Bhutan: Economic Outline

Economic Indicators

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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 a sustained growth due to the development of the hydroelectric sector and the dynamism of the tourism sector. Bhutan’s economy experienced rapid annual average growth of 7% between 1988 and 2018 (Asian Development Bank, 2023). Growth was estimated to have risen to 5.3% in 2019 from 3.7% a year earlier higher power exports and household consumption provided support. A fall in tourism revenue in 2020 and 2021 owing to the coronavirus pandemic and social distancing measures threatened financial stability and weighed on economic growth. The annual GDP growth rate in 2021 was negative and stood at -3.3%. Economic growth continued to be supported by the hydropower sector and in 2022 growth came back at 4%. It is expected to reach 4.3% in 2023 and 5.1% in 2024 (IMF, 2023). Ties to the outside world - with the exception of India - will remain minimal.

The government has been working on the 12th five-year plan (2019-2023), which focuses on decentralization from national to local governments, by almost doubling the share of resources allocated and by increasing their authority and functions. National self-sufficiency and inclusive socio-economic growth also remain among the pillars of the new five-year plan, meaning the government will pursue an expansive budgetary policy. Government Debt to GDP in Bhutan averaged 78.47 percent of GDP from 1993 until 2022, reaching an all time high of 132.42% of GDP in 2021, to stabilize at 125% in 2022 (Tradings Economics, 2023); however, most debt is considered sustainable as they are covered by financial arrangements with India under which the latter finances the construction of hydropower plans in Bhutan in exchange of power imports. At the same time, government debt is anticipated to decrease to 127.5% in 2023 and 126.6% in 2024. Current account deficit reached USD 660 million in 2022 from USD 330 million a year earlier. Bhutan modified its tourism policy in order to attract more Indian tourists, who are not subjected to the daily tourism tax of USD 250. Due to this modification, the number of Indian tourists increased substantially. The current Account deficit in Bhutan shouold stabilize at 554 million USD in 2023 (Trading Economics, 2023). Inflation is closely linked to the Indian economy as Bhutan's domestic currency ngultrum is pegged to the Indian rupee. Inflation increased to 12.6% in 2021, against 3% in 2020, and then 7.7% in 2022, and is expected to reach 6.6% in 2023 (World Economic Outlook IMF, 2023) as the rupee loses value against major international currencies and food prices rise in the country. Bhutan is seeking to expand the base for the green tax by including tourist vehicles.

Bhutan remains a poor country, where living conditions are made difficult by hilly areas and a poor-quality infrastructure. However, GDP per capita doubled between 2004 and 2014 whereas the poverty rate fell to 9.9% in 2019. Nevertheless, the current Bhutan Poverty Analysis Report states that Bhutan's poverty rate for 2022 was estimated at 12.4 per cent (Bhutan Broadcasting Service, 2023). The overall unemployment rate for Bhutan in 2022 is estimated at 5.9 percent which is an increase by 1.1 percent as compared to 4.8 percent in 2021. 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.

The Asian Development Bank (ADB) is one of Bhutan’s largest sources of official development assistance, with average annual lending of USD 52.1 million -  USD 25.6 million loans and USD 26.5 million grants—from 2018 to 2021. ADB’s support is aligned with several key development objectives of Bhutan’s 12th Five-Year Plan, 2018–2023, including strengthening technical and vocational education programs, health services, water supply, and urban amenities. The active portfolio as of 31 December 2021 comprised 14 projects and programs totaling $389.05 million. The energy sector has the highest share in terms of lending volume followed by water and urban, agriculture and natural resources, finance, transport, health, and education (Asian Development Bank, 2023).

Monetary Indicators	2016	2017	2018	2019	2020
Bhutan Ngultrum (BTN) - Average Annual Exchange Rate For 1 GHS	16.84	14.97	14.91	13.54	13.24

Source: World Bank - Latest available data.

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Latest Update: September 2023