Bhutan has requested the United Nations to consider its graduation from Least Developed Countries (LDC) in 2023 instead of 2021 stating that it is in the country’s interest to graduate after the conclusion of the 12th Plan.
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 Committee for Development Policy (CDP).
According to the UN framework, a country graduates from the LDC category three years after the General Assembly takes note of the recommendation of the CPD. In this three-year period, the country remains as LDC and continues to benefit from special support measures to ensure smooth transition.
This means that a deadline for graduation will officially be fixed next month during the UN general Assembly. On March 15, this year, the CPD, Professor Jose Antonio Ocampo announced the country’s eligibility and recommended for graduation.
Gross National Happiness Commission secretary, Thinley Namgyel said that only after the General Assembly, the country would be able to know as to when it will graduate. “Nothing is decided yet,” he said.
He however, said that the country has requested to consider 2023 as the graduation year as it is the end of the 12th Plan. “The 12th Plan will ensure smooth, successful and sustainable transition.”
LDCs are defined as “low-income countries suffering from severe structural impediments to sustainable development.”
The assessment is based on three criteria – gross national income (GNI) per capita, human assent index (HAI) and economic vulnerability index (EVI).
The thresholds for the three criteria for graduation are a GNI per capita of USD 1,242 or more, which is based on a three-year average; a HAI score of 66 or more; and an EVI score of 32 or below.
A country becomes eligible for graduation if it meets the threshold levels for graduation for at least two of the three criteria during two triennial reviews. It also becomes eligible for graduation under the income only rule if its GNI per capita exceeds at least twice the established threshold regardless of its HAI and EVI scores.
While Bhutan easily meets two of the three criterions, economic vulnerability index remain a challenges. Bhutan’s GNI per capita is USD 2,277 and the HAI score improved from 45 in 2000 to 67.9.
HAI is based on indicators of nutrition, mortality rate, education and literacy rate. EVI is however based on multiple factors like population size, export of goods and services, share of primary sector to the economy and agricultural production.
In an earlier interview with Kuensel, foreign secretary, Sonam Tshong, said that this is the ultimate purpose of development. While the graduation only comes as a recommendation, he said that it is the nation’s aspiration to improve the lives of its people.
He had then said that the graduation, if it happens by 2021 is significant as it coincides with the 50th anniversary of membership to the UN.
Why 12th Plan?
The last mile of the country’s journey towards LDC graduation, which is the 12th Plan, is expected to prove that economic growth is possible without destroying the country’s environment and culture while ensuring a good governance system.
The Prime Minster highlighted this while launching the framework of the 12th Plan in March this year.
The 12th Plan emphasises building economic resilience and productive capacity, one of the parameters that the country is lagging in. GNHC officials said that the 12th Plan has a transition strategy.
About 30-35 percent of the country’s total capital expenditure today still financed through external grants and borrowings.
Government expenditure accounts for about 40 percent of GDP with high levels of expenditure on social sectors such as health, education and communications. A substantial portion of the capital expenditure is sustained through bilateral and multilateral official development Assistance (ODA).
In the 11th Plan, more than 55 percent of the budgetary expenditure constituted ODA compared to 100 per cent in the first five-year plan. The growth in the overall resource has been supported by a combination of large inflows of grants and increasing domestic revenue.
However, a major chunk of ODA is through bilateral arrangement such as GoI and Japan, which is still expected to continue after even after graduation. India provides more than 80 percent of the grant inflow. ODA currently comprises 10 percent of GDP.
In the 12th Plan, ODA grant is projected to drop by 20 percent.
Building a resilient economy and increasing productive capacity is high on the national agenda and has been identified as key priorities in the 12th Plan. But this requires significant investments. For instance, the government estimated in its 2013-14 budget that 85 percent of the capital expenditure would be financed through foreign grants and aids.
The UNCTAD Vulnerability Profile Report also echoes this calling it the “Bhutan paradox.” The reports asserts that while, transformational progress is visible in Bhutan, making it a prime candidate for graduation, yet the risk of losing LDC treatment arises at a time when the resilience-building agenda of the country to alleviate its unique vulnerabilities is complex and costly.
Concessional loans is projected to remain unaffected since multilateral financial institutes like World Bank already treats Bhutan as a middle income country due to it per capital income, which is their basis of lending rates.
However, a bigger concern is that Bhutan has not developed its capacity to date to pay off its debt which is already touching Nu 200B.
On February 1 this year, the GNHC secretary made a presentation on the second triennial review in New York highlighting the need to ensure sustainable graduation through economic diversification and resilience.
It was highlighted that low productive capacity of the country and the economy’s dependence on hydropower is causing low level of diversification. Trends show that commissioning of hydropower projects is followed with spikes in GDP growth but does not create the desired number of employment. This also indicates the predominant role of hydropower in the economy rather than actual structural transformation.
On the trade front, narrow range of export is a concern. The country’s top ten export commodities constitute more than 80 percent of its exports. The market is again concentrated in India dictated by the price volatility and inadequate infrastructure to facilitate trade.
Ferrosilicon, steel, cement, calcium carbide, silicon carbide, cardamom, dolomite, and gypsum are the top ten exports. The CPD’s discussion in early March this year also highlighted that disruption in the demand and supply of any of these products would have detrimental impact on the overall economy.
Instability in agriculture, one of the parameters to gauge the EVI, is mired in human wildlife conflict, adverse affect of climate change and low productivity. While the sectoral share of agriculture to GDP has decreased from 43 percent in 1980 to 17 percent in 2015, 57 percent of labour force is still dependent on the sector.
Given these challenges, the presentation made by the GNHC secretary had stated that the standard transition period of graduation, if the general assembly recommends this year, falls between 2018 and 2021.
However, with the country’s transition strategy being planned in the 12th Plan, which ends in 2023, the country has requested the UN to support its last mile.