ADB Approves $15M to Boost Bhutan’s Financial Stability and Inclusive Growth

The initiative supports Bhutan in addressing long-standing financial sector constraints, while equipping institutions to better withstand climate and economic shocks.

The Asian Development Bank (ADB) has approved a $15 million financing package to support wide-ranging reforms in Bhutan’s financial sector. The package includes a $10 million policy-based loan and a $5 million policy-based grant through the Asian Development Fund, aimed at stabilizing the financial system, deepening capital markets, and promoting inclusive and green finance.

The program—Strengthening the Banking and Capital Markets Reforms Program—is designed to help Bhutan advance economic diversification and expand private sector activity as the country works toward its goal of becoming a high-income nation by 2034.

A Strategic Push Toward a Stronger Financial System

The initiative supports Bhutan in addressing long-standing financial sector constraints, while equipping institutions to better withstand climate and economic shocks. According to ADB Country Director for Bhutan Sonomi Tanaka,

“The program reflects ADB’s commitment to supporting Bhutan’s ambition to build strong and inclusive financial systems capable of mobilizing resources effectively. It will open new opportunities for private sector growth, diversify the economy, and enhance resilience to extreme weather shocks.”

Key Challenges Facing Bhutan’s Financial Sector

Bhutan’s financial system continues to face structural vulnerabilities, including:

• Limited economic diversification, with a heavy reliance on hydropower

• High levels of nonperforming loans, affecting banking sector stability

• Low foreign direct investment (FDI) inflows

• Restricted fiscal space, limiting government ability to invest in reforms

• High rural poverty (17.5%) and inadequate social protection

• Increasing exposure to climate-related events, such as floods and landslides

These challenges disproportionately impact rural communities and hinder the country’s broader development trajectory.

What the Program Will Deliver

The ADB-financed reform package focuses on several priority areas:

1. Strengthening Banking Stability

• Enhancing regulatory frameworks

• Improving asset quality management

• Increasing risk assessment capabilities

2. Developing Deeper Capital Markets

• Establishing credit rating agencies

• Improving governance and transparency

• Expanding the investor base and widening financial products

3. Scaling Up Green and Inclusive Finance

• Creating a national framework for green and social bonds

• Enhancing digital financial services

• Strengthening financial literacy programs for underserved populations

• Expanding access to finance for rural communities and MSMEs

Aligned With Bhutan’s National and Global Strategies

The program builds on ADB’s previous financial sector work, including the successful Financial Market Development Program (2019–2021). It also aligns with:

• Bhutan’s Thirteenth Five-Year Plan, which prioritizes economic resilience, climate readiness, and inclusive growth

• ADB’s Strategy 2030, focusing on climate action, private sector development, and digital transformation

A Foundation for Inclusive, Climate-Resilient Growth

By modernizing Bhutan’s banking regulations, boosting capital market infrastructure, and promoting new sustainable financing tools, the initiative aims to create conditions for:

• Greater private sector investment

• Stronger financial stability

• Expanded access to finance for remote and vulnerable populations

• Increased resilience to climate and economic shocks

The ADB emphasized that these reforms will help Bhutan build a more diversified and future-ready economy, reducing dependence on a narrow set of sectors and broadening opportunities for all citizens.