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- GDP (PPP):
- $5.9 billion
- 6.4% growth
- 7.4% 5-year compound annual growth
- $7,641 per capita
- Inflation (CPI):
- FDI Inflow:
Bhutan has taken some steps to modernize its economic structure and reduce poverty. Recently, a higher priority has been placed on measures to diversify the economy. The public sector, especially hydropower, has long been the main source of economic growth, but the government now recognizes that broad-based private-sector development is crucial.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 59.5 (up 2.1 points)
- Economic Freedom Status: Mostly Unfree
- Global Ranking: 97th
- Regional Ranking: 20th in the Asia–Pacific Region
- Notable Successes: Property Rights and Freedom from Corruption
- Concerns: Open Markets and Regulatory Efficiency
- Overall Score Change Since 2012: +2.9
Bhutan is a small Himalayan constitutional monarchy that made the transition from absolute monarchy to parliamentary democracy in March 2008. In July 2013, it completed its second democratic handover of power after the People’s Democratic Party won the majority of seats in the National Assembly. Bhutan has one of the world’s smallest and least-developed economies. Until a few decades ago, it was agrarian with few roads, little electricity, and no modern hospitals. Recent interregional economic cooperation, particularly involving trade with Bangladesh and India, is helping to encourage economic growth. Connections to global markets are limited and dominated significantly by India.
Government transparency and accountability are limited, but in 2015, Bhutan’s Anti-Corruption Commission stepped up efforts to crack down on corruption. Civil and criminal codes include many modern provisions based on English common law. Property rights are generally better protected than in other South Asian countries, but it is difficult to register property and enforce contracts.
The top income tax rate is 25 percent, and the corporate tax rate is 30 percent. Other taxes include a property tax and an excise tax. The overall tax burden equals 13 percent of total domestic income. A value-added tax is set to be introduced to broaden the tax base. Government spending amounts to 32.9 percent of total domestic output, and public debt equals more than 100 percent of GDP.
Recent reforms have reduced the cost of starting a business by eliminating the minimum capital requirement. Despite some improvement, the labor market’s supply-and-demand imbalance persists. India provides subsidized liquefied petroleum gas and kerosene to Bhutan, and the two governments are co-financing numerous hydropower projects. The state maintains significant financial and commercial controls.
Bhutan has a 10 percent tariff rate. Importation of goods is time-consuming. Investment levels in several sectors of the economy are capped; otherwise, foreign and domestic investors are generally treated equally under the law. Opening the banking sector to more foreign partnerships has improved competition, but the lack of access to financing is a serious constraint for potential entrepreneurs.