Bhutan - Systematic Country Diagnostic - Taking Bhutan’s Development Success to the Next Level

Jul 19, 2026

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Systematic Country Diagnostic Report No. 145069-BT examines key constraints and opportunities for accelerating poverty reduction and enhancing shared prosperity in Bhutan. It draws on analytical work and evidence collected through three World Bank Group working sessions, complemented by consultations with civil society organizations, the private sector, government stakeholders, and development partners. The report outlines development achievements, assesses demographic prospects, hydropower-linked vulnerabilities, and identifies priorities for sustainable and inclusive growth.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages54

Reading Time2 h 16 min

Preface

Overview

Introducing Bhutan

Bhutan’s development success story – high growth and poverty alleviation

A young and more educated demographic profile and private sector challenges

Hydropower’s role and energy outlook

Taking Bhutan’s development success to the next level

Boosting private sector development

Strengthening macro-fiscal stability

Investing in human capital and improving service delivery

Enhancing disaster and climate resilience

Addressing implementation gaps

Priorities for sustainable and inclusive growth

Appendix 1. Poverty in Bhutan

Appendix 2. Hydropower in Bhutan

Report No: 145069-BT Bhutan Systematic Country Diagnostic Taking Bhutan’s Development Success to the Next Level Table of Contents Preface 5 Overview 7 I. Introducing Bhutan 11 II. Bhutan’s development success story – high growth, great strides in poverty alleviation and, 13 human and physical capital development III. A young and more educated demographic profile presents an opportunity for Bhutan’s next 17 stage of development, but lackluster private sector development remains a challenge IV. Hydropower has served Bhutan’s development well, but changes in the outlook of the energy 21 sector call for alternative sources of growth beyond hydropower V. Taking Bhutan’s development success to the next level 23 (a) Boosting private sector development 23 (b) Strengthening macro-fiscal stability 33 (c) Investing in human capital and improving service delivery 36 (d) Enhancing disaster and climate resilience 39 (e) Addressing implementation gaps 41 VI. Priorities for sustainable and inclusive growth 42 Appendix 1. Poverty in Bhutan 47 Appendix 2. Hydropower in Bhutan 48 List of Figures Figure 1. US$3.20 poverty rates vary widely across districts 13 Figure 2. GDP per capita increased almost ten-fold since 1980… 13 Figure 3.…which was accompanied by an increase in the share of non-manufacturing industry in GDP 13 Figure 4. Poverty headcount declined significantly and is among the lowest among peers. 14 Figure 5. Bhutan performed relatively well in shared prosperity 15 Figure 6. Agricultural productivity has been increasing 16 Figure 7. Labor productivity of agriculture is very low, at 25 percent of overall productivity 17 Figure 8. The labor force is predominantly engaged in agriculture 17 Figure 9. The public sector increased its influence through an increase in SOEs 18 Figure 10. There will be a steady increase in the working-age population 21 Figure 11. Urbanization is projected to continue at a rapid pace 21 Figure 12. Educational attainment improved dramatically in the past decades 21 Figure 13. Bhutan’s logistics performance is low and has not improved in the last decade 23 Figure 14. Bhutan’s LPI is the second lowest in South Asia. 24 Figure 15. Large hydropower projects have resulted in macroeconomic volatility. 33 Figure 16. Saving-investment gap has resulted in external debt accumulation (% GDP) 34 Figure 17. Hydropower electricity production is affected by weather (annual change,%) . 34 Figure 18. Domestic revenue mobilization stalled (tax to GDP ratio,%) . 34 Figure 19. There is an acute shortage of health professionals. 37 Figure 20. Quality of services remains highly heterogeneous across the country 37 Figure A2.1. Hydroelectricity accounts for more than a third of exports. 49 Figure A2. 2Hydropower contribution to revenues declined in the 2010s. 49 Figure A2.3. Hydropower debt kept increasing 50 List of Tables Table 1. The poor are concentrated in rural areas, are less educated and much more likely to work in 15 agriculture Table 2. SOEs under DHI 19 Table 3. Unemployment is concentrated in urban youth (number of unemployed and unemployment 20 rate, 2018) Table 4. Unemployment is concentrated among those with better education 28 Table 5. Summary of priorities 44 Appendix Table 1. Existing and Pipeline Hydropower Projects 48 Appendix Table 2. Delay in hydropower construction 49 Appendix Table 3. Impact of a delay in hydropower construction (one-year delay in Puna I or II project) 50 Abbreviations and Acronyms BHU Basic Health Unit BLSS Bhutan Living Standards Survey CAD Current Account Deficit CIB Credit Information Bureau CPSUs Central Public-Sector Undertakings CSIs Cottage and Small Industries CSOs Civil Society Organizations DGPC Druk Green Power Corporation DHI Druk Holding and Investments DMEA Department of Macroeconomic Affairs DNT People-Centered and Pragmatic Party ECB External

FAQs

What is the purpose of this Systematic Country Diagnostic for Bhutan?

It examines key constraints and opportunities to accelerate poverty reduction and enhance shared prosperity in Bhutan.

How did the report gather evidence and input?

It builds on analytical work and evidence from three working sessions within the World Bank Group, plus consultations with civil society, the private sector, government, and development partners.

Which areas does the report prioritize to take development success to the next level?

It prioritizes boosting private sector development, strengthening macro-fiscal stability, investing in human capital and service delivery, enhancing disaster and climate resilience, and addressing implementation gaps.

Jul 19, 2026

Upload by Eden