Page 67 - IBT December 2020

LDC Category If Bangladesh graduates, it will be one of the first FY21. In the downside scenario, a second wave of
Least Developed Countries (LDCs) are characterized South Asian LDCs to do so, and it is the first
by low levels of income and severe structural country to meet all three graduation thresholds of
impediments to sustainable development. The the LDC criteria. Debapriya Bhattacharya, a leading
category was established by the UN General Bangladeshi Economist, who began serving as a
Assembly (UNGA) in 1971 to acknowledge that CDP member starting in January 2019 noted that
special support measures are needed to assist the Bangladesh is characterized by a “double
least developed among the developing countries. transition” since, in addition to its expected
Currently 47 countries are part of the LDC category. graduation from the LDC category in 2024, it
Decisions on inclusion into, and graduation from, transitioned from a low-income country to a
the list of LDCs are made by the UNGA based on lower-middle-income country in 2015.
recommendations by the U.N. Committee for There is no denying the fact that graduation will
invite a number of new challenges. Important
Development Policy (CDP) that are endorsed by the T
U.N. Economic and Social Council (ECOSOC). The questions that merit attention, are related to the
CDP, a subsidiary advisory body of ECOSOC and possible impacts of graduation on the
composed of 24 members, analyzes the list of LDCs export-oriented readymade garments industry. The
every three years during triennial reviews to identify impact on the RMG sector in terms of its
countries that may qualify for inclusion into or competitiveness and performance; the implications
graduation from the LDC category. for the enterprises; what initiatives will need to be
There are two ways to become eligible for undertaken towards technological upgrading,
graduation: LDCs can either meet two out of three social compliance, labor standards and rights
graduation criteria or have a GNI per capita that is compliance, to address the post-graduation
at least twice the income threshold for graduation challenges.
(income-only criterion) in two consecutive triennial
reviews. Scopes and Repercussions
Since 1971, five LDCs have graduated from the LDC According to the World Trade Organization (WTO),
category, namely: Botswana, Cabo Verde, Equatorial LDC graduation will have the greatest impact on
Guinea, the Maldives, and Samoa. Five additional the exports of Bangladesh, which is estimated to
LDCs should graduate by 2024. Those are: Vanuatu see a decline by 14%. The report goes on to
(graduation in 2020); Angola (graduation in 2021); mention that Graduation from LDC status will
Bhutan (graduation in 2023), São Tomé and Príncipe eventually result in the loss of preferences received
(graduation in 2024); and Solomon Islands by the LDCs on trade deals negotiated with
(graduation in 2024). developed country members. Access to LDC-specific
preferences in regional trade agreements may also
LDC Graduation cease to exist. This impact will vary depending on
In March 2018, the CDP found that Bangladesh met the extent that graduating LDCs have used these
the criteria for graduation for the first time. If preferences. For some, the impact will be limited,
Bangladesh meets the graduation criteria for a while for others the likely impact may necessitate
%
second time, at the next triennial review in 2021, that the graduating governments identify effective
options to continue their integration into the
the CDP will recommend it for graduation from the
LDC category in 2024. global economy.
The C Word
Things were going pretty well for Bangladesh till
COVID-19 intervened in the first quarter of the
year. Due to the pandemic situation, growth has
fallen to 5.24%, export earnings dropped 16.93%
and import plunged by 8.56% in FY20.
If Bangladesh graduates, it Furthermore, Foreign Direct Investment inflow
will be one of the first South plummeted, in FY 2019-20 to $2.5 billion which
was $3.97 billion in the corresponding period of
Asian LDCs to do so, and it the previous FY. In the meantime, inflation has
is the first country to meet risen to 6.02% in June 2020 where the average
inflation of the FY was 5.65%. Unlike the other
all three graduation sector, private investment is also projected to
sharply decline to 12.72%.
thresholds of the LDC The World Bank predicts GDP growth in FY20 is to
criteria. be in the range of 1 to 1.6%, and 1.0 to -3.0% in
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Yeah No, Yeah.
