The Bhutanese Leading the way.
The country’s public debt is expected to rise from 101.7% of GDP in 2024/25 to 113.9% in 2025/26 and remain high in the coming years. This marks an increase of 12.2%.
More than 60% of this debt is linked to hydropower projects.
Debt not related to hydropower is also set to grow because of more investment activities, but it will stay within the 35% limit set by the Public Debt Policy 2016.
The International Monetary Fund (IMF) and World Bank’s 2024 Debt Sustainability Analysis says that the country is at a moderate risk of debt distress.
The country’s current account deficit, which measures how much more Bhutan imports than it exports, is expected to improve. It is projected to shrink from 17.9% of GDP in 2024/25 to 11.9% in 2025/26. This improvement is mainly due to a smaller trade deficit, which will drop from 22.5% to 16.7% of GDP.
The better trade balance is expected because of higher hydropower exports from the new PHPA-II project and more sales of products like base metals, ferro-silicon, and forestry goods.
According to the Royal Monetary Authority (RMA), although imports will rise in the medium term, stronger export performance should help improve the overall trade situation.
With the start of the 13th Five-Year Plan and the building of new hydropower projects, The country is expected to receive more money from budgetary grants and hydropower investment.
RMA says that this will push the capital account balance up by 104% in 2025/26, reaching Nu 11.8 billion. This increase will help the banking sector and support the country’s finances.
The financial account, which tracks investments and loans with other countries, may still be unstable. However, more external borrowing and future borrowing policies will influence its trend.
Overall, with improvements in the current account and more capital and financial inflows, foreign exchange reserves are expected to rise to USD 1,236.9 million in 2025/26 and will be enough to pay for 32.9 months of essential imports according to RMA.
