Bhutan’s POLICY Aspirations NOTES 2024 People, progress, and planet: Reaching upper middle income status by 2029 TABLE OF CONTENTS SOCIOECONOMIC CONSTRAINTS FACING FAMILIES IN BHUTAN 01 THE URGENCY OF REFORMS 03 INVESTING IN PEOPLE 06 Investing in the early years 07 Investing in school Age: Primary, Secondary, Tertiary education 08 Investing in adulthood: Strengthening workforce development and employment 10 Integrating service delivery systems for health and social protection 11 FOSTERING ECONOMIC PROGRESS 13 Boosting private sector participation 13 Increasing macroeconomic stability and public sector efficiency 14 Enhancing the agglomeration benefits, connectivity, and resilience of cities 15 Policy recommendations 18 PROMOTING SUSTAINABLE DEVELOPMENT ON A LIVABLE PLANET 21 Maximizing sustainable agriculture, forestry, and tourism for green growth 22 Strengthening climate and environmental resilience 24 Closing gaps in Bhutan’s sustainable finance architecture 25 CONCLUSION 26 SOCIOECONOMIC CONSTRAINTS FACING FAMILIES IN BHUTAN One way to visualize the issues facing Bhutan is to see them through the eyes of an imaginary but typical family. Karma is 29, intelligent and hard-working but he is thinking about leaving Bhutan. He just received his visa to attend college in Australia with a clear prospect of landing a good job there afterwards. While completing the emigration process, he was also offered an internship in a film Production startup in Bhutan led by his elder brother Dorji. But for two years the startup, catering to the emerging Bhutanese film industry, has been struggling to expand. Dorji needs $5 million in financing, but under Bhutan’s current company valuation rules, he doesn’t have enough assets to back the loan. What policies would the government need to adopt to keep Karma and many others like him in Bhutan? And how could Dorji’s business be supported to expand, and retain its talented workforce by offering them a clear path to social progress, while also providing more opportunities for others seeking employment? Karma and Dorji’s parents have returned to live in their home village after taking early retirement as civil servants. They are cared for by their youngest child, 25-year-old Kinley, who has stayed in the village to take care of the family’s farmland and animals. To feed her husband and two sons, she is cultivating an acre of paddy rice and rearing two cows. In addition, she has received through a Project a greenhouse to cultivate vegetables and spices. She also has a permit to harvest mushrooms and lemongrass, which she can sell to the market. Kinley’s husband, Sonam, is a carpenter who builds and renovates traditional houses in the village and crafts small furniture. Both Kinley and Sonam would like to explore how they might boost their income by expanding their businesses into high-value natural renewable resources. Kinley wants to grow organic strawberries, and Sonam wants to produce high-quality handcrafted furniture, but they lack access to finance, markets, and business skills. In addition, increasingly unpredictable weather and higher risk of natural hazards make their business uncertain. Recent floods and forest fires have threatened their lives, property, livelihood, and safety, raising concerns about the future. 1 Bhutan’s Aspirations 1 What policies would the government need to adopt to support Kinley and Sonam to start a rural enterprise and diversify their livelihoods? What policies are needed to promote the demand for Bhutanese high-value natural renewable resources? And what of climate change – will the risk of more flooding and earthquakes put them and their businesses in danger? What policies and programs could the government implement to ensure resilience to climate change impacts, including through effective disaster risk management and adaptive social protection? Dorji and Karma’s divorced 30-year-old sister, Dechen is hoping that she can find a job in the Dechen, and her four-year-old daughter, Bhida, newly established ecolodge in the village. Little have moved from Thimphu to live with her Bhida attends the village Early Education Center, parents as the cost of living in the city became too which was recently exposed to a glacial lake high. Dechen struggles to find meaningful outburst flood, resulting in disruption to her employment in her home village. Her parents education and a safe learning environment. The hope that their pensions will soon be brothers worry about their family. supplemented by the earnings from Kinley and Sonam’s rural enterprise. How can the government ensure that Bhida will have the same chances of success in life as her cohort in Thimphu? Will there be enough qualified teachers at all levels of her education? Will Dechen and their parents have a decent income and be able to provide for themselves and Bhida? As their parents age, will they have good healthcare in the village? What would happen to their social safety net if Dechen, Kinley, and Sonam, her husband, had to migrate to another district or abroad in search of better income opportunities? For these reasons Karma is about to turn down the offer of work with his brother and emigrate to Australia. He believes that good training and job prospects there could change the fate of his family. This policy note will attempt to answer some of these questions. 2 Bhutan’s Aspirations THE URGENCY OF REFORMS Over the past two decades economic growth in At a crossroads to reach upper middle income Bhutan—known for its Gross National Happiness by 2029, Bhutan faces intertwined challenges indicator—has led to a rapid decline in poverty, in the short and medium terms. yet structural transformation has been slow. The economy is in crisis—Dorji’s business is typical of Bhutan’s broad-based growth has reduced poverty a stagnant private sector—and thousands of youths and inequality over the past decades, to respond are unemployed, leading to a never seen before to the COVID-19 pandemic and multiple global and exodus of Bhutanese, like Karma, who are leaving domestic crises, the country adopted unorthodox the country in search of better opportunities. The policies such as using foreign reserves to invest in family’s concerns for four-year-old Bhida are crypto-mining, which slashed reserves by half and justified, as the education system is failing, and exacerbated macroeconomic and financial healthcare services are strained due to shortages of vulnerabilities. External vulnerabilities combined doctors, nurses, and technicians. Farmlands are with longstanding structural weaknesses have being left fallow even as the government spends intensified the negative economic impact of a billions on food imports. Confidence in public surge in outmigration. Private sector job administration has hit rock bottom, with people opportunities are limited, especially for young losing hope. Bhutan faces a grave existential crisis. people like Karma, who are now emigrating in large numbers. The lack of economic diversification and limited private sector business activity pose Despite these challenges, the new Government risks to long-term growth and job creation. The (Bhutan transitioned to a constitutional hydropower sector contributes substantially to the monarchy in 2008) has an ambitious vision, a economy, but it employs less than 1% of the labor Contract with Bhutan, with the clear goal of force. And growth in other sectors has been intensive in capital and labor, with limited transforming Bhutan into a developed nation productivity improvements. in the next five years. This vision is closely aligned with His Majesty’s vision Geography, high trade costs, and a small to anchor Bhutan’s future on Gelephu Mindfulness domestic market pose structural challenges City. This special administrative region in the south that have constrained the growth of non-hydro will feature carbon-negative and nature-positive industry and holistic mental and spiritual wellness. sectors. Policies are being formulated for an “altitude Moreover, state-owned enterprises (SOEs) economy” that identifies sequential “elevations” with dominate the economy, even in sectors such as the aim of reaching higher elevations over time. agriculture where the private sector is struggling Reaching upper middle income by 2029 hinges on to emerge or survive with limited access to investments in the three Ps: People, economic finance, and a difficult investment climate as Progress, and a sustainable Planet. Kinley and Sonam are experiencing first-hand. With slow structural transformation, employment Investing in people entails investing in quality remains concentrated in agriculture (43%) and the education, healthcare, and social protection public sector, including health and education services for all, including minorities and people (19%). with disabilities; developing skills for sectors External grants have halved to 7% over the past that are attractive to youth; and promoting decade and are expected to decline further since gender equity and female labor force Bhutan graduated from being a Least Developed participation. Countries (LDC) in December 2023, reducing its concessional donor funding. The decline in grants All of these measures would greatly boost the can be offset by robust revenue collection. But the prospects of our imaginary family. With tax base beyond hydropower has been emigration accelerating, Bhutan needs urgently to constrained by weak tax collection and the small provide quality social services to its people and domestic private sector, which limits the ability to foster the creation of good job opportunities to ramp up spending on priority sectors to achieve stabilize its population and ultimately reverse the ambitious development goals. emigration trend. Bhutan’s Aspirations 3 To address these challenges, the To address these challenges, the Government could consider the following Government could consider the following immediate policy actions and immediate policy actions and investments: investments: Implement the new goods and Align the proposed cash incentive services tax and operationalize the for a third child with the Bhutan Economic Stabilization Fund to $ comprehensive mother and child help manage fiscal volatility. Increased health benefit program to ensure revenues will ensure proper funding efficient and cost-effective program for social services that are dearly delivery. needed by vulnerable people like Karma’s family members living in the village. Continue expanding early childhood care and development services to remote and vulnerable populations so that young children Facilitate access to finance to support like Bhida grow to their fullest the private sector with a partial credit human capital potential. guarantee scheme—and, with rigorous supervisory oversight and regulations; extend external commercial borrowing to larger Expand employment service companies, including financial centers and the labor market institutions. A policy that would aid information system to strengthen Dorji’s dreams of expansion. links between better skills and private sector needs and incentivize the economic participation of working-age females like Dechen and Kinley. Enhance trade with neighbors by taking the lead in establishing and upgrading laboratories to meet global sanitary and phytosanitary Strengthen the prevention and requirements; establishing a trade response to Gender Based Violence information portal and augmenting prevention that is disrupting the the use of web-based systems for social fabric of Bhutan and trade facilitation; and facilitating breaking families as Dechen transit traffic through Bangladesh and experienced a few years ago after India, including greater use of enduring repeated occurrences of containerized vehicles and waterways. intimate partner violence. These measures will boost the earning expectations of prospective rural entrepreneurs like Kinley and Sonam and encourage them to stay and take Harmonize existing education investment risks. sector roadmap initiatives into an updated National Education Policy, addressing teacher development. Design a comprehensive financing strategy for the hydropower project pipeline in keeping with Bhutan’s ambitious goal to generate almost 7,000 megawatts (MW) of electricity from 13 hydropower projects by 2035, with an estimated financing requirement of around $14 billion. Economic Progress envisions the private sector as the main job creator. Strengthen international internet Achieving this will require an efficient public connectivity, and build the resilience sector, sound macroeconomic fundamentals, and of data infrastructure. Modernize investment in infrastructure that connects policy frameworks and investments to economic centers with domestic, regional, and strengthen data governance, privacy, and cybersecurity. global markets. Good jobs will come from a deep transformation of the Bhutanese economy. 