AfDB approves loans for fiscal sustainability and green recovery

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…includes another fund to build a solar power plant

Thukten Zangpo

The Asian Development Bank (AfDB) on October 18 approved a US$37.35 million (approximately Nu 3 billion) policy-based loan to support Bhutan’s green and resilient economic recovery from the coronavirus pandemic. Covid-19.

The loan will finance the first sub-program of the fiscal sustainability and green recovery program.

This includes supporting medium-term institutional and policy reforms to expand domestic resource mobilization, promote private sector development, particularly crafts and small industries (CSI), and introduce adaptation measures and climate change mitigation.

“The Covid-19 pandemic has severely affected Bhutan’s economy, which has performed well over the past two decades. Fiscal sustainability is critical for Bhutan as it recovers from the pandemic and aspires to become a high-income country by 2030,” said Chandan Sapkota, AfDB Public Management Economist for South Asia. .

He added that government revenue would increase and expand fiscal space for the investments needed to achieve green, resilient and inclusive development.

Nearly 40% of Bhutan’s economic activities that rely heavily on hydropower to drive growth are sensitive to climate change.

The AfDB said the program would help lay Bhutan’s foundation for a green recovery by supporting a national adaptation plan, a climate-resilient development strategy and green finance.

The program would also contribute to strengthening domestic resource mobilization, including through reforms in the areas of customs administration, tourism, a medium-term revenue strategy, and public financial management.

Since business development in Bhutan is constrained by complicated processes, shortage of skilled labor, low digitization, reliance on state-owned enterprises, and limited access to finance.

It would support the streamlining of licensing procedures, the promotion of business ventures, tax incentives for CSIs, and market-relevant technical and vocational education and training.

Previously, the AfDB had provided $1 million in technical assistance to support the implementation of policy actions, including the strengthening of executing and implementing agencies.

The bank also approved another $18.26 million fund for the construction of the first large-scale solar PV power plant on October 19.

Of the total funding, $8.26 million will be a concessional loan and $10 million in grants from the Asian Development Fund. The government would contribute 0.99 M USD to the project.

The plant with a minimum total capacity of 17.38 megawatts peak would be built in west-central Bhutan. The plant would produce 25 gigawatt hours of electricity per year.

The initiative will help Bhutan diversify its energy mix since the country depends exclusively on hydroelectricity, a sector vulnerable to the impacts of climate change.

“This project will be the country’s first major step towards diversifying power generation and increasing the resilience of its energy sector to future climate shocks,” said the AfDB’s energy specialist for the South Asia, Christoph Meindl.

“Rising temperatures are expected to reduce glaciers and snow-covered areas, which will shift Bhutan’s hydrological system to a more precipitation-dominated pattern. This affects hydropower generation due to frequent droughts expected outside the monsoon season and extremely high flows during the monsoon season,” the specialist said.

The project is supported by technical assistance in the amount of USD 20,000 from the AfDB Technical Assistance Special Fund and USD 450,000 from the Republic of Korea’s e-Asia and Knowledge Partnership Fund.

The technical assistance will support learning opportunities on climate-resilient energy systems for upper secondary students in the Science, Technology, Engineering and Mathematics stream as well as the Department of Renewable Energy (DRE) of the Ministry of Economic Affairs.

About 30 to 40 percent of women would benefit from apprenticeship programs.

The technical assistance will also support the DRE to conduct a gender mainstreaming and social inclusion self-assessment that would help the agency adopt an inclusive corporate-level policy, such as the support for gender-balanced staffing, proactive recruitment of people with disabilities and equality. remuneration, among others.

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