Bhutan

Politics:

• Analysis

  Bhutan politics: Quick View - The new Silk Road

  Event

  In mid-December 2012 Robert Blake, the US assistant secretary of state for South and Central Asian affairs, arrived in Bhutan and met the prime minister, Jigme Thinley. The two politicians discussed Bhutan's development process, food security and Mr Thinley's recent attempts to expedite development projects in the country.

  Analysis

  Although Bhutan is a small country, it carries strategic importance by way of its shared borders with both China and India, its close ties with India and China's increasingly friendly overtures towards the kingdom. Mr Blake has said that he sees Bhutan and the US expanding relations by extending their collaboration in the field of education. He added that his government is keen to encourage more Bhutanese to study in the US. The US administration also favours collaboration between its universities and those in Bhutan, including the possibility of US institutions setting up operations in the so-called Education City that Bhutan is currently planning to build.

  The US is interested in increasing its interaction with Asia, given its interest in reducing and controlling terrorist activities in the region. Mr Blake has previously said that the US gives this regional linkage the "highest strategic priority" as it would be a "conduit for peace". To that end, the US government is actively encouraging broad regional linkages in South Asia in order to advance the region's development. At present, South Asia is one of the world's least economically integrated regions.

  The US administration now hopes to forge economic partnerships with various countries in the region through the "new Silk Road", a revival of the ancient Silk Road that ran through Central and South Asia, facilitating the movement of people, commerce and ideas between Western Europe, the Middle East and East Asia. It also hopes to achieve this through the Indo-Pacific Corridor, which intends to connect north-east India, Bangladesh and Myanmar with the expanding economies of South-east Asia.

  January 23, 2013

• Background

  Bhutan: Key figures

  King Jigme Khesar Namgyal Wangchuck

  Following his father's planned abdication, King Jigme Khesar Namgyal Wangchuck took over the responsibilities of state in December 2006 and will be formally crowned king in May 2008. The 28-year-old monarch is head of state and was responsible for supervising the process leading up to primary and general elections in December 2007 and March 2008. He is responsible for national security and commands the army.

  King Jigme Singye Wangchuck

  King of Bhutan from 1972 (formally crowned in 1974) to 2006, he continued his father's drive to make Bhutan modern and economically self-reliant, while at the same time preserving the country's religious and cultural traditions. He initiated the democratisation of the political system and the drafting of the first written constitution. He now has no official position, but could still be influential.

  Jigme Thinley

  Leader of Druk Phuensum Tshogpa (DPT). Following the party's landslide victory in the March 2008 general election, Mr Thinley became the first elected prime minister. He had served as prime minister—albeit unelected—twice before, in 1998-99 and 2003-04. He also previously served as foreign minister and home affairs minister.

  Sangay Ngedup

  Leader of the opposition People's Democratic Party (PDP). Mr Ngedup had also served as an unelected prime minister twice before, in 1999-2000 and 2005-06. He also previously served as agriculture minister.

  Sonam Tobgye

  The chief justice and chairman of the constitution drafting committee. He is known for modernising the legal system.

  The judiciary

  As Bhutan makes the transition from monarchy to parliamentary democracy, a Supreme Court has been established, along with an Election Commission and an Anti-Corruption Commission. A chief election commissioner, a chairman of the Anti-Corruption Commission and a new auditor-general were appointed in December 2005.

  The legislature

  Until 2008 executive power lay with a Council of Ministers presided over by a prime minister, with the five ministers who won the largest number of votes in the National Assembly rotating in this post. The National Assembly met twice a year, in June and November. The Assembly had 150 members: 100 members represent the 20 districts and business sector; six royal advisory councillors are elected by the Assembly; ten members representing the clergy; ten cabinet ministers; and 24 representing the government. The National Assembly had the power to replace the king by a two-thirds vote. The old National Assembly was dissolved following the election of a new parliament on March 26th 2008. The newly elected 47-seat National Assembly—the lower house of parliament—is scheduled to begin its first session in May 2008, when it will enact an Election Bill and a Parliamentary Entitlements Bill. These will establish the legal framework for a functioning parliamentary democracy. The first election for the upper house of parliament, the National Council, was held in December 2007.

  Media services

  Two weekly newspapers, Bhutan Times and Bhutan Observer, were started in April and May 2006. Up until then, the only national newspaper was Kuensel, which publishes twice a week. The Bhutan Broadcasting Service, the country's national radio and television station, broadcasts nationwide, and the country's fourth FM radio station, Centennial Radio, began broadcasting in March 2008.

