This chapter analyzes Bhutan’s productivity dynamics from 1990 to 2022, focusing on industry-level and aggregate total factor productivity (TFP) and capital and labor productivity. Hydropower plays a pivotal role in shaping Bhutan’s economic structure, driving substantial gains in labor productivity, especially after the commissioning of major plants. However, these gains have been offset by a capital productivity decline, leading to overall TFP growth stagnation. Despite hydropower’s importance in Bhutan’s economic expansion, its long-term contribution to TFP remains limited due to the capital-intensive nature of large-scale projects, which strains capital efficiency. The chapter also highlights productivity patterns in the non-electricity sector, where labor productivity gains are more prominent, but TFP improvements remain minimal. These findings emphasize the challenges of sustaining productivity growth in Bhutan’s hydropower-led economy and point to the risks of over-reliance on a single sector. A dual strategy is necessary: fostering internationally competitive industries that leverage hydropower while ensuring affordable and stable electricity supply to meet the expanding domestic demand. This approach is essential for achieving long-term sustainable economic growth.