Fuel shortages and rising global oil prices are casting a shadow over Bhutan’s economy, even as hydropower projects continue to drive growth. The World Bank predicts Bhutan’s GDP will grow at 7.1 per cent this financial year, slowing slightly to 6.4 per cent in 2026-27.
The GDP growth for 2025-2026 and 2026-2027 financial years is expected to be largely driven by the full commissioning of the Punatsangchhu-II hydropower project, along with the ongoing construction of the Dorjilung and Khorlochhu hydropower plants. These projects are set to boost electricity generation and exports.
Private investment in hydropower and increased government spending will also support the economy.
However, emerging challenges are beginning to weigh on the outlook.
Recent fuel shortages reported in parts of the country highlight Bhutan’s vulnerability to external shocks. The ongoing conflict in the Middle East is expected to push up global oil prices, making fuel imports more expensive.
As a result, the growth forecast for 2025-26 has been revised down slightly from 7.3 per cent to 7.1 per cent.
“I would stress that it is still too early to fully assess the impact. What’s more important now is the government’s policy response to protect citizens from an external shock beyond its control. The National Fuel Price Smoothing Framework is a key initiative, and we are advising the government to proceed cautiously, considering the fiscal implications. As the Minister mentioned this morning, while such subsidies are necessary, they can also be costly,” said Xavier Furtado, the country manager, World Bank Group.
He added that subsidies should be time-limited and targeted to low-income households.
The government introduced the National Fuel Price Smoothing Framework last month to help keep the price of petrol and diesel stable to cushion the effect on households and the economy.
Xavier Furtado said, “We encourage the government to consider how and when subsidies—whether for fuel or other essentials—can be targeted most effectively. The support should reach truly vulnerable households, those with limited options and little savings, as they are the ones who need it most.”
Despite these challenges, the World Bank says the projected growth rates are still very high, especially compared with other countries.
Bhutan’s economy grew strongly at 8.1 per cent in 2024-25.
Samten Dolkar
