World Bank Helps Bhutan Enhance Climate and Disaster Resilience

WASHINGTON DC, December 11, 2024 - The World Bank's Board of Executive Directors today approved $40 million in financing to help the Royal Government of Bhutan strengthen its institutional and technical capacity to manage the increasing risks of climate change and natural disasters.

The Climate and Disaster Resilience Development Policy Financing with a Catastrophe Deferred Drawdown Option will help strengthen institutions to safeguard critical infrastructures, including new hydropower projects and buildings as well as strengthening early warning systems and financial resilience of communities. Contingent financing through the Catastrophe Deferred Drawdown Option would also provide access to immediate liquidity in the event of an eligible catastrophic event, helping the government respond quickly to emergency needs.

"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. 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," said Mr. Lyonpo Lekey Dorji, Finance Minister of Bhutan.

"Bhutan is among the most vulnerable countries to natural disasters and climate-related hazards, and its economy is highly reliant on the hydropower sector that faces high climate risks," said Abdoulaye Seck, World Bank Country Director for Bhutan. "Building on our long partnership with the Royal Government of Bhutan, the operation will help enhance the country's capacity to ensure that critical infrastructure and communities are better prepared to withstand the impacts of climate change and natural disasters, or a health emergency caused by a biological event."

The operation will support safeguarding the hydropower sector-the country's economic backbone-from natural disaster and climate risks through measures such as mandating that all new hydropower projects adopt a catchment-wide approach to increase resilience for all stages of development. The Kingdom has already revised the Guidelines for Development of Hydropower Projects and the Dam Safety Guidelines for Hydropower ensuring integrated dam safety and geohazard management.

It will increase resiliency of critical buildings, including housing, health, and education, in all 20 Dzongkhags. The Kingdom has adopted and published online the revised Bhutan Building Regulation 2023 that strengthens relevant codes and guidelines for low-carbon and resilient buildings. In the capital Thimphu, which has the highest population density and vulnerability to various natural hazards including earthquakes, landslides, floods, and wildfires, the operation will support enhancing resilience through mandating adherence of new structures to the Thimphu Design Code and complying with mandatory geohazard and flood resilience measures in hazard-prone areas.

"The financing will help strengthen the government's early warning systems for natural hazards such as glacial lake outburst floods and the mitigation of wildfire risks. Furthermore, the operation aims to improve the country's financial system resilience and the accuracy of disaster risk insurance through the adoption of international valuation standards for properties," said Naho Shibuya, World Bank Senior Disaster Risk Management Specialist and Task Team Leader of the operation.

The financing includes a Climate Resilient Debt Clause, which provides an option to the Royal Government of Bhutan to defer principal and/or service charges for up to two years in the event of an eligible natural disaster including earthquakes, droughts, floods, and health emergencies like pandemics.

This 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.