1.3.1: Growth

Real GDP grew at an average of 9.6% over the Ninth Plan period between 2003 and 2007, taking into consideration an estimated growth of over 21.4% in 2007. GDP per capita in 2006 was estimated at US$ 1,414.01 as compared to US$ 835 in 2002.

The growth rate of 9.6% exceeded the 8.2% growth targeted for the Ninth Plan. This represents an exceptionally high and sustained rate of growth that matches the pace of growth in the fastest growing economies around the world. Real GDP grew from Nu. 23.5 billion at the start of the Ninth Plan in 2002 to Nu. 37.5 billion in 2007. The major impetus for this sustained growth was derived from the continuous and sustained expansion of the electricity sector [see Table 1.1]. The spike in the electricity sector growth in the final year of the plan was directly linked to the completion of the Tala hydro-electric power project and the subsequent enhanced generation and export of energy to India.

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Real GDP Growth in Ninth Plan

Citation: IMF Staff Country Reports 2010, 180; 10.5089/9781455207381.002.A001

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Real GDP Growth in Ninth Plan

Citation: IMF Staff Country Reports 2010, 180; 10.5089/9781455207381.002.A001

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Real GDP Growth in Ninth Plan

Citation: IMF Staff Country Reports 2010, 180; 10.5089/9781455207381.002.A001

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The agriculture, livestock and forestry sector grew on average by 1.3%, much lower than the planned growth rate of 2.5%. In contrast, the 36% annual average growth in the electricity sector over the plan period far surpassed the envisaged growth. This significant difference is largely explained by the enhanced tariff revisions for electricity exports and that revenue generation from the Tala Hydro-electric power project was expected to impact the economy in the first year of the Tenth Plan rather than at the close of the Ninth Plan as it did. The trade and other services sector grew at an average of 13% and exceeded plan projections. Similarly, the public administration and social services sector grew faster than was envisaged. The construction and the transport and communications sectors grew strongly but growth was short of the planned targets. Growth in the manufacturing sector though was extremely low.

1.3.2: Structural Changes in the Economy

As has been the trend over the decades, the economy continues to transform into a more modern economy with the tertiary and secondary sectors growing much more rapidly than the primary sector. These shifts though - largely due to significant growths in the electrical and construction sectors - have not yet been accompanied by dynamic growth and marked improvements in the manufacturing and industrial base of the country which still remains relatively under-developed.

Given the more rapid growth in the modern sectors of the economy, the share of the primary sector in the economy has declined steadily from 29% of GDP at the start of the Ninth Plan to 20.3% in 2007. At the start of the Eighth Plan in 1997, the share of the primary sector stood at close to a third of GDP. Macro-economic projections further suggest that this trend of a declining share of the primary sector in the national economy is likely to continue over the current plan period.

In comparison to the significantly slower growth in the primary sector with annual average growths of less than 2%, the secondary and tertiary sectors averaged much higher growth rates over the plan period resulting in significant changes in the GDP composition. The secondary sector at the end of the plan period constituted 43.3% of GDP, while the tertiary sector accounted for 36.4% of GDP and the primary sector for 19.5%. In 2007, the agriculture livestock and forestry sector was surpassed by the electricity sector for the first time as the most important contributor to the national economy. The latter now contributes close to a quarter of the GDP or 23.4% as compared to 18.6% for the agriculture, livestock and forestry sector, and 13.5% and 6.4% for the construction and manufacturing sectors respectively in 2007.

1.3.3: Consumption, Investment and Savings

Over the Ninth Plan period, total consumption grew steadily at 10% and on average amounted to around 64% of GDP with private consumption accounting for about 68% of total consumption. Investments also grew at comparable levels (9.4%) and on average amounted to around 58% of GDP through the period, with private investments comprising about 79% of total investments. Savings grew even more rapidly and approximately comprised on average around a third of GDP between 2002 and 2007. The increased saving rates were primarily due to higher private (corporate) savings that by the end of the plan period accounted for over 90% of the total gross domestic savings.

Bhutan over the Ninth Plan period thus enjoyed exceptionally high and sustained rates of growths in savings and investment that has helped fuel the country’s high economic growth rates. The incremental capital-output ratio (ICOR) has been rising quickly and in Bhutan’s context is explained by the cyclical effect of the construction and commissioning of mega-hydropower projects that also result in the peaking of GDP growth from time to time.

1.3.4: Change in Prices

Inflation (measured by the rate of change in consumer price index) over the plan period remained below 6% and approximately averaged around 3.5% annually. This compares favorably to the average annual inflation rate of 6.5% over the eighth plan period. This relatively lower rate of inflation was a result of the declining rate of price increases in both food and non-food items, with much sharper drops for the latter principally on account of stable clothing prices. Notably, inflation for non-food items declined from around 8% in 2001 down to around 5.4% in 2006. However, in the later years of the plan the CPI rose sharply to over 5% in 2005, 2006 and 2007. The GDP deflator over the Ninth Plan years too has remained below 6% and averaged about 4.3% annually.

1.3.5: Balance of Payments and External Resources

Bhutan’s overall balance of payments situation over the Ninth Plan period has generally been comfortable and showed small surpluses on account of the significant inflows of grant and loan assistance. This inflow of external resources has helped balance out the trade and other invisibles account deficits resulting in an overall positive balance of payments position that averaged around 5% of GDP over the plan period. The trade deficit has been markedly large, climbing to record levels even in the face of strong and sustained export growth. In 2004/2005, the trade deficit crossed Nu.10 billion or 27% of GDP. However, the trade deficit has since declined and in 2006/07 Bhutan enjoyed a small trade surplus on Nu. 555 million.

External Resources

Despite trends reflecting a decline in official development assistance to developing countries around the world, total official development assistance to Bhutan registered more than a 45 percent significant increase in the Ninth Plan. Aid disbursements averaged around Nu. 6.5 billion p.a. or approximately 19% of GDP over the plan period.

While there has been a significant increase in external grants and loans accruing to the country in absolute terms, Bhutan’s dependence on ODA to finance the country’s development expenditures has been decreasing steadily. As compared to ODA levels that financed around 70% and 60% of the total development outlays of the Seventh and Eighth Plans, ODA funding has just financed around half of the total Ninth Plan outlay. Additionally, ODA as a percentage of the total GDP has declined remarkably and has come down to less than 20% at present from levels in the eighties that exceeded half of GDP as reflected in Chart 1.2

External Assistance to Bhutan

Citation: IMF Staff Country Reports 2010, 180; 10.5089/9781455207381.002.A001

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External Assistance to Bhutan

Citation: IMF Staff Country Reports 2010, 180; 10.5089/9781455207381.002.A001

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External Assistance to Bhutan

Citation: IMF Staff Country Reports 2010, 180; 10.5089/9781455207381.002.A001

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Bilateral sources provided around 75% of the country’s development assistance and as in past plans, India remained the country’s major development partner. The other important development partners for the country were the ADB, WB, Denmark, Japan and the UN systems. Reflecting the Royal Government’s Ninth Plan priorities, most of the development assistance that the country received was allocated to the social, the RNR, energy, infrastructure and communication sectors.

The country had virtually no foreign direct investments until the Eighth Plan period. In the Ninth Plan, FDI grew steadily from Nu.101 million in 2001 to Nu. 274 million in 2005/06 and climbed to a record Nu.3,238 million in 2006/07.

1.3.6: Ninth Plan Development Outlay and Expenditure

The public expenditures for the Ninth Plan are projected to be about 93% percent of the original plan allocation of Nu.70 billion. The budget deficit for the plan period on the whole has been maintained below 5% of GDP. The social sector received the largest share of the Ninth Plan budget with around a quarter of the total realized budget. Around 19% and 18.5% of the total realized budget were spent for the general public administration and services and the transport, communications and public works sectors respectively. The agriculture and the trade, industries and energy sectors received around 9% and 8.5% of the realized budget.

