Bhutan on path to graduate from LDC



Bhutan is on track to graduate from the Least Developed Countries (LDC) group by June 2023, according to senior government officials. Officials from the Ministry of Finance said that despite the pandemic, the government decided that Bhutan will graduate by June 2023. As part of the preparation for graduation, countries are expected to implement a smooth transition strategy, to gauge the disruptions and ensure sustainable graduation. Bhutan’s smooth transition strategy will be integrated with the 13th Plan. Macroeconomic stability, product space diversification, and disaster resilience are some of the parameters recommended for inclusion in Bhutan’s transition strategy. The officials from the Gross National Happiness Commission (GNHC) said that preliminary formulation procedures have already begun for the 13th Plan. They also said that in addition, Bhutan has also received international support in conducting vulnerability and impact assessments which will inform the formulation of the 13th Plan with regard to the country’s graduation. GNHC officials also said that most of Bhutan’s foreign aid support will remain unaffected by the change in Bhutan’s LDC status. The impact of graduation will generally be in three LDC-specific international support measures (ISMs) related to international trade, development cooperation (ODA) and contributions to the funding of the UN system, support for travel to official meetings, scholarships and research grants. Bhutan currently enjoys inclusion in LDC-specific preference schemes granted by developed countries under the Generalized System of Preferences (GSP) scheme, which provides for tariff exceptions, duty-free and quota-free (DFQF) market access such as in EU and Japanese markets. LDCs also enjoy flexibility for required commitments for World Trade Organization (WTO) accession. Officials said that acceding to the WTO after graduation will entail Bhutan the full costs of assuming WTO obligations. ODA provided by different UN agencies will also continue and have arranged phase-out periods of certain years after graduation. “While graduation will have negative implications for access to the LDC fund created under the UNFCCC, Bhutan will remain eligible for the Green Climate Fund (GCF), Global Environment Facility (GEF) trust fund, the special climate fund and the adaptation fund,” an official said. However, Bhutan will be excluded from the priority group of the GCF. Officials said that graduation will not affect Bhutan’s contributions to the UN regular budget. However, Bhutan will not receive the benefits of LDC for travel assistance provided by the UN and some of its agencies to participate in official meetings. A GNHC official said that LDC graduation indicates improvement in social and economic performances of a country and is therefore perceived as a stable environment for foreign direct investment. The fulfilment of the three graduation criteria demonstrates a healthy socio-economic ecosystem and Bhutan’s enhanced creditworthiness. “Thus, graduation presents Bhutan with the opportunity to prioritize investments in our productive capacities of the economy and enhancing Bhutan’s global competitiveness,” the official said. Officials from the finance ministry said that the country would be not reliant on donor funding for the development needs which will enable the government to raise its own resources. “We will achieve greater self-reliance, especially in financing requirements,” the official said. “In the long run, Bhutan’s stature in the international organizations will enhance.” However, Bhutan could see a cut in the grant funding through donor funding. It’ll also have to fund even participation in the UN plans and programmes. “Bhutan could lose out on preferential trade negotiations and agreements,” the official said. The UN defines LDCs through an assessment of their scores for gross national income (GNI) per capita, the human assets index (HAI) and the economic and environmental vulnerability index (EVI) against graduation thresholds. As of the 2021 monitoring of LDCs conducted by the UN Committee for development policy, Bhutan has already fulfilled all three graduation criteria, including the reviewed criteria of Economic and Environmental Vulnerability (EVI). Officials from GNHC said that Bhutan currently has already met all the three criteria and also meets the income-only option as well almost three times the threshold. “Moreover, with the recent relaxations, economic activities are expected to resume momentum and contribute to the recovery.” The GNI threshold for LDC status stands at US$ 1,230 as of 2018. The threshold for the HAI which considers the prevalence of undernourishment, maternal mortality ratio, gross secondary school enrolment, adult literacy rate, and gender inequalities, is set at 66 since 2015. The EVI considers the share of agricultural production in the gross domestic product; remoteness and land-lockedness; merchandise export concentration; and instability of exports of goods and services; share of population living in drylands; instability of agricultural production and victims of disasters. Since 2018, the EVI graduation threshold is set at 10 percent below the inclusion threshold of 32 or below. For a country to graduate out of LDC status, it must exceed the graduation threshold for at least two of the above criteria in two consecutive UN Committee for Development Policy (CDP) triennial review periods.