4 Bhutan’s Aspirations Contributing to a more livable planet and Although Bhutan has already had great success pursuing sustainable development could with a similar project—crossing the low-income leverage Bhutan’s renewable natural resources country threshold in 2006 after strategically for green growth. anchoring its development to hydropower in the 1980s—the current challenge might be Bhutan would increase its climate and harder because of accelerated outmigration environmental resilience and closes gaps in its from a country that has limited economic sustainable finance architecture to secure the opportunities and that graduated from LDC financing it needs for development. Sustainability should be central to its development strategy and status in December 2023. fully recognize and take advantage of the The new Government will have to enlist and country’s negative carbon footprint. inspire a coalition for change beyond the public administration—a coalition that includes citizens, communities, civil society, the private sector, and development partners—to implement the critical reforms and actions identified here to promote people, progress, and planet. Together, the coalition would strive to ensure that Karma and others like him decide to stay and contribute their best to secure a more prosperous Bhutan and give His Majesty’s vision a chance to become a reality within a decade. To address these challenges, 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 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 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. Bhutan’s Aspirations 5 INVESTING IN PEOPLE Investing in people across the lifecycle Bhutan has consistently placed a high priority improves individual well-being and on human capital, as evidenced in consecutive productivity, transforms lives, and shapes the Five-Year Plans, policies, and regulations. direction of society and the economy. While there has been progress, social and spatial Individuals’ accumulated good health, knowledge, inequality constraints remain in access to and use and skills and their earned or possible income of health and education services to ensure the build greater resilience in the face of shocks, optimal accumulation of human capital. The human greater equity by protecting them against human capital gains from reduced stunting and child capital depletion, and more opportunities to mortality and improved educational outcomes improve their livelihoods. Having more human reflect investments in the coverage and quality of capital contributes to sustained economic growth health and education services. But such gains have and greater poverty reduction. A country’s Human not reached everyone. Social services to improve Capital Index projects the future productivity of a human capital and facilitate the transition from child born today based on the health and school to work remain limited for many people due education inputs the child receives during the to uneven coverage of programs and services early stages of life. Specific interventions at each across the country and low access for the most stage of an individual’s life can build human vulnerable, including those in remote areas. capital. During the working years, human capital is Moreover, the rise of noncommunicable diseases used by entering the workforce, and it can be and mental health disorders and the recent rapid continuously improved through lifelong learning outmigration of health and education professionals and protected through high-quality health care. have impaired human capital accumulation, as Throughout the lifecycle, systems should be in country systems are not fully adapted to meet place to protect against the depletion of human emerging challenges, including disaster capital from economic hardships, natural preparedness and response. disasters, and other shocks. Bhutan requires innovative interventions to Building systems that would help address barriers to access to and use of services children like little Bhida throughout their to improve well-being and realize the full poten- lifecycle tial of its population. Achieving better coverage of quality services requires programs that are adequate in coverage, generous in Building human benefits, equitable in reach—and cost-effective, capital with incentive-compatible, and financially sustainable. maternal, Early neonatal, child Systems to deliver and monitor such programs must health, and Years be data driven and dynamic to address vulnerabilities nutrition (MNCHN) to natural and economic shocks. Bhutan needs a services holistic set of policies and programs, underpinned by effective service delivery, to promote better health, Building human Protecting education, and skills for Bhida and other children capital with early human capital while they are young; higher productivity and income School with program care and when they reach working age; and better protections education Age and systems to when they are older adults. Such an approach should services respond to shocks aim to address core concerns in health, nutrition, cognitive development, learning, and technical and life skills with the aim of developing a well-equipped Building and workforce and of creating opportunities for greater using human economic inclusion, income diversification, and capital with skill Adulthood competitiveness in a globalized world. Given Bhutan’s development ambitions of reaching upper middle-income and productive opportunities status—where the average Human Capital Index is 56%—it is imperative for the country to enhance access to and improve the quality of health and social Access to full health and education services to build and protect its human capital and boosting productivity and incomes boost productivity in today’s and tomorrow’s economy. 6 Bhutan’s Aspirations INVESTING IN THE EARLY YEARS Fertility rate Crude death rate Under-five stunting Early Childhood Care and Development 1.9% (2020) 6.3 per 1,000 (2020). 21% (2015), with 29% in (ECCD) enrollment eastern region and 26% 38.6% of children aged in rural areas. 3-5 (2022). Health visits 55% 26% 75% of women register of pregnant women of women complete pregnancy in first complete eight four postnatal care trimester antenatal care visits visits The “1,000 golden days” of life set the foundation for a child’s lifelong health and development trajectory, meaning that interventions in this period have large and long-term impacts. High-quality, comprehensive antenatal and early life health and nutrition care are crucial, but when Dechen was pregnant with Bhida, she received no advice on nutrition and little antenatal care. In Bhutan, there is inadequate knowledge of, and demand for, maternal care and child nutrition services, resulting in undesirable practices and outcomes. For example, women in urban areas A high return on ECCD spending and psychosocial tend to delay their first antenatal visit to reduce stimulation at an early stage can raise incomes by total hospital trips and save travel costs. Antenatal up to 25%.3 care and institutional delivery are much lower in For disadvantaged children, the rate of return is the rural and remote areas of the country and 7%–10% a year.4 Well designed and implemented among women with lower levels of education and programs contribute to such outcomes by socioeconomic status.1 Even when women do encouraging the use of key health and education receive antenatal and delivery care, services are services while providing resources to smooth not always comprehensive. While availability of consumption for vulnerable households.5 Across equipment and supplies is high, only 68% of childhood, the positive impacts of quality early patients receiving antenatal care reported ever learning can improve school readiness, reduce being advised on exclusive breastfeeding, and repetition and drop-out rates, and lead to higher provider knowledge in management of academic achievement. 6 ECCD can also lead to intrapartum emergencies and malnutrition is success later in life,7 with better employment and inadequate. For example, most providers were earning prospects. Because the impacts can be unable to correctly manage simulated emergency greater for children from disadvantaged cases of postpartum hemorrhage and neonatal backgrounds, early learning can reduce asphyxia, and only 69% were able to correctly inequities.8 Quality is vital, however, as poor diagnose childhood malnutrition (stunting).2 quality services produce no or even detrimental Malnutrition remains a major public health impacts.9 Complementary to such efforts, making concern as undernourished girls are more likely to quality childcare available improves labor market give birth to low-birth-weight babies, perpetuating opportunities and productivity for women and poor nutrition across generations with negative promotes lower fertility rates. impacts on human capital and future productivity. Bhutan’s Aspirations 7 While Bhutan has made progress in establishing These high-impact policy actions and investments ECCD centers for children aged 3–5, services are will put Bhutan in a stronger position to promote still underused. early child development and emulate the successes This is observed mainly among the most of some Latin American countries. vulnerable and in remote areas, where childcare For example, Peru reduced chronic malnutrition, services are very limited for children under 3. This or stunting, among children under age 5 from 28% places a significant burden on women who to 13% with coordinated programs and policies undertake most childcare for their families and including a conditional cash transfer (Juntos), thus are unable to fully participate in the labor regionally targeted budgeting, and high-quality market. As a single mother, Dechen needs more maternal and child health care. Similarly, support if she is to find work. She fears her talents Colombia expanded home-based and are going to waste and does not want to rely on community-based childcare options to 42% of her brothers for money. Services are compromised children under the age of 5, boosting their test by the attrition of healthcare workers over the past scores 14.5% in the 5th grade. two years, and by the absence of effective standards, limited and systematic training opportunities for caregivers, and turnover of facilitators in public facilities due to unfavorable contractual benefits and tenures. Service quality thus poses a risk to the wellbeing of children even when such services are accessible. IMMEDIATE ACTIONS To address human capital building constraints in the early years of the lifecycle, and improve service delivery, the Government may consider the following immediate policy actions and investments: Align the proposed cash incentives for the third child with the comprehensive mother and child health benefit program to ensure efficient and cost-effective program delivery. SCHOOL AGE Continue expanding ECCD services to remote and vulnerable populations. MEDIUM TERM ACTIONS 90% (2021) Over the medium term, the following Primary school completion rate actions will complement these quick-win interventions: Expand cash transfer programs to 60% (2022) Lower secondary completion rate socioeconomically vulnerable households with, or expecting, children to promote demand for maternal and child nutrition services. 