The last mile towards LDC graduation

While Bhutan is poised to graduate from a least developed to a lower middle income country next year, it still faces a multitude of challenges.

Lyonchoen Tshering Tobgay, speaking at the first day of the 13th Round Table meeting yesterday, said that while the country may make a leap and graduate, its economy and entire GDP is just USD 2 billion (B).

As the country’s small population is spread thinly across the country, the per capita cost for building infrastructure and the per capita cost for delivering services is much higher than it is in most other countries. This, for an economy of only USD 2B, is going to be a huge challenge, he said.

The cost of financing the planned development that is integrated with the Sustainable Development Goals in the next three Plans would cost the country an estimated USD 0.5B annually.

“To make matters worse, our economy is dominated by hydropower and subsistence agriculture. 27 percent of our GDP is trade deficit; and most of what we export is hydropower. Our current account deficit is 31 percent and, quite alarmingly, our debt to GDP ratio is at 116 percent,” he said.

Bhutan’s overall unemployment stands at 2.1 percent of the workforce. The latest unemployment results for youth indicate that 13.2 percent of young people are unemployed. “Because of the social progress that we’ve achieved and because our economy is still very shallow, we’ve not been able to create jobs that are required for our youths,” said Lyonchoen.

Fifty-eight percent of the country’s population depends on agriculture but only 2.93 percent of land is cultivable, which is barely 278,000 acres, making poverty a reality in rural Bhutan.

Today, 12.7 percent of the population is below the threshold for education, health and living standards defined by the multidimensional poverty index.

“So, we are vulnerable,” said Lyonchoen.

The assistant secretary general, assistant administrator of UNDP, director of the Asia Pacific region, Haoliang Xu, shared similar concerns. Haoliang Xu co-chaired the three-day Round Table Meeting with foreign minister Damcho Dorji.

He said that five mega trends that are likely to have  a profound impact on the Asia-Pacific region will impact Bhutan too.

A new world order with changes in the global balance of power and the roles that the USA will play in the world, the positions it will take on world affairs such as trade, the rise of China as with the operationalisation of the Asian Infrastructure Investment Bank, the potential for heightened regional tensions in different hot spots, the inevitable emergence of other major developing economies, are set to impact the course of development in the region.

The second is in the urbanisation and sustainable development sectors: With less than 50 percent of people living in cities, the Asia-Pacific region is just beginning to urbanise. But it is proceeding at a pace unprecedented in human history, adding some 44 million new urban residents each year. Efficient economic growth, greater economies of scale and better educational opportunities are suddenly possible, but inequity spikes and a nation is at risk of falling into an urban middle-income trap, locked in unsustainable patterns of consumption and production.

Third is climate change; the Asia-Pacific region is the most vulnerable in the world. Extreme weather events damage infrastructure and food production will hinder or reverse efforts to preserve ecosystems and to tackle poverty. While there are efforts to invest in renewable energy, urbanisation leads to greater, not less, pollution.

Fourth is rising inequality in the Asia-Pacific region, both in terms of income and opportunity, reflecting institutional weaknesses and social exclusion. Technological change, globalisation and market-oriented reform drive both rapid economic and rising inequalities. The rich will get richer fast. Poor access to education and health care will amplify inequalities faced by children. Migration from rural to urban areas will increase. Migration will come with greater inequality in urban areas.

The last is the Fourth Industrial Revolution. Whereas the Asia-Pacific region’s past economic booms have been driven by manufacturing, it will increasingly rely on robotics. This leads to temporary unemployment issues, especially due to automation in the work place. The increasing penetration of mobile internet access will open up new opportunities, but it is not clear whether or not these lines of access will translate into improved livelihoods for marginalised ethnic groups or the very poor.

Economic vulnerability is a major concern given Bhutan’s heavy dependence on hydropower.  Bhutan has a very high level of public debt. A financing gap will continue for the foreseeable future.

