Bhutan’s economy recorded a strong recovery in FY 2024/25, marked by higher growth, expanding credit, rising remittances, and improved financial sector stability. According to the Royal Monetary Authority’s (RMA) 2025 annual assessment, key economic indicators improved compared with the previous fiscal year, though challenges related to external debt, food inflation, and labour market imbalances remain.
The central bank reported that Bhutan’s economy grew by 7.5% in 2024—the strongest post-pandemic expansion—driven by rebounding domestic demand and service sector growth. Household consumption strengthened, while the hotel and restaurant sector expanded 32.9%, reflecting the continued recovery of tourism and related services. The resurgence in economic activity also boosted credit demand and business activity in housing, hospitality, construction materials, and retail trade.
Global uncertainties, including geopolitical tensions and tight international financial conditions, continue to pose risks for small open economies like Bhutan. External debt remained the primary source of financing for development projects. By June 2025, total external debt stood at Nu 310,969.2 million, with 68.6% denominated in Indian Rupees and 31.4% in convertible currencies. Convertible currency debt of USD 1,142.9 million increased in Ngultrum terms due to a depreciation from 83.5 to 85.5 per US dollar between June 2024 and June 2025. While the currency later appreciated slightly, the report emphasized the importance of maintaining adequate foreign exchange reserves to meet obligations.
A major development during the fiscal year was the sharp rise in remittances, which grew 69% to USD 241.8 million. This surge was supported by improved digital transfer systems, higher use of formal banking channels, and platforms such as Remit Bhutan. The largest share of inflows came from Bhutanese living in Australia, followed by the United States, Kuwait, the United Kingdom, and Canada. Remittances strengthen foreign exchange reserves and household consumption, helping offset pressures from Bhutan’s persistent trade deficit. Outward remittances declined 22% to USD 58.1 million, mainly due to fewer Indian workers employed in Bhutan.
Bhutan’s financial sector also recorded substantial credit growth. Total lending by financial institutions increased 17% to Nu 257,899.5 million, with housing as the largest borrower (28.5%), followed by services and tourism (22.3%) and production and manufacturing (12.9%). Credit growth was particularly strong in commercial housing projects, hotel development, construction materials, and retail businesses. Other sectors—trade, transport, education, and agriculture—received the remaining loans. Deposits continued to fund most bank lending, with a credit-to-deposit ratio of 81.8%. Commercial banks accounted for 82.4% of total credit, while non-bank financial institutions contributed 17.6%.
Financial stability indicators improved, with the gross non-performing loan (NPL) ratio declining from 3.3% in FY 2023/24 to 3% in FY 2024/25, reflecting better loan performance and recovery efforts. Total bank credit rose from Nu 181,527.1 million to Nu 213,340 million, a 17.5% increase, while non-bank financial institutions expanded lending from Nu 38,887.9 million to Nu 44,559.5 million, up 14.6%. Core capital ratios and risk-weighted capital adequacy ratios remained above regulatory requirements, despite slight declines. Analysts caution that sectoral concentration in housing and tourism could pose risks if conditions weaken.
Inflation trends were mixed. Overall inflation averaged 2.7%, driven by easing non-food prices. Headline inflation declined from 3.8% in June 2023 to 1.8% in June 2025, while food inflation rose to 5.3%, the highest in three years, due to supply constraints, higher import costs, and climate-related impacts. Rising food prices continue to affect household purchasing power and food security.
Government finances showed stronger revenues and increased expenditure. Total resources rose from Nu 70,195.1 million to Nu 81,466.2 million, while spending grew more sharply from Nu 70,626.4 million to Nu 89,391.7 million, driven by capital investment in infrastructure. Consequently, the fiscal deficit widened to 2.6% of GDP, up from 0.2% in the previous year, but remains manageable and aligned with development priorities.
Labour market challenges persist. FY 2024/25 saw 12,871 registered job seekers against 5,939 vacancies, a 30.3% decline from the previous year. Domestic opportunities accounted for 67.1% of vacancies, mainly in the private sector, with overseas employment at 32.9%. Demand was highest for workers with Higher Secondary and Middle Secondary qualifications, highlighting the need to align skills with labour market requirements.
Overall, Bhutan’s economic performance in FY 2024/25 signals steady recovery. Stronger growth, rising remittances, expanding credit, and improved financial stability point to a strengthening economic environment. Nevertheless, the RMA cautions that rising food inflation, exposure to currency fluctuations through external debt, and labour market mismatches remain key risks. Maintaining adequate foreign exchange reserves, strengthening financial oversight, and improving workforce skills will be priorities as Bhutan navigates the next phase of economic development.
Tashi Namgyal
From Thimphu