66.6% (over 15) Literacy rate Undertake a pilot innovative ECCD 98% approach (such as mobile creches and extended hours) to assess (15-24) (2022) mainstreaming potential. Literacy rate 86% Strengthen health facility and care provider capacities to provide (2021) comprehensive maternal and child Individuals using the internet healthcare. 8 Bhutan’s Aspirations The COVID-19 pandemic inflicted alarming IMMEDIATE ACTIONS declines in cognitive and socioemotional To address human capital–building development among young children globally constraints during the school years and These developmental deficits could translate into improve service quality, the a 25% reduction in their earnings as adults.10 Government could consider the Despite enormous efforts in remote learning in all following immediate policy actions and countries, children did not learn during the investments: unprecedentedly long school closures, which could reduce future lifetime earnings globally by Harmonize education sector roadmap $21 trillion. In addition to drops in employment initiatives with an updated National and skills among youth, there has been a Education Policy, addressing teacher substantial increase in the number of youth who development, enhanced ECCD services, are neither employed nor enrolled in education or integration of mental health training. In all age groups of children and youth, counselling, standards for the impacts of the pandemic were consistently infrastructure and climate resilience in worse for children from poorer backgrounds. school, and standards for digital connectivity and information and communication technology (ICT) equipment. MEDIUM TERM ACTIONS Over the medium term, the following actions can complement these quick-win interventions: Supply schools with needed ICT equipment and train teachers on ICT skills. Quality education services can be difficult to support in Bhutan’s rural and mountainous Introduce a pilot program of terrain. climate-resilient infrastructure provision in schools to assess mainstreaming Dechen does not want Bhida’s education to suffer potential and reduce school days lost. because of their move back to her home village. But infrastructure is a challenge in basic education. Outdated school facilities do not protect against severe temperatures and are not conducive to learning. In some cases, schools These high-impact policy actions and close for large parts of the year because of bad investments would be transformative for Bhida weather, leading to further losses in learning, and will put Bhutan in a stronger position to particularly in areas with low connectivity. The promote education at the primary, secondary, rapid attrition of the teaching workforce due to outmigration has also strained the capacity and and tertiary levels and emulate the successes of quality of education services, with differences in some Asian countries. teacher quality across regions already cause for For example, India set up a program to digitize concern. Institutions of higher education struggle and host curricula on open national platforms with rising demand, limited resources, and (DIKSHA), which proved helpful in providing access misalignment of curricula with job market to content in remote areas and during prolonged demand. The private sector absorbs few skilled school closures. In addition, Japan adapted school workers, indicating a mismatch between infrastructure to suit the geography and climate of education outcomes and industry needs. While schools in various locations, increasing energy there is overall gender parity, disparities in efficiency and reducing impacts on the completion rates are pronounced in higher environment, as well as improving the impact of education and in technical and vocational physical space on learning. education and training institutions. Nearly three times as many men as women complete higher education and twice as many men as women complete technical and vocational education. Bhutan’s Aspirations 9 ADULTHOOD Adult unemployment rate: 3.5% (2023). Location 1.9% rural 6.2% urban 56.8% (2023) Female labor force participation Gender 4.5% Female 2.7% Male Adults with up to secondary 4.5% 19% (2023) education Adults with higher than secondary education 9.8% Youth not in employment, education or training Jobs contribute to economic growth and have In this regard, supporting high-potential accounted for much of the decline of extreme entrepreneurship development can boost job poverty globally. creation for educated workers and orient employment services toward skills demanded by For individuals, jobs can raise living standards, the private sector. productivity, and even contribute to social cohesion. Apart from the incomes earned, jobs High-quality health services are required to can contribute to mental and physical health. In protect the longevity and effectiveness of the countries where wage employment is the norm, workforce. not having a job can undermine satisfaction, and translate into open unemployment rather than With declining fertility and crude death rates, underemployment. Bhutan will soon face an aging population and a rising dependency ratio, which can affect the future economy as a smaller proportion of working-age The labor market is at a critical juncture. people carry the burden of providing for a larger Quality jobs are concentrated mostly in the public proportion of dependents. Now that Non sector and comprise mainly men and high-skilled Communicable Diseases (NCDs) account for the workers, while, as Dorji has discovered with his majority of deaths and ill health in the country, the business, the private sector faces challenges both importance of high-quality and accessible care to in creating jobs and attracting talent, particularly prevent, diagnose, and manage chronic conditions with the dominance of state-owned enterprises. is paramount both for population health and health More and better jobs are required in the private sector financial sustainability. Weaknesses in sector to absorb the growing educated workforce accessibility for differently-abled persons and in in urban areas, while ensuring that access to readiness to provide comprehensive NCD care. For productive jobs is inclusive. Women, low-skilled, example, only 14% of all health facilities in the and rural workers are mostly employed in country have a ramp to facilitate access for patients low-productivity agricultural jobs as self-employed with limited mobility (common among older adults), or family workers, with limited options for upward and only 13% have handicap-accessible toilets. mobility. The private sector faces numerous While health care providers commonly correctly barriers to growth and productivity diagnosed and treated simulated NCD cases of improvements, being dominated by hypertension and diabetes, only 64% were able to low-productivity microenterprises that do not accurately diagnose depression. Patients receiving grow over time, contributing to unemployment NCD care did not always receive important services among skilled professionals. It also faces labor such as having their cholesterol measured or being shortages and hiring difficulties, which stem counseled on the harms of tobacco or betel use. partially from limited linkages between employers Increasing prevalence of chronic conditions, and training institutes and a weak labor including mental health issues, threatens the intermediation system. wellbeing and productivity of the workforce and the population more broadly, elevating the urgency of strengthened health service delivery. 10 Bhutan’s Aspirations IMMEDIATE ACTIONS To address the effective utilization of INTEGRATING SERVICE human capital among working-age adults, the Government may consider the DELIVERY SYSTEMS following immediate policy actions and investments: FOR HEALTH AND Expand the scope of employment service centers and the labor market SOCIAL PROTECTION information system to strengthen links between better skills and private A comprehensive multisectoral strategy and sector needs. system can offer access to a range of programs —mothers, like Dechen, in accessing healthcare MEDIUM TERM ACTIONS and ECCD services, children through their Over the medium term, the following entrance into the labor market, those of working actions can complement these quick-win age as the primary contributors to the country’s interventions: economic growth, and the elderly as contributors to household economic decision-making. Young Strengthen economic inclusion Bhutanese often migrate to the cities in search of services (such as training, technology better jobs and living conditions, but gender and transfer, and microcredit) for rural spatial inequalities have increased as educated workers to improve productivity and women have less economic mobility than male build resilience to climatic shocks. peers. And rural populations have limited access to or low take-up rates for services, which are Expand low-cost financing concentrated in Thimphu, despite free education opportunities for youth entrepreneurs and healthcare. and start-ups to accelerate business development and generate economic Gender-based violence (GBV) is high in Bhutan opportunities. and there has been a rise in youth mental health cases in recent years. These high-impact policy actions and 44.6% of women and girls in Bhutan report facing investments will put Bhutan in a stronger violence in their lifetime. Women tend not to report incidents and when they do seek help, they position to support its workforce development first report to friends and parents and only a small and emulate some Latin American countries. share of women seek help from formal The Jovénes programs in several Latin American institutions.12 GBV has intergenerational impacts countries have significantly increased an individual’s on children and severely constraints human employment chances (5–20 percentage points), capital accumulation in women and girls. Almost especially women’s, and also appear to boost one third of Bhutan’s population (32.5%) is earnings (10–25 percentage points). Training affected by mental, neurological, and substance courses are competitively selected and reflect the abuse disorders, alongside high rates of suicide.13 needs of the employers. Classroom training, Drug abuse among youth is growing with focused on basic and specific trades, is combined substance abuse accounting for 78% of criminal with subsequent work experience in firms. Costa activities. Given the stigma around mental health, Rica, Ghana, and Brazil are examples of successful many cases go unreported. Multiple factors are implementation of patient empanelment, which exposing youth to mental health stressors such as facilitated targeted, comprehensive and high youth unemployment, limited livelihood patient-centered clinical services.11 opportunities, and quality of care. Bhutan’s Aspirations 11 Building a system focusing on raising quality, MEDIUM TERM ACTIONS synergies, and complementarity of services to better serve people, leads to efficiency gains when initiatives are conceived, planned, and Over the medium term, the following executed in a more coordinated manner across actions will complement these quick-win institutions. interventions: Such a system would support the identification of Develop an integrated social registry to the needs of the population, understand the link civil registration, citizen strengths and weakness of programs, and monitor identification, social service and evaluate interventions, while improving management information systems, transparency and accountability of policies, and health care, and early warning systems supporting responses to disasters and crises. to identify eligible and/or vulnerable Today’s elderly population is highly vulnerable due households, as well as demand for to limited services that could improve their living benefits and service. standards, beyond free healthcare, and the lack of stable income due to the small contributory Strengthen health facility accessibility scheme in the country. Enhancements in the infrastructure