The Committee for Development Policy (CDP) of the United Nation's Economic and Social Council (ECOSOC) is going for the second triennial review of Bangladesh's performance for LDC graduation during February 2021. Bangladesh was recommended for LDC graduation by the CDP during its first triennial review in 2018. If Bangladesh is recommended in this consecutive second review, the CDP will recommend Bangladesh's name for graduation. This recommendation will then be endorsed by the ECOSOC and taken note by the UN General Assembly and will finally be made effective in 2024.
Bangladesh's LDC graduation needs to be viewed from two perspectives: first, whether Bangladesh is eligible for graduation during the second review, and second, whether Bangladesh would be able to ensure smooth graduation after 2024.
Technically, three indices are used to assess the eligibility of a country to graduate: Per Capita GNI, Human Assets Index, and Economic Vulnerability Index. Studies carried out by Centre for Policy Dialogue (CPD) suggest that Bangladesh will most likely fulfill these criteria. Even its eligibility would not change considering the vulnerability caused to the country during the Covid-19 pandemic. In a conversation with the media, Dr Debapriya Bhattacharya, Distinguished Fellow, CPD indicated that Bangladesh would be technically eligible for graduation during this pandemic period. Thus, technical eligibility would not be a barrier for Bangladesh's graduation in 2024.
However, the most challenging aspect of LDC graduation for Bangladesh is the transition from graduating as a developing country. Experts suggest that Bangladesh needs to understand the challenges of being a developing country and to undertake appropriate measures to ensure smooth graduation. Although Bangladesh performs well in all three indices, its performance is weak in a number of indicators associated with the indices. Most importantly, its performance is in a vulnerable state due to structural weaknesses and Covid-related adversities.
These include human asset-related indicators such as child and maternal mortality, secondary school enrolment, and adult literacy. On the other hand, economic vulnerability related indicators include, among others, export concentration, share of agriculture and instability in agricultural production. Addressing the structural weaknesses and ensuring the smooth progression of these indicators would require significant investment by the public and private sector. As a graduating LDC, Bangladesh needs to undertake those tasks largely depending on its own resources, local and foreign direct investments, high-cost foreign borrowing and with limited international support measures (ISMs). All the above-mentioned resource initiatives would experience a major set-back in the post-Covid period and would slow down the process of smooth graduation afterwards. Thus, Bangladesh needs to take preparation not for graduation but for a smooth post-graduation period.
The Government of Bangladesh aims at graduating in due time. However, they should take necessary measures to counter probable challenges posed by the pandemic and should introduce policies to smoothen the graduation process. The political sentiment is the same in a number of other eligible LDCs such as Myanmar and Lao. The governments of these countries are also eager to graduate in due time despite facing difficulties with smooth graduation. That is, none of these countries want to postpone their graduation to a later period. The sentiment is understandable given that graduating from the LDC category is a matter of great pride for the people of these nations.
Bangladesh needs to be ready to operate without having different types of international support measures provided for an LDC. Most importantly, Bangladeshi exporters need to offer competitive prices to the brands and buyers without having the zero tariff or preferential tariff for all and a large part of its products in major export markets. Such price competitiveness will be most important to its major export markets such as EU, USA, Canada, Japan, India, China, Korea and Australia. This competition is most likely to happen with its main competing developing countries such as China, Vietnam and India and a number of LDCs such as Cambodia. Bangladesh's exports will not only face the same tariffs of those of developing countries, but also face higher tariff compared to that of LDCs and selected developing countries such as Vietnam and India who have signed FTAs and are in the process of negotiating FTAs with the EU and MERCUSUR countries. Therefore, the export basket has to be more diverse and production has to be more efficient. The government has to funnel resources into the private sector to make export more competitive.
