Poverty Reduction Strategy Paper

Bhutan has evolved from a closed economy to a trading nation that exhibits a high degree of dependence on trade. Exports have grown rapidly but overall the country’s trade deficit continues to widen owing to an even faster growth in the value of imports. The manufacturing and industry sector is constrained by various factors that impede its further development. FDI and joint ventures are some of the mechanisms that must be actively promoted to help jump start the process.


Bhutan has evolved from a closed economy to a trading nation that exhibits a high degree of dependence on trade. Exports have grown rapidly but overall the country’s trade deficit continues to widen owing to an even faster growth in the value of imports. The manufacturing and industry sector is constrained by various factors that impede its further development. FDI and joint ventures are some of the mechanisms that must be actively promoted to help jump start the process.



The Ninth Plan was launched in July 2002 initially for a five year period with a total outlay of Nu. 70 billion. The plan period has been extended by one year to end in June 2008 in order to complete all the Ninth Plan activities so that the Tenth Plan could start a fresh with the launching of the Constitution and installation of the new government in 2008. The five year planning mechanism has been an effective instrument through which the country has made impressive progress in its socio-economic transformation towards the actualization of Gross National Happiness (GNH). The Ninth Plan to date has been the most ambitious plan, both in the size of the outlay that represented a three-quarter increase over the Eighth Plan and in the immense scope of development outcomes that it set out to accomplish. A significant feature of the Ninth Plan was to introduce and implement Gewog based planning system wherein the decision-making for development activities and financial powers were effectively devolved to the local government levels.

The Ninth Plan had five major goals and these were to improve the quality of life and income, especially of the poor; ensure good governance; promote private sector growth and employment generation; preserve and promote cultural heritage and conservation of the environment; and achieve rapid economic growth and transformation. An important part of the development strategy towards attaining these plan objectives involved prioritizing infrastructure development and improving the quality of and access to social services.

Other critical strategies of the Ninth Plan included consolidating governance reforms through strengthening the decentralization process, enhancing popular participation and initiating democratization efforts. Additionally, the development activities for the plan period were to be implemented while maintaining a stable macro-economic environment through sound macro-economic management policies aimed at sustaining growth, expanding investments and savings, keeping domestic and external borrowings within sustainable limits, limiting budget deficits, controlling inflation and generally meeting the rising recurrent development expenditures through enhanced domestic revenues. These goals continue to remain highly pertinent for the Tenth Plan too.


An evaluation of the major political, economic, physical and social indicators and developments over the Ninth Plan period provides a picture of significant and tangible achievements. Most of the planned development activities were implemented successfully and a majority of the important development targets fulfilled.

Over the Ninth Plan, the country successfully maintained past trends of sustained rapid economic growth. Indeed, the country has never witnessed such high growth levels before in any of the earlier plan periods, including massive expansions of the economic and social physical infrastructure. More importantly, this has been accomplished in a highly sustainable manner with minimal impact on the physical, social and cultural environments. There has also been remarkable progress made in advancing social and human development conditions in the country on the basis of the Royal Government’s strong social redistributive policies and investments made over the plan. As a result, Bhutan remains firmly on track to achieve the MDGs and has come that much closer to realizing its long-term Vision 2020 social goals.

The following highlights some of the concrete achievements in socio-economic development attained over the Ninth Plan period. Bhutan’s per capita income has risen to an all time high of US $ 1,414 in 2006 from US$ 835 in 2002. Even in absolute terms this represents a fairly high level of GDP per capita by both LDC and regional standards. The country’s HDI value has similarly been rising steadily over the plan period with HDI value assessed at over 0.613 in 2006 as compared to 0.583 in 2003. These HDI gains over the Ninth Plan period have come not only from growth in real income but have accrued as a result of across the board improvements in social indicators such as poverty reduction, expanded educational enrollments, impressive declines in child and maternal mortality and securing high access levels in the provisioning of water and sanitation facilities. As such, Bhutan continued to retain its place among the medium human development countries throughout the Ninth Plan period. These accomplishments appear particularly noteworthy given that only a few decades ago, Bhutan was ranked among the poorest countries in the world with extremely low levels of human and social development.

Politically, the Ninth Plan period also stands out as a critical watershed era in the history of the country. Most notably, the period witnessed the drafting and national consultation on the Tsa Thrim Chhenmo or Constitution that formally marked the historic transition in the country’s political system to a Democratic Constitutional Monarchy. The Constitution was adopted in 2008 and a new government that is elected directly by the people installed on the basis of the constitutional provisions. Unlike the experience of many countries where such far-reaching political changes were often brought in with tumultuous social upheaval and violence, the democratization processes in our country were solely ushered in under the enlightened, selfless and benevolent leadership of His Majesty the Fourth King. Remarkably, these historic political changes were also introduced at a time of unprecedented peace, economic prosperity, improved social conditions and general well-being for the nation and its people.


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.

Table 1.1:

GDP and sector growth rates

Source: Derived from NSB, National Account Statistics 1990-2007
Chart 1.1
Chart 1.1

Real GDP Growth in Ninth Plan

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

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.

Imports and Exports

As in past years, Bhutan’s major trading partner was India with 92% of Bhutan’s imports and exports over the plan period coming in from and going to India. Total imports have been surging sporadically and on average grew at over 32% over the plan period. Imports over the plan period were largely on account of capital machinery and equipment, fuel, vehicles, food and a wide range of consumer products. In 2006/07, the total value of imports was estimated at Nu. 22.19 billion.

Exports during the plan period grew at an annual average rate of 35% and in 2006/07 were valued at Nu. 22.64 billion. Export growths for the Ninth Plan have thus vastly exceeded export growth rates in the Eighth Plan period which averaged only around 9%. There have been no changes in the composition of the exports or its principal markets, which predominantly comprise the sale of hydro-electricity and mineral products to India. Electricity continued to dominate the country’s exports and roughly comprised around half of total exports over the plan period.

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

Chart 1.2
Chart 1.2

External Assistance to Bhutan

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

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.

Reserves and Debt

Reflecting the positive overall balance of payments situation over the plan period, the country’s reserves have been growing steadily. As of September 2007, this amounted to US$ 611.1 million up from US$ 315 million in 2001. Gross reserves over the plan period have generally been adequate to finance around twenty months of current levels of imports though in 2007 this came down to around 13.4 months.

The country’s external debt though has also been growing steadily on account of long term investments into hydro-power development, extensive infrastructure development and social investments. Under the World Bank’s debt sustainability analysis Bhutan was “debt distressed.” The total stock of outstanding external debt more than doubled from US$ 291.8 in 2001 to US$ 755.7 million as of March 2008 and GDP comparative terms, the debt to GDP ratio increased from 62.9% to 74.4%. While extremely high in relation to the size of the national economy, much of this debt can be regarded as being sustainable in the context of expectations that these investments will provide sizeable future economic and social capital returns. Debt servicing ratio has also been maintained at sustainable levels and was estimated at 5.6% of total exports over the plan period.

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.

Table 1.2:

Summary Ninth Plan Budget Expenditures

(In Million Nu)

1.4: Social Development Trends

Improving the social conditions of people through enhancing access to and the efficiency and quality of social services was a strategic thrust area of the Ninth Plan. This high priority was appropriately reflected in the significant scaling up of resources allocated for the social sector which received more than a quarter of the Ninth Plan’s total development outlay, which includes social sector expenditures at both the central and the Dzongkhag and Gewog levels.

In this regard, the country has exceeded its commitment to the global 20:20 compact agreed on at the World Summit for Social Development in 1995. The compact required developing countries to devote 20 percent of their national budget for basic social programs. Bhutan remains among the very few countries in the world to have done so.

As a result of these sustained social investments, Bhutan achieved significant progress in advancing the general social conditions in the country, a development reflected in continued improvements in most of the social and human development indicators. A comparison of the major social indicators over the Seventh, Eighth and Ninth Plans is illustrated in Table 1.3 provides an indication of these sustained improvements. A more detailed treatment of the prevailing social and human development context over the plan period is provided in the following sections.

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.

Table 1.3

Social and Human Development

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 9th 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.

Table 1.4

Health Human Resources & Infrastructure

Source: AHB 2002, 2006.

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.

1.5: Human Development Progress

The Royal Government has consistently sought to assess development in terms beyond the income or economic growth dimension. In light of the current absence of a country specific and relevant development index that takes into account the core principles and dimensions of GNH, the Human Development concept and its measurement, the Human Development Index (HDI) has been a useful interim tool to assess all-round development in the country. In addition to helping assess national development progress, the HDI also provides meaningful comparisons across countries and over time through the annual Global Human Development Reports.

The HDI is a composite index that seeks to capture holistic development progress in countries towards promoting a long and healthy life, knowledge and a decent standard of living. It comprises the three indicators of life expectancy, educational attainment and real GDP per capita in PPP terms. As reflected in Chart 1.3 that traces the HDI value trends spanning roughly the last four plan periods, it is clearly evident that the country has effectively and rapidly scaled up its HDI, roughly doubling in value over the last two decades. This extremely positive trend has resulted in Bhutan’s movement out of the low human development countries into the category of medium human development countries. With a HDI value of 0.613 in 2006, Bhutan currently is ranked 131 among all countries.

Chart 1.3
Chart 1.3

HDI Value for Bhutan 1984-2006

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

In assessing current levels of the HDI value for 2006 and analysing the reasons for their sustained improvements, certain trends become apparent. Over the eighties the HDI value grew largely on account of improvements in life expectancy and real GDP per capita growth. Over the nineties and more pertinently over the Ninth Plan period, sustained improvements accrued largely on account of improvements in educational attainments (growth in primary and secondary school enrolments) and real income growth. The latter has been the one constant factor underlying these HDI achievements and GDP per capita growths will likely propel and sustain future HDI gains. Life expectancy levels have stagnated at around 66 years.

Past and existing low adult literacy levels below 53% (PCHB 2005) has been a major reason retarding what would otherwise have been even more stellar improvements in HDI values. The improved but still weak enrolment rates at the tertiary education level constitute another sub-indicator that has held back national HDI progress. As such, future gains in HDI growth will depend on the progress made in addressing these weak aspects of human development in the country. This will also be determined to a large extent by the success that the country has in resolving rural-urban gaps in terms of income, educational attainment and life expectancy levels. In addition to highlighting the importance of tackling existing rural-urban development disparities, the National Human Development Report 2005 conveys strongly the imperative of tackling the challenges of poverty and youth employment to promote human development progress and avoid any possibilities of regression.



The development process in Bhutan has been visualized and framed in a broad and utilitarian context that seeks to address a more meaningful purpose for development than just the mere fulfillment of material satisfaction. Accordingly, Bhutan’s all-encompassing and penultimate goal of development is the maximization and realization of Gross National Happiness (GNH). This has served and continues to remain as the principal guiding philosophy for the country’s long term development vision and rationale. However, strategies for achieving it must and will remain dynamic and evolve based on the particular situation and challenges that confront the country. It is within this overarching development perspective and the Bhutan Vision 2020 framework, coupled with a frank recognition of existing constraints, shortcomings and emerging challenges that has helped shape and determine the Tenth Plan’s immediate objectives and strategic priorities, including the imperative to frame a results-based planning approach.

This chapter articulates the Tenth Plan’s primary objective of poverty reduction, its strategic priorities and development targets to be achieved within the broad context of the country’s long term development vision and outlook. The final section further provides details of the implementation and monitoring aspects of the Tenth Plan’s planning process and highlights the main elements and features of the results based planning framework.


The core principles of Bhutan’s development planning have essentially focused on fulfilling the fundamental objectives of achieving broad based and sustainable growth, improving the quality of life, ensuring the conservation of the natural environment, preserving the country’s rich culture and strengthening good governance. Broadly, these are recurring and constant themes that have permeated the spirit and content of all the five year plans undertaken in the country since the inception of development activities in the country. These development objectives also notably underscore a consistent approach taken by the Royal Government to secure a synergistic and harmonious balance between material well-being and the spiritual, emotional and cultural needs of an individual and society.

This approach found a natural and spontaneous expression in the articulation of the profound development philosophy of Gross National Happiness (GNH), propounded initially by His Majesty the King in the eighties. This alternative development model that squarely and unapologetically places human happiness and holistic well-being at the centre of the development equation has since guided Bhutan’s normative development approach. The concept of GNH is further elaborated in the following section.

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 keeping with the spirit of the results based planning approach of the Tenth Plan, efforts were undertaken to develop an appropriate development measure that will capture the essence of GNH and help in tracking national progress towards meeting this overall long-term development objective. The GNH Index (GNHI) is that critical evaluation tool for the results based planning framework of the Tenth Plan and future plans to ensure that development truly contributes to the achievement of GNH.

The GNH indicators considered were those indicators that are designed to be measures of the specific dimensions which make up the GNH model. For instance, demographic indicators constitute an important set of indicators to allow an analysis of the distribution of GNH dimensions across different social and demographic groups in the country. This includes various age and gender groups, occupational and employment clusters, educational backgrounds, types of households, language groupings and geographical areas. The causal indicators that were considered were those factors affecting the performance of GNH status indicators. For instance, the general ratings of central government performance were broken down into more specific components to allow a more detailed analysis of factors affecting general governance performance ratings.

As such these indicators are being broadly classified into various domains relating to the areas of psychological well being, cultural diversity and resilience, education, health, time use, good governance, community vitality, ecological diversity and resilience and economic living standards. These areas and their various indicators/indices were determined based on a pilot survey and a National GNH Survey conducted in 2006 and 2008.

The composite GNH index is to be aggregated from these indices and indicators from among the nine domains with appropriate weighting. These indices and indicators - include a wide range of factors with a significant bearing on individual and collective happiness and include the mental health index, family relationship index, financial security indicator, healthy days per month indicator, body mass index, education level indicator, local air and water pollution indicators, house ownership indicator, human rights indicator and government performance index

Given the nature of human happiness and well being, the evolution of GNH policies and strategies and the index must necessarily follow a dynamic, inclusive and open ended process that takes into consideration the relative importance of different variables and factors of happiness and well being that may or may not be relevant to Bhutanese society at a particular point of time.

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

Millennium Development Goals (MDGs)

The MDGs derived from the Millennium Summit held at the United Nations in 2000, where member countries, including Bhutan, pledged to achieve tangible and quantifiable progress in key development areas by 2015. The Millennium Declaration articulated a strong commitment to “create an environment - at the national and global levels alike - which is conducive to development and the elimination of poverty” and mainstreamed a set of inter-connected and mutually reinforcing development goals and targets.

The Millennium Development Goals (MDGs) thus emerged as the principal means of implementing the Millennium Declaration and comprised eight major development goals and eighteen specific targets that were to be monitored by a set of 48 indicators. The MDGs in a sense represents a departure from past approaches in dealing with development and poverty issues as it focused on setting quantifiable targets and time-limits in order to help track progress and tangibly assess the impact of development interventions. These eight MDGs, to be achieved by 2015 from the baseline year of 1990, included the following primary goals of halving extreme poverty and hunger; achieving universal primary education; promoting gender equality; reducing child mortality; improving maternal health; combating HIV/AIDS, malaria and other diseases; ensuring environmental sustainability; and developing a global partnership for development.

While Bhutan remains potentially on track towards achieving most of the MDG indicators, progress varies on various goals and targets. Additionally, while there have been notable advancements in the context of reducing gender gaps in various areas, particularly in primary and secondary education enrollment levels, alleviating existing gender differences in tertiary level education and in the workplace is still a challenge that needs to be continuously addressed. In the case of health sector, even if there is a low prevalence of HIV/AIDS cases in the country today, the increase in the number of cases detected each year is a cause of grave concern.

