World Bank: Bhutan’s Dramatic Poverty Reduction a Success Story With New Challenges Ahead

Bhutan has emerged as a development success story in South Asia, recording a significant decline in national poverty rates—from 28% in 2017 to just 11.6% in 2022—and nearly eliminating extreme poverty. This achievement, as highlighted in a newly released World Bank report, reflects the country’s effective poverty-reduction strategies, economic resilience, and improved access to basic services.

The report, titled the Bhutan Poverty and Equity Assessment, was jointly prepared by the World Bank and Bhutan’s National Statistics Bureau. It offers a comprehensive analysis of the nation’s progress and the persistent and emerging challenges it must confront to ensure that poverty gains are both sustained and inclusive.

Key Drivers of Bhutan’s Poverty Reduction

According to the report, several key factors have contributed to Bhutan’s substantial poverty decline:

• Robust economic growth, particularly in sectors like hydropower and agriculture

• Improved agricultural productivity, enhancing rural incomes

• COVID-19 relief programs, which cushioned the impact of the pandemic

• Strong inflow of remittances, especially from Bhutanese migrants abroad

• Shifts in the labor market, which allowed more people to transition into non-agricultural employment

“Bhutan has made remarkable progress over the past decades in significantly reducing poverty and nearly eliminating extreme poverty,” said Adama Coulibaly, World Bank Resident Representative for Bhutan. “The living standards of the people broadly improved, with better education, health and access to basic services.”

A Rural Challenge: Uneven Progress Across Regions

Despite this progress, the report underscores that poverty remains predominantly rural, with 87% of the poor living in rural areas. The geographic distribution of poverty reduction has been uneven, with urban centers seeing faster improvements compared to remote rural regions.

The report also finds that while consumption-based inequality has declined in recent years, income inequality remains high, indicating that economic gains have not been evenly distributed.

Bhutan’s growth and poverty alleviation efforts have primarily benefited those with access to education and infrastructure, whereas those in isolated and underdeveloped areas continue to face challenges related to connectivity, healthcare, and quality education.

Slowing Job Growth and Outmigration

Another emerging concern is sluggish job creation, particularly in high-productivity sectors such as technology and manufacturing. Bhutan’s youth, including many of its skilled workers, are increasingly seeking opportunities abroad, contributing to a growing trend of outmigration that could hamper future domestic productivity.

To safeguard poverty reduction gains, the report emphasizes the importance of creating quality jobs, especially for youth and women, who face higher rates of underemployment and lower labor force participation.

“The country faces pressing challenges, including its vulnerability to climate shocks, economic shocks, and dependence on remittances, which if not addressed will threaten to undermine Bhutan’s dramatic progress,” said Alvin Etang Ndip, Senior Economist at the World Bank and lead author of the report.

Climate and Economic Resilience: Key to Sustainable Development

Bhutan’s high dependence on climate-sensitive sectors like agriculture and hydropower makes it particularly vulnerable to climate change and environmental shocks. The report notes that extreme weather events could disproportionately impact rural and poor communities, risking reversals in poverty gains.

Moreover, the country’s reliance on remittances as a source of income adds exposure to global economic shifts—an area where diversification of income sources will be critical in building resilience.

To build a resilient and inclusive economy, the report recommends:

• Boosting productivity in key economic sectors

• Promoting inclusive job creation, especially for women and youth

• Investing in quality education and health services

• Expanding climate-resilient infrastructure

• Bridging service delivery gaps between urban and rural populations

The Road Ahead: Equitable Growth and Long-Term Vision

The World Bank acknowledges Bhutan’s ambitious development vision, encapsulated in its long-term goal of achieving high-income status by 2034 and its commitment to Gross National Happiness (GNH) as a guiding framework. But for Bhutan to stay on track, policies must focus on addressing structural inequalities, strengthening human capital, and increasing economic opportunities for the most vulnerable populations.

“The country’s future prosperity hinges on targeted policies that promote equitable growth and build resilience,” said Ndip.

The Bhutan Poverty and Equity Assessment paints a hopeful yet realistic picture of a country that has made impressive progress but must act decisively to preserve and build upon those gains. With the right reforms, Bhutan can serve as a model for other small, mountainous nations navigating the complex path from poverty reduction to sustainable prosperity.