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Diagnostic Trade Integration Strategy Update 2020

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Diagnostic Trade Integration Strategy Update 2020 DIAGNOSTIC TRADE INTEGRATION STRATEGY UPDATE 2020 Foreword The Ministry of Economic Affairs is pleased to publish the Diagnostic Trade Integration Update (DTISU), initiated in December, 2019. Despite the challenges posed by the COVID-19 Pandemic, the Ministry in collaboration with the United Nations Development Programme has conducted the DTISU exercise successfully and been able to come up with a comprehensive and actionable DTISU document. The first Diagnostic Trade Integration Study (DTIS) was published in 2012 and the study has been an important guiding document for trade policy and other trade-related interventions for the Royal Government thus far. Bhutan’s economy has been growing steadily since the launch of the first DTIS. However, the economy has been Mr Loknath Sharma severely disrupted by the COVID-19 pandemic and is likely to take time for its full recovery. Without timely and appropriate interventions, the disruption will not only derail the economic trajectory, but, also impact Bhutan's smooth transition from the least developed to developing country category. Therefore, the DTISU is a timely intervention that will not only aid Bhutan’s economic recovery and graduation from the Least Developed Country (LDC) category but also help in realizing Bhutan's economic self-reliance in the long run. In a nutshell, the DTISU provides a clear analysis of the new priorities and challenges ahead for the growth of the Bhutanese economy with the Ministry of Economic Affairs at the forefront and specific action plans for relevant stakeholders. The study, in particular, underscores the instrumental role of trade facilitation and trade agreements in creating a favourable trading environment for Bhutan with clear analysis of Bhutan’s trade competitiveness factors and long-term policy recommendations. Further, the study provides insights into the smooth transitioning of Bhutan from the LDC category and on the impact of the COVID-19 pandemic on Bhutan's economy. The study also highlights the importance of driving economic growth through digitalization for the Bhutanese economy with detailed analysis of Bhutan’s position in the digital economy and the Fourth Industrial Revolution in realizing His Majesty the King’s vision of leading Bhutan towards a Digital Drukyul. The need to foster new skill-oriented industries, the importance of the emerging digital economy and services sector and facilitating the entry of Bhutanese businesses into global markets through e-commerce are also highlighted in the study. The Ministry of Economic Affairs wishes to thank and acknowledge the invaluable inputs and contributions made by all agencies and Individuals in coming up with this very important diagnostic study. | am sure that the study will be beneficial for trade and other relevant sectors for policy interventions in support of the current Five Year Plan and beyond and the 21st Century Economic Roadmap. Finally, | am confident that, with the guidance of His Majesty the King, Bhutan will overcome the adverse impact of the pandemic and continue its journey of steady, sustainable and remarkable economic growth. I wish for and look forward to a successful implementation of the DTISU. Mr Loknath Sharma Minister Ministry of Economic Affairs 3 Foreword Bhutan joined the United Nations in 1971 as a Least Developed Country (LDC), the same year the United Nations created the LDC category. Today, 50 years later, Bhutan is preparing to graduate from LDC status by 2023. Over the last half-century, Bhutan has made impressive economic, social and environmental gains through a series of five-year development plans. Per capita incomes have grown, poverty has been reduced, and Gross National Happiness (GNH) has consistently risen. The country’s Human Development Index value has increased by 25 percent between 2005 and 2019, and life expectancy at birth has increased from 65 to 71 years. Poverty rates dropped from 23 percent to 8 percent in just over a decade. Bhutan today is considered a global leader in environmental conservation. It Ms Azusa Kubota has a constitutional mandate to maintain at least 60 percent of the country under forest cover at all times and has made an international pledge to remain carbon-neutral in perpetuity. However, its development progress still faces structural challenges and risks, which have been aggravated by the COVID-19 pandemic. While the Bhutanese economy has seen significant structural changes over decades of planned development—moving from primary towards secondary and tertiary sectors—such structural change and robust growth have not translated into a corresponding increase in secondary and tertiary sector jobs over the years. The pandemic