The Bhutanese Leading the way.
The country’s fiscal outlook has significantly improved, according to the latest Revised Budget Summary for the 2025-26 fiscal year. As of 31st March 2026, the government reported a surge in total resources, which climbed to Nu 111.851 billion (bn), a sharp increase from the Nu 97.772 bn originally approved last July. This boost is primarily driven by a robust performance in domestic revenue and a Nu 5.4 billion increase in foreign grants, signaling a stronger-than-expected recovery in the country’s internal earning capacity.
While income grew by double digits, government spending remained relatively disciplined. Total expenditure rose only slightly from the initial estimates, moving from Nu 119 bn to Nu 120 bn. This incremental increase was largely directed toward capital expenditure, long-term investments in infrastructure and development projects, which rose by approximately Nu 1 bn. Meanwhile, current expenditure, which covers the day-to-day operational costs of the government, remained nearly flat, reflecting tight control over administrative overhead.
Originally projected to be 6.21 percent of GDP, the revised fiscal balance now stands at just 2.52 percent of GDP. By reducing the deficit from over Nu 21 bn to roughly Nu 8.5 bn, the government has lessened its reliance on borrowing.
Bhutan’s fiscal position remains sensitive to macroeconomic performance. Economic growth is currently supported by hydropower construction and public investment, but downside risks persist due to delays in major projects, uneven sectoral recovery, and external conditions.
A slowdown in growth would directly reduce revenues and weaken the fiscal position. Each percentage point shortfall in growth reduces the revenue base and places upward pressure on the fiscal deficit and debt ratios.
In response, fiscal policy remains anchored in a medium-term framework that emphasizes discipline and flexibility.
Bhutan’s external position also presents important vulnerabilities. The exchange rate peg to the Indian Rupee means that movements against major currencies increase the cost of external debt and imports, particularly for capital goods and energy.
Global shocks, particularly fuel price increases and regional economic slowdowns, also pose risks.
Bhutan’s current account deficit remains structurally elevated, driven by capital imports for hydropower and infrastructure development.
