13th Five Year Plan (2024-2029) Royal Government of Bhutan PDF

THIRTEENTH FIVE YEAR PLAN 2024-2029 Royal Government of Bhutan Thirteenth Five Year Plan © Office of the Cabinet Affairs and Strategic Coodination (2024) Published by: Cabinet Secretariat Royal Government of Bhutan Thimphu “During my reign as King, and for our generation, this is one of the most significant undertakings. It is an inflection point, a moment in history that is very important for us. This is a mandate and opportunity for us all – the King, the government, and the people to join hands and work tirelessly to pave the road to the future.” His Majesty The King 116 National Day Address, Changlimithang th 17th of December 2023 Contents Executive summary 3 Chapter 1 – Introduction 1.1 Background 17 1.2 Country Profile 18 1.3 Guiding Principles of Development 19 1.4 Bhutan’s Development Story 20 1.5 Way Forward and Long-Term Goal 25 Chapter 2 – 13th Five Year Plan Strategic Framework 2.1 Strategic Objectives 33 2.2 Outcomes and Outputs 34 2.3 13th FYP Framework 36 Chapter 3 – Deliverables, Strategies and Programmes 3.1 Economic Development 39 3.1.1 Enhanced productivity and diversified products and markets driving sustainable growth 40 3.1.1.1 Key challenges and issues 40 3.1.1.2 Key deliverables 43 3.1.2 Strategies and Programmes 46 3.1.2.1 Economic Transformation Programme 47 3.1.2.2 Twenty-first Century Skilling Programme 55 3.1.2.3 Ecological Diversity and Resilience Programme 57 3.2 Social Development 60 3.2.1 Improved Health and Well-being 63 3.2.1.1 Key challenges and issues 63 3.2.1.2 Key deliverables 64 3.2.2 Quality and Wholesome Education and Lifelong Learning 65 3.2.2.1 Key challenges and issues 65 3.2.2.2 Key deliverables 67 3.2.3 An Inclusive and Comprehensive Social Protection System 70 3.2.3.1 Key challenges and issues 70 3.2.3.2 Key deliverables 72 3.2.4 Strategies and Programmes 73 3.2.4.1 Healthy Drukyul Programme 73 3.2.4.2 Education Transformation Programme 75 3.2.4.3 Sociocultural Resilience and Community Vitality Programme 78 3.3 Strengthening Security 79 3.3.1 Improved Safety and Security of the Country 80 3.3.1.1 Key challenges and issues 80 3.3.1.2 Security cluster deliverables for risk management and safety 82 3.3.2 Strengthened Community Vitality and International Engagement 84 3.3.2.1 Key challenges and issues 84 3.3.2.2 Key deliverables 85 3.3.3 Strategies and Programmes 86 3.3.3.1 Sociocultural Resilience and Community Vitality Programme 87 3.3.3.2 Digital Transformation Programme 90 3.4 A Transformed and Trusted Governance 90 3.4.1 A dynamic and results-oriented public sector demonstrating effectiveness, accountability and robust management of the economy 92 3.4.1.1 Key challenges and issues 92 3.4.1.2 Key deliverables 97 3.4.2 Inclusive and effective access to justice with transparent rule of law and public oversight 98 3.4.2.1 Key challenges and issues 99 3.4.2.2 Key deliverables 100 3.4.3 Strategies and Programmes 102 3.4.3.1 Transformational Governance Programme 102 3.4.3.2 Digital Transformation Programme 107 3.4.4 Local Government Plan 110 3.4.4.1 Key deliverables of the LGs 110 3.4.4.2 Resource Allocation Framework 111 Chapter 4 – Fiscal Outlook and Resource Allocation 4.1 Fiscal Targets and Resource Projections 115 4.2 Expenditure and Financing 116 Chapter 5 – Implementation of the 13th FYP 5.1 Performance Management and Accountability 118 5.2 Salient Features of the 13th FYP 119 Chapter 6 – Monitoring and Evaluation 6.1 Monitoring 122 6.2 Evaluation 123 Annexures Annexure 1: Agency wise indicative outlay 127 Annexure 2: Annual Grant Allocation for Local Governments 129 Annexure 3: Bhutan’s Key International Commitments 134 Executive Summary 13th Five Year Plan Background and Introduction Country profile: Bhutan is a small landlocked country in the Eastern Himalayas, with a projected population of 777,224 in 2024. Governed as a Democratic Constitutional Monarchy, its Parliament comprises His Majesty the King, the National Council, and the National Assembly. The current Government is formed by the People’s Democratic Party while the Opposition is the Bhutan Tendrel Party. The economy is largely based on hydropower and agriculture, with a GDP of BTN 227.814 billion in 2022. Bhutan’s development journey: Guided by visionary monarchs and with the support of development partners, Bhutan has achieved remarkable progress since the inception of planned development in 1961. Its development philosophy of GNH, which advocates for a holistic and responsible approach to sustainable and inclusive development, has inspired global policy frameworks including the 2030 Agenda for sustainable development and its 17 goals. Growth averaged 10.9 percent since the 1980s, with the economy’s gradual transition from agrarian to hydro-based industries and service sectors. With access to free healthcare and education, life expectancy has increased to 72 years by 2020, youth literacy is currently at 97.7 percent, and poverty rates have declined sharply through the decades. Amid rapid progress leading to its graduation from LDC status in December 2023, Bhutan still maintains over 70 percent forest cover and is committed to remaining carbon neutral. Their Majesties the Kings have been the driving force in instituting democracy and fostering good governance, ensuring societal resilience and wellbeing as reflected in its peacefulness and steadily improving GNH Index. Bhutan’s swift and inclusive response during the COVID-19 pandemic, led by His Majesty the King, minimised health and social impacts through rigorous containment measures and comprehensive support systems. Bhutanese today are proud custodians of a unique spiritual and cultural heritage that underlies social cohesion and an engaged citizenry in the national agenda. However, Bhutan is currently confronted with one of the most critical challenges in its development journey, with a significant number of its prime-age workforce emigrating in search of better economic opportunities abroad. Despite broad- based success, the economy struggles to generate sufficient productive jobs, leading to high youth unemployment and limited financial security for many of its people. The COVID-19 pandemic exacerbated existing vulnerabilities, causing a historic growth contraction in 2020 and reversing poverty reduction gains. 3 13th Five Year Plan While the economy is on the path to recovery, it faces inflationary pressures and domestic risks due to strains in the financial sector. Bhutan’s journey with GNH has seen uneven progress, with economic development lagging behind advancements in social, cultural, environmental and governance dimensions. The 13th FYP offers a chance to re-balance GNH by placing a renewed emphasis on economic transformation through innovative strategies and robust partnerships aimed at generating enhanced opportunities for its people. To ensure enduring economic prosperity and inclusive growth, attention must be given to issues with cross-cutting implications, including social sector quality, climate resilience, and governance revitalisation. Way forward and long-term goal: Drawing inspiration from His Majesty the King’s guidance through the years, the 13th FYP represents a strategic shift in implementing GNH to meet the nation’s evolving needs in an increasingly globalised 21st century. With the long-term goal to become a High Income GNH Economy by 2034, the focus is on transforming the Bhutanese economy by emphasising the interconnected pillars of people, progress and prosperity, or the “3Ps”. As Bhutan embarks on this critical path towards societal advancement and economic resilience, it seeks to harness the collective efforts of its people and cultural values of courage and perseverance alongside partnerships with the international community. Overview of the 13th FYP: Bhutan’s development priorities have been implemented in five-year planning cycles since 1961. To ensure continuity of interventions that will support the nation’s long-term goal of becoming a High Income GNH Economy by 2034, the 13th FYP (July 2024 to June 2029) adopts a 10-year strategic framework. Further, in alignment with the public sector transformation initiative that commenced in 2022, it adopts a four-cluster approach as an effective means to implementing the Plan through enhanced coordination and collaboration. International commitments including the SDGs, human rights instruments and environmental agreements are also taken into consideration. The strategic objectives of the 13th FYP are, by 2029, Bhutan will: (1) Be a high- income country driven by innovation and sustainability (with a GDP of USD five billion); (2) Have a healthy and productive society founded on equitable and high- quality health, education and social protection; (3) Safeguard and strengthen its sovereignty, territorial integrity, security, unity, wellbeing, resilience and economic prosperity; and (4) Have a transformed and trusted governance ecosystem that drives accelerated economic growth and improves people’s lives. 4 13th Five Year Plan Eight national programmes will be implemented collaboratively by Central Agencies, Local Governments and partners to deliver eight outcomes and 40 outputs, towards achieving these objectives across the economic, social, security and governance clusters of the Plan. Agency-specific and local government plans are integrated into the framework to ensure coherence and mutual reinforcement of goals. The 13th Five Year Plan – Deliverables, Strategies and Programmes Economic Development Situational overview: Bhutan has experienced rapid economic growth, with GDP per capita reaching USD 3,833.03 in 2022. However, there has been limited job creation with structural changes in the economy driven largely by public sector investments in hydropower. Economic diversification efforts are hindered by geographic challenges, inadequate infrastructure, and institutional barriers. Along with the persisting challenge of high youth unemployment, Bhutan is facing an increasing out-migration of citizens at prime productive age seeking better economic opportunities. Growth is affected by low productivity across sectors, compounded by high administrative costs and policy hurdles, while market access is constrained by infrastructure limitations and internal and external barriers. The government through SOEs plays a significant role in the economy, but several face profitability and performance issues. Meanwhile, the private sector remains weak and has limited capacity for expansion and growth. Access to finance is limited, especially for small businesses, due to collateral-based lending and high borrowing costs, Bhutan’s capital market remains underdeveloped. Key deliverables: The 13th FYP aims to transform Bhutan into “a high-income country driven by innovation and sustainability”. This objective will be pursued through one overarching outcome which seeks to enhance Bhutan’s productivity and diversify its products and markets, to drive sustainable economic growth by 2029. Integrating inputs from the social, security and