Country Analysis

Bhutan is a development success story. The gradual opening of its economy in the early 1960’s led to rapid development of the Kingdom, underpinned by impressive socioeconomic progress. Its unique philosophy of maximizing Gross National Happiness (GNH) enabled Bhutan to balance economic development with the preservation of its natural environment and cultural traditions. Democratic governance in Bhutan has taken root.

Economy 

While Bhutan is one of the smallest economies in the world, it is also one of the fastest growing economies, and is considered by the World Bank’s classification as a lower Middle-Income Country (LMIC). A combination of prudent fiscal and monetary policy, as well as robust investments in hydropower has largely facilitated its growth over the years. Bhutan’s progress in human development has also been significant, having achieved or surpassed targets in five of eight Millennium Development Goals (MDGs), and is ranked in the medium HDI category. As testament to the tremendous socioeconomic progress made over the decades, Bhutan is expected to graduate from the UN’s Least Developed Countries (LDC) category in 2023, with the RGOB calling the 12th FYP “the last mile to LDC graduation”.

Development Challenges 

However, several remaining gaps in the MDG achievement still need to be addressed, even as Bhutan works towards meeting the SDG targets. Bhutan continues to face serious structural impediments to address its economic vulnerability and exposure to various shocks. The sustainability of the economy is a challenge given that economic growth is driven primarily by the public sector and the financial support of its development partners.

However, interest among development partners is diminishing in light of advancements towards LDC graduation. This puts achievements in social sectors at risk, and reduced investment in key sectors would negatively influence the country’s social and economic development in the short-, medium- and long-term. In particular, socioeconomic development issues remain at disaggregated levels despite the positive picture presented by national-level indicators.

While Bhutan is recognized as a leader in sustainable development and environmental stewardship, management of co-benefits and trade-offs, along with balancing of conservation and development, continues to be a challenge. It also remains highly vulnerable to climate induced disasters and hazards, with potentially huge consequences for its nature-dependent livelihoods and long-term sustainability of its hydropower- and agriculture-based economy.

An overreliance on hydropower increases its vulnerability, as the sustainability of the sector is inextricably linked to climate change impacts and effective biodiversity management. 

The accumulation of public debt and speculation of its potential to lead to a debt crisis is also an area of concern, even as the World Bank classified Bhutan’s external debt distress as moderate given that a large portion of it is based on commercial viability of the hydropower projects.

Other persisting challenges to Bhutan’s economy remain, and to help address these constraints, major economic reforms are being strategized to stimulate economic diversification with the prioritization of the “five jewels” i.e. hydropower, agriculture, tourism, cottage and small industries, and mining.

Youth Unemployment and Private Sector 

With 16,254 unemployed people in the country in 2021, the unemployment rate is 4.8 percent, according to the Labour Force Survey (LFS) report. The public sector which accounts for a fifth of all jobs and about half of all non-agriculture jobs has limitations in its ability to absorb new, young workers. Meanwhile, the private non-agricultural sector remains underdeveloped and accounts for only a quarter of all jobs in the country. Transitioning to a more private sector-led economic development will be critical to achieving sustainable and inclusive growth in the country. This has remained a challenge for Bhutan as the private sector, despite having long been identified as the “engine of growth”, continues to remain sluggish in its growth.

Poverty

Across Dzongkhags (districts), income poverty rates range from a high of 33 per cent to a low of 0.3 per cent, with poverty still considered a “rural phenomenon”. More than five percent of Bhutanese are multi-dimensionally poor, again with wide variations between rural and urban areas. Children are found to be especially vulnerable, with multidimensional poverty highest for children aged 0-9 years.

Rapid Urbanization 

Bhutan’s pace of urbanization has been astonishingly swift, and despite increased opportunities, associated challenges have also increased. These include the difficulty in meeting increasing demand for safe water supply and sanitation, solid waste management, air pollution, forest and land degradation. The urban context also presents a set of social issues like inadequate housing and civic amenities, informal settlements, many young migrants working in the informal economy and more vulnerable to exploitation, trafficking in persons is an emerging concern, among others. 

Increasing numbers of young Bhutanese, including children, are being exposed to various protection issues, with potential negative impact on their wholesome development and wellbeing.

Healthcare 

Quality of healthcare is greatly impacted by shortage of appropriate personnel and capacities, as demonstrated by the fact that there are only three doctors and 14 nurses per 10,000 population. Chronic malnutrition still occurs among a significant proportion of children below age five, with one in five children stunted; neonatal mortality is still high, accounting for 70 percent of infant mortality and more than half of under-five deaths; access to clean water, improved sanitation and hygiene also continues to constrain progress in all other development areas. Quality of education and youth unemployment are major concerns, as are the yet to be achieved gender parity at tertiary levels and the extremely low participation of women in the political and decision-making spheres.

Inclusion

Although there are currently 43,064 people over 65 years in Bhutan, 5.9 per cent of the total population, no formal policy or dedicated agency exists to oversee matters concerning the elderly population. Currently, around 15,567 (52.1 per cent of them women) people have a “lot of difficulty” in or “cannot do at all” any of the five disability domains (seeing, hearing, walking, cognition, self-care and communication). While Bhutan signed the Convention on the Rights of Persons with Disabilities (CRPD) in 2010, it is yet to be ratified.