16 May 2016
Bhutan: Market Profile
Major Economic Indicators
- Bhutan is a small, landlocked Himalayan kingdom set in between China to the north and India to the south. It has the smallest population in South Asia, and transitioned from an absolute to constitutional monarchy in 2008. The country has forged a close relationship with India, with its robust GDP growth driven primarily by selling hydropower to India in recent years.
- Bhutan is largely an agrarian economy, a sector that employs more than half of the nation’s workforce. The Tala Hydropower Plant (the country’s fourth and largest such installation) began operations in 2007, with hydropower now assuming a key economic role in terms of the country’s exports (about 30%) and fiscal receipts (40%). Almost all of Bhutan’s exports go to India, with hydropower accounting for about half of that total. More than 80% of its imports are sourced from India, including fuel and machinery. Other import sources include South Korea, Thailand, Singapore, Japan and China. Tourism is another new driver of the country’s economic diversification, however, developments in this sector need to take into account the importance ascribed to preserving Bhutan’s traditional values.
- The Bhutanese economy is predominantly dependent on India, which financially assists in Bhutan’s infrastructure development, including the construction of its hydropower facilities. Bhutan’s currency, the Ngultrum, is pegged to the Indian Rupee, with the latter also accepted as a legal tender. The IMF notes that this over-reliance on India underlines a potential risk for the Bhutanese economy in the event of India’s demand for electricity slowing and a reduction in investment due to India’s moderating economy.
- Bhutan is an observer in the WTO, and a member of the South Asian Free Trade Area (SAFTA) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Co-operation. It signed a free trade agreement with India in 2008, stipulating that India would not levy tariffs on Bhutanese goods re-exported or transhipped through India to third party markets. Despite their unresolved border disputes, China has become more active in seeking a diplomatic relationship with Bhutan in recent years.
- The Foreign Direct Investment Division of Bhutan’s Ministry of Economic Affairs is responsible for FDI promotion. Besides, more information on investment opportunities and guidelines can also be found on the website of iGuide Bhutan. While tourism attracts the bulk of inward FDI, Bhutan also encourages investment in the agricultural and ICT sectors. The government is also keen to improve ease of doing business in Bhutan and exchange ideas with the private sector by setting up the Better Business Council.
- Bhutan’s cumulative FDI was US$112 million as at end-2014 compared with US$163 million as at end-2013.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.