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1.4.1: Education & Literacy

Progress in terms of access to education over the Ninth Plan period has been particularly notable. With the construction of 128 new schools and the significant expansion and upgrading existing schools, the total enrolment of students has increased from 129,160 in 2003 to 157,112 in 2008. Enrolment growth at the higher secondary level has risen the fastest, averaging close to 20.9 % a year between 2002 and 2008. At the middle/lower secondary and primary levels, enrolment growths have been more modest at 6.6% and 2.7 % respectively over the same period. While the sheer growth in numbers of enrolling students has placed an enormous burden on the educational system, strenuous efforts have been made to maintain and further improve the quality of education. Maintaining the quality of education in the light of this unrelenting growth of enrolment has been a major challenge and is likely to remain an important and significant one for the future.

Reflecting this brisk growth in enrolment, the Gross Primary Enrolment Rate (GPER) has increased from 81% in 2002 to 112 % in 2008. As such, the Ninth Plan target to attain a GPER between 90-95% was comfortably achieved. With enrolment rate for girls growing at a faster rate at both primary and secondary levels, the country has achieved gender parity in primary and basic education; significant gains in the girls enrolment rate at higher secondary level has moved us much closer to achieving gender parity -estimated at 0.86 in 2008 -at this level, from 0.61 in 2002.

Primary and secondary school completion rates have also improved significantly over the plan period. It rose from 77% to 87% at the primary level and from 43% to 54% at the secondary level (basic education) between 2006 and 2008. This improved efficiency within the primary and secondary education system is partly attributable to the improvements in the teacher student ratio in schools which has improved from around 1:38 at the end of the Eighth Plan to 1:32 at the end of the Ninth Plan (combined primary and secondary estimate). Most schools have achieved the Ninth Plan targeted teacher student ratio of one teacher for every thirty two students.

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education monitoring and support services; the continued promotion of Dzongkha and facilitating its usage; the introduction of computer science and applications as an optional subject in the ninth and tenth standards; setting up of national and regional level school sports programs; and various initiatives to upgrade the qualification and competency of in-service and new teachers.

In view of the urgency to provide employment for the growing numbers of educated youth entering the labor force, the Royal Government attached a high priority to vocational training. Over the Ninth Plan, the annual intake capacity of vocational training programs was enhanced by around 35% from around 1,271 to 1,700. In addition to formal training programs in the VTIs, several other alternative modes of training were also organized under the Apprenticeship, Village Skills Development and Special Skills Development training programs. However the annual intake of all training programs fell below the targeted figure as only four of the thirteen new vocational institutes proposed could be established due to a lack of resources. In addition to enhancing access, significant efforts were also directed at improving the quality of vocational training through the adoption and implementation of a VET policy, the establishment of a Skills Training Resource Division and the development of the Bhutan Vocational Qualifications Framework.

To address the low levels of adult literacy, the Non-Formal Education Program helped train close to 14,000 learners through 736 instructors by the end of the 9^th Plan (2008). This represents a significant increase from 9,700 learners and 256 NFE instructors at the start of the plan period. Not only has the instructor student ratio for NFE programs improved significantly, qualification levels for new instructors have also been raised to a minimum of the twelfth standard. However, adult literacy levels are still low and assessed to be 53% as reflected by the PCHB 2005. National literacy levels too are not significantly higher at 60%. This falls significantly short of the Ninth Plan target to attain literacy level of 70% but this may have been an unrealistic target in the first place as it was projected on the basis of weak baseline data of existing literacy and adult literacy levels.

1.4.2: Health and Nutrition

Over the Ninth Plan period, primary health care coverage has been sustained at above 90%. Additionally, immunization coverage levels were also maintained at over 85% for all Dzongkhags. This sustained level of primary health coverage has contributed significantly in raising the health status of the country’s population which is reflected in marked improvements in health indicators across the board.

There have been considerable achievements in reducing child mortality over the plan period. Under-five mortality rates have been brought down by around 29% from 84 per thousand live births to 60 per thousand live births over the plan period. As such the country remains comfortably on track to achieve the MDG target of reducing U5MR by two-thirds. There has been an even faster rate of progress in reducing infant mortality rates with IMR levels being successfully scaled down by around one third from 60.5 per thousand live births to 40.1 in a little over five years. At this rate of progress, it is highly probable that the country will achieve the MDG target of reducing IMR by two thirds well ahead of time.

Similarly, maternal mortality rates have been brought down by 16%, declining from 255 to around 215 per hundred thousand live births. This sustained decline in maternal deaths is partly attributable to an increase in skilled birth attendance which doubled from 24% to 51% between 2000 and 2005. The establishment of nine comprehensive and twenty basic Emergency Obstetric Care centers during the Ninth Plan would also have contributed to the further decline of maternal mortality in the country.

The Ninth Plan period also witnessed a substantial expansion in both human resources and infrastructure in the health infrastructure as depicted in Table 1.4. The ratio of doctors to population (for every 10,000 individuals) improved from 1.7 at the start of the plan in 2002 to 2.3 in 2006. The nurse-population ratios likewise progressed from 6.9 to 8.3 per 10,000 population. With the completion of the construction and or upgradation of the Jigme Dorji Wangchuck National Referral Hospital, the Mongar Regional Referral Hospital, Phuentsholing General Hospital and the Dagana, Trashigang, and Trongsa district hospitals, there was virtually a fifty percent increase in the number of hospital beds available to the general population at large.

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The general nutritional (including micronutrients situation) status of the people has been improving over the decade due to focused interventions and the improved availability of food. An MDG target indicator of halving the rate of under-five children who are underweight has been achieved as this indicator has been brought down from 38% in 1989 to 19% in 2000. Likewise there have been similar achievements in reducing stunting and wasting among children. Additionally, there is no major gender difference in the nutritional status of children and where small differences exist, girls are usually better off. The most notable achievements though have been the improvements in the micro-nutrient deficiency situation. A major health achievement over the Ninth Plan was the elimination of iodine deficiency disorder (IDD) as a public health problem with Bhutan becoming the first country in the region to have achieved this. Today, the incidence of goitre occurrence is less than 5% as compared to 65% two decades ago. The micronutrient deficiency of Vitamin A is also no longer a public health problem though iron deficiency anemia among pregnant women is still a critical concern.

1.4.3: Safe Drinking Water and Sanitation

The provision of safe drinking water and sanitation has been critical to improving the health status of Bhutan’s population as there is a close link between enhanced coverage levels of safe drinking water and sanitation and the decreased incidence of infectious diseases such as diarrhoea, typhoid and cholera.

The proportion of the population with access to safe drinking water increased from 78% to 84.2% from 2000 to 2005 with improvements particularly noticeable in rural areas. Currently, around 75% of the country’s rural residents have access to safe drinking water sources reflecting a sharp reduction in the rural-urban gap in terms of their access. This is in large part due to the highly effective implementation of the Rural Water Supply (RWS) schemes all around the country. As the MDG target of reducing by half those without access to safe drinking water has already been achieved well in advance, the future challenge will be to achieve and maintain universal access to safe drinking water, particularly in rural areas of the country.

In addition to improved access, considerable efforts were also directed during the plan period to enhance the quality of drinking water and monitor these qualitative aspects in light of their significance to public health and efforts to decrease the spread of water-borne diseases.

Access to sanitation has similarly shown marked improvements over the decade though it has only marginally improved by a percentage point over the plan period. The proportion of the Bhutanese population with access to toilet facilities was 89.2% in 2005 as compared to 88% in 2000. In rural areas sanitary latrines were also available to 86.6% of the rural population. The MDG target in this context of halving the proportion of people without access to safe sanitation was also achieved some time ago. This represents a notable achievement as these levels of access to safe sanitation are comparable to those in considerably more developed countries with much higher levels of human development and GDP per capita levels.

2.2.1: Evolving Strategies to Achieve Gross National Happiness

The single unifying idea that guides the nation’s long term development is the Bhutanese concept of maximizing Gross National Happiness. The spirit and intent of this concept as articulated in the Bhutan Vision 2020 document is to “Maximise the happiness of all Bhutanese and to enable them to achieve their full and innate potential as human beings.” Reflecting the importance of the concept, the promotion of enabling conditions for GNH has also been enshrined as an important principle of state policy under Article 9 of the Constitution.

