DAWA ZANGMO | Thimphu
The Asian Development Bank (ADB) has approved USD 17.42 million to help Bhutan mitigate the economic impact of the Middle East conflict, with measures aimed at supporting vulnerable households facing rising food and energy costs and sustaining essential public services.
The financing will support selected interventions under the government’s USD 267.88 million Anti-Crisis Action Plan, which seeks to cushion the effects of higher fuel and commodity prices on household budgets, public finances and economic activity.
ADB President Masato Kanda said rising fuel prices affect households across Bhutan, but families with fewer financial resources face the greatest burden.
He said higher import costs put additional pressure on household spending and government finances, making it important to maintain support for essential services, including school meals and assistance with household expenses.
The approved package consists of a USD13.45 million grant from the Asian Development Fund and a USD 3.97 million loan from ADB’s ordinary capital resources. The assistance is being provided through the bank’s Enhancing Resilience with Countercyclical Expenditures Program.
Bhutan’s dependence on imported food and fuel, combined with its limited domestic revenue base, makes the economy vulnerable to external shocks. Rising global fuel and commodity prices have increased import costs and disrupted trade, affecting economic activities, including tourism.
These pressures are contributing to slower economic growth and increasing risks to employment and household welfare. ADB forecasts economic growth to decline from 8.5 percent in 2025 to 6.5 percent in 2026 before improving to 7.2 percent in 2027.
Under the programme, eligible women from large families will receive monthly financial assistance of up to Nu 10,000, equivalent to about USD104. The package also includes subsidies for household energy bills in rural areas and an expansion of school feeding programmes to ensure children have access to nutritious meals.
The measures are intended to provide targeted assistance to vulnerable families while helping them manage the effects of higher living costs.
The programme will also expand tax exemptions on essential food products, including rice, butter, refined oil and salt, to help keep basic goods affordable. Other essential items, such as wheelchairs and sanitary napkins, will also benefit from tax exemptions.
In addition to household support, the financing will contribute to small-scale public works in dzongkhags and gewogs. These activities are intended to help sustain employment and ensure the continued delivery of essential public services at the local level.
The programme will also support the replenishment of strategic fuel storage facilities to strengthen the country’s preparedness for possible disruptions to fuel supplies. Measures to promote electric mobility include the procurement of 45 electric buses for urban and interdistrict transport services.
However, the ADB financing will support only specific components of the government’s broader Anti-Crisis Action Plan. Other measures, including assistance for small businesses, tourism, agriculture and youth employment, as well as initiatives to promote electric mobility, will be financed by the Royal Government of Bhutan and other development partners.
Although Bhutan has limited direct trade exposure to the Middle East, the ongoing conflict presents indirect economic risks through energy prices, international trade and services. The country’s reliance on imported fuel leaves it exposed to fluctuations in global oil prices, while its narrow domestic revenue base limits its capacity to absorb external economic shocks.
Higher international oil prices have increased the cost of imports, putting pressure on the current account balance and reducing the purchasing power of households. Rising fuel and transportation expenses are also contributing to domestic inflation, increasing the cost of living and placing additional pressure on household budgets.
The impact extends to businesses, particularly those that depend on imported goods and transportation. Higher operating costs can affect business activity, while increased household expenses may reduce consumption and weaken domestic demand.
Bhutan’s tourism industry is also facing risks from disruptions to aviation and changes in international travel demand. These developments could affect tourist arrivals and spending, reduce foreign exchange earnings and put employment in the services sector under pressure.
The government’s Anti-Crisis Action Plan brings together measures to address these economic pressures through financial assistance for vulnerable households, support for essential goods and services, employment initiatives and efforts to strengthen energy security.
ADB’s approval forms part of its broader response to the economic consequences of the Middle East conflict across Asia and the Pacific.
The Asian Development Fund, which receives contributions from multiple donors, provides support to countries most in need, helping them address immediate economic challenges while laying the groundwork for sustained and inclusive growth.
