Bhutan is poised for a remarkable economic leap, with growth projected to strengthen to 7.3 percent in FY2025/26, propelled largely by the commissioning and ongoing construction of the nation’s transformative hydropower projects, according to the latest Global Economic Prospects report released recently by the World Bank (WB).
The report underscores that hydropower remains the engine driving Bhutan’s economic momentum, fueling both domestic activity and export earnings. As the kingdom’s dams rise along its pristine rivers, the ripple effects are already being felt across industries—from construction and logistics to services and manufacturing. Analysts highlight that this surge is not just a temporary spike but a structural boost that will underpin robust growth in the coming fiscal year.
“Hydropower projects are not only generating electricity but also driving investment, creating jobs, and stimulating economic activity across sectors,” the report notes. With new megaprojects coming online and older ones expanding capacity, Bhutan is positioned to leverage its natural energy resources into sustained economic gains.
Looking ahead to FY2026/27, the WB expects the growth trajectory to remain strong, buoyed by continued electricity production and massive infrastructure investments. “Large-scale construction activity and hydropower exports will continue to be a backbone of Bhutan’s economic expansion,” the report emphasizes.
The growth story in Bhutan stands out against a mixed regional backdrop. Across South Asia, economic performance is uneven but generally resilient. The Maldives, for instance, is projected to see steady expansion averaging around 4 percent annually in 2026–27, boosted by a surge in tourist arrivals following the full opening of a new international airport terminal. Meanwhile, India’s economy is gradually consolidating fiscally, with current spending cuts expected to outweigh tax reductions, leading to a slow but steady decline in its public debt-to-GDP ratio.
In Bhutan, the fiscal outlook tells a slightly different story. The kingdom’s fiscal deficit is expected to widen, reflecting a deliberate increase in infrastructure spending aimed at accelerating economic transformation. Tax reforms are underway and expected to improve revenue mobilization over time, but the immediate focus remains on strategic investments that can yield long-term dividends.
On the external front, Bhutan faces rising current account deficits, mirroring trends in the Maldives, largely due to higher imports associated with investment projects. While these deficits reflect temporary pressures linked to the kingdom’s ambitious growth strategy, they also signal the scale of Bhutan’s investment-driven expansion.
The report also flags critical long-term challenges. Emigration pressures remain elevated, particularly among Bhutan’s young and highly skilled workforce, posing potential constraints on labor markets and productivity. Financial sector vulnerabilities are another area of concern; contingent liabilities linked to large hydropower projects could strain fiscal balances and disrupt financial markets if not carefully managed. The report emphasizes that prudent fiscal oversight will be crucial to sustain growth while minimizing systemic risks.
In a broader context, the report provides the first comprehensive analysis of fiscal rules across developing economies. It shows that well-designed fiscal frameworks are essential for maintaining stability while pursuing ambitious public investments. Bhutan’s current strategy—combining aggressive infrastructure spending with measured fiscal reforms—fits within this framework, offering a model for balancing high-growth ambitions with financial prudence.
For Bhutan, the hydropower surge is more than just an economic story—it is a transformative force reshaping the nation’s future. From the mighty Punatsangchhu and Mangdechhu projects powering homes and businesses, to construction activity generating employment and skills development across regions, the kingdom’s rivers are doing more than turning turbines—they are powering an era of unprecedented economic growth.
As Bhutan charges ahead with its ambitious hydropower and infrastructure agenda, the kingdom is sending a clear signal: it is ready to harness its natural wealth to fuel prosperity, create opportunities, and cement its position as one of the region’s fastest-growing economies. The World Bank report leaves no doubt—Bhutan’s growth engine is roaring, and the next few years promise to be transformative, not just for GDP numbers but for livelihoods, communities, and the nation’s long-term trajectory.
In short, Bhutan is no longer just a land of mountains and monasteries—it is an emerging economic powerhouse, propelled by the surging currents of its rivers, electrifying both its economy and its future.
Sangay Rabten
From Thimphu
