Washington, Jan 29 (NationPress) Bhutan’s economy is projected to experience a robust growth of 7.4 percent in FY2025/26, with continued resilience expected in the following year. This growth is driven by increasing hydropower exports, a resurgence in tourism, and elevated capital expenditures, according to the International Monetary Fund (IMF).

The IMF anticipates that inflation will stabilize around 4 percent, supported by the currency peg and the significant import content of investments. This conclusion comes after the IMF Executive Board's Article IV consultation with Bhutan under its lapse-of-time procedure for 2025.

Bhutan’s medium-term growth outlook remains optimistic, fortified by expanding hydropower production and sustained public investment.

However, the IMF cautioned that certain risks are present, such as potential delays in hydropower projects, a global economic slowdown, fluctuations in crypto-asset values, rising fuel costs, and climate-related disruptions.

The organization emphasized that implementing tighter fiscal and monetary policies, along with enhancing financial sector oversight, is crucial for restoring economic buffers and ensuring macroeconomic stability.

Bhutan’s economic rebound gained traction in 2024 and early 2025, with a notable acceleration in real GDP growth, peaking at 9.1 percent in the fourth quarter of 2024, continuing strong in the first half of 2025. This growth was bolstered by a recovery in industry, resilience in services, and the commissioning of key hydropower projects.

Inflation declined consistently in 2024, largely due to easing food and non-food price pressures, stabilizing below 2 percent by mid-year, before rebounding to around 4 percent in 2025, primarily driven by food inflation.

The IMF noted that the Gelephu Mindfulness City project holds promise for attracting foreign investments and fostering economic diversification, yet it also presents fiscal and financial risks that require diligent management.

The Executive Board stated that a gradual, sustained approach to fiscal consolidation is necessary to achieve Bhutan’s medium-term deficit targets, maintain room for growth-oriented capital spending, and reduce public debt.

The IMF approved Bhutan’s commitment to a 3 percent fiscal deficit under the current five-year plan, recognizing progress in revenue reforms.

Nevertheless, it warned that gains in indirect tax revenues might plateau. Enhancing GST rates, implementing fuel taxes, and maintaining stringent spending discipline are imperative for achieving fiscal goals.

Regarding monetary policy, the IMF advocated for a gradual normalization process to bolster reserve accumulation. It emphasized the need to absorb excess liquidity to moderate credit growth and strengthen monetary transmission, including through the development of the interbank market.

Additionally, the IMF stressed the importance of enhancing financial sector resilience. The adoption of Bhutanese accounting standards will necessitate higher provisioning, especially for restructured loans. Authorities were encouraged to improve risk-based supervision, stress testing, and enforcement of prudential regulations.

Bhutan’s external position showed improvement in FY2024/25, with rising reserves, although they remain below levels justified by fundamentals and policies. Stricter fiscal and monetary measures are essential to further diminish external imbalances.

While the IMF endorsed the potential of the Gelephu Mindfulness City initiative, it noted that its legal and regulatory framework is still in the early stages.

Concerns were raised about discrepancies between national regulations and those applied within the city, which could pose risks related to fiscal management, regulatory arbitrage, and financial oversight, especially in light of the acceptance of crypto-asset activities.