Incorporating the notion of happiness and the emotional and spiritual well-being needs of humans into the development equation represented a paradigm shift. It sought to go beyond the conventional income-based measures of development and attempted to address the ends of development rather than just the means. The GNH concept does not in any way exclude or deny the importance of economic growth but strongly advocates achieving a harmonious balance between the material and non-material dimensions of development.

In order to translate the multidimensional concept of GNH into core objectives for a more focused direction for the country’s long term development, four priority strategic areas were initially defined. These four foundation pillars of GNH were the goals of sustainable and equitable socio-economic development; environmental conservation; preservation and promotion of culture; and good governance. They constituted the broad strategic framework through which national development processes were to be actualized for the maximization of GNH.

While the four pillars of GNH provided for and still constitute a useful framework that defines the broad areas of development activity through which GNH can be pursued, it needs a clearer strategic perspective and framework to operationalize GNH and guide development planning more effectively. As such it will be necessary to revisit the GNH conceptual framework and develop effective and detailed strategies for its realization. Naturally, a meaningful and effective strategic framework must evolve with the changing times and needs and respond dynamically to a particular set of challenges to best achieve GNH. The process must necessarily be open ended and progressive that will allow a variety of creative and innovative strategies to emerge that constantly factors in the varied development lessons and learning experiences for Bhutan. The ideals of GNH, however, necessarily implies that the broader strategic focus will always and constantly be one that places people at the centre of development, that regards people as the real wealth and asset of a nation and human well-being and happiness as the ultimate end and purpose of all development activities.

On the basis of a recommendation emanating from the Good Governance Plus Review 2005, efforts are currently underway to develop a relevant index [Box 2.1] for measuring development progress in the country. The proposed GNH Index (GNHI) will be a composite index of relevant indicators that reflects as closely as possible the essential dimensions of GNH. However, it is unlikely that the GNHI will be a fully comprehensive measurement or be able to entirely capture the diversity and significance of GNH. Even if the measures were limited, this may yet provide a useful quantitative dimension through which the country can explore additional ways to further the prospects of maximizing happiness for its people. The measure, just like the strategic framework for GNH, will also need to be dynamic in that it incorporates relevant changes as and when it becomes highly necessary to do so.

2.2.2: A Vision of Bhutan in the Year 2020

Bhutan 2020: A Vision for Peace, Prosperity and Happiness is a twenty year perspective strategy which sets the preferred direction for where Bhutan wants to be in the year 2020 starting from the base year of 2000. To reinforce the guiding direction for the Tenth Plan, it would be useful to recall here briefly some of the desirable long term outcomes for the Kingdom envisioned in the Bhutan 2020 Vision. The Tenth Plan period after all straddles the critical half-way point on to the year 2020 and presents an opportune time to refresh and recollect that special vision and assess what needs to be done to accomplish the milestone goals targeted in that vision. In particular, the Vision 2020 development targets set to be achieved by the end of the plan period are highlighted in the later section on Tenth Plan Targets.

The Vision 2020 projects that Bhutan will emerge to become a respected and active member of the international community and a country recognized for its role in promoting peace and stability in the region. It envisages that Bhutan’s sovereignty and borders will be firmly secure, based on constructive and mutually beneficial relationships with its neighbours rather than on military capability. The vision further anticipates that Bhutan will have demonstrated to the world that it is entirely possible to embrace the benefits of modernization without being overwhelmed by accompanying negative influences, while proudly maintaining a distinct identity that is well recognized, valued and respected. In terms of societal outcomes, the vision visualizes the emergence of a compassionate, tolerant, self-confident and egalitarian Bhutanese society with its people living in harmony and unity and imbued with a common sense of purpose and destiny.

Economically, the vision pictures that hydro-power led development and growth will have helped the country achieve a high degree of self-reliance, with much of the responsibility for the financing of development in its own hands. Bhutan by 2020 is expected to be able to sustain rising social-sector investments, meet its growing physical infrastructure development requirements and stimulate the further expansion of and growth in economic activity in order to continually raise the standard of living and quality of life.

The availability of low-cost hydro-power energy and resource endowments deriving from electricity export revenues are anticipated to help transform the industrial landscape in Bhutan with the development of a wide range and host of clean industries and high-technology enterprises. Exports to international markets of high-value Bhutanese niche and eco-based products are also projected to contribute significantly to the national economy and gain notable prominence for their quality. The private sector is expected to grow significantly and become more dynamic, providing the major impetus for the growth in the manufacturing sector that is expected to contribute around one third of GDP by 2010. Another prominent area of private sector engagement, the tourism industry is envisaged to contribute to a quarter of GDP by 2017 with revenues increasing by 150% from prevailing levels in 2000.

As such, the Vision 2020 pictures that while the country’s economic future will be rooted in and driven by hydro-power based investments, the economy will also be well-balanced and sufficiently diversified by a thriving horticulture and organic based high-value agriculture sector, a solid and clean manufacturing base and a burgeoning hospitality industry. These non-hydro power sectors are also expected to contribute in very significant ways towards generating productive employment for the growing numbers of youth entering the labor market.

Socially, the Vision anticipates that in 2020, providing equitable access to and delivering improved quality social services across will no longer be an issue. The Vision 2020 expects that the country will in that time boast a health care system comparable to those in developing countries with highly developed indigenous medicine expertise and capabilities. By 2020, child and maternal mortality indicators and life expectancy figures are expected to approach levels comparable to the current average for all developing countries in 2000.

With regard to education, the Vision 2020 envisages Bhutan will have the full range of institutions required for the formation of all relevant knowledge and skills. The vision expects that education will evolve in ways that successfully develops the innate potential of Bhutanese children and instill in them an awareness of the country’s rich cultural values and heritage and a deep appreciation of the importance of ethical and moral choices in their lives. The vision further foresees the imperative for a transformed learning environment wherein education will have better prepared the country’s youth for employment and helped them develop a natural curiosity and aptitude to continually learn and acquire new knowledge and skills. In terms of some of the important education targets, the Vision 2020 sees the full attainment of enrolment levels at Class X by 2012 and realization of full adult literacy levels by 2017. In terms of the state of the natural environment, the Vision 2020 is optimistic that the natural environment and natural resource endowments will still be richly intact, with 60 percent of the country forested and sizeable tracts of protected national parks and reserves harboring an incredibly rich bio-diversity, the envy of many nations. The vision anticipates that the environmental conservation approach will be dynamic rather than static and will not merely treat natural resources as something to be preserved but as an immense asset that can also be sustainably and wisely utilized for socio-economic development.

Bhutan in 2020 is expected to not only have its rich culture still vibrant, alive and clearly visible in Bhutanese lives, but that it will be richly infused with contemporary relevance and meaning. The vision perceives the latter to be particularly important for young people. It envisages that the country’s rich traditions, values, ideals and beliefs must ideally live on in the minds of Bhutanese youths - referred to appropriately in the vision as cultural custodians - and become a positive force and source of inspiration for them. In terms of activities, the vision placed a high priority towards the active promotion of traditional arts and crafts, architectural styles and national language and the conservation and protection of the historical monuments, sites and artifacts while improving accessibility to this rich legacy. The inventorying and recording of this cultural legacy, including the rich oral traditions and folklore were also viewed as being very important.

In terms of good governance outcomes to be attained by 2020, the Vision anticipated the full development of the country’s governance and legal institutions and the emergence of a system of jurisprudence based on a body of law respected by all. It also foresaw that these developments would ultimately give rise to new dimensions of the existing traditional concepts of representation and democracy in the country. The Vision however did not quite anticipate that it would happen as early as this, the vast extent of it or the noble manner of its initiation through the ongoing democratization processes and the formulation and adoption of a written constitution, the Tsa Thrim Chennmo. The Vision further envisaged that the ongoing decentralization processes would be completed by 2020 with local governments fully and effectively empowered and responsible for many of the development planning and management functions. Through this it is expected that the Bhutanese people would genuinely “own” the development process, thereby helping fulfill both long term national goals and local aspirations and priorities.