governance clusters, the four key deliverables or outputs of the economic cluster are: (1) An improved business ecosystem; (2) Quality infrastructure, connectivity and energy; (3) A skilled labour force; and (4) Increased sustainable contributions of strategic sectors to GDP. Strategies and Programmes: The economic development outcome will be driven by three national programmes. The Economic Transformation Programme aims to 5 13th Five Year Plan foster sustainable and inclusive growth through three key strategies. Private sector development and participation will be facilitated by creating a conducive environment for businesses to thrive and drive economic growth. This will include streamlining regulations, improving access to finance, promoting entrepreneurship, and enhancing efficiency across sectors. Investments will be made in strategic infrastructure such as roads, bridges, airports and railways to boost economic development and productivity through enhanced connectivity, reduced transportation costs, and by improving livability of urban settlements. Investments will also be made in traditional growth drivers and exploring new sources of growth across sectors like agriculture, tourism, hydropower, renewable energy, manufacturing, and digital economy. These initiatives aim to diversify the economy, create jobs, and promote sustainable development while leveraging Bhutan’s cultural and environmental assets. The Twenty-first Century Skilling Programme aims to equip the Bhutanese population with the necessary education and skills for the modern economy through initiatives in TVET, tertiary education, skilling, upskilling and reskilling programmes. By enhancing workforce skills and education, Bhutan aims to achieve sustained economic prosperity and competitiveness. The Ecological Diversity and Resilience Programme underscores Bhutan’s commitment to climate-resilient development and sustainability. By focusing on sectors like hydropower, tourism, agriculture, forestry, and water management, Bhutan aims to decouple GDP growth from greenhouse gas emissions, promote eco-friendly practices, and enhance resilience to climate change impacts through community involvement and private sector partnerships. Social Development Situational overview: Bhutan has made significant progress in human development as evidenced by improvements in its Human Development Index (HDI) from 0.581 in 2010 to 0.681 in 2022, and reduction in multidimensional poverty with Moderate MPI at 7.6 percent in 2022. However, challenges persist in ensuring the quality, inclusiveness, and sustainability of health and education services, as well as effective social protection systems for vulnerable groups. This, coupled with demographic shifts – including declining fertility rates, projected rise in the old-age dependency ratio and out-migration of younger people – present significant implications for Bhutan’s human capital and productive capacity. 6 13th Five Year Plan Evolving challenges in the health sector include a predominance of Non- Communicable Diseases (NCDs) alongside persistent communicable diseases and rising mental health issues, limited healthcare resources and a shortage of skilled personnel, increasing out-of-pocket spending and referrals abroad – all indicating gaps in service coverage and quality. Ensuring access to quality education is a challenge across all levels, with learning outcomes affected by variations in enrolment rates, lack of standardisation, issues of teacher/instructor adequacy and competency, difficulties aligning with international standards, limited provision for inclusive instruction, and weak governance and inadequate infrastructure. Social protection issues are compounded by housing shortage and high rental burden in urban areas, while vulnerable groups face challenges due to fragmented attention and capacity gaps of service providers, and many vulnerable individuals such as informal workers and PWDs are excluded from formal government social protection schemes. Key deliverables: The 13th FYP aims to foster “a healthy and productive society founded on equitable and high-quality health, education and social protection.” This objective will be pursued through three outcomes encompassing health, education and social protection – with an emphasis on systemic approaches and societal engagement for effective and quality delivery. Outcome-1 focuses on improving health and wellbeing for all Bhutanese by 2029. The seven key deliverables or outputs towards achieving this outcome are: (1) More Bhutanese practice healthy lifestyles; (2) Effective management of public health concerns with priority diseases eliminated or under control; (3) Improved access to quality health and health-related services and products; (4) Adequate and competent health workforce; (5) A sustainable health financing system and innovative governance; (6) Strengthened regulatory, monitoring and health security system; and (7) Information and technology harnessed to enhance health system efficiency. Outcome-2 focuses on improving access to quality and wholesome education and lifelong learning by 2029. The seven key deliverables or outputs towards achieving this outcome are: (1) Adequate, competent and motivated education professionals; (2) Safe, inclusive and quality education infrastructure and facilities; (3) A dynamic and adaptive curriculum and assessment system; (4) Improved health and wellbeing of learners and educators; (5) Innovative financing mechanisms for education; (6) Increased contribution to policy and innovation by higher education institutions; and (7) Lifelong learning and skills development opportunities. 7 13th Five Year Plan Outcome-3 focuses on establishing an operational shock-responsive, inclusive and comprehensive social protection system by 2029. The three key deliverables or outputs towards achieving this outcome are: (1) An enabling environment for comprehensive social protection; (2) Strengthened and expanded essential social protection programmes; and (3) Maintaining a sustainable population scenario. Strategies and Programmes: The social development outcomes will be driven by three national programmes. The Healthy Drukyul Programme aims to ensure the good health and well-being of the Bhutanese population through three key strategies to achieve universal health coverage, promote healthier lifestyles, and improve healthcare accessibility and quality. Need-based rationalisation of health facilities will be conducted to enhance accessibility and quality of healthcare while optimising resources. This includes constructing new hospitals and adjusting and consolidating existing facilities based on population needs ,and infrastructure improvements. Health governance and healthcare delivery services will be improved by enhancing the health workforce, ensuring access to medical supplies and equipment, and streamlining patient referral pathways. Innovative approaches and digital solutions will be leveraged to improve regulatory and monitoring systems. Investments will be made in cost-effective preventive and promotive healthcare with emphasis on proactive health risk identification, promoting healthy lifestyles, and combating NCDs through evidence-based interventions. Digital health capabilities will be enhanced to strengthen healthcare services and surveillance. The Education Transformation Programme aims to fundamentally improve Bhutan’s education system to enhance learning outcomes in school education through four key strategies. Access to early childhood care and development will be provided to all children aged 3-5; Curriculum and education programmes will be transformed by adopting curricula that align with global standards; focusing on STEM education; and fostering critical thinking. The education workforce will be transformed by prioritising teacher professional development, upgrading faculty qualifications, and recruiting international academics to improve teaching quality and methodology. Investments will be made on building fit-for-purpose infrastructure, which will include modernising school infrastructure, establishing early childhood development centres, consolidating existing schools into centres of excellence, and improving digital infrastructure for teaching and learning. Education governance will be enhanced by strengthening governance for tertiary and 8 13th Five Year Plan TVET institutions, and promoting functional autonomy for TVET. It will also include enhancing assessment and certification systems, and facilitating private sector participation for improved service quality and financial sustainability. Additionally, to create a holistic learning environment, interventions will include enhancing sanitation facilities, sports engagement, and nutritional programmes. Under the Sociocultural Resilience and Community Vitality Programme, a comprehensive social protection system will be established to foster a healthy and productive society by formulating policy frameworks and implementing interoperable welfare information management systems. Inclusive and sustainable social protection schemes will be introduced for the disadvantaged, provident fund and non-contributory benefits will be expanded, and disability inclusion will be advanced. Structural and legal reforms will be pursued to promote work-life balance including non-discriminatory workplace policies, flexible working arrangements, and addressing barriers to child adoption. These measures aim to enhance social security conditions, empower individuals and families, and contribute to a sustainable population development strategy by encouraging desired levels of childbearing. Security Situational overview: While Bhutan enjoys peace and political stability, safeguarding its sovereignty and territorial integrity are key priorities alongside other conventional and 21st century security concerns. Critical challenges include limited air, surface, and internet connectivity, and the vulnerability of key road networks, power grids and communication systems accompanied by a rise in cybersecurity threats. While a range of natural and man-made hazards pose significant risks to lives, livelihoods, and infrastructure, Bhutan’s disaster preparedness is hindered by a lack of critical infrastructure and capacities. This is exacerbated by low food sufficiency scores, crop losses to wildlife, reliance on imports for pharmaceuticals, and seasonal power shortages. Meanwhile, challenges to community vitality and cultural vibrancy include rising crime rates and drug-related offences, increasing divorce rates, and a decline in social support networks and cultural participation indices. Disconnection from cultural identity and values is an emerging concern as an increasing number of Bhutanese settle abroad. Key deliverables: The 13th FYP aims to safeguard and strengthen Bhutan’s “sovereignty, territorial integrity, security, unity, well-being, resilience and economic prosperity”. This 9 13th Five Year Plan objective will be pursued through two outcomes encompassing national security, community vitality, cultural