecLor Iun coverIng
InvesLmenL In new und exIsLIng rouds,
cuucILy und InsLILuLIon buIIdIng, oeru-
LIon und muInLenunce (O&M) hnuncIng,
und Lhe reguIuLory envIronmenL (MWHS
zoo6). The Roud SecLor MusLer PIun
shouId be comrehensIve In Lerms
oI coverIng dIIIerenL Lyes oI rouds,
IncIudIng hIghwuys, dIsLrIcL und Ieeder
rouds,undIurmundruruIrouds;ILshouId
uIsogIvedueconsIderuLIonLoroudsuIeLy
und cIImuLe roohng oI Lhe InIrusLrucLure.
(b) Assess Lhe deveIomenL urLners
exerIences wILh IIoL rojecLs Ior u-
grudIngLheroudconsLrucLIonLechnoIogy,
und (I) InLroduce envIronmenL-IrIendIy
roud consLrucLIon LechnIques, und
(II) IormuIuLe u Iun Ior gruduuIIy
muInsLreumIng Lhese LechnoIogIes und
schemes. n urLIcuIur, revIew Lhe
exerIenceguInedonLechnIcuIussIsLunce
rojecLs suorLed by Lhe AsIun
DeveIomenL Bunk, SNV NeLherIunds,
undWorIdBunk.
(c) RevIew Lhe ImIemenLuLIon sLuLus oI
Lhe roud usseL munugemenL sysLem, und
IusL-Lruck ILs ImIemenLuLIon Lowurd
beIng u key IunnIng, budgeLIng, und
monILorIngLooI.
(d) ExIore und exund Lhe use oI roud
muInLenunce hnuncIng mechunIsms such
us LoII Iees und roud users churges, us
u meuns oI susLuInubIy hnuncIng roud
O&McosLs.
(e) SLrengLhen Lhe enIorcemenL oI Lhe roud
suIeLy sLundurds on buses und LuxIs
LrunsorLIngeoIeundgoodsucrossLhe
dIsLrIcLs(dzhonlhc).
(I) ormuIuLe Ior euch dIsLrIcL u dIsLrIcL
LrunsorL musLer Iun (DTMP) In
u consuILuLIve munner wILh Lhe
InvoIvemenL oI Lhe IocuI udmInIsLru-
LIonsundcommunILIesusweIIusLhrough
urLIcIuLIon oI Lhe reIevunL nuLIonuI
mInIsLrIes, Lo ensure LhuL Lhe DTMP
wIII be demund-drIven und coordInuLed
wILh Lhe deveIomenL oI hIghwuys
und nuLIonuI rouds us weII us wILh Lhe
uvuIIubIe und Iunned Iurm und
ruruIrouds.
(g) nLroduce eco-IrIendIy muss ubIIc
LrunsIL sysLems In Iurger Lowns Lo reduce
congesLIonunduIroIIuLIon.
(3) Air transport
(u) RevIew und uduLe Lhe CIvII AvIuLIon
MusLer PIun (IncIudIng uIrorL musLer
Iuns), LukIng InLo uccounL Lhe emergIng
rIorILIes, IncIudIng (I) Lhe oLenLIuI roIe
oI domesLIc uIr LrunsorL In oenIng u
Lhe more dIsLunL regIons oI Lhe counLry
und mukIng Lhe economIc growLh more
IncIusIve,und(II)LheneedLoexundLhe
InLernuLIonuI uIr IInks Lo kee u wILh
growIngdemund.
(b) RevIewundreguIurIyuduLeuIrLrunsorL
reguIuLIons Lo comIy wILh InLernuLIonuI
suIeLyundenvIronmenLuIsLundurds
(c) urLhermodernIzeLhePuronLernuLIonuI
AIrorL by equIIng IL wILh more us-
sengerservIcesundmodernnuvIguLIonuI,
engIneerIng,undsuIeLyrovIsIons.
117
(d) ComIeLe Lhe modernIzuLIon oI Lhe Lhree
newIyesLubIIsheddomesLIcuIrorLs.
(4) Electricity and irrigation
(u) ComIeLe Lhe ruruI eIecLrIhcuLIon rogrum
Lo Increuse uccess Lo eIecLrIcILy Ior ruruI
communILIes.
(b) Exund Lhe ower dIsLrIbuLIon neLwork
und LrunsmIssIon grId Lo ruruI ureus Lo
comIemenL Lhe ruruI eIecLrIhcuLIon
rogrum.
(c) oIIowIng Lhe guIdunce rovIded In
Lhe RevIsed NuLIonuI rrIguLIon PoIIcy
oI zo11, IormuIuLe u comrehensIve
IrrIguLIonsecLormusLerIunLhuLIsbused
on Lhe rIncIIes oI InLegruLed wuLer
resource munugemenL und communILy
urLIcIuLIon, und Lukes InLo uccounL
ugronomIc, LechnIcuI, hnuncIuI, und
economIc consIderuLIons In IdenLIIyIng
LheLhrusLundrIorILIzIngLhescoeoILhe
musLerIun.
(d) RevIew und cIurIIy Lhe InsLILuLIonuI
urrungemenLs concernIng Lhe roIes und
resonsIbIIILIes oI vurIous ugencIes uL
nuLIonuIundIocuIgovernmenLIeveIswILh
resecL Lo engIneerIng und ugronomIc
usecLs oI Lhe IrrIguLIon InIrusLrucLure.
ProvIde cuucILy buIIdIng In IrrIguLIon
engIneerIng und IrrIguLIon ugronomy,
whereneeded.
(e) nvenLory Lhe uvuIIubIe IrrIguLIon und
reIuLed InIrusLrucLure, und ussess
Lhe urgenL needs Lo ugrude und
rehubIIILuLe IL whIIe LukIng InLo uccounL
hnuncIuI, economIc, und susLuInubIIILy
consIderuLIons.
Medium- to Long-Term Measures
ThesemeusuresureusIoIIows:
(1) General
(u) mIemenLInsLILuLIonuIreIormsLocIurIIy
roIes und consoIIduLe ImIemenLuLIon
resonsIbIIILIesInLheLrunsorLsecLor,us
desIgnedusuurLoILheIoregoIngshorL-
LomedIum-Lermmeusures.
(b) nILIuLe u comrehensIve cuucILy
deveIomenL rogrum uL nuLIonuI und
IocuI IeveIs, bused on Lhe needs IdenLIhed
ubove us u urL oI Lhe shorL- Lo medIum-
Lermmeusures.
(2) Road transport
(u) usL-Lruck consLrucLIon undJor Imrove-
menL oI Lhe hIgh-rIorILy roud rojecLs
In urLIcuIur, Lhe ThImhuPhuenLshoI-
Ing HIghwuy, Lhe ThImhuTrushIgung
HIghwuy,souLhernsegmenLsoILheEusL
WesL HIghwuy, und Lhe NorLhSouLh
HIghwuy.
(b) AssessLheIeusIbIIILyoIconsLrucLIngnew
uIIgnmenLs (dIversIons), LunneIs, und
vIuducLsonkeyrouLesLoreducedIsLunces
und uIIow Ior Increused currIuge weIghL
undseeds.
(c) nvesLInmuInsLreumIngnewengIneerIng
und consLrucLIon LechnoIogy Lo reduce
overuII IIIe-cycIe cosLs und ensure beLLer
quuIILyroudsundhIghwuys.
(d) mIemenL Lhe DTMPs by mukIng
uvuIIubIe Lhe hnuncIuI und skIIIed humun
resources requIred Ior consLrucLIon,
rehubIIILuLIon, und ImrovemenL oI
Lhe hIgh-rIorILy roud InIrusLrucLure,
und by esLubIIshIng u rogrum Ior
ensurIng udequuLe O&M oI exIsLIng und
Iunnedrouds.
(e) SuorLLhecommunILIesInconsLrucLIng
und muInLuInIng Iurm rouds by
rovIdIng (I) desIgn oI rouds und
reIuLed InIrusLrucLure Lo ensure LhuL Lhe
InIrusLrucLure Is LechnIcuIIy sound und
cIImuLe resIIIenL, (II) cuucILy buIIdIng
Lo munuge und underLuke consLrucLIon
und muInLenunce, und (III) InvesLmenL
suorLonucosL-shurIngbusIs.
(3) Air transport
(u) Encouruge reuLubIe regIonuI currIers
Lo sLurL ussenger und curgo servIces
beLweenPuroundregIonuIdesLInuLIons.
(b) Exund Lhe domesLIc uIr LrunsorL
neLwork by consLrucLIng shorL Luke-oII
118
und IundIng uIrsLrIs undJor heIIuds In
remoLeorunserveddIsLrIcLs.
(c) ExIore oorLunILIes Ior rIvuLe secLor
urLIcIuLIon, Ior exumIe In O&M oI
uIr LrunsorL IucIIILIes und rovIsIon oI
servIces,IncIudIngchurLerundemergency
servIces. Through Lhe rocess, revIew
Lhe reIevunL Iuws und reguIuLIons und
InsLILuLIonuI mechunIsms Lo IdenLIIy und
recLIIyunyboLLIenecks.
(d) Exund InLernuLIonuI IInks wILh oLher
AsIun hubs und regIonuI cenLers by
consIderIng code-shure ugreemenLs wILh
oLher uIrIInes or by seekIng bIIuLeruI uIr
LrunsorLugreemenLswILhoLherregIonuI
desLInuLIons (such us Hong Kong, ChInu;
Juun; Lhe ReubIIc oI Koreu, und
SInguore
q
) LhuL muy romIse u sIgnIhcunL
IeveIoILourIsLsundbusInessLruveIers.
(4) Electricity and irrigation
(u) ExundLherogrumIorunInLerconnecLed
LrunsmIssIon grId by InLegruLIng Lhe
counLryswesLernundeusLerngrIds.
(b) UnderLuke oLher renewubIe energy
rojecLs (oII-grId mIcro-hydroower,
soIur,undbIogus)LomeeLLheenergyneeds
oI remoLe communILIes, IncIudIng grId-
connecLed wInd ower Lo comIemenL
Lhe hydroower resources, gIven Lhe
seusonuIILyoIhydroresourcesInBhuLun.
(c) nILIuLe un InvesLmenL rogrum Ior
deveIoIng IrrIguLIon InIrusLrucLure In
IIne wILh Lhe rovIsIons oI Lhe IrrIguLIon
secLormusLerIun,wILhLhemunugemenL
oI IrrIguLIon schemes beIng hunded over
Lo communILIes uon comIeLIon oI cIvII
works, on u cosL shurIng busIs. nILIuLe
deveIomenL oI IrrIguLIon InIrusLrucLure
uILer communILy mobIIIzuLIon und
LruInIng In IrrIguLIon ugronomy und
IrrIguLIon sysLem munugemenL, IncIudIng
O&MoILheInIrusLrucLure.
(d) nILIuLe InLegruLed wuLer resources
munugemenL In rIorILy rIver busIns
4
A SingaporeBhutan air service agreement was signed in 2011
allowing Drukair to begin its ParoSingapore route commercial
service on 1 September 2012.
Lhrough communILy urLIcIuLIon,
urLIcuIurIy In munugIng und roLecLIng
Lhe wuLersheds, conLroIIIng oods und
erosIon, hurvesLIng wuLer, und usIng
wuLerundoLherresourcesInususLuInubIe
munner.
(e) PIIoL LesL und udoL eIhcIenL IrrIguLIon
LechnIques such us mIcro und drI
IrrIguLIon, urLIcuIurIy Ior IrrIguLIng
orchurdsundoLherhIgh-vuIuecros.
5.2.3. Improving the Quality of Education
and Addressing a Labor Market Mismatch
BhuLun guurunLees 11 yeurs oI Iree educuLIon,
resuILIngInhIghruLesoIrImuryschooIenroIImenL
und IncreusIng enroIImenL ruLes In secondury
schooI. The quuIILy oI educuLIon remuIns un Issue,
however, In urL reIuLed Lo Leuchers InudequuLe
subjecL knowIedge und IneIIecLIve edugogy (REC
zo1z). The skIIIs IeveI oI BhuLuns Iubor Iorce Is
Iow, urLIcuIurIy umong oor und ruruI workers.
SkIIIs shorLuges und Iubor murkeL mIsmuLch
consLruIneconomIcgrowLhunddeveIomenLoILhe
rIvuLesecLor.
n shorL, Lhe quuIILy oI educuLIon needs Lo be
Imroved uL uII IeveIs. Enhunced educuLIon und
LruInIng Is ImeruLIve Lo emower Lhe BhuLunese
eoIeundreuIIzegreuLergrossnuLIonuIhuIness.
Quality of Education
Meusures Lo Imrove Lhe quuIILy oI educuLIon
ureusIoIIows:
(1) Short- to medium-term measures
(u) EvuIuuLe Lhe ImucL oI Lhe currIcuIum
und reIuLed reIorms on educuLIonuI
ouLcomes Lo deveIo Iessons und guIde
ImrovemenLsIneducuLIonquuIILy.
(b) mrove Lhe comeLency oI Leuchers
LhroughLeucherdeveIomenLrogrums
coverIng modern LeuchIng meLhodsund
LherovIsIonoIurorIuLeIncenLIvesIor
exceIIenLLeuchers.
(c) ReduceLheburdenoIudmInIsLruLIveLusks
so schooIs und Leuchers cun Iocus on Lhe
4
A SingaporeBhutan air service agreement was signed in 2011
allowing Drukair to begin its ParoSingapore route commercial
service on 1 September 2012.
119
coreLuskoILeuchIng.ThereurecurrenLIy
Loo muny exLrucurrIcuIur resonsIbIIILIes
und requIremenLs Irom Lhe MInIsLry oI
EducuLIon (MOE) und oLher governmenL
ugencIes. OverIy deLuIIed dIrecLIves
Lo schooIs undermIne Lhe educuLIon
IeudershIroIeoIrIncIuIsundLeuchers.
TheMOEcouIdconcenLruLeonmunugIng
ouLcomes ruLher Lhun rocesses, und on
suorLIng und encourugIng schooIs Lo
ImroveLheIrerIormunceInesLubIIshed
coreIeurnIngureus,IncIudIngIILerucyund
muLhemuLIcs.
(d) Advunce nonIormuI educuLIon us u wuy
