World Bank2024-09-092024-09-092024-09-09https://hdl.handle.net/10986/42133Bhutan expects to double its hydropower capacity over the next decade, which is expected to have significant effects on the economy. Estimates using a Computable General Equilibrium (CGE) model (the business-as-usual (BAU) scenario) indicate that the anticipated doubling of the hydropower generation capacity is expected to result in higher growth. However, in keeping with past experience, this growth will not be accompanied by a diversification of the economy. The economy is expected to shift towards electricity and closely related sectors. The appreciation of the real exchange rate is expected to reduce output in non-hydro tradable sectors, especially tourism-related exports. This suggests that there is scope to strengthen the government’s current approach for managing and distributing hydropower revenues to support the development of non-hydro sectors and address the negative effects of the Dutch Disease. The availability of hydropower rents provides the government with an opportunity to actively support non-hydro productivity growth and generate employment. This country economic memorandum (CEM) identifies three key areas that require urgent policy focus for achieving more robust and broad-based growth and creating more and better jobs while bolstering climate resilience: (I) facilitating economic diversification, (II) enhancing agricultural productivity and crop diversification, and (III) reforming the financial sector to support economic diversification.en-USCC BY-NC 3.0 IGOHYDROPOWER CAPACITYAGRICULTURAL PRODUCTIVITYFINANCIAL SECTORCREDIT ALLOCATIONReportWorld Bank10.1596/42133