not only had dramatic consequences for tourism and related service sectors but also for the broader economy, such as for employment and private sector diversification. While the Royal Government of Bhutan (RGoB)’s strong public health response and economic recovery efforts have helped cushion some of the worst effects, as Bhutan plans its post-COVID-19 economic future, it faces both long-standing and new challenges—including realizing green and inclusive economic transformation. Overcoming these challenges will be central to Bhutan’s future. The Diagnostic Trade Integration Study Update (DTISU 2020) aims to contribute to addressing these challenges. Since the first DTIS in 2012, Bhutan has accelerated its march towards a new economy guided by both the 11th and 12th Five Year Plans. While a range of reforms and policies have been enacted to support a strengthened private sector and enhance trade, there remains space for further action. The DTISU 2020 reviews Bhutan’s progress since 2012. It assesses the implementation of earlier recommendations, identifies challenges encountered since the last study, and considers the new economic landscape. The DTISU also builds on plans and strategies adopted by the RGoB in recent years and takes into account plans for transitioning from the LDC category by 2023. UNDP sincerely hopes that this study, its recommendations, and its monitoring framework will support Bhutan as it recovers from the COVID-19 pandemic and defines new approaches to the economy and trade. The DTISU thus lays out a comprehensive agenda for action that is relevant to both the current moment and Bhutan’s economic future. This includes specific suggestions for developing the green economy, strengthening youth skills development for the 21st century, enhancing trade-related infrastructure and logistics, developing cottage and small industry (CSI) and increasing their competitiveness, promoting Bhutanese exports and foreign investment into Bhutan, and leveraging digitalization and e-commerce to support inclusive business and trade. These are all fundamental steps for attaining the 2030 Agenda for Sustainable Development. What is critical going forward is the commitment to follow up action and the implementation of priority recommendations. The report thus also defines a monitoring framework to help assess progress over time and support adaptation as needed, based on changing circumstances. 5 UNDP stands committed to supporting the implementation of this important agenda and looks forward to deepening our partnership with the RGoB. The DTISU 2020 would not have been possible without the close collaboration between Bhutan’s Ministry of Economic Affairs (MoEA) and UNDP. Its development was particularly supported by the National Implementation Unit at the Department of Trade, MoEA, and by the Main Implementing Entity (MIE) in UNDP. This initiative has also relied heavily on cooperation with the Enhanced Integrated Framework (EIF) Focal Point, and the full EIF National Steering Committee. Finally, the DTISU 2020 has benefited from the technical input of more than 100 stakeholders, including the expert drafting team from various UN agencies and affiliated agencies. While we cannot thank all our collaborators individually here, we recognize their critical role in making this report possible. Ms Azusa Kubota Resident Representative UNDP Bhutan 6 Foreword Bhutan Diagnostic Trade Integration Study Update 2021 Developing evidence-based policy and regulatory frameworks for trade and investment is a central component of the EIF Strategic Plan, contributing towards the goal of an improved trade environment for inclusive and sustainable growth in the least developed countries (LDCs). At the heart of these efforts are the Diagnostic Trade Integration Studies (DTISs). Over the past years, DTISs have continued to enable the LDCs to identify trade-related constraints, opportunities and to develop institutional and productive sector capacity- building projects to address them. DTISs provide the necessary evidence to develop sound policies, while also serving as a reference point to mobilize resources from donors and the private sector. This DTIS Update (DTISU) of Bhutan adds to a list of 54 DTISs and DTISU that have so far Dr Ratnakar Adhikari been supported by the EIF. The significance of this DTISU is underscored by the context in which it was undertaken, with the concept note approved shortly before the World Health Organization declared COVID-19 a global pandemic. Following the recommendations of the Executive Secretariat for the EIF, the DTISU has reflected the impacts of the COVID-19 pandemic in all chapters. The successful and timely completion of the analysis is also commendable given the COVID-19-related challenges and Bhutan's impending graduation from the LDC category. While the COVID-19 pandemic
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