2.2.3: International Development Goals

3.2.1 Strengthening the Manufacturing and Trade Sector

The lack of a clear industrial policy and institutional framework has been regarded as a major reason for the slow growth and weak performance of industries in Bhutan, notably for the manufacturing and trade sector. Under the Tenth Plan, particular emphasis will now be given to ensuring that the necessary regulatory and legislative frameworks are in place to effectively manage and promote industrial economic activity. In that respect, cooperation and collaboration between the Royal Government and the private sector shall be enhanced and facilitated through the restructuring of the Private Sector Development Committee and regular consultations on policy and related matters. Further, support will be provided to the Bhutan Chamber of Commerce and Industry to make it an effective, democratic and professional body capable of representing and promoting private sector interests in a transparent and effective manner. Sectoral policies and procedures will be made clear, transparent and widely publicized and a Monopolies & Business Malpractices Bill and Consumer Protection Bill enacted. The industrial legislation and policy frameworks will also be appropriately formulated to strengthen competition and innovation so that the private sector is better able to cope with more open domestic markets and perform competitively in export markets. Activities for strengthening the institutional framework for industrial development include the formulation of industrial legislation, establishment of a single window clearance system, strengthening of company registry, establishing an industrial information system, implementing product certification, deregulation, liberalization and simplification of registration and licensing procedures, and developing human resources. To promote excellence in innovation, creativity and enterprise intellectual property rights will be given due recognition and adequate protection.

In today’s globally competitive environment, small and medium sized enterprises increasingly face strong international competition for both domestic and export markets. Economic clusters allow for an effective provisioning of required strategic infrastructure and common facilities in a strategic location for the development of particular manufacturing and service industries. The significant economies of scale that the cluster approach provides are particularly important for small economies like Bhutan’s with a nascent and underdeveloped private sector. Clusters have also known to be highly effective in supporting and improving the competitiveness of local businesses by enhancing their productivity and value addition, promoting innovation and securing greater inflows of FDI.

The development of industrial clusters such as industrial parks and special economic zones - most of them to be strategically situated along the border areas with India -are thus expected to dramatically boost Bhutan’s manufactured exports to markets in India, the region and the world at large. This will significantly substantiate the national trade policy goals of achieving a greater degree of economic integration with the Indian, regional and global economy and draw on the advantages that such integration provides.

The establishment of industrial parks in this regard will considerably strengthen the manufacturing base and help achieve the ambitious target of doubling manufacturing share of GDP to 12%. Industries can be optimally clustered in a particular zone designated for industrial activity in which appropriate infrastructure such as roads and electricity and utility services can be provided in a cost effective and environmentally sound manner. Industrial parks will be developed to encourage the establishment of SMEs and provide gainful employment and entrepreneurship opportunities for unemployed youths. These industrial parks will also facilitate the emergence of strategic growth centers and industrial hubs around the country that will catalyze local industrial development. The Royal Government has identified the Dhamdum, Motanga and Jigmeling industrial parks spread around various parts of the country as the priority industrial parks that need to be established urgently under the Tenth Plan.

As a landlocked country with considerable transit constraints, the establishment of dry ports and trade centers are critical for the expansion and facilitation of trade. Developing dry ports in the regional industrial and economic hubs of Phuentsholing, Gelephu and Samdrupjongkhar have been deemed ideal for these purposes. Trade facilitation will also be actively promoted through various activities to integrate the national economy into the global and regional trading regimes, including WTO accession initiatives without deviating from the nation commitment to GNH principles. Export promotion programs planned include starting up an export credit finance mechanism, upgrading quality of exports, promoting a national brand image and strengthening exporter education and awareness. In addition to these foreign trade development activities, the Royal Government will vigorously promote domestic trade through the development of a consumer protection act and competition policy, streamlining of distribution channels, market modernization and reviewing regulations of third country imports.

With relatively low levels of capital investment required, the Micro, Small and Medium Enterprises (MSMEs) sub-sector offers significant employment and income generating opportunities, particularly for youth and low income groups. The proper development of this sector can thus greatly help reduce poverty. The development of MSMEs, especially through local entrepreneurship requires considerable institutional support, which remains inadequate. As such, the broad areas of intervention to promote MSMEs under the Tenth Plan period are to develop the necessary institutional, legal and regulatory frameworks for MSME including their implementation modalities, enhance business development services, provide entrepreneurship training and advisory services, establish a small business resource center, undertake a feasibility and resource study and revise the business and investment opportunity study. To promote rural growth and employment, support will also be provided to cottage and small enterprises. A separate Department under the Ministry of Economic Affairs will be established to extend full support for promoting cultural industries.

It will also be imperative to focus on developing niche markets for Bhutanese products and services. Strategies will be devised for Bhutan to become a regional player in the fields of education, health, finance and banking, ICT, construction and consultancy. Participation of foreign investors will be encouraged in these areas

To promote growth in an equitable manner, the Royal Government will come out with policies to provide a level playing field for all Bhutanese to participate in industrial and business enterprises. Registration and licensing procedures will be further simplified to reduce the time for acquiring business licenses. “One Stop Shops” will be introduced to provide efficient and timely delivery of services wherever feasible.

The mining sector offers tremendous opportunities for Bhutan. Left unexploited, many of the minerals are lost through natural landslides. The Department of Geology & Mines will undertake a comprehensive mineral resource mapping. Minerals will also be required to be processed for value addition before exporting. Industries that can use local raw materials and minerals will also be encouraged. However, cautious and responsible mining will be promoted to ensure ecological responsibility.

3.2.2: Accelerated Development of Hydropower

Hydropower is an enormous natural resource endowment. It has been the primary source of energy for domestic consumption and local industrial power needs and constituted the major national export and revenue earner for over the last two decades. The sector has been the proverbial engine of growth for the economy and the catalytical hub around which socio-economic development has been advanced. Today, the sector continues to drive the economy and contributes close to a quarter of GDP and around 40% of total national revenue. The economic benefits deriving from future hydropower development - secured under the Indo-Bhutan Agreement for the long-term development of hydropower - will further strengthen the economy to make Bhutan even more prosperous and self-reliant than before.

Additionally, while making sustainable economic development in the country a reality, hydropower development in the country has been pursued in a manner that is environmentally friendly and socially responsible. Bhutan’s clean energy exports greatly help in reducing fossil fuel burning and greenhouse gas emissions thereby contributing to a healthier global environment. The eco-friendly aspects of Bhutan’s hydropower development are so evident that several of Bhutan’s hydropower projects could be considered for carbon credit gains as these green exports do help offset industrial pollution in the region. Moreover, these mainly run of the river hydropower projects virtually do not require any displacement of communities nor the inundation of large tracts of riverine eco-systems. Indeed, the sustainable exploitation of hydropower will depend a great deal on the state of the environment and in particular, the condition of its watersheds. The conservation of the environment is thus in itself a very strong economic rationale for the long term utilization of hydropower resources in Bhutan. A high level team will be established for the study of and negotiation of carbon trading and other environmental promotion incentive schemes such as the Clean Development Mechanism (CDM). While continuing to make substantial investments in hydropower there is also the need to plough back revenue from hydropower and other water based industries into a watershed management fund.

In the social context too, hydropower development has various spin-off benefits in raising the quality of lives and reducing poverty. The massive level of support infrastructure including social service facilities, electricity, road and other economic infrastructure that are built while constructing a hydropower project confers immense and immediate social benefits and economic opportunities for local and regional communities. As conditions of income and human poverty are known to be inextricably linked to the prevalence of energy poverty, the further development of hydropower resources and provisioning of affordable electricity for all will effectively contribute toward removing an underlying cause of poverty.

Clearly, the further development of hydropower resources for exports to India will remain at the core of Bhutan’s economic development strategy. The issue here is centrally about accelerating the pace of hydropower development to further capitalize on the nation’s distinct comparative advantage and effectively tackling the major constraints towards meeting the targets set for the sector and the long term capacity addition goals. These economic targets include enhancing electricity’s share to over 15 % of GDP on average over the plan period, contributing about 36% to the national revenue and expanding hydropower capacity to 1,602 MW. The hydropower agreement with India to develop a minimum of 5,000 MW for exports by 2020 further necessitates accelerated hydropower development as this implies a massive capacity addition of more than 400 MW per year. While the bilateral agreement sets a minimum figure, the Royal Government is keen to develop a total installed capacity of 10,000 MW by 2020 in the main three river basins of the country. A comprehensive hydro power policy is in place to allow development of hydro power projects through public private partnerships and through the private sector if necessary. Since hydro power projects bring large benefits to the local area during the construction phase, to the extent possible, projects will be evenly distributed among Dzongkhags to promote balanced and equitable regional development.

