Although Bhutan’s Economy last expanded by 7.5% in 2024, questions remains over fiscal discipline and Bhutan’s reliance on debt financing. However, the Ministry of Finance (MoF) has defended its debt financing strategy as reliable and sustainable.
Bhutan’s external debt is already at worrying levels. Economists warn that Bhutan is “living on borrowed money.” Despite 80% of Bhutanese owning bank accounts, gross domestic savings dropped from 42% in 2012 to just 14% a couple of years ago. Household spending patterns show high consumption and weak savings.
Many young Bhutanese are caught in personal debt and living paycheck-to-paycheck. Economists suggest instilling financial discipline from an early age.
Despite all these factors, the MoF has maintained that there are several factors which contribute to the overall growth in economy. According to the Ministry, Bhutan’s economy recorded robust growth of 7.5% in 2024, reaching Nu 280 billion (USD 3.3 billion).
“The strong performance, driven largely by a rebound in tourism and improved hydropower generation, has eased concerns over slowing post-pandemic momentum,” said the Ministry.
The MoF highlighted several key sectors fueling growth such as the rebound in tourism where visitor arrivals surged, pushing the hotels and restaurants sector up nearly 33% compared to 2023.
In the hydropower sector, eElectricity generation rose by 11% on the back of stronger performance and continued investment in new projects, while services remained the backbone of the economy, though industries such as construction and infrastructure also posted strong gains.
Consumer price inflation eased to 2.8%, improving purchasing power and household affordability. “It means that things are more affordable and people’s purchasing power has improved,” an official from the Ministry said. “With this, Bhutanese households and businesses are in a better position to save and invest.”
By contrast, the Ministry conceded that sectors such as entertainment, recreation, and mining grew more slowly as the post-COVID rebound moderated.
National savings rose to 25% of GDP in 2024, up from 20% in 2023. Private savings reached Nu. 86 billion, while the proportion of Bhutanese households with formal savings accounts grew to 91% by 2022.
Yet, the government itself ran a savings deficit, spending heavily to sustain recovery efforts. “Bhutanese families and businesses are getting stronger financially, but fiscal discipline at the state level still requires tightening,” economists noted.
In response to concerns that Bhutan is “living on borrowed money,” the MoF outlined measures to align borrowing with growth-oriented investments. “The government uses a careful mix of taxes, other income, and borrowing to fund national development. The goal is to keep the economy stable while ensuring growth.”
Accordingly, the government aims to cap deficits at around 3% of GDP during the 13th Five-Year Plan. For FY 2025/26, the deficit is expected to remain below 5.2%, while recurrent spending will be fully covered by domestic revenue, as mandated by the Constitution.
The Goods and Services Tax (GST) and updated income tax laws, effective January 2026, are expected to broaden the revenue base while simplifying compliance.
To control spending, results-based budgeting, mid-year reviews, and stricter procurement processes are being used to curb excess expenditure.
Bhutan’s external debt remains high, though the MoF defended its structure as sustainable. The ministry emphasized that most debt is concessional, carrying very low interest rates below Bhutan’s growth rate, ensuring investments yield higher returns than borrowing costs.
The Ministry spokesperson said, “Borrowing categories are clearly segregated, where government borrowings finance social and development projects.”
Additionally, State-Owned Enterprises (SOEs) borrow for commercial projects and repay independently.
While the Royal Monetary Authority (RMA) borrows for balance of payments support, hydropower vs. non-hydro classification clarifies repayment responsibilities and limits fiscal risks.
The government also reiterated that commercial loans are only considered for financially viable projects with assured returns.
Meanwhile, the MoF pledged to maintain debt below 55% of GDP, strengthen domestic resource mobilization, and build fiscal resilience. “Bhutan’s economy is on the right track—growing strongly, saving more, and keeping inflation low,” the ministry said in its response.
Economists, however, caution that structural weaknesses remain. High household consumption, weak savings culture, and youth indebtedness continue to pose risks. Calls are also growing for Bhutan to adopt a Fiscal Responsibility Law, which would cap government borrowing and enforce long-term discipline.
With an ambitious GDP target of USD 5 billion by 2029, Bhutan’s challenge will be to sustain high growth while tightening financial discipline—ensuring that borrowed money builds assets rather than liabilities.
Tashi Namgyal from Thimphu
