According to senior officials, Bhutan is on its way to graduating from the Least Developed Countries status by June 2023. Officials from the Ministry of Finance stated that the country will graduate by June 2023 even after much damage done by the pandemic. To be able to graduate, the countries are expected to follow a smooth transition strategy. Macroeconomic stability, product space diversification, and disaster resilience are some of the parameters recommended for inclusion in Bhutan’s transition strategy.
Officials further informed that a change in the LDC status will not affect Bhutan’s foreign aid support. The impact of graduation will mainly be seen in three LDC-specific international support measures (ISM) 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 benefits from LDC-specific preference schemes granted by developed countries under the Generalised System of Preferences (GSP) scheme, which provides for tariff exceptions, and duty-free and quota-free (DFQF) market access such as in EU and Japanese markets.
LDCs are also provided with flexibility for required commitments for World Trade Organisation (WTO) accession.
“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 informed.
Having said that, Bhutan will be excluded from the priority group of the GCF. Officials also said that graduation will not affect the country’s contributions to the UN’s regular budget. However, there won’t be any benefits of LDC for travel assistance provided by the UN and some of its agencies to participate in official meetings.
LDC graduation clearly indicates that there has been an improvement in social and economic performances of the country and is therefore considered a stable environment for foreign direct investments.
The fulfilment of the three graduation criteria means that the country has a healthy socio-economic ecosystem and enhanced creditworthiness. Officials from the finance ministry said that the country would not be dependent on donor funding for its development needs which means the government has 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 organisations will enhance.”
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. The GNI threshold for LDC status stands at $1,230 as of 2018.
The threshold for 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 (GDP); remoteness and land-lockedness; merchandise export concentration; 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 per cent below the inclusion threshold of 32 or below. To be able to graduate out of LDC status, a 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.
There are 46 countries that come under LDC status as of now. Nine of them are in Asia, including Nepal, Bangladesh, Myanmar, and Nepal among others.
