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Bhutan Critical Bhutan Critical Development Constraints Country Studies Diagnostics Country Diagnostics Studies Bhutan Critical Development Constraints © 2013 Asian Development Bank, Australian Agency for International Development, and Japan International Cooperation Agency All rights reserved. Published in 2013. Printed in the Philippines. ISBN 978-92-9254-244-3 (Print), 978-92-9254-245-0 (PDF) Publication Stock No. RPT135653-2 Cataloging-in-Publication Data Asian Development Bank, Australian Agency for International Development and Japan International Cooperation Agency Country diagnostics studies: Bhutan—critical development constraints Mandaluyong City, Philippines: Asian Development Bank, 2013. 1. Economic development. 2. Bhutan. I. Asian Development Bank. II. Australian Agency for International Development. III. Japan International Cooperation Agency. \ Development Bank (ADB) or its Board of Governors or the governments they represent, the Australian Agency for International Development (AusAID), or the Japan International Cooperation Agency (JICA). ADB, AusAID, and JICA do not guarantee the accuracy of the data included in this publication and accept no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB, AusAID, and JICA do not intend to make any judgments as to the legal or other status of any territory or area. ADB, AusAID, and JICA encourage printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of ADB, AusAID, and JICA. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB, AusAID, and JICA. ![# 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 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/ Foreword ROYAL GOVERNMENT OF BHUTAN MINISTRY OF FINANCE TASHICHHO DZONG hutan 2020: A Vision for Peace, Prosperity and Happiness embodies the development philosophy of His Majesty King Jigme Singye Wangchuck and sets out directions that will enable Bhutan to execute this philosophy while at the same time retaining its commitment to its distinctive model of harmonious and balanced development. The vision, which is highlighted in Bhutan’s 2010 economic development policy, seeks to bring together desirability and feasibility, signifying that, Bwith wisdom, understanding, and foresight, the country can meet the challenges of change and modernization and bequeath to future generations a nation that every Bhutanese will be proud of. At the core of the government’s aspirations lies accelerating growth and poverty reduction. These goals are realizable provided $$[%$$ of appropriate policies in the medium and long term. Bhutan, as the report notes, has undertaken in the last decade a number of key initiatives, which resulted in gross domestic product growth rates averaging 8.4% during 2001–2011. We hope to improve the economic performance even further with more investment in the hydropower sector to increase hydropower generation capacity to about seven times the present level by 2020. We have likewise invested in key economic infrastructure and services and social and human development, allowing us to even surpass our target of reducing the poverty headcount rate to 15% by 2013, and to achieve visible progress in meeting other Millennium Development Goal targets. The Government of Bhutan, however, is aware of remaining challenges to turning growth more resilient and inclusive. Despite the high rates of economic growth, the growth remains narrowly based; vulnerable to sectoral shocks and cyclical swings; and unable to create adequate jobs, especially for the growing youth population. For our vision of achieving pro-poor and equitable development, we need to transform our $$['N%$$ opportunities for all Bhutanese. The development gaps between the districts and high inequality across income groups also remain a concern. The report also provides insights that can help enrich development cooperation between the government and our development partners. In particular, we highly appreciate the consultative process that the study adopted to ensure that views of all the key stakeholders were taken into account in diagnosing the critical constraints of the Bhutanese economy. The government gratefully acknowledges the support of the Asian Development Bank, Australian Agency for International Development, and Japan International Cooperation Agency in the timely conduct of the study. Lam Dorji Secretary Ministry of Finance Bhutan: Critical Development