After successful culmination of parliamentary elections in 2008, the main challenge for Bhutan in the year 2009 was to set the pace for democratic institutionalisation. At the domestic level, the National Assembly of Bhutan witnessed heated political debates on a number of important issues, a development which is suggestive of democratic norms which Bhutan is set to embrace in the coming years. State funding for political parties was the most debated issue and continues to be so as both Druk Phuensum Tshogpa and People’s Democratic Party are mired in financial debt. Despite a robust growth rate of 8.1 per cent, the most significant economic challenge that confronts Bhutan is the outstanding external debt which stands at USD 694.74 million. Given the growing danger of glacial lake outburst floods, climate change is yet another issue, that is keeping Bhutan on tenterhooks. The signing of the Free Trade Agreement with Bangladesh in November and the successful conclusion of twelve agreements with India in December 2009 are indicative of Bhutan’s emerging confidence in engaging its neighbourhood. The overtures made to Nepal in March 2010 for signing a Preferential Trade Agreement is also a pointer to Bhutan’s enthusiasm for a more proactive foreign policy. This issue brief highlights the potential trajectory that the Himalayan country could undertake in the coming years by focusing on significant political, economic and foreign policy developments in the year 2009.