and healthcare provider contributory scheme would help address future capacities to deliver comprehensive vulnerability for the large mass of workers in the NCD prevention, diagnosis, and private sector, many of whom do not even have management services. legally enforceable contracts, and for those in subsistence and small agriculture, which are not currently covered by social security. These high-impact policy actions and investment will put Bhutan in a stronger IMMEDIATE ACTIONS position to deliver services in an integrated way, as Chile managed to achieve. To build a comprehensive system that can Indeed, Chile’s human capital service delivery support the delivery of social services is built on its Ficha de Protección Social across the lifecycle, the following (FPS)—a social registry that enables monthly immediate policy and investments may be verification of labor income, pensions, vehicle considered: ownership and health insurance fees, annual verification of capital income, school fees, and Adopt a comprehensive social household ownership, among others, to protection strategy to identify key facilitate policymaking. With its links to human capital needs across the national early warning systems, Chile has lifecycle, establish programmatic reduced response time to crises—as from 115 approaches addressing vulnerabilities days (Tarapacá Earthquake in 2014) to 27 days and shocks monitor and evaluate (Coquimbo Earthquake in 2015). interventions, and outline a financing plan for contributory and noncontributory schemes. Implement a health financing strategy to ensure sustainability for the sector given expected increases in health care costs, and establish a care network and patient empanelment system that links patients with facilities and providers to strengthen integration, continuity, comprehensiveness, and patient-centeredness of service delivery. 12 Bhutan’s Aspirations FOSTERING ECONOMIC PROGRESS Bhutan has made substantial economic progress over the past two decades but needs to expedite reforms to achieve its long-term More than 95% of firms have goals. fewer than five employees. The economy grew at an average annual rate of 7.2% between 2000 and 2019, fueled by the public sector-led hydropower sector and strong While cottage firms employ performance in the services sector, including 37% of workers, large firms, tourism. Bhutan’s per capita income rose which make up only 0.3% threefold in purchasing power parity terms over of firms in the country, the same period, helping the country to employ 32% of all workers. graduate from LDC status in December 2023. Extreme poverty, at $2.15 per person per day, The vast majority of firms was eliminated by 2022, and the proportion of (97%) are individual the population living below the $6.85 a day proprietorships. poverty line for upper middle-income countries fell from 39.5% to 8.5% between 2017 and 2022. But following the COVID-19 pandemic, the country experienced two consecutive years of negative growth. And several structural challenges may delay its progress toward The government should adopt a private becoming a developed country. To advance sector–friendly approach by offering more rapidly toward this goal, Bhutan needs to concessions and revenue guarantees to attract boost private sector development for job potential private sector investments across creation, increase macroeconomic stability and sectors. public sector efficiency, and enhance the Implementing a comprehensive public-private agglomeration benefits, connectivity, and partnership mechanism in several sectors will help resilience of cities. attract credible international investors. The selection of international developers should be based on their ability to generate local jobs and BOOSTING PRIVATE revenue and contribute to the national economy. SECTOR PARTICIPATION State enterprises may be crowding out private firms in some commercial sectors. The private sector is small and in its early In principle, state enterprises should be created phase of development. only in sectors where there is market failure Despite government efforts to establish a more (providing public goods) or in sectors that are business-conducive environment, the considered strategically important (defense). But underdeveloped private sector is dominated by in Bhutan, state enterprises are also engaged in micro and small firms, primarily operating banking, insurance, telecoms, information informally. More than 95% of firms have fewer technology, airlines, manufacturing, cement, and than five employees. Bhutan has implemented mining, where the private sector could be more a range of regulatory and business environment active. The rationale for having state enterprises in reforms, but it has only a handful of large manufacturing, agriculture, and real estate is not companies, while many small firms like Dorji’s clear, and these firms may be crowding out are struggling to grow. While cottage firms opportunities for the private sector. The employ 37% of workers, large firms, which profitability of state enterprises is driven by a few make up only 0.3% of firms in the country, sectors and by the lack of competition. employ 32% of workers. The vast majority of firms (97%) are individual proprietorships. Bhutan’s Aspirations 13 Limited access to finance is one of the top constraints for small and medium companies. IMPROVING MACRO- Dorji needs $5 million to grow his business, but uneven access to bank credit, complex loan ECONOMIC STABILITY procedures, and the limited range of financial instruments offered by banks make it difficult for AND PUBLIC SECTOR him to get the financing he needs. In rural areas, there is substantial unmet demand for simpler EFFICIENCY banking services. As of December 2021, only 23% of the adult population had access to credit, 57% of them men and 43% women. Despite a high Economic diversification is crucial to mobile phone penetration rate of 95%, access to strengthen the economy. eMoney is only 22%. The availability of bank Greater economic and export diversification can branches and ATMs is the lowest among South diminish fluctuations in economic growth and Asian countries. Access to finance is further boost long-term average growth. Bhutan is constrained by the absence of appropriate risk especially vulnerable to shocks because of its trade sharing and credit enhancement openness, economic concentration, and instruments—and by banks’ risk aversion to susceptibility to natural disasters and the impacts lending to micro, small, and medium enterprises. of climate change. By diversifying its economy, it Limited access to foreign private capital for can reduce its dependence on hydropower and domestic firms reflects heavy restrictions on open more employment opportunities, making the capital account movements. economy and its people more resilient to shocks. To promote diversification, it could allocate more The private sector in Bhutan faces challenges of its resource rents to long-term investments. in accelerating job creation in productive sectors. Fluctuating expenditures and revenues add to A sectoral comparison of net job creation rates and the fiscal pressure. labor productivity in 2021 (measured as GDP per worker) reveals that some sectors with the highest Hydropower revenue can be volatile, as profit job creation rates were also among the most transfers and dividends from state enterprises productive: financial, insurance, and real estate fluctuate year to year depending on weather activities; transportation, storage, and patterns and the commissioning of new plants. As communications; and mining and quarrying. Yet, current expenditures are difficult to reduce once these sectors remain very small and are unable to expanded, an increase in current expenditure, absorb the rising number of high-skilled workers driven by a spike in revenues in one year, can due to limited infrastructure, small market size, reduce fiscal space and increase risks if revenues geographic constraints, and skill and technology decline as a result of a shock in later years. For gaps. For this reason, young men like Karma are example, the current increase in public sector leaving the country. Current trends in education wages could pose risks in the medium term. To and labor demand suggest that the oversupply of manage the fiscal volatility associated with future highly skilled job-seekers (and high unemployment hydropower projects, the Government established in this group) is likely to grow over time. the Bhutan Economic Stabilization Fund in 2018 and has adopted fiscal stabilization measures to regulate contributions to the fund. However, the At the same time there are challenges to stabilization measures did not continue after the improving the allocation of labor to fill COVID-19 pandemic eased. vacancies in low- and semi-skilled positions. The 2022 Establishment Survey found that about a third of firms faced hiring difficulties. The profiles of available or future job vacancies in the private sector do not match those of the current job-seekers. Today, most firms are hiring to fill low-skilled occupations, and about one-third of firms expect to have new vacancies in the next year or two. Firms will need workers with a low to medium level of education and specific technical skills (through certificates or diplomas) to fill positions, mainly in services, sales, crafts, and related trades. On the supply side, 90% of job-seekers have some education, and a majority have completed a secondary education. 14 Bhutan’s Aspirations Bhutan also needs to increase its non-hydropower revenue collection. ENHANCING THE Higher spending to fund COVID-19 relief measures for individuals and businesses, coupled with AGGLOMERATION subdued revenue performance, has ballooned the fiscal deficit and non-hydropower-related public BENEFITS, debt since July 2021. Revenue collection is driven largely by the hydropower sector, which CONNECTIVITY, AND RESILIENCE OF CITIES contributes substantially to both tax and nontax revenue collection. But tax collections are not at par with Bhutan’s level of economic development. Personal income tax revenues have stagnated in recent years as the tax base has remained narrow. For Dorji’s film business to capitalize on Bhutan’s Bhutan is also heavily reliant on external funding outstanding beauty, he needs to be able to move to implement large infrastructure projects, and its film crews around the country efficiently on good LDC graduation in December 2023 is likely to roads and public transport. He also needs curtail future access to concessional loans. continuous and reliable Internet coverage, as well Graduation is also expected to result in declining as good connectivity with neighboring countries official development assistance, which accounts for regional projects. Likewise, Kinley and Sonam for about 30% of total grant receipts. require good connectivity, appropriate storage, and efficient logistics services within and across Bhutan does well on public financial management borders to access and take advantage of larger indicators but needs to improve public markets for the special and organic farm products and high-quality handcrafted furniture that they investment management. are planning to produce. The Government’s performance in public finance management is above global and regional averages. But despite one of the world’s highest levels of public capital spending as a percentage of GDP (excluding hydropower investments), Bhutan Bhutan, as a landlocked nation with a modest has not been able to bring the quality of its market, stands to gain from better leveraging infrastructure up to the level in many comparator of urban agglomeration benefits, enhanced countries. A recent diagnostic assessment of the regional integration, and improved public investment management system cross-border connectivity. highlighted that Bhutan has not yet established a fully operational system that aligns with Despite a decade of robust trade growth, Bhutan international standards. still has untapped trade potential. As a landlocked mountainous country, Bhutan faces much higher