The education system in Bhutan consists of general education, monastic education and non-formal education. The CEQ analysis only considers general education as it represents the formal education system and accounts for an overwhelming majority of government education spending. General education spans all stages of education from early childhood care education to tertiary/technical/vocational education. Most schools in Bhutan are public and provide everything free of charge, from textbooks to boarding facilities. In FY2016-2017, 5.9 percent of GDP was spent on education (0.9 percent of GDP on tertiary education).<sup>10</sup> While public education is provided for free, students are encouraged to share a small portion of cost based on their financial ability.

### **_Health Spending_**

Health care in Bhutan is almost entirely funded and delivered by the Royal Government of Bhutan (RGoB) health institutions. Large investments in health care helped greatly to improve access and utilization in the past. Private health care services are limited to a few pharmacies and selective diagnostic centers, mostly in urban areas. Bhutanese can access public health services free of charge with only a few exceptions.<sup>11</sup> Some services not covered include private cabin facility at government hospitals, cosmetic dental care, and drugs outside the national essential drug list. Specialized health services which are not available in the country are referred to hospitals in India at the cost of the government. In FY2015-16, the total health expenditure incurred by the government was around 3 percent of GDP.<sup>12</sup>

# 3. Data Sources and Methodology

## 3.1. Data sources

The main source of data is the Bhutan Living Standards Survey 2017 (BLSS). The survey is representative at the national and district (“dzongkhag”) level and covered 11,660 households in both rural and urban areas in 2017. Detailed information was collected on individual demographics, education, and health; household expenditure; housing; access to services; assets; credit; priorities for government intervention; and selfrated poverty and happiness. Despite this wealth of information, there are important drawbacks, especially in view of the data requirements for a standard CEQ—information on employment is limited, and the survey only asked about income sources and not the amounts received. The latter in particular makes it difficult to construct market income following the standard CEQ approach, as described in the next section. To circumvent this limitation, we develop a novel approach to estimate market income based on the rich data in the consumption module. This approach is described in detail in section 3.3.

> 10 For example, students in primary schools are required pay Nu. 30 per annum, students in secondary schools pay Nu. 100-200 per annum, and students living in urban areas arrange their own stationery. According to the Bhutan Living Standards Survey 2017, the average out of pocket spending is Nu. 5,259 at the primary level, Nu. 5,708 at the middle secondary level and Nu. 23,879 at the higher secondary level. There are significant disparities in out-of-pocket spending between urban and rural areas.

> 11 Article 9, Section 21 of Constitution of Kingdom of Bhutan states that, “The state shall provide free access to basic public health services in both modern and traditional medicines”.

> 12 Ministry of Health, National Health Accounts report, Bhutan, Fiscal Years 2014-15 & 2015-16.

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