Explained | Bhutan’s graduation from the UN list of Least Developed Countries Premium

When are countries categorised in the least developed countries list? How did Bhutan qualify for graduation from the list? What are the challenges facing Bhutan?

The story so far: “We are taking it with a lot of honour and pride, we are not nervous,” said Bhutanese Prime Minister Lotay Tshering at the United Nations Least Developed Countries (LDC) Summit that concluded on March 9 in Doha, Qatar. Mr. Tshering was referring to the fact that come December, the landlocked Himalayan kingdom of Bhutan will no longer be on the list of LDCs. It will become only the seventh country to graduate from the list.

The UN in the 1960s began to recognise some of the most vulnerable and disadvantaged countries in the international community, considering factors such as development capacity, socio-economic parameters, lack of domestic financing, and geographical location. In 1971, the UN officially established the category of LDCs to attract particular support for them.

Currently, 46 countries across Africa, Asia, Caribbean and the Pacific are categorised as LDCs. The LDCs host about 40% of the world’s poor. They account for 13% of the world population but for only about 1.3% of global Gross Domestic Product (GDP) and less than 1% of global trade and Foreign Direct Investment (FDI). Some countries on the LDC list are Burkina Faso, Senegal, Rwanda, Bangladesh, Bhutan, Nepal, Solomon Islands, and Haiti.

LDCs typically rely on agrarian economies which can subsequently be affected by a vicious cycle of low productivity and low investment, especially as wealthier countries develop and utilise more productive farming technologies. Generally, LDCs rely on a few primary commodities as major sources of exports and fiscal earnings, causing them to be vulnerable to external terms-of-trade shocks. Due to their geographies, some are more vulnerable to climate disasters or are landlocked, making maritime trade less feasible.

Countries classified as LDCs are entitled to preferential market access, aid, technological capability-building and special technical assistance, among other concessions and international support measures.

Inclusion in and graduation from the LDC category is based on three criteria: Gross National Income (GNI) per capita, Human Assets Index (HAI) measuring health and education outcomes, and Economic and Environmental Vulnerability Index (EVI). To be included in the list, a country must have an average per capita income of below $1,018, have low HAI scores and high EVI levels measured in terms of remoteness, dependence on agriculture and vulnerability to natural disasters.

However, there’s no automatic application process for graduation from the list. The UN Committee for Development Policy (CDP) conducts a review of the LDCs every three years and countries that reach the graduation threshold levels for two of the three criteria in two consecutive triennial reviews become eligible. As an exception, a country whose per capita income is sustainably above the “income-only” graduation threshold, set at twice the graduation threshold ($2,444 for the 2021 triennial review), becomes eligible for graduation, even if it fails to meet the other two criteria. After the CPD recommends graduation for an LDC, a preparatory period of three years, or more in exceptional cases, is prescribed through which the countries continue to receive benefits and assistance, after which it is phased out.