Constraints Preface he philosophy of gross national happiness is unique to Bhutan, and has been the center of its socioeconomic policies in striving to balance the spiritual and material well-being of its citi- <#=$[$<% $%\$$$% Trecognized and respected by the rest of the world. Bhutan has achieved strong growth, at an annual average of 7.8% during 1981–2011, and its per capita gross domestic product has more than quintupled, from $271 to $1,446 during the same period. Hydropower development has been the main driver of the growth. The government’s conscious efforts to invest in socioeconomic programs have helped reduce poverty in the country. With its solid performance, Bhutan has been one of the fastest growing economies in the South Asia region and the pursuit for environmental sustainability and inclusive economic growth appears to be within reach. Along with all these positive developments, Bhutan has recognized that it needs to continue its efforts to make growth resilient to external and internal factors. This includes stepping up its efforts to make its $%$[%$# The report—Bhutan: Critical Development Constraints—is timely, as the Government of Bhutan is now %?@L#=%[ 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. For Bhutan to accelerate economic growth and poverty reduction, it has to tap into new or additional drivers of growth that can exploit the country’s comparative advantage. The report also highlights potential new drivers, which can help complement Bhutan’s continuing efforts for inclusive and sustainable socioeconomic development. Q % V% [ $ X$ % Australia–Asian Development Bank (ADB) South Asia Development Partnership Facility under the Development Partnership Program for South Asia, with additional assistance from the Japan International Cooperation Agency (JICA). The study was jointly conducted by the Government of Bhutan, ADB, and JICA. Assistant Chief Economist Cyn-Young Park, Economic Analysis and Operations Support Division, Economics and Research Department of ADB provided the oversight and overall direction for the study. The work was coordinated by Yoko Niimi and Kee-Yung Nam of ADB. Tomoki Nitta, Katsuo Matsumoto, Motoyuki Takahashi, Ayumu Ohshima, Jun Yamazaki, Yusuke Takahashi, and Daisuke Ito coordinated the research on behalf of JICA. The report was prepared by Kee-Yung Nam, Muhammad Ehsan Khan, @VZ$X[#\[][#^$L][#_#V[ from background papers prepared by a team of consultants comprising Tenzin Chhoeda, Lekey Dorji, Dil Maya Rai, Rohan Samarajiva, Takayuki Urade, and Bruce Winston. Peter Choynowski, Iris Claus, Utsav {$L|%$$[<%# the report was assisted by Regina Baroma, Arlene Evangelio, Amador Foronda, Maria Melissa Gregorio, iv Chapter 1. IntroductionPreface Lawrence Nelson Guevara, Ronaldo Ico, Lyndree Malang, Sharon Faye Piza, Lilibeth Poot, Mark Romaraog, Emmanuel San Andres, and Rhina Ricci Lopez-Tolentino. The report was edited by Jill Gale de Villa; layout and typesetting were by Mike Cortes. The Government of Bhutan provided support throughout this study in numerous capacities. In particular, we thank Secretary Lam Dorji, Ministry of Finance, and Governor Daw Tenzin, Royal Monetary Authority, for their insights and guidance at every step of the study. We are also grateful for the support and feedback received from Tenzin Chezang, G.B. Chettri, Pushpalal Chhetri, Ugyen Choden, Eden Dema, Pema Dechan Dorjee, Choitsho Eudel Dorji, Nim Dorji, Rinchen Dorji, Gopal Giri, Kunzang Lhamu, Karma Lhendup, Tshewang Norbu, Tashi Pelden, Jai Narayan Pradhan, Karma Rinzin, Sonam Tashi, Sonam Tenzin, Kencho Thinley, Yangchen Tshogyel, Tandin Wangchuk, Dechen Wangdi, Kinley Wangdi, and others whose names may have been inadvertently omitted here; and from numerous agencies, including the Ministry of Finance, Royal Monetary Authority of Bhutan, National Statistics Bureau, Gross National Happiness Commission, Ministry of Economic Affairs, Ministry of Labour and Human Resources, and Ministry of Agriculture and Forests. Finally, our thanks also go to the representatives of the think tanks, development partner representatives, the districts, civil society, and private sector representative organizations that participated in the workshops, for their support and interest in the study. We at ADB look forward to continued and productive dialogue with the Government of Bhutan in pursuing an agenda of inclusive growth and sustained
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