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Country: Bhutan

Social and Economic Background of Bhutan

According to World Bank estimates, in 2004 Bhut...
Final Version

income per capita to create collateral. Currently, there is no assessment for business closure
policies.

T...
Final Version

Individual Lending Schemes. Mobile banking has also been introduced. Commercial, agricultural
and industria...
Final Version


Bibliography
Asian Development Bank
       Asian Development Outlook database, staff estimates,
       <ht...
Final Version


World Bank
      World Bank Gender Statistics, <http://devdata.worldbank.org/genderRpt.asp?
      rpt=prof...
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Bhutan

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Transcript of "Bhutan"

  1. 1. Final Version Country: Bhutan Social and Economic Background of Bhutan According to World Bank estimates, in 2004 Bhutan had a population of 896,000 people, 53.5% of whom were between the age of 15 and 64. The CIA estimated Bhutan’s 2003 PPP adjusted GDP per capita at US$1,400, with a real growth rate of 5.3%. Bhutan’s 2000 PPP adjusted GNI is US$1161 in current international dollars and its 2004 GNI per capita is US$660 according to the World Bank. The Bhutan national poverty line is 740.36 Ngultrum (Nu) per month, which is approximately US$17. Based on this poverty line, it is estimated that 31.7% of the population of the country is poor. The richest 20% of the population consume almost eight times more than the poorest 20%. The GINI coefficient, which measures inequality in a country, is 0.416. The Bhutan Poverty Analysis Report of 2004 predicts that it will take 15.5 years for the 4% of subsistence poor, who are unable to meet their basic food needs, to exit poverty. According to the Bhutan Poverty Analysis Report of 2004, the current average per capita household income is US$0.80 per day. About a quarter of the population is living on less than US$0.46 a day, most of them in rural areas, where there is limited access to roads, lack of farmland, resulting in a population with few productive skills. According to the South Asian Alliance for Poverty Alleviation (SAAPA), 80% of Bhutan’s 870,000-member population continues to reside in rural areas despite recent urban growth. The Bhutan Poverty Analysis Report of 2004 finds that school participation rates for the richest quintile is about 30% higher than the poorest quintile. Additionally, school attendance in rural areas is found to be considerably lower for both the poor and non-poor. The Poverty Analysis Report highlights that while a majority of the sick consult medical professionals, there are disparities between rural and urban households, and between the poor and non-poor with regards to access to health services. 84% of the population has access to safe water, but this figure is much higher in urban areas. Similarly access to electricity is higher in urban areas. The currency of Bhutan is Ngultrum (Nu). The ngultrum is pegged at parity to the Indian rupee. The average exchange rate was Nu 48.61: US $1 in 2002, Nu 45.58: US $1 in 2003 and estimated to be Nu 45.32: US $1 in 2004, according to the Selected Economic Indicators published by the Bhutan Royal Monetary Authority in March 2005. As of January 2005, Bhutan has not planned to participate in the World Bank and IMF’s in the Financial Sector Assessment Program (FSAP). Doing Business in Bhutan According to the World Bank, in 2004, it took 11 steps to launch a business in Bhutan, over an average of 62 days, at a cost equal to 11.0% GNI per capita. Bhutan does not require a minimum deposit to obtain a business registration number. Registering property takes 44 days in Bhutan, has four procedures, and costs an average 1% of the property value. While there is no measurable data on the ease of obtaining credit in Bhutan, the World Bank did calculate costs of 0.6% of 1
  2. 2. Final Version income per capita to create collateral. Currently, there is no assessment for business closure policies. The World Bank also measures the ease of hiring and firing employees by using several indices which assign a value between 0 and 100 to a country, with higher values indicating more rigid regulations. In Bhutan, the Difficulty of Hiring index is 78; Rigidity of Hours index is 60 (measures rigidity of regulations on working hours); and Difficulty of Firing index is 10. Bhutan scores a 49 in the overall Rigidity of Employment Index, which is an average of the three indices above. Firing costs, which are calculated using the number of weeks’ worth of salary in severance, notification, and penalties that must be paid to dismiss a worker, rates 94 in Bhutan. Regulatory and Legal Environment of Bhutan The Government of Bhutan has adopted multiple privatization, divestment, and de- monopolization policies, as noted in the Assessment of the Impact of the World Trade Organization on Bhutan. Included in these policies are tax incentives for attracting investment in the manufacturing, service and information technology sectors. In December 2002, the government approved the Foreign Direct Investment Policy, which strives to boost private sector development, employment, transfer of capital/technology/skills, and convertible currency earnings. The World Bank uses a Disclosure Index to measure the level of protection investors have according to various factors relating to indirect ownership, audit committees, and public access to information. Bhutan scores 1 on a scale of 0 to 7, where a higher number indicates more disclosure. According to the World Bank, enforcing a commercial