July 1, 2025
THIMPHU – Despite enduring one of the most severe economic contractions in its recent history due to the Covid-19 pandemic, Bhutan achieved a significant and notably pro-poor reduction in poverty between 2017 and 2022.
According to the World Bank’s Bhutan Poverty and Equity Assessment 2024, this progress was driven by income growth among the poorest households, targeted government relief programmes, and a dramatic surge in remittances. Remarkably, Bhutan managed to increase consumption among its poorest households even as GDP per capita fell by nearly 11 percent in 2020.
Between 2017 and 2022, per capita consumption among the poorest 40 percent rose by over 7 percent annually, while it declined among the wealthiest. This growth was especially concentrated in rural areas, home to the majority of the nation’s poor. Rural households at the lower end of the consumption scale saw consumption increase more than three times faster than their urban counterparts.
Redistribution played a defining role in this trend. Using the Ravallion-Huppi decomposition method, the World Bank found that 77 percent of the poverty decline was due to redistribution—shifts in how resources were spread across households—while only 23 percent came from overall consumption growth. This reflects a significant downward shift in resources that improved the welfare of those with the least.
Agricultural households were central to this shift. The report identified rural poverty reduction—particularly among households dependent on agriculture—as the primary engine of national poverty alleviation. While these households reported farming as their main livelihood, other income sources, such as remittances and social assistance, likely played an important supporting role.
Agricultural productivity showed notable improvement during the review period. Value added per worker in agriculture increased by over 17 percent, even as the share of rural workers engaged in agriculture fell from 74 percent to 64 percent. This combination of reduced labour and increased output helped boost incomes.
Among poor rural households, dependency on agriculture declined from 62 percent in 2017 to 56 percent in 2022. Yet those who remained in agriculture experienced a 23.7 percentage point drop in poverty.
Nevertheless, agricultural productivity in Bhutan remains low by global standards. Persistent challenges such as limited irrigation, crop damage by wildlife, and labour shortages continue to hinder yields. The report underscores the sector’s potential, however, when supported by conducive policies and complementary income sources.
Government interventions during the pandemic were pivotal. Chief among these was the Druk Gyalpo’s Relief Kidu, which by 2021 had reached nearly one in five Bhutanese households. In rural areas, 63.9 percent of households benefited from the Kidu. Almost a third of recipients had suffered severe economic shocks from the pandemic. Without this programme, an estimated 9,700 additional people would have fallen into poverty by 2022.
Remittance inflows also surged during the crisis. Between 2019 and 2020, inward remittances to Bhutan jumped by 170.6 percent—one of the highest increases globally. Much of this was attributed to returning migrants bringing back savings.
By 2022, the share of poor households receiving remittances was highest among the poorest groups. On average, households receiving remittances had five percent higher consumption per capita. Without these inflows, the national poverty rate would have risen from 12.4 percent to 15.6 percent, pushing an estimated 24,000 more people below the poverty line.
However, the benefits were unevenly distributed across the country. Dagana emerged as a standout, reducing its poverty rate from 69.4 percent to just 8.1 percent.
This dramatic turnaround was linked to high remittance inflows—26.8 percent of households received them in 2022—and economic diversification into areas like weaving, real estate, and pensions. In contrast, poverty in Haa increased slightly due to low remittance inflows and reduced earnings from non-agricultural and non-wage activities.
The report emphasised the importance of economic diversification in rural areas. In Dagana, gains were driven not just by remittances but also by a shift to more profitable agricultural outputs such as dairy, meat, and eggs. Where income sources remained narrow and remittance flows were weak, poverty reduction stagnated.
Education and rural residency emerged as key factors in poverty mobility. Rural households displayed higher upward mobility and lower likelihood of falling back into poverty. Meanwhile, households with lower levels of education showed greater movement in both directions, highlighting their exposure to economic vulnerability.
Bhutan’s poverty turnover remains relatively low, and its rate of chronic poverty is significantly below that of regional peers such as India and Pakistan. Between 2017 and 2022, the probability of escaping poverty in Bhutan was 20 times higher than the likelihood of falling into it.
While the findings are promising, the World Bank cautioned that this progress is not guaranteed. The future of Bhutan’s poverty reduction hinges on the sustainability of remittance flows, social safety nets, and continued investment in rural livelihoods.