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Bhutan: Country Report
A Poor, but Growing State
The economy of Bhutan in the world is one of the
smallest and least developed economies in the world.
It is based on hydroelectricity, tourism, and
agriculture. Bhutan has difficulties with its terrain; it
is land-locked, and there is a large difference in sea level altitudes in the
South and the North. Therefore, vegetation and agriculture are difficult in
some areas, and the cost of transportation is very high. Hydroelectricity and
constructions are factors of major importance for the economic growth of
Bhutan in spite of the geographical disadvantages.1 In recent years, the
economy of Bhutan has been growing but slowly (Figure 1).2
“Bhutan: Economy.” Michigan State University.
<http://globaledge.msu.edu/countries/bhutan/economy>
2
“The World Factbook: Bhutan.” Central Intelligence Agency.
<https://www.cia.gov/library/publications/the-world-factbook/geos/bt.html>
1
Hydroelectricity

Bhutan is blessed with a geographical advantage in terms of
hydroelectricity. The difference in sea level altitudes is significant. The
altitude varies from 100m to 7,550m above the sea level. Also, Bhutan
obtains a fair amount of rain which varies from 500mm in the South to
5,000mm in the North. This geography and climate helps Bhutan
generate much hydroelectricity.3 Hydropower is the top export of Bhutan.
It occupies 35.5% of the total exports and is exported to India as well as
other countries.4
Tenth Five-Year Plan:



Electricity from hydropower has been the main source of domestic
consumption and local industrial needs and major exports and a great
revenue earner for more than 20 years. Today, 40% of the total national
revenue comes from hydropower. Even more development of electricity
from hydropower is expected from a bilateral agreement with India and
will strengthen Bhutan’s economy.5
Hydropower is a clean energy so that no fossil fuel is burned. Exporting
hydropower energy is environmentally and ecologically friendly and
encourages a healthier world.6
Development of hydropower helps the quality of life increase and poverty
in Bhutan can be reduced. Infrastructures and social services develop as
hydropower projects take place, benefitting the society and providing
employment for local and regional communities.7
Tourism

Figure 1
For Bhutan, tourism is one of the
largest sources of currency earnings. Income from the tourism sector has
Tshering, Sonam and Bharat Tamang. “Hydropower - Key to Sustainable, Socio-Economic
Development of Bhutan.” United Nations Department of Economic and Social Affairs.
<http://www.un.org/esa/sustdev/sdissues/energy/op/hydro_tsheringbhutan.pdf>
4
“Annual Report 2010-2011.” Royal Monetary Authority of Bhutan. <
http://www.rma.org.bt/RMA%20Publication/Annual%20Report/annual%20report%20%202
010-2011.pdf>
5
“Tenth Five Year Plan 2008-2013.” UNDP-UNEP Poverty-Environment Initiative.
<http://www.unpei.org/PDF/BhutanTenthFiveYearPlan_GrossNationalHappinessCommission.pdf>
6
Ibid
7
Ibid
3

increased by 13.7% and increases the considerable potential for the
government’s income. The major 2010-2011 national budget objectives
include two goals for the tourism sector, “Completion of Hotel and
Tourism Management Training Institute complex” and “developing
tourism infrastructure and quality service delivery system.”8
Tourism in Bhutan is strictly limited. The tourism industry of Bhutan is
based on the principle of sustainability. This means “tourism must be
environmentally and ecologically friendly, socially and culturally
acceptable, and also economically viable.”9 Tourists are required to pay
certain amounts of tourism tariffs by spending money during their travel.
Daily tour tariffs include transportation, hotels, meals, guides, and
entrance fees to museums, monuments and cultural sites. All kinds of
tourism activities are regulated by the Tourism Council of Bhutan, and
travel agencies in Bhutan are registered by the Council. 35% of the daily
spending on tourism goes to the Council as travel taxes and becomes part
of the national treasury.10
Agriculture



Agriculture is also one of the most active economic sectors (Figure 2).11
Agricultural production is mainly cereals, based on a low level of
purchased inputs. Although the agricultural sector occupies a large part of
GDP of Bhutan, cultivation is done mostly with animal draft or human
labor, not machines.12
The purchased inputs are spent for limited seeds and small amounts of
fertilizer and pesticides. Recently, the government promoted a
sustainable land management, which includes integrated pest
management and improved irrigation services. The use of contour
building and other land management tools by farmers has increased, and
as a result, production trends have improved as well.13
“Annual Report 2010-2011.”
“Bhutan Tourism Policy.”Access Bhutan. June 6. 2012.
<http://www.accessbhutan.bt/index.php/component/content/article/16> (Website
registered under Tourism Council of Bhutan)
10
Ibid
11
“Annual Report 2010-2011.”
12
“Agricultural Production.” World Food Programme.
<http://www.foodsecurityatlas.org/btn/country/availability/agricultural-production>
13
Ibid
8
9

The main cereals produced in Bhutan are rice and maize. These cereals
occupy 90% of the total cereal production and count 67,606 metric tons
and 93,968 metric tons, respectively.14
Economic Freedom



Bhutan’s economic freedom is rated 56.6, and it has the 111th freest
economy in the world, according to the 2012 Index. The index of Bhutan
has decreased by 1 point from the last year because of worsening
government spending, labor freedom, and trade freedom.15
As of 2015 Bhutan’s GDP is estimated to be $6.385 billion, growing 7.7%.
This rapid growth ranks 11th worldwide. Its GDP is composed of
agriculture (16.8%), industry (40.5%), and services (42.7%). It is
important to note that Bhutan has a major lack of skilled labor. While
agriculture only makes up 16.8% of the economy, it employs 57% of the
labor force.16
The goals of Bhutanese government have long been modernizing
Bhutan’s economy and reducing poverty within the country. However,
because of the decreasing economic growth, the government is focusing
more on the private sector than on the public sector although the public
sector, especially hydropower, had been the main source for the Bhutan’s
economic growth.17
Property Rights

Property Rights are protected under the Industrial Property Act and the
Copyright Act. Property Rights in Bhutan are more equally protected than
in other countries in South Asia.18
Open Market

The market in Bhutan is not largely open to foreign countries. Since the
government is concerned about protecting traditions and culture, it is not
willing to accept foreign investment. Also, companies in Bhutan are not
Ibid
“Bhutan.” Heritage Foundation. <http://www.heritage.org/index/country/bhutan>
16
CIA World Fact Book, https://www.cia.gov/library/publications/the-world-factbook/geos/bt.html
17
Ibid
18
Ibid
14
15
happy about the possibility of losing benefits that restrictions create and
that foreign companies may take away if they come into the country.19
Acknowledgements:
Research and Data Development Provided by: Yoshinori Kuribayashi, updated by Jared
Martin, Research Assistants, under the Supervision and Coordination of Dr. Gerard Janco,
President of Eurasia Center.
19
Ibid