Tourism and Hydropower Lift Bhutan, But Youth Migration Demands Bold Reforms

Bhutan’s economy is recovering strongly, driven by services and hydropower, but faces rising fiscal pressures and a widening youth migration crisis. The exodus to Australia reflects limited domestic job opportunities, urging urgent reforms to retain talent and harness diaspora potential.

The Bhutan Development Update – Spring 2025, prepared by the World Bank’s Economic Policy Global Practice with contributions from Bhutan’s Ministry of Finance, Royal Monetary Authority, and the National Statistics Bureau, chronicles the country’s economic resurgence and its most pressing social dilemma, external migration. Drawing on detailed national data and supported by institutions such as the Voluntary Artists Studio Thimphu (VAST), the report notes that Bhutan’s real GDP grew by 4.9% in FY2023/24. This growth was driven primarily by a buoyant services sector, especially tourism, real estate, and finance, while the industrial sector was uplifted by strong output in mining and quarrying, particularly ferro-silicon and base metals. On the downside, agriculture remained weak due to climate-induced factors like erratic rainfall, wildlife encroachment, and land use changes. Hydropower, traditionally a cornerstone of Bhutan’s economy, stagnated as more power was diverted for domestic use, including cryptocurrency mining.

Inflation fell sharply from a high of 7.4% in 2021 to 2.8% in 2024, the lowest since the pandemic, mostly due to deflation in non-food categories. However, food inflation remained persistent, largely echoing trends in India, a key trading partner, from which Bhutan imports around 70% of its goods. The country’s fiscal health also improved markedly, with the fiscal deficit dropping from 4.7% to just 0.2% of GDP, thanks to soaring non-tax revenue, notably dividends from Druk Holding and Investments (DHI) and profit transfers from the Royal Monetary Authority. Meanwhile, the current account deficit narrowed significantly from 34% to 22.1% of GDP, and gross international reserves climbed to US$861 million by early 2025.

A Hydropower-Led Future and New Economic Engines

Looking ahead, Bhutan’s economy is projected to accelerate further, 6.6% growth is expected in FY2024/25 and 7.6% in FY2025/26. This forecast is underpinned by the commissioning of the 1,020 MW Punatsangchhu-II hydropower plant and the launch of two new projects: the Khorlochhu and Dorjilung plants. In total, these projects represent over 64% of Bhutan’s nominal GDP in FY2023/24. Non-hydropower exports, including base metals and forestry products, are also expected to rise alongside the recovery of tourism. Public investment is anticipated to surge as the government embarks on its 13th Five-Year Plan, which will channel significant capital into large-scale infrastructure, including the transformative Gelephu Mindfulness City.

Despite these promising developments, fiscal deficits are projected to widen again due to high capital expenditures, even as domestic tax revenue stagnates below 15% of GDP. The upcoming Goods and Services Tax is expected to make only a marginal contribution. While Bhutan’s debt remains sustainable, the country faces growing pressure from non-hydropower debt and rising interest payments. The IMF-World Bank 2024 Debt Sustainability Analysis still rates Bhutan at moderate risk, but cautions against complacency.

Migration Wave Redefines Bhutan’s Workforce Landscape

The most urgent demographic shift outlined in the report is Bhutan’s surge in outward migration, particularly to Australia. Between 2020 and 2024, the Bhutanese migrant population in Australia more than doubled, from 12,424 to 25,363. Monthly departures through Paro International Airport jumped tenfold between the pandemic and early 2023. A World Bank survey of migrants revealed a striking profile: 53% of migrants held university degrees, compared to just 7% of the working-age population in Bhutan, and nearly half were civil servants, especially from education and healthcare. In 2024 alone, over two-thirds of voluntary resignations from civil service came from these two sectors.

The migration is driven by a combination of higher education opportunities, significantly better pay abroad, and dissatisfaction with domestic job prospects. Most migrants who earned less than BTN 40,000 monthly in Bhutan now earn over BTN 60,000 in Australia. Some even aim for monthly incomes exceeding BTN 100,000, placing them among Bhutan’s top 1% wage earners.

Jobs, Wages, and the Private Sector Gap

The report reveals deep structural problems in Bhutan’s labor market. Youth unemployment remains high at 17.7%, and the private sector has been unable to absorb skilled graduates, offering mostly low-skilled roles. While the civil service still attracts talent, discontent over low wages, heavy workloads, and limited career mobility is fueling resignations. The service-driven nature of the economy has failed to translate into quality jobs for Bhutanese youth.

Survey results show that many migrants and aspiring migrants are open to returning, provided wage expectations are met. However, these reservation wages are currently well beyond what most domestic jobs can offer. For example, one in ten aspiring migrants and one in five current migrants expect pay levels that exceed BTN 100,000 per month, making return highly improbable under existing conditions.

Policy Roadmap: From Brain Drain to Brain Gain

The report argues that while migration cannot be halted, it can be better managed. Domestic reforms must focus on creating better-quality jobs, especially in the private sector. This includes promoting innovation, improving access to finance, and developing new industries such as digital technology, green energy, and the creative economy. Civil service reform is equally critical, targeting better retention, increased job satisfaction, and career progression.

Additionally, the report underscores the potential of the Bhutanese diaspora as an untapped resource. Policies to encourage diaspora investment, knowledge exchange, and even short-term professional returns could turn brain drain into brain gain. Improving cross-border digital payments and reducing remittance transaction costs are also key to ensuring that migration continues to benefit families and national development. As Bhutan stands at a pivotal moment in its development journey, the choices it makes today will define whether its youth see a future at home or only abroad.