oI reuchIng Ieurners In remoLe ureus und
Lhose LhuL huve mIssed ouL on IormuI
educuLIon.SuchouLreuchshouIdcuLerLo
uII uges, und muy IncIude uduIL IILerucy
undeducuLIonIorouL-oI-schooIchIIdren.
(e) ExundLechnIcuIundvocuLIonuIeducuLIon
und LruInIng (TVET) by IncreusIng Lhe
unnuuI enroIImenL In Lhe LechnIcuI
LruInIng InsLILuLes (TTs) Irom qo Lo
,ooo.EnsureuccessLooorhousehoIds
undwomenbyrovIdIngschoIurshIsund
oLher hnuncIuI IncenLIves. The MInIsLry
oI ubour und Humun Resources couId
underLuke exLensIve cumuIgns In Lhe
schooIsLoromoLeLechnIcuIoccuuLIons
usuvuIuedcureerchoIce.
(I) ExIore InnovuLIve ubIIcrIvuLe
urLnershIs (PPPs) Lo exund rovIsIon
oIhIgh-quuIILyTVET.
(g) Ensure uccess Lo secondury und LerLIury
educuLIon Ior oor househoIds und
women Lhrough u sysLem oI condILIonuI
LrunsIers,bursurIes,undschoIurshIs.
(h) Enhunce CT skIIIs rogrums, muInLuIn
dIsLunce IeurnIng IucIIILIes, und Imrove
course munugemenL sysLems Lo susLuIn u
beLLerIeurnIngenvIronmenLIorsLudenLs.
(2) Medium- to long-term measures
(u) SLrengLhen und modernIze Lhe counLrys
schooIs, TTs, und rIvuLe coIIeges
usIng us benchmurks reuLubIe IeurnIng
InsLILuLIonsInLheregIonundLheworId.
(b) EsLubIIsh u oIyLechnIc unIversILy Lo
rovIdeubrouderrungeoIcoursesLhun
Is uvuIIubIe uL Lhe RoyuI UnIversILy oI
BhuLun.ThecurrIcuIumshouIdresond
Lo Lhe skIIIs requIremenLs oI Lhe rIvuLe
secLor und enLrereneurshI. AIong
wILh LrudILIonuI LechnIcuI skIIIs Ior
consLrucLIon und oLher secLors, courses
couIdbeoIIeredInuccounLIngundoLher
busIness skIIIs, Lhe creuLIve urLs (e.g.,
gruhIc desIgn, comuLer uIIcuLIons,
musIc, druwIng, uInLIng, ucLIng, und
wrILIng) und oLher ureus reIevunL Lo
Lhe Iubor murkeL. Courses couId be
6o% rucLIcuI und qo% LheoreLIcuI. A
key objecLIve wouId be Lo ugrude Lhe
quuIIhcuLIons oI workIng eoIe, Lhrough
evenIng und wInLer cIusses und onIIne
rogrums. To romoLe IncIusIon, Lhere
couIdbenougeIImILonudmIssIons.
(c) AIIowusmooLhLrunsILIonIromLechnIcuI
LruInIngLounIversILy.GruduuLesoITTs
couId be eIIgIbIe Lo ursue u bucheIors
degree uILer guInIng yeurs oI work
exerIence. UnIversILy educuLIon couId
buIId on Lhe LheoreLIcuI knowIedge
sLudenLsguInuLuTTundLheexerLIse
obLuInedIromLheIrworkexerIence.
(d) BuIId Lhe cuucILy oI TTs Lo ImIemenL
TVET rogrums LhuL resond quIckIy Lo
chungesInLheIubormurkeL.
(e) DeveIo und ImIemenL u comuIsory
uccredILuLIon sysLem Ior TTs und
coIIeges Lo muInLuIn und Imrove
Lhe quuIILy oI LeuchIng ouLcomes und
nuLIonuIcomeLencysLundurds.
(I) MuInsLreum enLrereneurshI courses
In secondury und LerLIury educuLIon
Lo rovIde sLudenLs wILh Lhe skIIIs
und knowIedge necessury Lo become
successIuI enLrereneurs. Courses
muy IncIude hnunce, murkeLIng,
roducL deveIomenL, humun
resource munugemenL, und LechnoIogy
munugemenL.
(g) ExunduccessLobusIcskIIIsdeveIomenL
courses und urenLIceshIs Ior hIgh
schooIsLudenLs.
120
/DERU0DUNHW0LVPDWFK
Meusures Lo uddress Iubor mIsmuLch IncIude
LheIoIIowIng:
(u) SLrengLhen job IucemenL servIces
IocusIngonwomen,youLhs,undLheoor.
(b) Ink LechnIcuI LruInIng InsLILuLes,
rIvuLe coIIeges, und Lhe unIversILy wILh
emIoyersLoImroveLheskIIIrovIsIon
sysLem und uddress Iubor murkeL
mIsmuLch.
(c) Exund IncenLIve rogrums Lo enLIce
hrms Lo LruIn or emIoy semI-skIIIed und
skIIIedworkers.
(d) nLroduce LesLIng und cerLIhcuLIon
sysLems Lo cerLIIy Lhe quuIILy oI skIIIed
workers.
(e) nsLIII Lhe vuIue und dIgnILy oI bIue
coIIur jobs In Lhe mInds oI youLh
Lhrough Imroved vuIues educuLIon,
beLLer remuneruLIon, und enhunced
servIce condILIons. Chunge uLLILudes
so LhuL TVET Is more uLLrucLIve us un
ucudemIc und cureer choIce. ThIs cun
be done Lhrough murkeLIng cumuIgns
und Imroved cureer counseIIIng uL
hIghschooIs.
(I) The cIvII servIce shouId sLo LukIng In
Iresh gruduuLes und InsLeud requIre new
recruILsLohuveuLIeusLyeursoIrIvuLe
secLor exerIence. or cerLuIn cuLegorIes
oI munugerIuI osILIons, Lhe cIvII
servIce couId InvILe oen comeLILIon.
urLhermore, Lhe cIvII servIce muy
consIder uIIowIng sLuII Lo be seconded
Lo Lhe rIvuLe secLor und Lhen Lo reLurn.
CurrenLIy, cIvII servunLs who Ieuve Lhe
governmenLurenoLuIIowedLoreLurn.
(g) CreuLe un envIronmenL conducIve Lo
rIvuLe secLor deveIomenL Lhrough
more eIhcIenL und busIness-IrIendIy
reguIuLIons, IncIudIng eIhcIenL
rocedures Ior regIsLerIng, obLuInIng
ermILs und IIcenses, und InsecLIng
workremIses.
(u) DeveIomedIum-undIong-LermIorecusLs
oI emIoymenL oorLunILIes und skIIIs
requIremenLs. Such IorecusLs wouId
guIde educuLIon und LruInIng InsLILuLes
In deLermInIng currIcuIum rIorILIes und
heIsLudenLschurLcureeruLhs.
(b) AcceIeruLeLheshIILIrommIddIeLohIgher
skIIIs Lhrough In-servIce LruInIng und
reLruInIng rogrums. ProvIde IncenLIves
Ior hrms Lo oIIer on-Lhe-job, on-sILe,
undJor oII-sILe LruInIng (e.g., LruInIng
subsIdIes).
(c) mrove Lhe quuIILy oI LruInIng Ior
Lhe consLrucLIon secLor und suorL
urLIcIuLIon oI BhuLunese conLrucLors
und workers In Lhe consLrucLIon oI
hydroowerrojecLs.
5.2.4. Enhancing Access to Finance
The RoyuI MoneLury AuLhorILy (RMA) hus
Iuunched u serIes oI hnuncIuI secLor reIorms,
reguIuLory Irumework ImrovemenLs, und hnuncIuI
educuLIon und IILerucy cumuIgns Lo Imrove Lhe
hnuncIuI urchILecLure oI Lhe counLry. Ls eIIorLs
IncIuded exundIng uccess Lo mIcrohnunce und
usIng LechnoIogy such us brunchIess bunkIng Lo
exundLheouLreuchoIIendIngInsLILuLIons.
Access Lo IormuI hnunce hus been rImurIIy
IImILedLoLhebIggercororuLeborrowers,esecIuIIy
Lhose In Lhe urbun ureus. A Iurge roorLIon oI
MSMEs, smuII-scuIe Iurmers, und oLher ruruI
resIdenLscunnoLborrowIrombunksdesILehuvIng
coIIuLeruI(I.e.,Iund)LosecureIouns.
CredIL uvuIIubIIILy Ior MSMEs und smuII
borrowers hus been consLruIned IurLher by Lhe
recenL IIquIdILy crunch In Lhe bunkIng sysLem.
UnderIyIng Lhe domesLIc credIL crIsIs wus
Lhe RMAs LIghLer resLrIcLIons on bunk Iouns
IoIIowIng Lhe ndIun ruee crIsIs oI ebruury
zo1z (Box .z). WILh ILs currency egged uL ur
wILh Lhe ndIun ruee und IndeendenL moneLury
oIIcy IurgeIy ubsenL, rudenL munugemenL
oI InLernuLIonuI reserves und bunkIng secLor
IIquIdILy Is crILIcuI Ior muInLuInIng Lhe eg und
mucroeconomIc sLubIIILy In BhuLun. However, Lhe
chronIc ruee shorLIuII und Lhe Increused voIuLIIILy
oI overuII domesLIc credIL growLh underscore Lhe
121
needIorsLruLegIcreLhInkIngoILhecurrenLrucLIce
oI muInLuInIng mosL oI ILs InLernuLIonuI reserve In
Lhe UnILed SLuLes doIIur und sLerIIIzIng Lhe ruee
Inows Lhrough IIquIdILy munugemenL In Lhe
bunkIng sysLem. Meusures Lo enhunce uccess Lo
hnunce ure us IoIIows:
(u) mroveLhemunugemenLoIInLernuLIonuI
reserves. CurrenLIy, ubouL q8% oI
BhuLuns InLernuLIonuI reserves ure
In converLIbIe currency. L wouId be
reusonubIe Lo muInLuIn ubouL o%%
oI BhuLuns InLernuLIonuI reserves In Lhe
ndIunruee,gIvenLheredomInunLuse
oILherueeInLhecounLrysInLernuLIonuI
LrunsucLIons.
(b) ConsIder u ruee currency swu
urrungemenL wILh ndIu. The RMA muy
LhInkubouLenLerIngInLouswuugreemenL
wILh ndIu Lo rovIde u bucksLo IIne oI
IundIng Ior shorL-Lerm IoreIgn exchunge
IIquIdILyrequIremenLs.
(c) mroveLhemunugemenLoIbunkIngsecLor
IIquIdILy. The governmenL muy consIder
esLubIIshIngunexchungesLubIIIzuLIonIund
Lo kee Lhe ruee Inows ussocIuLed wILh
Lhe hydroower deveIomenL ouLsIde Lhe
domesLIc bunkIng sysLem. ThIs wIII heI
reducevoIuLIIILyIndomesLIccredILgrowLh
Induced by Lhe IoreIgn InvesLmenL und
grunL ows due Lo hydroower rojecLs.
(d) nLroduce new suvIngs InsLrumenLs Lo
Lhe rIvuLe secLor; Lhe Issuunce oI shorL-
Lerm nguILrum-denomInuLed bonds
wouId esecIuIIy heI ubsorb bunkIng
secLor IIquIdILy und enhunce Lhe domesLIc
suvIngsruLe.
Box 5.2. The Indian Rupee Shortage and Its Implications for Macroeconomic Management
T
he continuing Indian rupee shortfall, which became critical again in February 2012, has caused considerable
economic strain in Bhutan. As India is Bhutans largest trading partner, accounting for about 84% of exports and 72%
of imports in 2011, and the rupee is a major part of Bhutans international transactions, the impact of a rupee shortage
has been felt economy wide.
The Royal Monetary Authority adopted several policy and administrative measures to address the rupee shortfall,
including restrictions on bank loans, suspension of rupee withdrawals, and control of rupee outow. However, these
restrictive measures have in part exacerbated the rupee shortage by denting public condence in the domestic
currency, the ngultrum.
Underlying frequent rupee shortages is a structural imbalance in Bhutans economy. The rupee management has
become increasingly challenging as Bhutans aggregate demand increases rapidly, raising the demand for the rupee.
While hydropower development and its related imports have been a major factor behind large trade decits with
India, increased household consumption and other domestic demand growth also contribute signicantly to the rupee
shortage. On the supply side, however, a limited export base and volatile electricity exports to India (due to the marked
seasonality in electricity generation) continue to constrain the rupee supply and contribute to volatility in net rupee
inows.
The acute shortage of the rupee and its wide-ranging economic impact prompted the government to form a task force
in January 2012 to look into the rupee situation. The task force, which consisted of representatives from the Ministry
of Finance, Ministry of Economic Aairs, National Statistics Bureau, Royal Monetary Authority, and a few other relevant
agencies, was mandated to identify the causes and solutions to the problem of chronic rupee decits.
a