As the development of hydropower projects are highly capital intensive activities with very long planning horizons, it is highly essential for detailed feasibility studies and/or DPRs to be carried out before investment decisions are taken. Such activities to be undertaken include conducting DPRs for Chamkharchhu I, Kholongchhu, Kuri/Gongri, Amochhu Reservoir and updating the DPR and EIA in respect of Sunkosh, Wangchhu and Bunakha reservour hydroelectric projects. Further, reconnaissance survey and investigation of remaining 53 hydropower listed sites and the conduct of pre-feasibility studies for 4 potential sites from which one site will be selected for final DPR studies also constitute important activities under the accelerated hydropower development program.

To implement and manage the desired level of hydropower capacity addition will require urgent efforts towards strengthening the institutional setup of the energy sector. Some of the important activities to be taken up include the establishment of a hydropower laboratory for material testing, project modeling and efficiency testing of hydraulic machines; the updating of country hydropower site information and conducting other relevant studies; and capacity building within the Department of Energy, the Bhutan Electricity Authority and the recently formed Druk Green Power Corporation.

Additionally, the high capital requirements for the accelerated hydropower development program make it necessary to mobilize alternative financing sources in addition to development assistance. Investments from private sector and joint venture partnerships could provide the additional resources needed and such arrangements will be promoted. The engagement of the Bhutanese private sector in the various stages of implementing hydropower development and in operations and maintenance would also help further build national capacity in a highly critical economic activity for the country. The Royal Government will further undertake the formulation of relevant policy documents and guidelines for hydropower development through IPP and FDI financing modalities and facilitate such strategic partnerships.

As the RGoB has the important objective to provide electricity for all by 2013 to improve the quality of life and reduce poverty, it is necessary to develop access to renewable energy sources for those households (around 12%) that will not be connected to the national electricity grid. The development of solar energy resources, micro-hydels, alternative energy experimental activities, and the institutional strengthening and capacity building in these relevant areas comprise some of the priority activities under the renewable energy program. For power security the national transmission grid master plan project will be in place by 2013.

3.2.3: Promoting and Facilitating the Development of Cultural Industries

The country’s rich and living cultural heritage is not only a potent source of and relevance for Bhutanese national identity and social interaction, but also holds considerable potential for generating economic and social benefits such as employment creation and poverty reduction through the promotion of cultural industries. The latter are industries centered around the creation and production of goods and services that are cultural in nature and broadly encompass a wide range of activities connected to heritage, literature, performing arts, media and the audiovisual sectors. As these cultural industries are essentially based on harnessing the innovative and creative aspects of human capital, they are also popularly referred to as “creative industries.”

For reasons relating to resource constraints and the considerable fragmentation of this diverse sector, apart from activities that support cultural enterprises based on handicrafts and textiles, the strengthening of cultural industries will be largely addressed through and integrated within the Tenth Plan programs intended for the preservation and promotion of cultural heritage. As such, the active engagement of the private sector, including the hospitality sector, becomes even more pertinent and vital to generate sustained demand for these high value intangible products and continually tap into their unique selling points based on excellence in creativity and innovation. Private sector driven growth of the sector would also be clearly appropriate given the very high levels of innovation, creativity and enterprise required to realize the full potential of such industries, which are of ten best left primarily in the domain of private enterprise.

The Royal Government for its part will adopt necessary measures to provide an enabling environment such as ensuring intellectual property protection; promoting a higher profile and visibility for the sector through export promotion and media propagation of Bhutan’s unique and special cultural image internationally; strengthening and integrating local and regional supply chains with markets within and outside the country; and deepening the skilled human resource base such as through enhanced access to the Zorig Chusum or thirteen traditional arts and crafts trainings. The latter assumes particular significance in the context that certain unique Bhutanese craft skills are gradually dying out and the expertise being lost irretrievably. The Royal Government will also study the possibilities of treating cultural industries at par with regular industrial activity and extend necessary fiscal incentives such as tax holidays, lower cost loans and the facilitation of appropriate mortgage financing.

3.3.1: Managing Sustainable Urban Development and Housing

Over the last decade, Bhutan has experienced a very rapid pace of urbanization. Additionally, with current levels of rural-urban migration, urban populations are projected to rise to around half of the total population by 2020. This has already placed enormous pressures on the two major cities of Thimphu and Phuentsholing and some of the larger towns around the country that could have serious consequences for the future quality of urban life. Urban centers are already experiencing the adverse effects of urbanization such as water shortages, housing scarcity, sanitation and waste disposal problems, deteriorating air quality through pollution and the proliferation of squatter settlements in sensitive environment areas. Managing urban development effectively and efficiently to build and sustain a quality urban environment is thus a critical area of challenge for national spatial planning policy.

The Royal Government under the Tenth Plan will implement several activities to further strengthen and develop the urban infrastructure and services of the two cities and several towns. Urban infrastructure will be developed in a cost effective manner while ensuring high live-ability and functionality. Additionally, the Royal Government, in expanding urban infrastructure, will also seek to maintain those aspects that best reflect the best of Bhutanese values, aesthetics and traditional architecture and that is in harmony with the natural environment.

Ensuring affordable housing is a critical urban issue in Bhutan. A major policy consideration is the need to prioritize various public infrastructure investments. Mainly due to competing needs and considerable resource constraints, it is extremely difficult for the Royal Government to secure the capital investment funds on the scale required to meet the projected demands for urban housing in addition to providing other public urban infrastructure amenities and services. As such, the Royal Government will seek to develop more effective and innovative responses, including actively promoting public-private partnerships to make affordable housing available in urban areas. The major onus for the development of affordable housing will be in the domain of developers in the private sector with the intervention of the Royal Government only in the event of market failure. The Royal Government, however, will ease urban housing shortage through measures such as making available land as and when required on the basis of long term leases and lease rentals and the introduction of various innovative financial intermediation schemes like mortgage finance facilitation, lowered interest rates and tax subsidies for housing projects, etc.

The National Housing and Development Corporation, at the same time, will continue to involve in the supply of affordable and adequate housing units mainly to the vulnerable groups, promotion of low cost housing techniques, use of appropriate construction materials, promotion of essential housing construction and market research activities etc. The low income group housing would be primarily aimed at those sections of the population who do not own their own dwellings and whose incomes are not adequate to have decent shelters. As housing is a basic social need, the Royal Government will continue supporting the functions of NHDC in the promotion and development of housing programs in the country. However, where it is economically viable, the Royal Government through the NHDC will also continue to encourage the private sector to play a pivotal role in the development of housing facilities.

Under the Urban Development Program for the Tenth Plan, the Royal Government will enhance the national urban management capacity through the institutional strengthening of various agencies and municipalities overseeing urban development issues. This will include human resource development in the areas of urban planning, data collection, GIS, infrastructure design, engineering services, etc. As the quality of urban infrastructure and services are very rudimentary in several of the newer townships, efforts will also be directed towards upgrading water supply and sanitation facilities and solid waste disposal systems. To enhance the efficiency and effectiveness of urban management, the Royal Government will continue to promote the decentralization of urban services management through granting of autonomous status to municipalities based on inherent capacities to take up such functions. The urban public will also be encouraged to participate more actively in the development and management of their cities or towns, including enhancing the aesthetics of their urban environment.

Bhutan’s urban areas are important commercial hubs that contribute significantly to the national economy and provide a functional and commercially viable base for businesses environment and activity. They also have the critical human capital resources and the essential institutions that are necessary to make the pursuit of innovation and creativity for higher productivity and growth in the country a reality. Urban markets, additionally, generate the essential demand that is expected to drive and sustain current and future rural production. As indicated earlier, meaningful rural development and poverty reduction cannot be conceived as separate from the urban context. A well planned and clear vision and strategy for the further planned development of the national urban system is thus highly essential if the country is to maximize the benefits mentioned above.

