Press Release No. 24/336

Washington, DC: On September 9, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Bhutan[1].

During the past decade Bhutan adeptly balanced economic growth and poverty reduction with environmental sustainability. Sustained growth increased incomes, lifting living conditions and eliminating extreme monetary poverty by 2022. Bhutan has a long history of leading environmental conservation and climate change action and is committed to remaining carbon neutral. While the pandemic hindered economic development, strong policies limited its health impact.

Growth remained subdued during 2023. Large-scale emigration and policies to curb imports hindered a more robust recovery. Inflation accelerated in the second half of 2023, driven by wage increases in the public sector. The current account deficit (CAD) widened to around 30 percent of GDP driven by a large investment in crypto assets mining and the slow recovery in tourism. The fiscal deficit narrowed but remained high and non-hydro debt nearly doubled from pre-pandemic levels.

Boosted by hydro-power projects and grant-financed capital investment, growth is projected to accelerate over the medium term, averaging 6.3 percent of GDP, but to remain volatile. A gradual easing of inflation towards 4 percent is expected as the impact of wage increase subside. The CAD is expected to narrow, supported by higher electricity exports due to the commissioning of new hydropower plants, a continued recovery in tourism, and crypto assets exports. Securing diverse sources of growth that provide quality employment opportunities while preserving Bhutan’s commitment to environmental sustainability remains a key medium‑term challenge.

Uncertainty remains elevated with the balance of risks tilted to the downside. Domestic risks include slippages on implementation of the goods and services tax, delays in hydropower projects, and fiscal risks from the materialization of contingent liabilities in the financial sector. External risks include volatile commodity prices—particularly of fuel—and a global slowdown that could hinder non-hydro exports. Bhutan is vulnerable to climate change, given the importance of hydroelectricity and agriculture. Crypto mining entails significant upside and downside risks given their price volatility. Overall, the large external debt and persistent CADs—while supporting growth-enhancing investments and financed by development partners—are nonetheless a source of vulnerability. On the upside, the pursuit of stronger‑than-envisaged fiscal consolidation would accelerate the pace at which fiscal and external buffers are rebuilt.

Executive Board Assessment[2]

Executive Directors agreed with the thrust of the staff appraisal. They commended Bhutan’s significant reduction in poverty and inequality during the last decade. Directors welcomed that growth is expected to accelerate over the medium term, boosted by a large hydroproject, higher capital spending, and the slowdown of emigration. Noting downside risks to the outlook, they underscored that tighter fiscal and monetary policies are needed to support the peg, reduce domestic and external imbalances, and rebuild buffers; while carefully managing potential risks stemming from crypto assets operations is also needed. Directors called for structural reforms to foster high-quality jobs in the private sector and diversify the economy, and commended the authorities’ commitment to ecological conservation and climate change action. They noted that continued support from the Fund’s capacity development is important.

Directors stressed that a gradual and sustained fiscal consolidation, based on revenue mobilization and spending restraint, is essential to rebuild buffers and preserve debt sustainability. They welcomed the authorities’ commitment to a timely implementation of the Goods and Services Tax and to undertaking additional tax and revenue administration measures to achieve the planned fiscal consolidation. Directors recommended strengthening public financial management, public investment management, and domestic debt management.

Directors underscored that monetary policy needs to be tightened in tandem with fiscal policy to ease balance-of-payment pressures and rebuild reserves. They stressed the need for a well-functioning domestic liquidity management framework to support the monetary policy operation function. Directors encouraged the authorities to phase out existing exchange restrictions once conditions allow. They noted the need to address remaining financial sector vulnerabilities, particularly given the expiration of COVID-related support measures. In this context, they welcomed the new guidelines and regulations to address credit quality and the progress in moving toward risk-based supervision. Directors recommended further enhancing the AML/CFT framework. 

Directors called for structural reforms to diversify the economy and foster the creation of private sector jobs for high-skilled workers. They recommended improving the business environment, strengthening human capital accumulation, and improving active labor market policies. Directors welcomed efforts toward a new FDI policy, which relaxes some restrictions, including access to foreign currency, local employment requirements, and caps on foreign ownership. They also welcomed the improvements in data quality and called for further progress in this area.

Directors stressed the need to further strengthen public sector governance, including the Royal Monetary Authority’s (RMA) governance framework and independence as well as the transparency in the operations of state-owned enterprises. Noting the need to mitigate the potential risks stemming from crypto asset operations, they welcomed RMA’s efforts to strengthen its reserve management strategy and the forthcoming audited financial statements of crypto-mining operations.