COVID-19 infections and a prolonged global In case CDP review comes back with flying colors,
recession would result in the realization of some Bangladesh will need to pursue negotiations in
contingent liabilities, especially from the financial various fora, making allies with other graduating
sector. The recovery from the pandemic is expected LDCs, to secure their common interests in view of
to be very gradual, with some increase in export the emerging challenges. The country’s
demand and higher public spending amid potential policymakers will have to take a proactive stance in
economic disruptions and increasing fragilities in the WTO and lead the effort to design a package of
the banking system. supports sustainable graduation of the LDCs.
Bhattacharya, in his article for Daily Star writes, Already the idea of a package of support for
“Notwithstanding the immediate and visible adverse graduating LDCs has been mooted in various global
impacts of the COVID-19 contagion, all the three fora. The proposed package would have provided the
core LDC graduation criteria of Bangladesh will graduating LDCs and their apparels sectors a
most probably be above (or below) the required much-needed breathing space as they embark upon
thresholds. This projection is guided by the fact that their post-graduation journey.
the pre-pandemic scores had been high enough to Negotiating trade deals of their own is another idea.
withstand a certain level of erosion. Moreover, even South-South Cooperation is another possible option
if the country does not fulfil one of the criteria, it for Bangladesh. The country take the lead in
will still be eligible for graduation based on the two exploring the possibility of extending preferential
other criterions.” treatment under unilateral LDC schemes, such as
Therefore, it seems likely that, during the review in those run by India and China, for some years
February 2021, the impact of COVID-19 will not be following graduation. Indeed, China extended LDC
reflected in the available data for the assessment of preferential treatment to Samoa following its
graduation criteria of the LDCs. However, the graduation in 2014.
U.N.-CDP has recently adopted a broader assessment Bhattacharya has talked about the three pronged
framework as well as country-specific risk analysis, approach, which includes; Bangladesh campaigning
to make an informed decision. The candidate for a comprehensive agenda of transitional ISMs for
countries are entitled to put up their views in the graduating LDCs; the country has to develop and
written form, and CDP may also seek their advice implement a strategy which has to be in alignment
regarding the graduation process. It will be a with the Sustainable Development Goals (SDGs) of
country by country decision, including the one on 2030 Agenda and embedded in the upcoming Eight
Bangladesh. Five Year Plan (2021-25); and lastly engage the
institutional arrangement of the Bangladesh
But What About Us? government dealing with the LDC graduation.
LDC graduation will result in Bangladesh losing the Graduation from the LDC category is an important
preferential market access facilities enjoyed by the milestone for Bangladesh’s pursuit of development.
LDCs thanks to the various unilateral, and bilateral, The Graduation process is happening at a time when
regional and global initiatives. While the E.U. has the world is witnessing fundamental changes,
offered to extend the preferential market access for including in terms of rising nationalism, and that
an additional three years following graduation (i.e.
protectionist measures could create strong
till 2027 in case of Bangladesh), there is no denying disincentives for graduating countries. With so
that future market access scenario for Bangladesh much of our livelihood at stake, the government
will undergo profound changes in the coming years. needs to be on their own in case Bangladesh does
Bangladesh will face an increased tariff structure in emerge as a middle income nation.
destination markets after graduation compared to
the LDC duty rate. Thereupon, Bangladesh will also
lose the preferential market access for goods,
preferential treatment for services and service
supplies, special treatment regarding obligations
and flexibilities under WTO rules, IPR facility for
pharmaceuticals, official development assistance,
scholarships and other forms of financial support
for education and research, caps and discounts on
the contribution of LDCs to the United Nations
system budgets, capacity-building for participation
in negotiations, flexibility in reporting requirements
etc. In a nutshell, phasing-out of preferences may
substantially impact our economy along with the
post COVID-19 new economic order.