The broad elements of the national urban system spatial framework as proposed in the draft National Urbanization Strategy (NUS) are outlined here briefly. The national urban system envisages the establishment of two national cities -Thimphu and Gelephu. The NUS also plans for five regional growth centers, sixteen Dzongkhag centers, twelve medium towns, twenty three small towns/Gewog centers and four corridors that link the cities and regional/national centers.

For national spatial planning policy to succeed in its key objective of balanced regional development, the NUS is essentially based on a growth centre strategy, the basic aspects of which are outlined here. The growth centre strategy revolves around the continued strengthening of the existing two cities while developing a few select regional/national growth centers as regional hubs. This will not only help mitigate rural urban migration by offering alternative migration and livelihood and commercial opportunities to Thimphu and Phuentsholing.

For instance, Gelephu is to be developed as a major national city and an important regional centre with the development of a second airport, railway links and a major industrial park and dry port. The road connectivity to this future National City and regional growth centers will also be facilitated by the upgradation of the Gelephu-Trongsa and Gelephu-Wangdue highways and the construction of the Southern East-West National Highway. In addition, the urbanization strategy also envisages and plans for the continued development of the urban and economic infrastructure and services of Thimphu and Phuentsholing.

Several towns with the best prospects to emerge as the regional/national growth centers have been currently identified and prioritized. These towns have been chosen as the growth centers for the reason that they are already the largest towns in the region that they will service, have sufficient physical space for future population expansion and have an economic base required for self sustaining growth. In the context of the latter, the Royal Government will also identify and develop regional and local specialization in particular economic activities for the various regions on the basis of their comparative advantages and strengths.

Significant investments will be required to develop the necessary urban infrastructure and services in these national and regional growth centers to achieve a certain critical mass and to make them viable places to live and invest in. In relation to the urban development of the national growth centers of Thimphu and Phuentsholing, continued investments are planned for the development of the core and extended areas and for the improvement of service delivery. The Royal Government will also prepare the urban design and plans for the various growth centers, Dzongkhag townships and small towns and implement urban infrastructure development in the new Dzongkhag townships. Additionally, road linkages and corridors between the national and regional growth centers will be strengthened through the expansion of national highways and roads to be taken up under the strategic infrastructure program for the Tenth Plan.

3.3.2: Conservation of the Environment

The relationship between environmental conservation policy and spatial management are very strong and multifaceted. Environment conservation policy clearly has numerous spatial components as they deal with issues relating to the protection of biodiversity habitats, forest conservation, watershed management, soil conservation and various other land use aspects. Additionally, effective spatial planning concerns itself with creating conditions for an enhanced quality of life and clearly, this is highly dependent on the state of the natural environment and eco-systems, including the availability of clean air and water, abundant and diverse forest resources, etc. As such, the conservation of the environment including the sustainable use and management of natural resources constitutes an integral and critical aspect of national spatial planning.

The added benefit of considering environmental issues from the vantage point of national spatial planning is that it effectively contextualizes and integrates this within the overall national development framework for a fuller realization of sustainable development. This approach to maximise both sustainable utilization and conservation of natural resources is particularly important for Bhutan as the country is encountering growing challenges of balancing development and livelihood opportunities against the need to conserve the environment. The Royal Government intends to utilize national spatial planning strategically to address this critical balance for a win-win situation and in the overall national interest.

The Royal Government will promote mainstreaming environmental issues into the development planning process through the national spatial planning framework and through awareness and capacity building of relevant sectors. As the lack of quality data and information continues to remain a constraint, strengthening the environmental information management system will be an important activity to be undertaken during the Tenth Plan. Other important activities include the institutionalizing of decentralized environmental impact assessment process and the drafting of relevant environmental legislation such as the National Environmental Protection Act and the Water Act.

Environmental conservation will also be supported through the strengthening of the management of protected areas and botanical gardens; the establishment and operationalization of three new protected areas and one botanical park; bringing four biological corridors under scientific management; developing the database of biodiversity in the protected areas; and introducing nature tourism in one of the designated parks. Spatial planning here is particularly relevant as it can help designate the location of valuable and vulnerable natural areas and help identify buffer zones and wildlife dispersal corridors. Additionally as part of the Royal Government’s spatial planning initiative to balance economic and social priorities with environmental concerns, the Royal Government will ensure that the livelihoods of people living in the protected areas are enhanced rather than reduced through an integrated conservation and development approach.

The Royal Government under the Tenth Plan will continue to fortify its ongoing efforts in biodiversity conservation. This will be done principally through the strengthening of a field gene bank, botanical garden and a herbarium to facilitate the conservation and sustainable utilization of plant and animal genetic resources; strengthening the national biodiversity management and information system; and the implementation of bio-prospecting for the commercialization and sustainable utilization of biological resources.

A major infrastructure development project for the forestry and environment sector under the Tenth Plan is the establishment of the Ugyen Wangchuck Forest and Environment Institute at Lami Gompa in Bumthang. The institute will contribute immensely to advancing the cause of forestry and environmental education and research and strengthening national capacity in the professional management of its natural resources. Among the various activities to be implemented under the project are the creation of a Bhutan Museum of Natural History and the establishment of degree level academic programs in forestry and environment.

3.6.1: Striving for Excellence in Education

The popular expression of education as both “the seed and the flower of economic development” emphatically underscores the enormous importance that the Royal Government attaches to education as a strategic means for sustaining growth and ensuring a vibrant democracy as well as a desirable end in itself within the context of the eventual emergence of a progressive and enlightened Bhutanese society. For all these to realistically happen, Bhutan must not only improve its education system on all fronts and significantly upgrade the quality of education on a continuous basis but explicitly and ambitiously strive for excellence in these areas.

While the country has undoubtedly made significant progress in the quantitative expansion of education over the last four decades, this may have come at the expense of quality education. Achieving excellence in education requires inculcating capacities for self-learning and developing student’s cognitive, analytical and critical faculties and problem solving skills that help stimulate and lay the foundations for creativity and innovation. This obviously must start from an early stage of a student’s education and be reinforced throughout secondary and tertiary levels. The education system in Bhutan is still a long way off from standard and will need considerable reforms to fully achieve these objectives.

To address the above issue, the major theme of the Education Sector for the Tenth Plan is to enhance education quality at all levels. To this end, various program and activities are to be initiated towards improving curricula and teaching methodologies, enhancing teaching/learning resources including the use of appropriate class-room technology, strengthening education management systems, promoting literary, art and cultural learning, reducing class size to an optimum teacher pupil ratios, providing relevant life skills and vocational training, encouraging physical education, games and sports and promoting an interest for reading. Additionally, as teacher quality is critical in determining student learning outcomes, several measures will be taken to strengthen teacher workforce, improve their professional qualifications and teaching competence and provide appropriate incentives. The Royal Government will work at developing relevant benchmarks to allow for periodic assessments of quality at all levels of education.

An effective way to develop the quality of local school education would be to introduce and allow establishment of schools that set very high academic standards of excellence, possess first-rate educational facilities including boarding amenities and have the best of teaching staff including expatriate teachers. The setting up of such international standard schools would be done through partnerships between the private sector and foreign investors within the national education policy.

While this would initially help raise the education quality benchmark and meet the education needs for many Bhutanese students who study outside, it could also potentially stimulate the formation of a viable education industry. The country affords a safe, friendly and stable environment for international and regional students and in many ways represents an idyllic environment for academic pursuits. Besides school education, this could include Bhutanese institutions offering a range of education and training courses in thematic subjects closely associated with the global image of Bhutan such as in traditional arts and crafts including painting and weaving, cultural and nature based tourism, environmental and wildlife conservation, etc. The Bhutan Vision 2020 distinctly envisages the eventual emergence of such a situation when it refers to people traveling from around the world to the nation’s centers of excellence in the fields of education.

An important aspect of the education strategy for the Tenth Plan will also be to considerably enhance access to vocational education and training through establishing new vocational and training institutes, diversifying and expanding various trainings such as the village skills development and the apprenticeship training programs. In keeping with the principle of excellence in education, efforts will be made toward ensuring a high quality of vocational education and training through continuous improvements in instructional approaches, curricula development and upgrading instructor competence and professional development. One major strategy to be adopted in the Tenth Plan for the Vocational Education and Training would be to come up with a comprehensive policy that would bridge the gap between the vocational education and the formal system of Education.