than average transit and trade costs. Trade faces typical problems affecting landlocked countries, notably delays when passing through ports in neighboring countries, in this case India; inefficiencies at land border crossings; limitations on routes for transit cargo; and heavy reliance on road transport. Bhutan's low global infrastructure ranking (at 118) reflects poor border and transit facilities, further impeded by complex trade processes, insufficient infrastructure, tariff barriers, and regional trust issues. The country's main trade route through Phuentsholing is congested, handling 76% of trade, while efforts to develop new crossings like Gelephu are under way. Bhutan has adopted only 28% of key United Nations Economic and Social Commission for Asia and the Pacific trade facilitation measures. Embracing the World Trade Organization Trade Facilitation Agreement could cut trade costs by 30%. Bhutan’s Aspirations 15 Diversification of export markets and products Access to fixed broadband is below 1% of remains low. households and unaffordable for smaller Bhutan’s markets are currently limited to its own businesses and the poor. Bhutan’s digital territory and to nearby countries. A lack of transformation is also impeded by poor data efficient transit through neighboring countries can governance, fragmented systems, and lack of data push up the costs of transportation and logistics sharing. And weak data infrastructure and and thus prices for imported consumer goods, safeguards make critical systems and data both essential and nonessential, as well as other vulnerable to the risks posed by natural disasters inputs. Similarly, higher transportation and and cyber-attacks. Also lacking are the digital logistics costs can render products from capabilities and skills needed to implement and landlocked areas such as Bhutan uncompetitive adopt effective digital trade solutions. beyond local markets, restricting them to production volumes that are too small to reap Reflecting Bhutan’s terrain and geography, economies of scale. road transport remains the dominant mode of transport, carrying more than 90% of trade Strengthening supply chain logistics and traffic by volume and value. processes for certification, testing, and Bhutan is generally well connected in an east–west traceability could enhance Bhutan’s direction in the central part of the country through competitiveness in agricultural trade. the northern east–west highway. But it lacks adequate north–south links and a continuous This would entail developing agricultural logistic highway providing east–west connectivity in the and marketing infrastructure (e.g., for aggregation, south. A southern east–west highway is essential cooling, processing, and value addition at strategic to ease economywide constraints on connectivity, locations); strengthening and digitizing the better link producers to markets, and allow delivery of agricultural support services Bhutan to take advantage of external (treatment, packaging, distribution); and opportunities in the region and globally. Limited incentivizing the private sector to engage directly domestic connectivity and mobility have lowered in these activities. Moreover, improving the the benefits of agglomeration economies in capacity, accreditation, and mutual recognition for rapidly urbanizing centers. food safety and sanitary and phytosanitary testing, inspection, traceability, and certification services is expected to improve the volume and Bhutan needs to better leverage its efficiency of agricultural trade by enabling the demographic–spatial and economic–spatial delivery of an efficient, resilient, and competitive supply of high-quality and safe Bhutanese food shifts to accelerate structural transformation products to regional markets. toward an economy driven by the private sector. Reliable and affordable Internet connectivity is a In 2017, around 38% of Bhutanese resided in urban areas. The intercensal average annual major challenge urban population growth rate was 2.5%, four Bhutan’s international segment of the broadband times the overall population growth rate of 0.6%. value chain remains constrained largely due to its The population and economic base are reliance on India to access undersea cables. Its concentrated in the western part of the country. international bandwidth cost is almost double that of India and Bangladesh.14 16 Bhutan’s Aspirations Thimphu district is home to 15% of Bhutan’s A regional development approach for Bhutan population, and Thimphu Thromde (which is the should integrate three related factors: second-level administrative division) contains build on the benefits of agglomeration in leading around 40% of the country’s urban population. cities, connect strategic regional hubs to better Phuentsholing, Samdrup Jonkhar, and Gelephu integrate markets, and ensure equitable living are the next most populous municipalities. standards for people across the country. Median household incomes in urban areas are nearly triple those in surrounding rural areas. Similarly, the literacy rate is 23% higher in urban areas than in rural areas. Regional development requires national and local governments to play complementary roles. Bhutan’s economic-spatial transformation is At the national level, the Government can ensure increasingly driven by the economic that regional and spatial development policies are opportunities that cities offer. aligned with decentralization, economic, and public investment policies. The national However, its large urban centers are not well Government is also best placed to prioritize large, equipped to seize the benefits of agglomeration complex capital investments that can connect economies. This is true for specialization and settlements and improve access to international market access, which affect the number and the markets, with a focus on enabling Tier II cities to quality of jobs, and for the quality of services, function as nodes between Thimphu and which affects cities’ livability and competitiveness. Phuntsholing and smaller market towns. Finally, The four largest thromdes suffer from the national Government can improve the overall infrastructure and service delivery backlogs, investment climate for key sectors through shortages of serviced land and affordable housing, regulatory and tax reforms and can improve the and environmental pollution. For example, environment for networking and business and Thimphu and Phuentsholing Thromdes have the investment promotion, especially in large and highest number of households without reliable medium-size settlements and special economic water and experience severe traffic congestion, zones. and only 20% of households in Thimphu Thromde have sewer connections. Tier I cities (Thimphu and Phuntsholing) should aim to improve livability, reduce disparities in The Government’s regional development policies access to services, and leverage urban do not distinguish between the demands for agglomeration economies for deeper and more enabling economic growth and the needs for diverse private sector investments. equitable service delivery. To do that, Tier I cities should ease infrastructure backlogs, land and housing shortages, traffic The two objectives require differentiated yet congestion, and environmental pollution. complementary strategies involving place- and Municipal governments need to be capacitated in people-based approaches. Place-based levers planning and managing their land resources and such as large infrastructure investments close to assets and improving their service delivery economic centers where firms and people are mechanisms. These cities would also benefit from concentrated, can enhance the benefits of improvements to the business climate and from agglomeration. People-based interventions technical and vocational skill development targeted to small towns and rural areas, where programs to enhance the quality of the labor poverty and human capital deprivation are more force. Finally, regional connectivity, both hard and acute, would include support for basic soft, can play a key role in extending the economic infrastructure, healthcare, and education, gravity of these towns. complemented with policies and programs to facilitate the movement of better skilled people to more productive areas. Current regional development strategies fail to leverage emerging agglomeration economies while supporting the convergence of living standards everywhere. Bhutan’s Aspirations 17 Tier II cities with locational advantages and nascent economic clusters, such as Gelephu, Facilitate access to finance for the Mongar, and Samdrup Jongkhar, should focus on private sector. improving conditions for private investment. A sustainable risk-sharing facility, like a partial credit guarantee scheme, can This could include identifying and reducing encourage bank lending to private sector demand-side obstacles that have limited access to firms like Dorji’s without creating finance, constrained linkages in product value contingent liabilities. chains, and impeded the spillover of knowledge, skills, and technology. These cities also need to Long-term implementation of such boost capacity in urban planning and land schemes would be essential to encourage administration and strengthen infrastructure and smaller enterprises in diversifying service delivery to accommodate new growth. And non-hydro sectors, rather than relying they need to improve road and ICT connectivity solely on short-term measures like the with larger regional hubs and ports of entry, both National Credit Guarantee Scheme. within Bhutan and to India. And with rigorous supervisory oversight and regulations, extending external commercial borrowing for larger Finally, cities and towns urgently need to build companies could improve access to resilience against climate change and natural domestic financing for smaller ones, disasters. promoting financial inclusion and This would include strengthening all engineered mitigating banks' maturity mismatches buildings against potential damage from and concentration risks. earthquakes, fires, floods, and landslides. Identify leading and emerging sectors and clusters in Tier I and Tier II cities and towns that can support and expedite private sector led job creation. POLICY Based on each city’s specific needs, develop a plan and program comprising RECOMMENDATIONS economic infrastructure (for example, local services, connective infrastructure, and plug-and-play facilities), policy and institutional actions (both national and To address these challenges, the new Government local), and capacity building, especially of could consider the following immediate policy urban local governments in these towns, actions and investments: to enable and support the incubation of these sectors and clusters. IMMEDIATE ACTIONS Roll out a phased program, based on Implement the new goods and services 13th Five-Year Plan priorities, to tax and operationalize the Bhutan address critical livability and Economic Stabilization Fund. competitiveness challenges in the largest urban centers and enhance their Bhutan’s non-hydro revenue collection resilience to climate change and natural could be strengthened by implementing disaster. the new tax. Diversification of revenue Among key issues to address in the streams could also stem from diversifying largest urban centers are strengthening electricity trading partners, by exploring land use planning and land management, further relations with other relevant filling infrastructure and service delivery countries, in addition to India. gaps, and adding affordable housing and Operationalizing the fund could help civic amenities. Keeping local manage fiscal volatility. governments as the institutional focus in addressing infrastructure, civic, and resilience-related challenges is key to the sustainability of interventions. 