  Democracy index (for methodology, see Appendix)

  As one of the world's last remaining absolute monarchies, Bhutan falls towards the bottom of the Democracy index, ranked 112th out of 169 countries. Its transition to parliamentary democracy, though, ensures that it is designated a hybrid regime rather than an authoritarian one. Nevertheless, a country that held its first-ever parliamentary vote in December 2007 unsurprisingly scores particularly poorly in the political participation category. Restrictions on the media, ongoing allegations of discrimination against Nepali-speaking Bhutanese, the lack of an independent judiciary and the official promotion of Buddhist culture bring down Bhutan's civil liberties score.

  Bhutan's relatively higher score for political culture is in large part the result of the country's social cohesion. By far the most important factor in this sub-category, however, is the promotion of democracy. Bhutan's monarchy is unique in that it has actively spearheaded the transition to full parliamentary democracy, ordering the holding of a general election to choose an elected parliament and organising "mock elections" to serve as practice rounds before the actual event.

  Bhutan's unique transition from absolute monarchy to parliamentary democracy will create scope for improved scores in future; for example, the nearly 80% voter turnout recorded in the March 2008 general election should improve the score for political participation. However, concerns about the efficacy of the process remain. For example, citizens' fairly apathetic response to the process is likely to continue to constrain the political culture score, and the lack of any real opposition—only two parties contested the election, and the dominant party won 94% of seats in the new parliament—will hamper improvements to the score for government functioning.

  Democracy index
  	Overall score	Overall rank	Electoral process	Government functioning	Political participation	Political culture	Civil liberties	Regime type
  Bhutan	4.30	112	5.25	5.00	3.33	4.38	3.53	Hybrid regime

  Download text file (csv format)

  May 06, 2008

• Structure

  Bhutan: Political structure

  Official name

  Kingdom of Bhutan

  Form of state

  Constitutional monarchy. Legislative power lies with the National Assembly (the lower house of parliament), while executive power is vested in the cabinet, led by the prime minister. The constitution, which was initiated in draft form by the king in 2003, was published in 2005 and formally adopted by parliament in 2008

  National elections

  Parliament comprises the 47-member National Assembly and a 25-member National Council (the upper house). Of the members of the upper house, 20 are elected and the remainder are appointed by the king. An election for the upper house in 2007 filled 15 of the 25 seats; five more members of the chamber were elected in January 2008, and five were appointed by the king in March of that year. A lower house election was held in the same month, with the Druk Phuensum Tshogpa (DPT) party winning an overwhelming victory, taking 45 of the 47 seats. The next lower house poll is due in the first half of 2013

  National government

  The king is head of state but can be required to abdicate by a two-thirds vote in the National Assembly. The ten-member cabinet was chosen in April 2008

  Main political organisations

  DPT; People's Democratic Party

  Head of state (dragon king): Jigme Khesar Namgyal Wangchuck

  Prime minister: Jigme Thinley

  Key ministers

  Agriculture: Pema Gyamtsho

  Economic affairs: Khandu Wangchuk

  Education: Thakur Singh Powdyel

  Finance: Wangdi Norbu

  Foreign affairs: Ugyen Tshering

  Health: Zangley Dukpa

  Home & cultural affairs: Minjur Dorji

  Information & communications: Nandalal Rai

  Labour & human resources: Dorji Wangdi

  Works & human settlement: Yeshey Zimba

  Speaker of the National Assembly

  Jigme Tshultim

  Chief justice

  Sonan Tobgye

  Central bank governor

  Daw Tenzin

  November 01, 2012

Economy:

• Background

  Bhutan: Population

  COUNTRY BACKGROUND

  Bhutan has three main ethnic groups. These are the Sharchops, of Tibeto- Burman origin; the descendants of Tibetan immigrants, the Ngalongs; and the Lhotshampa. Lhotshampa, a term referring to the southern Bhutanese, has become synonymous with Nepali speakers. There are many smaller groups with distinct cultural traditions that speak 18 dialects. The term Drukpa refers to the dominant cultural identity of Bhutan and, in theory, includes all ethnic groups, but in practice many Lhotshampa feel excluded.

