ADB predicts Bhutan’s economy for strong growth in 2025, driven by hydropower and tourism
RENUKA RAI
Thimphu
Bhutan’s economy is entering a phase of strong recovery and expansion, with the Asian Development Bank (ADB) projecting a remarkable 8.5 percent growth rate in 2025.
This outlook, released in the latest Asian Development Outlook (ADO), reflects a broad-based resurgence across industry, services, and agriculture, bolstered by the country’s ambitious hydropower agenda and a reinvigorated tourism sector.
After years of cautious economic activity following the COVID-19 pandemic, Bhutan is now finding itself at the cusp of a new era—one marked by infrastructure milestones, expanding private investment, and renewed international engagement.
According to the ADB, while the 2025 forecast is particularly robust, growth will likely stabilize to a still-healthy 6 percent in 2026 as the initial burst from major projects begins to level out.
A significant driver of this year’s surge is the country’s most prized economic asset: hydropower. The industry sector is projected to grow at 18.6 percent in 2025, primarily due to the long-awaited commissioning of the Punatsangchhu-II hydropower project and the initiation of the Kholongchhu hydropower plant.
Sonam Lhendup, Economics Officer at the ADB’s Bhutan Resident Mission, underscored the importance of these developments.
“The completion of key infrastructure projects, especially in the hydropower sector, will significantly boost industrial growth this year,” he said.
“Hydropower continues to be the backbone of Bhutan’s economy, but we’re now seeing how it also catalyzes growth in construction, logistics, and other linked industries.”
The Kholongchhu project, in particular, is a significant collaboration with India’s Tata Group and forms part of a broader 5,000-megawatt hydro initiative aimed at strengthening Bhutan-India energy cooperation.
The synergy between public investment and regional partnerships has turned Bhutan into a key player in the clean energy market in South Asia.
Equally promising is the resurgence of the services sector, projected to expand by 4.9 percent in 2025. This recovery is being led by international tourism, which is slowly but steadily rebounding after prolonged border closures and travel restrictions.
Bhutan’s tourism sector—long known for its high-value, low-impact model—was among the hardest hit during the pandemic. However, the easing of travel restrictions and the reintroduction of key international routes have brought a fresh wave of visitors. In turn, this has reignited growth in transport, hospitality, retail, and related services.
“We’re seeing double-digit growth in areas like transport and hospitality,” Lhendup noted. “There’s growing optimism among tour operators and hoteliers, especially with the government’s continued support for the tourism industry.”
The government’s renewed marketing efforts, as well as improvements in digital visa processing and sustainable tourism infrastructure, are helping to restore Bhutan’s status as a premium destination for eco-conscious travelers.
As tourist footfall increases, rural economies that depend on cultural and eco-tourism are also seeing renewed activity.
Often overshadowed by the more headline-grabbing sectors, agriculture is also staging a quiet comeback. The ADO projects agricultural growth at 4.3 percent in 2025, buoyed largely by a policy shift that has opened the door for timber exports for the first time in 25 years.
The government’s decision to lift the timber export ban in early 2024 has revitalized the forestry and logging sectors, particularly in the country’s central and southern districts. As communities engage in responsible timber harvesting and export, rural incomes are receiving a needed boost.
In 2024, agriculture had already posted impressive gains, growing by an estimated 5.5 percent, thanks to contributions from both forestry and traditional farming. Continued efforts to modernize farming practices and invest in value-added products are expected to further strengthen this sector in the coming years.
On the demand side, Bhutan’s economic performance is being fueled by strong consumption and a rebound in fixed investment. The ADB notes that aggregate consumption will grow by 5.05 percent in 2025, with private consumption rising by 5.3 percent due to sustained credit growth and healthy remittance flows from Bhutanese citizens working abroad.
Recent salary hikes for public servants have also played a role in boosting household spending, particularly in urban centers. However, the ADB cautions that this effect may begin to wane in 2026, leading to a projected slowdown in consumption growth to 4.2 percent.
More significantly, fixed investment is forecast to make a sharp recovery, growing by 9.8 percent in 2025 after a minor contraction in 2024. This is attributed to the implementation of Bhutan’s 13th Five-Year Plan, which includes major spending on infrastructure, education, and digital connectivity.
Private investment is also expected to rise, particularly in construction, equipment, and machinery, as confidence returns to the market.
Despite the encouraging outlook for 2025, the ADB report strikes a note of realism for the following year. Economic growth is projected to moderate to 6 percent in 2026 as the boost from hydropower commissioning fades.
The industry sector will still grow, but at a slower pace of 9.3 percent, as most hydropower projects move from the high-growth construction phase into regular operations.
Tourism growth is also expected to slow slightly as the post-pandemic “revenge travel” trend begins to normalize. Meanwhile, the forestry sector may face challenges from environmental regulations and limited sustainable yields, contributing to a more tempered pace of agricultural expansion.
The ADB points to these moderations not as weaknesses, but as part of a natural economic cycle.
“What’s important is the quality and inclusiveness of growth. Sustained development will depend on how Bhutan diversifies beyond hydropower, strengthens its private sector, and deepens regional and global trade links,” Lhendup said.
On the inflation front, Bhutan is expected to see a gradual rise in consumer prices, with inflation forecast at 3.4 percent in 2025 and 3.5 percent in 2026. In comparison, inflation in 2024 was relatively subdued at 2.8 percent.
According to the ADB, rising food prices—particularly in the last quarter of 2024—are expected to persist into the first half of 2025. However, these pressures may be softened by falling transport costs due to declining global fuel prices.
Additionally, ongoing outmigration, especially of young urban professionals, is likely to reduce housing demand, further easing inflationary pressure on utilities and rentals.