The country’s national development goals and targets are in essence fully compatible and in agreement with the MDGs. In the case of several development indicators, Bhutan has set even higher national targets than the MDGs and these may also be achieved at a faster rate of progress. On the basis of current projections, many of the MDGs will likely be attained by the end of the Tenth Plan in 2013, two years ahead of schedule. The Royal Government of Bhutan is thus wholeheartedly implementing the Millennium Declaration in the full spirit of what was intended and is systematically monitoring the MDGs within the national development framework.

To facilitate the country’s further progress on the MDGs and integrate and mainstream these goals more effectively into the development planning and resource allocation processes, an MDG Needs Assessment and Costing exercise was carried out in 2007. This important exercise was undertaken to help provide comprehensive and flexible financial models and policy options to consider development scenarios for achieving the MDGs and estimate critical resource needs to attain those goals.

SAARC Development Goals (SDGs)

The SDGs were conceptualized and formulated as a strategic regional response to the urgent imperatives of ridding South Asia of poverty and achieving the international Millennium Development Goals (MDGs) by 2015. Indeed in certain aspects, the SDGs seek to go much further than the MDG targets and faster. The SDGs are also in a sense a road map for the implementation of the SAARC Social Charter. Endorsed at the Thirteenth SAARC Summit in Bangladesh in 2005, the SDG mandate covers several important development goals within the four broad areas of livelihood, health, education and environment. Taking into consideration both the South Asian context and specificities and the relevant linkages with international goals such as the MDGs, the SDGs include 22 priority goals for the period 2007-2012, eight of which pertain to livelihood, four to health, four to education and six to the environment. Progress towards achieving these specific SDGs will also effectively determine the success the countries will have in combating poverty in the region. In recognition of its importance, the Thirteenth SAARC Summit declared 2006-2015 as the SAARC Decade of Poverty Alleviation.



Despite rapid economic growth and significant development efforts in the past, around one fourth of the country’s people mostly from rural areas continue to live below the poverty line. In addition to income poverty, notwithstanding the fact that the general quality of life in Bhutan has greatly improved, substantial qualitative and quantitative rural-urban differences still remain in terms of access to social services, basic amenities and economic opportunities. As various surveys and studies reveal, there are extensive gaps between rural and urban areas on various socioeconomic indicators, including income levels.

This has not been due to the lack of effort or commitment by the Royal Government but determined to a very large extent by the harsh geophysical reality that has inhibited a more effective mainstreaming of rural communities into the development process. There are also deep structural constraints such as low agricultural productivity and subsistence farming; the lack of significant spillover effects of non-agricultural growth for the poor; weak social and economic infrastructure in rural Bhutan, particularly for access to roads and electricity; and landholding and access to arable land issues, priorities that will need to be addressed on a continual basis.


The Royal Government in the past addressed poverty reduction broadly through social sector and rural development programs to improve the quality of life and promote income generation activities. While rapid economic growth and pro-poor expenditures have improved living conditions and ameliorated poverty, experience and lessons learnt from the implementation of Ninth Plan activities indicate that poverty reduction efforts can be better served, accelerated further and complemented with specific and improved targeting. Hence, targeted poverty reduction programs are to be initiated in the Tenth Plan directly by the Royal Government or in collaboration with NGOs or agencies with relevant expertise to help the poor and vulnerable. This will complement mainstream development programs of central agencies and local governments.

A more focused targeting would provide benefits directly to the poor based on an intimate understanding of localized poverty and development conditions in various areas. In order to do this effectively, detailed mapping of poverty levels and small scale area estimations are being made. The Tenth Plan also incorporates the principle of allocating resources based on a formula that include criteria like poverty incidence that will help channel additional resources to poorer communities.

Targeting is to ensure that resources and development activities directly benefit the poor. The approach will be to work in close partnership with those living in or vulnerable to extreme poverty and are unable to harness the benefits of mainstream development programs. It will seek to address the core causes, structural constraints and limitations facing them at an individual, community or local level and will take the form of programs or projects specifically tailored to enhance their capabilities to secure sustainable livelihoods in addition to providing immediate relief. Key targeting processes will be to identify and develop the potential of the poor, increase their productive capacity and reduce barriers and improve access to sources of livelihood. As limited access to land or landlessness is a defining characteristic of the poorest, targeted poverty reductions will include the distribution of land to the landless and a program of resettlement for the landless or land-poor families to areas where arable and productive land is available.

It is with the clear and unambiguous aim of achieving equitable socio-economic development that the Tenth Plan has adopted poverty reduction as the overarching theme and primary goal. This is wholly consistent and compatible with the country’s long term development vision of GNH and Bhutan’s commitment to meeting the various global compacts, including the MDGs.

The overall macro strategy of the Tenth Plan for poverty reduction will include promoting economic opportunities through broad-based growth and boosting critical sectors such as agriculture and rural industries and enterprises that are important for the poor. Increased resources and investments will be channeled into developing rural regions to help promote income and employment generating activities, expand access to markets and enhance the quality of rural living conditions. This will be addressed through the generic development programs and activities as well as specific targeted poverty interventions. [See Box 3.1]

Bhutan Poverty Profile

The Poverty Analysis Report 2007 estimated that 23.2 percent of the population was poor. In absolute numbers this translates to 146,100 individuals. Poverty in rural areas is significantly much higher than in urban areas and poverty in Bhutan can be clearly characterized as a rural phenomenon. Around 98% of all the poor live in rural areas with most of the poor primarily engaged in subsistence farming as their primary occupation.


Poverty Incidence Bhutan 2007

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

Tracking this for the years that the data are available, income poverty incidence has declined to present levels of 23.2% in 2007 from 36.3% in 2000 and 31.7% in 2003. However, subsistence or food poverty has risen from 3.8% in 2003 to 5.9% in 2007. In addition to headcount ratios, measuring poverty gap and severity ratios provide a useful perspective on the depth and severity of poverty. Available data for 2003 and 2007 reflect significant reductions in the national and rural poverty gap ratios that declined from 8.6% to 6.1% and from 10.5% to 8.1% respectively. The poverty severity ratios at both the national level and in rural areas also respectively declined from 3.1% to 2.3% and from 3.8% to 3%.

Policies to address poverty in Bhutan are also viewed from a broader and multi-dimensional context than just an income perspective. This takes into account several other aspects of human deprivation such as access to improved drinking water and sanitation, educational and health attainment levels and access to basic infrastructure such as roads and electricity. While significant progress has been made to reduce human poverty levels, more effort needs to be addressed to enhance access to rural roads and electricity, particularly in rural areas. Such infrastructural investments in rural areas have not only been strongly identified by rural communities as a top priority but do have highly beneficial benefits to alleviate conditions of human deprivation and improve the quality of rural life.

There is a close interrelationship between educational attainment and poverty incidence. Additionally, considering that future development opportunities depend critically on productivity levels and the knowledge and technological skills base of the national labor force, the Royal Government’s long term pro-poor strategy can be best and sustainably served by the creation of a knowledge-based society. The empowerment of the poor with information and knowledge is extremely imperative as this is the age of the knowledge economy and information society. This will fundamentally shape the potential productive capacities and capabilities of the poor and ultimately determine their prospects for escaping from poverty or a marginalized lifestyle. As much as the division of the rich and poor nations at the international level is critically influenced by advancements in knowledge and technological development, this is also likely to be mirrored at national and local levels. Hence, the imperative and need to emphasize this as a critical long term strategy for poverty reduction.

However, the strategy of developing a modern society that is highly knowledgeable, skilled and technologically developed cannot be achieved within a single plan period. This necessarily constitutes a long term approach that will span several years and plans but will ultimately contribute positively to poverty reduction and help in the realization of many of the Vision 2020 Goals including GNH.

Thematically, the following five strategies will constitute the core strategies and set of sub-objectives through which poverty reduction will be addressed. These strategic priorities are not to be viewed as being separate or self-standing and have close inter-linkages and frequently spill over into each other. Notably, while they take into consideration the pertinent aspect that poverty in Bhutan is essentially a rural occurrence, these strategies primarily take into consideration the need for an integrated approach to synergize development opportunities in both rural and urban areas for mutual benefit.

These strategic priorities for poverty alleviation are detailed in the following sections:

  • Vitalizing Industry

  • National Spatial Planning

  • Synergizing Integrated Rural-Urban Development for Poverty Alleviation

  • Expanding Strategic Infrastructure

  • Investing in Human Capital

  • Fostering an Enabling Environment through Good Governance

Chart 3.3 reflects the strategic framework for the Tenth Plan towards poverty reduction and the longer term goals articulated in the Vision 2020 document including GNH.

Chart 3.3
Chart 3.3

Strategic Framework for the Tenth Plan

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


The conceptualization of industry and industrialization here is not restricted to the manufacturing sector but is used broadly and encompasses various other economic productive areas like hydropower and the sunrise industries such as tourism, cultural industries and ICT. These collectively represent the core economic sector areas that are expected to boost economic growth significantly through increased market orientation, enhanced export capabilities and competitiveness and active private sector engagement.

While industry has been an engine of growth in the past, growth has been singularly dominated by the hydropower sector. The industrial and export base thus still remains very narrow, lacks depth and is highly exposed to single market and single commodity risks. Productivity levels in industry have also been among the lowest in the region with only marginal gains in enhancing manufacturing value added within the industrial economy. The manufacturing sub-sector’s contribution to national economy has declined steadily from around 16% of GDP between 1990-95 to 6% of GDP in 2007. Additionally the sector, traditionally among the largest employers around the world, has generated little quality employment and accounts for only a small fraction of the total labor force. FDI inflows have been meager and limited largely to the hospitality industry. While the tourism sub sector has done extremely well, it has considerable scope for achieving more. Much higher and improved levels of performance in industry are thus needed to be achieved over the Tenth Plan and inherent weaknesses of the industrial economy addressed to vitalize the sector. Bhutan’s industrialization challenge is therefore to expand and diversify manufacturing exports and tradable services and enhance productivity gains and value addition throughout industry, while maintaining an accelerated pace of hydropower development.

The Tenth Plan places a special emphasis on the expansion and development of the industrial sector with the broad recognition that balanced industrial growth is the principal means for the continued socio-economic transformation of the country, with particular relevance for poverty reduction through enhancing quality employment, entrepreneurial opportunities and income generation. Balanced industrial development as conceptualized under the plan is also intended to allow for a proper spatial dispersal of economic activities around the country based not only on competitive production advantages but considerations to decentralize economic activities and catalyze industrial development in less developed regions.

To achieve these industrial objectives, the Royal Government will adopt and facilitate an integrated and cluster approach towards the optimization of available material and knowledge resources and strategic infrastructure, including marketing facilities and communication networks for the development of particular manufacturing and service industries. To access capital, technology and global markets a Foreign Direct Investment Bill will be prepared to attract FDI. Another thematic perspective of the industrial strategy is the underlying values based approach of vitalizing industry through promoting excellence in innovation, creativity and enterprise as the fundamental principles of industrial reform and vitalization [See Box 3.4]. While these core values are not based on a specific program of activities, they are nevertheless deeply integral to and should permeate the spirit of all the various industrial development activities to be undertaken over the Tenth Plan.

Promoting Excellence in Innovation, Creativity and Enterprise

An effective approach to catalyse growth of the industrial economy is to make the most of available resources in innovative and creative ways to enhance productivity and outcomes in all spheres of economic and development activity. The qualities of innovation, creativity and enterprise are widely considered to be the primary and dynamic drivers for wealth creation, particularly in the context of a knowledge and information economy. The Royal Government for its part views these essential qualities and attributes as conferring a distinct comparative advantage through which Bhutanese industries can effectively achieve productivity gains across all industrial activity to increase outputs, results and efficiency.

If Bhutan is to achieve significant economic diversification and expand its productive capacities beyond hydropower development, it will need to increase the knowledge content of its economy and enhance the value addition capabilities of its industrial base through innovation, creativity and enterprise. The traditional approach and solutions of efficient resource accumulation or raising production through lowering input costs will no longer suffice. Modern industries today require a much more effective leveraging of technical, organizational and management resources and an approach that recognizes creativity and innovation as critical factors of production. Given the structure and characteristics of Bhutan’s labor, non-hydro industries are unlikely to ever compete meaningfully on the basis of cheap labour and the only way forward would be to fully embrace these qualities that are at the heart of productive utilization of labour and investment.

In this context, the role that quality human capital can play in promoting innovation, creativity and enterprise is crucial. A more skilled, learning-oriented and entrepreneurial workforce that continually upgrades its skill and knowledge base is much better positioned to generate new ideas and apply them in business. This is particularly important in Bhutan’s context as it still does not have a critical mass of well educated and skilled labour force. As a first step in that direction, the Royal Government will need to reform education learning processes at all levels to encourage and reward critical thinking skills and aptitude. There is also the urgent need to strengthen the science and mathematics skills base of students which has chronically remained a weak performance area. Strengthening management of education and improving its quality is another area that needs attention.

To foster a culture of creative and innovative excellence it will be necessary to reward and incentivize innovative, creative and enterprising behavior. The protection and enforcement of intellectual property rights, particularly in the context of the creative industries in Bhutan and the creation of national awards that recognize creative talents and innovation will not only provide the necessary incentives and rewards but will help raise a general awareness in Bhutanese society of the enormous value of the qualities of innovation, creativity and enterprise. An immediate area of concern is the need to look at maximising entrepreneurship opportunities through innovation in the SMSEs, a potentially high employment generating sector plagued by low productivity levels. The entrepreneurship training courses need to be further expanded to entrepreneurs all over the country and the content enhanced beyond providing basic business skills. Another pressing challenge is the inadequate funding of private sector HRD activities. While these provide a broad justification of the imperative to start fostering an innovative, creative and enterprising society and outline some basic measures to be taken up, it will be highly necessary to develop and implement a comprehensive strategy to actualize this.

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.


The broad intent of national spatial planning is to promote balanced regional development based on the strength of each area that is entirely consistent with the maximization of economic potential and opportunities while also conserving environmental resources. As such, the principles of sustainable development and equitable regional development are deeply integral to effective spatial planning. National spatial planning is highly essential and relevant as it allows development planning processes to encompass the totality of national space rather than address it on a fragmented basis or a mere sectoral perspective. As it facilitates a better spread of economic, social and environmental benefits for improved quality of life and enhanced live-ability, national spatial planning clearly offers a much more coherent approach for achieving balanced development at regional and local levels and tapping the synergies of rural-urban interdependence while mitigating existing disparities.

The Royal Government’s strategy for effective national spatial planning is driven by a strong motivation that all Bhutanese should have equal opportunities to share in the benefits of economic and social growth, regardless of where they choose to live. As such a key outcome will be to enhance live-ability. In addition, the Royal Government also recognizes that effective national spatial planning would meaningfully contribute to maintaining and enhancing the quality and diversity of the country’s natural environment and cultural heritage rather than allowing uncontrolled development to happen at its expense. This clearly has always been the heart and soul of the country’s development philosophy and perspective. In a sense, national spatial planning would involve bringing people, work areas, living environment, social and economic infrastructure/services and cultural spaces together much more rationally, functionally and efficiently to improve the quality of life for all Bhutanese.

Some of these spatial planning aspects are closely interlinked with the various strategies treated in other sections detailed earlier, particularly those of synergizing integrated rural-urban development and expanding strategic infrastructure. The following section will therefore primarily limit its focus on the two thematic challenges of managing sustainable urban development and strengthening environmental conservation. This also constitutes the core of the various national spatial planning related programs and activities to be implemented over the Tenth Plan.

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.


