Growth will be driven by strong performance in exports, construction, and services, along with commissioning of Puna II Hydropower Project

Dorji Choden

Bhutan’s economy is set to grow, with the World Bank projecting a robust 7.2 percent growth in Gross Domestic Product (GDP) in the 2024-25 fiscal year.

The economy has been on a steady recovery path since the pandemic, with GDP growth of 5.3 percent in the fiscal year 2023-24.

The country’s gross international reserves also grew modestly to USD 624 million, supported by reduced crypto-related IT imports and a gradual tourism recovery, according to the World Bank.

After struggling in recent years, the agriculture sector grew by 3.4 percent in fiscal year 2023-24.

The industry sector, which saw a marginal growth of 0.2 percent, showed strong performances in mining and manufacturing. This also helped offset the contraction in hydropower output.

The recovery of tourism and trade services, a vital part of the service sector, also contributed to the growth.

On the demand side, an increase in non-hydro exports and consumer spending further boosted the economy.

Despite these gains, poverty and inequality are still major concerns. The Bhutan Living Standards Survey 2022 revealed that 12.4 percent of the population lives below the national poverty line.

Foreign remittances continue to play a critical role in improving household welfare. In fact, without it, an estimated 3 percent of Bhutanese would fall below the poverty line.

On the fiscal front, the country has narrowed the deficit. The country’s revenue increased to 26.4 percent of GDP, while expenditures fell to 27.2 percent, bringing the fiscal deficit down to 0.8 percent of GDP compared to 4.7 percent the previous year.

An economist at the World Bank, Dr Yumeka Hirano, explained that Bhutan’s fiscal deficit grew by 6-7 percent after the pandemic, with revenue collection slower than expected.

She said that while Bhutan’s overall revenue mobilisation has been around 13 to 14 percent of GDP in recent years, tax revenue is specifically much lower than the global benchmark of 5 percent of GDP.

Youth unemployment is also alarmingly high at 16.5 percent, which also drives out-migration, especially young, productive groups. Around 9 percent of the population of the country now lives overseas.

The labour market is also heavily concentrated in the agriculture sector, accounting for 40 percent of total jobs in the country. However, the sector contributes only 12 percent to GDP,   leaving other high potential sectors underutilised.

According to Dr Yumeka Hirano, the economic growth will be driven by strong performance in exports, construction, and services, along with the much-anticipated commissioning of the Puna II hydropower project.

However, delays in key projects, geopolitical risks, and rising global commodity prices could dampen this outlook, she warned.

To ensure long-term sustainability, according to the World Bank, the country needs to focus on economic diversification and strengthening of the private sector.

Dr Yumeka Hirano said that initiatives like Gelephu Mindfulness City and increasing value-added activities in agriculture are critical to creating jobs and improving living standards.

She said that having better access to finance for private businesses and effective management of hydropower revenues will also be key in fostering growth.