Bhutan is set to graduate from the Least Developed Countries status in December 2023 based on the 3 criteria of per capita income, human development assets (education, health) and vulnerability and 14 indicators under them.
However, if one takes a closer look everything is not hunky dory as Bhutan graduates as a special self critical United Nations Committee for Development Policy (CDP) report from 2018 called ‘Vulnerability Profile,’ coined a term called the ‘Bhutan Paradox’ around Bhutan’s graduation which means that while Bhutan is meeting all the indicators for graduation, it does not take into account Bhutan’s unique vulnerabilities which is complex and costly.
There are also big questions over whether the 3 criteria and 14 indicators under them for graduation is suitable for Bhutan’s unique situation.
The report says while the rising per capita income indicator indicates higher living standards and shows the growing capacity of the country to pursue development efforts with less external support, in reality Bhutan’s higher per capita casts no light on income distribution or structural economic transformation.
It says the indicator is only partially suited for measuring progress or non-progress.
The rising adult literacy performance indicator is interpreted as significant progress in human assets, it is however difficult to know how soon this will translate into a capacity to achieve deeper structural economic transformation.
The one criteria which accurately reflects Bhutan’s fragile nature is population. CDP takes the view that, the smaller the population, the more difficult it is for the country to develop productive capacities and increase resilience to shocks: the smaller the nation, the more economically vulnerable the country.
The report says, “By postulating that smallness means vulnerability, one portrays Bhutan, the 7th smallest LDC with a population under 1 million, as a vulnerable economy. Given the scarcity of Economic and Environmental Vulnerability Index (EVI) components offering a fair measurement of Bhutan’s fragility, the postulate of smallness indicating vulnerability serves a sound purpose.”
In terms of the indicator of Geographical distance to main markets the report says, ‘With 10% less remoteness than other LDCs taken on average, and despite its land-lockedness, Bhutan is erroneously portrayed as a geographically less handicapped economy.’
It says this is a static indicator of little relevance to the measurement of progress or non-progress.
Bhutan has done well in the indicator ‘Proportion of people in low-lying coastal areas,’ but here the report says, ‘As a land-locked country, Bhutan is by definition accounted for as a non-vulnerability case. A built-in denial of the handicap of land-lockedness.’
Here too the report says the indicator is irrelevant to the measurement of progress or non-progress in a land-locked country.
For the indicator of ‘Share of primary sectors in GDP,’ the CDP takes the view that the larger the share of primary sectors (agriculture, forestry, fisheries) in GDP, the greater the exposure of the economy to physical shocks, notably natural disasters.
However, with agriculture and forestry accounting for a smaller share of GDP than the average for other LDCs (by 42%), Bhutan is portrayed by this indicator as a country less exposed to natural shocks.
‘Yet one knows that Bhutan’s agricultural production has been unstable more than that of other LDCs by 57% on average. The relative economic smallness of the primary sector, beside underestimating Bhutan’s rural economy, dampens the significance of the sizeable instability of agricultural production,’ says the report.
It says the indicator little suited for measuring progress or non-progress.
It says Bhutan is portrayed as a relatively diversified economy but whether this is synonymous with greater resilience or lesser vulnerability in Bhutan remains debatable.
In terms of the indicator ‘Proportion of victims of natural disasters in the population,’ though acutely exposed to a range of natural threats, Bhutan has had a ratio of disaster victims considerably lower than that of other LDCs taken on average of 67% over the past decade. It says, however, this indicates a relative underestimation of the economic damage caused by natural events in Bhutan, where limited human suffering may hide substantial economic losses after disasters.
The report says that Bhutan, with the highest agricultural production instability among Asian LDCs and an index score higher than that of other LDCs by 57% in recent years, Bhutan stands out as the only potential graduation case with only two EVI components (smallness, agricultural instability) giving indications of lasting vulnerability.
It says Bhutan’s vulnerability is relatively underestimated. At the same time, fulfilling the costly resilience building policy objectives of RGoB despite the fragile financial base of the country is a major challenge for Bhutan if the loss of LDC status entails lesser concessionary support from development partners
However, while this report pointed to the inherent weaknesses of the Bhutan and criticized the indicators as either not being relevant to Bhutan or not sufficiently measuring Bhutan’s vulnerability, it seems to not been taken into account as that would mean changing the indicators, showing the deep and actual vulnerabilities of Bhutan and also changing the measurement system for graduation.
The findings above show Bhutan is still deeply vulnerable and how the current 14 indicators are not suitable enough to bring out Bhutan’s unique situation and especially so for the 8 indicators to do with EVI leading to the ‘Bhutan Paradox,’ giving the impression that Bhutan is ready to graduate when in reality it is still very vulnerable.
The inadequacy of the 14 indicators is a well known issue in the UN and in fact acknowledged by the UN Secretary General and UN bodies. This is why there is pressure from many LDC countries to come up with the Multi Vulnerability Index (MVI) to fully measure and recognize the vulnerabilities of LDC countries.
Unfortunately, since Bhutan is graduating based on the current index in December 2023 even if the MVI does come in the future, Bhutan will not benefit from it.
Graduation from LDC status means less priority for grant, possibly higher financing costs with no LDC discount, non access to LDC specific funds or projects, no special LDC trade concessions and no funding of trips by UN for UN events like the General Assembly or other scholarships. The UN says there will possibly be minimal impact on Bhutan for graduation but this assumption is based on the 14 flawed indicators in the first place.