Hydropower and ‘Dutch Disease’ in a Tiny Country

The Economy in Pictures- Bhutan;

Hydropower cycles governed the rhythm of economic activity during the last decade and will likely do so in the next decade as well.

Three key features of the Bhutanese economy are embedded in the hydropower cycles. First, the need for an extended horizon to assess fiscal and project sustainability given the long duration of hydropower cycles. Second, India’s role as Bhutan’s principal trading partner, sole purchaser of electricity exports, and largest donor/lender for hydropower projects. Third, the high ratio of external aid to GDP and domestic revenues (together with the high aid and revenue volatility) require careful, medium-term planning.