RENUKA RAI | Thimphu
According to the International Monetary Fund’s (IMF) 2025 Article IV Consultation report, Bhutan has made remarkable strides in social development over the past decade, improving living standards while maintaining its strong commitment to environmental sustainability.
Extreme poverty in the country was eliminated by 2022, and inequality has declined, reflecting a broad-based improvement in social conditions.
In December 2023, Bhutan achieved a major milestone by graduating from the United Nations’ Least Developed Country (LDC) category.
While this transition signifies progress, it also implies a gradual reduction in official development assistance, creating new imperatives for domestic economic resilience.
The country’s environmental achievements are equally notable. Bhutan remains a global environmental leader, maintaining over 60 percent of its land under forest cover and committing to remain carbon neutral.
These environmental policies have long been integrated into Bhutan’s development strategy, reinforcing the country’s unique approach to balancing economic growth with ecological stewardship.
Nonetheless, Bhutan remains highly vulnerable to climate-related risks, including floods, landslides, and glacial lake outburst floods, which can impact both livelihoods and infrastructure.
Economic recovery, while largely driven by hydropower projects, has also supported social development. Real GDP growth accelerated sharply toward the end of 2024, reaching 9.1 percent in the fourth quarter, and remained robust in the first half of 2025.
This growth has been fueled by the commissioning of hydropower projects, increased grant-financed capital spending under the 13th Five-Year Plan (FYP), and a recovering tourism sector.
Tourist arrivals grew by 41 percent, with higher-spending non-Indian visitors contributing significantly to tourism receipts, which rose by 35 percent.
This resurgence in tourism has supported employment, particularly in service industries, and helped reduce outward migration pressures among Bhutanese youth.
Despite these gains, challenges remain. Youth unemployment continues to be elevated, and outward emigration remains a concern as young people seek opportunities abroad.
The IMF underscores that the economy’s heavy reliance on hydropower and low-productivity sectors limits private sector employment opportunities, making diversification essential.
Expanding economic opportunities for youth is critical not only for retaining talent but also for sustaining inclusive growth in the long term.
In this context, the Gelephu Mindfulness City (GMC) project emerges as a cornerstone of Bhutan’s economic diversification strategy.
Envisioned as a hub for investment and innovation, GMC aims to attract foreign direct investment, generate employment, and broaden the country’s economic base beyond hydropower.
The project offers substantial potential to support private-sector growth, improve infrastructure, and create high-quality jobs, particularly for younger generations.
By targeting sectors with higher productivity and export potential, GMC is expected to complement Bhutan’s broader development objectives, including sustainable urbanization and technological innovation.
However, the GMC project is not without risks. The IMF notes that the legal and regulatory framework governing GMC’s operations is still at an early stage, with significant gaps in labor, goods, and capital mobility regulations.
Differences between GMC rules and those of the Royal Monetary Authority (RMA) create financial risks, including concerns over regulatory arbitrage and licensing discrepancies.
The project has adopted Abu Dhabi Global Market regulations as a step toward addressing anti-money laundering and counter-financing of terrorism (AML/CFT) vulnerabilities, but strong complementary laws and effective enforcement remain critical.
Crypto-asset activities permitted within GMC further underscore the need for vigilant supervision to mitigate potential financial shocks.
Fiscal risks are also an important consideration. GMC’s independent tax regime could erode Bhutan’s national revenue base while generating additional contingent liabilities for the government.
Effective fiscal management will therefore be essential to ensure that GMC’s potential benefits attracting investment, generating employment, and supporting economic diversification are fully realized without undermining macroeconomic stability.
Bhutan’s social progress is reinforced by broader economic policies. Public spending under the 13th FYP has prioritized infrastructure, health, and education, contributing to improvements in living standards and poverty reduction.
Total government expenditure is projected at 35 percent of GDP in 2025/26, with capital expenditure accounting for 17.2 percent.
At the same time, domestic revenue mobilization, particularly through tax reforms such as the Goods and Services Tax (GST), aims to strengthen fiscal capacity while maintaining fiscal space for pro-growth investments.
The IMF emphasizes that achieving sustainable development and maintaining Bhutan’s social gains will require a balanced approach.
Monetary policy also plays a role, as Bhutan gradually normalizes its stance to support reserve accumulation and moderate credit growth.
Broad money growth is projected at 12.9 percent, while private sector credit is expected to grow at 11.3 percent, providing the liquidity necessary to fund private-sector initiatives and new investment opportunities.
Education and skill development are highlighted as critical enablers for social and economic progress. By coupling economic diversification with human capital development, Bhutan aims to reduce outward emigration pressures and retain its young talent pool.
Overall, Bhutan’s achievements in social development, environmental stewardship, and economic recovery reflect a carefully managed transition toward a more resilient and diversified economy.
The elimination of extreme poverty, reduced inequality, and graduation from the LDC category underscore the country’s progress.
Meanwhile, projects such as GMC offer concrete pathways to create jobs, attract investment, and foster private-sector growth.
Addressing the associated fiscal, regulatory, and financial risks will be key to ensuring that these initiatives translate into sustained social and economic benefits for the nation.
IMF states: “The country’s social and environmental accomplishments provide a strong foundation, while ambitious projects like GMC offer the potential to diversify the economy, create employment opportunities, and strengthen fiscal sustainability.
“By carefully managing the risks associated with economic diversification, ensuring regulatory clarity, and maintaining fiscal and monetary discipline, Bhutan can continue to improve living standards, retain its youth, and build a more inclusive and resilient economy in the years ahead.”