vibrancy and identity, disaster preparedness and resilience, and international engagement. Outcome-1 focuses on mitigating and managing safety and security threats and disaster risks to the country, its economy, infrastructure, institutions and people. The five key deliverables or outputs towards achieving this outcome are: (1) Effective and efficient border management; (2) Maintaining law and order; (3) Securing critical infrastructure; (4) Disaster resilient institutions and communities; and (5) Ensuring supply of critical energy, essential food items, and medical food. Outcome-2 focuses on strengthening Bhutan’s identity, culture and values, and enhancing its position in the international community. The four key deliverables or outputs towards achieving this outcome are: (1) Bhutan’s global credibility is enhanced; (2) Bhutanese identity, values and culture ensure the well-being of Bhutanese everywhere; (3) An enabling environment for Bhutanese to pursue culture-based economic opportunities; and (4) Bhutan’s cultural heritage is managed and sustained and remains relevant to society. Strategies and Programmes: The 13th FYP adopts a risk-informed approach to the country’s socioeconomic development through two national programmes. The Sociocultural Resilience and Community Vitality Programme aims to strengthen Bhutan’s stability, progress, and wellbeing by promoting its unique identity and culture, ensuring the safety and wellbeing of its citizens both at home and abroad, and fostering international cooperation and engagement. Border management infrastructure and systems will be upgraded and enhanced to improve security and facilitate trade. Disaster and emergency response and preparedness plans will be instituted, including building capacities and establishing or securing critical infrastructure. Preventive and rehabilitative programmes will be instituted along with modernisation of law enforcement to reduce criminal activity. Bhutanese values and cultural heritage will be nurtured and promoted through preservation efforts and engagement of younger generations. Bhutanese abroad will be engaged in cultural events and economic activities initiated by embassies, missions and consulates as a means to enhance a sense of belonging and identity. Under the Digital Transformation Programme, Bhutan seeks to strengthen its resilience against cyber threats while creating a secure and trustworthy digital environment for its people and businesses. The country’s digital infrastructure 10 13th Five Year Plan and cybersecurity capabilities will be strengthened with the development of a comprehensive National Cybersecurity Strategy, and the establishment of legal and regulatory frameworks to safeguard critical information infrastructures. Governance Situational overview: Good governance is fundamental to Bhutan’s pursuit of sustainable development and its goal of becoming a high-income GNH economy. While progress has been made, institutional capacities for inclusive, dynamic and results-oriented governance need to be strengthened. Success depends on a collective sense of ownership and urgency among all stakeholders, and effective collaboration across sectors and levels of governance. Key issues hindering effective governance include policy accumulation and overlaps, gaps in the data ecosystem, low digital literacy and weak cyber security. Efficiency of public service delivery is affected by high attrition rate among civil servants, and macroeconomic instabilities including widening fiscal and current account deficits are key concerns. Cross-cutting issues such as gender inequality, climate change impacts, low disaster risk preparedness, and poverty and inequality underscore the need for systematic and sustained interventions. Meanwhile, public perception and confidence in state institutions is affected by a surge in corruption including financial irregularities, limited capacities for dealing with complex cases, ambiguity in legal codes leading to procedural irregularities, and unintegrated data systems leading to delayed justice sector services. Legal aid services remain to be fully implemented, and restorative justice measures particularly for children require strengthening. Oversight capacities of parliamentarians also require enhancement, along with improving outreach to citizens through meaningful engagement with civil society and the media. Key deliverables: The 13th FYP aims to achieve a “transformed and trusted governance ecosystem that drives accelerated economic growth and improves lives”. This objective will be pursued through two outcomes encompassing public sector transformation and enhanced ability of state institutions for efficient and effective governance. Outcome-1 focuses on transforming the public sector into a more dynamic results- oriented agent of transformation, demonstrating effectiveness, accountability, and robust management of the economy. The four key deliverables or outputs towards achieving this outcome are: (1) Dynamic, holistic, responsive, and results- oriented government policies; (2) A motivated, agile, and results-oriented public 11 13th Five Year Plan sector; (3) Availability and utilisation of data and statistics for foresight-oriented policy, planning and service delivery; and (4) A strengthened digital ecosystem driving transformation. Outcome-2 focuses on strengthening state institutions to ensure inclusive, effective and accessible justice, transparent rule of law, and public oversight. The two key deliverables or outputs towards achieving this outcome are: (1) An effective and citizen-centric justice sector; and (2) Enhanced ability of parliamentarians and oversight bodies to effectively discharge their functions. Strategies and Programmes: The Transformational Governance Programme and the Digital Transformation Programme will collectively drive the effective implementation of the 13th FYP across all four clusters. The Transformational Governance Programme aims to create a governance framework that is responsive, transparent, and inclusive by fostering comprehensive policy development and coherent decision-making, breaking down silos and leveraging collaboration across sectors, and embracing technology to optimise resources and expertise. It emphasises the involvement of LGs and CSOs for better results and efficiency in implementing programmes and activities, and supporting the role of media for enhanced voice and accountability. The programme will apply six key strategies. An agile public sector will be built to enhance public service delivery and ensure robust economic management. State institutions will be strengthened to promote rule of law and democratic processes. Cross-cutting issues will be mainstreamed to ensure a holistic and inclusive development approach. The data ecosystem will be improved to support evidence-based decision-making. Finally, digital technology will be leveraged and promoted for efficient governance and public services delivery. The Digital Transformation Programme aims to position Bhutan as a digitally empowered and resilient society through four key strategies i.e. promoting inclusive digital governance, building a thriving digital economy, cultivating a vibrant digital society, and investing in key enablers. The latter is foundational to Bhutan’s digital transformation agenda, with key enablers being digital infrastructure, skilled digital workforce development, modernising legislation, cybersecurity, and fostering research and development collaboration. As a cross- cutting programme, many of its initiatives will contribute directly to enable the delivery of outputs across all four clusters and national programmes of the 13th FYP. 12 13th Five Year Plan Local Government Plan: Over successive five-year plans, Local Governments (LGs) have exercised increased autonomy to plan and implement development initiatives in alignment with national objectives. To ensure continued coherence and synergy with national priorities, local government plans in the 13th FYP are integrated with central plans based on their formulation around seven LG key result areas that enable LGs to not only address local challenges but also contribute to the broader goal of achieving a High Income GNH Economy by 2034. These LGKRAs or strategic priorities of LGs are vibrant local economies, quality education and skills development, improved health and wellbeing of residents, proactive social security and support measures for residents, effective disaster risk management and safety in local communities, strengthened culture and identity, and effective delivery of citizen-centric public services. A total of BTN 72,000 million has been allocated to LGs in the 13th FYP, based on a revised Resource Allocation Framework (RAF) that ensures fairness, transparency, and effectiveness in resource distribution to address local development needs. LGs are responsible for implementing both their own plans and national programmes, in collaboration with central agencies as key implementers. By empowering LGs and promoting collaboration between local and central authorities, Bhutan aims to ensure effective governance, sustainable development, and improved quality of life for its citizens. Fiscal Outlook for the 13th FYP The fiscal policy objective in the 13th FYP is to ensure robust, inclusive economic growth while maintaining fiscal prudence and macroeconomic stability. Key targets include containing the fiscal deficit at an average of three percent of GDP over the plan period, achieving a tax-to-GDP ratio above 15 percent, and limiting non-hydro debt to below 55 percent of GDP. Total resources for the 13th FYP are estimated at BTN 456,345 million, with domestic revenue projected at BTN 327,346 million and grants at BTN 125,000 million. Tax revenue constitutes BTN 230,623 million, while non-tax revenue is estimated at BTN 96,723 million. External grants, with a large portion from the GoI, contribute significantly to resource allocation. Total expenditure is estimated at BTN 512,283 million, with current expenditure at BTN 267,283 million and capital expenditure at BTN 245,000 million. The projected fiscal deficit is BTN 55,938 million, equivalent to 2.97 percent of GDP. Public debt by the end of the plan period is estimated at BTN 474,419.064 million, 13 13th Five Year Plan representing about 94.8 percent of estimated GDP. The majority of debt is external, particularly for hydropower projects, with a declining external debt-to-GDP ratio projected over the plan period. Plan Implementation and Monitoring and Evaluation Implementation of the 13th FYP: The success of the 13th FYP hinges on effective execution, underpinned by key strategies and mechanisms that foster transparency, efficiency, and accountability in implementation. Thus, the 13th FYP integrates long-term strategic goals by focusing on economic development, standardising health and education services, developing infrastructure based on spatial planning, and promoting private sector engagement while streamlining government roles. Furthermore, to enable efficient public service delivery, the 13th FYP will address contradictory policies to foster efficient implementation. Performance management and accountability will be facilitated by aligning resources with plan objectives, and through annual performance planning and target setting that allows mid-course adjustments. A performance coaching mechanism will support agencies to achieve their deliverables, and a results framework mapping KPIs from national to local levels will ensure accountability with agency heads responsible for meeting annual targets and achieving plan outcomes by 2029. Monitoring and Evaluation: The successful implementation of the 13th FYP relies on a robust M&E system, which will be strengthened with a national M&E framework that oversees progress at various levels from national goals to local government key result areas. Based on a Monitoring Accountability Framework, the OCASC will conduct annual, mid- term, and terminal reviews to ensure accountability and alignment with national objectives with progress measures as detailed in the 13th FYP results matrix. The DPBP, MoF in coordination with OCASC will monitor implementation of projects through the annual plans and budget. Evaluations will be based on an Evaluation Accountability Framework, with evaluation plans developed and commissioned by the C4CS, and Heads of Agencies and LGs. Social accountability will be actively promoted with greater stakeholder involvement including citizen participation, to enhance transparency and efficiency in project delivery. 