Urban and rural areas in Bhutan are becoming ever more closely and inextricably interlinked as the country makes its transition from a predominantly rural economy to a more modern one in conjunction with rapid urbanization. Improved road and telecommunications connectivity now links many of the country’s remote villages to towns and cities with a growing interflow of resources, products, people, information and services. With these rural-urban flows and interactions intensifying, critical development issues can no longer be distinctly compartmentalized as rural or urban but have considerable areas of overlap. It is in this changing context of strong rural-urban interdependence that traditional planning concepts of rural, urban and regional development are now being viewed by the Royal Government from a more integrated and holistic approach that seeks to synergize rural-urban linkages for socio-economic development and poverty alleviation.

In Bhutan, rural poverty is directly linked to low levels of agricultural productivity and inadequate access to markets, economic opportunities, resources, assets and social services. Poverty is thus to a great extent equated with and a resulting condition of the underdevelopment of rural areas and subsistence farming. The successful implementation of an integrated rural-urban development strategy that addresses these issues effectively will thus significantly enhance the prospects of reducing poverty in all its multi-dimensional aspects.

The Royal Government will make strenuous efforts to create enabling and optimal conditions for growth in and mutual synergies between the rural and urban sectors. The focus will be to facilitate an interactive growth process that harmonizes and maximizes inter-sectoral coordination for promoting activities that are most relevant and beneficial. One critical aspect of this strategic approach will be to effectively utilize urban and external market demand and consumption as important drivers for rural growth, income generation and enhanced productivity. Demand from urban consumers and export firms are expected to help invigorate agricultural and off-farm enterprise production. Activities under the Tenth Plan will seek to harness the commercial prospects of various primary, secondary and tertiary economic activities within the rural-urban continuum and efficiently integrate rural supply chains with the urban and export markets.

The strengthening of the agriculture, livestock and forestry sector as well as the off-farm sectors remains at the heart of this strategy to synergize integrated rural-urban development. Greater emphasis will be placed on the strengthening of the commercialization of agriculture and in particular, agriculture value-addition. The promotion of horticulture and cash crops, including the commercial development of non-wood forest products [See Box 3.5] and organic farming in suitable areas are some of the other initiatives that will be undertaken to improve rural livelihoods under the Tenth Plan. Support will also be extended for the development of small-scale and cottage industries, local handicrafts, textiles and arts, and various other off-farm activities and enterprises. Without a strong and concerted inter-sectoral effort in implementing these initiatives, it would be extremely difficult for Bhutan to meet the set targets of doubling the mean rural household incomes to Nu. 35,000 per annum and reduce rural poverty significantly.

An underlying reason for the high poverty incidence in rural Bhutan is the subsistence nature of farming and the weak levels of agriculture productivity. Many Bhutanese farmers are deeply trapped in subsistence farming with meager surpluses that are barely enough to cover their non-food needs, a situation exacerbated by their inherent vulnerability to weather vagaries and chronic crop depredation by wildlife and the rapid emergence of a cash economy. With regard to the latter, national studies have shown that even simple expenditures on school uniforms and shoes are major reasons why rural children in Bhutan drop out of school and parents are often discouraged from enrolling children into schools despite the widespread awareness of the importance of education.

If Bhutan is to attain the poverty reduction targets set for the Tenth Plan, it will need to break the cycle of poverty engendered by subsistence farming and low agricultural yields. The Royal Government has channeled significant investments into agriculture over the past plans that have had immense benefits for rural farming households. However, there is little to suggest that this has as yet significantly transformed subsistence agriculture all around the country. It is therefore highly imperative to further strengthen efforts to restructure and transform Bhutan’s subsistence agriculture through enhancing production and productivity, expanding farm and feeder road networks and improving commercial orientation through innovative and relevant agricultural marketing mechanisms. These will be implemented without compromising household food security, though the latter will be enhanced more through market forces than relying completely on self-sufficiency. Strategic partnerships with local NGOs and associations such as the RENEW, RSPN, Tarayana Foundation and YDF will also be actively mobilized to help implement various targeted poverty interventions to expand off farm enterprises to diversify rural sources of income.

While Chapter 6 on the RNR Sector articulates the various agriculture policy strategies, the following passages seek to emphasize the particular aspects of the commercialization of agriculture including enhancing market orientation and the creation of off-farm enterprise employment. These in addition to certain targeted poverty intervention programs including the distribution of land to the landless, are specifically intended to address certain deep rooted conditions of poverty.

In addition to various ongoing efforts to enhance the commercial orientation of agriculture, the Royal Government will promote intensive cultivation of crops including the selective introduction of monoculture forms of agriculture in certain areas on an experimental basis initially. Additionally, as a measure to address the poor market service and access that affects many rural farming communities in Bhutan, the Royal Government will permit and facilitate the introduction of contract farming mechanisms. This is intended to help protect small holder farmers overcome existing market constraints, minimize transaction costs and enhance market access. Contract farming here is used in the commonly accepted definition of an agreement between farmers and private enterprises/firms for the supply of agricultural products usually at predetermined prices. In such a contract, the private enterprises and firms normally advance farmers the initial agricultural input investments such as seed and fertilizer costs which are adjusted against final payments. The full risks of crop damage or loss are undertaken by the private enterprises/firms. Such arrangements help farmers to access credit and initial investments and market information and gain protection from price fluctuations and crop loss vulnerabilities. There are downside concerns such as the possibility that farmers could be subjected to exploitation by larger and established entities, aspects which will need to be effectively monitored and regulated. In this regard, agricultural cooperatives and marketing boards could play a very significant role in protecting farmers and provide an effective response to mitigate any such dangers that may arise in addition to fulfilling their primary role of facilitating marketing linkages.

The Royal Government over the Tenth Plan will further strengthen existing farmer cooperatives with technical backstopping and extend assistance with material support in addition to promoting the formation of relevant new producer organizations. The numerous farm and rural groups and cooperatives that have emerged in the country over the last few years have proved highly effective in realizing much of their primary objectives of enhancing marketing and marketability of their produce and products, securing more favorable prices, strengthening local capacity and adding downstream value addition to primary produce. Several have gained wide recognition as success stories such as the Lemon Grass Cooperative of Mongar and the Dozam forest community and the Gogona milk farmer groups. These well-organized cooperatives and groups produce quality lemon grass oil and cheese products with recognized organic certification standards and good demand in both local and export markets.

There are also other considerable non-monetary benefits such as the empowering effects that these self-help and self-organizing activities engender to infuse greater confidence and capacity in farmers and tackle common concerns collectively. This can also be highly beneficial for establishing real grass-roots democracy in Bhutan through vitalizing rural farming communities. The formation of cooperatives has also added a very useful dimension for the convenient delivery of development inputs and services from the Royal Government to communities with local cooperatives serving as essential focal points for specific activities. In time, the wider replication of and a greater diversification of the cooperatives base is likely to provide significant economic opportunities for rural farming communities in the country and act as a major source of social and economic change.

Till such time as when agricultural marketing channels become sufficiently developed, there is the need to establish more local based and commodity specific agricultural marketing boards to help farmers’ access markets and secure better prices for their agricultural commodities. While the Food Corporation of Bhutan has served at the national level as the premier agricultural marketing board, their presence has been limited to certain areas and a small range of produce. The country will need more Dzongkhag level and regional marketing boards with specialized areas of focus and a greater level of influence and direction in management from the farmers and producers themselves. The Royal Government to this end will continue to encourage and support the establishment of more of such producer organization groups and more innovative forms of agriculture such as those detailed above. These activities will also be complemented by efforts to strengthen non-farm enterprises.

With known levels of underemployment in the rural economy, the availability of decent off-farm employment could provide a valuable source of income. This is also an integral part of the process of modernizing agriculture in Bhutan. Many Bhutanese farmers have considerable artisan skills such as carpentry and weaving and possess extensive indigenous knowledge of the cultural and environmental attributes of their areas. The development of local based handicraft industries and the promotion of community or rural based tourism could thus enhance income generating opportunities that could be taken up during the non-farming seasons. Additionally, developing downstream agro/forest-based industries that add value to primary agro-forestry produce collected or grown will also further the income generation possibilities of rural families. Once again the role of cooperatives could be important in actualizing these activities and ensuring its success.

Poverty reduction efforts in the past have been mainly addressed broadly through an expansion of social services, rural development and promoting income generation activities. While such expenditures have greatly helped to improve living conditions, experience and lessons from the past indicate that poverty reduction efforts also can be better served and complimented through targeted programs. Targeted poverty reduction interventions will be initiated and implemented over the Tenth Plan and will include relevant programs for specific areas where the poor reside based on the poverty mapping of the Poverty Survey 2007. These interventions will have tailored solutions given the local specific poverty context and the pressing needs of that community. As limited access to land or landlessness is a defining characteristic of the poorest among the poor, the targeted poverty reductions will also include the distribution of land to the landless and a comprehensive program of resettlement for the landless or land-poor families to areas where arable and productive land is available.

The development and expansion of rural economic and communication infrastructure such as local markets, farm and feeder roads, irrigation schemes, electricity and communication centers would also be undertaken as they are vital for stimulating and sustaining a thriving rural economy. In addition to points detailed above, the following includes other strategic measures that the Royal Government will undertake towards synergizing integrated rural urban development for poverty alleviation:

  • Encouraging specialization based on regional and local comparative advantages for production of goods and services;

  • Implementing holistic and integrated area-based development planning;

  • Promoting relevant skills development in the rural labor force;

  • Promoting MSMEs (agro and handicrafts/textile based cottage industries) and rural cooperatives;

  • Enhancing access to micro-credit;

  • Expanding rural economic infrastructure such roads, bridges, irrigation and drinking water schemes, electricity and ICT facilities; and linking to markets and growth centers

  • Increasing accessibility to and improving quality of social services and basic social infrastructure;

  • Establishment of integrated Gewog centers to improve the delivery of development services at the local level;

  • Strengthening local capacity to manage and implement local development plans and participate in political and development processes;

  • Establishment of Community Forests and expansion of commercial harvesting of Non-wood Forest Products (NWFPs);

  • Mitigating impact of wildlife crop depredation; and

  • Developing strategic partnerships with various local NGOs such as RENEW, RSPN, Tarayana Foundation and YDF to help implement targeted poverty interventions to promote off farm enterprises to diversify rural sources of income.

Enhancing the Commercial Harvesting of NWFPs

The terms “non-wood forest products” (NWFP) or “non-timber forest resources” (NTFP) broadly refer to natural resources collected from forests apart from timber, fuelwood or similar products. As in many other countries, non-timber forest products play a significant role in the economic and cultural lives of virtually all rural households in Bhutan, even though their commercial value has not yet been taken into account while assessing GDP. Bhutan’s NWFP resource base is rich and includes a broad range of products from medicines to dyes, oil seeds and nuts, incense, forest vegetables, fruits and nuts, bamboo and cane, spices, resins and high value mushrooms. Despite this rich and diverse resource base and the recent success story of the rising exports of cordyceps, the NWFP sector in the country is still very much in its infancy with its enormous commercial potential barely realized.

An essential and high priority activity for the Tenth Plan will be to expand the commercial harvesting of NWFPs significantly. This is expected to further boost livelihoods and income generation in rural communities, particularly for the poor and landless, thereby reducing rural poverty and emerging as a successful example of the greening of national accounts as envisioned in the Vision 2020. Recent RNR reports and case studies reflect the considerable potential of the sector to significantly decrease under-employment among rural households and raise their returns on labour and investment. While in general, the returns to labour from NWFPs are considerably much higher than existing agricultural wages, the rate of return on investment for harvesting certain NWFP crops such as cordyceps and chirata work out to as much as 500%, with further scope for enhancement through better harvesting and drying techniques. The highest auction price of cordyceps in Bhutan in 2007 touched a record high of Nu. 0.411 million a kilogramme (US$ 10,000 a Kg) with the total official value at Nu. 41.15 million for a total of 140 Kgs sold at the auction. Bhutan’s annual production of cordyceps is estimated to be around 700 Kgs.

The expansion of commercial harvesting of NWFPs is to be taken to a new level where it is restructured from largely subsistence production to industrial level exports catering to rapidly growing overseas markets. Much of Bhutan’s NWFPs will be actively promoted in potential markets with a marketing emphasis on their origins being the cleanest and least polluted natural environments in the world and the organic and natural methods of production. This would not just include the exports of raw produce but involve developing a wide array of downstream value-addition processing of NWFP products. This large-scale commercial development of the NWFP sector in Bhutan is envisaged to become an important foreign exchange earner rivalling horticulture exports and gradually make a significant impact on the national economy at large. Additionally, the processes through which this will be actualized will effectively empower the rural poor by promoting self-organization and enterprise development through the development of cooperatives, community level business associations and other necessary support mechanisms.

A key challenge in growing the NWFP sector will be to achieve a sustainable balance between commercial harvesting of NWFPs and ensuring their conservation. There is the real danger that these products could easily be overexploited with the possibility of eradication of endemic plant populations. The lack of knowledge and awareness in local communities about sustainable harvesting methods will need to be addressed through appropriate training in crop handling, storing and drying. More research on various aspects of resource management and market opportunities for NWFPs will also need to be carried out including studies on the prospects of broadening the range of NWFPs harvested. Additionally, adequate resource user rights and arrangements must also adequately be provided for to avoid potential resource use conflicts and that benefits accrue mainly to local communities rather than market intermediaries.


For a small, land-locked and under-developed economy like Bhutan, the expansion of strategic infrastructure is an absolute requisite for the broader economic and social transformation of the country. Accelerated and broad based economic development with growth targets set at over 8% is essential to achieving the Tenth Plan poverty reduction targets. Achieving this would clearly be difficult without the proper development of strategic infrastructure that critically serves a modern economy. Moreover, accessibility to strategic infrastructure invariably affects the living conditions and welfare of communities all across the country and determines their livelihood opportunities. Strategic infrastructure investments are thus expected to greatly enhance national productivity and competitiveness and stimulate new businesses while also enriching the quality of life for all Bhutanese. These investments would simultaneously facilitate the achievement of the other Tenth Plan strategic objectives of national spatial planning, furthering integrated rural-urban linkages and increasing access to and quality of social services.

Numerous studies point to the inherently weak strategic infrastructure in the country as a major constraint impeding economic and industrial development. Industrial development is severely constrained by the inadequate road and air transport links to both external and domestic markets. Due to the mountainous and rugged terrain, road transportation costs are high with haulage costs for certain products exceeding the value of the product itself. These high transportation costs combined with the poor reliability of roads due to their vulnerability to landslides and adverse climatic conditions make it extremely difficult for local industries to compete efficiently in producing goods. Transportation also adds considerably to inflate import costs for various commodities, materials and goods needed in the country that not only raises the cost of living but adds immensely to development costs. Similarly, the weak air transport system, including the absence of domestic air services, has proved to be a major bottleneck for the further development of the tourism sector and high value niche exports.

The Royal Government’s strategic infrastructure priorities for the Tenth Plan are those that have the greatest potential to multiply and expand economic opportunities in both rural and urban areas of the country. Strategic infrastructure development will also continue to be strongly guided by policy considerations to promote equitable access and reach and alleviate conditions of human poverty. Some of the priority areas of strategic infrastructure development are highlighted in the following.

A good and efficient road and transportation network is highly essential as every aspect of development is predicated on the ability to gain access to goods and services. Investments for upgrading and improving transport infrastructure are vital for the growth and integration of markets and for generating economies of scale, enhancing competitiveness and increasing exports and trade. Moreover, the further extension of road networks in rural areas that link up to market and growth centers is highly necessary for tackling underdevelopment and poverty in rural Bhutan. An important strategic infrastructure target for the Tenth Plan will be to ensure that three fourths of the rural population lives less than half a day’s walk from the nearest road-head. The target will be achieved through various activities such as the double-laning, realignment, resurfacing and building of national highways and the construction of thousands of kilometers of feeder roads, mule tracks, suspension bridges and district roads.