It is well known that high quality tertiary education can deliver enormous benefits to national economies by expediting the use and adaptation of innovative and modern technologies and in growing the national stock of human capital. However, due to the primary focus on ensuring basic education for all, Bhutan has not performed so well in furthering the advancement of higher education. The National Labor Force Survey 2006 puts the total number of college educated graduates in the country at 3,300. This translates into the number of college graduates comprising less than a percentage point of the country’s entire population and a mere 1.4% of the total labor force, even as their numbers have been increasing significantly each year.

These clearly point to considerable difficulties in enhancing access to higher education. A well known major barrier for college education relates to the high costs, particularly for the many who study in regional or international institutions on their own expenses. Another is the weak academic performance at higher secondary levels that dampens entry into colleges. The Royal Government will focus attention on enhancing access to tertiary education, facilitating transition from secondary education and developing a comprehensive policy for quality tertiary education that will include provisions for private sector participation and engagement. Enhancing the quality assurance and accreditation processes will further constitute an integral aspect of the policy to strengthen higher education. As management education is a critical area of higher education needs, the Royal Government is undertaking programs to enhance the quality, relevance and coverage of management education and the further development of the Royal Institute of Management.

While formal education constitutes an important stage in the development of human capital formation, it is also highly essential to conceptualize the latter as a lifelong learning process. Lifelong learning is clearly necessitated by the fact that markets and the global environment today increasingly and continually demand a much higher level of skills and knowledge from its workforce. Moreover, in this era of rapidly changing business environment and conditions, knowledge and skills become obsolete very quickly and hence the need to keep upgrading them and to promote learning well beyond the time that individuals leave educational and training institutions. Learning to learn is in itself a highly essential skill and attribute of an individual to participate meaningfully in a knowledge-based society.

Lifelong learning is viewed by the Royal Government as a valuable public good with enormous potential to enrich both individuals and society at large. The Royal Government will place a strong emphasis on promoting lifelong learning through all formal and non-formal education processes as well as through effective human resource development in the public and private sectors. Innovative systems will however need to be devised where learners are provided a flexible and multi-education pathway with multiple entry and exit stages. The Royal Government will in this context study and implement various second chance, distance and e-learning educational opportunities. It must also be ensured that such continuing education programs will be highly relevant, of high quality and find broad acceptance and recognition within the industry. The Royal Government will further explore and seek to learn from the experience of other countries to improve such continuing education opportunities. At a broader level, efforts and measures will also be initiated to encourage a learning culture and reinforce greater awareness of the imperative and significant benefits of lifelong learning among all sections of Bhutanese society.

3.6.2: Human Resource Development for the Public and Private Sectors

Even as the human resource situation has improved to a great extent over the years, the shortage and quality of human resources continues to be a constraining factor in all sectors and for various disciplines. It remains particularly acute in the areas of professional and high skilled occupations. The further expansion of HRD programs is therefore an urgent imperative over the Tenth Plan for the following reasons. As indicated earlier, this has significant bearing on the strategy to actualize excellence in innovation, creativity and enterprise for enhancing productive capacities. Additionally, most of the educated youths seeking employment are without the necessary skills that greatly limits their employability and their access to quality employment. The provisioning of appropriate training would thus significantly enhance their prospects for quality employment and raise their productivity.

Furthermore, in view of the democratization and decentralization activities, this would help foster greater civil service professionalism and specialization while also enhancing capacity at the center and local government levels. Human Resource Development is also a critical issue for improving private sector capacity and performance. The private sector is particularly constrained by the lack of qualified people in the technical and management areas. The extremely low levels of investments committed by private enterprises for any kind of human resource development in their own organizations combined with the paucity of HRD funds available from development partners for the private sector have been a major constraint.

To help address these human resource constraints and challenges, the Royal Government will implement a major program to encourage more in-country training through partnership with renowned external training institutes. The ongoing courses developed for executives, managers and supervisors in the civil service will also be continued. Additionally, to improve the efficiency and effectiveness in the civil service, the royal government will institutionalize organization development; establish performance management standards and monitoring & evaluation systems; strengthen recruitment procedures and legal frameworks; and provide an incentive system that rewards excellence at the individual and organization levels. The strategy to maintain efficiency in the civil service will also be realized through retaining an optimum size in the civil service that can efficiently provide quality services. To stimulate private sector development, the Royal Government will actively participate in developing the HR capacities of the private sector through short term trainings. However, the private sector will also be encouraged to spend more of their own resources in developing their human capital.

3.8.1: Economic and Employment Targets

The Tenth Plan targets a warranted growth rate of between 9 percent during the plan period with population growth stabilized at an annual average of about 1.3 percent. The indicative projections made under the SMF model though indicate that growth is likely to average at 7.7%. To attain this targeted level of sustained growth for significant poverty reduction, it is expected that the agriculture sector should ideally grow at over 4% while non-agriculture sectors should collectively grow at over 10%. As such greater investments and efforts will be required.

At these targeted levels of income and population growth, GDP per capita is expected to increase substantially and more than double the present level by the end of the plan period. This level of rapid growth along with a 4% warranted growth in the agriculture sector would comfortably help Bhutan reduce national poverty levels to less than 15% and rural poverty levels to less than 20%. As national per capita income figures do not necessarily reflect real household incomes as a large part of it accrues as corporate income, an additional income growth target important for rural poverty reduction has been set. The additional target will be to enhance mean rural household cash income levels to over Nu.35,000 a year. Other GDP aggregate targets to aim for in the Tenth Plan include enhancing national savings and investment to warranted levels of 40 and 66 percent of GDP respectively.

The Tenth Plan will seek to attain and maintain full employment or below 2.5%, particularly scaling back the high unemployment levels among educated youth. Every effort will also be made to ensure that youths seeking employment will not remain unemployed for more than a year. These are ambitious targets in the context of expected exponential growths in the number of likely job seekers but can be achieved with ongoing efforts and focused interventions.

3.8.2: Social and Human Development Targets

The target set for poverty reduction is to bring down the number of people living under the poverty line to less than 15 percent by the end of the plan. This will require rural poverty to be effectively brought down to below 20 percent. The other important social targets set are to boost the adult literacy rates to 70%, lower the infant mortality rate to 20 per thousand, increase life expectancy to greater than 70, achieve a 95 and 96 percent access for safe drinking water and sanitation respectively, electricity service to 100% of the population and rural telecommunication expanded to cover all 205 Gewogs with a penetration rate of 15%. Improvements on all these social indicators along with projected income growth are likely to push up the HDI value close to 0.700 by 2013.

3.9.1: Participatory Planning Approach

The formulation of the Tenth Plan in terms of the consultations and preparatory processes started soon after the completion of the Mid-term Review (MTR) of the Ninth Plan, i.e. in 2005, a few years ahead of the start of the plan itself. Following extensive deliberations and consultations with various stakeholders, including the private sector and local government bodies across the country, a preliminary set of guidelines were drawn up that contained the core objective, priorities, strategies and resource allocation principles for the Tenth Plan. These policy guidelines also incorporated important recommendations of the Mid-Term Review (MTR) and the Good Governance Plus Report. The Guidelines for the Preparation of the Tenth Plan was subsequently circulated to all ministries, agencies, Dzongkhags and Gewogs as the broad policy framework for the formulation of the plan programs.

3.9.2: The Results-Based Planning Approach

The Results Based Management Planning Framework

Citation: IMF Staff Country Reports 2010, 180; 10.5089/9781455207381.002.A001

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The Results Based Management Planning Framework

Citation: IMF Staff Country Reports 2010, 180; 10.5089/9781455207381.002.A001

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• Download figure as PowerPoint slide

The Results Based Management Planning Framework

Citation: IMF Staff Country Reports 2010, 180; 10.5089/9781455207381.002.A001

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• Download figure as PowerPoint slide

On the basis of a critical recommendation from the GG Plus Report of 2005, the Royal Government decided that the Tenth Plan would introduce a new planning framework and accordingly, approved the adoption of the results-based management planning framework.

