June 26, 2025
THIMPHU – Bhutan could face severe economic losses by mid-century if it fails to adapt to a warming, drying climate, according to a new World Bank report launched yesterday.
The Bhutan Country Climate and Development Report (CCDR) paints a stark picture of the country’s climate-vulnerable economy, with floods, landslides, heat extremes, and other weather-related hazards posing increasing risks, especially to Bhutan’s poorest communities.
The country’s three main economic pillars, hydropower, agriculture, and tourism, are already increasingly exposed to climatic shifts.
The CCDR is part of the World Bank Group’s new line of diagnostic reports that integrate climate risks with development planning. Drawing from data and nationwide consultations, the report offers strategic guidance to help governments and partners align emissions reductions and resilience-building with national development goals.
If no action is taken, Bhutan stands to lose a significant share of its GDP by 2050. However, the report estimates that early investments in adaptive infrastructure, social protection systems, and economic diversification could cut those losses by at least 40 percent.
“As the world’s first carbon-negative country, Bhutan is a climate leader and can pave the way for climate-smart, job-rich development,” said Cecile Fruman, Acting Country Director of the World Bank in Bhutan. “Bhutan is uniquely positioned to leverage its carbon-negative status and abundant natural resources to drive sustainable and diversified growth. As climate risks increase, it must prioritise adaptation and resilience across key sectors, including policy planning and infrastructure investments.”
Core sectors at risk
Hydropower sector, which is responsible for roughly a third of Bhutan’s exports, is highly vulnerable to changing rainfall patterns, glacial melt, and increasing variability in water flows. These changes jeopardize energy production and dam safety. The CCDR calls for stronger risk-informed planning in the energy sector.
The agriculture sector, employing nearly half of country’s workforce, is already witnessing reduced yields due to erratic rainfall and pest outbreaks. Rural incomes remain heavily climate-dependent, and in contrast, adoption of climate-smart practices is still in early stages. Investments in resilient inputs, water storage, and technology are also limited.
Tourism sector, another critical source of revenue, is threatened by climate-related impacts such as damaged infrastructure, unpredictable weather, and biodiversity loss. These challenges, the report states, could weaken Bhutan’s unique high-value, low-volume tourism model unless adaptation is integrated into long-term planning.
Growing urban risks
Urban centres face mounting vulnerabilities. About 65 percent of Bhutan’s population is exposed to experience at least one natural hazard. By 2050, Bhutanese cities are projected to experience more intense rainfall, higher temperatures, and prolonged dry periods.
The report recommends climate-resilient urban planning, zoning reforms, and nature-based solutions such as watershed restoration to curb risks. Early warning systems and climate-informed building codes are seen to be critical in safeguarding expanding towns.
Zhemgang and Mongar are among the districts facing the highest combined risks of poverty and climate exposure, while flash floods and landslides increasingly threaten infrastructure across all dzongkhags.
“By investing in and embedding sustainability into key sectors like tourism, forestry, and agriculture, businesses can create jobs, attract investment, and strengthen Bhutan’s participation in the global economy,” said Imad N. Fakhoury, Regional Director for South Asia, International Finance Corporation.
Green growth opportunities
Despite the risks, the CCDR emphasises that climate adaptation can be a driver of inclusive, sustainable growth. It urges Bhutan to invest in climate-smart agriculture, sustainable forestry, ecotourism, and green industry as new engines of resilience and job creation.
These sectors have strong potential to generate jobs, particularly for youth, and to boost resilience in rural and forest communities.
For example, scaling up forest-based value chains, such as bamboo, non-wood forest products, and nature-based tourism, can create jobs while preserving the country’s rich biodiversity.
Climate-smart farming can increase yields and incomes, reduce input costs, and protect soil and water systems.
In urban areas, the report identifies the Gelephu Mindfulness City as a potential model for low-carbon, climate-resilient development, where economic ambition is aligned with ecological sustainability.
Financing a climate-resilient transition
Adapting to climate change will require significant investment beyond what Bhutan’s public finances can currently provide. The report urges access to global climate financing mechanisms, carbon credit markets, and private sector partnerships. Domestic reforms such as green taxes and climate-sensitive budgeting will also be key.
“Our analysis shows that climate risks are real but so are the opportunities,” said Rangeet Ghosh, World Bank Senior Economist and Lead Author of the report. “Adaptation and diversification are essential to preserve Bhutan’s progress and expanding opportunity, especially for the most vulnerable.”
The report urges Bhutan to improve climate data, build institutional capacity, and expand social protection systems, especially for vulnerable households and informal workers. Indigenous knowledge, community engagement, and public trust will also be key in designing impactful local adaptation strategies.
“Climate-smart, inclusive growth is possible, and Bhutan has the potential to lead by example,” said Cecile Fruman. “But this window of opportunity is narrowing fast. Action must begin now.”