A sudden 20 percent jump in international oil prices could shave as much as 1.4 percentage points off Bhutan’s economic growth over the next half‑decade, according to fresh modelling released today by the Ministry of Finance. The sobering projection underscores how sensitive the country’s high‑speed expansion is to global energy markets.
Using a detailed macroeconomic simulation covering 2025 through 2030, analysts at the finance ministry mapped out three price‑shock scenarios: a modest 10 percent rise in crude, a steep 20 percent hike, and the inverse—a 10 percent drop. Even at the lower level, a 10 percent increase would drag growth down by roughly 0.7 percentage points compared with the current baseline forecasts.
“Bhutan’s reliance on imported fuel makes us uniquely vulnerable to price swings,” said the report, citing geopolitical tensions, trade frictions, and shifting demand in major economies as key drivers of volatility. Higher energy costs feed directly into transport fares and manufacturing inputs, dampening both corporate investment and household spending.
The timing could not be more critical. After grinding out a projected 4.97 percent expansion in 2024, the economy is poised to accelerate to 8.93 percent growth next year—its fastest pace in decades. But the study cautions that the upturn may prove fragile if oil prices surge.
Fuel imports have swelled in recent years. Last year alone, Bhutan spent Nu 15.17 billion on diesel and petrol—up nearly 14 percent from Nu 13.35 billion in 2023. Under the simulation’s 20 percent oil‑price shock, import volumes would fall by an estimated 3 percent, even as the rupee value of purchases jumps, squeezing import bills and widening the current account gap.
Current Account and Tax Revenues at Risk
The report projects the current account deficit—already averaging 1.8 percent of GDP—to widen to 2 percent under a 10 percent oil‑price increase and to 2.2 percent if prices jump by 20 percent. Conversely, a 10 percent drop in oil prices would shrink the deficit to about 1.4 percent of GDP, freeing up foreign exchange for other priorities.
Domestic tax revenues would also feel the pinch. Fuel‑related levies are expected to decline by 0.1 percent of total revenues with a 10 percent price rise, and by 0.2 percent if oil costs climb by 20 percent. If prices fall, revenue gains of up to 0.3 percent are forecast, as lower pump prices spur consumption—an example of asymmetric price transmission wherein consumers cut back only modestly when prices climb, but ramp up usage when they fall.
Inflationary Pressures Mount
Beyond the headline GDP figures, the ministry warns that higher import costs will feed into inflation, particularly in energy‑intensive sectors like transport and manufacturing. “Rising fuel prices erode disposable incomes and push up the cost of goods and services,” the authors note, predicting slower consumer spending and business investment if the shock persists.
A Silver Lining in Lower Prices
The flip side of the coin offers some relief: a 10 percent drop in global oil costs could boost economic activity by lowering production expenses and stimulating consumer outlays. According to the simulation, fuel imports would jump by 6 percent as households and firms seize on cheaper energy, while tax receipts from fuel would climb by 0.3 percent of revenues.
Looking Ahead
With growth set to nearly double next year, policymakers face a delicate balancing act: harnessing the momentum of hydroelectric exports and booming construction, while safeguarding against an oil‑price sting. The finance ministry’s report urges the government to deepen reserves, explore hedging mechanisms, and accelerate energy diversification to cushion future shocks.
As Bhutan charts a path toward high‑speed prosperity, the lesson is clear: volatile oil markets remain its Achilles’ heel. Vigilant monitoring and proactive policy will be essential to ensure that outer‑pace growth does not stall at the pumps.