Results-based management planning in essence refers to the context wherein a sector or agency ensures that its processes, products and services contribute to the achievement of clearly stated results, with the latter defined as the effects of a development program, project or activity. This framework has been incorporated in the planning process to ensure that the national development planning and the budgeting processes are more dynamic, efficient, responsive and results-oriented and better able to anticipate emerging challenges and imperatives of the socio-political and development context in the post 2008 period.

A new and salient feature of the results-based planning approach is that the actual planning and budgeting time frame for implementing programs and projects will be a three year period rather than five years as was done for past plans. The five-year plans will still continue to provide the medium-term perspective to identify priorities over the plan period and monitor outcomes in terms of measurable goals and targets. The five-year plans though will be operationalized through multi-year rolling plans of three years (1+2) that will be rolled over from year to year based on annual work plans. This is to allow for enhanced predictability and more realistic planning.

The resource envelope will be based on resource projections determined by the Budget Policy and Fiscal Framework Statement. The BPFFS provides fiscal projections within a macro-economic framework and accounts for all available resources, indicating the desired level of spending. The resulting fiscal path further reflects the additional resources required in terms of loans, external and domestic, after considering debt sustainability.

The available resources are distributed among the central sectors and agencies with allocations based on the relevance and contribution of proposed programs to overall national plan objectives and priorities. Resource allocation for local governments, namely the Dzongkhag Tshogdu, Gewog Tshogde and in future the Thromdes, will include the provision of annual grants to be determined on the basis of a rational allocation formula. The criterion for allocating resources to various local governments will be based on several factors such as population, poverty incidence, and geographic area. In addition to the annual grants from the centre, local governments will also be able to generate additional resources from rural taxes, locally mobilized resources or contributions and earmarked grants from sectors.

All plans, at both the central and local levels, will be classified within the infrastructure or non-infrastructure categories. All infrastructure development such as rural electrification, hydropower generation, roads, telecommunication, and industrial estates will be based on Master-Plans to enhance infrastructure planning and priority setting. While these Master Plans will serve as road maps for infrastructure development, the implementation will be undertaken on the basis of the three year rolling plans.

The new planning approach continues to build on the Gewog based planning approach that was adopted and introduced in the Ninth Plan. Planning processes will continue to be further decentralized to provide greater autonomy for sectors and local governments to formulate strategies, select and prioritize activities within their respective annual grants. While allowing for greater planning and fiscal autonomy, the framework will simultaneously seek to ensure that sectoral plans at the center and development plans of local governments are synchronized to facilitate harmonious progress towards the achievement of important national priorities.

A special aspect of the results-based planning framework is that it requires final outcomes to be defined in terms of quantifiable goals and targets assessed within a five-year context. The overall yardstick designated is the GNH Index (GNHI) which will seek to approximate progress towards GNH - the ultimate objective of Bhutan’s development. The GNHI which is under development will enable decision-makers to assess the pace and direction of development, and help correct imbalances in terms of priorities that will be apparent from the index and shift resources accordingly. It is intended as a broad tool to ensure that Bhutan’s development truly contributes to the achievement of the country’s long term vision and the realization of GNH.

3.9.3: Mechanisms for Plan Implementation

3.9.4: Resource Allocation Mechanism

Resource allocation has been determined on the overall resource availability and based on the Budget Policy and Fiscal Framework Statement (BPFFS), simple macroeconomic framework and debt sustainability. Based on the projected resource availability and the need to enhance local budgets, the Dzongkhags and Gewogs will receive annual grants directly from the Government and this will be determined based on a formula that takes into consideration factors such as geographic area, poverty incidence and population.

The central sectoral agencies will provide earmarked grants to the local governments to implement programs that are required to achieve their national sector goals and objectives. These programs will be prepared and managed by the central sector agencies and the local governments will only be requested to implement it just as they do under the current system of carrying out deposit works. The central sector agencies retain the power and responsibility to determine the need, scope and extent of the programs implemented under the tied grant modality.

On the whole, the plan will be implemented through the Multi Year Rolling Planning and Budgeting System, in which the central and local governments prepare their Annual Plans with additional 2 year projection on program and budgetary targets. The detailed policy and procedures for preparation of the Multi Year Rolling Plan and Budget will be made available to the sectors, Dzongkhags and Gewogs through the guidelines issued by the GNH Commission and the Ministry of Finance.

3.9.5: Monitoring & Evaluation Process

The monitoring and evaluation of the Tenth Plan will be done within the framework of National Monitoring and Evaluation System (NMES). The NMES has been developed by GNH Commission to institute a standardized system for monitoring and evaluation in the country. The NMES consists of two main components the M&E institutional set-up and procedures and a web-based computerized system, the Planning & Monitoring system (PlaMS). This system is expected to be fully operational at the start of the Tenth Plan.

The M&E institutional set-up and procedures are described in the M&E Manual. The manual will serve as a guide for ministries, agencies, Dzongkhags and Gewogs in undertaking systematic monitoring and evaluation of their plans and programs.

The web-based computerized system (PlaMS) is a centralized data collection and management system. It enables real time online data entry, analysis, data storage, and report generation of development programs and projects. PlaMS will be integrated with the Multi-Year Rolling Budget System which is being developed to ensure efficient and effective coordination in planning, budgeting and monitoring.

The M&E Manual prescribes four levels of M&E: a) Gewog level, b) Dzongkhag level, c) Ministry/Agency level, and d) National level. There shall be systematic linkage between the four levels for reporting, review and communicating the feedback.

At each level, the GNH Committee and the Monitoring & Evaluation Review Committee shall be instituted as a reviewing and decision-making body for issues related to development policies, programs and projects. An M&E Coordinator or focal point at each level shall be appointed for undertaking monitoring and evaluation at the designated levels and supporting the review committees. The concept of a Mobile M&E Team will be introduced in the Tenth Plan whereby a multi-disciplinary team will be formed by the GNH Commission in collaboration with the line ministries and agencies. The team will undertake regular field visits to monitor and assess the implementation of development programs and projects and recommend solutions for reorientation and reprioritization of plans to the Government.

As iterated earlier, the Tenth Plan will also move away from traditional process monitoring to results-oriented monitoring and evaluation which places greater emphasis on assessment of impacts. The GNH Secretariat will review the performance of plans through Mid-Term and Terminal Reviews. It will also conduct periodic evaluations based on indicators of the Gross National Happiness Index and various plan targets in collaboration with relevant stakeholders. The lessons and recommendations of these evaluations will be used as guidance for the reorientation and reprioritization of five year plans and updating the long term plans such as the Vision 2020.

Table 3.2: An Overview of The M&E Institutional Set-up

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4.5.1: Tenth Plan Outlay

The total development outlay for the Tenth Plan is presently estimated at Nu. 148.074 billion. Of this outlay, Nu.72.64 billion has been tentatively allocated for current expenditures and Nu.73.61 billion for capital investments. As in past plans, the major investment projects for hydro-power development such as the Punatsangchhu and the Dagachu are not included within the budget framework of the current plan.

Domestic revenues of Nu. 75.39 billion are expected to be sufficient to fund only around 52% of the total plan outlay. While Bhutan has become increasingly more self reliant over successive plan periods in being able to meet a larger share of its development expenditures, it will still require external assistance grants and loans of over Nu.71 billion to meet its capital expenditures in the Tenth Plan.

4.5.2 Financing of Tenth Plan Outlay

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The fiscal deficit is projected to be sustainable at an annual average of 6.7 % of GDP through the plan period. On the basis of total resources available and what is required, the Royal Government is projected to have a resource gap of Nu.15.2 billion or an annual resource gap average of 4.15% of GDP. The details of projections of public finances with net lending considerations are provided in Table 4.2.

4.5.3: Indicative Resource Allocations for the Tenth Plan

The indicative resource allocations by specific sector are provided in Table 4.3. Of this total indicative outlay that includes both current and capital outlay, sectoral agencies will receive 67.56% of the total outlay or Nu. 98.806 billion. Constitutional bodies and autonomous agencies have been allocated 4.63% and 8.40% of the total outlay amounting to Nu 6.777 billion and Nu 12.287 billion respectively. Local Governments will receive about 18.75% of the total outlay amounting to Nu. 27.418 billion of which Nu. 12 billion is the total capital outlay.