For a landlocked country, the improvement and expansion of air transport infrastructure is also necessary. International air transport activity at present is limited to Paro airport with flight operations into Paro, possible only during the day time under good weather conditions. The existing airport infrastructure at the Paro airport ranging from safety and navigation equipment/structures to passenger and cargo capacity is also deemed inadequate. The Royal Government has also been unable to establish a domestic air service as planned in the Ninth Plan which has severely limited the scope of increasing tourist destinations. To remedy this, domestic airstrips with short take off and landing (STOL) facilities are being considered for development and the existing infrastructure at Paro airport further expanded and upgraded over the Tenth Plan.

With the plan for accelerated hydro-power development being initiated in the Tenth Plan, this will necessitate the further expansion of power transmission lines to improve the grid interconnection between the eastern and western regions. The Royal Government will undertake the construction of a 220 KV transmission line from Tsirang to Jigmeling, further extend a 132 KV tie line from Jigmeling to Gelephu and build a 220/132 KV substation at Jigmeling. The other major transmission line to be undertaken is the 220 KV transmission line from Malbase/Birpara to Samtse. The construction of these power transmission lines will provide electricity for the numerous power intensive industries that are emerging, the industrial parks and communities in these regions.

With the plan for accelerating hydropower development over the Tenth and Eleventh Plan periods, road connectivity to these projects for the efficient and quick transport of required plant machinery, equipment and construction materials could prove a major bottleneck as most of the identified hydropower projects are located in the interior areas of the country. The facilitation of accelerated development of hydropower will therefore require new roads to be constructed, existing highways and roads resurfaced, realigned and widened and bridges built to accommodate 70 ton trucks. The construction of the Manmung-Digala (12 Km) and Halaley-Dorokha (16 Km) roads, the upgradation of the Gelephu-Trongsa (175 Km) and Gelephu-Wangduephodrang (155 Km) highways and the Sunkosh-Chineythang road (62 Km) are planned as high priority activities to facilitate heavy transport access to these project sites. This will be in addition to other spillover road projects from the Ninth Plan period.

A major road infrastructure development priority for the Tenth Plan will be the construction of the Southern East-West Highway, a decision taken in the 82nd session of the National Assembly. The proposed Southern East-West highway will include the construction and upgradation of roads and bridges critical sections that include upgradation of the Phuntsholing-Raidak highway (88 Km), and construction of Lhamoizinkha-Raidak (23 km), Samtse - Phuentsholing (61 km) and Lhamoizinkha-Dagana (75 Km) highways. This Southern East-West highway will be critical in facilitating industrial development in the southern economic hubs and special economic zones and integrating them more effectively with their primary markets in India. Additionally, the Highway will also provide an internal transit route for Bhutanese passengers and goods.

The construction and improvement of various sections on the North-East/South Highways are also important infrastructure development activities planned for the Tenth Plan. These include construction of Gomphu-Panbang (56 km) and Gyalposhing-Nganglam (64.3 km) highways and the Damji-Zamechu (11.3 km) and the Zamechu-Gasa (14 km) roads. The realignments of the Nangar-Ura road and the Damchu-Chukha highway and the double laning of the Babesa-Phuntsholing highway (40 Km) are also to be undertaken.

The provisioning of rural electricity infrastructure is another key strategic infrastructure priority as it has immense potential for raising rural income and employment opportunities. The availability of cheap electricity for rural communities would accelerate the rural economy through modernizing and enhancing productivity of agricultural activities, cottage industries and various non-farm rural enterprises. This will further allow for better ICT and communication facilities thus preventing the emergence of a rural-urban digital divide. The availability of cheap electricity would also notably help rural communities and households in Bhutan reduce their high consumption of fuel-wood for cooking and heating thereby contributing to conservation of forests and the environment. To achieve these ends, the Royal Government will strongly continue the extensive rural electrification programs in the Tenth Plan with the target of expanding rural electrification coverage to 100% by the end of 2013.

The development, expansion and upgradation of an efficient nationwide ICT backbone network represent another critical strategic infrastructure priority for the Tenth Plan. This will help improve efficiency in the flow of information between governmental agencies and speed up service delivery to the public. Community information centers will also be established to take ICT services to the grassroots and community levels.

The following measures will constitute the essential elements for strategic infrastructure development activities over the Tenth Plan:

  • Formulating a comprehensive plan (including criteria for provision of infrastructure) for strategic infrastructure development;

  • Establishing an institutional and legal framework for promoting public private partnerships for strategic infrastructure development;

  • Implementing sustainable mechanisms for developing strategic urban infrastructure

  • Enhancing quality assurance and good standards in infrastructure development through stringent supervision and monitoring; and

  • Prioritizing investments in and development of rural infrastructure (feeder and farm roads, power tiller tracks, mule tracks, bridges, rural electrification, irrigation schemes, telecommunication facilities) that optimizes linkages with market and growth centers.


Human capital here is used in the context of the range of productive skills, expertise, knowledge, qualities and aptitude embodied in labor that increases its potential for economic activity. A common definition is that human capital represents the set of skills and abilities that enhances an individual’s value and productivity in the market place. Investments into human capital broadly refer to public and private expenditures made for education, training and health care that enhance human capabilities.

It is widely accepted today that the long term sustainable and successful development of any economy is strongly contingent on the investments made in human capital and that the latter constitutes a non-diminishing source of economic growth. The development experience of Japan, Korea and the Asian tigers clearly illustrate the high relevance of human capital to economic growth, all of whom still continue to maintain very high levels of such investments.

The Royal Government too clearly recognizes human capital as an invaluable investment and asset, especially in the light of its considerable geo-physical constraints and limited resources. Under the Tenth Plan, cultivating and sustaining human capital and further improving on its qualitative aspects, continues to represent a strategic imperative for promoting growth and reducing poverty. The quality and critical mass of human quality that is available to the country will also fundamentally shape Bhutan’s long term prospects for engendering a culture of innovation, creativity and enterprise so necessary for enhancing national productive capacities.

With regard to the latter, the Bhutan Poverty Analysis Report 2004 clearly highlights an unambiguous link between weak educational attainments and poverty incidence in the country. The report notably points to a striking finding that a mid-secondary level education is generally adequate to raise an individual out of poverty. The industrial and agriculture sectors in Bhutan have also been chronically plagued by very low levels of labor productivity that are among the lowest in the region. In addition to the adoption of appropriate technology, upgrading human capital is therefore absolutely vital for securing any meaningful productivity gains for rapid and sustained growth in the productive sectors. Additionally, the Royal Government also regards the formation of human capital as crucial from a social perspective in that it also confers wider benefits for Bhutanese society and can contribute to the realization of GNH. The Ministry of Labor and Human Resources will coordinate in the development of a comprehensive National Human Resource Development Policy.

It is in this sense that expenditures for human capital formation must necessarily be viewed as essential long term investments rather than expenses. In Bhutan, related investments into human capital formation constitute among the highest in the world calculated either on the basis of expenditures as a ratio of GDP or as a percentage of the national budget. This to a large extent is due to the fact that the Royal Government has always and continues to provide free basic education and health services to its citizens. The allocation for the education, health and human resource development sectors under the Tenth Plan comprises more than a quarter of the total plan budget. This figure would probably be higher if the various training and capacity building programs of each of the ministries, district and block administrations and local governments were also included. While this continues the earlier high levels of public investments in developing human capital, renewed efforts will also be made under the Tenth Plan to realize all-round qualitative improvements in tapping this potential, for which there is considerable scope and need.

Over the years, the Royal Government has rapidly expanded primary education infrastructure through the establishment of numerous community primary and primary schools. During the Tenth Plan, the same strategy shall be continued to enhance access to primary education in the rural and remote parts of the country. Where it is not feasible to build CPS/PS, extended classrooms (ECRs) will be established to ensure that education is made accessible even in the remotest and most scattered settlements. Boarding facilities will also be provided in more remote areas including mid day meals in the day schools and bus services in urban areas. For children of poor families, this will also include providing a living stipend, clothes and other essential necessities.

To provide free basic education for all as enshrined in the Constitution, the Royal Government will expand secondary education places during the Tenth Plan. This will require establishment of a number of secondary schools and upgrading facilities in the existing schools to include the next level of program. Furthermore, better incentive packages shall be developed and implemented to attract and retain competent and motivated individuals in the teaching force as well as to ensure adequate number of teachers especially in the rural and difficult areas. This will include provisioning of staff quarters, suitable staff rooms and work spaces and other incentives.

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.


Enhancing the enabling environment for equitable and sustainable socio-economic development involves certain prerequisites. These include among other things, the need to ensure stable socio-political conditions and good governance, a rationale that is universally accepted and ubiquitously advocated. Indeed, the notion of good governance is often used synonymously with sound development management, reflecting the enormous significance that good governance has on national economic development as an enabling and positive factor.

For Bhutan, the policy imperatives of consolidating the enabling environment of good governance have an even more special and deeply motivating relevance for the Tenth Plan. It is with the start of the plan period that the country will make its historical transition to a democracy, adopt a Constitution and assume its place among the nations of the world as the youngest democracy. The plan period will therefore be a defining time during which the foundations for the future success of a fledgling democracy and the new system of political governance will be laid. The measure of success that Bhutan has in deeply rooting democracy, establishing relevant institutions and mechanisms and generally, availing of the best that democratic governance offers will fundamentally alter the country’s future prospects.

Good governance is also important in the context of accelerating poverty reduction, the major goal and development objective of the Tenth Plan. Various studies clearly highlight the role that good governance plays in enhancing the effectiveness of development assistance. These studies reveal that in countries with effective and sound governance, an additional percentage point of GDP in development assistance translates into an equivalent percentage point decline in poverty and a similar decline in infant mortality. The impact of development assistance for countries with weak governance was correspondingly lower underscoring the pertinent point that returns from development investments are generally higher in countries characterized by good governance. While no empirical studies have been done in the Bhutanese context, the country’s performance in scaling up its human development levels in the past in large part has usually been attributed to its sound and effective governance.

Under the leadership of the fourth King, His Majesty Jigme Singye Wangchuck, the people of Bhutan enjoyed an era of visionary and people-oriented leadership. The governance system had also been dynamic, effective, and responsive to peoples’ needs. As Bhutan has enjoyed such exemplary governance in the past, measured against this impressive benchmark the country must necessarily adopt the highest standards of governance and not remain content with “good enough” governance. The challenge and task for the Royal Government as such will be to ensure quality and excellent governance in all its diverse aspects to gain the complete confidence and trust of the Bhutanese in democracy. The focus will not simply be on removing governance gaps or tackling issues of corruption but involve a much more comprehensive and proactive approach.

The Royal Government to this end will seek to engender a truly representative, responsive and meaningful democracy; maintain proper and effective checks and balances among various branches of the government; ensure the proper management and best use of public resources; strengthen local governments and decentralization processes; enhance the political capabilities and participation of all Bhutanese; ensure administrative and financial efficiency, transparency and accountability and improve public service management; combat the spread of corruption; promote the role of the media and civil society; and enforce the rule of law wherein law is applied impartially. The notion of efficiency in the context of good governance also applies to the responsible and sustainable use of natural resources and the conservation of the environment. Similarly, the concept of good governance encompasses not just the government but the private sector too. The Royal Government will therefore continue to attach priority to these issues and implement relevant activities to strengthen them.

With significant changes expected to come into effect with the adoption of the Constitution and the onset of parliamentary democracy, the Royal Government will be faced with numerous and immediate challenges in ensuring a smooth political transition and institutionalization. These naturally will entail significant challenges, some of which can be anticipated and are detailed in the following sections.

The Royal Government will need to build infrastructure to accommodate the new institutions and agencies that will be required to support the new political system. Offices will also have to be constructed to house the Supreme Court, the National Council and various other constitutional offices, all of which will require large capital investments and that are likely to lead to further increases in recurrent expenditure. In addition to the expansion of the above infrastructure, extensive capacity building will need to be undertaken to support the governance reforms being implemented. The development of human resources to foster greater professionalism and expertise at both the center and local government levels will be critical in this regard. The effective implementation of the position classification system (PCS) in the civil service and the expansion of decentralization activities will require significant numbers of adequately trained personnel. In addition, support is also needed to provide training for the private sector in various technical and managerial areas to further strengthen corporate governance and galvanize it into the desired engine of growth.

With the establishment of various constitutional bodies such as the Anti-corruption Commission, Royal Audit Authority, Election Commission and Supreme Court and in light of the expanded roles for local governments and municipalities, institutional strengthening of these institutions will be highly necessary. The introduction of a new planning framework and the development of effective coordination and monitoring mechanisms will further add to this need to strengthen institutional capacity at all levels of government. Additionally as major changes in the political system are anticipated in a relatively short period of time, financing and establishing effective systems will be required such as developing appropriate ICT systems to enhance coordination. However, setting up such ICT systems and promoting their effective use would require both large investments and basic IT training and familiarization for the public at large.

The Non-governmental Organizations (NGOs) and Civil Society Organizations (CSOs) have a crucial role to play in helping the government and people achieve the plan targets. They are expected to help the local governments build their capacity and also create effective governance systems with improved and enhanced accountability. A combined effort of the government, people and the CSOs is necessary to reduce the high incidence of poverty in the country. This would require multi-pronged and targeted intervention approach to reach the real poor and needy population scattered in the remote rugged locations. The NGOs and CSOs will have a special role in this in collaboration with responsible government agencies.


Table 3.6:

Major Development Targets for the Tenth Plan

In consonance with the Tenth Plan’s results-based management orientation, some very specific quantitative targets have been set for achievement over the plan period. These plan targets have been set keeping in mind the pace required to attain the Vision 2020 targets, the MDGs and the SDGs. The realization of these Tenth Plan targets would also go a long way towards fulfilling Bhutan’s development commitments. A summary of the major development targets for the Tenth Plan are presented in Table 3.6 which also confirm other international development targets that the Royal Government subscribes to. For comparative purposes, targets or actual achievements for the Ninth Plan have also been included in that table.

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

Chart 3.7
Chart 3.7

The Results Based Management Planning Framework

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

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 Decentralized and Synchronized Plan Implementation

Following the decentralization policy of the Royal Government, the implementation of planned programs that are within their capacity to implement will be fully decentralized to the Dzongkhags and Gewogs. The central sectoral agencies will provide policy direction and technical support through their network of regional and sub-regional offices and directly to local governments. The Local Government Act 2007 provides the nature, scope and extent of administrative and fiscal decentralization of programs and activities to the Dzongkhags and Gewogs from the central agencies. However, as the Dzongkhags and Gewogs currently do not have adequate capacity to plan and manage development programs on their own and given the need for their programs to be in line with the national development goals and objectives, they will be required to abide by the policy directions and technical support from the central sector agencies. The development programs are thus to be synchronized between the central sector agencies and the local governments in a manner that complements rather than duplicates efforts to optimize planning impact and results.

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

Table 3.8




The Tenth Plan will ensure a strong and stable macro-economic framework within which the planned socio-development activities will be implemented to achieve its core objective of poverty reduction. The Royal Government will continue to manage public finances in a highly prudent and proficient manner and will generally address this through enhancing domestic revenue to become more self-reliant, managing expenditures effectively, maintaining a healthy overall balance of payments position, implementing appropriate fiscal and monetary policies to contain inflation, and keeping deficits and debt burdens at sustainable levels. The results based management approach incorporated within the Tenth Plan planning and budgeting framework and specifically the medium-term fiscal framework should also greatly help increase the efficiency and rationalization of resource allocations and plan expenditures.