The rupee shortage has become one of the most critical economic constraints in recent years, and requires reassessing
the current international reserve management policy and reviewing liquidity management practices. Rapid credit
growth and expansionary domestic demand policies in the 2000s have contributed to a surge in imports from India
and increased the rupee demand. Addressing the challenge posed by the rupee shortfall and the underlying structural
imbalance requires prudent macroeconomic management with a pragmatic monetary policy framework.
a
The analysis and recommendations of the Task Force are in the Task Force Report on Balance of Payment with India and the Rupee Shortfall
(2012).
Source: Authors.
122
(e) DeveIo eIecLronIc uymenL sysLem
InIrusLrucLure Lo Imrove Lhe domesLIc
uymenL sysLem und romoLe rIvuLe
secLorgrowLh.
(I) ExIore Lhe use oI new LechnoIogy und
InnovuLIve urouches such us mobIIe
bunkIngLechnoIogyLoexLendLhereuchoI
LhebunkIngsecLor.
(g) MuInLuIn rudenL hscuI munugemenL.
GovernmenL sendIng muy conLrIbuLe
Lo Lhe ruee demund Lhrough Increused
uggreguLe demund und ILs muILIIIer
eIIecL. WhIIe sLrengLhenIng domesLIc
sources oI hnunce Ior governmenL
exendILure, greuLer cure couId be Luken
Lo reduce nonrIorILy exendILures In Lhe
governmenLbudgeL.
(h) SLrengLhen Lhe credIL InIormuLIon sysLem
und exLend Lhe coveruge oI Lhe CredIL
nIormuLIonBureuuLocoIIecLundIucIIILuLe
InIormuLIon shurIng Ior MSMEs und
Iurmers.
(I) nLroducecredILrIskguurunLeeIucIIILIesIor
MSME und ruruI hnunce. The governmenL
muyconsIderseLLInguuIundIorMSME
undugrIcuILurecredILguurunLees.
(j) mrove Lhe eIhcIency oI IendIng
InsLILuLIons by uIIowIng enLry oI IoreIgn
(beyondLheexIsLIngndIun)bunks.
(k) SLrengLhen Lhe reguIuLory Irumework Ior
mIcrohnunce.
(I) ConLInue und exund hnuncIuI IILerucy
cumuIgns.
(m) OIIerLruInIngcoursesIorMSMEs,Iurmers,
undruruIresIdenLsLoheILhemwILhIoun
uIIcuLIons und hnuncIuI IunnIng.
(u) ConLInue reIorms (hnuncIuI dereguIuLIon
und IIberuIIzuLIon) Lo ucceIeruLe hnuncIuI
deveIomenL.
(b) ExIore schemes oI mIcrohnunce IendIng,
IncIudIng ussocIuLIons, communILy und
vIIIuge bunkIng, und cooeruLIves, Lo
broudenLhereuchoImIcrocredILIucIIILIes.
(c) ConsIder Lhe urorIuLeness oI Lhe
currenL exchunge ruLe regIme; us Lhe
economydeveIosIurLherundoens,Lhe
cosL und benehL oI Lhe hxed exchunge ruLe
regImemuyberevIewed.
5.2.5. Addressing Market Failures
Hydroower Is IIkeIy Lo remuIn Lhe muInsLuy
oIBhuLunseconomy.However,ILscuILuI-InLensIve
nuLure hus noL been conducIve Lo emIoymenL
generuLIon. Thus, IL Is crILIcuI LhuL BhuLun creuLe u
dynumIc munuIucLurIng secLor LhuL cun generuLe
roducLIve jobs whIIe conLrIbuLIng Lo more broud-
busedundIncIusIvegrowLh.
The key Is In ugrudIng und dIversIIyIng
Lhe munuIucLurIng buse. However, In deveIoIng
economIes, Lhe rocess oI dIscoverIng goods LhuL
cun be roduced rohLubIy Is LyIcuIIy IruughL wILh
murkeL IuIIures. AddressIng Lhe murkeL IuIIures
requIres oIIcy InLervenLIon Lo creuLe un enubIIng
envIronmenLIorLherIvuLesecLor.SuchgovernmenL
InLervenLIon muy be secIhc meusures LurgeLed uL
someIndusLrIes(so-cuIIedhurdorverLIcuIIndusLrIuI
oIIcy)ormorebroud-busedInLervenLIonsLhuLseek
LoromoLerIvuLesecLordeveIomenLundImrove
LhebusInesscIImuLeIorLherIvuLesecLor(so-cuIIed
soILorhorIzonLuIIndusLrIuIoIIcy).
The roducL suce unuIysIs (ChuLer z)
heIs IdenLIIy Lhe roducLs LhuL ure neurby und
cun benehL Irom BhuLun`s exIsLIng cuubIIILIes.
However, BhuLun shows IImILed dIversIhcuLIon In ILs
roducLs,InLhecoreoIILsroducLsuce,IndIcuLIng
IImILed roducLIve cuubIIILIes. ExundIng InLo
Lhe oLher roducLs LhuL ure Iur uwuy wIII requIre
LurgeLed und roducL-secIhc InLervenLIons. As
LurgeLed oIIcy suorL hus oILen In Lhe usL IuIIen
vIcLIm Lo crony cuILuIIsm, renL seekIng, und
corruLIon In oLher counLrIes, IL Is ImeruLIve Lo
huveucIeurInsLILuLIonuIIrumeworkIordIversIIyIng
Lheeconomy.
RodrIk (zooq) roosed 1o rIncIIes (Box
.) Lo guIde Lhe desIgn oI u new IndusLrIuI oIIcy
Lo uId dIversIhcuLIon oI un economy. ArorIuLe
IndusLrIuI oIIcy shouId be vIewed us u sLruLegIc
coIIuboruLIonbeLweenubIIcundrIvuLesecLorsLo
IdenLIIy secLor-secIhc consLruInLs.
123
A key IngredIenL oI Lhe modern IndusLrIuI
oIIcy Irumework Is Lhe InsLILuLIonuI urchILecLure.
BhuLuns TenLh YP cuIIs Ior Lhe IormuIuLIon oI u
cIeur und comrehensIve IndusLrIuI oIIcy Lo guIde
susLuInubIe deveIomenL oI IndusLrIes. AIong
LhIs IIne, Lhe TenLh YP envIsuges esLubIIshIng
Lhe necessury IeguI Irumework und enucLIng un
InvesLmenL und IndusLrIes ucL. The desIgn oI u
modern IndusLrIuI oIIcy, nuLure oI InLervenLIons,
und LurgeL roducLs or secLors wIII evoIve over
LIme. n LhIs conLexL, IL Is crILIcuI LhuL Lhe reIevunL
ugencIes huve Lhe cuucILy Lo IdenLIIy Lhe chunges
und resLrucLure oIIcIes us needed. As such, Lhe
TenLh YP uIso recognIzes Lhe need Lo sLrengLhen
Lhe cuucILy oI Lhe DeurLmenL oI ndusLry, whIch
wIIIImIemenLLheIun.
AnoLherkeyIngredIenLoILhemodernIndusLrIuI
oIIcy Irumework Is Lhe rIvuLe secLor, wILh Lhe
governmenL IuyIng Lhe roIe oI sLruLegIsL und
coordInuLor. BhuLuns TenLh YP recognIzes LhuL
Lhe counLrys rIvuLe secLor Is smuII und reIuLIveIy
underdeveIoed, wILh q8% oI Lhe ucLIvILy LukIng
Iuce In MSMEs. The Iun noLes LhuL MSMEs Iuce
consIderubIeconsLruInLs,suchusIuckoIbusIcskIIIs
und enLrereneurIuI LuIenL, IImILed uccess Lo hnunce,
oor hysIcuI InIrusLrucLure, hIgh LrunsorL cosLs,
und Iuck oI busIness InIormuLIon. BhuLuns TenLh
YPseeksLouddressLheseconsLruInLsbyrovIdIng
essenLIuIbusInessdeveIomenLservIces;romoLIng
uccess Lo hnunce Lhrough hnuncIuI schemes such
usLheEconomIcDeveIomenLPoIIcyIounscheme,
CredIL GuurunLee Scheme, und RuruI EnLerrIses
GrunLScheme;enhuncIngcuucILyLhroughLruInIng
In enLrereneurshI deveIomenL; und creuLIng un
enubIIng envIronmenL Ior deveIoIng Lhe rIvuLe
secLor, such us by sImIIIyIng busIness rocedures
(whIch hus uIreudy been done). The rIvuLe secLor
wIII uIso benehL Irom exorL romoLIon ucLIvILIes-u
rIorILy under Lhe TenLh YPsuch us creuLIng
uwureness ubouL und buIIdIng brund Imuges
Ior nuLIonuI roducLs und ImrovIng uccess Lo
InIormuLIon.
The GovernmenL oI BhuLun Is uIso romoLIng
deveIomenL oI IndusLrIuI esLuLes LhuL cun creuLe
u IuvorubIe envIronmenL Ior rIvuLe secLor. The
DeurLmenL oI ndusLry, uIong wILh RegIonuI
Trude und ndusLry oIhces und Lhe dIsLrIcLs, Iuns
Lo deveIo und esLubIIsh Lhree more IndusLrIuI
esLuLesdurIngLheTenLhYP.ToIucIIILuLeLrude,Lhe
governmenLIsuIsoesLubIIshIngdryorLs,whIchure
uL Ior IundIocked IocuLIons. Dry orLs, whIch cun
hundIe cusLoms-reIuLed servIces und ure equIed
wILh urorIuLe curgo hundIIng und sLoruge
IucIIILIes,wIIIheIreduceLrudIngcosLs.
PrIvuLe secLor deveIomenL Is IIkeIy Lo huve
cross-secLoruI ImIIcuLIons und Is Lhus rImurIIy
oI u horIzonLuI nuLure, InvoIvIng broud-bused
Box 5.3. Ten Guiding Principles to a New Industrial
Policy Framework
R
odrik (2004) lays out the contours of a new
industrial policy framework. Institutional
architecture is as critical as the design of the policy.
Elements of institutional structure include political
support at the highest levels to promote economic
diversication, coordination and deliberation
councils to facilitate publicprivate dialogue to
identify constraints specic to a particular product,
and transparency and accountability to avoid elite
capture. The following principles should guide the
formulation of a modern industrial policy framework:
(1) Incentives should be provided only to new
activities.
(2) Benchmarks or criteria for success and failure
should be clearly laid out.
(3) Sunset clauses for state support must be built in.
(4) Public support must target specic activities and
not sectors.
(5) Subsidized activities should have a clear potential
for spillovers and demonstration eects.
(6) Industrial policy actions should be implemented
by agencies with demonstrated competence to
do so.
(7) Monitoring should be done by a principal
stakeholder who has political authority at the
highest level.
(8) The process should involve close communication
with the private sector.
(9) Mistakes that result in picking the losers will
occur. The key is to identify the losers early on in
the process and cut losses. If there are no losers,
then it is important to take a hard look at the
whole framework again.
(10 Promotion activities need to have the capacity to
renew themselves to ensure an ongoing cycle of
discovery.
Source: Rodrik (2004).
124
InLervenLIons.TurgeLeducLIonsLouddressroducL-
secIhc bIndIng consLruInLs wIII need Lo be IdenLIhed
Lhrough ubIIc oIIcy dIuIogues when Lhe secLors
LhuL resenL Lhe greuLesL oorLunILy und vuIue
Ior dIversIhcuLIon ure IdenLIhed. OLher eIemenLs
oI Lhe oIIcy ugendu Lo uddress murkeL IuIIures
und romoLe economIc dIversIhcuLIon cun IncIude
LheIoIIowIng:
(u) denLIIy secLors LhuL resenL Lhe greuLesL
oorLunILy und vuIue Ior dIversIhcuLIon.
ThIs cun be bused on, Ior exumIe,
Lhe roducL suce unuIysIs IIIusLruLed
In ChuLer z. n Lhe cuse oI BhuLun,
enLerIng InLo Lhe core oI Lhe roducL