18 Bhutan’s Aspirations MEDIUM TERM ACTIONS Over the medium term, the following Such a strategy would function in tandem actions will complement these quick-win with a tailored tariff definition policy that interventions: reflects the long-term costs of supply of Druk Green Power Corporation Limited Implement a National Single Window and Bhutan Power Corporation, while for trade. shielding the most vulnerable segments The window, often the most impactful of the population from a full trade facilitation reform effort, pass-through of price increases. streamlines clearance procedures by bringing together existing certificate, license, and permit issuing services under one platform for an end-to-end digital Promote regional integration through service solution for businesses and hydropower exports and trade traders. It promotes cooperation among facilitation. border clearance agencies, reduces paperwork, and increases border India introduced the Guidelines for security. Import/Export of Electricity in 2018, which permit tripartite agreements for Pursue a vertical approach to promote cross-border electricity trading and facilitate the exchange of surplus growth in promising job-rich sectors, electricity between Bangladesh, Bhutan, and a horizontal approach to support and Nepal through Indian transmission reforms across all sectors to improve systems. To optimize the benefits of the productivity and growth of small these guidelines, Bhutan could explore firms. exporting its excess electricity to These reforms include strengthening neighboring countries, leveraging entrepreneurship by facilitating access to seasonal surpluses (Nepal in summer, finance, mentorship, and links to supply Bangladesh in winter) and peak-hour chains and markets; implementing demands. governance reforms related to the investment climate, foreign direct Also, to enhance its trade with South investment, and the efficiency of Asian countries and beyond, and to state-owned enterprises; and introducing simultaneously benefit small farmers and labor market reforms to promote flexible businesses, Bhutan will need to labor regulations that can support worker Establish and upgrade laboratories mobility and firms’ access to labor, as well to meet sanitary and phytosanitary as a functional labor market information requirements. system that can identify needed skills in the labor market and support hiring Develop a national single window needs for start-ups. for trade (as mentioned above), which will include developing a Design a comprehensive financing trade information portal and strategy for the hydropower project augmenting the use of web-based pipeline. systems for trade facilitation. Bhutan has set an ambitious goal to generate almost 7,000 MW of electricity Facilitate transit traffic through from 13 hydropower projects by 2035, Bangladesh and India, including which requires around $14 billion in greater use of waterways and financing. A comprehensive debt and containerized vehicles. equity fundraising strategy can be tailored to the project portfolio’s needs, Boost facilitation at border factoring in domestic energy security crossings and digitization of trade objectives, fiscal soundness and financial processes, including improved sustainability parameters, and partners’ infrastructure. appetite. Bhutan’s Aspirations 19 Strengthen international internet A differentiated regional development connectivity, and build the resilience of approach can promote private sector data infrastructure. development in leading cities through agglomeration and in rural areas In attracting private investments to bring through targeted investments in connectivity to Bhutan’s border, priorities service delivery that address inequities should be placed on options to build redundancy and improve affordability, For urbanizing areas with locational strengthen disaster recovery capabilities advantages and nascent economic of data infrastructure and centers to clusters—such as Gelephu, Mongar, and prevent interruptions in critical digital Samdrup Jongkhar—conditions for services and data transmission during private investment should be enhanced natural disasters, and modernize policy by improving connectivity to potential frameworks and investments to markets in emerging sectors such as strengthen data governance, privacy, and high-value and organic agribusiness, cybersecurity. These foundations are agro-processing, and manufacturing, and critical to protect against growing levels by scaling up smaller enterprises and of sophisticated cyber-attacks and cottage industries. In sparse rural areas emerging but still unknown risks and small rural towns, investment in associated with the growing use of human capital is necessary to exploit innovative technologies such as productive opportunities. blockchain and artificial intelligence. Develop an integrated transport master plan. To reduce reliance on road transport and explore opportunities for greener forms of transport such as inland waterways and railways, both within Bhutan and with India, an integrated transport master plan should be developed. Transport investments should also facilitate investments in surrounding areas by developing an economic corridor and an integrated landscape approach, which require coordination across line ministries for investment planning, programming, and prioritization. A reliable public transport system would greatly enhance the livability of cities and residents’ access to jobs and services. The strategy should focus on providing attractive public transport services and facilities for pedestrians, so that walking becomes the dominant transport mode in the central city and for short trips, while encouraging a modal shift to public transport for other trips. This vision for functional and livable green cities seeks to minimize the adverse impact of traffic growth and congestion. 20 Bhutan’s Aspirations PROMOTING SUSTAINABLE DEVELOPMENT ON A LIVABLE PLANET Like Kinley and Sonam, many Bhutanese derive their livelihood from agriculture, livestock, forest- ry, and water-related renewable natural resources (RNR) activities, which is crucial to Bhutan’s unique approach to inclusive green growth. Despite contributing only an average of 14.5% of GDP in the last five years, the sector employed 49.5% of workers and provided half the income for two-thirds of rural households (table 1). Bhutan’s mountainous terrain, large forest cover (71%), and remote production areas offer a comparative advantage in producing low-volume, high-value RNR products such as spices, trout, honey, wild mushrooms, and wood-based products. To sustain its productive RNR base, However, because producers such as Kinley and Bhutan implemented policies and programs to Sonam market only a few primary RNR products, promote the conservation of nature, the they have not been able to tap into the price environment, and biodiversity; climate change premiums offered by the growing demand for adaptation and mitigation; and a sustainable niche products in wealthy countries. transformation toward a food system supporting organic farming and healthy diets. As part of the Bhutan's agricultural production has increased, dedicated RNR strategy 2040, the country but issues of marketable produce, quality, and developed “Brand Bhutan,” deeply entrenched in value chain fragmentation remain. Small and the country’s Gross National Happiness vision, to scattered farms face shortages of land, water, and enable buyers to identify premium niche products labor, while underinvestment in processing and originating in Bhutan. marketing systems impairs the grading, sorting, and processing of fresh produce. Rural water schemes face seasonal water scarcity SELECTED RESOURCE or become nonfunctional due to the lack of INDICATORS FROM 2018–22 surface water. Despite the large forest cover, Bhutan is a net importer of wood-based products, indicating untapped potential to increase added 2020 2023 2022 2019 2018 value in the forestry sector. % GDP from agriculture, The current business climate is unfavorable for livestock, and forestry 13.6 12.9 15.7 15.8 14.7 diversifying and exporting high-value RNR sector products due to technical trade barriers, science-based risk assessments, missing good % of persons employed quality infrastructure for food safety, and weak by agriculture, livestock, and forestry Labor 54.0 51.1 49.9 49.2 43.5 trade policy implementation. productivity As a result, Kinley and Sonam face uncertainties % of land area covered and large transaction costs and a lack of support by forest 71.0 71.0 71.0 71.0 71.0 and marketing services, which reduce their willingness to invest in value addition. Moreover, % of terrestrial protected rural entrepreneurs are handicapped by areas to total surface area 51.4 51.4 43.5 43.5 43.5 underdeveloped logistics infrastructure and poor access to tailored finance, entrepreneurial skill development, and dedicated mentoring programs. % of population using 99.6 99.6 99.6 99.6 99.6 an improved drinking water source Bhutan’s Aspirations 21 The challenges Kinley and Sonam face are compounded by Bhutan’s increasing exposure MAXIMIZING SUSTAINABLE to myriad natural hazards, which affect more AGRICULTURE, FORESTRY, than 10% of the population annually and result in an estimated average annual loss of more AND TOURISM FOR GREEN than 6% of the GDP.15 Flooding has been the most frequent natural GROWTH disaster, causing high mortality rates, and higher precipitation volumes are expected to elevate these risks.16 Changing precipitation patterns also make RNR production more vulnerable to diseases and pests,17 while worsening drought conditions and threats of lightning increase the likelihood of forest fires. Climate change is projected to reduce the income of the poorest 40% in Bhutan by more than 6.5% by 2030.18 Most of the country’s infrastructure and urban areas are along drainage basins that are highly vulnerable to flooding after heavy monsoon rains. The risk of glacial lake outburst floods, such as the one that destroyed Bhida’s early education center, Gradually increasing the revenues from is pronounced. Bhutan is home to 700 glaciers sustainable, high-quality, and branded green and 567 glacial lakes, 17 of which pose medium to and cultural products will help Kinley, high risks glacial lake outburst flood (GLOF).19 A Sonam, Dechen and Bhutanese like them to large earthquake would severely damage urban centers and villages, including infrastructure. meet untapped market potential. The pristine environment and Bhutan’s vigilance in safeguarding its natural capital have built the While Dechen sees job opportunities in the country’s reputation as an environmental tourism sector, tourist arrival numbers have conservation leader. Even so, Bhutan can strengthen its green growth model by diversifying not recovered to pre-pandemic levels despite its RNR base and responding to opportunities reforms. created by recent regulatory reforms and unmet Formerly, traveling to Bhutan required the market demand. For example, the forestry sector purchase of a $200–$250 minimum daily tour can increase productivity and value addition while package through an authorized travel agent, protecting the goal of maintaining at least 60% of including lodging, meals, guide, and activities, plus Bhutan’s land under forested cover. The a sustainable development fee (SDF) of $65 per Government’s commitment to boost the forestry person per night. During the pandemic, Bhutan sector could enable Sonam to achieve his reformed the tourism sector to increase foreign aspiration to export hand-made, high-end exchange revenues. The daily SDF was lowered to furniture. Rural entrepreneurs like Kinley can cater $200 per person per night, and the minimum daily to the demand of more affluent Indian, package rate and the requirement to book travel Bangladeshi, and other international consumers through a local operator were lifted. To stimulate for healthy and natural food products, such as recovery in international arrivals, Bhutan organic fruits and vegetables, wild mushrooms, implemented SDF waivers for five years in and artisanal honey, jams, and teas. Such activities September 2022 that reduced them to $100 a day will generate export revenues, reduce mounting for international travelers and $14 a day for South import bills, create sustainable incomes, and offer Asian Association for Regional Cooperation more opportunities for private sector engagement travelers. Challenges with implementing the in the RNR sector. Diversifying Bhutan’s reputation reforms, frequent and unclear policy changes, as an exclusive travel destination to include limited public-private coordination, poor air nature-based assets and ecotourism can provide connectivity,20 insufficient technical training (both sustainable incomes for rural youth like Dechen quality and volume), and lack of market data have and establish backward and forward linkages to led to mounting discontent among tourism sector other rural sectors (for example, through local stakeholders and delayed full recovery of the high-end cuisine). sector. 