Bhutan to graduate from being a Least Developed Country

Dawa Gyelmo

Secretary of Gross National Happiness Commission spoke to thethirdpole.net about what this milestone means for Bhutan

Bhutan is about to graduate from being one of the world’s Least Development Countries (LDCs), as defined by the UN.

The world’s 47 LDCs comprise about 880 million people – or 12% of the world population – but account for less than 2% of world GDP and around 1% of world trade. The UN decides membership of this category by looking at a country’s average gross national income, its human assets (for example proportion of undernourished population, under-five mortality rate and adult literacy rate etc.); and economic vulnerability (such as population, remoteness, natural disasters, instability of agriculture production and services exports among other factors).

Bhutan could be the first Asian country to graduate to developing country status since the category was established in 1971. Bhutan has largely achieved this by exporting hydropower as electricity to India, which contributes 20% of its GDP.

This has in turn led to better quality of life for people, including access to basic services, improved health and education, and more industry and business opportunities.

However, the negative environmental and social impacts emerging around Bhutan’s reliance on large hydropower continue to be a topic of hot debate.

Dawa Gyelmo sat down with the secretary of the Gross National Happiness Commission, Thinley Namgyel, to discuss what passing this development milestone means for the future of Bhutan’s environment.

Photo by Dawa Gyelmo

Dawa Gyelmo (DG): Is it a matter of pride or concern for Bhutan not to be classified as an LDC any longer?

Thinley Namgyel (TN): This is a major milestone in Bhutan’s socio-economic development journey and a matter of pride not only for Bhutan but also for all our development partners who have supported Bhutan. It is an indication of the successful implementation of our socio-economic development policies, plans and programmes over the past five and half decades.

Bhutan met the Least Development Countries (LDC) graduation threshold for Human Asset Index (HAI) and Gross National Income (GNI) for the second time, during the recent triennial review by the UN’s Committee for Development Policy (CDP) in March 2018. Bhutan is yet to meet the threshold for Economic Vulnerability Index (EVI). CDP will be recommending Bhutan’s graduation from LDC to the United Nations Economic and Social Council (ECOSOC) with 3+2 year transition period, with effective graduation date of 2023.

DG: How important has environmental preservation been in maintaining Bhutan’s growth?

TN: Conservation and sustainable utilisation of our environment is one of the four pillars of Gross National Happiness (GNH) – the other three being – sustainable and equitable socio-economic development; preservation and promotion of culture and tradition; and strengthening good governance.

The high priority accorded to environmental conservation has helped Bhutan maintain its pristine environment and it is one of the top ten-biodiversity hotspots in the world.

As a result, eco-tourism and trekking have contributed to economic growth, domestic revenues and employment generation in Bhutan. Further, environment preservation has also contributed towards clean, green run-of-the-river hydroelectricity generation, with the sector contributing about 18% of domestic revenues and 20 % of GDP.

DG: Will the change in status have an impact in the role of development and environment?

TN: Preservation of environment is the fundamental responsibility of all Bhutanese, as enshrined in the constitution, therefore, development will not be at the cost of environment degradation. We will continue to pursue a development path that is equitable and sustainable and further strengthens our environment, our culture and traditions and good governance.

DG: Does the GNH commission have a plan for what comes with the change of designation?

TN: With graduation from LDC category, we foresee withdrawal or reduction in Official Development Assistance (ODA) to Bhutan, which will have to be bridged by increased domestic revenues. In this respect, the 12^th five-year plan of Bhutan, which starts from July 1 2018, accords high priority to economic diversification, sustainable economic growth and job creation. Some of the major focus areas are: enhancing productivity and value chain in the agricultural sector; spreading tourism throughout the country and increasing spending per tourist; creating an enabling environment for the establishment of cottage and small industries; ICT enabled public service delivery etc.

It is with this background that Bhutan has asked the UN CDP for a 2 + 3 year transition period for LDC graduation coinciding with the implementation of the 12^th five-year plan.

DG: What does the future of environmental management look like for Bhutan? There have been initiatives to improve river basin management and  relook at hydropower, where do you see this heading?

TN: As mentioned above, environmental management will continue to receive high priority, irrespective of LDC graduation. The government has established a high-level hydropower committee to relook at how we develop our hydropower in the future with the aim of ensuring minimal social and environmental impacts from hydropower construction and maximizing returns.

DW: How does Bhutan plan to deal with not being an LDC any longer, considering the present debt situation?

TN: The IMF classifies Bhutan as a moderate risk country. Bhutan’s external debt is estimated to be about 99% of GDP by end of the current fiscal year 2017-18. Of the total external debt, 81% of GDP is on account of hydropower projects. Hydropower debts are self-servicing as earnings from hydropower are sufficient to meet debt-servicing obligations. Non-hydro debt availed by Bhutan are highly concessional, for example, the World Bank financing term is 1.25% interest rate with a 25-year repayment period. Also, non-hydro debts are mainly for infrastructure projects such as roads, urban development, rural electrification etc., which would directly or indirectly contribute to economic growth. Therefore, the present debt situation and our ability to service debt is not a major concern even if we are no longer an LDC.