Bhutan Development Update, Spring 2025

Bhutan's real GDP growth rate remained robust in FY23/24. The agriculture sector grew modestly due to lower crop yields. The industry sector grew modestly, supported by strong growth in mining and quarrying industry. Hydropower and construction sectors recorded a lackluster performance in FY23/24 with no major hydropower plant being commissioned and the construction of Puna-II hydropower plant in its final stages. The service sector growth outpaced GDP growth, driven by tourism related activities and growth in financing, insurance, and real-estate services. Demand side growth was driven by non-hydropower exports and consumption. Headline inflation decelerated due to lower non-food inflation but food inflation remains elevated, partly driven by high food inflation in India where recurrent extreme weather events disrupted agricultural production. The overall labor market has recovered to pre-COVID levels, but youth unemployment remains a concern. The current account deficit was still elevated in FY23/24 but narrowed substantially from its peak in FY22/23 due to decrease in imports and increase in tourism-related services exports. Fiscal deficit narrowed significantly in FY23/24, driven by higher non-tax revenue and lower capital spending. Medium-term growth is projected to accelerate, supported by construction and commissioning of new hydropower plants. The Special Focus chapter for this report sheds light on the recent surge in external migration from Bhutan. It explores the key drivers behind the recent wave of external migration and offers policy considerations to maximize its benefits and minimize its costs