Context

Bhutan is going to become the seventh nation to ‘graduate’ from the United Nations’ (UN) list of Least Developed Countries (LDC).

What is a Least Developed Country (LDC)?

• Least developed countries are the countries listed by the UN that exhibit the lowest indicators of socioeconomic development. 
• Indicators: low levels of income, human capital and economic diversification, high levels of economic vulnerability, and a population that is disproportionately reliant on agriculture, natural resources, and primary commodities. 
• The concept first originated in the late 1960s and was codified under UN resolution 2768.

Criteria for LDC designation:

A country is classified as Least Developed if it meets three criteria:

• Poverty: is an adjustable criterion based on GNP per capita averaged over three years. As of 2018, a country’s GNP per capita must be less than $1,025 to be included on the list and more than $1,230 to graduate from it.
• Human resource shortage: based on indicators of nutrition, health, education and adult literacy.
• Financial vulnerability: based on instability of agricultural production, instability of exports of goods and services, the economic importance of non-traditional activities, merchandise export concentration, a handicap of economic smallness, and the percentage of the population displaced by natural disasters.

How does a country get off the LDC list?

• Bangladesh, Laos, and Nepal were suggested for deletion from the list at the UN's triennial review of LDC nations in 2021.
• For a country to be removed from the status of least developed country, it must meet 3 criteria: 
  • A nation must have a GNI per capita of at least USD 1,242 for two consecutive triennial reviews
  • Improved its human capital, by using measures like education, health, and nutrition, in order to achieve the human assets requirement. 
  • Improved its ability to withstand external economic shocks like natural catastrophes or shifts in commodity prices in order to pass the economic vulnerability test.
• For these, country has to make concerted efforts to implement combination of policies, including promoting economic growth through investment in infrastructure, improving governance etc. 
• Global example: For example, Botswana achieved graduation in 1994 primarily due to its strong economic performance driven by its diamond mining industry and investments in education and infrastructure. 

How did Bhutan get off the LDC list?

• Socio-economic development: Bhutan has made remarkable progress on a variety of socio-economic metrics.
• Increased national income: Bhutan’s economy increased more than eight times in the last 20 years. It has average annual growth rate of more than 7 per cent. 
• Reduced poverty: percentage of people living in poverty decreased from 17.8 per cent in 2003 to 1.5 per cent in 2017. 
• Percentage of people living below the national poverty line decreased from 23.2 per cent in 2007 to 8.2 per cent in 2017.
• Higher exports: Bhutan has mostly accomplished this by increasing exports of hydropower to India, which now accounts for 20 per cent of its economy.
• The nation also established Brand Bhutan in an effort to diversify exports while acknowledging the modest size of its local market.

Advantages of being an LDC:

• Markets of developed countries: LDCs also enjoy duty-free and quota-free (DFQF) access to the markets of developed countries. Thus,  LDCs are not restricted by trade restrictions or tariffs when exporting their goods to wealthier nations
• Credit on Special terms: LDCs are also eligible for loans with special terms for development, which include loans with a lower interest rate and a longer repayment time than those given to other nations.