  May 06, 2008

• Structure

  Bhutan: Economic structure

  Economic structure: Annual indicators

  	2008A	2009A	2010A	2011a	2012b
  GDP at market prices (Nu bn)	47.8	57.1	69.1B	77.0b	87.9
  GDP (US$ bn)	1.1	1.2	1.5B	1.6b	1.7
  Real GDP growth (%)	-2.7	7.1	13.5B	7.6b	7.3
  Consumer price inflation (av; %)	8.3	4.3	7.1	8.8	10.8
  Population (m)	0.7	0.7	0.7	0.7	0.8
  Exports of goods fob (US$ m) c	598.8	516.1	544.5	665.3	725.2
  Imports of goods fob (US$ m) c	-671.2	-606.6	-843.3	-1,184.7	-1,279.5
  Current-account balance (US$ m)c	-28.1	-20.2	-142.2	-354.9	-312.1
  Foreign-exchange reserves excl gold (US$ m)	764.8	890.9	1,002.1	789.6	830.0d
  Exchange rate (av) Nu:US$	43.51	48.41	45.73	46.67	53.03
  a Actual. b Economist Intelligence Unit estimates. c Fiscal years beginning July 1st. d Economist Intelligence Unit forecasts.

  Download the numbers in Excel

  Origins of gross domestic product 2010	% of total	Components of gross domestic product 2010	% of total
  Agriculture	16.8	Private consumption	43.7
  Industry	42.7	Government consumption	21.0
  Services	40.5	Fixed investment	54.8
  		Exports of goods & services	41.8
  		Imports of goods & services	61.3
  Principal exports 2010a	% of total	Principal imports 2010a	% of total
  Electricity	40.0	Mineral products	24.8
  Base metals	37.8	Base metals	18.5
  Mineral products	10.7	Machinery, mechanical & electrical appliances	16.0
  Products of chemical & allied industries	5.6	Transport vehicles, aircraft & engines	10.1
  Main destinations of exports 2010	% of total	Main origins of imports 2010	% of total
  India	88.7	India	75.1
  Hong Kong	7.5	South Korea	5.1
  Bangladesh	3.1	Thailand	2.5
  a Trade with India.

  Download the numbers in Excel

  Download text file (csv format)

  November 01, 2012

• Outlook

  Bhutan: Country outlook

  Bhutan: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: The king, Jigme Khesar Namgyal Wangchuck, will continue to oversee Bhutan's political transition that commenced in 2007-08, when the shift was made from absolute monarchy to parliamentary democracy. Government policy will continue to emphasise the concept of "gross national happiness", while seeking to encourage economic diversification, faster job creation and higher exports. Economic growth, which will average 8.7% a year in the 2013-14 forecast period, will be driven primarily by large hydropower projects. The government will continue to rely heavily on foreign grants-which amount to the equivalent of around 16% of GDP-to finance its expenditure. Consumer prices rises will continue to move in line with inflation in India, which is Bhutan's largest trading partner by a substantial margin. The ngultrum is pegged at parity to the Indian rupee, and the Economist Intelligence Unit expects this to remain the case throughout 2013-14. The trade deficit-which reached an estimated 33% of GDP in fiscal year 2011/12 (July-June)-is unlikely to narrow over 2013-14, given the heavy import demand resulting from new hydropower projects. The stock of external debt will continue to grow, but rising foreign-exchange earnings from hydropower will help to ease the debt-servicing burden.

  DOMESTIC POLITICS: Nearly five years after Bhutan's first general election ended centuries of rule by an absolute monarch, the country continues to consolidate slowly its position as a parliamentary democracy. Although in the long term the democratic experiment is likely to be judged a success, at present Bhutan is still trying to foster the full development of multiparty democracy in the broadest definition of the term, including elements such as a democratic culture. Although tensions persist between the National Assembly (the lower house of parliament) and the National Council (the upper house), and also, more broadly, between the three branches of government (the executive, the legislature and the judiciary), on the whole Bhutan continues to be governed effectively and the risk of political instability is exceptionally low. The first ever general election in Bhutan was held in 2008, and the next poll for the lower house is due in the first half of 2013. The Druk Phuensum Tshogpa (DPT) party, which won an overwhelming victory in the general election, will remain the dominant political force in Bhutan. The DPT won 45 of the 47 lower house seats at the 2008 election, and it is expected to secure another large majority at the next poll. The party will be helped by the fact that it is made up of the political "old guard" from the pre-democracy era and has, therefore, been able to consolidate its position in power easily. It will also be assisted by the fact that the electorate has been relatively uncritical of the government. However, the scale of the DPT's victory could be more modest at the next election, as by then Bhutan's voters may have adjusted more fully to the idea of multiparty democracy and might thus be more willing to challenge the political status quo. In addition to the Peoples' Democratic Party, which won two parliamentary seats at the 2008 election, at least four other parties have indicated their intention of seeking registration with the Election Commission of Bhutan (ECB). At the same time, the stiff criteria set by the ECB for party registration-including broad-based representation at national level-means that there is no guarantee that any of these new groupings will succeed with their attempts to participate in the 2013 poll.