22 Bhutan’s Aspirations To strengthen its green growth model, the Develop investment plans and present Government could consider the following them to private investors to increase the immediate policy actions and investments: productivity and commercialization of specific RNR products while ensuring IMMEDIATE ACTIONS effective climate change adaptation and mitigation action. Promote coordination and partnerships Universities can play a bigger role in between public and private organizations, stimulating domestic demand for value-added sectors, and actors. RNR products by developing curricula and programs for RNR engineering and value The public and private sectors could addition. Productive partnerships are one contribute more effectively to Bhutan’s green successful model to link producers of growth priorities if the mandates of public high-value agriculture and forest products agencies were clearer, government processes with dedicated buyers to distribute the market streamlined, and the productive use of forests premium more fairly across the value chain. and wetland deregulated. Implementing the institutional and regulatory reforms proposed Establish a dedicated RNR market in the 13th Five-Year Plan—such as exploration and promotion wing under the formulating the agricultural bill, rationalizing Bhutan export promotion agency. land use, and increasing tourism Such a wing could identify dedicated buyers arrivals—requires better coordination among for would-be entrepreneurs like Sonam and government agencies through steering Kinley by organizing investment and export committees and other mechanisms. That will campaigns and promoting branded involve setting up consultative dialogues with Bhutanese products within and outside stakeholders like Sonam and Kinley, Bhutan (say, through cottage and small decentralizing planning and management industry market outlets).21 capacity to the dzongkhag level, and setting up public-private partnerships. Over the longer run, public investment should empower the private sector to lead in Implement regulatory reforms. developing niche RNR subsectors with high Reforms such as amending the Water Act of potential for growth, including tourism: 2011 could be discussed with stakeholders to accommodate emerging needs such as LONG TERM ACTIONS wastewater management, clarify regulatory and implementation arrangements, and Implement policies to unlock commercial improve resource allocations through issuing capital flows and promote innovation and permits. Service delivery could further skill development. improve through the registration, institutional Such policies could advance the country’s strengthening, and professionalization of local aspirations for a wider contribution of private common economic interest groups such as individuals such as Sonam and Kinley to green water user associations, forest management growth. While Bhutan is revising its foreign units, and farmer marketing groups. direct investment policy to attract more private investment in RNR products (such as making RNR subsectors priority sectors for investment), attracting more foreign investment will require other regulatory reforms as well (such as easing Over the medium term, the following actions restrictions on foreign ownership and labor immigration policies) and a dedicated can complement these quick-win interventions: investment strategy. In addition, tailored green financial products, such as guarantees for MEDIUM TERM ACTIONS private investment, and financing that uses storage or warehouse receipts as collateral will Direct public investment to promote the reduce the risk of domestic private sector sustainable diversification of the RNR investment in RNR value addition. Domestic sector. investors could include young entrepreneurs if Such investments would support transitioning they receive access to one-stop-shops for to an export-oriented sector that adds value business development, mentorship programs, to high-quality RNR products and sells at and market linkages to bolster their business premium prices. Allowing Bhutan to add value skills. For example, establishing an online domestically will require more active auctioning system would open market-based participation of the private sector to bring in opportunities for Sonam to produce timber and advanced technologies (e.g., wood harvesting), nontimber forest products. Finally, promoting innovations, and knowledge in harvesting, investments in nature, landscape, and processing, and marketing. community tourism would allow Bhutan to tap into culture and adventure markets. Bhutan’s Aspirations 23 STRENGTHENING CLIMATE AND ENVIRONMENTAL RESILIENCE To protect the lives and livelihoods of Impact-based forecasting for rural sectors can improve Bhutanese families and the critical connectivity to social and economic activities, including infrastructure they rely on, Bhutan needs to roads, schools, and health facilities. A near real-time increase its resilience to climate and forest fire surveillance system leveraging satellite technologies can identify and suppress forest fires early environmental shocks. and reduce the vulnerability of communities whose By formulating, amending, and enforcing livelihoods are dependent on forests. All of this will legislation and developing clear implementation require enhanced capacity in relevant agencies. plans, Bhutan can mainstream resilience across sectors and respond to extreme weather events Over the medium term, the following actions and earthquakes. For example, a construction can complement these quick-win interventions: and transport act could impose strict quality standards on critical infrastructure services, to MEDIUM TERM ACTIONS reduce vulnerability to shocks. Similarly, amending the Disaster Management Act of 2013 Adopt a more integrated approach to risk could enable effective and timely emergency assessments, improve property and land preparedness and response to climate change valuation professions and services, and impacts and disease outbreaks. The National enhance disaster risk financing and insurance. Energy Policy and the revised Hydropower Dam This would involve strengthening property Design Guidelines could promote integrated valuation institutions, establishing national dam safety and geohazard management of valuation standards that adhere to hydropower plants. international standards, and establishing professional standards, codes of conduct, accreditation, and oversight for valuation To enhance resilience across all sectors and profession. The Government’s capacity to communities, the national and local assess compensation values at full market governments could consider the following value will allow the implementation of resilient immediate policy actions and investments: land use plans, improving the current situation where land acquisition hampers the implementation of new plans and IMMEDIATE ACTIONS development. Based on a disaster risk financing and insurance strategy, financing tools and Develop improved disaster management mechanisms should be put in place for risk and contingency plans and business financing, especially for low-frequency, continuity plans for critical infrastructure, high-impact disasters. enhanced weather and flood forecasting, and early warning systems. Incorporating multihazard risk information In the long run, Bhutan can have a catalytic system into disaster management and contingency plans and allocating sufficient role in promoting regional cooperation for funds to implement them will allow local climate and hydrometeorology services and governments and line agencies to better become the regional center of excellence in protect vulnerable groups such as Kinley, mountain meteorology. Sonam, and their parents and children and the critical infrastructure and public health The Director of the National Center for Hydrology and education services they rely on. Having and Meteorology is a cochair of the South Asia better weather forecasting and Hydromet Forum.22 Investing in modernizing the sector-specific services can enable people country’s hydromet infrastructure and ICT systems working in weather- and water-dependent and adopting international data quality standards, sectors such as agriculture to make better methods of observation, communication, data farm-level decisions. sharing, and capacity building would help Bhutan become a regional center of excellence in mountain meteorology, in collaboration with Nepal. 24 Bhutan’s Aspirations CLOSING GAPS IN BHUTAN’S SUSTAINABLE FINANCE ARCHITECTURE Monetizing Bhutan’s net negative greenhouse gas emissions is critical to address fiscal constraints and mobilize adequate funds for Bhutan’s green and resilient growth. Leveraging carbon credits does not only address environmental concerns but also opens avenues for financial innovation, benefiting the broader economy and communities, such as those of Kinley, Sonam, Karma, Dechen, and their families, by fostering a green growth environment. To manage international carbon market transactions, the Government could consider Over the medium term, the following actions can the following immediate policy actions and complement these quick-win interventions: investments: MEDIUM TERM ACTIONS IMMEDIATE ACTIONS Seek accreditation for accessing various Develop the policy framework and data climate funds established under the United systems needed to manage international Nations Framework Convention on Climate carbon market transactions. Change. Finalizing a policy framework on Article 6 of the This will enable receiving crucial grant financing United Nations Climate Change Conference (on for implementing climate change adaptation pursuing voluntary cooperation to reach and mitigation actions. These include the national climate targets) and operationalizing Green Climate Fund, Special Climate Change the national carbon registry would provide Fund, and Adaptation Fund. Key agencies clarity on country processes and institutional responsible for implementing climate change arrangements for carbon markets. In addition, adaptation in the country (such as the Ministry finalizing the governance framework to of Infrastructure and Transport, Ministry of operationalize the registry and allow tracking, Agriculture and Livestock, Ministry of Energy verifying, and trading of carbon credits can and Natural Resources, and the National enable Bhutan to issue digital carbon assets Center for Hydrology and Meteorology) should (tokens) at scale, using blockchain technology. be accredited to access climate funds. This will make carbon asset management more tangible and participatory for citizens like In the long run, and after exhausting the use of Dechen by potentially integrating it with the national digital identity. These measures could concessional funding from the International inspire families like Dechen’s by offering them Development Association (IDA) and other an opportunity to contribute to and benefit donors, Bhutan could consider international from Bhutan’s carbon-negative initiatives. bond issuance. Establish a digital monitoring, reporting, and As initial steps, the Ministry of Finance should verification system—combined with earth finalize the green taxonomy and sustainable observation technologies, artificial financing framework and obtain sovereign credit intelligence, and machine learning—for ratings from at least two international rating emission reductions. agencies to help investors understand Bhutan’s Such a system can support the establishment and creditworthiness. Establishing the Global operationalization of the Bhutan Climate Fund. Medium-Term Notes Program to issue vanilla and The fund would initially focus on hydropower and green bonds in international capital markets forestry—sectors crucial to families like Kinley should be considered as a long-term measure, and Sonam’s—and will aggregate capital to once fiscal viability is confirmed. An inaugural manage and use the fund proceeds. Successful implementation of the fund will allow Bhutan to 10-year bond in US dollars would cost at least 7% monetize high-quality credits, capture carbon a year, which is considerably higher than the cost revenues, and channel a portion of the revenues of concessional financing provided by IDA and to meeting national climate goals. other development partners. Bhutan’s Aspirations 25 CONCLUSION There is a future for Bhutan in which young, talented people like Karma decide that they can achieve their dreams by staying in the country. In which businesses like Dorji’s can attract and retain skilled workers and find the financing needed to expand. In which Bhida receives a good education in her rural school from qualified teachers who set her up for higher education and a bright future. In which Dechen and her parents are able to launch their handmade furniture industry and find wealthy foreign buyers, enabling them to live an independent comfortable life. With careful planning and mindfulness, Bhutan can protect its culture and nature while still providing good opportunities and infrastructure for its people. 