Bhutan: Selected Economic Indicators, 2018/19-2028/29

2018/19	2019/20	2020/21			2021/22			2022/23		2023/24			2024/25				2025/26				2026/27				2027/28			2028/29
	Act.	Act.	Act.			Act.			Projections
	(In percent of GDP, unless otherwise indicated)
National Accounts
Nominal GDP (in millions of ngultrums) 1/	184,660	187,378	193,386			216,239			237,322		261,026			292,837				325,812				357,677				393,607			438,906
Real GDP growth (percent change) 1/	4.6	-2.5	-3.3			4.8			5.0		5.2			7.2				6.4				5.2				5.6			7.2
Prices
Consumer prices (EoP; percent change)	2.8	4.5	7.4			6.5			3.9		4.8			4.7				4.4				4.0				4.0			4.0
Consumer prices (avg; percent change)	2.8	3.0	8.2			5.9			4.6		4.6			4.7				4.5				4.2				4.0			4.0
GDP deflator (percent change)	2.2	4.0	6.7			6.7			4.5		4.6			4.6				4.6				4.4				4.2			4.1
General Government Accounts
Total revenue and grants	22.8	29.1	30.9			25.1			24.2		24.2			28.1				31.5				30.1				28.2			27.3
Domestic revenue	18.8	19.3	18.5			18.1			18.9		20.3			19.3				20.7				20.7				20.8			22.4
Tax revenue	14.7	12.2	10.7			12.0			13.3		13.4			14.0				14.4				14.8				14.8			15.2
Non-tax revenue	4.1	7.2	7.9			6.1			5.6		6.9			5.4				6.3				5.9				6.0			7.3
Foreign grants	5.5	8.5	7.5			6.2			6.0		3.9			8.8				10.8				9.4				7.4			4.9
Internal and other receipts	-1.6	1.3	4.9			0.9			-0.7		0.0			0.0				0.0				0.0				0.0			0.0
Total expenditure 2/	24.2	30.9	36.6			32.1			29.0		28.8			32.5				34.2				33.4				32.1			32.2
Current expenditure	15.0	19.0	22.5			15.9			14.9		17.1			17.0				17.8				18.7				18.8			19.4
Capital expenditure	8.8	11.8	14.3			16.1			14.2		11.8			15.5				16.4				14.8				13.3			12.8
Primary expenditure 2/	23.4	30.5	35.7			30.6			27.3		27.2			30.5				31.4				29.9				28.3			27.7
Primary balance	-0.6	-1.4	-4.8			-5.5			-3.1		-3.0			-2.4				0.1				0.2				-0.1			-0.4
Overall balance	-1.5	-1.8	-5.8			-7.0			-4.8		-4.6			-4.4				-2.7				-3.3				-3.9			-4.8
General government debt 3/	100	115	123			117			116		114			109				123				122				119			130
Domestic	3	1	9			11			13		14			15				12				11				13			13
External	97	114	114			106			103		100			94				111				111				106			117
Monetary Sector
Broad money (M2) growth (percent change)	5.6	19.3	24.4			9.4			9.8		12.6			13.2				12.3				13.0				12.2			11.5
Private credit growth (percent change)	20.5	13.3	6.5			10.8			19.3		9.1			11.2				11.1				11.5				10.0			10.2
Balance of Payments
Current account balance	-19.2	-14.8	-11.2			-28.1			-34.4		-17.7			-32.1				-20.5				-12.5				-17.1			-14.1
Goods balance	-15.3	-12.1	-6.4			-21.1			-25.7		-12.9			-26.9				-15.0				-6.1				-10.1			-8.8
Hydropower exports	6.0	12.1	13.5			11.0			8.7		6.3			8.2				9.5				9.1				10.4			11.9
Non-hydropower exports	17.3	13.0	13.9			15.8			14.9		15.7			15.9				15.8				17.1				18.1			18.8
Imports of goods	38.6	37.1	33.9			47.9			49.2		40.2			55.6				52.4				45.6				42.1			42.2
Services balance	-1.9	-3.5	-4.4			-6.5			-6.7		-3.7			-2.8				-3.6				-3.8				-3.6			-3.0
Primary balance	-8.4	-5.7	-5.7			-5.5			-5.0		-5.6			-4.5				-4.2				-4.6				-4.9			-4.8
Secondary balance	6.5	6.6	5.4			5.1			2.9		4.5			2.1				2.2				2.0				1.6			2.5
Capital account balance	8.0	7.1	3.8			3.6			4.1		3.1			8.2				9.8				8.6				6.6			2.9
Financial account balance	-4.5	-15.1	-9.1			-8.2			-10.7		-15.9			-24.0				-20.2				-19.2				-13.6			-13.6
Net errors and emissions	10.4	5.4	-4.8			1.2			11.8		0.0			0.0				0.0				0.0				0.0			0.0
Overall balance	3.7	12.9	-3.0			-15.1			-7.8		1.2			0.1				9.4				15.3				3.2			2.5
Gross official reserves (in USD millions)	1065	1344	1332			840			574		606			604				969				1616.3				1758.9			1878.7
(In months of imports)	12.4	17.5	17.9			7.6			4.8		5.8			3.7				5.7				10.0				10.8			10.3
(In months of goods and services imports)	10.1	14.2	15.6			6.6			3.9		4.6			3.2				4.8				8.1				8.6			8.4
Memorandum Items
Hydropower exports growth rate 4/	-1.2	105.6	15.8			-9.4			-13.2		-20.7			46.2				30.4				4.5				26.1			27.3
Non-hydropower exports growth rate 4/	13.7	-24.1	11.0			26.8			3.2		16.2			13.5				10.7				18.8				16.5			16.0
Hydropower good imports 4/	-15.3	-3.5	-21.2			-11.6			14.9		50.8			18.4				61.1				14.0				3.3			-19.1
Non-hydropower good imports 4/	10.3	-2.3	-4.3			63.8			12.7		-13.0			58.1				1.5				-6.1				1.4			15.2
Population in million (eop)	0.7	0.7	0.8			0.8			0.8		0.8			0.8				0.8				0.8				0.8			0.8
External financing gap in US million	…	…	…			…			0		0			0				0				0				0			0

 

 

 

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the

views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation

of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.