Economy Of Bhutan

Hydropower exports, a currency pegged to the rupee, and small-scale agriculture — plus what that all means for prices and what you can buy.

Bhutan has a small, highly regulated economy built around one dominant export, one dominant trade partner, and a currency it cannot unilaterally change. <h2>Hydropower is the whole story</h2> Water falling from the Himalaya is Bhutan's principal asset, and generating electricity from it and selling it to India is the largest source of export earnings and the largest source of government revenue. Projects of a scale that would be routine elsewhere are here built across gorges and valleys, financed largely by Indian companies. That arrangement has two consequences. India is Bhutan's dominant trading partner and effectively its only market for most hydropower output, which gives Bhutan enormous leverage in negotiations but also concentrates its risk. And the revenue stream is what makes it possible to fund the state without broad domestic taxation, which in turn makes the "no income tax" policy sustainable. <h2>The currency is pegged, and Bhutan cannot print</h2> The ngultrum is pegged at par to the Indian rupee. Bhutan does not run its own monetary policy in any meaningful sense, and the Royal Monetary Authority does not have the authority to issue currency. Rupee and ngultrum are fr.