14 Chapter- 1 Introduction 13th Five Year Plan 1.1 Background Bhutan follows a five-year planning cycle to implement its development priorities. Since the initiation of the first Five-Year Plan (FYP) in 1961, it has implemented 12 FYPs as at the end of June 2024. Considering the evolving circumstances, needs and opportunities facing the country in the 21st century, the Royal Government of Bhutan (RGoB) is now adopting a longer-term strategic framework (2024- 2034) within which the 13th FYP (July 2024-June 2029) is situated. Guided by the principles of Gross National Happiness (GNH), the 13th FYP and the succeeding 14th FYP will be implemented to support the nation’s long-term goal of becoming a High Income GNH economy by 2034. This approach will enable greater focus and continuity of development interventions, by avoiding busts in economic growth associated with the overlap of end in plan cycles. Additionally, to streamline and coordinate efforts for effective implementation, the 13th FYP follows an interconnected four-cluster approach that aligns with the public sector transformation initiative which commenced in 2022. Thus, the strategic objectives and outcomes of the 13th FYP correspond broadly to the re-organisation of government agencies under the economic, social, security and governance clusters. To achieve the 13th FYP objectives and outcomes, eight national programmes will be implemented through collaborative effort of Central Agencies, Local Governments (LGs) and relevant partners. All sectoral, agency-specific and local government plans and strategies are based on these key elements of the 13th FYP framework, to ensure mutual reinforcement and coherence in delivering common and cross- cutting goals across the 13th FYP. In addition, routine programmes of individual agencies and local governments will continue to be implemented over the course of the plan period. The long-term strategic framework and the 13th FYP have been formulated through a closely coordinated process among the four clusters of government and LGs since December 2022, and is based on consultations with all relevant stakeholders. The 13th FYP will drive Bhutan’s socio-economic and institutional transformation agenda, and will serve as the transition strategy that ensures its recent graduation from Least Developed Country (LDC) status is irreversible and sustained. 17 13th Five Year Plan 1.2 Country Profile Bhutan is a small landlocked country in the Eastern Himalayas. It is bordered by India to its east, west and south, and the People’s Republic of China to its north. With altitudes ranging from 100 to 7,500 metres over an area of 38,394 square kilometres, it has three distinct climatic zones of hot and humid southern belt, cool temperate central zone, and alpine northern region. The total (projected) population is 777,224 in 2024 (female 372,813, and male 404,411) with relative gender parity of 1:1 across age groups. Over 41 percent of the population are below 24 years of which more than 42 percent are adolescents between 10-19 years. Bhutan remains largely rural with more than 59 percent of the population residing in villages in 2022. However, internal migration and urbanisation have increased with the share of urban population rising from 30.9 percent in 2005 to 37.8 percent in 2017, and further projected to increase to 56.8 percent by 2047.1 The economy is based largely on hydropower and agriculture, and has grown rapidly over the decades recording a GDP of BTN 227.81 billion and GDP per capita of USD 3,833.03 in 2022. Bhutan became a Democratic Constitutional Monarchy in 2008, with key reforms initiated by the Throne to make the transition from a hereditary monarchy that was established in 1907. The Parliament of Bhutan is the highest legislative institution, and consists of His Majesty the King, the National Council, and the National Assembly. The National Council is an apolitical institution which functions as the house of review, and comprises 20 members elected from 20 Dzongkhags (districts) and five eminent members appointed by His Majesty the King. The National Assembly comprises 47 members elected from 47 constituencies carrying out legislative, oversight and representational functions. The fourth parliamentary elections were conducted on 9th January 2024. Of the five political parties contesting the election, the People’s Democratic Party (PDP) was elected to form the Government and the Bhutan Tendrel Party (BTP) as the Opposition Party. 1 National Statistics Bureau (2019). Population Projections Bhutan 2017-2047. 18 13th Five Year Plan 1.3 Guiding Principles of Development Gross National Happiness, popularly referred to as GNH, is Bhutan’s guiding philosophy for development. His Majesty the Fourth Druk Gyalpo, Jigme Singye Wangchuck, first gave expression to this term in the early 1970s to convey that Bhutan is more invested in a holistic and responsible approach to development that is geared towards societal wellbeing. The conviction was that economic growth alone – as represented by the Gross Domestic Product (GDP) indicator – is an insufficient measure of progress. Particularly after the first decade of establishing basic infrastructures such as schools, health clinics and roads, it has sought to balance economic growth with environmental sustainability, social progress, and cultural vibrancy – underpinned by a framework of good governance. These dimensions saw increasing emphasis in its FYPs as ‘priority areas’ essential to the overall direction of development. GNH is enshrined in the Constitution of Bhutan,2 making it the collective responsibility of the state and polity to ensure that unbridled economic growth does not compromise the social, ecological and spiritual well-being of the country. The operational aspects of GNH have been strengthened through the years – with the introduction of the GNH index in 2008 and its utilisation in the formulation and monitoring of recent FYPs, policies and programmes (see Box 1). Box 1: The GNH Index Based on biennial surveys, the GNH Index facilitates assessment of wellbeing conditions across the nine domains of health, education, living standards, ecological diversity and resilience, good governance, psychological well- being, time use, community vitality, and cultural diversity and resilience. GNH assessments have gradually been used towards evidence-based decision-making, with the GNH Index and indicators incorporated into national planning. Combined with other tools, the GNH indicators serve as evaluative tools to track developmental progress over time and to help steer decisions and activities along a GNH-oriented path. 2 Article 9.2 of the Constitution of the Kingdom of Bhutan states: “The State shall strive to promote those conditions that will enable the pursuit of Gross National Happiness”. 19 13th Five Year Plan Bhutan’s pursuit of this higher purpose to development, as expressed by GNH, has also inspired policymakers and policy frameworks around the world, including the 2030 Agenda for Sustainable Development and the Sustainable Development Goals (SDGs) which was adopted by the United Nations (UN) in 2015. Given strong consonance with the fundamental principles of GNH, the SDG goals and targets aligned closely with the 11th FYP (2013-2018) national key result areas, and the 12th FYP (2018-2023) utilised the SDGs as a guiding basis for its preparation. Today, the 13th FYP provides a similarly strong foundation for Bhutan’s delivery on the SDGs in this ‘last decade of action’. Traditionally, Bhutan’s FYPs also take into consideration other international commitments – including key human rights instruments and multilateral environmental agreements which are listed in Annexure 3. 1.4 Bhutan’s Development Story Guided by the wisdom and far-sighted leadership of our monarchs, Bhutan’s implementation of its GNH philosophy has resulted in tangible and highly beneficial results for people and the planet over the last six decades of planned development. The unwavering support provided by development partners through the years, and the steadfast sense of responsibility shown by an engaged citizenry have been critically important in this entire process. Starting out as an isolated and income-poor nation in the 1960s, Bhutan’s GDP has grown from BTN 1.012 billion in 1980 to BTN 227.814 billion in 2022 with annual economic growth averaging 10.9 percent since the 1980s.3 The Bhutanese economy has developed in a considered manner without compromising the natural environment – gradually shifting from traditional agrarian-based practices to a more diversified and modernised structure driven by hydro-based industries and the services sector. Consistent prioritisation of the social sector over successive five-year plans, including the provision of free health and education services, has led to phenomenal improvements in life conditions and opportunities for the Bhutanese people. With unprecedented reductions in mortality and morbidity rates, life expectancy is estimated to have increased from 33 years in 1960 to 72 years by 2020.4 Bhutan’s 3 MFCC Data- growth average for the past 42 years (1980-2022). 