𝐓𝐨𝐮𝐫𝐢𝐬𝐦 𝐆𝐫𝐨𝐰𝐭𝐡 𝐌𝐚𝐬𝐤𝐬 𝐃𝐞𝐞𝐩𝐞𝐧𝐢𝐧𝐠 𝐇𝐨𝐭𝐞𝐥 𝐃𝐞𝐛𝐭 𝐂𝐫𝐢𝐬𝐢𝐬

…𝒕𝒐𝒖𝒓𝒊𝒔𝒕 𝒂𝒓𝒓𝒊𝒗𝒂𝒍𝒔 𝒔𝒖𝒓𝒈𝒆 𝒃𝒖𝒕 𝒉𝒐𝒕𝒆𝒍𝒔 𝒔𝒕𝒓𝒖𝒈𝒈𝒍𝒆 𝒘𝒊𝒕𝒉 𝒉𝒊𝒈𝒉 𝒅𝒆𝒃𝒕 𝒂𝒏𝒅 𝒍𝒐𝒘 𝒐𝒄𝒄𝒖𝒑𝒂𝒏𝒄𝒚

By Yeshi Dolma

Tourism sector appears to be thriving on the surface. Official government data for the second quarter of 2025 shows a 145 percent increase in tourist arrivals compared to the first quarter, with total arrivals reaching 67,019. Revenue to the state more than doubled to USD 12.27 million, up from USD 6.53 million in the previous quarter. Indian tourists dominated the influx, accounting for 48,641 visitors, a 190 percent increase, while key entry points like Phuentsholing and Paro saw visitor growth of 176.85 percent and 111.61 percent respectively.

At first glance, these numbers suggest a post-pandemic recovery. Yet beneath the statistics, many hotels are struggling under a mountain of debt, with several on the brink of collapse. According to a report by the Royal Monetary Authority, hotels and tourism-related businesses lead all industries in deferred loans, with 477 accounts totaling Nu 11.72 billion, equivalent to USD 140 million. By account, 35.5 percent of hotel loans have been restructured or deferred, while 19.5 percent of the total value has been similarly adjusted. Other sectors, such as agriculture and manufacturing, show much lower levels of deferment.

The crisis is particularly acute for three-star hotels, which account for 185 of the deferred accounts, totaling Nu 6.4 billion. Even five-star establishments are not immune, with 10 accounts owing Nu 1.6 billion. The disparity is linked to the nature of tourist arrivals. While Indian tourists make up the majority, many stay only briefly and do not fully use hotel services. Phuentsholing, the busiest port of entry, recorded 40,553 visitors in Q2, yet only a fraction booked hotel stays. In Paro, 25,962 tourists arrived, but hotel occupancy averaged only 35 to 50 percent.

“We see buses full of visitors, but many are here for brief trips. Our occupancy is stuck at 35 percent, but the bank expects payments as if we are full,” says Tashi Dorji, manager of a three-star hotel in Phuentsholing.
Bhutan’s “high-value, low-impact” tourism policy, launched in 2022, aims to attract wealthier international tourists through a daily Sustainable Development Fee of USD 200 in peak season and mandatory bookings via licensed operators. Non-Indian arrivals grew 73.9 percent to 18,378 in Q2, but their contribution to hotel revenue remains unclear. Hoteliers argue that the high-value model does not match reality.

“Many visitors are regional travelers or budget-conscious tourists, rather than the high-spending Western tourists expected to fill luxury hotels. We are stuck between visitors with different spending patterns and high-cost expectations,” says Lhamo Tshering, a hotelier.

Thinley Lham, another hotelier, emphasizes the importance of the Sustainable Development Fee in positioning Bhutan as a premium destination. “Our country is like a heaven for tourists,” she says. “But the high daily fee sometimes makes visitors hesitate. A discount could help the industry and encourage more bookings.”

Hotel owners took out large loans during the 2010s tourism boom, assuming occupancy rates of 70 to 80 percent and steady revenue from affluent visitors. The post-pandemic reality has shattered these assumptions. Occupancy averages remain 50 to 55 percent despite the surge in arrivals. Rising costs for food, wages, and utilities, which have increased by 15 to 20 percent, further erode profit margins.

“We took a Nu 50 million loan in 2019, expecting USD 300-per-night rooms to stay full. Now we are paying Nu 1.2 million a month with revenue at Nu 800,000. The bank is threatening foreclosure,” says a Thimphu hotelier who requested anonymity.

The debt problem is concentrated in economic hubs. Thimphu hotels, catering to business travelers and international tourists, face 950 deferred accounts totaling Nu 16.17 billion. Chhukha, an industrial center, has 673 accounts with Nu 4.49 billion in outstanding loans, and Paro reports 134 accounts totaling Nu 3.04 billion. The concentration of debt reflects over-leveraging during a period when corporate travel and luxury tourism were assumed to be reliable.
“If hoteliers fail to repay their loans, it could set off a domino effect across the economy,” warns an economist. “Tourism supports hotels and a wide range of businesses. Rising non-performing loans would pressure banks, increase job losses in hotels and related sectors, and reduce government income from tourism.”

The Royal Monetary Authority has responded with a nationwide sensitization program to strengthen banks’ understanding of regulatory reforms. Ten dzongkhags have been covered so far, with all 20 expected by the end of September. The program educates banks on loan rescheduling and conversion, ensuring more transparent credit practices and sustainable lending.

The Hotel and Restaurant Association of Bhutan has proposed that the government cover four percent of loan interest through the Economic Stimulus Plan. Chairman Ugyen Tenzin said the proposal was shared with bank CEOs, citing unsustainable repayments caused by low occupancy and revenue.

The gap between tourist arrivals and hotel sustainability highlights a contradiction in Bhutan’s economic model. Rising government revenue contrasts with the private sector’s struggle to stay afloat. Pre-pandemic assumptions that tourism arrivals would provide steady hotel income have proven inaccurate, particularly under the high-value, low-volume approach, which relies heavily on affluent international tourists.

Stakeholders argue that urgent measures are needed to prevent continued stress. Options include temporary debt moratoriums, market diversification to attract tourists who stay longer, and potential revisions to the high-value policy to include mid-tier options. Improving infrastructure, such as highways linking Phuentsholing to Thimphu and Paro, could encourage longer stays and spread economic benefits more evenly.

The human toll is already evident. Hotel closures and downsizing have left thousands unemployed, illustrating the precariousness of relying solely on tourist arrivals. One hotel owner who requested anonymity said their business expanded before the pandemic, took a large loan, and saw occupancy fall sharply by 2023, leading to default and eventual sale of the property at a loss. Dozens of staff were left jobless. “We were told tourism would rebound by 2024, but the math never worked,” the owner said.

For policymakers, the challenge is clear. Tourism is central to the national economy alongside hydropower and agriculture. Yet without viable hotels to accommodate visitors, the sector risks undermining the very revenue stream it depends on. The disconnect between the high-value model and the reality on the ground demonstrates the need for a more nuanced approach, balancing visitor demographics, pricing, and local economic capacity.

As consultations continue, the balance between relief and responsibility has never been more critical. Hoteliers seek flexibility, while regulatory bodies emphasize prudent lending and repayment. With thousands of jobs at stake, the question remains whether Bhutan’s leaders can bridge the gap between tourist arrivals and hotel viability before the next wave of defaults triggers a deeper economic crisis.