Contributing to a more livable planet and pursuing sustainable development could leverage Bhutan’s renewable natural resources for green growth. Bhutan would increase its climate and environmental resilience and close gaps in its sustainable finance architecture to secure the financing it needs for development. Sustainability should be central to its development strategy and fully recognize and take advantage of the country’s negative carbon footprint. To address these challenges for a more livable planet, the Government could consider the following immediate policy actions and investments: Strengthen cross-sectoral coordination, institutional collaboration and planning, and public-private partnerships so that rural entrepreneurs like Kinley and Sonam can effectively contribute to the sustainable growth of the renewable natural resource sector. Introduce new (e.g., a construction and transport act), amend existing (e.g., the Water Act of 2011), and enforce the implementation of existing acts (e.g., the Disaster Management Act of 2013) to ensure the resilience of critical infrastructure and early-warning services. This will better protect Bhutanese families from less frequent but more severe disasters such as earthquakes and glacial lake outburst floods, which destroyed Bhida’s early learning center and continue to threaten her family’s livelihood and safety. Finalize the policy and governance framework and operationalize the National OVERCOMING INTERTWINED Carbon Registry to facilitate the monetization of net negative GHG emissions and provide clarity on country processes and institutional arrangements for managing international carbon market transactions. With this, the pensions CHALLENGES TO REACH UPPER MIDDLE INCOME STATUS IN BHUTAN BY 2029 received by Karma’s parents could soon be complemented by some of the proceeds from the carbon credits generated by their community and provide them some social cushion in case they need to hire a helper if Dechen, Kinley or Sonam were to migrate. Over the past two decades economic growth in Bhutan has led to a The new Government will have to enlist and inspire a coalition for change beyond rapid decline in poverty, yet structural transformation has been slow. the public administration—a coalition that includes citizens, communities, civil society, the private sector, and development partners—to implement the critical Geography, high trade costs, and a small domestic market pose structural challenges to the reforms and actions identified here to promote people, progress, and planet. growth of non-hydropower sectors. Private sector job opportunities are limited, and young Together, the coalition would strive to ensure that young, educated people decide to people are emigrating in large numbers. Employment remains concentrated in agriculture stay in Bhutan and contribute their best to secure a more prosperous Bhutan. (43%) and the public sector. State-owned enterprises dominate the economy. The lack of economic diversification and limited private sector business activity pose risks to long-term growth and job creation. The hydropower sector contributes substantially to the economy, but it employs less than 1% of the labor force. And growth in other sectors has been intensive in capital and labor, with limited productivity improvements. The tax base beyond hydropower is anemic, with tax revenue constrained by weak tax collection and the small domestic private sector, which limits the ability to ramp up spending to achieve ambitious development goals. Economic progress envisions the To address these challenges of investing private sector as the main job creator. in people, the Government could consider Achieving this will require an efficient the following immediate policy actions public sector, sound macroeconomic and investments: fundamentals, and investment in infrastructure that connects economic Align the proposed cash centers with domestic, regional, and $ incentive for the third child global markets. with the comprehensive At a crossroads to reach upper mother and child health middle income by 2029, Bhutan benefit program to ensure efficient and cost-effective To address these challenges to economic faces intertwined challenges in program delivery. progress, the Government could consider the the short and medium terms. following immediate policy actions and The economy is in crisis, and thousands Continue expanding early investments: of youths are unemployed. The childhood care and education system is failing, and development services to healthcare services are strained due to remote and vulnerable Implement the new goods and services populations so that kids like tax and operationalize the Bhutan shortages of doctors, nurses, and Bhida growth to their fullest Economic Stabilization Fund to help technicians. Farmlands are being left human capital potential. manage fiscal volatility. Increased fallow even as the government spends revenues will ensure proper funding for billions on food imports. Confidence in social services that are dearly needed by Expand employment service vulnerable people like Karma’s family public administration is low, with people centers and the labor market members leaving in the village. losing hope. Bhutan faces a grave information system to existential crisis. strengthen links between better skills and private Facilitate access to finance to support sector needs and incentivize the private sector with a partial credit the economic participation of guarantee scheme—and, with rigorous working age females like supervisory oversight and regulations, Dechen and Kinley. extend external commercial borrowing The new Government has an to larger companies, including financial ambitious vision, a Contract institutions. A policy that would aid Strengthen the prevention Dorji’s dreams of expansion. with Bhutan, with the clear and response to Gender goal of transforming Bhutan Based Violence prevention that is disrupting the social Enhance trade with its neighbors by into a developed nation in fabric of Bhutan and breaking taking the lead in: (i) establishing and the next five years. families as Dechen upgrading laboratories to meet their experienced few years ago sanitary and phytosanitary Reaching upper middle income by after enduring repeated requirements; (ii) a Trade Information 2029 hinges on investments in people, occurrences of intimate Portal and augmenting use of partner violence. web-based systems for trade facilitation economic progress, and a sustainable with them; (iii) and facilitating transit planet. traffic through Bangladesh and India, Implement a health financing including greater use of containerized strategy to ensure vehicles and waterways. This will boost sustainability for the sector the earning expectation of prospective given expected increases in rural entrepreneurs like Kinley and health care costs. Sonam and encourage them to take the risk to invest. Investing in people entails investing in quality education, healthcare, and Establish a care network and patient empanelment system Design a comprehensive financing social protection services for all, including minorities and people with that links patients with facilities strategy for the hydropower project disabilities; developing skills for sectors that are attractive to youth; and and providers to strengthen pipeline in keeping with Bhutan’s promoting gender equity and female labor force participation. Bhutan needs integration, continuity, ambitious goal to generate almost 7,000 urgently to provide quality social services to its people and foster the creation comprehensiveness, and MW from 13 hydropower projects by patient-centeredness of service 2035, with an estimated financing of good job opportunities to stabilize its population and ultimately reverse requirement of around USD 14 billion. delivery. the emigration trend. Strengthen international internet Harmonize education sector connectivity and build the resilience of roadmap initiatives into an data infrastructure, and advance steps updated National Education to modernize policy frameworks and Policy, addressing teacher investments to strengthen data development. governance, privacy, and cyber security.