suce wIII requIre LhuL Lhe governmenL
muke sLruLegIc beLs, us Lhe counLrys
currenL roducLIve cuubIIILIes ure
IImILed und unIIkeIy Lo romoLe roducL
dIversIhcuLIon.
(b) Bused on ubIIcrIvuLe oIIcy dIuIogue,
IdenLIIy secIhc oIIcy ucLIons needed
Lo uddress Lhe roducL- or IndusLry-
secIhc consLruInLs. The desIgn oI Lhe
oIIcy Irumework couId be guIded by Lhe
rIncIIesouLIInedInBox..
(c) or roducLs LhuL Lhe governmenL
consIders us sLruLegIc beLs, uLLrucLIng
IoreIgn dIrecL InvesLmenL cun be un
oLIon Lo guIn u IooLhoId und deveIo
Lhe necessury cuubIIILIes. The IoreIgn
InvesLmenL oIIcy cun uIso LurgeL
romoLIng LechnoIogy LrunsIer. Any
concessIons such us Lux breuks, however,
shouId come wILh cIeur erIormunce
IndIcuLorsundsunseLcIuuses.
(u) Muke oeruLIonuI Lhe IndusLrIuI oIIcy
Irumework und buIId cuucILy In Lhe
reIevunLmInIsLrIesundIunnIngbodIes.
(b) Address oLher cross-cuLLIng Issues Ior
rIvuLe secLor deveIomenL, such us
ImrovIng uccess Lo hnunce, ImrovIng
Lhe LrunsorL neLwork und InIrusLrucLure
Ior connecLIvILy, und enhuncIng Lhe
quuIILyoIeducuLIon.
5.3. Policy Recommendations
to Support Drivers of New Growth
PromoLIng new engInes oI growLh wIII heI
suorL broud-bused und IncIusIve deveIomenL.
A more dIversIhed economy wIII heI generuLe
roducLIve emIoymenL oorLunILIes Ior Lhe
ouIuLIon und muke BhuLuns deveIomenL
more buIunced und susLuInubIe. ExIsLIng growLh
drIvershydroower und LourIsmhuve Iuyed
ImorLunL roIes In roeIIIng BhuLun Lo ILs currenL
sLuLe. AgrIcuILure, whIIe conLrIbuLIng Iess Lo Lhe
economy In recenL decudes, sLIII shows oLenLIuI
Ior roducLIvILy ImrovemenLs. Two uddILIonuI
oLenLIuI drIvers huve been IdenLIhed-CT und
cIeun munuIucLurIng (In urLIcuIur Lhrough
MSMEs), und ure reIerred Lo here us emergIng
growLh drIvers. They couId comIemenL BhuLuns
quesL Ior IncIusIve und susLuInubIe socIoeconomIc
deveIomenL.
5.3.1. Hydropower
DeveIomenL oI Lhe hydroower secLor wIII
conLInue Lo be u rIncIuI sLruLegy Ior sLImuIuLIng
sLronger growLh In Lhe IuLure. As dIscussed In
revIous chuLers, hydroower deveIomenL und
exorL huve sLeudIusLIy underInned Lhe ruId
growLh oI BhuLuns economy und generuLed
governmenL resources Ior socIuI und oLher
InvesLmenLs. Power generuLIon In BhuLun
reIIes uImosL excIusIveIy on hydroower und
ILs deveIomenL Is crucIuI. TrunsmIssIon und
dIsLrIbuLIon neLworks huve Lo be muInLuIned und
ImrovedInruruIureus.
LIsvILuIIorBhuLunLounderLukeowersecLor
reIorms LhuL wIII moLIvuLe greuLer InvesLmenLs
und urLIcIuLIon Irom boLh Lhe ubIIc und rIvuLe
secLors. The zo1o EconomIc DeveIomenL PoIIcy
sLIuIuLes Lhe vIsIon und muIn sLruLegIes Ior Lhe
deveIomenLoILhehydroowersecLor:(1)eIecLrIcILy
wIII be rovIded Lo uII by zo1, (z) essenLIuI ubIIc
InsLILuLIons und servIces wIII receIve Lhe hIghesL
rIorILyIorLhesuIyoIeIecLrIcILy,()deveIomenL
oI hydroower wIII be ucceIeruLed Lo generuLe u
mInImum oI 1o,ooo meguwuLLs (MW) by zozo,
und (q) LrunsmIssIon grIds wIII be InLerIInked Lo
ensureenergysecurILyundreIIubIIILy(GNHCzo1o).
WhIIe hydroower deveIomenL wIII be one oI Lhe
governmenLsmuInLhrusLs,unInLegruLedurouch
wIII be ursued Lo secure reIIubIe energy suIy In
125
Lhe mosL eIhcIenL munner. The IoIIowIng meusures
ure suggesLIons Ior enhuncIng hydroowers
conLrIbuLIonLoLheeconomy:
(u) AdoL u comrehensIve ower deveIo-
menL Irumework InLegruLIng Lhe hydro-
ower rogrum wILh oLher Iorms oI
renewubIe energy. ThIs IncIudes un
energy und wuLer resource musLer Iun
IordeveIoIngLhehydroowersecLorInu
susLuInubIemunner.
(b) AdoLunInLegruLedmunugemenLsysLem
Ior Lhe ower secLor Lo uvoId IuLure
conIcLs und deIuys In ImIemenLuLIon
oIrojecLs.
(c) AdoL oIIcIes Lo uddress Lhe envIron-
menLuI ImucLs ussocIuLed wILh hydro-
ower deveIomenL bused on BhuLuns
wuLersheds, esecIuIIy In reIuLIveIy smuII
undecoIogIcuIIysensILIveureus.
(d) RevIew Lhe LurIII sLrucLure und consIder
owersecLorLurIIIudjusLmenLsundsmurL
LurgeLIng oI ruruI eIecLrIhcuLIon subsIdIes
LoensureLhuLLheLurIIIwIIInoLbecomeu
dIsIncenLIve Lo rIvuLe secLor InvesLmenL
Inhydroower.
(e) Preure u Iun Ior dIversIIyIng energy
sources by esLubIIshIng u nuLIonuI
oIIcy Lo suorL Lhe deveIomenL oI
uILernuLIve renewubIe energy sources
(such us wInd, soIur, bIomuss, und smuII
und mIcro hydroower) oLher Lhun Iurge
hydroower.
(I) EsLubIIshIeguIundreguIuLoryIrumeworks
Ior PPP rojecLs, IncIudIng oIIcIes
roLecLIng InvesLors Irom exrorIuLIon
und nuLIonuIIzuLIon und uIIowIng
Lhe remILLunce oI dIvIdends und Lhe
reuLrIuLIonoIIoreIgnInvesLmenL.
(g) RevIew BhuLuns IoreIgn dIrecL
InvesLmenL oIIcy wILh regurd Lo IoreIgn
equILyurLIcIuLIon,usweIIusIncenLIves
LhuLcunberovIdedLoencourugerIvuLe
secLorurLIcIuLIonInhydroower.
(h) RevIew InsLILuLIonuI urrungemenLs Ior
envIronmenLuI und socIuI ussurunce
und commercIuI dIsuLe resoIuLIon und
reguIurIy enhunce Lhe cuucILy oI Lhe
erLInenLInsLILuLIons.
(I) SeIecL one or Lwo medIum-sIzed rojecLs
Ior IIoL PPP schemes und reure
deLuIIedIeusIbIIILysLudIesIorLhem.
(j) DeveIo LrunsorL InIrusLrucLure Lo
IucIIILuLe uccess Lo hydroower sILes,
IncIudIng consLrucLIon und reuIr oI
rouds, Lo conLuIn LrunsorL cosLs In
Lhe consLrucLIon und O&M oI hydro-
owerrojecLs.
(u) nLroduce comeLILIon In Lhe ower
secLor Lo Imrove eIhcIency, cusLomer
resonsIveness, und InnovuLIon by
unbundIIng Lhe IncumbenL monooIy
uLIIILIes InLo seuruLe generuLIon,
LrunsmIssIon, dIsLrIbuLIon, und suIy
enLILIes.
(b) PrIvuLIze Lhe unbundIed enLILIes, so
LhuL dIsersed ownershI wIII IucIIILuLe
comeLILIon,undsoLhuLrIvuLeInvesLors
und oeruLors wIII brIng hnuncIuI
resources und munugerIuI exerLIse
InLo roducLIon und suIy, whIch wus
revIousIy domInuLed by Iess eIIecLIve
sLuLe-ownedmonooIIes.
(c) EsLubIIsh un IndeendenL or quusI-
IndeendenL reguIuLory Irumework und
rovIde suorL Ior ILs cuucILy buIIdIng
requIremenLs.
(d) ExundLherogrumIorLhedeveIomenL
oI Lhe hIgh-voILuge (qooJzzo kIIovoIL)
LrunsmIssIon neLwork Ior ower
evucuuLIon Lo ndIu und suIy oI Lhe
Ioud cenLers In BhuLun, In uruIIeI wILh
ImIemenLuLIon oI Lhe 1o,ooo-MW
hydroowerrogrum.
(e) everuge PPP Lo romoLe rIvuLe
InvesLmenLs In ower deveIomenL
rojecLs.
126
(I) mIemenLnonhydroIormsoIrenewubIe
energy Lo comIemenL Lhe hydroower
sources und dIversIIy Lhe counLrys
energy mIx Lo reduce deendence
on hydroower und mILIguLe Lhe
hydroIogyrIsk.
5.3.2. Tourism
The governmenL muy consIder urLIuI
IIberuIIzuLIon oI Lhe LourIsm IndusLry Lo romoLe
comeLILIon. The governmenL muy uIso consIder
rovIdIng suorL Ior murkeLIng BhuLun us u
LourIsL desLInuLIon. MurkeLIng oI BhuLun us u
LourIsL desLInuLIon hus Lhe churucLerIsLIcs oI u
ubIIc good und hence muy noL be oLImuIIy
rovIded by murkeLs. The robIem Is LhuL some
LourIsm oeruLors benehL Irom udverLIsIng by
LheIr comeLILors wILhouL conLrIbuLIng Lo Lhe IuII
or urLIuI cosL. urLher deveIomenL oI LourIsm
sLundurds,norms,undreIuLedreguIuLIonsmuybe
uIsoneeded.
(u) Enhunce LourIsm murkeLIng und
romoLIonucLIvILIesbyInvesLIguLIngnew
LourIsm murkeLs und LheIr reIerences,
conducLIng LourIsm IuIrs, ouIurIzIng
Brund BhuLun, und murkeLIng Lhe
counLry us u curbon-neuLruI LourIsL
desLInuLIon.
(b) mrove uccommoduLIon sLundurds,
Iood, und servIces by esLubIIshIng u
cIussIhcuLIon sysLem Ior uccommoduLIon
undLourIsmservIces.
(c) RemoveLheLuxdeducLIonIImILoIz%oI
neL rohLs Ior ubIIcILy und udverLIsIng
exenses.
(d) RevIew Lhe LurIII or royuILy sysLem
und uckuge Lour requIremenLs, whIch
currenLIy gIve Lour oeruLors conLroI
over ILInerurIes und roducLs. GIve
LourIsLsmorechoIceInbookIngservIces
undLourIsmroducLs.
(e) SLrengLhen LourIsm-reIuLed humun
resources, such us Lhe quuIIhcuLIons oI
Lour guIdes und hoLeI und resLuurunL
crews. ConsIder sendIng BhuLunese
oIhcIuIs Lo LourIsm ugencIes overseus
Ior LruInIng on ussessIng Lhe economIc
ImucLsoILheLourIsmIndusLry.
(u) RevIew InsLILuLIonuI mechunIsms wILh
u vIew Lo enhuncIng Lhe sLrucLure oI Lhe
LourIsm secLor und coordInuLIon ucross
reIuLedsecLors.
(b) mrove LourIsm-reIuLed InIrusLrucLure
such us soIId wusLe munugemenL, wuLer
ressure, LoIIeLs, und bunkIng IucIIILIes
(IncIudIng eIecLronIc uymenL servIces
suchusATMIucIIILIesundLheuseoIcredIL
unddebILcurds).
(c) Enhunce uccess Lo Lhe border crossIng
oInLs oen Lo LourIsLs In BhuLun und
ndIu, und muke Lhe border crossIng
oInLs more LruveIer-IrIendIy. mrove
sIdewuIksundedesLrIunIunesInLowns.
5.3.3. Agriculture
As Lhe mujorILy oI BhuLuns ouIuLIon Is
enguged In ugrIcuILure, IL Is crILIcuI Lo ursuIng
overLyuIIevIuLIonusweIIusLouchIevIngbuIunced
und IncIusIve growLh (GNHC zo1o). The govern-
menLhusworkedLowurdIncreusIngmechunIzuLIon,
deveIoIng new IurmIng LechnIques, und seLLIng
orgunIcIurmIngsLundurdsundreguIuLIon,undmore
needs Lo be done. n Lhe TenLh YP, ugrIcuILure Is
envIsIoned Lo uddress overLy by enhuncIng Iood
securILy. ThIs enLuIIs ImrovIng roducLIon Lo
Increuse Iood uvuIIubIIILy, securIng Iood uccess,
und emIoyIng LurgeLed murkeLIng. mrovIng
ugrIcuILuruI roducLIvILy romoLes Iood securILy
undsusLuInubIeundIncIusIvegrowLhusILrovIdes
emIoymenL Lo Lhe mujorILy, decreuses Iood
shorLuges, encouruges Iood suIhcIency, und uIIuys
