What plagues Bhutan’s Financial Markets

From the legal and regulatory aspect to international collaboration, Bhutan has a lot to do

While the recently released World Investment Report  2025, by the United Nations Trade and Development (UNCTAD) agency underscores the critical role of robust and well-regulated financial markets in driving sustainable economic growth, Bhutan’s own financial market continues to grapple with a range of persistent challenges that hinder its full potential. These challenges span from foundational legal and regulatory shortcomings to limited avenues for meaningful international collaboration and integration.

A corporate governance expert noted that such structural issues have likely been deliberated at the highest levels among Bhutanese policymakers and economic strategists for years. He highlighted that conflicting provisions within existing financial laws and notable legislative gaps continue to constrain the sector’s growth. “A clear, coherent, and forward-looking legal and regulatory framework is vital because it defines how the market operates, how investors are protected, and how institutions collaborate – both domestically and internationally,” he explained.

Within Bhutan’s context, these challenges hold added significance. As the country seeks to diversify its economy beyond hydropower and develop resilient financial systems that can attract foreign investment, a modernized legal environment and stronger regulatory mechanisms are essential. Without such reforms, Bhutan risks missing out on opportunities to strengthen investor confidence, foster capital market development, and build partnerships with regional and global financial institutions.

Regarding the institutional set-up, he pointed out that one of the critical constraints facing Bhutan’s financial market is the limited presence of key market intermediaries and supporting institutions. Unlike more developed markets that have a diverse ecosystem of brokers, investment banks, credit rating agencies, and advisory firms, Bhutan’s financial market remains relatively narrow in scope and participation.

“The absence of robust market intermediaries – such as underwriters, market makers, and financial advisory services- restricts the depth and vibrancy of the capital market,” he noted. In the context of Bhutan’s development ambitions, this gap is particularly significant. As the country aspires to diversify its economy and foster a thriving private sector, an expanded network of financial intermediaries would play a vital role in bridging investors with credible investment opportunities, supporting businesses with access to funding, and providing the necessary expertise to navigate increasingly complex financial transactions.

Moreover, the absence of specialized institutions such as independent credit rating agencies and research houses reduces transparency and makes it harder for both local and foreign investors to assess risk and make informed decisions. Building this institutional infrastructure is therefore not merely a technical step.

He underlined that while there are several other challenges that Bhutan’s financial sector need to address, a key priority lies in carefully sequencing the development of the market’s underlying infrastructure. For Bhutan, where the financial sector is still relatively young and evolving, building this foundation in a phased and strategic manner is crucial to ensure stability, investor confidence, and long-term resilience.

Sequencing is critical because building a modern, efficient market cannot be done overnight or in isolation. Bhutan must first strengthen its legal and supervisory frameworks, modernize payment and settlement systems, expand market intermediaries, and invest in secure digital infrastructure.

For example, Bhutan’s stock exchange is still small and lacks liquidity. Deepening the market requires more than just encouraging companies to list, it also means developing supporting institutions like credit rating agencies, brokerage firms, custodians, clearinghouses, and robust information systems. These elements are vital for protecting market integrity, managing risk, and attracting both local and foreign investors.

Further, with Gross National Happiness (GNH) central to economic policymaking, the development of financial infrastructure must also be aligned with principles of sustainability, social responsibility, and equitable growth. Sequencing allows policymakers to ensure that necessary laws, regulatory capacity, and human resources are developed in step with market expansion, so risks can be managed proactively rather than reactively.

“Therefore, while there are many priorities on the table, a clear roadmap that outlines what should come first , and how each layer will support the next, will be vital for Bhutan as it builds a modern, resilient, and inclusive financial market capable of supporting its economic diversification goals and long-term national vision,” he added.

He pointed out financial literacy in Bhutan is very bad, with poor personal finance, savings and investments culture. He further noted that there are limited products and services. “The consolation is that there are untapped opportunities for sourcing capital,” he noted.

“Beyond addressing current gaps, there are also significant untapped opportunities for Bhutan to diversify and expand its sources of capital to support national development priorities. While the country has historically relied heavily on concessional loans, grants, and limited domestic savings, there is growing recognition that more diversified capital sourcing is essential for driving sustainable economic growth, supporting private sector development, and financing large-scale infrastructure and innovation,” he underlined.

Bhutan’s capital markets, including its stock exchange and bond market, remain underutilized but hold great potential. With the right reforms, they could help companies and the government raise long-term funds locally, easing reliance on external debt. Encouraging state-owned and private firms to list would unlock domestic savings, offer citizens more investment options, and strengthen equity culture.

He noted that Bhutan can also tap regional and international capital markets by boosting investor confidence through stronger laws, better financial disclosures, and higher governance standards. With careful safeguards, Bhutan could gradually open up to foreign investment in line with its national priorities. Doing so would help build a more resilient and dynamic financial system that supports economic diversification, a stronger private sector, and sustainable growth for all. Bhutan could also tap innovative financing tools like green bonds and social impact bonds, aligning fundraising with its GNH values and climate goals, while attracting impact investors for sustainable development.

Tashi Namgyal from Thimphu