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- GDP (PPP):
- $4.7 billion
- 5.0% growth
- 7.3% 5-year compound annual growth
- $6,370 per capita
- Inflation (CPI):
- FDI Inflow:
Bhutan’s economic freedom score is 57.4, making its economy the 115th freest in the 2015 Index. Its score has increased 0.7 point from last year, with improvements in freedom from corruption, the management of government spending, and business freedom partially offset by declines in labor freedom and fiscal freedom. Bhutan is ranked 24th out of 42 countries in the Asia–Pacific region, and its overall score is below the global and regional averages.
Over the past five years, Bhutan has charted a V-shaped trend in economic freedom. Bolstered by improvements in freedom from corruption and business freedom, it has bounced back from its lowest economic freedom score ever in 2013. Nonetheless, Bhutan continues to be in the ranks of the “mostly unfree,” with scores on many of the 10 economic freedoms remaining below the world averages.
Efforts to diversify the economy have been at the top of the policymaking agenda in the past few years. Hydropower production and development, led by the government, has been a large driver of growth, but the poverty rate remains persistently high. Landlocked and mountainous, Bhutan remains relatively isolated from the world economy and has yet to open itself fully to international trade and global financial flows.
Bhutan is a small Himalayan constitutional monarchy that made the transition from absolute monarchy to parliamentary democracy in March 2008. In July 2013, it completed its second democratic handover of power after the People’s Democratic Party won the majority of seats in the National Assembly. Bhutan has one of the world’s smallest and least-developed economies. Until a few decades ago, it was largely agrarian, with few roads, little electricity, and no modern hospitals. Recent interregional economic cooperation, particularly involving trade with Bangladesh and India, is helping to encourage economic growth. Connections to global markets are limited and dominated significantly by India.
The government operates with limited transparency and accountability, but a new performance management system was implemented in 2014 to improve efficiency. Misuses of resources, bribery, collusion, and nepotism are major problems. Bhutan’s civil and criminal codes include many modern provisions based on English common law. Property rights are generally better protected than in other South Asian countries.
Bhutan’s top individual income tax rate is 25 percent, and its top corporate tax rate is 30 percent. Other taxes include a property tax and an excise tax. The overall tax burden amounts to 14.8 percent of domestic income. Government expenditures are equivalent to 36.5 percent of gross domestic product, and public debt equals 110 percent of domestic output.
A modern regulatory framework has not been fully developed. Despite recent efforts, the business climate is still hampered by inconsistent enforcement of regulations. On average, it takes 36 days to start a company. The imbalance between labor supply and demand persists, and unemployment has risen in recent years. In July 2014, India renewed its LPG and kerosene subsidy program for Bhutan.
As of 2007, Bhutan had a 17.8 percent tariff rate. The cost and time required to import goods are relatively high. The government may screen new foreign investment. The financial sector is small, and an underdeveloped regulatory framework limits access to capital for local entrepreneurs. Competition has improved with the gradual opening of the sector to more foreign partnerships, but banking remains state-controlled.