Bhutan’s economy is expected to maintain strong growth over the medium term, with the World Bank projecting real GDP growth of 7.1 percent in FY25/26 and 6.4 percent in FY26/27, driven mainly by hydropower expansion, including major projects such as Punatsangchhu-II, Dorjilung, and Khorlochhu. Despite this positive outlook, the report highlights rising challenges, including youth unemployment, migration pressures, and higher global fuel prices linked to ongoing geopolitical tensions, particularly in the Middle East, which are also contributing to inflationary pressures.
Inflation is expected to rise to 5.2 percent in FY25/26 and 5.6 percent in FY26/27, reducing household purchasing power, while the poverty rate is projected to gradually decline to 4.5 percent by 2027. Although international reserves are improving and expected to reach around $1.3 billion, the current account deficit remains elevated due to large hydropower-related imports, leaving the economy exposed to external shocks.
The World Bank stresses that Bhutan’s main challenge is translating strong growth into quality job creation, especially for young people and women, as youth unemployment remains high at 20.6 percent and outward migration continues. It also notes that while the agrifood sector plays a major role in employment, there is significant potential to increase earnings by shifting workers into higher-value activities such as processing and logistics, provided there are improvements in skills, infrastructure, and finance.
Overall, the report emphasizes that sustaining Bhutan’s growth will require stronger private sector development, better access to finance, and reforms to support diversification and job creation, while also managing risks from global uncertainty, rising fuel prices, and potential delays in key infrastructure projects.
