ADB's Work in Bhutan   Download Fact Sheet

Bhutan’s economy grew by 4.1% in 2021 after a record contraction of 10.1% in 2020 due to the coronavirus disease (COVID-19) pandemic. The Government of Bhutan took various monetary and fiscal measures to compensate for the loss of jobs and ease the pandemic’s adverse impact. Consequently, fiscal deficit increased from 1.2% of gross domestic product (GDP) in 2018/2019 to 8.8% of GDP in fiscal year 2021/2022. Owing to the rise in imports and the slow recovery of tourism, foreign exchange reserves fell from $1.2 billion in November 2019 to $773.2 million in November 2022. Bhutan’s estimated economic growth in 2022 is 4.7%. The economy is projected to grow by 4.6% in 2023.

Bhutan became a member of the Asian Development Bank (ADB) in 1982. To date, ADB has committed 205 public sector loans, grants, and technical assistance totaling $1.2 billion to Bhutan. Cumulative loan and grant disbursements to Bhutan amount to $875.64 million. These were financed by regular and concessional ordinary capital resources, the Asian Development Fund, and other special funds. ADB’s ongoing sovereign portfolio in Bhutan includes 12 loans and 9 grants worth $350 million.

ADB is supporting the government’s efforts to put the country back on its strong pre-pandemic growth path. Despite challenges, including lockdowns and travel restrictions until mid-June 2022, four loans and four grants totaling $90.61 million were committed in 2022—$69.61 million financed by concessional ordinary capital resources, $16 million from the Asian Development Fund, and $5 million from the Japan Fund for Prosperous and Resilient Asia and the Pacific (JFPR).

A $10-million loan from concessional ordinary capital resources and a $3-million grant from JFPR is financing the Responsive COVID-19 Vaccines for Recovery Project under the Asia Pacific Vaccine Access Facility. ADB provided $37.35 million for the Fiscal Sustainability and Green Recovery Program(Subprogram 1) to help reinforce the government’s efforts toward domestic resource mobilization, green economic recovery, and policy reforms. A $3-million grant from JFPR is financing the Alternative Renewable Energy Pilot Project that is designed to provide small-scale photovoltaic systems to 300 households in rural villages across the country. The $18.26-million Renewable Energy for Climate Resilience project will establish a 17-megawatt solar park—the first step to diversifying the generation portfolio of Bhutan’s hydropower-dominated energy sector. The $20-million Water Flagship Program Project, supplemented by a $2-million grant from JFPR, will help provide safe drinking water and irrigation services to about 100,000 residents and farmers in three large districts.

Operational challenges. Project implementation was adversely affected during the COVID-19 pandemic. Following the lifting of travel and quarantine restrictions in June 2022, ADB and government staff resumed visits to project sites and started holding in-person meetings. Portfolio performance has picked up in the second half of 2022. A $5-million project readiness facility is being discussed with the government to improve the design of infrastructure loans. ADB is also working closely with the government to increase the implementation capacity of national and local agencies and staff. Workshops on procurement, safeguards, financial management, and gender are periodically organized for staff of implementing and executing agencies. Other operational challenges include Bhutan’s small market and limited pool of suppliers, contractors, and skilled workers; frequent staff changes at ADB’s counterpart agencies; and poor connectivity due to the difficult, hilly terrain and scattered settlements.

Khuruthang Middle Secondary School students attend an electrical elective class. Photo: Sonam Phuntsho/ADB

Knowledge Work

ADB has assisted the Ministry of Finance in developing a computable general equilibrium model. This will help improve the analysis of micro-level data for more accurate macroeconomic modeling. ADB will develop a “nowcasting” model for Bhutan using new data sources to increase the frequency of GDP estimates. A sectoral growth accounting analysis to help achieve 7% annual growth over the next decade is underway. Technical support is being provided to the National Statistics Bureau to transition from annual to quarterly labor force surveys. ADB is also collaborating with the government to analyze school exam performance before and after COVID-19 school closures.

  ADB Projects in Bhutan Project data sheets for loans, grants, TAs

Future Directions

ADB’s current country partnership strategy for Bhutan ends in 2023. Preparatory work for a 2024–2028 strategy has started, including sector and thematic assessments. The new strategy will build on the achievements under the current one to reinforce its successes and augment further investments. It will be aligned with the government’s 13th Five-Year Plan, 2024-2028, which aims to develop Bhutan into a sustainable and prosperous economy.

Last updated: 2 May 2023