The Royal Government of Bhutan (RGoB) recognizes that Bhutan is facing both the challenges and opportunities of the 21st century in adapting social, environmental, and economic integration to a more globalized world.
By Zhu, Da, Dominic Pasquale Patella,
Roland Steinmetz, and Pajnapa Peamsilpakulchorn
Image Attribute: Bhutanese School Boys, Outskirt of Thimpu City, Bhutan
Source: Wikimedia Commons
Key Messages
- Bhutan’s economy is on the rise and is driven largely by hydro-power development, tourism, and services.
- Green growth is at the heart of Bhutan’s development goals, and the national strategy calls for ecologically balanced sustainable development.
- Bhutan currently runs a large and growing account deficit due to increasing demand for imports, which poses a key macroeconomic management issue.
- Bhutan’s fiscal position is sound with prudent management of spending, but tax collection could be improved to increase revenue.
- Improving the availability and quality of urban transport services in Bhutan is important.To accommodate the growing urban populations and increasing levels of motor vehicle ownership, the main urban centers of Bhutan (Thimphu and Phuentsholing) will need to focus on expanding the availability and quality of urban infrastructure and services, including transport services
GDP Growth and Current Account Deficit
After a
policy-engineered slowdown in 2012, which saw GDP growth decline to 4.8 percent
(the lowest since 2008), in 2013 the economy in Bhutan managed to rebound to a
GDP growth of 6.5 percent, supported by hydro-power construction and higher
electricity and food production following favorable rains. The macroeconomic
projections for 2014 set GDP growth at 7.3 percent, which would stem from new
projects, increased tourism receipts, easier credit conditions, and the effects
of the Economic Stimulus Plan (World Bank 2014). One of Bhutan’s key
macroeconomic issues is its large and growing current account deficit, which
was estimated at about 25 percent in 2013. Currently, the account deficit is
projected to deteriorate over the medium term because of strong growth in
import demand associated with the construction phase of the hydropower projects,
as well as hydro debt service. When the hydropower projects are completed,
however, electricity exports are likely to more than triple from current
levels. The current account deficit should thus decline over the longer term,
leading to a balance of payment surpluses starting in 2020.
Tight public
spending has kept the fiscal deficit in Bhutan below 5 percent of GDP, despite
a sharp decline in revenues. Overall, the fiscal deficit is estimated at 4.5
percent of GDP in 2013/14. The government continues to rely heavily on foreign
grants to finance its expenditure; in FY2012/13, grants financed about 36
percent of total spending (10 percent of GDP), with 70 percent of grants coming
from the government of India.
Eleventh
Five-Year Plan: Self-Reliance and Green Socioeconomic Development
The Royal
Government of Bhutan (RGoB) recognizes that Bhutan is facing both the
challenges and opportunities of the 21st century in adapting social,
environmental, and economic integration to a more globalized world. The recently
announced 11th Five-Year Plan (FYP) for 2013–2018 (Gross National Happiness
Commission, Royal Government of Bhutan 2013) focuses mainly on self-reliance
and inclusive green socioeconomic development. Even with the robust growth
rates of the economy over the past decade, Bhutan’s dependence on imports, its
narrow tax base, large dependence on hydropower revenues, and low levels of
productive employment make self-reliance a major development target for the
country. In addition to self-reliance, as a crosscutting principle the FYP also
calls for the adoption of rigorous environmental standards and mainstreaming of
green or carbon-neutral strategies in all activities, specifying the promotion
of electric vehicles as a strategy to address environmental issues and reduce
dependency on fossil fuel.
Energy Sector
and Hydropower [1]
The energy
sector is very important for the development of Bhutan and has been a primary
focus in recent FYPs. In particular the development of hydropower has been
driving economic growth and is currently a key source of income, accounting for
about one-fifth of Bhutan’s GDP and about 30 percent of total government
revenues (International Monetary Fund 2014). Bhutan has an estimated hydropower
potential of 23,760 megawatts (MW) with a mean annual energy production
capability close to 100,000 gigawatt-hours (GWh). At present, the installed
hydropower capacity is about 5 percent of the total potential (Gross National
Happiness Commission, Royal Government of Bhutan 2013). Electricity tariffs are
the lowest in the region, and a free electricity program for the first 100
units is being implemented from 2013 to 2015 to encourage rural communities to
use electricity instead of firewood because of environmental and health
concerns (Gross National Happiness Commission, Royal Government of Bhutan
2013).
