Economy projected to grow by 7.0% in 2025, up by 3 % from this year’s figures
Bhutan’s economy is projected for a significant boost to 7.0% in 2025, from a modest growth of 4.4% in 2024, driven by strong performance in the services sector and substantial contributions from the hydropower industry.
According to the Asian Development Bank (ADB), in 2025, industrial output would surge by 15.6%, driven by strong growth in electricity and construction. This will be supported by the resumption of construction on the 600-megawatt Kholongchhu hydropower plant and the full commissioning of the Punatsangchhu II hydropower plant, which will contribute significantly to GDP growth.
External factors like India’s strong economic growth will positively impact Bhutan through increased exports of goods and services, reflecting the close economic ties between the two countries.
Inside the domain of domestic demand and investment, private consumption is expected to grow by 4.6% in 2024, boosted by higher tourism earnings and an increase in civil service salaries. This growth is likely to remain steady in 2025, supported by continued credit expansion and steady remittances.
ADB forecasts public consumption growth to stabilize at around 4.0% in both the years, driven by an expansion in recurrent expenditure while fixed investment is anticipated to rebound significantly following a contraction of 4.9% in 2023. This recovery will be driven by increased private investment, supported by steady credit growth, and public investment as the government implements the 13th Five-Year Plan (FYP).
The budget deficit is expected to narrow to 2.4% in FY 2025, supported by a near tripling of committed grants for the 13th Five-Year Plan and transfers from the full operation of Punatsangchhu II plant.
The current account deficit is fore-casted to widen to 28.8% of GDP in 2024, mainly due to a growing trade deficit with India and lower budgetary grants. However, it is expected to narrow to 15.7% in 2025, driven by a surge in hydro power exports from newly commissioned plants.
Inflation is projected to rise slightly to 4.5% in 2024, reflecting increased spending driven by a civil servant salary increase in mid-2023. In 2025, inflation is expected to moderate to 4.2%, aided by improvements in the global supply chain and moderate inflation in India.
The services sector is expected to be a major driver of GDP growth in 2024, expanding by 6.5%. This growth is mainly due to resurgence in tourism, which is anticipated to reach 60% of the pre-pandemic levels of 2019.
Industrial output is set to increase by 2.5% in 2024, supported by various sectors except construction. The new Nikachhu hydropower plant, coming online in early 2024, will contribute to this growth. However, ADB says the construction sector would decline by 2.2% due to a credit moratorium on commercial buildings and real estate until mid-2024, and a slow start to the 13th Five-Year Plan. A rebound in construction is expected in 2025.
Agriculture is projected to see a steady but slow growth of 1.4% in both 2024 and 2025, maintaining a stable contribution to the overall economy.
Despite the positives, ADB also underlines several risks to Bhutan’s economic outlook.
It cautions that lower-than-expected tourist arrivals could affect growth projections and foreign currency reserves, while erratic monsoons or floods could impact farm output, hydropower generation, and cause infrastructure damage.
Domestically, delays in commissioning hydropower plants, tighter fiscal space, ongoing employee attrition, and the outmigration of young talent to developed economies could pose significant challenges.
Overall, Bhutan’s economic future looks promising with strong growth prospects in the services and hydropower sectors, despite potential risks that need to be managed carefully.
By Tashi Namgyal, Thimphu
