Bhutan country brief

Political overview

System of government

Bhutan is continuing to consolidate its newly established constitutional democracy.  Bhutan’s parliament consists of an upper and lower house, the latter based on political party affiliations. The first elections for the upper house (National Council) were held on 31 December 2007, while elections for the lower house, the 47-seat National Assembly, were held on 24 March 2008. Two political parties, the People's Democratic Party and Druk Phuensum Tshogpa (Bhutan Harmony Party-DPT), contested the country’s first elections. Voters delivered a landslide victory to the DPT, which took 45 out of the 47 seats in the National Assembly.

Recent Political Developments

On 23 April 2013 the second parliamentary elections for the National Council were held. As four political parties have successfully registered with the Election Commission of Bhutan for the second parliamentary elections to the National Assembly, two rounds of voting will be required. The first round was held on 31 May 2013. The final round will be in July 2013. A new government should be formed by end July 2013.  

Economic overview

The guiding principle of Bhutan's economic development is Gross National Happiness (GNH) rather than Gross Domestic Product. The four pillars underlying GNH are 1) Sustainable and Equitable Socio-Economic Development 2) Conservation of the Environment 3) Preservation and Promotion of Culture and 4) Good Governance. All government programs are assessed against the GNH framework, with the aim of ensuring sustainable, holistic development.

The Bhutanese economy continues to grow strongly, albeit off a small base.  Bhutan has a history of fiscal prudence and good governance, very little debt and is assisted by the nominal anchor provided by the currency peg to the Indian rupee. Bhutanese products enjoy free access to the large Indian market and India is Bhutan's main trade, investment and development assistance partner. Agriculture and forestry dominate Bhutan’s domestic economy, while hydropower and tourism are major export earners.

Steep mountains and swift flowing rivers make hydropower production a natural fit in Bhutan It is estimated the country has a total potential hydropower generation capacity of 30,000 megawatts. Bhutan is likely to see significant increases in export and tax revenues as new hydropower projects become operational.

Bhutan's Tenth Five Year Plan (2008-2013), launched in February 2008, has a central focus of poverty reduction and is underpinned by Bhutan's transition to democracy and the Millennium Development Goals (MDGs). The strategic priorities under this plan are:

  1. Encouraging industrial development;
  2. Promotion of balanced regional development;
  3. Integrated rural and urban development for poverty alleviation;
  4. Expanding strategic infrastructure;
  5. Investing in human capital; and
  6. Fostering good governance.

Bhutan’s eleventh Five Year Plan (2013-2018) will be implemented from July 2013.

The United Nations Development Programme (UNDP) Human Development Report (2013) ranks Bhutan 140 out of 185 countries in terms of the human development index (HDI) (which measures countries' relative standing in terms of life expectancy, educational attainment and adjusted real income). Bhutan faces the challenge of matching gains from strong economic growth (6-8 per cent per annum since the mid-1980s) with rising expectations of employment opportunities and welfare improvements, while preserving its environment and culture. Changes in community expectations as a result of the introduction of television and the internet add to this challenge. Providing employment opportunities for an expanding and increasingly urban and educated labour force will not be easy.

Bilateral relationship

Australia and Bhutan have long enjoyed warm and friendly relations, predating the establishment of formal diplomatic relations on 14 September 2002. Mr Patrick Suckling is currently Ambassador-Designate to Bhutan (based in New Delhi). Mr Tim Fischer was appointed as Australia's Special Envoy to Bhutan in September 2008.

Ms Catherine Harris AO PSM, based in Sydney, is the Honorary Consul for Bhutan in Australia. A second Honorary Consul for Queensland, Ms Leonore Guthrie Willie, was appointed in 2010. Bhutan's Ambassador in Bangkok is accredited to Australia. An Australia-Bhutan Friendship Association (ABFA) was launched on 3 March 2003 in Thimphu and continues to promote information exchanges and people-to-people links between the two countries. The Association of Bhutanese in Australia (Sydney) and Druk Melbourne are community groups drawn from the Bhutanese diaspora living in Australia. 

Australia and Bhutan held inaugural senior officials talks in January 2012 in Bhutan. The second round of talks are due to be held in Australia in 2013. These talks enable Australia and Bhutan to exchange views on political and economic developments in their countries and the Asian region, and look for opportunities to further develop the bilateral relationship between the two countries.

There are regular political exchanges between Australia and Bhutan. A delegation from the Supreme Court of Bhutan visited Australia in March 2013. Bhutanese Parliamentary delegations visited Australia in 2009 and 2011, representatives of the Australian Parliament visited Bhutan in 2010. In the same year, Australia's then Parliamentary Secretary for International Development Assistance Mr Bob McMullan visited Bhutan for the 16th South Asian Association for Regional Cooperation (SAARC) Summit.

Australian and Bhutan have worked together on the Asia-Pacific Group on Money Laundering and the Customs International Executive Management Program. A key area of common interest is in the field of climate change, which was the theme of the 2010 SAARC Summit and was expanded upon during Bhutan’s participation in the Commonwealth and Small Developing States Meeting in Perth in October 2011.

Bilateral Trade and Economic Relationship

Australia has a modest trade and investment relationship with Bhutan. There is some potential for the development of commercial links through the involvement of Australian companies in developmental work. Opportunities also exist in the food and beverage, tourism, building, infrastructure, resources and energy sectors, where demand for Australian expertise is growing.

Bilateral Aid Program

Australia has a long-standing bilateral aid program in Bhutan, which was first established under the Colombo Plan in 1962. A large number of Bhutanese officials have received education or training in Australia. Over the past few years new areas of bilateral cooperation have developed including agricultural research, training for police officers, electoral assistance, assistance to Bhutan's vocational education sector and forestry planning.

The Australia-Bhutan Memorandum of Understanding on Development Co-operation was signed in January 2012 further promoting the goodwill and friendship between the two countries. The aim of the Memorandum is to reduce poverty and secure sustainable development in Bhutan whilst promoting stronger economic and social links between the two countries. It provides the framework for the organisation of activities to assist Bhutan in areas of highest economic priority and in which Australia has expertise. The focus is on capacity building through the provision of finances, training, material, equipment and services to meet development outcomes.

The majority of Australia's development assistance is centred on the education sector, with a focus on human resource development delivered mainly through the Australia Awards. Australia has provided 434 Bhutanese with scholarships for tertiary education in Australia since 2007.

Australia has supported the World Food Programme’s School Feeding Program in Bhutan since 2001, providing $500,000 in 2012-13. This program has been successful in improving school attendance and providing children with valuable nutrients.

Since 2010 Australia has provided Bhutan with $1.3 million to assist with reconstruction efforts following a major earthquake in September 2009. The money has been distributed through UNICEF and used to rebuild and improve water and sanitation facilities in schools in the affected district.

Australia has established a Volunteers Program in Bhutan and the first set of three volunteers arrived in Bhutan in March 2013 to start their placements.  Another four volunteers will be arriving in June 2013.  They will work in the areas of education, health, agriculture and forestry.

The Australian Centre for International Agricultural Research (ACIAR) has been working with Bhutan to improve agricultural production since 1997. In 2012 a $900,000 grant aimed at improving mandarin production (Bhutan's largest horticultural export) was initiated. The project is being implemented in collaboration with the New South Wales Department of Primary Industries and focuses on the production of disease-free planting material, pest and disease control and best-practice production techniques.

More information on Australia's development assistance to Bhutan.

Last Updated: 24 January 2014