dIsroorLIonuLe ruruIurbun mIgruLIon. Meusures
erLInenLLougrIcuILureIncIudeLheIoIIowIng:
(u) ConLInue romoLIng commercIuI or
murkeL-drIven IurmIng over subsIsLence
IurmIng und emIoy murkeLIng mechu-
nIsms und murkeL InLeIIIgence Lo udjusL
roducLIon Lowurd meeLIng murkeL
demunds.
127
(b) PrIorILIzeubIIcInvesLmenLInugrIcuILure
IorconsLrucLIngruruIroudsundIrrIguLIon
sysLems, und rovIdIng modern InuLs
suchushIgh-yIeIdIngseedsundIerLIIIzer.
(c) ConducL reseurch on und ImIemenL
meusures LhuL wIII reduce cro dumuge
cuusedbywIIdIIIe,esLs,unddIseuses.
(d) RevIew Iund-use reguIuLIons wILh u vIew
Lo rovIdIng more Iund Ior IurmIng,
urLIcuIurIyIorcommercIuIIurmIng.
(u) mIemenLucomrehensIveIurmmechu-
nIzuLIonrogrumurorIuLeLoBhuLuns
Loogruhy.
(b) orge undJor sLrengLhen urLnershIs
wILh InLernuLIonuI reseurch InsLILuLIons
on ugrIcuILure-reIuLed ucLIvILIes Ior
LechnoIogy LrunsIer und shurIng und
coIIuboruLIve reseurch. DeveIo Lhe
cuucILyoILheRoyuIUnIversILyoIBhuLun
Ior rovIdIng IeudershI In ugrIcuILure
und uIIIed sLudIes und reseurch, und Ior
deveIoIng IurmIng LechnoIogy reIevunL
LoLhecounLrysLoogruhy.
5.3.4. Information and Communications
Technology
BhuLun hus been IocusIng on LeIe-
communIcuLIons (voIce und duLu communIcuLIons)
servIces, us IndIcuLed by Lhe governmenLs
InIormuLIon LechnoIogy (T) urk InILIuLIves
(ChuLer q). The counLrys growLh oLenLIuI cun
be exunded by IookIng beyond Lhe suIy oI
convenLIonuILeIecomservIcesundIocusIngonoLher
vuIue-uddIngservIcessuchusmobIIemoneyservIces,
busIness rocess ouLsourcIng (BPO), knowIedge
rocess ouLsourcIng (KPO), und Lhe oeruLIon oI
duLu cenLers (IncIudIng dIsusLer recovery servIces).
OLher nIche ureus IncIude dIgILuI medIu IocusIng
on medIu und enLerLuInmenL, mobIIe uIIcuLIons,
und gruhIc desIgn und unImuLIon. BhuLuns
oLenLIuI In Lhe BPO segmenL Is uurenL wILh Lhe
success oI u qo-emIoyee medIcuI LrunscrILIon
oeruLIon LhuL Is urL oI u IocuI congIomeruLe.
The IoIIowIng meusures ure suggesLed Lo enhunce
BhuLunsCTeIIorLs.
(u) EnsureowersuIIeshuveLherequIred
quuIILy und reIIubIIILy In uII IocuLIons
where duLu cenLers, soILwure hrms, und
BPOsmuybeIocuLed.
(b) ProvIde LeIecommunIcuLIons connec-
LIvILyLhroughuIuIIyredundunL,muILIIe
oeruLor neLwork wILh urorIuLe rIce
und quuIILy bundIesLo Lhe T urk
InThImhu.
(c) Ensure un udequuLe und conLInuIng
suIy oI skIIIed emIoyees by creuLIng
urorIuLeCTeducuLIonrogrumsund
esLubIIshIng soILwure Ior KPO ucLIvILIes
und Lhe nIche ureus uIreudy noLed.
DeveIoIng sLrong IndusLry IInkuge
beLween Lhe ucudemIu und IndusLry Lo
Lurn ouL beLLer skIIIed munower us
requIredbyIndusLryIscrILIcuI.Encouruge
hrms Lo conLrIbuLe knowIedge und
LeuchIngresourcesundrovIdeInLernshI
oorLunILIesIorsLudenLs.
(d) EsLubIIsh u governmenL InIormuLIon
cenLer LhuL wIII be un unchor Ior
deveIoInge-governmenLservIces.
(e) DeveIo un e-governmenL musLer Iun
Lo emburk on u hoIIsLIc urouch Lo
e-governmenL IunnIng Lo drIve socIuI
und economIc deveIomenL Lhrough
CT In Lhe EIevenLh YP, IncIudIng
recommenduLIons Ior deveIoIng Lhe
CTIndusLry.
(u) ConsIderrequIrIngduLucenLeroeruLIons
und dIsusLer recovery IucIIILIes In Lhe
desIgned-Ior-uII-T-uroses T urk
In ThImhu Lo huve buck-u hber
connecLIvILyundowersuIIes.
(b) n urLnershI wILh BPO hrms, deveIo
un urLIcuIuLed LruInIng und educuLIon
rogrumLhuLIsLuIIoredLoLheIrneeds.
(c) or Lhe BPO IndusLry, consIder
IIcensIng one or more InLernuLIonuI
guLewuy oeruLors Lo rovIde Lhree
128
kInds oI busIness servIces: Ieused-IIne
servIces (rIvuLe LeIecommunIcuLIons
servIces usuuIIy used by busInesses Lo
connecL brunch oIhces), InLernuLIonuI
cuII LermInuLIon (connecLIng IncomIng
InLernuLIonuI cuIIs), und ouLgoIng
InLernuLIonuI LruIhc (connecLIng ouLgoIng
InLernuLIonuIcuIIs).
(d) Use CT Lo Imrove connecLIvILy umong
LhedIsLrIcLs.
(e) Exund Lhe exIsLIng z.o-hecLure T
Purk Lo ;. hecLures und nurLure Lhe
IncubuLIon cenLer (u comrehensIve
rogrumoIservIcesLurgeLedLoucceIeruLe
Lhe growLh und success oI sLurL-u und
emergIng hrms) Lo Lurn ouL successIuI
enLrereneurs.
5.3.5. Clean Manufacturing
CIeun munuIucLurIng InvoIvIng mIcro und
smuII IndusLrIes shows good oLenLIuI Lo be u new
engIneoIgrowLh.ThesecLorcunLukeudvunLugeoI
BhuLunsrIchnuLuruIendowmenLundcuILureumId
growLh suorL Irom Lhe gIobuI communILy Ior
green busInesses. DeveIomenL oI Lhe secLor
Is consIsLenL wILh BhuLuns vIsIon LhuL (1) ILs
envIronmenLuI conservuLIon urouch needs Lo
be dynumIc ruLher Lhun sLuLIc by uLIIIzIng ILs vusL
nuLuruI usseLs In u susLuInubIe munner Ior
socIoeconomIcdeveIomenL,und(z)ILsrIchcuILure
husLobeInIusedwILhconLemoruryreIevunceund
meunIng(PIunnIngCommIssIon1qqq).
BhuLun hus been uImIng Lo uchIeve IuII
emIoymenL und u seII-reIIunL economy by zozo
In whIch Lhe munuIucLurIng secLor Is execLed Lo
rovIdehIgh-vuIueIow-voIumeouLuL.IsuccessIuI,
cIeun munuIucLurIng, un emergIng Iubor-InLensIve
IndusLry, cun comIemenL Lhe overurchIng gouI
oI romoLIng broud-bused und IncIusIve growLh.
The smuII und coLLuge IndusLrIes, however, huve
yeL Lo deveIo economIes oI scuIe Lo sIgnIhcunLIy
conLrIbuLeLogrowLhundemIoymenL.
The shorL IIsL oI IdenLIhed munuIucLurIng
IndusLrIes reecLs Lhe chuIIenge oI hndIng u
buIunce beLween mInImum envIronmenLuI ImucL,
commercIuI vIubIIILy, und socIuI ImucL. The IIsL Is
(1)hundIcruILs,(z)IoodrocessIng,()munuIucLure
oIhydroower-reIuLedurLsundmuInLenunce,und
(q)munuIucLureoICT-reIuLedurLs.TheIoIIowIng
recommenduLIonsurebusedonLheussumLIonLhuL
oLhermeusureswIIIuddressLhecrILIcuIconsLruInLs
Lo IncIusIve growLh IdenLIhed In eurIIer dIscussIons.
(u) RevIew Lhe currenL IndusLrIuI oIIcy
(exIIcIL und ImIIcIL) und IncenLIves
sLrucLure In order Lo conhrm LhuL IL
udequuLeIy suorLs IndusLrIes. The
IncenLIve sLrucLure muy need Lo suorL
emergIng secLors by beIng consonunL
wILh Lhe synergy wILh und sIIIovers InLo
exIsLIngsecLors.
(b) RevIew Lhe roIes oI und coordInuLIon
umong InsLILuLIons creuLed Lo heI
Imrove Lhe eIIecLIveness oI MSME
deveIomenL.
(c) RevIew Lhe envIronmenLuI oIIcIes und
reguIuLIons overseeIng Lhe esLubIIshmenL
oI munuIucLurIng enLerrIses und
revIse envIronmenLuI sLundurds Ior
munuIucLurIng Lo be comurubIe Lo
InLernuLIonuIsLundurds.
(d) Enhunce roducL quuIILy Lo be uL ur
wILh InLernuLIonuI sLundurds by uLIIIzIng
gIobuIIy ucceLed roducL evuIuuLIon
sysLems.
(e) ExIore new murkeLs by urLIcIuLIng In
InLernuLIonuILrudeIuIrsundurLnershIs
wILhoverseusreLuIIchuInsunddeurLmenL
sLores.
(u) DesIgn und udoL cIeur secLor sLruLegIes.
orexumIe,IorhundIcruILs,uduuILruck
sLruLegy cun be udoLed LhuL Iocuses
on ImrovIng Lhe quuIILy oI genuIne
LrudILIonuI roducLs und deveIoIng
LrudILIonuI muLerIuIs Lo hL Lhe LusLes oI
WesLernundAsIunconsumers,whIchure
oLenLIuIIyIurgemurkeLs.
(b) or ugro-bused munuIucLurIng, rovIde
LruInIng courses Lo enhunce cuucILy
buIIdIng In roducL deveIomenL, quuIILy
conLroI, uckugIng, murkeLIng, und
udverLIsIng.
129
(c) Enguge In InLernuLIonuI reseurch und
deveIomenL consorLIu und urLnershIs
Lo eIIecL LrunsIer oI knowIedge und
LechnoIogy Lowurd deveIoIng Lhe IocuI
munuIucLurIngIndusLry.
(d) DeveIo un enLrereneurshI-IrIendIy
cuILureundenvIronmenLby,umongoLher
LhIngs, ursuIng Lhe enucLmenL oI un
enLerrIse regIsLruLIon bIII, sLreumIInIng
LheregIsLruLIonundIIcensIngrocedures
Ior enLerrIses, und IssuIng erIodIc
monILorIngreorLsonMSMEs.
5.4. The Way Forward
BhuLunsremurkubIeeconomIcLrunsIormuLIon
husdrumuLIcuIIyreducedoverLyundImrovedLhe
eoIesweIIure.However,growLhLhuLIsrImurIIy
drIven by Lhe exLernuIIy Iunded, cuILuI InLensIve,
hydroower secLor hus been hIghIy cycIIcuI und
vuInerubIeLoexLernuIshocks,undunubIeLocreuLe
udequuLe jobs Ior Lhe growIng youLh ouIuLIon.
MovIng Iorwurd, BhuLun needs Lo churL ILs course
oI economIc deveIomenL LhuL wIII generuLe more
broud-bused,susLuInubIe,undIncIusIvegrowLh.
ThIs sLudy uIms Lo rovIde suorL Ior Lhe
GovernmenL oI BhuLun In ILs reuruLIons Ior Lhe
EIevenLhYPbyIdenLIIyIngLhecrILIcuIconsLruInLs
Lo uchIevIng Lhe desIred growLh. The IoregoIng
oIIcy recommenduLIons huve been suggesLed Lo
ussIsL Lhe governmenL In overcomIng Lhe cons-
LruInLsLogrowLhundoverLy-InequuIILyreducLIon,
und uddressIng Lhe boLLIenecks Lo susLuInubIe und
IncIusIve deveIomenL. The sLudy uIso rooses
some oLenLIuI drIvers LhuL Lhe governmenL muy
wIsh Lo consIder whIIe druILIng ILs IorLhcomIng
bIuerInL Lo uchIevIng u green und seII-reIIunL
economy susLuIned by un T enubIed knowIedge
socIeLyguIdedbyLhehIIosohyoIGrossNuLIonuI
HuIness(GNHCzo1o:).NewdrIversoIgrowLh
huve been IdenLIhed on Lhe busIs oI LheIr oLenLIuI
Lo escuIuLe, dIversIIy, und brouden Lhe sources oI
growLh. ArorIuLe oIIcy recommenduLIons ure
suggesLedLoresoIveunyremuInIngIssuesregurdIng
Lhe growLh drIvers und, subsequenLIy, dIrecL
Lhem Lo LheIr IuII oLenLIuI und conLrIbuLIon Lo
Lheeconomy.
References
130
References
AII, ., und H. Son. zoo;. MeusurIng ncIusIve
GrowLh, Asicn Detelopment Retieu. zq(1):
111.
AIkIre, S., und J. osLer. zoo;. CounLIng und
MuILIdImensIonuI PoverLy MeusuremenL.
OxIord PoverLy & Humun DeveIomenL
nILIuLIve. DPHI Worlin Pcper ;.
