Bhutan's Fuel Subsidy: The Billion and a Half That Became Diesel

In June 2026 the Health and Settlement Minister told the National Council something that had not previously been said in public: Nu 1.5 billion allocated from the Economic Stimulus Programme for affordable housing had been redirected to the fuel subsidy when global fuel prices escalated.

At the same hearing came the delivery figure. Sixty-four affordable housing units completed in the last five years.

Those two facts belong in the same sentence, and this is the first place they have been put there.

What the money was for

The Economic Stimulus Programme is a Nu 15 billion package. Within it, Nu 1.5 billion — a tenth — was earmarked for affordable housing, in a country whose National Housing Policy sets a 30 percent rent-to-income threshold that Thimphu tenants exceed at around 42 percent, and where the state’s own housing allowance to civil servants has been frozen at Nu 3,500 a month since 2015.

The case for the allocation was not obscure. It was the government’s own diagnosis.

Then oil moved.

What the money became

Bhutan imports essentially all its fuel, and fuel is close to a fifth of the country’s entire import bill. When prices spiked toward Nu 200 a litre, the government chose to hold the pump price below Nu 100. That is a large and open-ended commitment, and it needed funding. The housing money was available.

The mechanics as of August 2026: diesel’s actual landed price in Thimphu is Nu 123.13 a litre. The public pays Nu 104.50. The state covers the Nu 18.63 between them, on every litre. Cumulatively, the subsidy has cost more than Nu 1.8 billion — already more than the housing allocation it consumed.

That subsidy is not a rounding error in the national accounts. It is being paid, in effect, from foreign reserves — the fuel is bought in hard currency and the ngultrum shortfall is absorbed by the state.

And then the reserves moved

On 9 August 2026 the Finance Minister confirmed that foreign reserves fell by roughly US$31 million between June and July, to US$1.19 billion. Still above the constitutional import-cover floor, he said. But it was the first officially confirmed decline since the recovery from the 2023 trough, and he named the drivers: fuel — nearly 20 percent of imports, prices spiking to Nu 200 a litre, the subsidy holding the pump price down — alongside ngultrum depreciation and an upward revision to how informal border imports are counted.

So the chain closes. Housing money became fuel subsidy; fuel subsidy is now cited as a reason the reserves are falling.

The same fund, the same answer

The housing allocation is not the only line in the stimulus programme that was promised to a sector under strain and has not arrived.

Bhutan’s hotels sit at roughly 20 percent average occupancy, seventy percent of them in financial difficulty by their own association’s count. A four percent ESP interest subsidy for hotels of four stars and below was approved, with about Nu 845 million budgeted for a year. By August 2026, 218 hotels were enrolled.

Disbursed: Nu 3.75 million in May, Nu 7.21 million in June. About one percent of the budget, six months in.

Two sectors — housing and hotels — each named as a priority, each allocated stimulus money, each still waiting for it while the fuel subsidy is paid every day at the pump without delay. That is not a conspiracy; it is a revealed preference. When the choice was between building homes and holding the diesel price, the diesel price won, immediately and completely.

Why the diesel price wins

The reasons are not mysterious, and stating them plainly is fairer than implying negligence.

A fuel price rise is felt by everyone, on the same day, and is politically unsurvivable in a country where diesel moves everything that moves. A housing shortfall is felt by the people who cannot buy, gradually, and is politically survivable for years — as sixty-four units in five years demonstrates. A subsidy at the pump is administratively trivial to deliver. A housing programme has to acquire land, tender construction and hand over keys, and Bhutan’s record on that is on the table.

So the money flows to the thing that is easy to spend and expensive not to. That is a rational response to the incentives, and it is also how a country ends up with a fuel subsidy larger than its housing budget while its capital’s tenants pay 42 percent of their income in rent.

The closing arithmetic

Set this against the headline that dominated the year. Bhutan’s GDP grew 8.52 percent in 2025, to Nu 318.48 billion in nominal terms — almost entirely on the commissioning of a single hydropower plant.

That growth accrues first to whoever holds the assets it revalues: land, buildings, the plots that never trade. Meanwhile more than 95 percent of Bhutanese firms remain cottage-scale, urban home ownership sits below 20 percent, and the one line of stimulus money aimed at changing the second figure was spent on diesel.

The question is not whether the fuel subsidy was wrong. In the week it was decided, it may well have been the only choice available. The question is what kind of economy grows at 8.5 percent, cannot house the people earning its median wage, and finds — when it goes looking for the money it set aside to fix that — that it has already been burned.