THIMPHU, April 09, 2026 - Bhutan's economy is expected to maintain robust growth over the medium term, but rising youth unemployment, pressures from higher global oil prices, and the need for faster job creation remain pressing concerns, says the World Bank in its new update, released today.
The latest Bhutan Development Update projects real GDP will grow by 7.1 percent in FY25/26 and 6.4 percent in FY26/27, primarily underpinned by the full commissioning of the Punatsangchhu-II Hydroelectric Project and ongoing construction of the Dorjilung and Khorlochhu hydropower plants. However, youth unemployment and migration, as well as higher fuel prices due to the current conflict in the Middle East, are impacting the country's growth trajectory.
"Bhutan has maintained robust growth and made impressive strides towards reducing poverty. But amid rising global uncertainties, the challenge is to translate this growth into jobs, particularly for women and young people," said Xavier Furtado, World Bank Group Country Manager for Bhutan. "To sustain growth and translate it into broader prosperity, the World Bank Group stands ready to support key reforms and help Bhutan maximize direct and indirect job creation in key sectors, such as hydropower and agriculture."
Bhutan has nearly ended extreme poverty and continues to reduce poverty, but unevenly across regions. The national poverty rate is expected to fall to 5.1 percent in 2026 and 4.5 percent in 2027. Inflation is projected to rise to 5.2 percent in FY25/26 and 5.6 percent in FY26/27, driven by higher food and fuel prices, including spillovers from global oil price increases, and will affect real disposable income of households.
International reserves are expected to improve, reaching about $1.3 billion, equivalent to around seven months of imports supported by inward remittances. The current account deficit is projected to remain elevated at around 20 percent of GDP, reflecting large imports related to hydropower construction. However, the conflict in Middel East is disrupting the tourism sector and contributing to inflation and fiscal pressures due to rising oil prices.
"Key risks include hydropower project delays, weaker than-expected fiscal consolidation, financial sector instability, and higher-than expected fuel prices stemming from a prolonged Middle East conflict." said Yumeka Hirano, World Bank Senior Economist. "For private sector development, improving access to finance through addressing non-performing loans and promoting foreign direct investment that creates quality jobs will be critical."
Despite overall low unemployment, youth unemployment is at 20.6 percent and approximately 9 percent of Bhutan's population emigrated as of 2025.
The report also assessed the potential of Bhutan's agrifood system for supporting employment. The agrifood system employs about 55 percent of Bhutan's employed population, including 71 percent of rural workers and 65 percent of female workers. About half of all private sector firms with more than five employees are active in the agrifood system and offer important employment opportunities for women and workers with lower levels of formal education.
The report finds that moving workers from on-farm production to midstream roles, such as logistics and processing, as well as downstream food service activities can increase earnings by up to 33 percent. But this would require stronger investments in skills, infrastructure, and food safety compliance as well as reforms to agricultural subsidies and finance across the agrifood system.
The Bhutan Development Update is a companion piece to the South Asia Economic Update, a twice-yearly World Bank report that examines economic developments and prospects in the South Asia region and analyzes policy challenges countries face. The April 2026 edition titled Working with Industrial Policy, projects South Asia's growth to slow to 6.5 percent in 2026-from 7 percent in 2025-due to rising global energy prices. But even with the slowdown, South Asia continues to grow faster than other emerging markets and developing economies, says the World Bank Group in its twice-a-year regional outlook.
"Despite a challenging global environment, South Asia's growth prospects remain strong. Countries need to implement critical policy reforms to sustain this growth momentum and increase economic resilience to shocks," said Johannes Zutt, World Bank Vice President for South Asia. "Cross-cutting policies to improve public infrastructure, remove trade barriers, foster business-friendly environments and mobilize private capital can diversify sources of growth and create jobs