Bhutan’s geography is another source of vulnerability, as it cannot capitalise on economies of scale.  High trading costs lead to difficulties in diversifying the narrow economic base.

Bhutan sits in a seismically active zone, suffers from Glacial Lake Outburst Flood, and struggles to deal with climatic impacts from flooding to drought.

Bhutan is witnessing a youth bulge, youth unemployment, rapid urbanisation, continued issues of gender-based violence, and increasing pressure on the environment as development progresses.

As democracy in the country will be only 10 years old next year, more needs to be done in relation to Bhutan’s work around access to justice for all, which is a critical component of ‘leaving no-one behind’, Haoliang Xu said.

However, Lyonchoen said that the country is confident to overcome these challenges.

“I believe that we are on this last mile to overcoming our status as a Least Developed Country. To overcome our challenges, we need to continue to work hard; but we also need the generous support and guidance of our development partners,” said Lyonchoen.

He added that the last mile in development is represented by the 12th Five Year Plan, which begins in July next year.

The idea is, in five years, Bhutan will be able to achieve all her national aspirations. The first and foremost, Gross National Happiness.

“We need to prove to ourselves that economic growth is possible without undermining social progress, without compromising our culture and without destroying our environment. We need to prove to ourselves that development can be holistic, balanced, sustainable and inclusive… that we can achieve the targets that we have agreed to in the 2030 Global Agenda,” said Lyonchoen. “This last mile is not a sprint; it is a walk but a walk that will be conducted deliberately. In the mountains of Bhutan we know that sprints are of very limited use. We need to walk; we need to walk slowly; but we need to walk deliberately.”

Lyonchoen thanked the donor countries and agencies for increasing their contributions to Nu 68 billion from the initially committed amount of Nu 54 billion. He said Bhutan also benefitted from the assistance of UN agencies, the European Union, World Bank, and the Asian Development Bank.

“To help Bhutan’s young democracy to continue to flourish and deal with these challenges, Bhutan’s development partners need to stay engaged to support the government, which is fully committed to Bhutan’s development and wellbeing of its people,” Haoliang Xu said. “For the UN, we will continue to be Bhutan’s strong and reliable development partner.”

The country’s graduation from a LDC to Middle Income Country has come after drastic growth, the two leaders said. Planned modern development is new to Bhutan with the first Plan starting in 1961.

“In our case, guided by the wisdom of our beloved Monarchs and benefitting from the generosity and support and cooperation of our development partners, we have managed to scale our mountains rather successfully,” said Lyonchoen.

In the area of social development the country has achieved remarkable progress with free education and health care. In the past 10 years, the GDP in Bhutan has more than trebled. Per capita income has increased to USD 2,719.

Bhutan stands as a model to the world in the area of environment. While the Constitution requires 60 percent of land under forest cover, the recent Forestry Inventory shows forest cover is at 71 percent. More than 52 percent of the country is protected as natural reserves, national forest and wildlife sanctuaries are interconnected by biological corridors. Bhutan is a bio-diversity hotspot and the rich environment means that it’s also a carbon sink.

Some of the country’s biggest achievements have been made in the area of governance. The institutions of democracy – an independent judiciary, free and independent media, Anti-Corruption Commission, an independent Election Commission and CSOs are all in place.

The country has conducted two rounds of Local Government Elections and two rounds of Parliamentary Elections.

Despite all the socio-economic progress, Lyonchoen said that improving the GNH level is more important for the country.  GNH surveys of 2010 and 2015 show a slight but statistically important improvement of the GNH index from 0.743 in 2010 to 0.756 in 2015.

Representatives from the donor countries and agencies commended the country’s progress, especially on the integration of the Sustainable Development Goals in to the national development plans.

The Round Table Meeting, initiated in the early 1980s, is a forum for policy dialogue and aid coordination. The meeting allows donors and Bhutan to discuss common interests and issues, and to strengthen cooperation.

Tshering Palden 

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