Bhutan Development Policy Financing with Cat DDO

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The operation will provide the Royal Government of Bhutan (RGOB) access to immediate liquidity in the aftermath of natural disasters through an IDA US14.8 million dollars Development Policy Financing (DPF) with Catastrophe Deferred Drawdown Option (Cat DDO). This Cat DDO is closely aligned with the RGOB’s Twelfth Five Year Plan (FYP) for FY2018-23, which recognizes the urgency in enhancing the country’s climate and disaster resilience. Addressing Bhutan’s vulnerability to natural disasters and climate-related hazards requires integration of resilience into infrastructure planning and development. The official poverty headcount declined from 23.2 percent in 2007 and to 8.2 percent in 2017. Extreme poverty, measured at US1.90 dollars per day, fell below 2 percent in 2017. Poverty reduction was likely driven by improvements in agricultural productivity and better prices for cash crops. However, poverty is highly concentrated in rural areas, and there is wide variation in poverty across districts. Bhutan performs relatively well with regards to shared prosperity, measured as the per capita consumption growth of the bottom 40 percent, although progress has slowed in recent years. Between 2007 and 2012, for example, the consumption growth of the bottom 40 percent grew by an annualized rate of 5.2 percent, but the consumption growth rate fell to 2.6 percent between 2012 and 2017. This stands in contrast to the acceleration of average consumption growth across all households from 4.2 percent during 2007-2012 to 4.8 percent during 2012-2017. Despite large improvements across broad measures of monetary and non-monetary welfare, vulnerability is high, partly because rural households are exposed to various uninsured risks.