www.ohI.org.uk
AsIunDeveIomenLBunk(ADB).zoo;.Philippines:
CriticclDetelopmentConstrcints.MunIIu.
. zoo8. Ke Indicctors jor Asic cnd the
Pccijc zoo8.MunIIu.
. zooq. CounLrIes In TrunsILIon: A BrIeI
RevIew oI Lhe EmergIng PoIILIcuI Economy
In BungIudesh, BhuLun, Lhe MuIdIves, und
NeuI. South Asic Dcccsioncl Pcper Series
.MunIIu.
. zo1ou. Countr Assistcnce Prorcm
Etcluction:hutcn.MunIIu.
. zo1ob. Etcluction Stud jor hutcn:
Iincncicl Sector Intermediction Iccilit
cnd Equit Intestment in hutcn Nctioncl
cnl.MunIIu.
. zo11u. Asicn Detelopment Dutlool zo::.
MunIIu.
.zo11b.hutcnTrcnsportzo(o,Intercted
Strcteic Vision, Drcjt Iincl Report Pcrt :.
TANo.6;-REGDeveIomenLPurLnershI
ProgrumIorSouLhAsIu.MunIIu.
. zo1zu. Asicn Detelopment Dutlool zo:z.
MunIIu.
. zo1zb. Asicn Detelopment Dutlool zo:z
Updcte.MunIIu.
. zo1zc. Ke Indicctors jor Asic cnd the
Pccijc zo:z.MunIIu.
. zo1. Asicn Detelopment Dutlool zo:.
MunIIu.
. SLuLIsLIcuI DuLubuse SysLem. hLLs:JJsdbs.
udb.orgJsdbsJIndex.js
ADB und NuLIonuI SLuLIsLIcs Bureuu (NSB). zo1.
hutcn Litin Stcndcrds Surte zo:z
Report.ThImhuundMunIIu.
ADCTeIecommunIcuLIonsnc.zoo6.TA-qqzDuLu
CenLer SLundurds OvervIew. MInneuoIIs.
hLL: JJwww. udc. comJusJenJI bruryJ
ILeruLureJ1ozz6qAE.dI
AssessmenL Survey EvuIuuLIon Reseurch CenLre.
hLL:JJwww.usercenLre.org
BuIussu,B.1q6.TrudeIberuIIzuLIonundReveuIed
ComuruLIveAdvunLuge.MunchesLerSchooI
oIEconomIcundSocIuISLudIes.:qq1z.
BungIudeshBureuuoIEducuLIonuInIormuLIonund
SLuLIsLIcs (BBES). hLL:JJwww.bunbeIs.gov.
bdJwebnewJIndex.h?oLIon=com_conLen
L&vIew=urLIcIe&Id=q8&LemId=111
BerLeIsmunn SLIILung. zo1o. TI zo:o- hutcn
Countr Report. GLersIoh: BerLeIsmunn
SLIILung.
BhuLunCouncIIoISeconduryEducuLIonAssessmenL
(BCSEA). zo11. Nctioncl Educction
AssessmentReportjorGrcde.ThImhu.
BhuLunDeveIomenLInunceCororuLIon(BDC).
hLL:JJwww.udIIu.orgJmembersJBDCJ
BDC.hLm
BhuLun EIecLrIcILy AuLhorILy. zo1o. hutcn Pouer
CorporctionLimited:TcrijjRetieuReport.
ThImhu.
BIIIeLoIL,J.zo1o.PritcteSectorPotenticlThemctic
Pcper, 1oint Etcluction oj Dcnish-
hutcnese Prorcmme zooozoop.
MInIsLry oI oreIgn AIIuIrs, Denmurk, und
Gross NuLIonuI HuIness CommIssIon,
ThImhu.
CenLreIorEducuLIonuIReseurchundDeveIomenL
(CERD). zooq. The Quclit oj Educction
in hutcn: Reclit cnd Dpportunities.
ProceedIngsoINuLIonuISemInur,RImung,
;1o December zoo8. ThImhu. hLL:JJ
www. ce. edu. bL JsI L esJdeI uuI L JI I I esJ
QuuIILy%zooI%zoEducuLIon%zo.dI
ChrIsLensen, G. zo11. The Ariculture Sector in
hutcn: Issues, Institutions, cnd Policies.
ReorL submILLed Lo ood und AgrIcuILure
OrgunIzuLIon(AO).Rome:AO.
Chhoedu, T. zo1z. BhuLun: Humun CuILuI
DeveIomenL,ConsLruInLsundOorLunILIes.
Puer submILLed Lo Lhe AsIun DeveIomenL
Bunk.UnubIIshed.
Choden,T.zo1o.AnDtertieuojSociclProtection
Policies cnd Initictites in hutcn. Puer
resenLed uL Lhe UNESCO-CSSR Reseurch
MeeLIng on SocIuI ProLecLIon PoIIcIes und
SuIeLy NeLs In SouLh AsIu. 181q Murch
zo1o,NewDeIhI.
References
131
ConsLILuLIon oI Lhe KIngdom oI BhuLun. hLL:JJ
www.consLILuLIon.bLJTsuThrIm%zoEng%zo
(A).dI; hLL:JJoug.gov.bLJw-conLenLJ
uIoudsJzo1oJoJConsLILuLIon _oI_BhuLun.
dI; hLL:JJwww.wIo.InLJwIoIexJenJLexL.
js?hIe_Id=16;q
DeurLmenL oI TourIsm, GovernmenL oI BhuLun.
zoo. Sustcincble Tourism Detelopment
Strcte.ThImhu.
Dendu, T. zoo8. Druk AIr CuLs IIghLs Lo OIIseL
ueIHIke.Kuensel.1qJune.
Donnges,C.,G.Edmonds,undB.Johunnessen.zoo;.
Rurcl Rocd McintencnceSustcinin the
enejts oj Improted Access. nLernuLIonuI
ubourOrgunIzuLIon.Bungkok.www.IIo.orgJ
ubIIcJengIIshJemIoymenLJreconJeIIJ
downIoudJseLJseL1q.dI
DorjI,T.zoo1.SusLuInubIIILyoITourIsmInBhuLun.
1ournclojhutcnStudies.(1):8q1oq.
Dubu, S., T. Gurung, und M. GhImIruy. zoo6.
AssessmentojSARD-MPoliciesintheHindu
KushHimclccs: the Ccse oj Lcnd Use
Policies in hutcn. KuLhmundu: nLegruLed
CenLreIornLegruLedMounLuInDeveIomenL
(CMOD).
uye, M., J. McArLhur, J. Suchs, und T. Snow.
zooq. The ChuIIenges ucIng undIocked
DeveIoIng CounLrIes. 1ourncl oj Humcn
Detelopment.(1):168.
Gross NuLIonuI HuIness CommIssIon (GNHC).
zooq. Tenth Iite Yecr Plcn (zoo8-zo:).
ThImhu.
.zo1o.EconomicDetelopmentPolicojthe
Kindomojhutcnzo:o.ThImhu.
. zo11u. hutcn Nctioncl Humcn
DetelopmentReportzo::.ThImhu.
. zo11b. Tenth Iite Yecr Plcn (zoo8-zo:)
MidTermRetieuReport.ThImhu.
Huusmunn, R., und B. KIInger. zoo6. SLrucLuruI
TrunsIormuLIonundPuLLernsoIComuruLIve
AdvunLuge In Lhe ProducL Suce. CID
Worlin Pcper No. 1z8. CumbrIdge, MA:
CenLer Ior nLernuLIonuI DeveIomenL,
HurvurdUnIversILy.
Huusmunn, R., und D. RodrIk. zoo. EconomIc
DeveIomenL us SeII-DIscovery. 1ourncl oj
DetelopmentEconomics.;z(z):6o.
Huusmunn, R., D. RodrIk, und A. VeIusco. zoo.
Grouth Dicnostics. CumbrIdge, MA: John
. Kennedy SchooI oI GovernmenL, Hurvurd
UnIversILy.
Huusmunn,R.,J.Hwung,undD.RodrIk,zoo;.WhuL
you ExorL MuLLers. 1ourncl oj Economic
Grouth,Spriner.1z(1):1z.
HIduIgo, C., B. KIInger., . BurubusI, und R.
Huusmunn. zoo;. The Product Spcce
Conditions the Detelopment oj Nctions.
SouLhBend:UnIversILyoINoLreDume.
nLernuLIonuIMoneLuryund(M).zo11.BhuLun:
ArLIcIe V ConsuILuLIonSLuII ReorL; SLuII
SuIemenL; PubIIc nIormuLIon NoLIce
on Lhe ExecuLIve Bourd DIscussIon; und
SLuLemenL oI Lhe ExecuLIve DIrecLor Ior
BhuLun. IMI Countr Report No. ::,:z.
hLL:JJwww.ImI.orgJexLernuIJubsJILJ
scrJzo11Jcr111z.dI
. GovernmenL InuncIuI SLuLIsLIcs. hLL:JJ
eIIbrury-duLu.ImI.orgJIndDuLuReorLs.
usx?d=o61&e=1;o8oq
.InuncIuIAccessSurvey.hLL:JJIus.ImI.orgJ
. nLernuLIonuI InuncIuI SLuLIsLIcs. hLL:JJ
eIIbrury-duLu.ImI.orgJ
nLernuLIonuITeIecommunIcuLIonUnIon.zoo6.The
Role oj ICT in Adtcncin Grouth in Lecst
Deteloped Countries: Trends, Chcllenes
cnd Dpportunities. Genevu: TU hLL:JJ
www.ILu.InLJTUDJIdcJLurkeyJdocs
MeenuundYusudu.zo11.MedIcuIAdvIceuDIuIAwuy.
hutcn Dbserter. 1o Muy. hLL:JJurchIve.
Is.1;Mg, hLL:JJwww.bhuLunobserver.bLJ
medIcuI-udvIce-dIuIJ
MehLu, S. zoo;. nLer-RegIonuI VurIuLIons In Lhe
nequuIILyundPoverLyInBhuLun.1ourncloj
hutcnStudies.16(Summer):88.
MInIsLryoIAgrIcuILureundoresLs,GovernmenLoI
BhuLun.vurIousyeurs.AricultureStctistics.
ThImhu.
. zooq. RNR Sector Tenth Plcn (zoo8-
zo:)Encblin Icrmin Communities to
DtercomePotert.ThImhu.
. zo1o. Lcnd Coter Mcppin Project.
ReorLedInNSB.zo11.StctisticclYecrbool
ojhutcnzo::.ThImhu.
MInIsLryoIAgrIcuILureundoresLs,DeurLmenLoI
AgrIcuILure,GovernmenLoIBhuLun.hLL:JJ
www.mouI.gov.bLJmouIJ?uge_Id=1
MInIsLryoIAgrIcuILureundWorIdoodProgrumme.
zoo. Vulnercbilit Assessment cnd
McppinStud.ThImhu.
MInIsLry oI EconomIc AIIuIrs, GovernmenL oI
BhuLun. zo1o. Iorein Direct Intestment
Polic zo:o. ThImhu. hLL:JJwww.dIL.gov.
bLJsILesJdeIuuILJIIIesJD%zoPOCY%zo
zo1o(new).dI
. zo1z. Dicnostic Trcde Interction Stud
Volumes : cnd z. DeurLmenL oI Trude.
ThImhu.
References
132
MInIsLry oI EducuLIon (MOE), GovernmenL oI
BhuLun. vurIous yeurs. Annucl Educction
Stctistics.ThImhu.
.zooq.AStudonEnrolmentcndRetention
Strcteiesinhutcn.ThImhu.
MInIsLryoIInunce,GovernmenLoIBhuLun.vurIous
yeurs. Annucl Iincncicl Stctements oj the
RoclGoternmentojhutcn.ThImhu.
. zo1o. Iisccl Incentites zo:o. ThImhu.
hLL:JJwww.moI.gov.bLJdownIoudsJIscuI
ncenLIvesArIIzo1o.dI
. zo11u. Nctioncl Retenue Report zo:o
zo::.ThImhu.
.zo11b.Sinijccnt Dutcomes durin the IY
zo:o::.ThImhu.
. zo1z. Nctioncl udet, Iincncicl Yecr
zo:zzo:.ThImhu.
MInIsLryoIubourundHumunResources(MHR),
GovernmenL oI BhuLun. vurIous yeurs.
LcbourIorceSurteReport.ThImhu.
. zo1o. Estcblishment Surte zo:o.
ThImhu.
.AdmInIsLruLIverecords.ThImhu.
MInIsLryoISLuLIsLIcsundProgrummIemenLuLIon
(ndIu). hLL:JJmosI.nIc.InJMosI_NewJ
sILeJndIu_SLuLIsLIcs.usx?sLuLus=1&menu_
Id=q und hLL:JJmosI.nIc.InJmosI_newJ
sILeJPubIIcuLIons.usx?sLuLus=1&menu_
Id=zz
MInIsLry oI Works und Humun SeLLIemenLs
(MWHS), GovernmenL oI BhuLun. zoo6.
Rocd Sector Mcster Plcn zoo;zoz;.
ThImhu.
. zo1o. Annucl Injormction ulletin zo:o.
ThImhu.
NumgyeI, T. zo11. BhuLun uces Cro osses Irom
ErruLIc CIImuLe. SciDet.Net. q SeLember.
hLL:JJwww.scIdev.neLJenJsouLh-usIuJ
newsJbhuLun-Iuces-cro-I osses-Irom-
erruLIc-cIImuLe.hLmI
NuLIonuI SLuLIsLIcs Bureuu (NSB). vurIous yeurs.
StctisticclYecrboolojhutcn.ThImhu
. zoo. hutcn Litin Stcndcrds Surte
zooReport.ThImhu.
. zoo;. hutcn Litin Stcndcrds Surte
zoo;Report.ThImhu.
. zo1o. Nctioncl Accounts Stctistics, zoop.
ThImhu.
. zo11u. hutcn Multiple Indicctor Surte
Reportzo:o.ThImhu
. zo11b. Nctioncl Accounts Stctistics, zo:o.
ThImhu.
. zo1z. Nctioncl Accounts Stctistics, zo::.
ThImhu.
OIhce oI Lhe Census CommIssIoner. zoo6.
Populction cnd Housin Census oj hutcn
zoo.ThImhu.
Punkuj,P.zooq. StudontheDomesticEconomic
Impcct cnd Socicl Costs oj Adjustment to
Alterncte Approcches to Liberclizction jor
hutcn. Buckground uer Ior Lhe RegIonuI
PoIIcyDIuIogue:ucIIILuLIngLheAccessIonoI
DeveIoIngCounLrIesLoLheWTO.Bungkok.
1Murch1ArIIzooq.
PuLhuk, B. zo1o. Retieu jor Improtin
Microjncnce Sertices in hutcn.ThImhu:
KyIngkhorConsuILuncyServIces.
PIunnIngCommIssIon.1qqq.hutcnVisionzozo:A
VisionjorPecce,ProsperitcndHcppiness.
ThImhu.
PrIcewuLerhouseCooers (PwC), nLernuLIonuI
InunceCororuLIon(C),undWorIdBunk.
