Isolated Bhutan has one of the smallest, and poorest, economies in the world. Much of the population functions outside the cash economy; about 93% of the labor force lives by subsistence farming or herding. Agriculture and forestry together make up 45% of the country's GDP. Although the government has relaxed the emphasis on maintaining food self-sufficiency that characterized its most isolationist decade, 1988 to 1998, the country supplies most of its food needs through the production of grains, fruits, some meat, and yak butter. Services, with tourist-related business comprising a major share, account for a further 35% of GDP. By the mid-1970s, tourism had surpassed the sale of postage stamps as the chief source of Bhutan's limited foreign exchange revenue. In turn, since the completion the first mega hydroelectric project in 1988, power exports have become the leading source of a more comfortable hard currency position.
A series of five-year plans, initiated in 1961 and financed primarily by India, have begun to improve transportation, modernize agriculture, and develop hydroelectric power. Realization of several hydroelectric and industrial projects during the 1980s helped to increase industry's share of the GDP, and inflated overall GDP growth rates to 7.3% annually during 1985–90. A slowdown in government project investment in the early 1990s caused GDP growth to stabilize at an average of around 3%, although an upturn in economic activity in 1995 brought the rate back up to 6%, and 7.3% in 1998. In 1999, real GDP growth dropped to 5.5%, but recovered to around the long-term average of 6% in 2000 and 2001. Bhutan's extensive forests, mineral resources, and swift-running rivers offer great potential for future development, although preservation of the country's environment continues to rank high among the government's priorities. Concern over the environment has also led the government to impose a strict set of regulations on tourists, although they are no longer subject to strict quotas that in the past held tourists to 2,500 to 4,000 a year, and banned individual tourism altogether. In 2002, tourism had climbed to about 7,000 visitors a year.