flag Bhutan Bhutan: Economic Outline

Economic Indicators

The economy of Bhutan, one of the world's smallest and least developed economies, is based on agriculture and forestry. However, the main source of revenue is the sale of electricity to India. The country has sustained growth due to the development of the hydroelectric sector and the dynamism of the tourism sector. Bhutan’s economy experienced rapid average annual growth of 7% between 1988 and 2018 (Asian Development Bank, 2023). The economy has undergone significant impacts from a series of external shocks, including the COVID-19 pandemic and the global fallout from Russia's invasion of Ukraine. According to the World Bank, the economy expanded by 4.6% in FY22/23, driven by the reopening of borders for tourism in September 2022. The industry sector grew by 5.1%, driven by increased construction and manufacturing activities, although the electricity sector saw a contraction. The services sector saw 5.0% growth, buoyed by transport- and trade-related services, leading to more job opportunities, particularly in hotels and restaurants. However, tourist arrivals remained below pre-COVID-19 levels due to weakened global consumer confidence and the implementation of the new tourism levy act. The projected real GDP growth rate is expected to decrease to 4% in FY23/24. However, growth is anticipated to be sustained by increased growth in tourism-related services (World Bank).

Measures aimed at pandemic relief amid the pandemic and a downturn in public revenue have led to notable fiscal deficits and increased public debt. Vulnerabilities persist in the financial sector, largely due to a high level of non-performing loans. To drive digital transformation and economic diversification, the state holding company—Druk Holding and Investments—ventured into crypto-mining operations. However, this move resulted in a considerable depletion of international reserves and an expansion of the current account deficit (CAD) due to increased imports of information technology (IT) equipment. The fiscal deficit decreased from 7.7% of GDP in FY21/22 to 5.1% in FY22/23, driven by increased domestic revenue and reduced capital spending. Total revenue rose due to higher non-hydro revenue, indicating the gradual recovery in the industry and services sectors. The fiscal deficit is forecasted to rise to 6.1% of GDP in FY23/24, driven by a surge in current spending following a substantial salary increase aimed at addressing notable staff attrition. Although tax revenue is expected to increase, this will be offset by reduced hydro profit transfers and external grants. Although hydro debt is decreasing, public debt is expected to stay elevated as a proportion of GDP in the medium term due to persistent high fiscal deficits. Risks to debt sustainability are anticipated to remain moderate, primarily because a significant portion of the debt is tied to hydro project loans from India, which carry low refinancing and exchange rate risks. Average inflation eased from 5.9% in FY21/22 to 4.6% in FY22/23, primarily due to a slowdown in imported food inflation. However, non-food inflation stayed high at 5.9%, aligning with price trends in India (from where 70% of Bhutan's imports originate, and the BTN is pegged to the INR). Inflation is expected to remain elevated in the short term owing to higher import prices, before moderating in the medium term. Bhutan is also the first country using the Gross National Happiness index to measure the well-being of its population not only based on economic indicators, but also on other factors summarized in the four GNH pillars: sustainable and equitable socio-economic development, environmental conservation, preservation and promotion of culture, and good governance.

Bhutan is classified by the World Bank as a lower-middle-income nation and has experienced rapid economic expansion, leading to substantial poverty reduction in the past two decades. With an average annual real GDP growth of 7.5% since the 1980s, driven by the public sector-led hydropower industry and robust performance in services like tourism, significant strides have been made. Extreme poverty, defined as living below USD 2.15/day, was eradicated by 2022. Additionally, the proportion of the population living below the USD 6.85/day poverty line for upper middle-income countries decreased from 39.5% to 8.5% between 2017 and 2022. This decline can be attributed to enhanced labor and agricultural productivity, increased income, and remittances, resulting in augmented real per capita consumption, particularly in rural areas. The Gini index, a measure of income inequality, decreased from 37 in 2017 to 28 in 2022 (World Bank, latest data available). However, despite these advancements, vulnerability to poverty and spatial inequality remains a significant challenge. In 2022, the youth unemployment rate, which was already elevated prior to the pandemic, reached 29%, whereas the general unemployment rate stood at 6% as of 2023. The poverty rate is projected to decrease marginally to 0.4% and 7.9% in 2023, based on thresholds of USD 3.65/day and USD 6.85/day, respectively. Nonetheless, approximately 7% of the population will remain vulnerable to poverty (World Bank).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 2.872.903.113.403.71
GDP (Constant Prices, Annual % Change) 4.84.64.35.05.2
GDP per Capita (USD) 3,7753,7764,0144,3414,692
General Government Gross Debt (in % of GDP) 117.8114.4111.4106.399.9
Inflation Rate (%) 5.94.64.94.64.1
Current Account (billions USD) -0.81-1.00-0.38-0.22-0.36
Current Account (in % of GDP) -28.1-34.5-12.3-6.4-9.8

Source: IMF – World Economic Outlook Database - October 2021.

Note: (e) Estimated Data


 
Monetary Indicators 20162017201820192020
Bhutan Ngultrum (BTN) - Average Annual Exchange Rate For 1 GBP 90.7383.8191.2488.0095.01

Source: World Bank - Latest available data.

 

Main Sectors of Industry

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 56.0 10.1 33.9
Value Added (in % of GDP) 19.2 34.2 44.0
Value Added (Annual % Change) 2.1 2.0 6.3

Source: World Bank - Latest available data.

 
Socio-Demographic Indicators 2024 (e)2025 (e)2026 (e)
Unemployment Rate (%) 0.00.00.0

Source: IMF – World Economic Outlook Database - Latest available data

 

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The Active Population in Figures

201820192020
Labour Force 374,905383,196378,371

Source: International Labour Organization, ILOSTAT database

 
201720182019
Total activity rate 69.35%69.71%70.04%
Men activity rate 75.81%76.25%76.69%
Women activity rate 61.90%62.13%62.31%

Source: International Labour Organization, ILOSTAT database

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
58,3/100
World Rank:
109
Regional Rank:
22

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

See the country risk analysis provided by Coface.

 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Partly Free
Political Freedom:
3/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
65/180

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Sources of General Economic Information

Main Online Newspapers and Portals
Bhutan Broadcast Service
Daily Bhutan
Kuensel Online
The Bhutanese
Bhutan News Network
BBC Country Profile, Bhutan
Useful Resources
Ministry of Finance
Ministry of Industry, Commerce & Employment
Royal Monetary Authority
 
 

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Latest Update: May 2024

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