zo11.PcinTcxeszo:z:TheGlobclPicture.
hLL:JJwww.doIngbusIness.orgJ-JmedIuJ
IdkmJdoIng%zobusInessJdocumenLsJ
secIuI-reorLsJuyIng-Luxes-zo11.dI
RodrIk, D. zooq. ndusLrIuI PoIIcy Ior Lhe z1sL
CenLury. CenLer Ior EconomIc PoIIcy
Reseurch (CEPR). CEPR Discussion Pcper
No.q;6;.ondon:CEPR.
RoyuI EducuLIon CouncII (REC). zooq. hutcn
LcborMcrletStud.ThImhu.
. zo1z. Nctioncl Educction Ircmeuorl:
ShcpinhutcnsIuture.ThImhu.
RoyuI EducuLIon CouncII (REC) und EducuLIonuI
nILIuLIves PvL. Ld. zoo8. hutcns Annucl
StctusojStudentLecrnin.ThImhu.
RoyuI EducuLIon CouncII (REC), EducuLIonuI
nILIuLIves PvL. Ld., und MInIsLry oI
EducuLIon (MOE). zooq. hutcns Teccher
Needs Assessment (TNA) Clcss PP to (.
ThImhu.
RoyuI MoneLury AuLhorILy oI BhuLun (RMA).
vurIousyeurs.AnnuclReport.ThImhu.
. zooq. Annucl Report (zoozoo().
ThImhu. QuoLed In ADB. zooq. Countries
in Trcnsition: A riej Retieu oj the
EmerinPoliticclEconomojcnlcdesh,
hutcn, the Mcldites, cnd Nepcl. SouLh
AsIu:OccusIonuIPuerSerIes.MunIIu.
. zo11u. Annucl Report (zoopzo:o).
ThImhu.
. zo11b. Comments cnd Clcrijcctions on
the Drcjt AD Report on hutcns Criticcl
DetelopmentConstrcints.qDecemberzo11.
ThImhu.
.zo11c.SelectedEconomicIndicctors.Murch
zo11.ThImhu.
References
133
. zo1zu. Annucl Report (zo:ozo::).
ThImhu.
. zo1zb. hutcnese Iincncicl Sector
PerjormcnceRetieu,zo::zo:z.ThImhu.
. zo1zc. Monetcr Polic Stctement 1une
zo:z.ThImhu.
. zo1. Annucl Report (zo::zo:z).
ThImhu.
SumurujIvu, R. zo1z. ICT Sector Contributions
to Neu Grouth cnd GNH in hutcn:
Constrcints cnd Possible Wcs to Reliete
Them.PuersubmILLedLoADB.UnubIIshed.
SunLos, M., und K. Uru. zoo8. MuILIdImensIonuI
PoverLy In BhuLun: EsLImuLes und PoIIcy
mIIcuLIons. 1ourncl oj hutcn Studies.
18(Summer):1o.
Sherub, K. zooq. The hutcnese Tecchers
Pedcoiccl Drientction in the Primcr
Clcsses: A Icctor Dn Quclit Dj Educction.
QuoLed In CenLre Ior EducuLIonuI Reseurch
und DeveIomenL. zooq. Quclit oj
Educction in hutcn: Proceedins oj
NctionclSemincr,RInung,;1oDecember
zoo8.ThImhu.
TuskorceReorLonBuIunceoIPuymenLwILhndIu
undLheRueeShorLIuII.zo1z.www.cubIneL.
gov.bLJrJTusk%zoorce%zoReorL%zo
%zo-%zo11%zoMuy%zozo1z.dI
ThInIey, J. zo1. The Iijth Annucl Report oj
Lonchhen 1imi Yoezer Thinle to the
TenthSessionojtheIirstPcrlicmentojthe
StcteojtheNction.ThImhu.
Tobguy, S. zoo6. Ariculture Ditersijcction in
hutcn. Puer reured Ior resenLuLIon uL
LhenLernuLIonuIAssocIuLIonoIAgrIcuILuruI
EconomIsLs ConIerence, GoId CousL,
AusLruIIu, 1z18 AugusL zoo6. hLL:JJ
ugeconseurch.umn.eduJbILsLreumJzqoqJ1J
o6o;oq.dI
TourIsm CouncII oI BhuLun (TCB). zo11. Annucl
ExitSurte.ThImhu.
. zo1zu. hutcn Tourism Monitor, Annucl
Reportzo::.ThImhu.
.zo1zb.TourismStrctecndDetelopment
Plcns, zo:-zo:8.ThImhu.
. TruveI RequIremenLs. hLL:JJwww.LourIsm.
gov.bLJIun-your-LrIJLruveI-requIremenLs
(uccessed16ebruuryzo1z).
Trunsurency nLernuLIonuI. zo11. Corruption
PerceptionsIndexzo::.BerIIn.
UNComLrudeduLu.hLL:JJcomLrude.un.org
UNduLu.hLL:JJduLu.un.org
UnILed NuLIons. zoo6. Common Countr
Assessmentjorhutcnzoo.ThImhu:UN
sysLemInBhuLun,UNHouse.
UNESCO nsLILuLe Ior SLuLIsLIcs. hLL:JJsLuLs.uIs.
unesco.orgJunescoJTubIeVIewerJdocumenL.
usx?ReorLd=1z1&_unguuge=en&BR_
CounLry=zqo
UnILed NuLIons EconomIc und SocIuI CommIssIon
Ior AsIu und Lhe PucIhc (ESCAP). zo1o.
Economic cnd Socicl Surte oj Asic cnd
the Pccijc zo:o. hLL:JJwww.unescu.orgJ
ddJ ubIIcuLIonsJsurveyzo1oJdownIoudJ
Surveyzo1o.dI
UnIversILy GrunLs CommIssIon. hLL:JJwww.ugc.
uc.IkJenJunIversILy-sLuLIsLIcs-zo1o.hLmI
WorId Bunk. zooqu. hutcn Countr Assistcnce
Etcluction, Report No. o;;. OeruLIons
EvuIuuLIonDeurLmenL.WushIngLon,D.C.
. zooqb. hutcn Trcnsport Sector Note.
WushIngLon,D.C.
. zoo6. Rurcl Access Project in hutcn
Implementction Completion cnd Results
Report.WushIngLon,D.C.
. zo1ou. hutcn Economic Updcte.
WushIngLon,D.C.
. zo1ob. Vitclizin the Pritcte Sector,
Crectin 1obs: hutcn Intestment Climcte
AssessmentReport.WushIngLon,D.C.
. zo11. Globcl Economic Prospects:
Nctictin Stron CurrentsReioncl
Annex.WushIngLon,D.C.
. zo1z. Connectin to Compete zo:z,
Trcde Loistics in the Globcl Econom:
The Loistics Perjormcnce Index cnd its
indicctors.WushIngLon,D.C.
. hutcn Trcnsport Sector-Chcllenes.
hLL:JJgo.worIdbunk.orgJWYCVz8GAo
. WorId DeveIomenL ndIcuLors (WD).
hLL:JJduLu.worIdbunk.orgJduLu-cuLuIogJ
worId-deveIomenL-IndIcuLors (uccessed
ArIIzo11LoJunuuryzo1).
. WorIdwIde Governunce ndIcuLors. hLL:JJ
InIo.worIdbunk.orgJgovernunceJwgIJsc_
counLry.us(uccessedNovemberzo1z).
WorIdBunkundnLernuLIonuIInunceCororuLIon
(C). zooq. Enterprise Surtes: hutcn
Countr Projle zoop. WushIngLon, D.C.
hLL:JJwww. enLerrI sesurveys. orgJ-J
medI uJPDKMJEnL er r I s eSur veys J
DocumenLsJProhIesJEngIIshJBhuLun-zooq.
. zooq. Doin usiness zo:o: Rejormin
throuh Dijjcult Times.WushIngLon,D.C.
. zo1o. Doin usiness zo::: Mclin
c Dijjerence jor Entrepreneurs.
WushIngLon,D.C.
. zo1z. Doin usiness zo:z: Doin
usiness in c more Trcnspcrent World.
WushIngLon,D.C.
References
134
. zo1. Doin usiness zo:: Smcrter
Reulctions jor Smcll cnd Medium-Size
Enterprises.WushIngLon,D.C.
WorIdoodProgrumme.hLL:JJwww.wI.orgJ
WorId HeuILh OrgunIzuLIon (WHO). GIobuI HeuILh
ObservuLory (GHO) DuLu ReosILory.
hLL:JJus.who.InLJghoduLuJ (uccessed
Junuuryzo1).
Zhuung, J. zoo8. ncIusIve GrowLh Lowurd
u HurmonIous SocIeLy In Lhe PeoIes
ReubIIc oI ChInu: PoIIcy mIIcuLIons.
Asicn Detelopment Retieu z(1 und z).
MunIIu:ADB.
Guided by its philosophy of gross national happiness, Bhutan achieved strong growth
during 19812011, and its per capita gross domestic product more than quintupled, with
hydropower as the main growth driver. The governments conscious efforts to invest in
socioeconomic programs have helped reduce poverty in the country. Bhutan recognizes that
it needs to continue its efforts to make growth resilient to external and internal factors. This
report identifies the most critical constraints facing the economy and discusses policy options
to assist the government in its endeavor to achieve strong, balanced, and resilient growth that
is also inclusive. The report also highlights potential new drivers that can help complement
Bhutans continuing efforts to achieve inclusive and sustainable socioeconomic development.
About the Asian Development Bank
ADBs vision is an Asia and Pacific region free of poverty. Its mission is to help its developing
member countries reduce poverty and improve the quality of life of their people. Despite
the regions many successes, it remains home to two-thirds of the worlds poor: 1.7 billion
people who live on less than $2 a day, with 828 million struggling on less than $1.25 a day.
ADB is committed to reducing poverty through inclusive economic growth, environmentally
sustainable growth, and regional integration.
Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main
instruments for helping its developing member countries are policy dialogue, loans, equity
investments, guarantees, grants, and technical assistance.
About the Australian Agency for International Development
The Australian Agency for International Development (AusAID) is responsible for managing
Australias overseas aid program. The purpose is to help people overcome poverty, thus
helping to promote stability and prosperity in the region and beyond. AusAID focuses its
efforts in areas where Australia can make a difference and where its resources can most
effectively and efficiently be deployed. It provides advice and support on development
policy, and plans and coordinates poverty reduction activities in partnership with developing
countries; leads and coordinates Australias responses to humanitarian disasters; and
represents Australia in international development forums. AusAID is based in Canberra and
has representatives in 37 Australian diplomatic missions overseas.
About the Japan International Cooperation Agency
The Japan International Cooperation Agency (JICA) aims to contribute to the promotion of
international cooperation and the sound development of Japanese and global economies by
supporting the socioeconomic development, recovery, or economic stability of developing
regions. On 1 October 2008, New JICA was inaugurated, merging the existing JICA and the
overseas economic cooperation section of the Japan Bank for International Cooperation.
New JICA supports the process of inclusive and dynamic development through technical
cooperation, concessional loans and investment, and grant aid. JICA is based in Tokyo and has
92 overseas offices.
Asian Development Bank
6 ADB Avenue,
Mandaluyong City 1550
Metro Manila, Philippines
Tel +63 2 632 4444
Fax +63 2 636 2444
www.adb.org/economics
information@adb.org
Australian Agency for
International Development
GPO Box 887
Canberra ACT 2601,
Australia
Tel +61 2 6206 4000
Fax +61 2 6206 4880
www.ausaid.gov.au
Japan International
Cooperation Agency
Nibancho Center Building
5-25, Niban-cho,
Chiyoda-ku, Tokyo
102-8012, Japan
Tel +81 3 5226 9781
www.jica.go.jp/english/
Printed in the Philippines