26 Bhutan’s Aspirations ACKNOWLEDGEMENTS These policy notes distill key findings from a broad range of World Bank Group engagements in Bhutan, including policy dialogue, analytical work, strategic documents, project lending and trust funded activities that were organized around three pillars: People, Progress and Planet. The People pillar was led by Ashiq Aziz, Senior Human Development Specialist with contributions from Ingrid Bjerke, Senior Education Specialist; Mamata Ghimire, Economist; Alvin Etang, Senior Economist; Robert Yungu, Senior Public Sector Specialist; Savinay Grover, Senior Financial Management Specialist; Roland Lomme, Senior Public Sector Specialist; Suhail Kassim, Senior Economist; Nazmus Khan, Economist; Rangeet Ghosh, Senior Economist; Erisha Suwal, Social Development Specialist; and Sunil Kumar Khosla, Lead Energy Specialist. Guidance was provided to the team by Nicole Klingen, Regional Director for Human Development; Cem Mete, Practice Manager for Social Protection and Jobs; Feng Zhao, Practice Manager for Health; Ximena Del Carpio, Practice Manager for Poverty and Equity; Robin Mearns, Practice Manager for Social Sustainability and Inclusion; and Keiko Inoue, Practice Manager for Education. The Progress pillar was led Shruti Vijayakumar, Senior Transport Specialist, and Nazmus Sadat Khan, Economist with contributions from: Houda Karafli, Energy Economist; Sunil Kumar Khosla, Lead Energy Specialist; Suhail Kassim, Senior Economist; Joachim Vandercasteelen, Economist; Savinay Grover, Senior Financial Management Specialist; Balakrishnan Menon Parameswaran, Lead Urban Specialist; Naho Shibuya, Senior Disaster Risk Management Specialist; Junko Narimatsu, Senior Digital Development Specialist; Sri Kumar Tadimalla, Lead Transport Specialist; Mandakini Kaul, Regional Coordinator; and Bhishma Pandit, IFC Operations Officer. Guidance was provided to the team by Mathew Verghis, Regional Director for Equitable Growth, Finance, and Institutions; Pankaj Gupta, Regional Director for Infrastructure; Cecile Fruman, Director for Regional Integration; Hoon Shabih Soh, Practice Manager for Macroeconomics, Trade, and Investment; Gabi Afram, Practice Manager for Finance, Competitiveness, and Innovation; Hisham Waly, Practice Manager for Governance; Anna Wielogorska, Practice Manager for Procurement; Fei Deng, Practice Manager for Transport; Abed Khalil, Practice Manager for Urban, Land and Resilience; and Vyjayanti Desai, Practice Manager for Digital Development. The Planet pillar was led by Joachim Vandercasteelen, Economist, and Naho Shibuya, Senior Disaster Risk Management Specialist, with contributions from Gayane Minasyan, Lead Environmental Specialist; Kristoffer Welsien, Senior Water Supply and Sanitation Specialist; Robert Yungu, Senior Public Sector Specialist; Savinay Grover, Senior Financial Management Specialist; Roland Lomme, Senior Public Sector Specialist; Suhail Kassim, Senior Economist; Sadia Afrin, Financial Sector Specialist; and Sunil Kumar Khosla, Lead Energy Specialist. Guidance was provided by Dina Umali-Deininger, Regional Director for Sustainable Development; Sumila Gulyani, Practice Manager for Water; Gayatri Acharya, Practice Manager for Agriculture; Abhas Jha, Practice Manager for Urban and Disaster Risk Management; Christophe Crepin, Practice Manager for Environment, Natural Resource and Blue Economy; and Simon Stolp, Practice Manager for Energy. The policy notes benefited from discussions with government counterparts (MOF, MOFAET, MOICE, Cabinet Secretariat), development partners (ADB, UNDP, JICA), non-governmental organizations (RENEW and Center for Bhutan Studies), representatives of the private sector (CSI Market and Bhutan National Bank), and other stakeholders. These engagements were facilitated in the World Bank Office of Thimphu by Adama Coulibaly, Resident Representative; Tshering Yangki, Senior Operation Officer; and Ugyen Pelden, Team Assistant. The core team comprised Souleymane Coulibaly (Lead Country Economist and Equitable Growth, Finance and Institutions Program Leader); Syed Amer Ahmed (Lead Economist and Human Development Program Leader); Gyongshim An (Lead Urban Specialist and Sustainable Development Program Leader); Sri Kumar Tadimalla (Lead Transport Specialist and Infrastructure Program Leader); and Mehrin Mahbub (Senior External Affairs Officer) under the overall supervision of Abdoulaye Seck, Country Director for Bangladesh and Bhutan, and useful comments from Barbara Weber, Senior Country Officer for Bangladesh and Bhutan. The core team was supported by three resource persons: Danny Scheinman (storytelling), Bruce Ross-Larson (editorial), and Regina Seri Atsebi (data and documentation support). END NOTES 1 Dorji, T., Das, M., Van den Bergh, R. et al. “If we miss this chance, it’s futile later on”—late antenatal booking and its determinants in Bhutan: a mixed-methods study. BMC Pregnancy Childbirth. 2019; 19:158. https://doi.org/10.1186/s12884-019-2308-5 2 Service Delivery Indicators (SDI) health survey, 2024. 3 Gertler, Paul, James Heckman, Rodrigo Pinto, Arianna Zanolini, Christel Vermeersch, Susan Walker, Susan M. Chang, and Sally Grantham-McGregor. 2014. “Labor Market Returns to an Early Childhood Stimulation Intervention in Jamaica.” Science 344 (6187): 998–1001. 4 Heckman, James. 2017. “Invest in Early Childhood Development: Reduce Deficits, Strengthen the Economy.” 5 Fiszbein, Ariel, Norbert Schady, Francisco H.G. Ferreira, Margaret Grosh, Niall Keleher, Pedro Olinto, and Emmanual Skoufias. 2009. “Conditional Cash Transfers: Reducing Present and Future Poverty.” 6 Heckman, J. J., & Masterov, D. V. 2007. “The Productivity Argument for Investing in Young Children.” NBER Working Paper No. 13016 April 2007, JEL No. H52,I28; Engle, P. L. et al. 2011. “Strategies for reducing inequalities and improving developmental outcomes for young children in low-income and middle-income countries.” The Lancet, 378(9799), 1339-1353. 7 Cunha, F., Heckman, J.J., Lochner, L. and Masterov, D.V., 2006. “Interpreting the evidence on life cycle skill formation.” Handbook of the Economics of Education, 1, pp.697-812; Cunha, Flavio, and James Heckman. 2007. "The Technology of Skill Formation." American Economic Review, 97 (2): 31-47; Engle, P. L. et al. 2011. “Strategies for reducing inequalities and improving developmental outcomes for young children in low-income and middle-income countries.” The Lancet, 378(9799), 1339-1353; Naudeau, S., Kataoka, N., Valerio, A., Neuman, M.J. and Elder, L.K., 2012. “Investing in young children: An early childhood development guide for policy dialogue and project preparation.” World Bank Publications. 8 Currie, Janet. 2001. "Early Childhood Education Programs." Journal of Economic Perspectives, 15 (2): 213-238; Dowd, K.A., DeMaso, C.R., Pelc, R.S., Speer, S.D., Smith, A.R., Goo, L., Platt, D.J., Mascola, J.R., Graham, B.S., Mulligan, M.J. and Diamond, M.S., 2016. “Broadly neutralizing activity of Zika virus-immune sera identifies a single viral serotype.” Cell reports, 16(6), pp.1485-1491; Jung, H. and Hasan, A., 2014. “The Impact of Early Childhood Education on Early Achievement Gaps: Evidence from the Indonesia early childhood education and development (ECED) project.” World Bank Policy Research Working Paper, (6794); Burchinal, M., Magnuson, K., Powell, D. and Hong, S.S. 2015. “Early childcare and education.” Handbook of child psychology and developmental science, 4, pp.223-267; Rao, N., Sun, J., Chen, E. E., and Ip, P. 2017. “Effectiveness of Early Childhood Interventions in Promoting Cognitive Development in Developing Countries: A Systematic Review and Meta-analysis.” Hong Kong Journal of Pediatrics 22 (1): 14-25; Yoshikawa, H., Weiland, C., Brooks-Gunn, J., Burchinal, M.R., Espinosa, L.M., Gormley, W.T., Ludwig, J., Magnuson, K.A., Phillips, D. and Zaslow, M.J. 2013. “Investing in our future: The evidence base on preschool education.” Society for Research in Child Development; Britto, P. & Lye, Stephen & Proulx, K. & Yousafzai, Aisha & Matthews, Steve & Pérez-Escamilla, Rafael & Rao, Nirmala & Ip, Patrick & Fernald, Lia & MacMillan, H. & Hanson, Mark. 2016. “Nurturing care: science and effective interventions to promote early childhood development.” The Lancet. 9 Britto, P.R. & Yoshikawa, Hirokazu & Boller, Kimberly. 2011. “Quality of early childhood development programs in global contexts rationale for investment, conceptual framework and implications for equity.” Social Policy Report. 25. 1-31; Howes, C., Burchinal, M., Pianta, R., Bryant, D., Early, D., Clifford, R. and Barbarin, O., 2008. “Ready to learn? Children's pre-academic achievement in pre-kindergarten programs. Early childhood research quarterly.” 23(1), pp.27-50. 10 Collapse and Recovery: How the COVID-19 Pandemic Eroded Human Capital and What to Do about It; World Bank; 2023. 11 PHCPI (Primary Health Care Performance Initiative). 2019. Improvement Strategies Model: Population Health Management: Empanelment. https://www.improvingphc. org/sites/default/files/Empanelment%20-%20v1.2%20-%20last%20updated%2012.13.2019.pdf 12 NCWC. 38.4% women reported that they had not told anyone about partner’s violence behavior. Only 0.8% women went to NGOs, 3% to doctors and health works, and 3.4% to police. 13 Royal Bhutan Police Statistical Yearbook, 2022. 14 In 2021, Bhutan’s international bandwidth price was ~$7 per Mbps/month, higher than neighboring countries Nepal ($4), Bangladesh ($3.25), India ($4), Pakistan ($2). 15 UNESCAP, Risk and Resilience Portal, https://rrp.unescap.org/country-profile/btn 16 https://www.preventionweb.net/ 17 WB and ADB Climate Risk Country Profile: Bhutan (2021). 18 Jafino, B. A., Walsh, B., Rozenberg, J., and Hallegatte, S. (2020). Revised estimates of the impact of climate change on extreme poverty by 2030. The World Bank. 19 NCHM. 2021. Bhutan Glacier Inventory 2021. 20 Air connectivity is especially hinder by high and non-dynamic pricing, limited routes, and inefficient scheduling. 21 The export of RNR products will be facilitated by the Progress pillar's recommendations on improved regional trade coordination, streamlined border procedures, and strengthened quality, safety, and traceability systems. 22 The World Bank launched SAHF in 2018 to bring together hydromet experts from all South Asian countries for sharing knowledge, building capacity, and aligning national-level technical assistance with regional engagement.