  INTERNATIONAL RELATIONS: Relations with India are likely to remain broadly constructive. The country is Bhutan's largest trade partner by far, and is also a crucial source of aid and investment. Tensions occasionally arise over the issue of Bhutanese refugees living in neighbouring Nepal and the degree of responsibility that India (as the major regional power) should accept in efforts to resolve the dispute. Bhutan's government maintains that many of those described as Bhutanese refugees in Nepal never had citizenship or residency rights in Bhutan to begin with and should, therefore, not be eligible for repatriation. It also believes that some refugees belong to political groups that it considers to be terrorist organisations. Nevertheless, bilateral ties will remain close. Bhutan's relations with China, which have come under significant strain in the past owing to an ongoing border dispute, appear to be improving gradually. An important step took place in June, when the Chinese premier, Wen Jiabao, and the Bhutanese prime minister, Jigme Thinley, held a surprise meeting (their first ever) on the sidelines of a UN conference in Brazil. Relations continued to improve in August, when China's vice-minister of foreign affairs, Fu Ying, visited Bhutan. However, any signs of a warming in the relationship between China and Bhutan are likely to be viewed warily by India, given its concern that any eventual redrawing of the Chinese-Bhutanese border in an area close to the Siliguri Corridor (which connects India's north-eastern states to the rest of the country) could affect its security. In addition, as official trade between China and Bhutan is modest, totalling around US$10m annually, Bhutan's strategic geographical position will remain of much greater interest to China than its commercial potential. Meanwhile, Bhutan's ambitious bid to secure a non-permanent seat on the UN Security Council (UNSC) ended unsuccessfully in mid-October, when it secured just 20 of the 192 votes cast in the UN General Assembly. Nevertheless, the country's candidature for a UNSC seat underlined the government's desire to play an increased role on the global stage after many years of international isolation.

  POLICY TRENDS: Bhutan's economy is very small and is heavily dependent on exports of hydroelectricity, primarily to neighbouring India. The implementation of the tenth five-year plan (for 2008-13) and a new economic development policy (EDP) are major challenges for the country. The EDP, which was finalised in March 2010 after more than two years of work and discussion, is the country's first formal strategy for economic development. Its main goals are to generate employment, to diversify Bhutan's economic base, to promote entrepreneurship and GDP growth, to increase economic self-reliance and to raise merchandise exports in the period to 2020. One-quarter of the document details various financial and tax incentives designed to boost service industries, and in particular the "green" sector. The latter initiative is in accord with Bhutan's strong emphasis on sustainable development and the government's overriding concern that economic growth should not be achieved at the cost of environmental degradation. Further underlining the country's green credentials, the agriculture minister, Pema Gyamtsho, recently announced that Bhutan aims to become the first country in the world to use organic methods for 100% of its domestic food production. The government will continue to rely heavily on foreign grants to finance its expenditure. According to preliminary estimates, such income financed around 36% of total spending and was equivalent to 15.5% of GDP in 2011/12. Grants from the government of India, which made up around 72% of total grants in 2011/12, will continue to account for the bulk of foreign aid. The budget for 2012/13 projects a decline of nearly 9% in nominal spending compared with the revised budget for the previous fiscal year. In his State of the Nation address to parliament in July, the prime minister noted that, given the persistent shortage of rupees, it was essential to bring the country's expenditure closer into line with the available resources. As a result of the spending cuts, we estimate that the fiscal deficit will shrink to the equivalent of 2.1% of GDP in 2012/13, from an estimated 4.7% of GDP in 2011/12, before widening again in 2013/14, to 2.8% of GDP. In 2014/15 the fiscal gap will narrow to the equivalent of 1.5% of GDP, as the pace of growth in government revenue accelerates on the back of the expected commissioning of the Dungsum cement project and the Dagachu hydroelectricity scheme.

