Bhutan’s economy is forecasted to grow by 7.4% in FY2025/26, with continued strength in the subsequent year, driven by increased hydropower exports, a tourism resurgence, and higher capital expenditure, according to the International Monetary Fund (IMF). Inflation is anticipated to stabilize around 4%, supported by the currency peg and investment’s high import content, as per the IMF Executive Board’s 2025 Article IV consultation with Bhutan. The IMF highlighted Bhutan’s positive medium-term growth outlook, underpinned by expanding hydropower generation and ongoing public investments.
The IMF also noted downside risks, such as potential delays in hydropower projects, a global economic slowdown, volatility in crypto-assets, escalating fuel prices, and climate-related disruptions. It emphasized the necessity of stricter fiscal and monetary policies, coupled with enhanced financial sector oversight, to fortify buffers and uphold macroeconomic stability. Bhutan’s economic recovery gathered pace in 2024 and early 2025, with robust real GDP growth, particularly in the fourth quarter of 2024, reaching 9.1%, and sustained strength in the first half of 2025.
The growth was supported by an industrial rebound, service sector resilience, and the completion of major hydropower ventures. Inflation trended downwards through most of 2024, stabilizing below 2% by mid-year, before rising to around 4% in 2025, primarily driven by food price inflation. The IMF highlighted the Gelephu Mindfulness City project’s potential to attract foreign investments and promote diversification, while cautioning about associated fiscal and financial risks that necessitate prudent management.
The Executive Board recommended a gradual yet consistent fiscal consolidation to meet Bhutan’s medium-term deficit target, maintain room for growth-centric capital spending, and steer public debt downward. It commended Bhutan’s pledge to a 3% fiscal deficit under the current five-year plan and advancements in revenue reforms. However, the IMF cautioned that indirect tax revenue gains might stagnate, stressing the importance of higher GST rates, fuel tax introductions, and stringent spending controls to support fiscal goals.
Regarding monetary policy, the IMF advocated for a gradual normalization to bolster reserve accumulation, emphasizing the need to absorb excess liquidity to moderate credit expansion and enhance monetary transmission mechanisms, including through interbank market development. Strengthening financial sector resilience was underscored, with the adoption of Bhutanese accounting standards necessitating increased provisioning, especially for restructured loans. Authorities were advised to enhance risk-based supervision, stress testing, and enforcement of prudential standards.
Bhutan’s external position improved in FY2024/25, with reserves on the rise, although they remain below levels justified by fundamentals and policies. The IMF stressed the requirement for firmer fiscal and monetary stances to further reduce external imbalances. While acknowledging the Gelephu Mindfulness City initiative’s potential, the IMF flagged concerns about its nascent legal and regulatory framework. Discrepancies between national regulations and those within the city raised worries about fiscal risks, regulatory arbitrage, and financial oversight, particularly with permitted crypto-asset activities.
