Economic Growth of Bhutan

Economic Growth

Despite being landlocked and mountainous and one of the 'Least Developed Countries' (LDC) in South Asia, Bhutan is next in line to graduate from the LDC category in 2023. Best known for its philosophy of Gross National Happiness the country has experienced impressive growth in the past four decades.

It has recorded an average growth in annual GDP of 7.5% since the early 1980s and poverty levels have declined from 36% in 2007 to 10% in 2019. Bhutan has also made considerable improvements on environmental, social and governance indicators in the past two decades.

Bhutan's impressive track record lies in a willingness to explore its areas of potential and use innovative approaches to overcome structural challenges. Besides achieving 100% electricity access, the three approaches below have served Bhutan well and deserve a special mention as they could be replicated.

Challenges Faced

Export concentration and a small domestic market remain formidable challenges that the country should tackle head-on.

Finally, despite impressive economic and social indicators, the best governance indicator amongst the LDCs and significant improvements made in the business climate, Bhutan's success in attracting foreign direct investment (FDI) has been limited as compared to other graduating LDCs and a recently graduated country (Maldives) in Asia.

Although Bhutan's figure is comparable to its immediate neighbours Bangladesh and Nepal, a comparison with best performers such as Cambodia and Maldives not only shows where Bhutan is losing out but also shows the potential that exists.

The small size of the Bhutanese market has remained a disincentive to foreign investment in the country. Therefore, a promotion campaign inviting foreign investors to consider Bhutan's neighbouring countries, with which it has bilateral or regional free-trade agreements, as an extended market would be extremely useful.


1. Niche Market

Aiming to diversify exports while recognizing the small size of its domestic market, the country created Brand Bhutan. The concept focuses on niche exports of 'high-value, low-volume' Bhutanese products geared towards high-end markets. Their products stem from industries such as natural resources, tourism, culture, handicrafts and textiles. Development partners such as the Enhanced Integrated Framework and the International Trade Centre have joined the Government in supporting this initiative.

2. Digital Transformations

Digital transformation can help landlocked countries like Bhutan overcome their geographic disadvantage. Since backbone infrastructure such as electricity and internet are both accessible and affordable in Bhutan, this area offers tremendous potential.

The launch of the Thimphu TechPark in 2012 that houses 19 mostly foreign companies and employs 600 people is a small but remarkable success worth replicating elsewhere. The TechPark increased productive employment in Bhutan through the promotion of enterprise development in the ICT sector, enhanced ICT skills amongst the Bhutanese workforce and improved access to finance.

On the ecommerce front, having completed its eTrade Readiness Assessment, the country has swiftly implemented several recommendations, including the development of an ecommerce policy in 2020.

3. Innovative finance

Exploring innovative financing such as blended finance and impact investment is an increasingly attractive option to finance economic growth for all countries, not only due to the inevitable reduction of official development assistance, including Aid for Trade, but also to simultaneously create a thriving business environment.


Source: Bhutan Diagnostic Trade Integration Strategy Update, 2020