Bhutan’s economy is projected to grow 6.21 percent in 2026, as a surge in private investment, energy projects and tourism is expected to offset slower hydropower development and weaker government construction.
The latest projection by the Ministry of Finance, contained in its Quarterly Macroeconomic Situation and Outlook, 4th Quarter Update, FY2025-26, is marginally lower than the earlier forecast of 6.31 percent, largely because stronger-than-expected growth in 2025 has raised the base against which 2026 growth is measured.
The revision, however, does not signal a weakening economic outlook. Instead, the Ministry expects growth to strengthen in the medium term as major energy and infrastructure investments gather pace, with projections for 2027 and subsequent years revised upward.
The changing composition of growth is perhaps more significant than the small downward revision itself.
Private investment is expected to become an increasingly powerful engine of the economy, with its share projected to rise from 52 percent of GDP in 2025 to 57 percent in 2026, before reaching 65 percent by 2028.
The increase is expected to be driven largely by major hydropower and other energy-related investments, generating activity across construction, services, manufacturing and related sectors.
The shift towards private investment comes as the economy enters a period of potentially significant capital formation. As major energy projects move ahead, investment is expected to generate demand not only directly through construction but also across businesses supplying materials, services, transport and labour.
However, the investment boom will also come with a cost. Higher investment and consumption are expected to increase demand for imported goods, widening the country’s net export deficit from around 24 percent of GDP in 2026 to 30 percent by 2028.
This means that while investment could accelerate domestic economic activity, much of the associated demand could initially flow out through higher imports, placing greater pressure on Bhutan’s external position.
Electricity will remain a major pillar of the economy, but the near-term outlook has weakened slightly. The Ministry expects electricity generation to peak at around 7,638 GWh in the first quarter of FY2026-27, slightly higher than the projection made in the previous quarterly update.
However, the electricity generation outlook for 2026–2028 has been revised downward, mainly because of delays in commissioning some small hydropower projects and slower-than-expected progress in energy infrastructure development.
Despite the revision, the government expects energy investment to remain a major source of future growth.
Alongside hydropower, investment in solar energy is gaining momentum as Bhutan seeks to diversify its electricity generation and reduce its reliance on a single source of energy.
The medium-term outlook is consequently based on expectations that energy-related construction and investment will accelerate, supporting stronger growth from 2027 onwards.
Tourism is also emerging as an important support for growth. Stronger-than-anticipated tourist arrivals during the second half of FY2025-26 have led to an upward revision in the services sector’s growth outlook.
The Ministry expects the tourism outlook to remain broadly positive, supported by improving regional air connectivity.
The restoration of Bangkok services through Guwahati and an additional weekly Singapore service by Drukair are expected to improve accessibility and support visitor arrivals.
The Ministry has identified high airfares as a downside risk, warning that disruptions to international travel could affect visitor flows if flights are cancelled, rerouted or become more expensive.
For a tourism-dependent economy, the cost and reliability of getting to Bhutan remain critical to the sector’s ability to expand.
The 6.21 percent projection for 2026 may appear modestly lower than the previous forecast, but the underlying drivers suggest a potentially more significant transformation.
The immediate drag from delayed energy projects and weaker government construction has been partly offset by stronger private investment and tourism. Beyond 2026, the Ministry expects growth to strengthen as major energy infrastructure projects move from planning and preparation into construction.
Sherab Dorji, Thimphu
