January 8, 2026
THIMPHU – With tax season underway, the impact of climate-induced disasters on the country’s public finances is easy to miss. Yet each time extreme weather strikes, the cost of recovery continues to fall mainly on domestic budgets and taxpayers, even as global mechanisms such as the Loss and Damage Fund remain limited.
Over the past decade, from fiscal year 2013–2014 to 2025–2026, Bhutan has spent about Nu 4 billion on disaster-related relief, response, and restoration activities, according to the Ministry of Finance.
On average, about Nu 300 million per year has been incurred on disaster-related expenditures.
These costs have been predominantly financed through domestic resources, revealing the country’s strong reliance on its own budget to respond to climate impacts. In practical terms, restoration and response financing have been largely borne by the government and taxpayers.
It is this imbalance that the concept of loss and damage under the global climate regime was meant to address.
Loss and damage refers to the irreversible economic and non-economic impacts of climate change that occur despite mitigation and adaptation efforts, such as destroyed infrastructure, disrupted livelihoods, and long-term environmental harm.
Under the UN Framework Convention on Climate Change and the Paris Agreement, developed countries are expected to support vulnerable nations facing such impacts.
The Loss and Damage Fund, first agreed at COP27, became operational at COP28. At COP30 in Belém, Brazil, last year, the fund issued its first call for funding requests, marking a shift from political commitment to early implementation.
For climate-vulnerable countries like Bhutan, this development has raised cautious hope, even as available resources remain modest and access procedures are complex.
While Bhutan does receive other forms of external climate finance, the finance ministry states that such support is mostly directed toward mitigation and adaptation, including renewable energy, watershed management, community resilience, and green growth initiatives. International financing specifically for disaster response, recovery, and loss and damage remains significantly limited, even as climate-induced disasters increase in frequency and severity.
The floods of October 4 and 5 last year, brought this issue into sharp focus.
Across Chukha, Haa, Samtse, Dagana, and Sarpang, 19 bridges were damaged, nine completely washed away and 10 partially damaged, while four major road sections were cut off, isolating several communities. Most of the lost bridges were bailey bridges, installed to maintain quick access.
The Ministry of Infrastructure and Transport estimates Nu 388.5 million is needed for immediate restoration within the financial year 2025–2026, with a further Nu 145 million for permanent reconstruction proposed under the financial year 2026–2027 budget.
For Bhutan, such recurring disasters translate into real, tangible costs, reinforcing the country’s continued reliance on domestic resources and taxpayers to restore infrastructure and access.
In addition to domestic spending, the country has sought external support for disaster response.
One recent instrument is the World Bank’s Climate and Disaster Resilience Development Policy Financing with a Catastrophe Deferred Drawdown Option (Cat DDO), approved at about USD 40 million and structured as 50 percent grant and 50 percent loan.
The Cat DDO is designed to provide immediate liquidity following a natural catastrophe, including climate-related disasters and public health emergencies.
Following the October floods, the Ministry of Finance activated and drew down USD 20.54 million in grant financing, equivalent to about Nu 1.8 billion, for disaster response.
The remaining balance remains available as a contingent line of funding and can be drawn upon for future events. The drawdown period extends for three years and may be renewed once, allowing for a total coverage of six years.
While such instruments provide short-term relief, they are not a substitute for the Loss and Damage Fund, which is intended to address the broader, irreversible impacts of climate change.
The initial allocation under the fund’s early implementation phase amounts to about USD 250 million, a modest sum when compared to the scale of climate losses faced annually by developing countries.
As a result, access to the fund remains competitive, procedural, and slow, particularly for smaller countries with limited administrative capacity.
While Bhutan is eligible to seek support, financing gaps persist between immediate disaster needs and the pace at which international funds are mobilised and disbursed.
The Department of Environment and Climate Change has begun working with local partners to assess the Loss and Damage Fund and build national capacity to navigate the new fund.
The timing is significant.
January and February mark Bhutan’s tax filing season, when citizens contribute directly to the government’s fiscal pool. When disasters strike before external climate finance materialises, recovery efforts draw from the same pool, meaning Bhutanese taxpayers effectively shoulder the cost of climate impacts caused largely by global emissions beyond the country’s control.
For a country that contributes negligibly to global greenhouse gas emissions, this imbalance stresses the importance of operational and accessible loss and damage finance.
Without it, Bhutan must continue diverting scarce public resources from development priorities toward repeated recovery and reconstruction.