In its recent outlook for South Asia, the World Bank has projected Bhutan’s Gross Domestic Product (GDP) growth to reach 7.2% in 2025. This forecast is detailed in the Global Economic Prospects Report published in January 2025, part of the World Bank Group’s flagship series of economic analyses. For 2026, the GDP growth rate at market prices is estimated to moderate slightly to 6.6%, while projections for previous years indicate steady progress: 5.3% for 2024, 5.0% for 2023, and 4.3% for 2022.
Regional Context and Fiscal Year Variations
Bhutan’s fiscal year, which runs from July 1 to June 30, differs significantly from the fiscal calendars of its regional counterparts. For instance, India’s fiscal year spans April 1 to March 31, while Nepal’s fiscal year extends from July 16 to July 15. These variations, while seemingly administrative, have important implications for the timing, comparison, and interpretation of fiscal data and economic performance across South Asia. Such differences affect the alignment of economic policies, the synchronization of fiscal reporting, and the comparability of regional growth metrics, often requiring careful adjustments to enable meaningful cross-border economic analysis.
In the context of FY 2023/24, Bhutan’s economic growth trajectory reflects a strong rebound, underpinned by robust service exports, particularly in the tourism sector, which has experienced renewed vigor following the global easing of pandemic-related travel restrictions. Bhutan’s appeal as a high-value, low-volume tourism destination continues to attract visitors seeking its unique blend of cultural richness, natural beauty, and spiritual heritage, providing a significant boost to service sector revenues.
Moreover, improved agricultural performance has further supported economic growth during this period. Bhutan’s commitment to sustainable and organic farming practices has not only enhanced productivity but also ensured the resilience of its agricultural sector in the face of global supply chain disruptions. Favorable weather conditions, combined with government initiatives to modernize farming techniques and improve rural infrastructure, have contributed to increased yields and market access for farmers.
The estimated 5.3% growth in FY 2023/24 highlights Bhutan’s ability to leverage its comparative advantages in tourism and agriculture while maintaining its commitment to sustainable development. This growth also underscores the country’s efforts to balance economic modernization with the preservation of its environmental and cultural integrity, positioning Bhutan as a model for holistic and sustainable development in the region.
Fiscal Policies and Public Investments
Across South Asia, fiscal policies are expected to remain relatively tight, reflecting a shared emphasis on reducing fiscal deficits amidst ongoing economic pressures. Countries in the region are balancing the need to stimulate growth with the imperative to maintain fiscal discipline, particularly in the face of rising debt levels, global financial uncertainties, and inflationary challenges.
India’s Focus on Revenue Mobilization
In India, fiscal consolidation is being driven by rising tax revenues, a result of improved tax compliance, digitization of the tax system, and economic recovery post-pandemic. The Goods and Services Tax (GST) reforms and enhanced direct tax collections have significantly contributed to the government’s ability to narrow fiscal deficits while funding critical public services and infrastructure projects. India’s strategy reflects a robust revenue-based approach to fiscal sustainability, which contrasts with expenditure-focused adjustments seen in some other countries.
Fiscal Adjustments Across the Region
In other South Asian economies, including the Maldives, Nepal, Pakistan, and Sri Lanka, fiscal policies are shaped by varying degrees of economic fragility:
- Maldives: The economy, heavily reliant on tourism, has focused on diversifying revenue streams and controlling expenditures, despite vulnerabilities to external shocks.
- Nepal: Fiscal adjustments are geared toward improving public expenditure management while addressing structural inefficiencies in tax collection.
- Pakistan and Sri Lanka: Both nations are implementing austerity measures under the guidance of international financial institutions to stabilize their economies amidst severe debt crises. These measures often involve reducing subsidies, increasing taxes, and curtailing public spending, though they come with socio-political risks.
Bhutan: A Strategic Deviation
In contrast, Bhutan’s fiscal approach in FY 2024/25 is marked by a planned increase in public investment, primarily directed toward critical infrastructure projects, including the hydropower sector. This strategy is expected to temporarily widen the fiscal deficit, reflecting Bhutan’s long-term vision of leveraging strategic investments to stimulate economic growth.
Hydropower, often referred to as Bhutan’s “economic backbone,” is central to the nation’s fiscal and economic strategy. The anticipated revenue influx from a new hydropower project in subsequent years is projected to significantly offset the short-term rise in deficits. This revenue will not only support fiscal consolidation but also enhance Bhutan’s capacity to invest in other priority areas such as education, health, and sustainable tourism.
Analyzing Bhutan’s Strategic Path
Bhutan’s approach highlights a counter-cyclical fiscal policy, where increased public spending during times of economic uncertainty is aimed at fostering long-term economic resilience. This contrasts with the more immediate deficit-reduction strategies of its regional counterparts. However, the success of this strategy hinges on several factors:
- Timely Completion of the Hydropower Project: Delays could strain fiscal sustainability, leading to higher borrowing costs and impacting investor confidence.
- Market Demand for Hydropower Exports: Bhutan’s ability to export surplus electricity, particularly to India, will be critical for realizing projected revenues.
- Debt Management: As public investments are often debt-financed, prudent management of external and domestic debt will be necessary to ensure fiscal stability.
Regional Implications and Lessons
Bhutan’s strategy offers valuable insights for South Asia, where countries often struggle to balance immediate fiscal needs with long-term development goals. By prioritizing investments in revenue-generating sectors like hydropower, Bhutan demonstrates how strategic public spending can be a tool for sustainable growth. However, this approach also underscores the importance of aligning fiscal policies with transparent execution, robust project management, and macroeconomic stability.
In the broader context, South Asia’s collective push toward fiscal consolidation reflects a region-wide recognition of the need for financial discipline. While strategies differ, the shared goal of reducing fiscal vulnerabilities is critical for fostering sustainable and inclusive growth in a region marked by economic diversity and development challenges.
Socioeconomic Risks and Youth Unemployment
Despite these optimistic growth forecasts, Bhutan-and the region as a whole-faces significant challenges. Youth unemployment remains alarmingly high, exacerbating social unrest risks and dampening long-term growth prospects. The youth jobless rate has risen since the pre-pandemic era and now surpasses that of other age groups in countries like Bhutan, Bangladesh, Pakistan, and Sri Lanka. This persistent issue contributes to increased emigration, particularly among skilled workers, as many seek better opportunities abroad.
A Broader Global Economic Context
As the 21st century dawned, global leaders rallied around the ambition of eradicating poverty and hunger. Buoyed by initial progress, they set a bold target to achieve these goals by 2030. However, the current outlook for economic growth in developing nations, including those in South Asia, is now the weakest it has been since the century began. If growth rates fail to improve significantly, only six of today’s 26 low-income countries are projected to attain middle-income status by 2050. By 2030, an estimated 622 million people will still live in extreme poverty, with hunger and malnutrition affecting a similarly large population.
Bhutan’s Role in a Changing World
As Bhutan navigates these challenges, its strong service sector, burgeoning tourism industry, and strategic investments in hydropower offer a pathway to sustained economic growth. However, addressing critical issues like youth unemployment and ensuring inclusive development remain vital. By leveraging its cultural heritage, environmental sustainability, and commitment to equitable progress, Bhutan has the potential to serve as a beacon of resilience and innovation in a rapidly evolving global landscape.
Sangay Rabten from Thimphu