4 World Development Indicators (WDI), based on the United Nations Population Division. https://data.worldbank.org/indicator/SP.DYN.LE00.IN?locations=BT&most_recent_year_desc=false 20 13th Five Year Plan population is increasingly educated with universal primary education close to achievement, and youth literacy today is at 97.7 percent.5 Targeted efforts at poverty reduction led to sharp declines in income poverty from 23.2 percent in 2007 to 8.2 percent in 2017 at the national level, with rural poverty decreasing from 30.9 percent to 11.9 percent in the same period.6 In December 2023, Bhutan graduated from the UN’s list of Least Developed Countries (LDC) based on impressive performance on the Gross National Income (GNI) and Human Assets Index (HAI) criteria for graduation. Such achievements are all the more significant as Bhutan remains steadfast as a globally-recognised champion of the environment. With its strong conservation ethos, it has thus far managed to ensure the sustainability of essential ecosystem services such as clean air, water, and other natural resources for livelihood and sustainable development. While the Constitution requires at least 60 percent of the country to be maintained under forest cover for all times, currently, more than 70 percent of the land area is forested.7 Bhutan is a carbon sink, with its forests absorbing three times more CO2 emissions than it emits. Taking concrete steps towards upholding its long- standing commitment to remaining carbon neutral for all times, low-emission and climate-resilient development strategies are in place across key sectors. 8 Amidst rapid socioeconomic development, Bhutan has also been conscientious about nurturing the values, principles and practices of its dynamic cultural heritage. This is reflected in its respect for all life and in its strong family and community bonds, which is underpinned by the Buddhist notion of interdependence (tha damtsi-ley judrey). Through a combination of traditional and modern practices of volunteerism, it is this value-system that drives effective provision of social support, natural resources management, and the fulfilment of many other critical community needs. With consistent budgetary support towards strengthening both tangible and intangible forms of culture, Bhutanese people today remain proud custodians of a unique spiritual and cultural heritage. Meanwhile, a range of indicators across several of the GNH domains enable assessment of the vibrancy and resilience of Bhutanese communities and cultural practices. 5 National Statistical Bureau (2022). Bhutan Living Standards Survey 2022. 6 National Statistical Bureau (2012, 2017). Poverty Analysis Report 2012 & 2017. 7 Ministry of Agriculture and Forests (2017). National Forest Inventory Report, Volume I. 8 Royal Government of Bhutan (2021). Second Nationally Determined Contribution. Kingdom of Bhutan. 21 13th Five Year Plan Bhutan’s success with GNH could not be better demonstrated than through the exemplary leadership of our monarchs. In contrast to the struggles associated with instituting democracies elsewhere, Bhutan’s democracy is the outcome of The Fourth Druk Gyalpo’s vision and meticulous planning over several decades. Prior to His Majesty’s voluntary abdication in 2006, the foundations for democratic institutions had been laid and initiatives had been set in motion to strengthen people’s participation in decision-making at the local and national levels.9 Upon His Majesty the King Jigme Khesar Namgyel Wangchuck assuming the role as Head of State, and Bhutan’s adoption of the Constitution in 2008, constitutional bodies were established and enhanced to uphold the rule of law, ensure free and fair elections, and improve the transparency, efficiency and accountability of public institutions.10 In addition to several rounds of successful local government and parliamentary elections, the formalisation of the civil society sector has facilitated greater citizen engagement in the national agenda including enhanced role of media. Cross-cutting themes such as gender equality and empowerment, disability inclusion, among others continue to be promoted and strengthened through relevant laws, policies and systems. Reflecting an overall state of good governance today, Bhutan ranks 38 of 137 countries in the Bertelsmann Transformation Index (BTI). In the World Bank’s Worldwide Governance Indicators for 2020, it ranks 72 of 209 countries for ‘government effectiveness’ and 61 of 209 countries for ‘rule of law’.11 With His Majesty the King at the frontlines, Bhutan’s GNH ethos has also come through clearly in its fight against the COVID-19 pandemic. Despite enormous financial implications, Bhutan moved quickly to implement a coordinated national response that included strict containment and inclusive response measures. In addition to sealing borders, restricting travel, school closures, and several lockdowns, special effort was made to repatriate Bhutanese stranded abroad. Measures were put in place to protect the most vulnerable sections of society. To mitigate long-term impacts on social outcomes, an education-in-emergency and adapted curriculum was rolled out, while essential healthcare services 9 This included, among others, establishment of the Dzongkhag Yargay Tshogdu in 1982 and the Gewog Yargay Tshogdu in 1992; introduction of universal adult franchise in 2001 for the election of Gups; devolution of executive powers in 1998 to a council of ministers elected by the National Assembly; and the initiation of the drafting of the Constitution. 10 BTI Transformation Index. Bhutan Country Report 2022. https://bti-project.org/en/reports/country-report/BTN 11 World Bank Worldwide Governance Indicators. https://knoema.com/uyggkzc/new-page 22 13th Five Year Plan were managed separately from the pandemic. A National Resilience Fund was established, and several monetary and fiscal measures were put in place. The Druk Gyalpo Relief Kidu provided support to those whose livelihoods were most affected. Under an Economic Contingency Plan, the tourism, construction and agriculture sectors were provided priority support. As a result, Bhutan was able to keep the potentially devastating health and social impacts of the pandemic to a minimum. This was only possible because His Majesty made deliberate efforts with the welfare of the people foremost in mind. The Bhutanese people in turn acted with solidarity, and people from all walks of life contributed to the national efforts through cash, kind and a remarkable level of volunteerism. As the greatest proponents of GNH, a concept that in itself is revolutionary in a world driven by consumerism and short-term gains, our Kings and the Bhutanese leadership have had to make difficult “GNH decisions”. It is precisely owing to this that Bhutan remains one of the most peaceful countries in the world, with its rich natural environment and cultural heritage enriching the quality of life of its people. Indicating progress across multiple domains of wellbeing, its GNH Index has improved steadily from 0.743 in 2010 to 0.756 in 2015, and to 0.781 in 2022.12 By all these measures, Bhutan has succeeded, and we must appreciate where we have reached as a nation. Despite these successes, Bhutan is confronted with one of the most critical challenges in its development journey. The recent surge of Bhutanese (at prime productive age) leaving the country is a clear indication that many of our aspirations under the economic dimension of GNH remain unfulfilled. The main reason for the outflow is that people are seeking better economic opportunities elsewhere. The proportion of youth jobseekers opting for overseas employment is unprecedentedly high, pointing to our economy’s inability to generate an adequate number of productive jobs. This means that currently, there are limited opportunities for the average Bhutanese to ensure their long- term financial security in the country, and that we have not been able to meet the expectations of an increasingly urbanised, young and educated population. Even as we take pride that our investments in social development have enabled our people to pursue jobs in advanced economies, we must anticipate the potential implications of this trend on the country’s stability. Its continuation could lead 12 The Centre for Bhutan and GNH Studies (2023). GNH 2022. 23 13th Five Year Plan to direct loss of human capital and skills, amplify the challenge of filling critical positions especially in the health and education sector, and present social and cultural implications as increasing numbers of Bhutanese settle abroad. Despite impressive growth and transformation over the decades, the Bhutanese economy has been beset with numerous challenges that persist today. Growth continues to be heavily reliant on hydropower-driven, capital-intensive public sector investments – without commensurate generation of job opportunities. Meanwhile, high youth unemployment levels have persisted, increasing by 7.7 percent since 2021 to reach 28.6 percent in 2022.13 Efforts at economic diversification have been challenged by the country’s difficult geography and remoteness, inadequate infrastructure, and institutional setbacks deterring the growth of private sector investment. Bhutan’s economic vulnerability remains high, given its continued reliance on external aid, persisting imbalances in the economy, and susceptibility of the hydropower sector to climate change impacts. Meanwhile, the COVID-19 pandemic has immensely impacted the economy and heightened social vulnerabilities. Suffering serious setbacks in socioeconomic progress, growth dropped to a historic low of –10 percent in 2020. Bhutan’s success with poverty reduction over the past decades saw a reversal, with 12.4 percent of the population found to be poor in 2022.14 From an implementation perspective, the preceding 12th FYP (2018-2023) was one of the most challenging to execute with almost three years of the plan period derailed by the pandemic – resulting in bringing the economy to near recession levels. Even as the economy recovers with growth of 4.1 percent in 2021 and 5.2 percent in 2022, it faces inflationary pressures emanating from the international geopolitical fragmentation and global fuel crisis among other external risks. Prolonged financial sector strains with limited fiscal space, including from possible delays in hydropower projects and liabilities in the financial sector, present domestic risks to growth and debt dynamics.15 Given this state of affairs, it is apparent that Bhutan’s success with GNH has not been balanced. Its performance on the economic dimension has been much 13 National Statistical Bureau (2022). 2022 Labour Force Survey Report Bhutan. 14 National Statistical Bureau (2022). Bhutan Poverty Analysis Report 2022. It should be noted that an upward revised poverty line has been adopted in 2022. 15 Ministry of Finance (December 2022). Macroeconomic Situation Report. First Quarter Update: FY 2022-23. 