WTO | Bhutan - Graduating from the LDC category

Ambassador Tenzin R Wangchuk is Bhutan's Permanent Representative at the WTO

Can you tell us a bit about Bhutan's graduation process?

Bhutan's transition began in the 1960s when it embarked on a path of modernization and planned development, moving away from its heavy reliance on agriculture. In the decade that followed, with India's support, it invested a lot in infrastructure – roads, schools and hospitals - to achieve socio-economic goals.

Bhutan has followed a unique development path, guided by the concept of "Gross National Happiness". It has prioritized the well-being and happiness of its people over economic growth. This means its development policies have prioritized sustainable development, cultural preservation, environmental sustainability and good governance. This emphasis on renewable energy, organic agriculture and biodiversity conservation has helped to protect Bhutan's natural resources and contributed to economic growth.

Since the 1960s, Bhutan has promoted economic diversification, focusing on hydropower, tourism, manufacturing and information technology. Ongoing investments in infrastructure, education and healthcare have also played a crucial role in improving standards of living and the quality of life in Bhutan. Bhutan's political stability, good governance and low levels of corruption have also contributed to fostering sustainable development. Perhaps because of these reasons, the country has been able to achieve economic growth at a fast pace.

Of course, every country has different social, economic, geographical and political circumstances, and what has worked in Bhutan may not necessarily work in another country.

What are some of the steps that Bhutan has taken to support a smooth transition?

In the last five years, Bhutan has focused on stabilizing its macroeconomic environment. It has focused on mobilizing domestic resources by reforming and expanding its taxation system. It has put in place monetary incentives to encourage people overseas to send remittances to enhance the country's foreign currency reserves.

As well as promoting investment in manufacturing sectors with high export potential, such as the production of ferrosilicon, Bhutan has invested in the hydropower sector and other renewable energy, including solar and wind, with a view to achieving greater energy generation. It has also reinvigorated its tourism sector to maintain Bhutan as a high-end tourism destination.

Recognizing trade and foreign direct investment as an engine of growth that creates better jobs, reduces poverty and increases economic opportunities, Bhutan aims to increasingly integrate into regional and global trade. It is pursuing bilateral trade agreements with some of our trading partners. For example, it has signed the Framework Agreement on the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Free Trade Area, which brings together seven South Asian and Southeast Asian nations, and the South Asian Free Trade Area (SAFTA) Agreement, which has eight member states. It is also seeking to join the WTO.

What are some of the challenges that Bhutan has faced?

One of the lessons from the COVID-19 pandemic is that small economies like Bhutan are extremely vulnerable to external shocks. COVID-19 severely affected Bhutan's economy and destroyed its tourism sector and other industries reliant on tourism. During the pandemic, Bhutan's economic growth dropped to -10 per cent. Its foreign currency reserves were depleted. The economic situation could have prompted Bhutan to defer its graduation from LDC status. However, Bhutan took a bold decision to go ahead with graduation and left the category in December 2023.

In the years preceding graduation, Bhutan had already seen the withdrawal of development assistance from some development partners. As a result, it had to increasingly opt out of loans from multilateral and bilateral financial institutions. Bhutan's public debt in October 2023 reached 134 per cent of GDP. While most of its debt is concessional, the appreciation of the US dollar against the local currency made repayment burdensome.

Currently, Bhutan is facing an unprecedented brain drain, as its young, educated people look for better opportunities beyond its borders. This is a matter of concern as these people cannot be replaced overnight.

Climate change is another major challenge that the country faces. The two main drivers of Bhutan's economy - agriculture and hydropower - are very sensitive to global warming. Urgent global climate action is needed.

What are some of the future prospects for Bhutan?

Bhutan is optimistic about the future. It aims to become a high-income country in the next ten years. This optimism is also drawn from its unique friendship with India. The two countries are continuously expanding the scope of bilateral engagements.

What advice would you give to other LDCs?

There is a continued need for the LDC Group to stick together and make their voices better heard. The challenges LDCs face are complex. These complexities are not necessarily reflected in the graduation criteria applied by the United Nations. Perhaps, it may be a good time to review the LDC graduation thresholds and parameters, with a view to ensuring sustainable graduation. I would like to wish members of the LDC Group swift progress towards a smooth graduation.