Bhutan: The economy is set to maintain solid momentum over the next two years, driven by expanding hydropower exports, a steady recovery in tourism, and higher public investment, according to the latest assessment by the International Monetary Fund. The Fund projects economic growth of 7.4 percent in the 2025/26 fiscal year, with activity expected to remain robust into the following year.
The IMF’s Executive Board released its findings after concluding the 2025 Article IV consultation with Bhutan under its lapse-of-time procedure. The review highlighted a broadly positive medium-term outlook, underpinned by new hydropower capacity coming online and continued capital spending by the government.
Price pressures are expected to gradually align around the 4 percent level over the medium term. The IMF noted that Bhutan’s currency peg, along with the high import content of investment projects, continues to play a stabilising role. Inflation eased through much of 2024 as food and non-food costs moderated, falling below 2 percent by mid-year, before edging back toward 4 percent in 2025, largely due to higher food prices.
Economic activity gathered pace during 2024 and into early 2025. Real GDP growth strengthened notably toward the end of 2024, reaching 9.1 percent in the fourth quarter, and remained strong through the first half of 2025. This acceleration reflected a rebound in industrial output, steady performance in services, and the commissioning of major hydropower projects.
Despite the favourable trajectory, the IMF cautioned that risks remain tilted to the downside. Potential delays in hydropower construction, a possible global economic slowdown, volatility linked to crypto-asset holdings, rising fuel prices, and climate-related shocks could all weigh on growth and stability if not carefully managed.
The Fund advised a gradual but sustained approach to fiscal consolidation to meet Bhutan’s medium-term deficit targets. Such a strategy would help preserve room for growth-enhancing capital expenditure while placing public debt on a downward path. The IMF welcomed the government’s commitment to maintaining a fiscal deficit of 3 percent under the current five-year plan, as well as progress on revenue reforms.
At the same time, the IMF warned that gains from indirect tax revenues could lose momentum. It stressed the importance of higher goods and services tax rates, the introduction of fuel taxes, and tighter expenditure controls to support fiscal objectives and rebuild policy buffers.
On the monetary front, the Fund called for a careful normalisation of policy to support reserve accumulation. Excess liquidity in the system should be absorbed to moderate credit growth and improve the transmission of monetary policy, including through further development of the interbank market.
The IMF also underscored the need to enhance financial sector resilience. The adoption of Bhutanese accounting standards is expected to require higher loan provisioning, particularly for restructured assets. Authorities were encouraged to strengthen risk-based supervision, stress testing practices, and enforcement of prudential regulations.
Bhutan’s external position improved in the 2024/25 fiscal year, with foreign exchange reserves rising, though they remain below levels considered adequate based on fundamentals and policy settings. The IMF said stronger fiscal and monetary stances would help further narrow external imbalances.
The Fund acknowledged the potential of the Gelephu Mindfulness City to attract foreign investment and support economic diversification. However, it noted that the project’s legal and regulatory framework is still at an early stage. Differences between national regulations and those applied within the city could pose fiscal and supervisory challenges, particularly given the allowance of crypto-asset activities.
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