Bhutan 2029: Overcoming Challenges for a Sustainable and Prosperous Future

Bhutan faces economic stagnation, rising unemployment, and an emigration crisis, requiring urgent reforms in fiscal policy, human capital investment, and sustainability to achieve upper-middle-income status by 2029. Strengthening trade, private sector growth, and climate resilience will be key to securing long-term economic stability and social progress.

Bhutan stands at a crucial turning point, facing deep-rooted structural challenges that threaten its economic progress, social stability, and aspirations for sustainable development. Research from institutions like the World Bank, the Asian Development Bank, and the Royal Institute for Governance and Strategic Studies highlights Bhutan’s geographical constraints, high trade costs, and small domestic market as barriers to economic diversification. The economy remains heavily dependent on hydropower, which, while a major revenue source, employs less than 1% of the workforce. The lack of a vibrant private sector limits job creation, forcing many young Bhutanese to seek better opportunities abroad, accelerating an emigration trend that is exacerbating labor shortages in key sectors such as healthcare and education. At the same time, confidence in public administration is declining, and the economy is struggling with stagnation, rising unemployment, and an increasing reliance on food imports despite vast tracts of uncultivated farmland.

To counter these challenges, the Bhutanese government has unveiled an ambitious vision under its "Contract with Bhutan" initiative, aiming to propel the country to upper-middle-income status by 2029. Achieving this goal requires urgent reforms across multiple sectors to invest in people, economic progress, and sustainability.

Revamping Bhutan’s Economic Framework

Strengthening the country’s fiscal position is a key priority, as Bhutan’s limited tax base constrains public spending. The introduction of a Goods and Services Tax (GST) and the operationalization of the Bhutan Economic Stabilization Fund are expected to provide greater fiscal stability. These measures aim to generate additional revenue while protecting the economy from external shocks. The government is also prioritizing access to finance for businesses by introducing a partial credit guarantee scheme and allowing external commercial borrowing under strict regulatory oversight. Expanding trade opportunities with neighboring India and Bangladesh is another crucial step, requiring improvements in trade facilitation infrastructure, including sanitary and phytosanitary compliance laboratories, a digital Trade Information Portal, and more efficient transit mechanisms, such as the use of containerized vehicles and waterways.

Bhutan’s hydropower sector remains central to its economic strategy, with an ambitious target of generating 7,000 MW from 13 projects by 2035, requiring an estimated USD 14 billion in financing. Ensuring the financial viability of these projects is crucial, as they represent a major source of long-term economic stability.

Investing in Human Capital for Sustainable Development

At the heart of Bhutan’s transformation is investment in human capital. Expanding early childhood education services to remote and vulnerable populations is essential for fostering a skilled workforce. The government also aims to update the National Education Policy to improve teacher training and ensure alignment between education outcomes and labor market demands. Enhancing employment service centers and labor market information systems will help bridge the gap between job seekers and private sector opportunities. Addressing gender disparities in employment is another priority, with measures aimed at increasing female workforce participation and preventing gender-based violence, which has disrupted many Bhutanese families.

Healthcare remains a major challenge, with shortages of medical professionals and rising costs threatening service delivery. The government plans to implement a health financing strategy to ensure long-term sustainability while expanding access to quality care. Strengthening patient networks and healthcare integration will improve service efficiency and continuity. Investing in social protection systems is also critical, as vulnerable populations require greater support to cope with economic instability. The government is considering policies such as linking the proposed third-child cash incentive with a comprehensive mother and child health benefit program to optimize resource allocation.

Bhutan’s Commitment to Sustainability

Bhutan’s commitment to sustainability presents a significant opportunity for economic and environmental resilience. As the world’s only carbon-negative country, Bhutan has the potential to monetize its net negative greenhouse gas emissions through the establishment of a National Carbon Registry. This initiative could enable the country to participate in international carbon credit markets, generating additional revenue to support community development.

Strengthening climate resilience is another priority, as Bhutan faces increasing risks from natural disasters such as earthquakes and glacial lake outburst floods. The government is working to improve infrastructure resilience, enhance early-warning systems, and enforce key environmental regulations, including the Disaster Management Act of 2013 and the Water Act of 2011. Strengthening cross-sectoral coordination and public-private partnerships will help rural entrepreneurs leverage Bhutan’s renewable natural resources for sustainable growth.

A Collective Path to Prosperity

To realize its vision of becoming an upper-middle-income country by 2029, Bhutan must mobilize a broad coalition that includes government agencies, private sector stakeholders, development partners, and local communities. Addressing economic stagnation, unemployment, and social instability requires immediate and sustained action. The success of these reforms will determine whether Bhutan can overcome its structural constraints and build a more resilient, inclusive, and sustainable economy. However, time is running out, and without decisive action, the challenges facing the country will only deepen.

Bhutan has the resources, policies, and determination to navigate this transition, but its ability to execute these ambitious plans effectively will be the defining factor in securing a prosperous future for its people. By integrating fiscal reforms, strengthening human capital, and advancing sustainability initiatives, Bhutan can chart a path toward long-term economic stability while preserving its unique cultural and environmental heritage. Only through collective action and strategic decision-making will Bhutan achieve its aspirations and secure a future that balances economic progress with social well-being and environmental sustainability.