  ECONOMIC GROWTH: Hydroelectric projects and exports of electricity to India will continue to underpin Bhutan's economic growth. However, we have lowered our estimate for real GDP growth in 2012 to 7.3%, from 8.3% previously, reflecting the impact-particularly on the construction sector-of the ongoing rupee shortage. Growth will pick up to 8.5% in 2013 and to 8.8% in 2014 as the liquidity squeeze gradually dissipates. Economic activity will be underpinned by a number of large projects. Owing to the fact that the poverty level in Bhutan is still high despite years of healthy GDP growth, the authorities are keen to promote greater regional development. To this end, the government will continue to encourage fast-growing industries that offer potential employment opportunities, such as tourism, financial services and information technology. According to the Royal Monetary Authority (RMA, the central bank), the rupee liquidity crunch that Bhutan has endured for months is merely a symptom of deeper-rooted weaknesses. The economy is driven by aid, debt and imports in addition to high government spending, and is characterised by high credit growth and internal and external imbalances. According to the RMA, a sustainable solution can be achieved only through a strengthening of macroeconomic fundamentals, which it believes will require targeted long-term policy intervention by the government aimed at boosting domestic investment, production and employment. In the meantime, Bhutan's economy will remain highly vulnerable to a sharp slowdown in expansion.

  EXTERNAL ACCOUNT: Exports of minerals and mineral-based products account for nearly one-half of total exports, with hydropower exports comprising a further 40%. India still receives almost 90% of Bhutanese exports, and although we estimate that economic growth in India will remain relatively weak in 2012, continued shortages of power in that country will ensure its continued need to import electricity from Bhutan. In 2013-14 we expect India's economic expansion to recover, further supporting demand for electricity imported from Bhutan. Despite this, we expect the trade deficit to show little improvement, given the strong demand for imports that will result as a peak is reached in construction activity on new hydropower projects. Inflows of development aid, which have traditionally provided additional support to Bhutan's balance of payments, are expected to diminish as donors prioritise other countries that are seen as having a greater need for such funds. This will lead to a fall in the surplus on the capital account. The RMA governor, Daw Tenzin, has noted that once hydropower projects that are currently under construction begin generating electricity, Bhutan's income per head will increase and it could lose its "least-developed country" status. This would make Bhutan ineligible for concessional loans and aid. RMA data indicate that Bhutan's external debt (measured in US dollar terms) increased by over 55% between June 2010 and June 2012, reaching US$1.4bn. Loans for hydropower projects accounted for most of the increase in liabilities. Once completed, these projects should provide a steady stream of foreign-exchange earnings that will help the country to amortise its debt.

  November 02, 2012

View detailed map

Country Briefing

Land area

38,394 sq km

Population

634,982 (2005 census)

Thimphu (capital) 98,676 (2005 census estimate)

Climate

The tropical climate in southern Bhutan changes dramatically as the mountains rise steeply to altitudes beyond the tree line, reaching permanently snow-covered regions in the northern Himalayan region

Weather in Thimphu (altitude 2,320 metres)

Hottest month, August, 13.5-30°C (average daily minimum and maximum); coldest month, January, -8°C to 20.5°C; driest month, November, negligible average monthly rainfall; wettest month, October, 134mm average rainfall

Languages

There are four main language groups and 18 dialects. The national language, Dzongkha, is spoken in the western part of the country, Bumthang-kha in the centre, Sharchop-kha in the east and Nepali in the south. English is the main language in use in schools and is widely used, especially by the urban population

Measures

Metric system

Currency

Ngultrum = 100 cheltrum. The ngultrum is pegged at parity to the Indian rupee. Average exchange rate in 2011: Nu46.7:US$1

Time

6 hours ahead of GMT

Fiscal year

July 1st-June 30th

Public holidays

January 2nd (Winter solstice); February 21st-23rd (Birthday of the fifth king); February 22nd-23rd (New Year); May 1st (Zhabdrung Kuchoe); May 2nd (Birthday of the third king); June 4th (Lord Buddha's Parinivana); June 29th (Birthday of Guru Rinpoche); July 23rd (Anniversary of the first sermon of Lord Buddha); September 22nd (Blessed Rainy Day); October 24th (Dashain); November 1st (Coronation Day of the fifth king); November 6th (Descending Day of Lord Buddha); November 11th (Birthday of the fourth king); December 17th (National Day)

August 01, 2012