Bhutan: Critical Development Constraints

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Bhutan: Critical Development Constraints

Încărcat de

Drepturi de autor:

Formate disponibile

C

The subsecLor uguIn regIsLered u hIgh growLh ruLe,

Services. The servIces secLor uIso exhIbILed

reecLIng u beLLer quuIILy oI IIIe ussocIuLed wILh

AILhough u downwurd Lrend Is cIeur In Lhe

Heuvy reIIunce on one mujor secLor und

The resL oI LhIs secLIon exumInes Lhe IucLors

$FFHVV WR LQWHUQDWLRQDO QDQFLDO PDUNHWV LV

The quuIILy Issue Is uIso dIrecLIy IInked Lo Lhe

However, Lhe governmenL revenue erIor-

In zooq Irom ILs euk oI ;8 In zooo, IL hus been

und IeurnIng-by-doIng exLernuIILIes.

n decudes, BhuLun hus successIuIIy

AbouL z% oI Lhe urbun unemIoyed huve hIgher-

Increused by 1q ercenLuge oInLs In zoo6zo1z

DIsLunce Lo Lhe neuresL rImury schooI Is u muIn

The IImILed uvuIIubIIILy oI ruruI schooIs Is urLIy

TourIsm uccounLed Ior 6.8% oI GDP In zo1o, hus

DesILe Lhe IImILed ureu used Ior ugrIcuILure,

DesILe Imroved yIeIds, BhuLun hus exerIenced

WILh Lhe gIobuI concern ubouL cIImuLe chunge,

WhIIe hscuI IncenLIves

S-ar putea să vă placă și