Asian Development Bank (ADB): Bhutan Country Partnership Strategy (2024-2028)

List of Key Chapter Titles

1. Overview of the Country Partnership Strategy
2. Country Development Context
3. National Strategic Framework
4. 1. Lessons Learned from the Previous Strategy
5. 2. National Development Strategy
6. 3. Role of Development Partners
7. 4. ADB's Strategic Objectives and Operational Priorities
8. 5. Priority Areas for Knowledge Support
9. Strategy Implementation
10. 1. Cost-Sharing Arrangements
11. 2. Implementation Focus
12. 3. Results Monitoring
13. 4. Risks

Document Introduction

This report is the official document of the Asian Development Bank's (ADB) Country Partnership Strategy (2024-2028) for the Kingdom of Bhutan. The strategy aims to support Bhutan in addressing multiple development challenges and achieving its overarching goal of "inclusive, sustainable, resilient, and job-creating growth." Based on a comprehensive assessment of Bhutan's current economic, social, and environmental conditions, and incorporating the final review of the previous 2019-2023 cooperation strategy and validation comments from the Independent Evaluation Department, the document provides a clear and systematic roadmap for bilateral cooperation over the next five years.

The report first outlines Bhutan's development context and emerging challenges. Although Bhutan has made significant progress in poverty reduction, education, health, and human development indicators, and graduated from the Least Developed Country (LDC) category in 2023, its economy faces a series of structural constraints. Key challenges include: a narrow economic growth base heavily reliant on the hydropower sector; deteriorating macro-fiscal conditions and rising debt levels; the continued dominance of State-Owned Enterprises (SOEs); an unfavorable environment for private sector development; vulnerability to climate change and disasters; high youth unemployment and increasing brain drain; and weak public sector management with insufficient transparency. The COVID-19 pandemic further exposed and exacerbated these vulnerabilities, leading to a sluggish economic recovery.

Against this backdrop, the strategy establishes three core strategic priorities. First, strengthening public sector management and promoting private sector development, focusing on policy loans, technical assistance, and knowledge work to advance public financial management, SOE reform, tax modernization, and improve the business environment to attract Foreign Direct Investment (FDI) and develop Public-Private Partnerships (PPPs). Second, building climate-resilient and resilient infrastructure and systems, aiming to support sustainable energy (hydropower, solar), eco-friendly transport (e.g., the Lhamoizingkha-Sarpang road), and resilient urban development through investment loans, and adopting an integrated, watershed-level approach for multi-hazard risk assessment and management. Third, supporting human capital development and enhancing youth employability, focusing on reforming and expanding the Technical and Vocational Education and Training (TVET) system, and strengthening the health system to address skills mismatches and brain drain.

At the implementation level, the report clarifies the execution mechanisms. As a Group A (concessional assistance only) developing member, Bhutan is eligible for ADB's concessional Ordinary Capital Resources (OCR) lending and thematic grants from the Asian Development Fund (ADF). ADB will enhance project readiness through the Project Readiness Financing mechanism and optimize portfolio performance by strengthening capacity building, applying safeguards, and collaborating with Civil Society Organizations (CSOs). The report also identifies key risks requiring close monitoring, including pressures on macroeconomic management, diminished capacity of government agencies due to high staff turnover, and Public Financial Management (PFM) risks and transparency issues related to activities in the cryptocurrency sector.

Overall, this strategic document reflects the shift in focus under ADB's new operating model, placing greater emphasis on private sector development, climate change and disaster risk management, and highlighting Regional Cooperation and Integration (RCI). The strategy is fully aligned with the Bhutanese government's 13th Five-Year Plan (2024-2029) and long-term growth strategy, and closely corresponds with several operational priorities of ADB's Strategy 2030. The report's accompanying annexes, such as the Private Sector Development Plan and the Climate Change and Disaster Risk Management Plan, provide concrete operational frameworks for achieving the strategic objectives.