Urban
Development
Bhutan is
undergoing a profound and rapid demographic transition from a largely
subsistence, rural economy to an urban society. The 2008 National Urban Strategy
(NUS) assumed as the most likely scenario that by the year 2020 the nation will
be 60 percent urbanized, adding an estimated 250,000 urban dwellers compared to
the 30.8 percent urbanization level in 2005. The cities Thimphu and
Phuentsholing are the two most popular destinations for urban migrants.
Thimphu, the capital and main city, has already experienced a rapid increase in
its urban population, which was followed by a rapid expansion of its urban
extension; by 2040, the city is expected to again have doubled its population.
Phuentsholing is an industrial hub linking Bhutan with its neighbor India. In
anticipation of the growth of the urban population, levels and quality of
infrastructure and services would need to be increased.
Urban
Transport
In recent
years and following the rapid urbanization rate, urban transport has undergone
significant changes. Between 1990 and 2010, the number of Bhutanese living in
urban areas nearly tripled, and rates of motor vehicle ownership have increased
along with this trend. This has led to traffic congestion, particularly in the
main urban areas such as Thimphu, as well as to other impacts on the urban
environment such as increased emissions and reduced pedestrian safety. Bhutan’s
urban transport systems are still developing to meet the increasing demand for
urban mobility. As of September 2014, total vehicle registration was 68,744 in
Bhutan, with an estimated 38.4 percent of registrations in Thimphu Dzongkhag2
based on the household ownership rate. During 2008 to 2012, the motorization
rate grew about 12 percent per year, with an average of about 6,300 newly
registered vehicles each year. Appendix A includes more detail about urban
transport in Bhutan.
Global EV
Initiatives and the Context of the Bhutan EV Initiative
EV technology
has only recently been introduced to the global market, and the EV initiative
of the RGoB will be one of the first in the emerging markets. Internationally,
countries have initiated EV policies with a mix of objectives, such as to enhance
energy security, reduce GHG emissions and local air pollution, and promote
domestic car industries. In fact, EV initiatives in the five countries with the
highest EV stock by the end of 2014 (China, Japan, the Netherlands, Norway, and
the United States) are driven by clear strategic policy objectives or national
mandates. Among this top five, three countries—China, Japan, and the United
States—are global leaders in auto manufacturing with clear strategic reasons to
invest in research and development (R&D) to maintain their industry’s
competitive advantage. In comparison, European countries are driven more by
their climate and environment policies with committed targets for GHG emission
reduction. The Norwegian government, for example, has adopted a target to
reduce average carbon dioxide (CO2) emissions for new passenger cars to 85 g/km
by 2020 in order to meet a target of reducing GHG emissions in the Norwegian
transport sector by 2.5–4 million tons. EV initiatives are also used by local
governments such as those in Beijing, California, and London to address
Notes
1. The
information about hydropower is drawn from the Green Growth Report.
2. Thimphu
Dzongkhag refers to the administrative district that includes Thimphu City.
Cite This Article:
Zhu, Da,
Dominic Pasquale Patella, Roland Steinmetz, and Pajnapa Peamsilpakulchorn.
2016. The Bhutan Electric Vehicle Initiative: Scenarios, Implications, and
Economic Impact. Directions in Development. Washington, DC: World Bank.
doi:10.1596 /978-1-4648-0741-1. License: Creative Commons Attribution CC BY 3.0
IGO
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References
Gross National
Happiness Commission, Royal Government of Bhutan. 2013. Eleventh Five Year Plan
Volume I: Self Reliance and Inclusive Green Socio-Economic Development.
Thimphu, Bhutan: Gross National Happiness Commission, Royal Government of
Bhutan.
International
Monetary Fund. 2014. 2014 Article IV Consultation—Staff Report; Press Release;
and Statement by the Executive Director for Bhutan. International Monetary Fund
Country Report 14/178. Washington, DC: International Monetary Fund.
World Bank.
2014. Bhutan—Development Update. Washington, DC: World Bank.
This work is made available by "World Bank" under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0
IGO) http:// creativecommons.org/licenses/by/3.0/igo