24 13th Five Year Plan weaker, in comparison to the social, cultural and environmental dimensions. At the same time, the multidimensional issues facing Bhutan today have become more complex and nuanced, and many of these – such as youth unemployment, substance abuse, rural-urban disparities, outflow of educated citizens – are invariably rooted in or intersect with structural issues in the economy. Therefore, Bhutan needs to be much more innovative and daring in transforming its economy. It needs to be much more open and courageous in inviting partners to create better economic opportunities for its people. As the 13th FYP is set against the backdrop of an institutional transformation agenda, recent graduation from LDC status, and efforts to ‘build back better’ from the pandemic, Bhutan must seize this opportunity of the 13th FYP to re-balance GNH by focusing on economic transformation. In doing so, close attention will have to be paid to urgent issues with cross-cutting implications, which if left unaddressed could undermine its aspirations for enduring economic prosperity. Key issues of quality and inclusiveness in the social sectors will need to be addressed more strategically, as these have immediate and long-term bearing on productive capacity. Climate resilience and disaster preparedness is especially critical, considering the country’s nature-dependent livelihoods and hydropower- and agriculture-based economy. To take the entire agenda forward, the governance ecosystem will have to be revitalised to ensure effective public service delivery, improve economic management, and enable the growth of a vibrant and inclusive economy. As Bhutan embarks on a new era with the 13th FYP, it does so with conviction that the strength of the Bhutanese character – defined by courage, determination and perseverance – will drive collective efforts toward transforming it into a prosperous GNH country. Given its transformative nature with a firm basis in GNH, the 13th FYP will seamlessly support the vision of the Gelephu Mindfulness City, a unique initiative of His Majesty the King for the future of Bhutan - its children. 1.5 Way Forward and Long-Term Goal With clear and frank assessments of our collective strengths and shortcomings, His Majesty the King has repeatedly called upon the nation to introspect and act upon how we can continue to strive towards GNH in an increasingly globalised world. As far back as in 2008, when speaking to a new cohort of national graduates, His Majesty said: 25 13th Five Year Plan “… Now you must also keep in mind what GNH is. That will never change but how we achieve GNH will change and it must. Because the very fast changing world that we live in - in this globalised world, I have no doubt will both present new opportunities and challenges for Bhutan. But remember that it is the duty of every generation. It is our duty to find new ways of achieving the goals of GNH. In other words, GNH today for us is the bridge between the fundamental values of kindness, equality and humanity and the necessary pursuit of economic growth.” His Majesty The Druk Gyalpo National Graduates’ Orientation Programme, Thimphu, 22nd October, 2008. Further, when speaking to another generation of university graduates in 2016, the nation was reminded about the importance of reflecting on its priorities and the means to addressing them. His Majesty said: “What are the priorities of our time? I believe that it is to pursue prosperity and progress. There has to be synergy between prosperity and progress. It is certainly desirable that our people become prosperous and a prosperous state with adequate funds will give us all a sense of greater security.” His Majesty The Druk Gyalpo 11th Convocation of the Royal University of Bhutan, 7th June, 2016 By drawing inspiration from this noble guidance, the 13th FYP represents a strategic shift towards “re-balancing GNH” – with a deliberate focus on transforming the economy as a means to fulfil Bhutan’s needs in the 21st century. Thus, the long- term goal is for Bhutan to be a High Income GNH Economy by 2034. Transforming Bhutan into a “High Income GNH Economy” is fundamentally about ensuring an overall increase in prosperity for all Bhutanese. Many of the pressing social issues and challenges confronting the country today are invariably linked to an inability to generate enough decent jobs and equal opportunities. The pursuit of high growth is thus intended to improve inclusiveness, through creation of decent employment and strengthened social protection that encompasses gender and disability dimensions, so that no one is left behind. “High-income” status is defined by a USD 10 billion economy and GNI per capita of above USD 12,695. This target has been set considering the need to ensure adequate wealth generation, which will ultimately be channelled towards fulfilling broad-based development priorities while reducing dependence on external funds. 26 13th Five Year Plan Bhutan’s drive towards entering the ranks of other high-income economies will be undertaken by leveraging new technologies as well as its natural and cultural endowments, while promoting creativity, innovation and enterprise. The intention is to ensure gainful and productive employment that will enable a dignified and purposeful lifestyle for all Bhutanese and a sense of greater national security. All programmes and activities to drive growth will be pursued within the imperatives of sustainability – including the constitutional mandate to maintain at least 60 percent of the country under forest cover for all times, and its international commitment to remain carbon neutral in perpetuity. Through innovative approaches and deepened engagement with the international community, it will be more pragmatic in managing the co-benefits and trade-offs between growth outcomes and environmental conservation. As a long-term strategy, this framework will contribute to a transformation of the Bhutanese economy, while ensuring that the principles of GNH are upheld. Therefore, the pursuit of this long-term goal is about realising a happy, prosperous and secure Bhutan built on the “3Ps” or three key pillars of ‘people’, ‘progress’ and ‘prosperity’ which are elaborated in Box 2. The 3Ps are interconnected and indivisible, and collectively they uphold the principles of inclusiveness, resilience and sustainability as guided by GNH and the SDGs. The national key performance indicators (KPIs) for the 3Ps – which have HIGH INCOME GNH ECONOMY Happy, Prosperous, and Secure Bhutan People Progress Prosperty 1 Bhutanese identity and 1 By 2029 ensure safe and livable 1 Increase GDP from USD 2.9 to social cohesion are human settlement in all 20 USD 5 billion by 2029 and preserved at all times. dzongkhags with Thimphu-Paro USD 10 billion by 2034. capital region ranked among top 2 By 2034 gap between livable cities in the world. 2 Increase GDP per capita from preferred and actual USD 3833 to USD 4256 by family size reduced. 2 By 2034 all Bhutanese have 2029 and above USD 12,000 access to comprehensive social by 2034. 3 By 2029 the human protection mechanisms and services across the life cycle, 3 By 2027 create full capital index is particularly for the most employment (97.5%) with increased from 0.475 vulnerable. quality jobs. (2020) to 0.61 by 2029 and 0.71 by 2034. 3. By 2029 increase GNH index from 4 By 2029 income of the 0.781 to 0.850 bottom 40% quadrupled 27 13th Five Year Plan been agreed upon through numerous consultations and deliberations – will in their entirety provide the long-term strategic direction for Bhutan’s development plans spanning the next 10 years. Box 2: 3Ps: ‘people’, ‘progress’ and ‘prosperity’ People: Our expectation is that all of our development efforts will result in enhanced wellbeing and productivity of all sections of our society. We will have attained this by ensuring that our economic prosperity and strategies are channelled into addressing key issues of quality and inclusiveness in health, education, living standards and social protection outcomes across all demographic groups. With the expected improvements in health, education and life outcomes, key progress indicators will include the sustained increase in our human capital index from 0.475 in 2020 to 0.61 by 2029 and to 0.71 by 2034. Simultaneously we will have reduced the gap between preferred and actual family size by 2034 – maintaining a sustainable population growth rate conducive to our economic aspirations. Through all times, the vitality and resilience of our local cultures and communities will be enhanced, thus ensuring the cohesiveness of our social fabric and upholding our Bhutanese identity. Progress: Underpinned by innovation, stability and effective governance, our aspiration is to be a progressive society – where the security, vitality and resilience of our communities is enhanced by equitable access to high quality infrastructure and public services. A key marker of our progressiveness will be our ability to ensure safe and liveable human settlement in all 20 dzongkhags – characterised by equitable access to affordable housing, and efficient and affordable public transport and private healthcare – with the Thimphu-Paro capital region ranked among top liveable cities in the world by 2029. Concurrently, building upon cumulative improvements over the 13th FYP period we will have ensured that by 2034 all Bhutanese have access to comprehensive social protection mechanisms and services across the life-cycle, particularly for the most vulnerable. 28 13th Five Year Plan Prosperity: Our intention is to build a prosperous economy driven by innovation and sustainability, and one that benefits all Bhutanese. With a GDP of USD 10 billion and GDP per capita of above USD 12,695 by the year 2034, we envision an economy that provides full employment with equality of opportunity for well-paying and fulfilling jobs by 2027; and where income of the bottom 40 percent of the population has quadrupled by 2030. We will have attained this status by tackling fundamental challenges to our economy – such that productive capacity is enhanced with effective adoption of technology and innovative green solutions. With abundant options for high-end jobs in existing as well as new sectors (such as the creative industries and STEM fields) made available within the country, we will fully harness our demographic dividend. Furthermore, all Bhutanese will lead dignified lives enabled by decent levels of income that do not fall below a certain threshold. 