With poverty reduction as the over-riding objective of the Tenth Plan, the plan strongly emphasizes the imperative for a strategic pro-poor growth approach. In this context, accelerated economic growth during the plan period will be complimented by a further strengthening and amplification of the Royal Government’s strong redistributive social policies and activities. The Tenth Plan prioritizes the expansion of infrastructure and road connectivity in rural areas where most of the country’s poor live. The strengthening of agricultural production and productivity to help raise rural incomes and improve household food security is another critical dimension of the Tenth Plan. Moreover, special attention will be paid within the Tenth Plan development framework to address the urgent need to create quality employment, particularly for educated youths.

These are not merely articulated as important principles and strategic priorities but have clearly determined the basis of the Tenth Plan’s resource allocations and investments. For instance, the social sector easily absorbs the largest share of the capital outlay, accounting for around 19 percent of the capital outlay, the agriculture sector receives around 4 percent of the capital outlay and around 19 percent of the total outlay is directly allocated to the local governments.


On the basis of preliminary projections, GDP is anticipated to grow by around 8 percent through the plan period. The GDP forecast is based on more than hundred percent increase in total outlay for the Tenth FYP as compared to the previous plan period followed by consistent growth of the three sectors. In order to reduce the poverty rate of 23.2% from the baseline year in 2007 to below 15% in 2013 in keeping with the MDG and SDG poverty reduction targets, it is projected that growth levels of around 9% over the Tenth Plan period is required.

The projected growth rate of 7.7% in the Tenth Plan is close to the warranted growth rate and it can be said that poverty reduction target is achievable. The focus of the plan will be to stimulate a faster growth in the productive sectors, particularly agriculture and industry, to a higher rate than achieved in the past in conjunction with continued investments into further development of the hydro-power sector.

Chart 4.1
Chart 4.1

Real GDP Growth over successive Plan Periods

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

As in past plans, the major stimulus for growth will come from the energy and construction sectors with the peaks in GDP growth coinciding with the start of construction of planned hydropower projects and their commissioning. However, if the country is to achieve the levels of targeted poverty reduction, real GDP will be required to grow at around 9%, with warranted growth levels of 4.5% in the agriculture sector.


The agriculture, livestock and forestry sector is projected to grow by about 2% per annum against the set target of 4%. On the basis of these growth levels, the contribution of the agriculture, livestock and forestry sector will amount to 16% of GDP through the Tenth plan period.

The manufacturing sector is projected to grow around 7% over the plan period broadly in line with Ninth Plan growth levels. The electricity and construction sectors, both largely boosted by hydro-power development, are expected to grow at 7.4% and 15.2% respectively. Collectively, the industrial sector comprising the above three sectors is envisaged to grow at an average of 10% per annum over the plan period, a percentage point slower than the pace maintained over the last five years. At the end of the Tenth Plan period, industry will account for around 41% of GDP. The service sector collectively is anticipated to grow at 7.2%, with the fastest growth rates in the transport and communication sectors at around 9%.

The Tenth Plan will witness an enormous rise in recurrent expenditure trends and high debt servicing costs that could potentially affect the overall balance of payment situation. The fiscal deficit is projected to be maintained below 7% of GDP through the plan period and will be financed through a prudent mix of external and domestic borrowings.

Table 4.1

Macro-Economic Growth Projections by Activity

(at 2000 Prices)


As imports are expected to continue to grow faster than exports, the overall trade balance as in previous years is expected to result in an average annual trade deficit of around Nu.24 billion or a quarter of GDP. As expected, the majority of the country’s exports will be comprised of electricity. Imports once again will be driven primarily on account of machinery and equipment purchases for the planned hydro-power projects, thus resulting in deterioration of Current Account Balance with an average deficit of 20% of GDP through the 10th Plan period. The overall balance of payment position is likely to be positive over the plan period with the government’s external borrowing driving up the capital account. However, gross international reserves are expected to be sufficient for an average of only 7.5 months of import during the projected period.


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

Table 4.2

Projections of Public Finances

(Nu. In Millions)

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.

Domestic Resources for the Tenth Plan

Continuing with the healthy trend of growing self-reliance for financing development activities in the country, domestic resources will fund an ever larger share of the development outlay. For the Tenth Plan, domestic resources will contribute to around 52% of the total plan outlay and this may be compared to the past plans for which domestic resources were only sufficient to fund around 30% and 40% over the Eighth and Ninth Plans.

Revenues are projected to grow at around 4% a year over the plan period and recurrent expenditures at around 6%. Nevertheless, domestic revenues are projected to be more than the current expenditures in all the five years and therefore, fulfill the government’s fiscal policy of meeting such expenditures from domestic resources. The total revenues projected for the Tenth Plan are estimated to total Nu. 75.39 billion. Of this, 48% will derive from tax revenues most of which will come from corporate taxes and the 52% from non-tax revenue.

External Resources for the Tenth Plan

The development financing needs of Bhutan has been increasing rapidly over the plan periods. The capital outlay and recurrent expenditure are almost equal for the Tenth Plan. As in the previous plans, the RGoB’s policy of at least meeting current outlay from its domestic revenue will be pursued. However, the fiscal deficit is projected to average around 6.76% of GDP which is considerably higher than Ninth Plan deficit levels.

Of the total capital outlay of Nu.73.61 billion, external resources of Nu.57.49 billion is to be mobilized through grant and loans. Even with the small savings after meeting recurrent expenditures from domestic revenues that can finance a small portion of capital expenditures, there remains a large resource gap of Nu. 15.19 billion, which averages to about 4% of projected GDP over the plan period.

With the end of grace periods for most of the loans and the commencement of loan repayment for the Tala Hydro Power Project, the debt-servicing burden will also increase considerably.

Debt Situation

The financing for construction of hydropower projects has led to the increase in debt over the past decade. The debt is further expected to grow during the Tenth Plan and beyond as construction of few more major hydropower projects are planned during the plan period. Although, pipeline hydropower loans will add to the debt stock considerably, the hydropower projects themselves will be able to service the debt and will not tax on to the government revenue for debt servicing.

The external debt to GDP ratio during the Tenth Plan period is projected to be around 80.2%. However, non-hydro power debt is projected to be only 27.7% of GDP. External debt service ratio is projected to be around 8% during the plan period which is slightly higher than the Ninth Plan. The increase in the debt service ratio is mainly due to the commencement of debt servicing for Tala Hydropower Project. The debt management policy of the government will continue to be very cautious, focusing on the concessionary loans by and large for social sector. For projects that are economically and financially viable like the hydropower projects, loans will have to be secured largely on commercial terms.

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.

Table 4.3

Indicative Tenth Plan Outlay


The Tenth Plan clearly recognizes that the financial sector plays a crucial role in mobilizing available savings and allocating them to the most productive uses in an efficient manner. This function of the financial sector becomes increasingly more important and demanding as Bhutan’s economy grows in complexity and depth. Moreover, in times such as the current global financial turmoil, a sound, well-developed and stable financial sector is absolutely critical for sustaining economic growth and high investment levels while ensuring equitable income distribution.

The financial sector in Bhutan is at present still underdeveloped and consists of just two commercial banks, two non-bank financial institutions, a small securities exchange and the National Pension Fund. The sector’s contribution to GDP was 4.9 percent in 2007 and is expected to grow modestly at around 5 percent annually over the Tenth Plan period. However, the financial sector as a whole is expected to grow larger with more commercial banks and non-bank financial institutions being licensed to operate that will strengthen competition, sustain growth and enhance private sector development through improved access to credit, financial services and products.

It is important that the financial sector development keep pace with changing economic development context to provide adequate and efficient financial services. Financial sector management and reforms must be in tandem with developments in the real economy given that the real sector is market-driven and operates in a highly competitive environment. Keeping all these aspects as considerations, in addition to implementing necessary monetary policy measures to promote monetary and price stability, the Royal Government is taking several initiatives to further strengthen the financial sector over the Tenth Plan period, some of which are highlighted below.

Strengthening Prudential Supervision of the Financial Sector

It is important that the financial institutions are constantly monitored and prudentially regulated to ensure soundness of the financial system. This will continue to be achieved through the appropriate regulations to maintain the minimum level of capital for financial institutions, the minimum liquidity requirements, avoidance of credit concentration to single or group of borrowers, etc.

Modernizing the Payment and Settlement System

A sound, efficient and secured payment and settlement system is an integral part for the promotion and development of businesses and commerce. It is therefore necessary to continually improve financial transaction processes such as clearing and settlement systems, banking and credit facilities, payment instruments, etc. to provide financial services more efficiently. The RMA has already established regional clearing houses to encourage and promote non-cash transactions such as through cheques as a payment instrument. The use of credit cards, debit cards, efficient fund transfer mechanisms and other payment instruments will also be further promoted and made available to the public to continue modernizing and rationalizing the payment and settlement system.

Enhancing Credit Availability

The establishment of new banks and non-banking financial institutions and the opening up of several more branches by existing banks will help expand domestic credit to finance various economic and commercial activities and enhance public access for a wide range of banking and other financial services.

Establishing New RMA Regional Branches

The RMA’s objective is to make currency and exchange facilities readily available to the general public throughout the country. To this end, RMA intends to open up regional offices in Mongar, Gelephu and Phuentsholing.

Ensuring Optimal Liquidity

Based on liquidity projections carried out for the Tenth plan, it is projected that the financial sector will have excess liquidity rather than face a liquidity crunch. The RMA will continue to use monetary policy measures to sterilize any such excess liquidity in the banking system.

Introducing RGOB-T bills

The RGOB often resorts to utilizing its direct overdraft facility from the Bank of Bhutan to finance its fiscal deficit. Mobilizing resources through the issuance of RGOB-T bills could prove to be more beneficial instead of resorting to such direct borrowings. The RGOB T-bills will act as a new investment avenue and broaden the securities market in Bhutan. In addition, these instruments could also be used for monetary policy purposes. The introduction of T-bills is to be initiated soon.

Establishing a Credit Information Bureau

The RMA is in the process of operationalizing a Credit Information Bureau to facilitate the availability of financial and credit information to the general public and the lending institutions.

Licensing of Authorized Money Changers

Licenses for Authorized Money Changers to facilitate foreign currencies exchange services have already been initiated with these business operations to commence in early 2009.

Strengthening the Legal System

It is necessary to have in place all the relevant laws and regulations governing the financial sector for very obvious reasons. In this regard, the RGoB has revised the RMA Act, 1982, drafted the Financial Services Act and other Regulations. The Acts are expected to be enacted by the Parliament in 2009.


This chapter outlines the centrality of the following cross-cutting development themes in the attainment of national development objectives. While there are several other critical themes that could also be considered, these are regarded to be particularly pertinent for the Tenth Plan period in view of their all-round importance and relevance across all sectors and given the context of the introduction of democracy in the country. The important cross-cutting development themes identified through the consultative planning processes were decentralized governance, employment, women in development, information and communications technology, environment and HIV/AIDS. The Chapter highlights the specific relevance of these themes, assesses their general policy environment, identifies the particular constraints and challenges and outlines the various strategic initiatives that the Royal Government will undertake to address these pressing issues over the plan period.


5.1.1: Introduction

Since the start of the 5th Five Year Plan in 1981, the Royal Government has actively pursued a proactive policy to devolve institutional powers to govern and promote participatory development at local levels. The broad rationale underlying these initiatives were based on the conviction that the meaningful engagement of communities in decision-making, planning and implementing development activities were highly essential and relevant to strengthening good governance and securing equitable socio-economic progress at local levels. Decentralization has moreover been deemed a deeply integral part of the democratization processes initiated under the visionary leadership of the country’s fourth monarch, His Majesty King Jigme Singye Wangchuck. As such, the Royal Government has actively promoted decentralization with the twin purposes of empowering people and ensuring balanced, equitable and sustainable socio-economic development.

The major milestones in implementing decentralization in the country include the formation of the DYT and GYT development committees in Dzongkhags and Gewogs in 1981 and 1991; the creation of autonomous municipal city councils or Thromdes with elected representatives in Thimphu and Phuentsholing in 1999; the ratification of the DYT and GYT Acts 2002; the election of Gups based on adult franchise and their appointment as Chairpersons of GYTs in 2002. The Gewog-based planning approach launched in the 9th FYP constituted another critical milestone in strengthening decentralized governance in Bhutan. More recently, the National Assembly passed the Local Government Act 2007 which translates the important constitutional principle of decentralized governance into law and mandates the formation of local governments for the development, management and administration of areas under their jurisdiction.

Although local level administrative autonomy has been enhanced and the principles of democratic and decentralized governance formally enshrined under Article 22 of the Constitution, the process of decentralization in is not entirely complete. Efforts to implement the final aspects of decentralization will need to be undertaken within the Tenth Plan period. The elements of final decentralization will include the introduction of rationalized discretionary annual grants for all local governments based on a formula that takes into consideration factors of population, geographic area and poverty. The modality and specifics of the sharing of resources and revenue between the central and local governments are treated in greater detail in Box 5.1.

5.1.2: Opportunities and Challenges for Effective Decentralized Governance

The introduction of parliamentary democracy in Bhutan in 2008 provides a special opportunity to fully consolidate the gains of decentralized local governance and enhance prospects for Bhutan’s fledgling democracy. The new political environment will facilitate a greater plurality of actors participating in national and local governance that will help promote greater transparency, accountability and efficiency in public service delivery and implementation of development activities at both the national and local levels. Additionally, there is a stronger likelihood of local level interests and concerns being more effectively represented in national decision-making that could determine equitable development outcomes in regions and local communities. Moreover, the success or failure of local governments and decentralized governance processes in turn will considerably influence the course of democracy and how effectively it takes root in Bhutan.

In conjunction with the inception of democratic governance, the Royal Government has been creating a strong enabling environment for effective decentralized governance through local governments. These include the streamlining of the financial systems and regulations, introduction of the multi-year rolling budget, the piloting of annual and tied block grant systems and the implementation of the organizational development exercises and civil service reforms that will help enhance the prospects for improved public service delivery.

Another significant opportunity that decentralized governance provides in the context of the Tenth Plan is the opportunity it provides for poverty reduction. While decentralization has not been effected for the sole purpose of poverty reduction, nevertheless, the institutions and mechanisms it establishes can lead to improved delivery of basic services for the poor, engage the poor and marginalized sections of society through grass-roots participatory planning and implementation of appropriate development activities and provide opportunities for the poor to express their needs and preferences, all of which can significantly help to address poverty issues. With central governments being more focussed on national level issues, it is expected that local governments can and will provide such services more efficiently, effectively and in accordance with the needs and preferences of the poor. Local governments will also play an important role in helping implement targeted poverty programs in local areas even as these are administered centrally.

Decentralization also provides the conduit towards accelerating progress towards achieving the MDGs, enhancing human development outcomes, better conservation of natural resource management, all of which ultimately contributes towards realising the vision of GNH.

Clearly, the significant opportunities iterated above for enhancing decentralized governance are coupled with critical challenges. The major challenges that has chronically affected the pace and quality of decentralization has been the weak institutional and human capacity at local levels; the inadequate resource base of local economies and institutions; and often the bureaucratic administrative systems and procedures that hamper the efficiency and effectiveness of local administration.

The Constitution and Local Government Act confer a wide range of important duties and responsibilities to local governments. In order for local governments to shoulder their new roles and responsibilities effectively and discharge their assigned critical functions ably, the existing capacities of local governments and institutions will have to be enhanced considerably. The Royal Government fully recognizes that the institutional capacity building and human resource development at local levels will be an immensely critical factor determining the success that local governments will enjoy in carrying out their functions and responsibilities. Achieving this will require improving the quality and numbers of administrative and technical staff in Dzongkhags and Gewogs. This in the past has been hampered by the reluctance of civil servants to serve in rural areas and the tendency of line Ministries and agencies to retain their most qualified personnel in the centre. As such there will be a need to develop attractive financial and promotion incentives to attract talented and competent staff to work in Dzongkhags and Gewogs.

