Resilient Growth Amid Global Pressures: Bhutan’s Economic Outlook

FY 2025-26: Fourth Quarter Update

Bhutan enters Fiscal Year 2026-27 with strong economic momentum and positive performance in tourism, employment, power generation, fiscal management, and international reserves. Following robust economic growth of 8.52% in 2025, the stronger-than-anticipated base has resulted in a downward revision of 2026 growth forecast to 6.21%.

Key Drivers of Growth

• Tourism: Bhutan recorded 258,232 visitors in FY 2025-26. Momentum will carry into FY 2026-27 via improved regional connectivity. While regional traffic remains steady, arrivals from major high-value source markets in Europe and the Americas are being monitored closely alongside geopolitical risk factors
• Electricity: Monsoon generation reached 3,873.45 GWh in Q4 (+7% year-on-year) and is projected to peak at around 7,638 GWh in Q1 FY 2026-27, subject to hydrology and climate risks such as El Nino.
• Employment: Labour market conditions remain supportive, with 3,640 jobs created during the first half of 2026, reflecting continued demand for workers as economic activity strengthened.

Government/Fiscal Position

• Fiscal Deficit: Estimated at 0.38% of GDP for FY 2025-26. The fiscal deficit is projected at 6.41% in FY 2026-27 due to capital investments and tax reforms. Cumulative 13th FYP deficit remains anchored near the 3% GDP target.
• Public Debt: 105.2% of GDP in June 2026, total public debt is projected to drop further to 102.23% in FY 2026-27 (largely hydropower-driven).

Monetary & Financial Sector

• Inflation: Inflation averaged 6.45% in the second half of FY 2025-26 and is projected to remain elevated at around 7% in the first quarter of FY 2026-27 as a result of continued global headwinds.
• Credit: Credit is expected to continue supporting economic activity in FY 2026-27, although growth is projected to moderate to 7% as the economy moves into a new investment cycle. Housing, hotels and tourism, and manufacturing which account for around 55% of total credit are expected to remain the main drivers of lending.
• Liquidity: Banking-sector liquidity is expected to remain adequate to support economic activity, projected to moderate from Nu. 19.1 billion in FY2025-26 to Nu. 7.3 billion in FY 2026-27. The decline partly reflects higher precautionary liquidity buffers being maintained to meet the banking system’s funding and payment needs.

External Sector

• External balance:  Extraordinary remittance inflows, interest earnings, and services narrowed the FY 2025-26 deficit to 19.4% of GDP. This will widen to 23.4% in FY 2026-27 on rising capital import needs as a result of investment activities and normalizing remittances.
• Reserves: Gross international reserves strengthened to USD 1.22 billion as of June 2026. While elevated import demand for capital investments will drive foreign currency outflows, reserves are projected to remain well-buffered at USD 1.16 billion by the end of FY 2026-27.

Outlook

Private investment is predicted to play an increasingly important role in generating growth, with a proportion of total investment rising to 77% in 2027 and further to 85% in 2028, aided mostly by new energy projects.

At the same time, increased investment and consumption will boost demand for imports, putting more strain on the external balance. Important elements to monitor include global fuel prices, travel disruptions, and climate threats like El Niño.

Policy efforts are focused on keeping inflation under control, maintaining fiscal discipline, maintaining international reserves, and stimulating productive investment in critical economic sectors. These measures will help Bhutan continue its growth momentum while also increasing the economy’s resilience to external shocks.

For detailed information, please visit www.mof.gov.bt for the Macroeconomic Situation Report | Ministry of Finance, Royal Government of Bhutan