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- GDP (PPP):
- $6.5 billion
- 7.7% growth
- 5.3% 5-year compound annual growth
- $8,227 per capita
- Inflation (CPI):
- FDI Inflow:
Bhutan’s economic freedom score is 61.8, making its economy the 87th freest in the 2018 Index. Its overall score has increased by 3.4 points, led by a spike in the score for fiscal health and sustained progress in trade freedom and government integrity. Bhutan is ranked 20th among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.
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 the importance of private-sector growth. Economic diversification is now a higher priority, particularly with demographic shifts bringing more young people into the labor market. The government has acted to ensure greater security for property rights. Constraints on private-sector development include an inefficient regulatory framework, significant nontariff barriers to trade, and a rudimentary investment code.
The small Himalayan kingdom of Bhutan made the transition from absolute monarchy to constitutional parliamentary democracy in 2008. In 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, Bhutan was agrarian with few roads, little electricity, and no modern hospitals, but 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 by India. Bhutan’s largest export, hydropower to India, could spur sustainable growth if chronic construction delays are resolved.
In the World Bank’s Doing Business 2017 report, Bhutan’s scores for registering property and enforcing contracts remain unchanged at 51 and 47, respectively. The government generally respects judicial independence and requires that all cases be cleared within a year of filing. The law provides criminal penalties for corruption by officials, and the government generally implements these laws effectively.
The top income tax rate is 25 percent, and the corporate tax rate is 30 percent. Other taxes include property and excise taxes. The overall tax burden equals 13.1 percent of total domestic income. Over the past three years, government spending has amounted to 30.5 percent of total output (GDP), and budget surpluses have averaged 0.2 percent of GDP. Public debt is equivalent to 110.2 percent of GDP.
Complicated controls and uncertain industrial licensing, trade, labor, and finance policies inhibit business development. Hydropower, agriculture, and forestry provide the main livelihood for more than half of the population. Industrial production is mostly of the cottage industry type, and the country depends on India for financial assistance and migrant laborers. The state maintains financial and commercial price controls but has cut electricity subsidies.
Trade is significant for Bhutan’s economy; the combined value of exports and imports equals 82 percent of GDP. The average applied tariff rate is 2.8 percent. Nontariff barriers significantly impede trade. Government policies such as sectoral restrictions limit foreign investment. The government-controlled financial sector still does not fully meet private-sector credit needs. The banking sector remains burdened with nonperforming loans.