Bhutan’s economy is expected to grow steadily this year after doing very well last year. This year, growth is expected to be around 6.9 per cent. According to the Finance Ministry’s Second Quarter Economic Outlook for FY 2025–2026, this slowdown means the economy is moving away from event-driven growth toward a more stable and sustainable pace.
The economy expanded by about 8.7 per cent last year, supported by strong sectoral performance and increased activity during major national events, including the Global Peace Prayer Festival and GMC volunteer engagements.
This year, growth will be driven by tourism, electricity, construction and employment.
Bhutan recorded more than 181,500 tourist arrivals last year, with international visitors surpassing pre-pandemic levels. Indian tourist numbers are also expected to rebound steadily, while overall arrivals could rise by a further 28 per cent.
In the energy sector, power generation increased by 36.2 per cent last year, following the commissioning of Punatsangchhu-II and improved hydrological conditions, boosting electricity earnings. Hydropower revenue is expected to continue supporting the economy this year.
Domestic revenue is projected to reach nearly Nu 79bn in the 2025–26 financial year, supported by higher profit transfers, central bank earnings and deferred dividends from state-owned enterprises.
As government revenue increases, spending is also expected to rise. Total expenditure could exceed Nu 122bn, driven by higher education stipends, increased transfers to local governments and major capital investments.
Ongoing hydropower and infrastructure projects, along with private-sector construction, are expected to support GDP growth.
Public debt will remain above 110 per cent of GDP, largely due to hydropower investments, considered self-liquidating.
Foreign exchange reserves are forecast to exceed USD 1.3bn, covering about 34 months of essential imports and strengthening economic stability.
However, the outlook notes that export growth remains critical.
The new income tax regime is expected to raise take-home pay, helping households manage price pressures while supporting domestic consumption.
Unemployment improved slightly in 2025, although youth unemployment remains a concern due to a mismatch between available jobs and young people’s employment preferences.
Kinzang Lhadon