5.1.3: Operational Framework for Local Governments in the Tenth Plan

Whilst the overall goals and objectives at National level provide an encompassing framework for the Tenth Plan, specific objectives for local governments have been set to facilitate a more strategic approach. The following are the objectives for Local Governments:

  • Poverty Reduction

  • Enhanced Democratic Local Governance

  • Effective and Efficient Service Delivery.

5.1.4: Strategies for achieving the objectives

Supporting Greater Autonomy in Development Planning

The Tenth Plan will see greater autonomy in the way Local Governments plan and manage their development programs. This will manifest in a new Inter Governmental Fiscal Transfer mechanism i.e. the Annual Grant System which will allow for better and predictable development programming and facilitate a more responsive, realistic and meaningful planning and budgeting exercises. This is also envisaged to help build greater participation, ownership and transparency of local development programs.

Local Governments shall also receive Earmarked Grants to localize specific objectives and targets of National Government pertaining to its national and international obligations. The Framework on the Assignment of Functional and Financial Responsibilities of Local Governments will provide clear cut guidance in terms of the division of responsibilities between Central and Local Governments and help avoid duplication of roles between various levels of government. The annual grants that Local Governments receive will be decided commensurate with the extent of responsibilities outlined in this framework. The new Budget Policy and Fiscal Framework (BPFFS) is also a new initiative to be introduced to strengthen the planning and budgeting system of the RGoB.

Targeted Poverty Reduction Interventions

With the un-reached and poor being harder to reach, the regular system of development programming will not be able to effectively target poverty reduction directly. This will require precise interventions and programs targeted to reduce poverty in the specific areas where they exist. Activities that enhance sustainable and productive livelihoods such as those promoting a shift away from subsistence to market oriented farming, ensure food security and sustainable utilization of the non-wood forest products will receive priority under this strategy. To enhance the participation of the poor, special efforts will be made to ensure their inclusion in the decision making process.

Resource Allocation Mechanism

The objective of introducing a Resource Allocation Mechanism is to have an objective, unbiased, transparent and systematic method of allocating resources equitably. Resources will be allocated based on a formula with local governments enjoying full autonomy over the use of annual grants within the overall national policies and guidelines, especially the Framework of Functional and Financial Assignments for Local Governments. The total resources provided for Local Governments will be assigned on a 60:40 ratio between Dzongkhag and Gewogs. Earmarked Grants will be additionally allocated by central agencies for sector specific utilization.

The formula for resource allocation to local governments will be based on the following three factors with varying weightages assigned. The criteria will be refined and changed over time as the development situation changes and the information on which the criteria are based become more detailed and disaggregated.

  • Population: The population factor will be calculated based on actual residency and not the number of people registered with the 2005 Population and Housing Census as the source of data. From the overall resource envelope, 70% weightage assigned for population. Local Governments administering to larger populations receive a higher share of resources.

  • Poverty: Local Governments that administer regions with weak food security will receive higher allocation of resources. Food security has been taken as a proxy indicator for incidence of poverty. 25% of the total resource envelope will be allocated to factor in the local food security context. This data shall be sourced from Bhutan Living Standard Surveys, 2007.

  • Geographical Size: The Geographical size and area will also be a determining factor for resource allocation with 5 % of the resources devoted to it. Data for these criteria will be sourced from the National Land Commission.

However, to ensure judicious utilization of resources within the overall national policies, local governments will operate under the Annual Grants guidelines and the Framework on the Assignment of Functional and Financial responsibilities for Local Governments.

Capacity Development

The Integrated Capacity Development Plan will provide the framework for all capacity related activities. Capacity development will be undertaken through various trainings, peer learning, on the job trainings, mentoring etc. to promote better planning, public expenditure management, conservation of natural resources and monitoring of local development programs. Local Governments will also require support in terms of increase in the quality and quantity of staff through incentive packages for their staff and greater autonomy in human resource management and development. Other interventions could include up-scaling of best practices, building networks and strengthened monitoring. Additionally, use of IT and Multimedia for greater reach and sustainability of the training programs will be capitalized on wherever possible.

Strengthening the Institutional Framework

The Constitution, the Local Governments’ Act, 2007 and the DYT and GYT Chathrims, 2002 provide the legal and institutional framework for the Local Governments. The DYT and GYT Chathrims, 2002 and other relevant regulatory and operational framework will continue to be reviewed and revised in line with the Constitution and the Local Government Act. The decision making and implementation processes will also be streamlined in consultation with all stakeholders to ensure greater efficiency, effectiveness, accountability and participation of beneficiaries, especially the poor and more vulnerable sections. This includes setting service standards and benchmarks for most used services. Pilot programs to strengthen transparency and accountability will also be implemented and up-scaled based on lessons learnt and best practices.

Improved Monitoring and Technical Backstopping

Given that the Tenth Plan operates on a results based management framework, the monitoring and evaluation of local development programs takes on an even greater significance. Local Governments shall be largely responsible for the progress and performance monitoring of the planned development activities and this shall be done in accordance with the National Monitoring and Evaluation Manual of the GNH Commission. Using this system as the tool to track progress at the local level, support in terms of technical expertise and other resources shall be provided to Local Governments in a strategic manner. This may take the shape of mobile teams that have local development and other specific skills to provide on-site guidance and information.

Policy Dialogue and Coordination at Central Level

In conjunction with the efforts aimed specifically to support the Local Governments, there will a continuous dialogue and coordination with central level agencies to facilitate good governance and public administration reform that supports local autonomy. Activities shall include research and documentation of best practices, advocacy, access to information and provision of forums for better coordination amongst agencies. In the long term, the objective is to facilitate a move towards institutional restructuring where the role of central agencies is limited to policy formulation, oversight, regulation and coordination.

5.1.5: Financial Outlay for the Local Government

The local government will receive a tentative capital outlay of Nu. 12 billion in the form of annual grants an increase of about 61% over the Ninth Plan.


Any practical plan for accelerated poverty reduction and expanding human capital must intelligently and urgently address the issue of employment as it offers the poor an escape route out of their poverty and an opportunity to enhance their human capabilities. Given that poverty reduction constitutes the main objective of the current plan, the creation and promotion of quality employment opportunities is an extremely high priority and a vitally important thrust area for the Tenth Plan. Over the Tenth Plan, modest projections indicate that close to 93,000 jobs will have to be created - which is slightly more than the total number of people employed in the formal sector at present and thus constitutes an enormous challenge. The inability to absorb a large part of new entrants into the labor market in decent jobs would effectively constitute a gross underutilization of human capital resources and foster an unhealthy social environment in future.

While employment will primarily have a sectoral focus through development programs implemented by the Ministry of Labor and Human Resources, it will also be addressed as an important cross-cutting theme. To this end, all possible avenues will be explored to ease the growing unemployment situation, particularly among educated youth, and all sectors will assist actively in addressing this national concern collectively.


Over the Ninth Plan period, the labor force participation rate grew from 56.5% in 2001 to 67% in 2007. The labor force has been growing incrementally faster than employment which translated into the increase of open unemployment. In 1999, national unemployment was estimated at 1.4% and it has increased to 3.7% in 2007. Joblessness has particularly affected youths with their unemployment rate tripling from 1999 levels and is now at levels twice as high as for all working adults. Labor data collated over the last six years also indicate that between 55-60% of the unemployed have always been youths. Female unemployment rates are also particularly pronounced in urban areas and twice as high as compared to men. While in rural areas unemployment rates for women (2.1%) are slightly lower than for men (2.6%), most women are engaged in low or non-paid remuneration employment in farming and housework activities suggesting the existence of a higher level of underemployment.

Table 5.1:

National LFPR, Employment Distribution & Unemployment Rates 1999-2005

Sources: NLFS (1999, 2004, 2006) PHCB 2005

The National Labor Force Survey 2006 (NLFS) and the Population and Housing Census of Bhutan (PHCB) 2005 reveal an enormous shift in employment activity. In 2005, the PHCB reported that of all those employed, 43% were employed in the agriculture sector as compared to around 75% in 1999.

At the same time, there has been a commensurate expansion in the share of employment in the service and industry sectors. The industrial sector in 2005 accounted for 17% of the total number of the employed labor force tripling from less than 5% in 1999. The share of total employment accounted for by the services sector likewise has more than doubled from around 16% to around 39% in that period. This is not only explained as an outcome of the modernization of the economy from its subsistence agriculture base but can also be attributed to the rural-urban migration trends and accompanying population shifts.

While the unemployment rates have increased to 3.2% in 2006 and 3.7% in 2007, this is not very high by international or regional standards. Indeed, this would even be regarded as near full employment by some economies. However, in disaggregating the employment data further, there are concerns relating to the situation of youth and female unemployment and underemployment. As iterated earlier, unemployment levels for both youths and females are higher than the national average and appear to be on the rise. Unemployment is markedly high among the teenage youth (15-19) and has increased from 2.1 percent in 1999 to 6.5 percent in 2006. Likewise the unemployment rate among youths between the ages of 20-24 has gone from 2.9% in 1999 to 11.4% in 2006. Thus unemployment is a challenge that affects youths particularly. Additionally, in comparing the characteristics of the unemployed in both rural and urban areas, a contrasting image arises where the unemployed are mostly the educated in urban areas whereas in rural areas, the unemployed are largely those without any education.

Another concern is that the unemployment situation could possibly be masking quite high and rising levels of underemployment. Even as the lack of relevant data prevents an accurate assessment of the prevailing levels of underemployment, there are sufficient indications that it could be problematic. The high number of unpaid family workers, the large numbers of people engaged in low remuneration jobs, the growing trend of employers working less number of hours and the high turnover of employees in the private sector all point to a rising prevalence of underemployment. Additionally, the relatively high levels of rural income poverty (30.9%) within the context of comparably low levels of rural unemployment (2.5%) would strongly suggest the need to address underemployment to help ameliorate rural poverty and mitigate the growing rural urban migration trend.

5.2.2: Causes of Unemployment

The causes of the rising unemployment situation can be attributed to various economic, demographic and social factors. A major reason for the slow growth in employment has been that the country’s growth has largely been capital intensive with faster growth in sectors that have low employment elasticity whereas the traditionally labor intensive sectors such as agriculture have witnessed relatively slower growths. At the same time, there has been a vast expansion in school enrolment which has given rise to the huge numbers of people entering the labor force. Many of these educated youths, who constitute the majority of the growing ranks of the unemployed, do not have employable skills, knowledge or aptitude required by the labor force market. This is further compounded by the apparent mismatch between the expectations of youth on the quality and location of employment and inherent labor market realities. In addition to the growing numbers of educated youth searching for employment, there are also an increasing number of people migrating to urban centers in search of better job prospects.

While employment demand has scaled up considerably in view of the above reasons, there has been limited employment expansion, particularly in the civil service and public corporations which are the preferred employment choices for most educated youth. This limited public sector employment scenario appears unlikely to improve significantly in the near future. The small and underdeveloped private sector too has been unable to fulfill the potential of becoming the engine of growth and provider of employment.

The lack of an adequate regulatory framework has also tended to discourage employment absorption due to a lack of confidence between both potential employers and employees. Employers are concerned about the “job hopping” tendencies of young Bhutanese and the subsequent loss of time and investments which discouraged them from employing. At the same time, many young people were not attracted to work in the private sector and at times remained unemployed on account of low quality jobs, the lack of career opportunities and poor remuneration.

5.2.3: Objectives and Strategies to Promote Employment

The overall employment goal of the Royal Government in the Tenth Plan will be to attain full employment, particularly among the educated youth. These will include both demand and supply side interventions such as through accelerating growth in employment intensive sectors, promoting off farm employment and stimulating the development of SMEs. In addition, the following strategic initiatives will be adopted:

  • Enhance access to vocational education and training by expanding intake capacities of VTIs and training programs, establishing new VTIs, diversifying and expanding various programs such as the Village Skills Development and the Apprenticeship Training programs;

  • Ensure quality of vocational education and training programs through enhancing the quality of training delivery, curriculum and instructors;

  • Minimize number of people migrating from rural to urban areas in search of employment opportunities by creating off-farm employment opportunities;

  • Improve value and dignity of blue collared jobs;

  • Promote private sector growth by improving their human resource capabilities;

  • Improve working/employment conditions in the private sector through enforcement of the Labor and Employment Act and relevant regulations;

  • Strengthen employment promotion services and labor market information;

  • Enhance management of foreign workers recruitment;

  • Enhance quality of skilled workers through establishment of a national quality assurance system for the VET sector; and

  • Expand training through the introduction of the HTMTI and RDTC Training Institutes for the training of hospitality service providers and farmers to increase employment in the two most prospective sectors for employment, namely the tourism and RNR sectors.

5.2.4: Targets for the Employment Sector

The targets set for the employment sector are:

  • 60% of school leavers have access to Vocational Education and Training;

  • 80% of all village level skills demand in various trades including construction trades is addressed;

  • 80% of employers find that trainees can perform their jobs they are trained in;

  • 100% of courses conducted in VTIs and 40% of courses conducted in IZCs are in line with the Occupational Standards;

  • 12,500 job seekers kept engaged in some training activities;

  • 400 job seeker have established their own businesses;

  • Labour and Employment Act enforced in all private and corporate sector agencies;

  • Number of foreign workers maintained within the Govt. ceiling;

  • Competence of skilled workers in priority trades/occupations tested and certified based on standards;

  • Occupational standards are developed for all priority occupations and sectors.


In many ways, Bhutan’s gender situation is regarded to be favorable and positive. No overt gender discrimination exists in the country and in general, Bhutanese women enjoy a high status in society and have full and complete equality under the law. Instances of female infanticide or under-nutrition, dowry deaths, and other discriminatory social malpractices are virtually unknown and unheard of in Bhutan. Traditional gender relations too were essentially reciprocal and non-discriminatory in nature and broadly explain the Royal Government’s gender neutral development policies.

Nevertheless, the theme of women in development has always featured as an integral part of the country’s five year plans and the Royal Government has conscientiously worked to ensure that equal opportunities are provided for men and women alike to participate and share in the benefits of development. Reflecting the high priority it places on maintaining gender balance and equality, the country subscribes to and is party to various international social conventions that reaffirm the fundamental principles of gender equality. Bhutan has also ratified the Convention on the Elimination of Discrimination Against Women (CEDAW) and has unconditionally accepted all of the provisions contained in it.

However, an analysis of the current situation and data reveals that women are at a disadvantage in some areas and that gender gaps exist. As such, there remains a need to strengthen and develop appropriate policies and strategies that take into consideration the different needs, roles and capabilities of women on the basis of the principles of gender mainstreaming. It is for this reason that under the Tenth Plan, each sector is required to effectively mainstream gender issues into their policies and programs. Sectors are also required to maintain gender disaggregated data to help identify and monitor potential gender gaps. Mainstreaming gender meaningfully across all development issues within the Tenth Plan will be extremely important if the country is to fully realize the goal of a truly egalitarian and equitable society portrayed in Bhutan’s Vision 2020.

5.3.1: Policy and Strategies for Women in Development

The Royal Government is committed to achieving all of the gender equity goals in the various global compacts that it is party to, including the MDGs and SDGs, and implementing the full provisions of CEDAW. To facilitate achievement of these national and international gender goals and targets, a National Plan of Action (NPA) on Gender has been formulated. The NPA on gender identifies seven priority areas wherein interventions would be required and are detailed in the following section.

