Bhutan, the magnificent landlocked nation in the Himalayas, marks an extraordinary milestone at the end of 2023, officially graduating from the United Nations' list of least developed countries (LDCs). This achievement highlights the country's impressive development trajectory over the past five decades and celebrates its progress in alleviating poverty and promoting sustainable development.

Bhutan's journey towards graduation presents important lessons for other LDCs, especially the small and landlocked LDCs in Africa, which are far behind in meeting the criteria for graduation.

Bhutan Joins the 'Graduates'

Bhutan's progress marks the seventh nation to graduate from the LDCs category, which was formally established back in 1971. This notable advancement has followed in the footsteps of other graduated economies, including Botswana (1994), Cabo Verde (2007), the Maldives (2011), Samoa (2014), Equatorial Guinea (2017), and Vanuatu (2020). This transition drops the count of LDCs to a total of 45.

To achieve graduation, a country needs to meet pre-defined criteria on income, human assets, and economic and environmental vulnerability.

Bhutan was recommended for graduation from the LDC category by the Committee for Development Policy (CDP) at its triennial review in March 2018, having met the graduation thresholds for the Human Assets Index (HAI) and income (GNI per capita) in 2015 and 2018.

The UN General Assembly approved the CDP recommendation in December 2018 and the UN Economic and Social Council (ECOSOC) in July 2018. Bhutan was granted a five-year preparatory period to align its graduation with the implementation of its twelfth national development plan, 2018–2023. The thirteenth development plan serves as the smooth transition strategy of the country.

Bhutan's Remarkable Journey

Since the 1980s, Bhutan has shown significant progress, with an average annual real GDP growth rate of 7.5% and life expectancy jumping from 47 to 68 years. Impressively, essential health care services cover up to 95% of the population. Alongside, Bhutan stands as one of the only three carbon-negative countries worldwide, absorbing more greenhouse gases than it produces.

Bhutan's crowning achievement comes from its people-centred, holistic development approach. The nation has fortified its institutions, diversified industries, and fostered an environment ripe for investment and business growth.

In addition, UNCDF has been instrumental in supporting Bhutan's financial sector by extending technical assistance to the country's central bank and helping expand financial services to remote areas. This support has been particularly useful in complementing Bhutan's development trajectory.

Challenges Beyond Graduation

While graduation from the LDC's list is a monumental achievement, it comes with its own set of challenges. Post-graduation, Bhutan will require further reforms to ensure synergies and coherence across its foreign direct investment, industrial, and entrepreneurial policies.

Given Bhutan's moderate levels of debt distress currently, focusing on developing finance and risk mitigation strategies will be crucial. UNCDF's expertise in financial inclusion and public finance management reform can help Bhutan address these challenges by sharing best practices and providing technical support in these areas.

The country's graduation coincided with the end of implementing its 12th five-year development plan, aimed at cultivating lasting progress.

Nevertheless, Bhutan's graduation does not guarantee the entire economy's transformation. Risks, such as diminishing trade preferences and exposure to external economic shocks, may undermine the country's diversification efforts.

Building momentum after graduation

A key partner in Bhutan's development journey, the UN Capital Development Fund (UNCDF) has cooperated with the nation for over four decades, starting in 1979. UNCDF's interventions have evolved over time, beginning with a focus on infrastructure and agriculture before transitioning towards fiscal decentralization, local governance, and most recently, inclusive finance.

UNCDF remains committed to supporting Bhutan as it navigates the complexities of its post-graduation phase. The continued collaboration can help ensure that Bhutan fosters sustainable and inclusive growth, leveraging and expanding the gains made during its time as an LDC.

As part of its commitment to Bhutan, UNCDF is implementing the Local Climate Adaptive Living Facility (LoCAL) programme. This initiative enables local governments to cope with the increased costs of building climate change resilience and sustainable adaptation to natural disasters.

Thanks to the programme's performance-based climate resilience grants and effective monitoring of climate change expenditures, technical and capacity-building mechanisms are underway. These mechanisms include support for adaptive land use planning, drainage and water management, implementing climate-resilient building regulations, retrofitting infrastructure, building roads and bridges, and more.

One of the most notable achievements in recent years is the Bhutan Trust Fund for Environmental Conservation's (BTFEC) accreditation as Bhutan's first National Implementing Entity (NIE) of the Green Climate Fund (GCF) in 2020. With assistance from the Swedish International Development Cooperation Agency (SIDA) and the EU's Global Climate Change Alliance Plus Initiative, UNCDF played a crucial role in supporting BTFEC during the application process.

The Bhutanese government remains committed to continuing its successful partnership with UNCDF, focusing on further enhancing the country's development and growth after its graduation from LDCs. The collaboration's ongoing efforts will ensure that Bhutan remains resilient while progressing towards a more sustainable and inclusive future.