World Bank Group Launches New Country Partnership Framework for Bhutan

Washington: The World Bank Group’s Board of Executive Directors today discussed the new 2021-2024 Country Partnership Framework (CPF) for the Kingdom of Bhutan, which will support the country’s inclusive and sustainable development through a strong focus on job creation and economic and environmental resilience.

“The new Country Partnership Framework is fully aligned with the government’s 12th Five-Year Plan and the COVID-19 Crisis Response Approach. It capitalizes on Bhutan’s commitment to balance the country’s constitutional obligation to cultural preservation and environmental conservation and the need to create jobs and economic opportunities for all its citizens,” said Mercy Tembon, World Bank Country Director for Bangladesh and Bhutan. “This new strategy is designed to get this balance right.”

With the priority to create jobs, the new CPF focuses on two strategic areas: human capital and resilience.

Human capital development contributes to inclusion, productivity, and overall economic growth. Despite Bhutan’s recent gains in human capital, inequalities persist across urban/rural, economic, and gender lines. The CPF will help protect existing human capital gains in the wake of the COVID-19 crisis through support to existing government initiatives to mitigate the impacts of the crisis, particularly on vulnerable households with small children. It will help increase access to maternal and child health services, expand early childcare, and improve child nutrition and development services. Over the longer term, the CPF’s life-cycle approach will support children from an early age to adulthood with investments in early childhood education, health care, nutrition, and high-quality education and life-long learning to help them acquire knowledge, skills and jobs.

Investments in human capital are also key to developing a vibrant private sector by ensuring a larger, better-educated workforce that can be employed in productive jobs, earn higher incomes, and further catalyze economic growth.

To help strengthen Bhutan’s economic resilience, the CPF focuses on developing a more inclusive and diversified economic basis for private sector-led job creation. Bhutan’s current lack of economic diversification limits the scope for more jobs. The public sector – Bhutan’s largest formal sector – can no longer absorb new workers. Fostering private sector growth in key sectors including agriculture, high-value agribusiness (such as certified-organic products for export), tourism, and cottage and small industries is critical to job creation in Bhutan.

“Bhutan’s development philosophy of Gross National Happiness has contributed to impressive economic progress while safeguarding the nation’s rich culture and environment. With the global economic downturn from COVID-19, Bhutan now faces significant challenges with slower economic growth and job losses on top of some vulnerabilities with rising youth unemployment, growing inequality and the impacts of climate change,” said Shalabh Tandon, Acting Regional Director for South Asia at the International Finance Corporation (IFC). “A conscious boost to the country’s fledging private sector by leveraging Bhutan’s strengths is imperative to create more jobs and spur an inclusive recovery.”

Creating a more conducive environment for private sector investments is critical for building long-term resilience to economic shocks. The Bank Group will support business environment reforms by helping to develop policies on external commercial borrowing, e-commerce, competition, and foreign direct investment (FDI). In addition, the CPF will help the government build its social protection system to boost economic resilience at the household and community level.

“MIGA will continue its collaboration with the World Bank and IFC to help draw in foreign investment in support of job creation and environmental resiliency – the focus areas of the Bhutan CPF,” said Ethiopis Tafara, Vice President and Chief Risk, Legal and Administrative Officer at the Multilateral Investment Guarantee Agency (MIGA).

In terms of environmental resilience, the CPF aims to reduce the country’s vulnerability to climate change and natural disasters and create new economic opportunities. A shift from conservation and subsistence use to conservation and sustainable management of natural resources will create much-needed jobs and livelihoods, while maintaining Bhutan’s commitment to environmental conservation. Bhutan’s natural wealth is also a key contributor to tourism, which is another important area of job creation, and the private sector can play a role in supporting high-value, low-impact eco-tourism development.

To strengthen the long-term inclusiveness and sustainability of Bhutan’s development, the CPF includes a cross-cutting focus on harnessing digital technologies. Given Bhutan’s many remote areas and poor transport connectivity, digital technologies can bridge gaps in access to information, services, and markets and can support financial inclusion by expanding financial services through digital payment platforms and mobile banking. This could help underserved cottage and small industries to improve their access to finance and connect them to value chains. Supporting the digitization of government-to-people payments can help improve access to financial services like savings, insurance, and credit for Bhutan’s “unbanked” population.

The CPF lays out key areas of work by the World Bank Group’s member organizations, including the World Bank, the International Finance Corporation (IFC) which focuses on the private sector in developing countries, and the Multilateral Investment Guarantee Agency (MIGA) which facilitates foreign direct investment through political risk insurance and credit enhancement guarantees.

The CPF is aligned with the country’s development vision articulated in the Constitution, Bhutan Vision 2020, and the 12th 5-year plan. It was also informed by the Bank Group’s Systematic Country Diagnostic (SCD) for Bhutan, which is a comprehensive analysis of the country’s development challenges. The World Bank Group held extensive consultations, including with government, private sector, civil society, NGOs, academia, media, students and youth groups, and development partners.