Bangladesh’s robust graduation from the list of LDCs (Least developed countries) in the post-pandemic world will depend on the implementation of crucial long-term development strategies.
Least Developed Countries (LDCs) are defined by the United Nations (UN) as the most vulnerable members of the international community, having low incomes and facing severe structural and physical obstacles to their long term economic and social development. The category was first advocated in 1964. During the second UN Decade of Development in 1970, countries that required special attention and support measures to facilitate their socioeconomic development were explicitly recognised as LDCs. The Committee for Development Planning (CDP) proposed an initial list of 25 LDCs based on criteria that included low per capita GDP, low shares of manufacturing in GDP and low human capital development. The list was approved by the Economic and Social Council and endorsed by the General Assembly in November 1971.
The current list of LDCs comprises 46 countries. Despite three successive UN Conferences on LDCs, most of these countries struggle to meet the internationally agreed development goals and face enormous social, economic, political, and environmental challenges. Overcoming these challenges is a monumental task, evident from the fact that only six countries have graduated from LDC status since its inception.
With the rapid increase in Bangladesh’s per capita Gross National Income (GNI) and the significant progress in critical socioeconomic indicators, Bangladesh is seemingly among those countries that have successfully met the criteria for graduation. However, to ensure robust graduation, greater attention needs to be paid to address many of the structural and other challenges that Bangladesh continues to face despite its strong growth performance and progress so that Bangladesh can harness the benefits from achievement.
CRITERIA FOR IDENTIFYING AS AN LDC
LDCs hold specific characteristics which distinguish them from the rest of the world. These characteristics give a complete picture of the strength of the country’s economy and its population. There are three significant dimensions based on which a country is identified as an LDC, but under these three criteria, several indicators have specific weightage. The dimensions include-
- Gross National Income (GNI) per capita
- Human Asset Index
- Economic Vulnerability Index
The country’s total national income is averaged to give a picture about the per head money in hand. According to the 2021 review, countries with a three-year average GNI of USD 1,018 and below were identified as Least Developed Countries. However, a higher GNI does not reflect anything about inequality in the economy.
On the other hand, the human assets index considers the percentage of the population undernourished, the mortality rate for children aged five or under, gross secondary enrolment ratio and adult literacy rate. The original indicator values are converted into indices that have a value ranging from 0 to 100. According to the 2021 review, if a country has a HAI value of 60 or below, it shall be identified as an LDC.
Economic Vulnerability Index is calculated through two major indices comprising several indicators. These indicators are merged and converted into indices whose values range from 0 to 100. Scores are calculated on a ‘the more the value, the more stable the economy’ basis. To be identified as an LDC, a country must have a minimum score of 36.
However, contrary to popular belief, the graduation thresholds do not start right after the benchmark where LDCs end. To graduate, an LDC must pass thresholds of any two criteria in two consecutive reviews. Graduation becomes effective after a transition period (usually three years). After graduation, partners are not allowed to withdraw LDC support abruptly.
GRADUATION PROSPECT AND PATHWAYS FOR BANGLADESH
At its 76th session, the United Nations General Assembly finally approved the resolution to allow Bangladesh to graduate to the developing country group. Bangladesh is now scheduled to become a developing country in 2026 officially. The UN committee recommended that the country get five years, instead of three, to prepare for the transition due to the impact of the COVID-19 on its economy. The progress, in this case, was praiseworthy. The UN CDP has found a substantial fulfilment of all three required conditions for graduation twice in a row.
Although Bangladesh is hopeful for smooth graduation, a couple of new challenges might come up, thus hindering the smooth progress. As an LDC, Bangladesh receives preferential treatment, which will no longer be available upon graduation, thus driving down our previous export facilities. The withdrawal of Duty-Free-Quota-Free treatment will put competitive pressure on Bangladesh’s exports; the tariff increase will result in an estimated export loss of around USD 2.7 billion.
The current list of LDCs comprises 46 countries. Despite three successive UN Conferences on LDCs, most of these countries struggle to meet the internationally agreed development goals and face enormous social, economic, political, and environmental challenges.
More than that, Official Development Assistance (ODA) still plays a significant role for Bangladesh, particularly in infrastructure and capacity building. But many development partners are shifting their priorities and modalities in the light of macro-economic and social progress achieved in the country, which results in a gradual increase of loans and decrease of grants. Concessionary financing from the IDAs and multilateral assistance with special benefits will not be available after having MIC status. Graduation from the LDC category will nearly double Bangladesh’s assessed contribution to the United Nations regular budget and other UN-related organisations, operations, funds, and programs. In contrast, the fund support for scholarship and fellowship in special training programmes, meetings, and workshops that we currently enjoy will be withdrawn.
BENEFITS
Despite the challenges mentioned above, graduation shall bring certain benefits for Bangladesh. The first benefit will be increased involvement with the World Bank as clients, shareholders, and global actors. The World Bank provides increasingly tailored services like financial products, knowledge and advisory services to support middle-income countries in their global roles.
The MIC status of Bangladesh will allow the country to borrow more in a loan from the World Bank. The higher income status implies paying off the loan it borrows. It can be utilised to boost the development progress of the country. Last but not least, specific markets which were inaccessible to Bangladesh will now be accessible to it because of its higher income status, opening previously unavailable opportunities in the domestic and foreign markets.
MEASURES REQUIRED
The Government of Bangladesh has a solid track record of prudently managing its public debt and debt service payments. However, there is a risk that the foreign debt burden of Bangladesh may increase due to the phasing out of these concessional facilities that Bangladesh has been enjoying as an LDC. Debt management should be thoroughly studied and analysed to adapt to future changes. Side by side, the current strategy of prudent utilisation of concessional bilateral and multilateral borrowing should be emphasised.
Bangladesh will also have to take initiatives for the exporter and manufacturer to support them during and after the graduation from LDC. The business groups should estimate the probable cost of losing the current facilities. Relevant ministries may consider preparing a clear exit plan or policy which includes every aspect related to the LDC graduation.
Bangladesh must provide access to various financial services and products that support private investment in new economic activities. A diversified, well-regulated, and inclusive financial system should promote savings and channel them into productive investments. On the revenue side, policies must broaden the tax base and strengthen direct taxes.
There is also a need for stepping up global partnerships to support the development initiatives of Bangladesh and for bringing about a fresh impetus for implementation of the international action programmes for minimising the challenges of LDC graduation.
Bangladesh needs to prioritise future strategies given the smooth transition from LDC. The focus should be given to longer-term development. A smooth graduation strategy should include industrial policies that enhance production capacities and raise the competitive strength of Bangladesh’s economy. Addressing product and market diversification, rural development and gender inequality will be critical to Bangladesh’s graduation. At the same time, mobilising domestic resources should be prioritised. Sustainable post-graduation will depend on maintaining the past momentum. So, meeting the statistical eligibility for graduating from LDC should be not where our goal stops. Keeping the momentum to ensure a more secure future should be the target.