29 Chapter- 2 13th Five Year Plan (FYP) Framework 13th Five Year Plan 2.1 Strategic Objectives The 13th FYP has four interconnected objectives that will be pursued towards creating a healthy, prosperous and secure Bhutan and realising the long-term goal of becoming a “High Income GNH Economy” by 2034. The economic development objective will be the driving force of the 13th FYP, enabled by a transformed and trusted governance ecosystem which underlies the successful implementation of the entire plan. Economic Development: Bhutan is a high income country driven by innovation and sustainability Bhutan aims to achieve economic prosperity where citizens enjoy a high standard of living, with high levels of income and access to resources – by increasing its GDP to USD five billion and GDP per capita to above USD 6,174 by the year 2029. New and creative solutions will be developed and implemented to address our economic, social, and environmental challenges and to create new opportunities for growth. Every effort will be made to ensure that economic development is environmentally sustainable, socially responsible, and economically viable in the long term, so that current needs of the Bhutanese people are provided for while also preserving natural resources for future generations. Social Development: Bhutan has a healthy and productive society founded on equitable and high quality health, education and social protection Bhutan aims to ensure the provision of quality education and skills development, robust health services and social security interventions, which are foundational to fostering a healthy, prosperous, and secure Bhutan. Through a well-rounded education system that provides high quality learning and skills development, the population can attain the necessary competencies to effectively contribute to developing various sectors of the economy, thereby driving sustainable growth and prosperity. Simultaneously, prioritising accessible and high quality healthcare is essential to ensuring a healthy workforce with enhanced overall productivity. This synergy between education and health not only elevates economic outcomes but also bolsters social cohesion ultimately leading to a secure and resilient nation where citizens are empowered with knowledge, skills, and wellbeing as their pillars of strength. 33 13th Five Year Plan Strengthening Security: Bhutan safeguards and strengthens its sovereignty, territorial integrity, security, unity, well-being, resilience and economic prosperity Bhutan aims to safeguard its sovereignty and strengthen resilience to any form of threat that could undermine its stability, progress and wellbeing. This requires simultaneous attention to conventional as well as 21st century security concerns – which includes the maintenance of friendly and cooperative relations with all countries, stability and vitality of Bhutanese communities both home and abroad, and vibrancy of cultural heritage. It also entails effective management of disasters and other emergency situations, and ensuring connectivity as well as the protection of critical infrastructure – not only to facilitate disaster and emergency response, but also to enhance economic security. Trusted and Transformed Governance: Bhutan has a transformed and trusted governance ecosystem that drives accelerated economic growth and improves people’s lives The successful implementation of the 13th FYP and fulfilment of its objectives ultimately depends on the country’s governance ecosystem. Bhutan aims to transform its democratic and public sector institutions to be more trustworthy and effective in driving economic prosperity and improving people’s lives. This is essentially about strengthening institutional capacities for upholding the rule of law and ensuring efficiency, transparency and accountability in the delivery of public services. It translates into enhancing the means of implementing the 13th FYP, which entail leveraging technology, creating an enabling environment (with appropriate policies, systems, and adequate resources), and meaningful engagement with a range of non-government entities including the private sector, civil society organisations, media, academia, among others. 2.2 Outcomes and Outputs The key deliverables of the 13th FYP constitute eight outcomes and 36 outputs at the national level identified under four strategic themes of Economic Development, Social Development, Enhancing Security and Trusted and Transformed Governance. These deliverables shall be achieved through the implementation of eight national programmes and the Local Government Plans. 34 13th Five Year Plan 13th Five Year Plan Outcomes HIGH INCOME GNH ECONOMY Happy, Prosperous, and Secure Bhutan Economic Social Development Enhancing Security Development 1 By 2029, more Bhutanese enjoy 1 Safety and security threats 1 By 2029, Bhutan has improved health and wellbeing. and disaster risks to the enhanced country, its economy, 2 By 2029, more Bhutanese infrastructure, institutions productivity and equitably access and beneﬁt diversiﬁed products and people are mitigated and from quality and wholesome and markets driving managed. education and lifelong learning. sustainable economic 2 Bhutan’s identity, culture and growth. 3 By 2029, Bhutan has an values are strengthened and operational shock-responsive, its position in the inclusive, and comprehensive international community is social protection system. enhanced. 1 Bhutan’s public sector is a more dynamic results-oriented agent of Trusted and transformation, demonstrating effectiveness, accountability, and robust Transformed management of the economy. Governance 2 Bhutan’s state institutions ensure inclusive, effective and accessible justice, transparent rule of law and public oversight. These are detailed in Chapter 3, which also outlines the eight national programmes that will be implemented towards achieving the outputs and outcomes across the economic, social, security and governance clusters. 35 13th Five Year Plan 2.3 Plan Structure The 13th FYP is structured as depicted in the framework below. 13th FYP Framework Happy, Prosperous and Secure Bhutan Outcomes Outcomes Results (Evaluation) Outputs Outputs Outputs Outputs Leadership - Cabinet Strategies/Programmes Implementation (Monitoring) Administration and Management Project Project - Ministries/Agencies - Local Government Activity Activity Activity Activity Activity Activity 36 Chapter- 3 Deliverables, Strategies and Programmes of the 13th FYP 13th Five Year Plan 3.1 Economic Development: A High Income Country Driven by Innovation and Sustainability Situational overview Bhutan’s economy has grown rapidly over the last four decades, with growth averaging 10.9 percent since the 1980s. GDP per capita has also increased substantially during the period reaching USD 3833.03 in 2022, which was amongst the highest in the region and also compared with some peer countries.16 The structure of the economy has evolved, with contributions from secondary and tertiary sectors surpassing the primary sector contribution comprising agriculture, livestock and forestry. While agriculture dominated growth in the early decades of development, the share of the sector declined substantially from 38.6 percent in 1980/81 to 14.42 percent by 2022/23. Meanwhile, the industry sector’s share almost doubled from 15.4 percent to 28.31 percent over the same period. The share of the service sector in the economy remained relatively stable at 46 percent in FY 1980/81 and 46.61 percent in 2021/22, but saw an increase to 51.82 percent in 2022/23.17 However, with growth and structural change driven largely by public sector investments in hydropower, the creation of meaningful employment opportunities for the Bhutanese labour market has been minimal. Although long identified as the “engine of growth”, the private sector has remained sluggish through the decades. Economic diversification efforts have had limited success, and over half the population continue to rely on agriculture for their livelihood. This is a sector that is still mostly at the subsistence-farming level with limited returns, while also being susceptible to instabilities arising from limited market access, climate change impacts, and human-wildlife conflicts. Thus, opportunities for meaningful employment and attaining financial security in the current Bhutanese economy are very limited. This is illustrated by high youth unemployment as a persisting issue, increased poverty incidences in the wake of the COVID-19 pandemic, and an increasing trend in out-migration of productive citizens. To effectively overcome this major challenge facing the Bhutanese population and economy, there is an urgent need to transform the economy. 16 MFCC Data - growth average for the past 42 years (1980-2022). 17 MFCTC File, Ministry of Finance. 39 13th Five Year Plan In the 13th FYP, the economic cluster – with contributing inputs from the social, security and governance clusters – shall work on delivering one outcome and four outputs towards the economic development objective of becoming “a high income country driven by innovation and sustainability”. 3.1.1 Enhanced productivity and diversified products and mar- kets driving sustainable growth 3.1.1.1 Key challenges and issues Bhutan’s economic environment has the foundational requirements of peace, stability and good-governance conditions. However, its immediate investment climate is characterised by high administrative costs, lack of clarity in its economic pathway, and policy uncertainty. As indicated by Bhutan’s position of 89th out of 190 countries in the World Bank’s erstwhile “Doing Business” 2020 report, there is a clear need to improve its regulatory landscape which entails streamlining bureaucratic procedures to facilitate the efficiency and effectiveness of investments and business operations. Meanwhile, ensuring a healthy, educated and skilled workforce with higher productivity is a long-term priority that is also beset with constraints. These emanate from issues with quality and relevance of education and skills development, and a small population. These are key challenges that need to be addressed, with some of the priority issues for the 13th FYP elaborated below. Low productivity: The average productivity of the entire economy is low. Huge productivity differentials exist across economic sectors with most capital- intensive sectors offering limited employment potential. In 2022, the agriculture sector engaged the majority (43.5 percent) of the labour force while recording the lowest share of GDP (14.67 percent). Meanwhile the industry sector employed the fewest (13.7 percent) with a large share of GDP (31.82 percent). The output share of the service sector was 53.5 percent, and while it employed 42.8 percent of the labour force more than half (52 percent) lacked the required skills.18 On the capital productivity front, capital stock is concentrated in building and construction activities which are primarily spurred by public sector investments in infrastructure for hydropower generation, and health and education services. Infrastructure costs are compounded by high transportation costs due to the country’s difficult mountainous terrains, remoteness and landlocked situation. 18 National Statistics Bureau (2023). National Accounts Statistics 2023. 