The World Bank’s recent South Asia Development Update reveals that Bhutan is set for robust economic growth in the 2024-2025 financial year, with projections indicating a 7.2 per cent expansion, up from the previous estimate of 5.7 per cent. The report attributes this upward revision to Bhutan’s accelerated recovery, particularly in the tourism sector, which has played a key role in boosting the country’s economic performance.
In addition to the recovery of the tourism sector following the COVID-19 pandemic, the World Bank highlights strong public investment under Bhutan’s 13th Five-Year Plan as a key driver of the growth forecast.
Bhutan’s significant economic recovery mirrors broader trends across South Asia, where economic activity is rebounding.
The region is projected to remain the fastest-growing among emerging markets and developing economies.
The report cites that ongoing infrastructure projects, particularly in the hydropower sector, have played a crucial role in stabilising Bhutan’s economy.
However, as the effects of the tourism boom begin to steady, growth is expected to drop slightly to 6.6 per cent in the 2025-2026 financial year.
While Bhutan’s economic growth heavily relies on tourism and hydropower, challenges remain.
The reduction in the annual tourist arrival targets by 50,000 for both 2024 and 2025, along with delays caused by water seepage at the Punatsangchhu-II hydropower plant, pose risks to meeting the projected growth.
Meanwhile, the finance ministry’s September Macroeconomic Situation Report projects a GDP growth rate of 9.6 per cent in 2025, driven by credit growth under the Economic Stimulus Programme, increased public investment, and the tourism sector.
Notable growth in the industrial and service sectors is also expected to contribute to this forecast.
The ministry revised its growth projections downwards for this year due to lower than expected performance in the tourism sector.
Meanwhile, a standout feature of Bhutan’s economic structure is its relatively high female labour force participation.
However, the South Asia Development Update points out that challenges remain in further enhancing women’s economic participation, with social norms and barriers limiting formal employment opportunities.
The report suggests that if female labour force participation were raised to equal that of men, per capita incomes could increase by over 50 per cent.
In terms of policy implications, the report presents Bhutan’s success in managing economic recovery through tourism and infrastructure investments as a potential model for other South Asian countries.
Despite these positive projections, the World Bank warns of vulnerabilities related to climate change and urges enhanced adaptation measures, especially given Bhutan’s heavy reliance on hydropower, which is susceptible to environmental changes.
Sonam Dendup
Edited by Sherub Dorji
