Following another executive order from the Prime Minister’s Office (PMO), and in line with the National Fuel Price Smoothening Framework (NFPSF) introduced on March 21, 2026, fuel prices in Bhutan have undergone yet another adjustment. Beginning midnight of April 16, retail prices have been maintained at Nu 102.90 per litre for petrol and Nu 98.31 per litre for diesel, with the government stepping in to absorb part of the cost through price support.
Under the current arrangement, the state is providing support of Nu 8.19 per litre for petrol and Nu 101.35 per litre for diesel. This follows an earlier revision that came into effect on April 1, when market-driven prices rose sharply to Nu 114.31 per litre for petrol and Nu 174.13 per litre for diesel. The support at the time reduced the burden on consumers, bringing pump prices down to Nu 98.00 and Nu 98.31 respectively.
While these interventions have shielded households and businesses from immediate price shocks, they are placing increasing strain on public finances. The PMO reports that Nu 492 million has already been spent on fuel support as of April 16, with projections suggesting that the latest pricing decision could cost an additional Nu 1.2 billion per month. For a small, import-dependent economy, such recurring expenditures raise questions about fiscal sustainability if global fuel prices remain elevated.
Against this backdrop, an economist from the Asian Development Bank (ADB) has urged Bhutan to rethink its approach. Gabriele Ciminelli argues that policymakers should allow market-driven price signals to function more effectively, while shifting from broad subsidies to targeted support mechanisms and maintaining macroeconomic stability.
Letting Price Signals Work
At the core of ADB’s recommendation is a fundamental economic principle: prices convey information. When global fuel prices rise, they signal scarcity and encourage consumers to adjust behavior—by reducing consumption, improving efficiency, or switching to alternative energy sources.
“Price signals encourage conservation, fuel switching, and efficiency,” Ciminelli explains. However, when governments suppress these signals through blanket subsidies, the adjustment process is delayed. Demand remains artificially high, which can worsen supply pressures and increase the overall economic cost of the shock.
That said, the ADB does not advocate for abrupt liberalization. Given the scale of the current global energy shock, a gradual and partial pass-through of prices may be more appropriate. Such an approach allows policymakers to ease the transition, avoiding sudden spikes that could disrupt households and businesses, while still preserving incentives for more efficient energy use.
The Case for Targeted Support
ADB’s analysis suggests that universal fuel subsidies are a blunt and often inefficient policy tool. While politically appealing, they tend to disproportionately benefit higher-income households that consume more fuel, raising concerns about equity and resource allocation.
Instead, the bank recommends targeted, time-bound support measures. In Bhutan’s case, this could involve direct cash transfers to low-income households or temporary assistance to sectors heavily reliant on fuel, such as transport and logistics. These interventions can provide relief where it is most needed without distorting market prices.
Another option is to subsidise public transport. Unlike fuel price support, which primarily benefit vehicle owners, improved and affordable public transport can serve a broader segment of the population while simultaneously reducing overall fuel consumption. This aligns short-term relief with longer-term sustainability goals.
Managing Inflation Without Derailing Growth
Fuel price increases inevitably feed into inflation, but the nature of the current shock is largely external. According to Ciminelli, rising prices are driven by global supply constraints rather than domestic demand pressures. This distinction has important implications for monetary policy.
Aggressive tightening in response to supply-driven inflation risks slowing economic growth without addressing the underlying cause. Instead, policymakers are encouraged to focus on anchoring inflation expectations, maintaining financial stability, and avoiding excessive volatility in markets.
For Bhutan, preserving monetary credibility will be essential, particularly as external uncertainties persist. Clear communication and measured policy responses can help maintain confidence even in a volatile environment.
Building Long-Term Energy Resilience
Beyond immediate policy responses, the current situation underscores Bhutan’s structural vulnerability to global energy markets. Heavy reliance on imported fossil fuels leaves the economy exposed to price fluctuations that are beyond domestic control.
The Economist emphasizes the need for long-term reforms to reduce this vulnerability. These include promoting energy efficiency, curbing non-essential consumption, and diversifying energy sources. While Bhutan has a strong hydropower base, expanding into other renewables such as solar, along with investing in energy storage, could enhance resilience.
Such investments may require upfront costs but can reduce exposure to external shocks over time, easing pressure on public finances and improving energy security.
Public Debate and Policy Trade-offs
The government’s policy has sparked mixed reactions. Some view it as a necessary measure to protect living standards during a period of global uncertainty. Others argue that it masks the true cost of fuel and discourages more responsible consumption.
There is also concern that prolonged support could create dependency, making future reforms more difficult. Once consumers become accustomed to artificially low prices, even gradual adjustments can face resistance.
The ADB economist cautions that no policy can fully offset an external shock of this magnitude. Instead, the focus should be on managing its impact—preserving fiscal space, protecting vulnerable groups, and allowing the economy to adapt efficiently.
The recommendations point toward a phased transition of gradually reducing broad subsidies, strengthening targeted support systems, and investing in energy resilience. The choices made now will shape not only Bhutan’s response to the current crisis but also the durability of its economic framework in the years to come.
Sangay Rabten, Thimphu
