The 13th Plan and the USD 5 billion GDP target

The 13th Five-Year Plan (FYP), which commenced in July 2024, lays out a bold vision to transform Bhutan’s economy. As outlined in the plan documents, key strategies include improving the business ecosystem, developing quality infrastructure and connectivity, enhancing energy access, promoting digital transformation, and implementing large-scale skilling programs such as the Century Skilling initiative. These interventions aim to position Bhutan on a stronger economic footing. Against this backdrop, we analyzed whether Bhutan’s ambitious GDP target of USD 5 billion by 2028 is achievable. If not, what complementary actions are necessary?

To answer these questions, we developed a dynamic computable general equilibrium (CGE) model and implemented a few simulations to examine their economic outcomes. In the first scenario, we assumed full implementation of all 13FYP projects and complete utilization of allocated budgets. It is important to note, however, that actual execution in the past has seen only about 60 percent of capital budgets effectively utilized, which could alter the results in practice.

Under full implementation, the results indicate a notable rise in GDP compared to a scenario without the 13FYP interventions. The sectors expected to benefit the most are energy, construction, and manufacturing, which emerge as key contributors to national growth. However, even with these gains, the projected GDP falls short of the USD 5 billion target by 2028. This shortfall presents a serious concern for Bhutan’s medium-to-long-term aspiration to become a high-income nation within the next decade.

This raises a critical question: What additional measures are required to reach the GDP target?

To answer this, we focused on the 13FYP initiatives, such as improving the business climate, regulatory efficiency, skills development, digitization, and institutional reforms, designed to enhance factor productivity. We omitted external variables such as foreign capital inflows or global shocks to maintain analytical clarity and reduce model complexity.

In the second simulation, we estimated the levels of productivity growth necessary to bridge the GDP gap. The results show that while the target is technically feasible, it demands significant improvements in productivity. Specifically, labor productivity would need to grow by approximately 10 percent with capital productivity growth remaining the same. Alternatively, capital productivity must rise by 7-8 percent, if labor productivity remains constant. However, if both labor and capital productivity improve simultaneously, a more modest growth of around 4 percent in each factor productivity would be sufficient to meet the GDP target.

What then, must be done to achieve these productivity gains?

Raising labor productivity requires sustained investment in quality education and training, reskilling and upskilling the workforce, and implementing institutional reforms to reduce inefficiencies in the labor market. Capital deepening in traditional sectors–such as agriculture, mining, construction, health, and education, would further enhance output per worker.

On the capital side, improvements can be driven by investing in high-quality infrastructure, removing barriers to doing business, and leveraging digital technologies to improve public service delivery. Furthermore, to ensure that these productivity improvements translate into tangible outcomes, Bhutan must address the persistent issue of the underutilization of the capital infrastructure it has built in the past. This calls for a robust monitoring and evaluation system, backed by transparent and efficient project management practices.

In conclusion, achieving the USD 5 billion GDP target by 2028 is not beyond reach. However, it will require sustained, coordinated, and strategic efforts from the government, institutions, and individuals. With effective implementation of the 13FYP and a strong focus on raising productivity, Bhutan can indeed chart a path towards the USD 5 billion GDP target in the medium-term and high-income vision in the long-term.

Contributed by Rinchen Dorji (PhD) and Pema Dorji (PhD)