Bhutan’s graduation from LDC to sleep on

“…the global economy downturn could defer the graduation”, says Economic Minister Loknath Sharma

By Sangay Dorji

Bhutan’s graduation from the UN’s list of the LDC (Least developed country) category was ratified during the 73rd session of the UN General Assembly held in December 2018 and Bhutan was set to graduate from LDC to DC (Developed Country) in December 13, 2023 having met the graduation criteria for the first time at the triennial review in 2015, Bhutan met the criteria again in March 2018, making it eligible to be recommended for graduation by the UN(United Nations) Committee for Development Policy (CDP).

However, Covid pandemic period and post-pandemic has stalled the global economic growth at staggering rate. “The economic downturn globally could defer the graduation”, said Economic Minister Loknath Sharma.
While Country like Bangladesh and Nepal has deferred their graduation year, Bhutan will also reassess the economic vulnerability before its graduation in 2023.

The graduation thresholds must be met for any two of the three criteria—Gross National Income (GNI) per capita of USD 1,242 or more, which is based on a three-year average, Human Assets Index (HAI) of 66 or more which looks at the level of undernourished population, under-five mortality rate, adult literacy and gross secondary enrollment ration; and Economic Vulnerability Index (EVI) of 32 or below which looks at natural disasters, remoteness, goods and services exports and agriculture production—in two consecutive triennial reviews.

While Bhutan easily meets two of these three criterions, economic vulnerability index remain a challenges. Bhutan’s GNI per capita is USD $2,941 and the HAI score has improved rapidly and stood at 72.9 at the time of the CDP’s triennial review in 2018 and 77.5 in 2020 which constitutes further improvement by 0.9 score points since 2019.However, Bhutan has not been able to meet the EVI criterion, giving cause for concern about whether its economic vulnerability can improve after graduation. The EVI stood at 35.4 in 2020.
According to Lynpo Loknath Sharma due to the third criteria that is economic Vulnerability Index the country’s graduation from LDC to DC has to be re-assessed.

He said, “Economic Vulnerability is very high due to pandemic and economic recession and with this inflationary factor Economic Vulnerability is propelled in the critical stage”

A significant recession which is widespread and persistent downturn of economic activities and on the other hand, a surging inflation which has lead to rise in the prices of goods and services across the economy. These have converged to effectively eroding purchasing power for both consumers and businesses which is an important factor to consider economic Vulnerability of a country.

He further added that before country graduates from LDC to DC the government will reassess the economic Vulnerability which is not conducive and comfortable at the moment.

Though, the country’s graduation from the LDC category is inferred to nation’s economic strength, resilience to different financial shocks, and level of social and economic development. However, Bhutan will lose specific trade benefits and entitlements after graduation from the group of LDC.

He further said, “Although we are all set to graduate next year but it’s important to know that Bhutan will lose its LDC incentives and specific trade benefits and entitlements so, before we finally graduate from LDC to DC, the government will reassess and come to the decision.

Bhutan currently is leveraged for inclusion in LDC- with 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 as in European Union (EU) and Japanese markets.

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