contract in Bhutan takes 20 steps, 275 days, and costs 113.8% of the debt value of the business. Microfinance Institutions (MFIs) and Commercial Banks’ Involvement in Bhutan Bhutan’s financial sector is comprised of two commercial banks, one government-owned and one private. Additionally, there are two non-bank financial institutions, the Royal Insurance Corporation of Bhutan (RICB) and the Bhutan Development Finance Corporation (BDFC), the country’s only development bank, according to the Assessment of the Impact of the World Trade Organization on Bhutan. The report notes that financial intermediation is minimal, consisting of simple lending and deposit operations. The Asian Development Bank lists the following additional entities in Bhutan’s financial sector: the Royal Monetary Authority (the central bank); the National Provident and Pension Fund Bureau; and the Royal Securities Exchange of Bhutan. Bhutan’s political and economic decentralization process has enhanced the credit delivery process, thereby leading to a sharp decrease in transaction costs in terms of waiting time, travel expense, and missed business opportunities. Several attempts at microfinance initiatives have been made. Since the 1980s, UNCDF has assisted the BDFC in administering a nationwide Rural Credit Programme to expand income-generating opportunities for small farmers via increased credit access and land improvements, according to the UNCDF 2005 Microfinance Countries and Regions report. In 1999, the SNV (a Dutch development organization) and RaboBank provided capital funding, capacity building, and technical assistance as part of a separate program. This project is meant to aid in the introduction of mobile banking and group guarantee loan schemes to Bhutan, however, the 2002 Microfinance Evaluation reports varying feedback on the progress of these initiatives. In the rural areas of Bhutan, BDFC practices a credit and savings approach. The services and products provided by the BDFC in these areas are Group Guarantee Lending Schemes and 2
  3. 3. Final Version Individual Lending Schemes. Mobile banking has also been introduced. Commercial, agricultural and industrial loans are also included in BDFCs products irrespective of rural/urban setting. According to the BDFC 2004 Annual Report, the number of active clients is 15,588. Activities of Bhutan’s National Committee The National Committee of Bhutan has committed itself to the International Year of Microcredit (IYM) by filling in information gaps surrounding microfinance. The committee includes individuals from the Ministry of Finance, the Bhutan Development Finance Corporation (BDFC), the UNDP deputy resident representative, the UNDP/UNCDF programme officer, and multilateral agencies such as SNV Netherlands Development Organization. The National Committee of Bhutan is engaged in various activities to promote the IYM. BDFCs Rural Savings Program, "Save to Grow", was launched in April 2005 to encourage savings in rural areas and has thus far surpassed expectations. To fine-tune the savings scheme and learn from the lessons of the first months of the programme, BDFC, with support from development partners and the National Committee, is arranging a workshop in September on improving the scheme. At the same time the committee is supporting BDFCs current promotion of the credit plus savings services available in the rural areas. 3
  4. 4. Final Version Bibliography Asian Development Bank Asian Development Outlook database, staff estimates, <http://www.adb.org/Documents/Books/ADO/2005/highlights/part020000.asp> Technical Assistance (financed by the Japan special fund) to the Kingdom of Bhutan for Institutional development of the Bhutan development finance corporation, August 2002 Centre for Bhutan Studies Tashi Wangyal , An Assessment of the Impact of the World Trade Organization on Bhutan Central Intelligence Agency World Fact book, 2005 <www.cia.gov> International Momentary Fund Dev Kar (TRE), Bhutan Statistical Annex May 17, 1999. Robert Peck Christen, Richard Rosenberg, and Veena Jayadeva Financial Institutions with a "Double Bottom Line"--Implications for the Future of Microfinance Royal Monetary Authority of Bhutan Selected Economic Indicators, , March 2005 Annual Report 2003-2004, January 2005, Statistical Yearbook of Bhutan 2004, National Statistical Bureau, February 2005. South Asian Alliance for Poverty Alleviation, <http://www.saape.org.np/resources/documents/ index.htm> Social Watch Country by country: Extended data of Bhutan <http://www.socialwatch.org/en/fichasPais/ampliado_32.html> United Nations Development Programme Briefing Statement to the Human Rights Caucus in the U.S. House of Representatives by Henry R. Jackelen; Head of the Special Unit for Microfinance; JULY 21, 1999, <http://www.uncdf.org/english/microfinance/documents_and_reports/thematic_paper s/hrc_990721.php> Bhutan Poverty Analysis Report 2004, <http://www.undp.org.bt/poverty> UNDP in Bhutan Governance: Monitoring Poverty, Oct 2002 <www.undp.org.bt> UNCDF: Bhutan, 2005, <http://www.uncdf.org/english/countries/bhutan/index.php> 4
  5. 5. Final Version World Bank World Bank Gender Statistics, <http://devdata.worldbank.org/genderRpt.asp? rpt=profile&cty=BTN,Bhutan&hm= home> 2004 World Bank Doing Business Database <http://rru.worldbank.org/DoingBusiness/ExploreEconomies/BusinessClimateSnapshot .aspx?economyid=24> 2004 World Bank: Bhutan at a Glance, <http://www.worldbank.org/cgi-bin/sendoff.cgi?page=%2Fdata%2Fcountrydata%2Faag %2Fbtn_aag.pdf> World Resources Institute EarthTrends, 2003,<earthtrends.wri.org > 5

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