2017 Index of Economic Freedom

Bhutan

overall score58.4
world rank107
Rule of Law

Property Rights60.1

Government Integrity44.7

Judicial Effectiveness50.7

Government Size

Government Spending73.6

Tax Burden83.1

Fiscal Health61.7

Regulatory Efficiency

Business Freedom72.6

Labor Freedom77.6

Monetary Freedom67.1

Open Markets

Trade Freedom60.0

Investment Freedom20.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 0.8 million
  • GDP (PPP):
    • $6.4 billion
    • 7.7% growth
    • 7.1% 5-year compound annual growth
    • $8,201 per capita
  • Unemployment:
    • 2.6%
  • Inflation (CPI):
    • 7.2%
  • FDI Inflow:
    • $12.1 million
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Bhutan has made progress in modernizing its economic structure and reducing poverty. The public sector has long been the main source of economic growth, but the government now recognizes that private-sector growth is crucial. Higher priority is being given to economic diversification, particularly in light of demographic shifts that will bring more young people into the labor market.

The government has taken steps to ensure greater security for property rights. However, lingering constraints on private-sector development include an inefficient regulatory framework, pervasive nontariff barriers to trade, and a rudimentary investment code. The financial sector remains small and without adequate regulation or supervision.

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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 Prime Minister Tshering Tobgay’s 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.

Rule of LawView Methodology

Property Rights 60.1 Create a Graph using this measurement

Government Integrity 44.7 Create a Graph using this measurement

Judicial Effectiveness 50.7 Create a Graph using this measurement

Introduction of a computerized land information system has made it easier to transfer property. Since 2007, Bhutan has moved decisively toward the judicially based rule of law, and its judiciary is now considered generally independent. The law provides criminal penalties for corruption by officials, and the government generally implements those laws effectively, although there are isolated reports of government corruption.

Government SizeView Methodology

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 13.0 percent of total domestic income. Government spending has amounted to 29.6 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.4 percent of GDP. Public debt is equivalent to 115.7 percent of GDP.

Regulatory EfficiencyView Methodology

A modern regulatory framework has not been fully developed. Despite recent efforts, the business climate remains hampered by inconsistent enforcement of regulations and a lack of transparency. The labor supply-and-demand imbalance persists. India provides subsidized liquefied petroleum gas and kerosene to Bhutan and is cofinancing numerous hydropower projects. The state maintains significant financial and commercial controls.

Open MarketsView Methodology

Trade is extremely important to Bhutan’s economy; the value of exports and imports taken together equals 116 percent of GDP. The average applied tariff rate is 10.0 percent. Investment in some sectors is restricted. Bhutan needs a more efficient banking sector to mobilize savings and channel long-term capital to facilitate private-sector development. An underdeveloped regulatory framework limits access to capital.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong89.81.2
2Singapore88.60.8
3New Zealand83.72.1
4Australia810.7
5Taiwan76.51.8
6South Korea74.32.6
7Malaysia 73.82.3
8Macau70.70.6
9Brunei Darussalam69.82.5
10Japan69.6-3.5
11Kazakhstan695.4
12Vanuatu67.46.6
13Thailand 66.22.3
14Philippines65.62.5
15Azerbaijan63.63.4
16Fiji63.44.6
17Tonga633.4
18Indonesia61.92.5
19Kyrgyz Republic 61.11.5
20Cambodia59.51.6
21Bhutan58.4-1.1
22Samoa58.4-5.1
23Tajikistan58.26.9
24China57.45.4
25Sri Lanka57.4-2.5
26Nepal55.14.2
27Solomon Islands558.0
28Bangladesh 551.7
29Mongolia54.8-4.6
30Micronesia54.12.3
31Laos544.2
32Pakistan 52.8-3.1
33India52.6-3.6
34Burma52.53.8
35Vietnam52.4-1.6
36Uzbekistan52.36.3
37Papua New Guinea50.9-2.3
38Kiribati50.94.7
39Maldives50.3-3.6
40Afghanistan48.9N/A
41Turkmenistan47.45.5
42Timor-Leste46.30.5
43North Korea4.92.6
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