40 13th Five Year Plan At the same time, investment in productive assets such as machinery and equipment are very low and still at a growing stage. An important dimension of productivity is entrepreneurial and institutional capability. The general business and public service ecosystem for institutions and firms is characterised by high administrative and opportunity costs – with lengthy and complex procedures including the requirements for licensing and large number of permissions/authorisations. In addition, there is high policy uncertainty that is further compounded with legacy doubts and issues against businesses, impeding swift regulatory reforms needed to address evolving circumstances. Limited market access: Bhutan’s integration into the regional and international economy has been limited given its inability to engage in increased trade. Import and export costs are very high, with its logistic performance index being the second lowest among the South Asian countries in 2022. The majority of Bhutan’s trade is with India, and access to international markets is limited to about 27 potential destinations – with the latter requiring efficient trade routes and logistics connections to make them potentially favourable destinations for Bhutanese exports.19 Exports are constrained by infrastructure limitations including market information, port and airport facilities, telecommunications and inland transports. In addition, there are internal barriers such as unreliable supply of electricity and other utilities, and slow progress in the simplification of customs and administrative procedures among other reforms to ease doing business. External barriers include non-tariff barriers such as technical and phytosanitary measures. Strict environmental standards also pose constraints. Weak private sector: In the last six decades of planned development, the private sector has gradually taken on a larger role in the economy. However, business market shares of the national productive private sector have remained insignificant due to high production costs stemming from poor infrastructure, old technology, and insufficiently skilled labour. The Bhutanese private sector remains weak and there is still room for expansion and growth. Cottage and small-scale businesses dominate the sector, respectively making up over 30 percent and close to 65 percent of the total active industrial licences in the country as of June 2023. These mainly operate in retail and trade, construction 19 The World Bank (2023). Connecting to Compete 2023: The Logistics Performance Index and its Indicators. 41 13th Five Year Plan and transportation services, tourism, and light industry. Most businesses are sole proprietors (96 percent) and very few are incorporated companies (three percent).20 The country possesses only a handful of large industrial groups typically active in retail, domestic trade and construction. Trade expansion is hindered by uncompetitive and limited range of products, gaps in trade facilitation, high technology costs, and a small market that does not provide for scale to build competencies and expand outside. The sector suffers from suboptimal capacity, knowledge and organisation, and productivity is impacted by inappropriate skills. These, in turn, are linked to quality and relevance of the education system, low investment in training, lack of training incentives and schemes, as well as poor work ethics. Therefore, economic diversification is still limited, and private sector contribution to growth and job creation is minimal. The government through State-Owned Enterprises (SOEs) continues to be a significant economic agent. SOEs by virtue of their size, and government backing and ownership, are well-suited to venture into areas that entail large investments, long gestation periods and high risks. SOEs also fulfil a social mandate to deliver goods and services that may not necessarily be profitable, such as to ensure food security, and will thus continue to play a critical role in the country’s economic development. However, some investments of SOEs are in commercial spaces like manufacturing, real estate and trading, where the private sector already has a presence. Several SOEs like the Bhutan Livestock Development Corporation Limited, Food Corporation of Bhutan Limited and Farm Machinery Corporation Limited face profitability and performance issues. Overall, challenges remain in investment management, corporate governance, and financial reporting quality. Limited access to finance: Sound financial system is a critical component of the economy. While substantial capital expenditure is expected to be sourced through external grants, sizable capital will still have to be mobilised from domestic financial institutions and capital markets to realise the goal of a USD five billion economy by the end of the 13th FYP. However, both the banking sector and capital market are still at a nascent stage and critical players in the financial ecosystem are currently non-existent. The Financial Services Act 2011 restricts direct engagement of foreign investors in portfolio investments. The growth of a skilled financial workforce has been limited. 20 Ministry of Industry, Commerce and Employment (2023). Annual Industry Report 2022-2023. 42 13th Five Year Plan In addition, access to finance has traditionally been limited to large corporations possessing the required collateral. The cost of borrowing is very high, with Bhutan having the highest net interest margin in the region.21 In 2024, Bhutan’s capital market consisted of 18 listed companies, totalling BTN 46 billion in market capitalisation, equivalent to 20 percent of GDP.22 This is in stark contrast to most developed nations that have high ratios with Switzerland at 270 percent, the United States of America at 197 percent and the United Kingdom at 104 percent, while rapidly emerging markets are also reaching high ratio levels with South Korea at 127 percent and India at 99 percent.23 Limited access to finance is one of the key reasons hindering private sector growth, given that the sector’s composition is dominated by small businesses which face collateral issues in obtaining bank lending. This inability to expand and the lack of entrepreneurial activities due to inadequate financing is illustrated by the fact that in 2022, only 2.7 percent of firms were new and over 95 percent of the firms employed less than five people.24 3.1.1.2 Key deliverables Outcome: By 2029, Bhutan has enhanced productivity and diversified products and markets driving sustainable economic growth. The 13th FYP shall strive to build national productive capacity and integrate the Bhutanese economy into regional and international markets through diversified products and markets. Progress towards this outcome will be based on improvements in living standards, youth employment, Gini coefficient, and ecological diversity and resilience. It will also be based on maintaining the annual average GDP growth of eight percent, containing annual average inflation under five percent, and reduction in national trade deficit while increasing the share of non-hydro exports. 21 Royal Monetary Authority (November 2023). Core Indicators Report. 22 Royal Securities Exchange of Bhutan website: https://rsebl.org.bt, accessed in May 2024. 23 Asian Development Bank (December 2021). Report on Bhutan’s Capital Markets and Alternative Investment Markets Regulations. Technical Assistance Consultant’s Report, Project Number: 51252-004. 24 MoLHR, RGoB (June 2022), Establishment Survey 2022; and NSB (2018), Economic Census of Bhutan 2018. 43 13th Five Year Plan Output 1: Business ecosystem improved Output 2: Quality infrastructure, Outcome: connectivity, and energy ensured By 2029, Bhutan has enhanced productivity, diversiﬁed markets and products driving sustainable Output 3: economic growth Supply of skilled workforce ensured Output 4: GDP contribution of strategic sectors increased Deliverable 1: Improved business ecosystem. This requires deregulation as well as harmonisation and implementation of strategic policies, and improvements in business services delivery. Increased private sector participation will have to be facilitated through development of growth centres, increased foreign direct investments, and improved access to finance, e-commerce, and trade and logistics facilities. This shall be complemented by the Druk Holding Investments Limited (DHI) and SOEs focusing on investments beyond the capacity of the private sector. Market access will be enhanced, particularly for the export of Bhutanese products. This requires exploration and establishment of new markets; strengthened bilateral, multilateral and regional trade relations; and development of new export products and services. Additionally, new and existing industries and start-ups will require support and intellectual property registration will be facilitated. Deliverable 2: Quality infrastructure, connectivity and energy. The liveability of human settlements must be enhanced with reliable and affordable access to services and amenities. It will require improvements in connectivity through reduced travel time on national highways, establishment of cross-border railway links, enhanced domestic and international air connectivity, and reliable and affordable digital connectivity. 44 13th Five Year Plan It also requires development and operationalisation of infrastructures such as dry ports, industrial estates, and export processing zones to enhance productivity for economic development. Additionally, to improve accessibility, reliability and affordability of energy, the harnessing of non-hydro renewable energy i.e. wind and solar power will be enhanced while reducing fossil fuel consumption. Deliverable 3: A skilled labour force. A skilled labour force is essential for economic diversification and improved productivity. In particular, effective solutions are needed to address the persistent issue of high youth unemployment due to skills mismatch, lack of employment opportunities in the private sector, and youth not being keen on blue collar jobs. This entails training and certification including reskilling of the domestic labour force for specific skills as per market requirement, and upgradation of qualifications through courses relevant to the needs of the 21st century market. The number of appropriately skilled and certified Bhutanese workers in automobile, plumbing, electrical and construction works, among other vocations will have to increase. There will also have to be an increase in Bhutanese labour force possessing tertiary qualifications in engineering, teaching, medicine, and ICT. In addition, the deployment of skilled foreign workers in critical sectors will have to be explored. Deliverable 4: Increased sustainable contributions of strategic sectors to GDP. Agriculture Mining BTN. 43 Manufacturing Electricity Construction BTN. 56 BTN. 19 Services GDP 2029 BTN. 31 USD 5 Billion BTN. 199 BTN. 43 BTN. 135 GDP 2023 BTN. 9 BTN. 25 USD 2.5 Billion Nu. 59 BTN. 5 BTN. 36 Attract FDI  Supply skilled workforce  Improve business Invest in infrastructure, eco-system connectivity, and energy 45 13th Five Year Plan Increasing the sustainable contributions to GDP by strategic sectors requires intensified efforts at diversifying and greening the economy. It entails investments in traditional and new sources of growth – ensuring that the activities undertaken promote reduced carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services. In addition to conventional sectors, contribution to GDP is expected to be enhanced with climate financing and carbon trading, attracting at least 300,000 tourists annually, and by capitalising on natural endowm

13th Five Year Plan (2024-2029) Royal Government of Bhutan PDF

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