2015 Index of Economic Freedom

Bhutan

overall score57.4
world rank115
Rule of Law

Property Rights60.0

Freedom From Corruption63.0

Limited Government

Government Spending60.1

Fiscal Freedom82.6

Regulatory Efficiency

Business Freedom61.9

Labor Freedom81.1

Monetary Freedom66.0

Open Markets

Trade Freedom49.4

Investment Freedom20.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 0.7 million
  • GDP (PPP):
    • $4.7 billion
    • 5.0% growth
    • 7.3% 5-year compound annual growth
    • $6,370 per capita
  • Unemployment:
    • 2.1%
  • Inflation (CPI):
    • 8.7%
  • FDI Inflow:
    • $21.3 million
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Bhutan’s economic freedom score is 57.4, making its economy the 115th freest in the 2015 Index. Its score has increased 0.7 point from last year, with improvements in freedom from corruption, the management of government spending, and business freedom partially offset by declines in labor freedom and fiscal freedom. Bhutan is ranked 24th out of 42 countries in the Asia–Pacific region, and its overall score is below the global and regional averages.

Over the past five years, Bhutan has charted a V-shaped trend in economic freedom. Bolstered by improvements in freedom from corruption and business freedom, it has bounced back from its lowest economic freedom score ever in 2013. Nonetheless, Bhutan continues to be in the ranks of the “mostly unfree,” with scores on many of the 10 economic freedoms remaining below the world averages.

Efforts to diversify the economy have been at the top of the policymaking agenda in the past few years. Hydropower production and development, led by the government, has been a large driver of growth, but the poverty rate remains persistently high. Landlocked and mountainous, Bhutan remains relatively isolated from the world economy and has yet to open itself fully to international trade and global financial flows.

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Background

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 largely 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.

Rule of LawView Methodology

Property Rights 60.0 Create a Graph using this measurement

Freedom From Corruption 63.0 Create a Graph using this measurement

The government operates with limited transparency and accountability, but a new performance management system was implemented in 2014 to improve efficiency. Misuses of resources, bribery, collusion, and nepotism are major problems. Bhutan’s 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.

Limited GovernmentView Methodology

Bhutan’s top individual income tax rate is 25 percent, and its top corporate tax rate is 30 percent. Other taxes include a property tax and an excise tax. The overall tax burden amounts to 14.8 percent of domestic income. Government expenditures are equivalent to 36.5 percent of gross domestic product, and public debt equals 110 percent of domestic output.

Regulatory EfficiencyView Methodology

A modern regulatory framework has not been fully developed. Despite recent efforts, the business climate is still hampered by inconsistent enforcement of regulations. On average, it takes 36 days to start a company. The imbalance between labor supply and demand persists, and unemployment has risen in recent years. In July 2014, India renewed its LPG and kerosene subsidy program for Bhutan.

Open MarketsView Methodology

As of 2007, Bhutan had a 17.8 percent tariff rate. The cost and time required to import goods are relatively high. The government may screen new foreign investment. The financial sector is small, and an underdeveloped regulatory framework limits access to capital for local entrepreneurs. Competition has improved with the gradual opening of the sector to more foreign partnerships, but banking remains state-controlled.

Country's Score Over Time

Bar Graph of Bhutan Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Hong Kong89.6-0.5
2Singapore89.40.0
3New Zealand82.10.9
4Australia81.4-0.6
5Taiwan75.11.2
6Japan73.30.9
7South Korea71.50.3
8Malaysia 70.81.2
9Macau70.3-1.0
10Brunei Darussalam68.9-0.1
11Kazakhstan63.3-0.4
12Thailand 62.4-0.9
13Philippines62.22.1
14Samoa61.90.8
15Kyrgyz Republic 61.30.2
16Vanuatu61.11.6
17Azerbaijan61-0.3
18Tonga59.31.1
19Mongolia59.20.3
20Fiji590.3
21Sri Lanka58.6-1.4
22Indonesia58.1-0.4
23Cambodia57.50.1
24Bhutan57.40.7
25Pakistan 55.60.4
26India54.6-1.1
27Bangladesh 53.9-0.2
28Maldives53.42.4
29Papua New Guinea53.1-0.8
30China52.70.2
31Tajikistan52.70.7
32Vietnam51.70.9
33Laos51.40.2
34Nepal51.31.2
35Micronesia49.6-0.2
36Solomon Islands470.8
37Uzbekistan470.5
38Burma46.90.4
39Kiribati46.40.1
40Timor-Leste45.52.3
41Turkmenistan41.4-0.8
42North Korea1.30.3
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