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. 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. This was also 0.4 percentage point higher than IMF's previous estimate for growth. 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 -1.9%. Economic growth will continue to be supported by the hydropower sector and in 2022 it is expected to reach 4.2% (IMF, 2022). 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. Debt-to-GDP ratio spiked from 106.6% in 2019 to 120.7% in 2020 and 123,3% in 2021 (Statista, 2022); 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 120.5% in 2022 and 117.3% in 2023. Current account deficit narrowed to USD 360 million in 2019 from USD 480 million a year earlier as higher tourism revenues and exports partially offset strong imports. 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 reached 522.4 million USD in 2021 (Trading Economics, 2022). Inflation is closely linked to the Indian economy as Bhutan's domestic currency ngultrum is pegged to the Indian rupee. Inflation increased to 4.2% in 2020, against 2.8% in 2019, and then 6.3% in 2021, but is expected to rise further to 6.9% in 2022 (World Economic Outlook IMF, 2022) as the rupee loses value against major international currencies and food prices rise in the country. Fiscal deficit was forecasted to widen to 4.9% by 2021 before stabilising in the medium term amid rising revenue collection. 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. Unemployment remained low but in sharp increase on 2020 at 2.4% 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.

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: February 2023