Good Governance

Since the issuance of the Royal Decree in 1998 that underlined the importance of women’s representation in the National Assembly, importance has been given to increasing women’s participation in governance. However, there has been a steady decline in the representation of women in the National Assembly, from 11% in 2001 to 3% in 2006. In the judiciary, women account for 2% of the Drangpons, 6% of the Drangpon Rabjams and 40% at the lower registrar level while in the executive branch women account for 28% in 2006. At the local government level, only 4% of the gups, chimis, mangmis and tshogpas are women.

The low literacy of women, physically demanding workload attached to local public offices, predominant engagement in family responsibilities, poor access to information and mobility are the main reasons for low participation of women in governance. With the adoption of the Constitution in 2008 and increased autonomy at the local government level, efforts in the Tenth Plan will be directed towards increasing women’s participation in local governance through capacity building and raising awareness.

Education and Training

Bhutan has made good progress towards ensuring gender equity in education and the boy to girl ratio at both primary and secondary education is 1.07. The MDG target to achieve gender parity at these levels is therefore likely to be achieved before 2015. However, attaining gender parity at the tertiary level poses a serious challenge as the male-female ratio in the secondary and tertiary levels rises to 1.51 and 1.79 respectively. In 2005, females accounted for 36% of the total enrolment in the vocational training institutes which represents a considerable improvement from the past. In the Tenth Plan concerted efforts will be made to increase female enrolment at the tertiary levels.

Economic Development with Focus on Employment

The majority of women in Bhutan are employed in the agriculture sector and most of the unpaid family workers too are women. Women are more vulnerable compared to their urban counterparts as they comprise a portion of the rural population living under the poverty line. In the Tenth Plan, focus on poverty reduction and strategies for rural development is expected to improve the quality of life in the rural areas. Some of the issues related to improving women’s conditions include improving access to information, markets and services, off-farm employment opportunities, access to micro-credit and the provision of skills.

According to the Gender Diagnostic Study, 2004, a large number of women are involved in working on road infrastructure projects and at times comprise around half of the work force. These women are among the most vulnerable groups with limited access to alternative employment and social services. The National Labor Force Survey 2006 also reflects that unemployment rates for females are higher than for males at 3.8% and 2.6% respectively. The key challenges for gender mainstreaming in the employment sector include promoting greater access for females to economic opportunities and dignified employment.


Women’s health, particularly reproductive health has always been given special attention in policies and programs and its advocacy has always been actively promoted. Maternal health has improved as evidenced from the declines in the MMR over the decade. While antenatal care (ANC) attendance to at least one ANC clinic has reached universal levels, less than half of all pregnant women still deliver at home. Efforts will need to be strengthened such as making delivery services more women friendly in order to achieve the desired 100% institutional delivery maternal health target. Another key maternal health issue is early pregnancy as in spite of the awareness programs on adolescent reproductive health issues, 11% of all births are among 15 to 19 year olds or teenage mothers. Anaemia prevalence rates too are high and remain a critical maternal health issue.

According to available health data for 2007, women comprised 55% of the total number of people living with HIV/AIDS with infection incidence highest among house-wives. The reasons for women’s vulnerability to HIV/AIDS are generally attributed to the lack of awareness on protection from the disease. As such, mainstreaming gender into health sector policies and programs will be given importance over the Tenth Plan.

Violence Against Women

Although no systematic information is available regarding the prevalence rate of domestic violence in Bhutan, police reports and data from the hospitals reveal growing instances of domestic violence where women are usually the victims. Although laws that protect women against violence exist, many cases go unreported due to fear of social stigma, emotional and financial insecurity and the lack of support mechanisms. There is also a lack of data on the extent and prevalence of trafficking and prostitution but is something that is widely known to be prevalent and growing. The challenges will include dealing with these issues and collecting reliable information about the extent of violence against women and trafficking and prostitution.

Prejudices and Stereotypes

The Gender Pilot Study 2001 reflected that the socio-cultural perceptions of both men and women that perceive women as less capable and confident than men. Bhutan’s initial to the sixth CEDAW Report mentioned that the biggest challenge nationwide was to uproot the more subdued and indirect forms of gender bias. Bhutanese society like any other society clearly assigns gender roles and responsibilities which in effect has influenced women’s own perceptions and participation in public life. The status of women is influenced by many factors, including socio-cultural perceptions, which has influenced access to higher education and employment. The key challenges and strategies will thus be to eradicate any prevailing social prejudices and stereotypes through awareness and sensitization.

Ageing, Mental Health and Disabilities

Bhutan has an elderly population of 7% out of which 51.6% are males and 48.4% are females, with the old-age dependency ratio estimated at 7.5%. The National Pension and Provident Fund remains one of the few initiatives to provide some support mechanism after retirement. However, since the civil service is predominantly male-dominated, a large proportion of the women are without any form of security and are fully dependent on their spouses, children or relatives. This potentially makes them more vulnerable to poverty and other insecurities. While Bhutanese society is still highly supportive and caring of the elderly and the infirm, emerging trends of nuclear families and rural-urban migration has weakened the traditional source of support to the elderly. As such, securing the health, psychological and economic well-being of the elderly, particularly women, poses a new challenge.

In the area of mental health, gender disaggregated data from Jigme Dorji Wangchuck National Referral Hospital reveal that depression and anxiety disorders are most common among female patients. Disabled persons comprise 3.1% of the country’s total population, out of which 54% are male and 46% female. The Royal Government has mainstreamed disabled children with the establishment of the Special Education Program, National Institute for the Disabled (NID), Draktsho Vocational and Training Centre for the Disabled (DVTCD). The proportion of girls though enrolled at NID and DVTCD are much lower at 30% and 26% respectively. Certain studies also reveal that females with disabilities are also more vulnerable to physical abuse and have fewer opportunities for economic security. The challenges will thus be to strengthen strategies to prevent, treat and rehabilitate mental patients and ensure the complete absence of discrimination against disabled persons and provide full support for their effective integration into the workplace.

5.3.2: Strategic Measures to Promote Gender Mainstreaming

The two key cross-cutting policy measures that would be addressed under all the interventions for gender equality are strengthening gender awareness and sensitization at all levels and improving information through collection, analysis and dissemination of gender-disaggregated data.

In the area of governance the Royal Government will adopt strategies to integrate a gender perspective into policies and legislations; assess and address the causes for low participation of women; and increase women’s representation at all levels especially in local government. In order to bring about gender parity in education and training, strategies would be adopted to ease the transition of females from the secondary to tertiary levels after studying the causes of low performance by females at the tertiary level and greater female enrolment in technical, professional and vocational institutions will be promoted. Similarly, under the areas of economic development and employment, the government will promote female participation in training programs; help girls transition from school to work; promote cottage and small rural-based enterprises with increased access to micro-credit; and address socio-cultural perceptions and stereotypes.

In the area of women’s health, priority will be given to HIV/AIDS and STD control programs; reducing maternal mortality rates; reducing prevalence of anaemia and cervical cancer; addressing teenage pregnancy issues; reducing IMR and U5MR; increasing access to information on sexual and reproductive health issues; improving quality of water and sanitation; and reducing indoor air pollution and the prevalence of Acute Respiratory Infection (ARI). The Tenth Plan strategies to combat violence against women will include: strengthening the existing legal framework related to domestic violence and sexual harassment; promoting women and child-friendly police and court services; taking appropriate measures to prevent violence against women and care for victims; and raising awareness through community-based awareness programs, help-lines and mass-media campaigns.


Information and Communication Technology (ICT) is identified globally as an enabler of economic growth and a means of poverty alleviation. Addressing the needs of the poor, and fostering pro-poor innovation and growth through the effective and innovative use of ICT, is a priority of the Royal Government. Making ICT more relevant to broader policy and development challenges will lie in strategically addressing ICT as a tool of pro-poor change and instrument for achieving development objectives.

ICT is also a modern tool and its effective usage a defining characteristic of knowledge based societies. Its’ utility in furthering innovation, creativity and enterprise productivity in and across all sectors could be invaluable and an instrument through which Bhutan could leverage its economic growth and development.

In view of the above and the wider recognition of harnessing ICT as a tool of poverty reduction and sustainable economic development, the Tenth Plan emphasizes mainstreaming ICT into sectoral development programs, including in the Dzongkhag and Gewog plans. There is an inadequate understanding of the conditions for success of ICT innovations and the ways in which they might or might not be replicable in other circumstances. Hence, there is an urgent need for better analytical frameworks to understand the role of ICT as tools of poverty reduction and sustainable development and the need for mainstreaming ICT by all agencies in all sectors.

5.4.1: ICT Challenges

Mainstreaming ICT into the sectoral programs and national strategies faces several challenges. This is partly due to the fact that ICT strategies are often disconnected or considered a distraction from the core development strategies and programs. Furthermore, in addition to the need for adequate capacity to implement and adapt to changing requirements, resource constraints are a significant challenge. Finding the proper balance between public and private investments to support the scaling up of ICT access and applications, and creating a favorable environment for private sector investment and innovation is critical. This is particularly relevant since ICT is an area that is particularly prone to ill-considered public investments and spurred by faulty models of how ICT inputs can directly promote desired development goals. Nonetheless, establishing ICT systems and promoting their effectiveness will be of enormous benefit and advantage for overall development.

5.4.2: ICT Policy and Strategies

The Royal Government recognizes the need to harness ICT for poverty reduction and sustainable development. ICT can help achieve the poverty reduction target set for the Tenth Plan through its capacity to create and transfer knowledge, improve the efficiency and transparency of institutions and markets, and facilitate the participation and empowerment of the poor. The dissemination of ICT is crucial to information access and spread and to avoid a possible digital divide that could exacerbate the rural-urban disparity. The Tenth Plan thus attaches high importance to mainstreaming ICT in its development programs and recognizes ICT as an essential tool to help reduce poverty in the Tenth Plan.

The Bhutan ICT Policy and Strategies (BIPS), provides a clear direction for the sectors to harness the potential of ICT. Different sectors, both at the central and local levels, have been guided to formulate ICT driven programs and projects through the ICT technical guidelines. The Department of Information Technology in this regard will be the key agency to spearhead the development of the ICT sector. The ICT sector will be developed by improving its infrastructure and upgrading and expanding the existing nationwide ICT backbone network. The development of e-services will be carried out to add efficiency to the flow of information between the governmental agencies and also to speed up the service delivery to the public. Community Information Centers (CICs) and regional ICT centers will also be established to take the ICT services to the grassroots and community levels.

A critical aspect of the ICT policy is the importance given to develop and encourage private sector to explore and invest in the ICT sector to generate employment. Measures will be taken to build the capacity related to ICT on priority basis. Establishment of Contact/Call Centers, Cyber Park and ICT Center of Excellence will be promoted through public-private partnerships to improve the current situation of slow growth in ICT industry. The following comprise the strategic policy aspects for ICT development:

  • Develop ICT infrastructure capable of delivering e-services to all Gewogs;

  • Provide community level access to basic ICT services; and

  • Promote ICT industry growth.

  • Expand and upgrade existing nationwide ICT backbone network as part of the strategic infrastructure program and deploy a reliable and affordable ICT infrastructure achieve universal access and global connectivity;

  • Provide last mile access network through establishment of community information centers and regional ICT centers;

  • Build human capacity for ICT skills at all levels in the effective use of ICT from professional and technical for industry and government to basic ICT literacy;

  • Strengthen the telecommunications legislative and regulatory environment and build effective institutional capacity to implement it, particularly the capacity of BICMA;

  • Establish contact/call centers, Cyber Park and ICT center of excellence through public-private partnerships;

  • Implement e-governance; and

  • Develop and implement a National ICT Strategy and Action Plan.


Environmental conservation constitutes an important part of national spatial planning strategic framework and has always enjoyed a high priority in the country’s development agenda. Conservation of the environment has been robustly pursued even as Bhutan, a least developed country, is compelled to make enormous short term sacrifices to serve the long term interests of not just the country alone but the region and world at large. It is this unwavering commitment that has brought widespread global recognition for Bhutan’s efforts to protect its environment and natural resources.

The strong emphasis on protecting and conserving the environment will not diminish in any way over the Tenth Plan. Indeed, the environment sector will require more attention than before in view of the accelerated pace of economic and development activities accompanied by increased expansion of infrastructure development, urbanization, industrialization, population expansion and consumption patterns that are likely to put an even greater burden and stress on the natural environment.

Additionally, environmental conservation imperatives will be increasingly challenged by the need to balance it judiciously against the urgency of sustaining and improving rural livelihoods and ameliorating poverty. Close attention will be required to ensure that the costs of environmental conservation do not fall disproportionately on the poor through crop loss or limited access to forest resources or cultivable land. Some of these important environmental opportunities and challenges that the country must address over the Tenth Plan are highlighted in the section below.

5.5.1: Opportunities and Challenges

There are significant factors that make environmental conservation more and more challenging each year given the rapid pace of development and modernization in the country that places increasing pressures on natural resources and compromises their sustainable utilization. On the other hand, the opening of global and regional markets to local high-value herbal, horticultural and niche products and the harnessing of hydro-power potential provide special opportunities for the country to enhance living conditions and eradicate rural poverty. The natural environment thus presents significant opportunities that the country could capitalize on in a sustainable manner and concurrently also poses significant environmental conservation and management challenges that need to be addressed.

Enhancing rural accessibility primarily through road access is an important consideration that cannot be denied. However, in a mountainous country like Bhutan, road construction activities do have serious environmental consequences that scar and degrade the environment irreparably. A major challenge will be to effectively implement environment friendly road construction (EFRC) methods. While this will certainly add extra costs to the already high investments required to implement these EFRC requirements, they will ultimately prove to be much more cost-effective in the long run. Some of the other rural environment concerns pertain to over grazing by livestock, inefficient use of forest resources, high levels of fuel wood consumption and the loss of prime agricultural lands to urbanization and development. Another major concern is the country’s high vulnerability to climate change brought about by global warming such as proneness to flash floods, glacial lake outbursts and landslides due to excessive rain.

While the air and water quality in the country are still relatively good there are emerging problems of air pollution in and around industrial sites and deteriorating water quality near urban centers. Tackling these issues at such an incipient stage will be essential to prevent them from becoming major public health problems in the future. Similarly, the effective management of solid waste disposal in urban areas is proving to be a major challenge due to the acute shortage of landfill sites.

In addition to the above constraints, Bhutan is faced with limited human capacity and expertise to manage and implement environmental conservation activities. Environmental awareness, education and sound practices within Bhutanese society are also nowhere near desired levels and will require to be promoted further. Meeting all of the above challenges and addressing these important environmental concerns is likely to be notably constrained by the future availability of resources.

The rich environment naturally confers significant opportunities and in Bhutan’s context it is linked to the rich water resources available in the country. The vast hydro-power resources are Bhutan’s natural comparative advantage, the sustainable exploitation of which depends on the health and quality of the country’s watersheds. The management and protection of the critical watersheds thus provides not just an environmental benefit but immense economic rewards and hence is accorded a high development priority. Additionally, as a net sequester of greenhouse gases and user of clean energy, Bhutan could benefit from the new international regimes permitting emission trading under the Kyoto protocol.

5.5.2: Environment Policies and Strategies

The objectives of the environment sector for the Tenth Plan are to:

  • Ensure sustainable development in conservation of environment;

  • Disseminate environmental information and raise awareness among the general public;

  • Move towards a cleaner environment;

  • Mainstream environment issues into development policies, plans and programs;

  • Develop appropriate environmental legislation;

  • Develop environmental standards; Fulfilling country’s obligations of Multilateral Environment Agreements;

  • Enforcement of Environmental laws/Acts; and

  • Coordination for water resources management.

