Strengthening Fiscal Management & Private Sector Employment

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The Development Policy Credit (DPC) of US$30 million is the first in a programmatic series of three operations that aim to strengthen policy framework to improve fiscal management and enhance policies to promote private sector employment opportunities in Bhutan. Bhutan is one of the smallest but fastest-growing economies in the world with an annual average growth rate of 7.6 percent over the past three decades. This stellar growth performance has helped improve living standards and has contributed to poverty reduction. However, further welfare improvements will require a dynamic job-creating private sector. The current hydropower driven growth model has created some macroeconomic imbalances and coupled with a large and dominant public sector, impeded the development of a vibrant private sector. As a result, the economy has witnessed considerable volatility, and limited job creation. This DPC series will help the government address some of these challenges by supporting reforms aimed at improving the management of macroeconomic volatility, strengthening domestic resource mobilization, and promoting employment opportunities in the private sector. The DPC series is also consistent with Bhutan’s 11th (2013-18) and 12th Five-Year Plans (FYP) (2018-23). To support the government of Bhutan address these challenges, the proposed series aims to strengthen the policy framework to improve fiscal management and enhance policies to promote private sector employment opportunities in Bhutan. The proposed operations are structured around two pillars. The first pillar focuses on actions that strengthen macroeconomic management, domestic resource mobilization and public financial management. This will also contribute to a more stable financial sector that is better able to achieve the objective of the second pillar, which seeks to increase access to finance, for MSMEs. In addition, the second pillar is also targeting to: (a) help unlock employment opportunities in the tourism, agriculture and MSMEs (‘cottage and small industries’); and (b) seek to create a more efficient education sector which will help to develop the skills that Bhutan’s private sector is seeking. This operation also incorporates the government’s efforts to ensure a sustainable economic growth model by supporting gender equality policies and climate change initiatives.