World Bank Approves $40M Financing to Strengthen Bhutan’s Climate and Disaster Resilience

The financing will also help improve Bhutan’s early warning systems for natural hazards such as glacial lake outburst floods (GLOFs) and wildfires.

The World Bank’s Board of Executive Directors today approved a $40 million financing package to help the Royal Government of Bhutan enhance its institutional and technical capacity to address the increasing risks posed by climate change and natural disasters. The Climate and Disaster Resilience Development Policy Financing with a Catastrophe Deferred Drawdown Option (Cat-DDO) will support key initiatives aimed at safeguarding critical infrastructure, improving early warning systems, and strengthening the financial resilience of communities, with particular attention to Bhutan's vulnerable hydropower sector.

Supporting Bhutan’s Climate and Disaster Resilience

“This operation will significantly contribute to realizing Bhutan's 13th Five-Year Plan, which aims to safeguard and strengthen the country’s resilience by focusing on mitigating and managing disaster risks to its economy, infrastructure, institutions, and people,” said Mr. Lyonpo Lekey Dorji, Bhutan’s Finance Minister. “It will provide us with the necessary financial protection and immediate liquidity in the aftermath of disasters, ensuring that we can respond swiftly and effectively to protect our people and infrastructure.”

Bhutan, which faces increasing risks from climate change and natural disasters, is highly reliant on its hydropower sector, making the country especially vulnerable to climate-related disruptions. The financing package will help the government address these challenges by strengthening critical infrastructure and improving its capacity to respond to natural disasters and climate impacts.

Key Initiatives Supported by the Financing

The financing will help safeguard Bhutan’s hydropower sector, which is the backbone of its economy. New hydropower projects will be required to adopt a catchment-wide approach to ensure resilience at all stages of development. Bhutan has already updated its Guidelines for Development of Hydropower Projects and Dam Safety Guidelines to enhance dam safety and manage geohazards effectively.

The operation will also focus on enhancing the resilience of buildings across the country, including critical facilities such as housing, healthcare, and educational infrastructure in all 20 Dzongkhags (districts). The revised Bhutan Building Regulation 2023 strengthens building codes and guidelines to promote low-carbon, resilient construction practices. Special attention will be given to the capital city, Thimphu, where the operation will support the adoption of the Thimphu Design Code and enforce resilience measures for new buildings in areas prone to natural hazards such as earthquakes, landslides, floods, and wildfires.

Strengthening Early Warning Systems and Financial Resilience

The financing will also help improve Bhutan’s early warning systems for natural hazards such as glacial lake outburst floods (GLOFs) and wildfires. Additionally, the operation will work to enhance the country’s financial resilience, including improving the accuracy of disaster risk insurance by adopting international valuation standards for properties.

A Climate Resilient Debt Clause will be included in the financing, allowing Bhutan to defer principal and/or service charges for up to two years in the event of an eligible natural disaster or health emergency, such as earthquakes, floods, droughts, or pandemics. This mechanism ensures that Bhutan can quickly access liquidity in times of crisis, providing financial flexibility during emergencies.

Collaboration and Technical Assistance

The operation is supported by technical assistance from the Climate Investment Funds and the Global Facility for Disaster Risk Reduction and Recovery, including the Japan-World Bank Program for Mainstreaming Disaster Risk Management in Developing Countries. These partnerships will provide expertise and guidance to help Bhutan improve its resilience to climate and disaster risks.

 

This $40 million financing package represents a significant step in enhancing Bhutan’s climate and disaster resilience, helping the country to better prepare for and respond to natural hazards and climate change impacts. By focusing on critical sectors like hydropower, infrastructure, and financial systems, Bhutan is taking proactive steps to safeguard its future and protect its people from the growing threats posed by climate change. The World Bank’s support will help ensure that the country can continue to grow and develop while managing the risks of an increasingly volatile global climate.