The above objectives for the environment sector will be addressed through the following strategies and initiatives:

  • Development of appropriate policy and legal frameworks;

  • Compliance monitoring;

  • Provision of environmental services;

  • Decentralizing environmental governance and networking;

  • Strengthening environmental information management system to support and improve decision making (SOE, EIMS, etc);

  • Public education and awareness on environmental issues;

  • Utilizing environmental assessments as a tool for sustainable development;

  • Building and strengthening institutional capacity;

  • Mainstreaming environmental issues in sectoral plans, projects and programs of all government agencies; and

  • Development of appropriate legal and policy framework for water resources management.


5.6.1: Introduction

The Royal Government is fully cognizant and appreciative of the grave threat that HIV/AIDS poses and views it not merely as a health issue but a critical development concern that could severely affect growth and productivity. The potentially devastating economic and social consequences of a full-scale HIV/AIDS epidemic could seriously undermine development in the country due to its widespread and multidimensional impact and the critical challenges that it poses for treatment and prevention.

The Royal Government has therefore taken the HIV/AIDS threat extremely seriously. A National AIDS control program was initiated long before HIV/AIDS manifested and much of these earlier initiatives were largely directed at prevention and awareness building. The program had in place strategies with effective clinical screening of blood from sentinel sites and anti-natal clinics. A very strong advocacy program through IEC had also been initiated to promote greater awareness among communities of HIV/AIDS with condom usage being advocated and distributed freely.

Since the discovery of two individual HIV/AIDS infection cases in 1993, the number of infected individuals has grown to 144 as of April 2008 with the main mode of transmission being through heterosexual sex (94%). Mother-to-child transmissions have also increased and in 2006, the first case of HIV infection acquired through intravenous drug use was detected. Of all the total reported number of cases, twenty four have died so far. Around 88% of all the HIV/AIDS cases detected so far belong to the age group between 20-49 of which around half are youths between the ages of 15 and 24. A large number of these cases are also from low income groups. As such, if the HIV/AIDS situation were to deteriorate significantly, this could particularly impact and undermine youth development and poverty reduction efforts in the country.

In recognition of the grave threats that HIV/AIDS posed for Bhutan, His Majesty the Fourth King issued a royal edict on the critical implications for development in the country and the great need to be compassionate to people living with AIDS. Her Majesty the Queen, Ashi Sangay Choden Wangchuck, has also in her role as the UNFPA Goodwill Ambassador, campaigned tirelessly across the nation on the control of HIV/AIDS. At present, the erstwhile National AIDS Committee has been reconstituted as the National HIV/AIDS Commission (NHAC) and the Commission is leading the fight to combat the spread of the disease in the country. Multi-Sectoral Task Forces comprising all relevant stakeholders now exist in each of the Dzongkhags and are actively engaged in taking preventive measures, creating awareness and preparing for possible outbreaks of the disease. This mechanism constitutes a decentralised approach to the HIV/AIDS challenge and allows for an effective targeting of activities specific to the needs and situation of the locality. 15 sentinel sites have also been established around the country with the necessary protocols in place. Additionally, HIV awareness is being actively promoted in schools, teacher training institutes and among vulnerable and at-risk groups.

The Royal Government will also adopt and implement a National HIV/AIDS Policy which will support additional measures to prevent mother to child transmission, provide anti-retroviral treatment and standardized care and support for people living with HIV/AIDS, besides the general efforts at prevention. Prevention will however continue to be the main strategic approach in combating HIV/AIDS over the Tenth Plan.

5.6.2: Challenges

The HIV/AIDS prevalence is low at present and while it is quite far from being established among the general population, infection has been growing rapidly in recent years. Case detections in 2006 and 2007 reflect an alarming trend. This rising trend in infection remains a cause of serious concern, particularly in the context of several risk factors that the country faces. These risk factors pertain to Bhutan’s proximity to countries with much higher prevalence of HIV/AIDS in conjunction with the high degree of mobility across the borders, commercial sex becoming more common, high occurrence of sexually transmitted diseases, rising levels of substance abuse, low levels of condom usage and the youthful demographic profile of the population.

In addition to these risk factors, the country also faces several issues and challenges in combating the spread of HIV/AIDS. The health authorities and in particular the NHAC are facing a serious and severe shortage of people trained for HIV/AIDS programs of prevention, rehabilitation and care. The stigma and discrimination attached to HIV/AIDS afflicted individuals is also known to be quite widespread in Bhutanese society and will need to be transformed quickly and require a major sensitization of the public at large and necessary policy changes. The rising levels of HIV/TB co-infection is another critical challenge that the country must deal with. Other constraints in dealing effectively with the HIV/AIDS situation relate to the increased possibilities of mother to child transmission once the epidemic matures, funding the costs of providing comprehensive treatment and care in the context of resource scarcity and competing demands and gaps in the surveillance data and weaknesses in the risk and vulnerability analysis.

5.6.3: Policy and Strategies

The main strategy to tackle the HIV/AIDS threat will be to focus on promoting condom use, increasing IEC, strengthening counseling, provision of treatment to those already infected, institutional strengthening, especially in terms of human resources to effectively deal with the prevention and treatment of the disease, and carrying out targeted interventions for population groups that are at risk. Some of the strategic activities will also include incorporating religious institutions and figures for more effective HIV/AIDS advocacy and prevention including utilizing trained monks as counselors to further decrease the stigma faced by people living with HIV/AIDS.



For an agrarian country like Bhutan, the RNR sector plays a vital role in the growth, balance and stability of the country’s economy as reflected in its share of GDP and employment activity. At present, the RNR sector accounts for about one fifth of the GDP and employs a little less than half of the labor force. The RNR sector also has strong links to the rest of the economy and engenders a multiplier effect on other areas too. The exports of primary products from the RNR sector further account for around one tenth of total exports and contribute in a significant manner towards enhancing rural household food security, consumption and income.

While the contribution of the RNR sector to GDP has been declining and is likely to decline even further in the future, it will still continue to be an important sector, particularly in the context of improving people’s livelihoods and reducing poverty levels. Additionally, the RNR sector has a critical role to play in the management and conservation of the natural environment and in maintaining the ecosystem services to provide quality water for hydro-power generation.

Much more than any other sector, the RNR sector has the deepest linkage to the Tenth Plan’s theme and objective of poverty reduction and the best prospects to address it. Growth in agriculture, as borne out by the experience of numerous Asian and other developing countries, has consistently had a greater effect on reducing poverty than growth in any other sector. Moreover, the single most important factor explaining these poverty reduction achievements in these countries was notably attributed to transforming subsistence agriculture to commercial level agriculture and achieving agricultural productivity gains rather than just increases in agricultural production.

These partly help explain the continued existence of significant levels of poverty in Bhutan’s context, wherein weak growth in the agriculture sector and subsistence farming characterized by low agricultural productivity has severely dampened poverty reduction prospects despite the strong overall economic growth sustained over the last two decades. As such, a critical strategic approach for poverty reduction and integrated rural development through the RNR sector will be to transform subsistence agriculture through enhancing agricultural and livestock productivity gains; expanding commercial possibilities of various natural resource based non-farm enterprises including NWFPs; and developing closer market linkages between rural supply chains and urban and export markets.

Clearly, the holistic development of the RNR sector stands out as an extremely high priority thrust area for the Tenth Plan in view of its special relevance to the rural and environment sectors and the associated implications for attaining the Tenth Plan primary objective of poverty reduction. The continued holistic development of the RNR sector and the success in realizing the planned sectoral goals and targets will depend a great deal on how effectively some of the pressing constraints and challenges are tackled over the Tenth Plan. Some of the relatively more urgent and pressing issues are identified in the following section.


A critical aspect that challenges the country’s ability to maintain national food security through agriculture production relates to the steady decline in the farming community population due to outbound migration and changes in occupation that has caused acute farm labor shortages. This is further compounded by the diminishing economic viability of food grain cultivation that has resulted from small and fragmented land holdings which in turn resulted in less acreage being cultivated each year, loss of arable land to urbanization, changing land use scenarios and the chronic loss of crops and livestock to wildlife predation and devastation by natural calamities. As a result, there has been a continued decline in cereal cultivation and production and a corresponding drop in the self-sufficiency levels for cereals.

The Royal Government’s national food security policy includes the pragmatic perspective of maintaining broad national self sufficiency through sustaining the cost of food imports (excluding processed food items) from the sale and exports of cash crops and ensuring that the latter is adequate to cover food import costs. The policy also includes ensuring that households have assured access to food at all times for healthy living. Since the country has reliable access to cheap food import for food security, mainly from India and in view of the rapidly growing local and external markets, the strategic focus necessitates a greater degree of commercialization of agriculture and specialization in horticulture export, NWFPs and niche organic products. However, in view of the global trends and market failures such as the one triggered by crop failures in major world food producers and increasing fuel prices in 2007-08, the need to maintain certain level of food self sufficiency has become inevitable. Therefore, import substitution in major crops such as rice and other basic commodities will be pursued through increased production levels. Efforts to enhance household food security will also be done through the market rather than a complete dependence on self-reliance.

A greater level of commercialization of agriculture and the further promotion of horticulture export, NWFPs and niche organic products represent significant opportunities to stimulate growth of the RNR sector and raise income and employment levels among the rural population while also maintaining national food security concerns. This strategic approach of utilizing urban market and export demand as a key driver for the rural economy is also highlighted in the strategic framework aspect of integrated rural-urban development for poverty alleviation under Chapter 3.

Actualizing this presents a realistic prospect of reducing rural poverty in a significant and sustainable way and this will be effectively capitalized on. While over the Ninth Plan horticulture produce and sale of NWFPs did expand in volume, the potential of earning cash income for farmers from horticulture development, organic farming, harvesting NWFPs and use of community and private forestry as a platform for poverty alleviation and income generation was not fully realized. The main constraints are the restrictions of current land use policy due to environmental concerns, ambiguity and conflict over user rights and the primacy of regional equity that resulted in agriculture investment resources being spread too thinly. Experience over the Ninth Plan reflects that the objective of enhancing household food security, rural incomes and employment could be addressed more effectively through the implementation of concrete, impact-oriented and targeted programs. The lack of or limited value addition to primary products, small land holdings and difficulties relating to access and the cost of accessing micro-credit were other factors that restricted income growth from the RNR sector and will need to be addressed during the Tenth Plan.


The policy objectives of the RNR sector for the Tenth Plan are to:

  • Enhance sustainable rural livelihoods through improved agricultural and livestock productivity and expansion of commercial prospects of agriculture and other natural resource endowments;

  • Conserve and promote sustainable commercial utilization of forest and water resources;

  • Promote sustainable utilization of arable agriculture and pasture land resources;

  • Enhance Food Security through sustainable and enhanced food production and availability, improved access to food and enabling effective distribution, marketing and import of food.

  • Transform subsistence agriculture to small scale commercial agriculture without compromising food security.

The RNR sector’s broad strategy for fulfilling the above objectives will be guided by the Triple Gem concept which emphasizes the importance of Enhancing Production, Promoting Accessibility and Improving Marketing. Production is to be primarily enhanced through development and utilization of best practices and appropriate technology, expanding cultivable land and increasing its productivity. Where techno-economically feasible, consider specialization and monoculture to maximise gains from economies of scale rather than on mixed subsistence cropping with low productivity/volumes. Accessibility will be promoted through the extensive development of farm roads and power tiller tracks in rural areas thus ensuring better access to and from markets and economic and social services, including facilitating the delivery of essential inputs to farmers. Marketing will be improved and strengthened through implementing various mechanisms to promote the further commercialization of agriculture, enhancing links with domestic and external markets, boosting value addition, ensuring high quality standards, promoting exportable organic and high-value low-volume produce, etc. Some of these mechanisms will include the promotion of relevant cooperatives and/or market boards and establishment of marketing infrastructure.

The key sectoral policy objectives outlined are to be attained through the following strategic initiatives:

  • Increased agriculture, livestock and forestry productivity and production;

  • Adaptive and applied RNR research to generate technologies relevant to farming community and departmental programs;

  • Creation of an enabling policy and legal framework for participatory and sustained use and management of natural resources;

  • Improving planning and management of programs in line with the pillars of GNH, MDGs, SDGs;

  • Strengthening RNR information management and it application to planning, monitoring and evaluation of plans and programs.

  • Strengthening delivery of extension services by integrating with one stop farmer services;

  • Creating an enabling financial environment to provide increased access to and types of credit and savings schemes;

  • Enhancing farm mechanization to improve agricultural labor productivity and efficiency, value addition and specialization in addition to alleviating farm labor shortages and drudgery;

  • Strengthening agriculture marketing mechanisms to expand local markets for primary products and enhance exports of NWFPs and other low-volume and high value niche export products through a higher degree of specialization, standardization and certification;

  • Promoting farmers cooperatives and marketing boards to facilitate domestic and international market linkages and improving supply chains.

  • Developing adequate levels of rural and agricultural infrastructure;

  • Diversifying the economic base of the RNR sector through the promotion of high value niche or organic products and agro and eco-tourism initiatives;

  • Enhancing integrity of natural resources through improved and participatory management of protected areas, sustainable utilization of forests, land and water resources;

  • Promoting economic growth and alternative employment opportunities; and

  • Improving the monitoring and evaluation of RNR programs.


The major targets and milestones have been linked and aligned to the various themes ultimately contributing to the realization of GNH. The major targets and its linkages to GNH pillars for the RNR sector are reflected in the box below:

RNR Targets

GNH Pillar 1: Equitable & Sustainable Socio-Economic Development

Theme 1.1: Food security

  • Self sufficiency in rice increased from 50% to 65%, from the present level of 54,325 MT per year to 62,474 MT per year

  • Cereal production including paddy increased from 140,000 to 150,000 MT per year

  • Portion of wetland with dry season irrigation increased from 40% to 70%

  • Prime agriculture land identified and maintained purely for agriculture production

  • Loss of/from crop damage by wildlife reduced from 40% to 20%

  • At least 30-40% of farmers practice sustainable land management

  • Livestock productivity enhanced from 1.9 kg milk/day/animal (2007 level) to 2.185kg milk/day/animal

  • Increased dairy production from 7179 MT (2007 level) to 7897 MT

  • Increased meat (poultry, pork, beef and fish) production from 2001 MT (2007 level) to 2202 MT

  • Quality and quantity of seeds and planting materials supply increased from 2% to 50% of requirement

  • Availability and access of food crops increased from 100 mt to 600 mt

Theme 1.2: Income Generation

  • Horticulture export increased from Nu. 476 million to Nu. 900 million per annum

  • Farmers engaged in horticulture export cropping increased from 10% to 25%

  • Value of Non Wood Forest Products (NWFP) including Medicinal and Aromatic Plants (MAP) increased from Nu. 60 Million to Nu. 100 Million per annum.

  • Revenue from sale of timber earnings increased from Nu. 540 million to Nu. 600 million per annum

  • Livestock production increased from Nu. 550 million to Nu. 600 million per year

  • Experiment and promote theme based agro-eco tourism in one national park

  • Rural households adopting organic farming principles increased from 1.5% to 10% and area under certified organic agriculture doubled from 150 to 300 acres

  • Income generated from natural resources through forest managed as community & private forestry increased from Nu. 1.066 million to Nu. 37 million including NWFP

  • Availability and access of fruit crops seedlings increased from 200,00 nos to 500,000 nos of seedlings

Theme 1.3: Employment Generation

  • Number of RNR farm enterprises increased from 12 to 20 through vocational training at RDTC.

  • Proportion of households involved in community and private forestry increased from 4% to 7%

  • Enhanced human resource capacity in the conservation and sustainable management of forest and environmental resources through establishment and effective operationalization of Ugyen Wangchu