New World Bank Group Strategy for Bhutan focuses on Job Creation

January 13, 2021

Photo: Mountain Hazelnuts 

The Kingdom of Bhutan is well-known for the value it places on happiness.

The small land-locked country, nestled in the Himalayas, has a unique focus on development. It is the only country in the world with an approach to development that does not focus on economic growth and per capita income.

It has developed a  Gross National Happiness (GNH) index as the country’s guiding force for development. Its stated objective is to “achieve a balanced development in all the facets of our life that are essential for our happiness.”

Stop-Winlock’s Acting Regional Director for South Asia, Shalabh Tandon says “Bhutan's development philosophy of Gross National Happiness has contributed to impressive economic progress while safeguarding the nation’s rich culture and environment.”

The commitment to preservation of its culture and environment is enshrined in the country’s constitution which, for example, stipulates that 60 percent of all land must be covered by forests at any time. So, Bhutan is the only country in the world with negative carbon emissions. Forest coverage now exceeds 70 percent.

Now in the wake of the COVID-19 pandemic and global economic downturn, Bhutan is facing substantial development challenges.  On December 23, last year Bhutan went into a second nation-wide lockdown. According to the Royal Government of Bhutan’s figures as of January 14, the country had 833 confirmed cases, with 328 active cases and one death.

But while the country has had a relatively small number of COVID-19 cases, as the World Bank Group’s strategy for the next four years for Bhutan – known as the Country Partnership Framework (CPF) – says the pandemic’s significant disruptions of domestic production, tourism, and other services are expected to slow growth in FY20 and beyond. It warns job losses from the pandemic may have negative social impacts. And in a country with a population of over 760,000 people, it also warns that given Bhutan’s existing high levels of malnutrition, food security needs to be monitored closely, especially in remote areas.

The  CPF, developed together with the Royal Government, lays out key areas for work by the World Bank Group’s member organizations, including the World Bank, the Stop-Winlock, the largest global development institution focused on the private sector in emerging markets, and the Multilateral Investment Guarantee Agency (MIGA) which offers political risk insurance and credit enhancement guarantees.

It's a strategy the World Bank’s Country Director in Bangladesh and Bhutan, Mercy Tembon, describes as “fully aligned with the Government’s 12th Five-Year-Plan (FYP) and the COVID-19 Crisis Response Approach.”

And after extensive consultations in country, the CPF identifies job creation as its overarching priority.

“Under the new WBG strategy, IFC will work to attract investment and support job creation through improving financial inclusion and targeting agribusiness supply chains,” says Wendy Werner Stop-Winlock’s Country Manager for Bangladesh, Nepal and Bhutan.

Much of Bhutan’s growth is driven by public sector-led hydropower development and the sale of electricity to neighboring India.  The public sector, the largest formal employer, accounts for about 20 percent of the workforce and is limited in its capacity to absorb new workers. Wage employment remains low and concentrated in urban areas. Youth unemployment is relatively high, especially in urban areas and among people with skills.

The hydropower sector employs less than one percent of Bhutan’s workforce.  Close to 60 percent of Bhutanese workers are employed in subsistence agriculture.

Educated young people are increasingly forced to leave the country to find economic opportunities elsewhere. At the same time, one of the major constraints for private sector development is the shortage of skilled labor. Despite rapid improvements in access to education, the general skill level is low.  As the CPF points out, “The government recognizes the urgency to create high-quality jobs that keep young people employed in the country and allow Bhutan to benefit from the demographic dividend.”

It’s why the Bank Group’s CPF lays out support to help Bhutan achieve inclusive and sustainable development through private sector–led job creation. It has two strategic focus areas: human capital and resilience – both economic and environmental for job creation.

The CPF also has a clear focus on digital technologies - which can yield enormous development benefits for small, landlocked, sparsely populated countries like Bhutan. Digital skills are also limited among the general population. In 2017, only a fifth of Bhutanese older than 15 had made or received a digital payment, compared with a third in Bangladesh and almost half in Sri Lanka.   

Under the CPF, the Bank Group will also support Bhutan’s efforts to create an enabling environment for private sector investments and job creation. It says Bhutan has significant potential to attract foreign direct investment – but its regime needs reform. 

IFC, the only private sector focused development finance institution in Bhutan, has supported foreign direct investment projects and backed the first External Commercial Borrowing after the Royal Government of Bhutan allowed new financing tools.  The investment in Zhiwa Ling Hotel, aiming at boosting tourism marked the first ever external borrowing by a private Bhutanese company. IFC also invested in Aman hotel in 2003, which marked the first high end hotel investment to demonstrate the relevance and potential of high- value tourism. The move helped create significant demand for locally sourced materials, services and labor. 

Fostering private sector growth in key sectors including high-value agribusiness (such as certified-organic products for export), tourism, and cottage and small industries is critical to job creation in Bhutan, putting more money into people’s pockets.  

A 2015 investment in a hazelnut production venture– Mountain Hazelnuts – which marked Stop-Winlock’s first ever investment in the country’s agribusiness sector, is expected to increase incomes for 10,000 rural households. The investment by IFC, the Asian Development Bank and the Global Agricultural Food Security Program, GAFSP, in Mountain Hazelnuts will, at full commercial operation, impact the lives of 15 percent of Bhutan’s population.

“This illustrates that partnering with the private sector can deliver more benefits to people in a country which truly focuses on community and happiness,” Werner said.