The pharmaceutical industries need to strategise how it can be competitive in the domestic market without having the waivers of Intellectual Property Rights (IPR) under the World Intellectual Property Organisation (WIPO). Bangladesh's pharmaceuticals sector has the capacity to compete with low-cost imported pharmaceutical products. Although the export market is still narrow, similar capacity needs to be developed for local manufacturers towards that end. In this context, Bangladeshi investors may go for joint investment with foreign companies having patents of specific drugs. The negotiation is currently on to extend the waiver for graduating LDCs till 2032-- a facility they are entitled to enjoy as LDCs.
Bangladesh needs to get prepared for taking loans from the international market at commercial rate. The amount of outstanding debt will continue to increase in the absence of concessional loans. Bangladesh will have to borrow at a much higher rate after graduation. Given the higher debt burden of these financial resources, the pledges should be rationally justified ensuring maximum return, requiring timely utilisation and avoiding unnecessary delay in using those resources causing a higher debt burden. In this backdrop, Bangladesh needs to generate its own financial resources to undertake key activities under public investment. Enhancing internal resource mobilisation through raising tax and non-tax revenue will be a pertinent strategy to accomplish this goal. The government should introduce policies to attract increased volumes of FDI and prepare the internal business climate for such investments. Public sector reform is essential to reduce corruption and inefficiency in order to attract more foreign and local investment.
Bangladesh needs to improve its human and labour rights issues in order to continue enjoying preferential market access to major markets such as EU under the GSP/GSP plus as well as to sign FTAs with important countries. After graduation, Bangladesh will have to comply with international conventions to get preferential market access to the EU market. A total of twenty seven conventions are related with labour and human rights, anti-corruption, efficient and transparent public procurement. Compliance of these regulations will be a gradual process and Bangladesh needs to get prepared for this. In early 2020, the EU has indicated a 9-point amendment of laws and rules related to labour rights, EPZ labour laws, women harassment, child labour and functioning of labour courts etc., as part of Bangladesh's preparedness for market access in the future. The government has already initiated the process for necessary amendments and changes in a gradual manner.
Bangladesh's strategy for post-graduation period should be to become competitive as a developing country. Since the Covid-pandemic has caused major difficulties for the economy, the strategies need to be blended with international support measures as graduating LDC for a limited period of time during which major sectors would be prepared for operating without further assistance. To do so, domestic preparedness as well as the continuation of international support measures (e.g., access to markets, waiver facilities for pharmaceutical industries, easing the limits on subsidies etc) will be essential. In fact, most of the LDC graduating countries demand that the ISM should continue for another ten years considering the adverse effects of the Covid-19 pandemic.
Since ISM related issues are governed by different international authorities, Bangladesh should raise those issues to all those authorities. At the same time, Bangladesh should undertake a collective effort with other graduating LDCs to raise their demands. Bangladesh should play a lead role among the LDC countries during these negotiations.
At the domestic level, LDC graduation related policies and measures should get priority in major long term policy documents. These include milestones set for 2025 and 2030 as part of different goals of SDGs, the Perspective Plan to become a developed country by 2041 and the Bangladesh Delta Plan for 2100. Most importantly, the GoB is going to adopt the 8th Five-year plan (2021-25) within a month and this policy document should adequately reflect the transitional plan for ensuring smooth graduation in 2024. However, there is no policy directly addressing the smooth transition from the LDC category. It is important to note that LDC graduation is yet to be set as a major milestone in important policy documents. The GOB should prepare uniform policy guidelines exclusively for LDC graduation. These guidelines should focus on institutional preparedness, initiatives and activities to be undertaken by different public agencies targeting 2024, preparation of the private sector, the role of the non-state actors, especially CSOs and CBOs, identification of key sectors and economic activities and risk-mitigating measures.
It is a fact that a number of ongoing initiatives, measures, efforts of the private sector and CBOs/CSOs would contribute to the process of graduation. These initiatives will make an incremental contribution with the additional and special initiatives to be undertaken in the future. For example, some sporadic efforts have been made by the government in the national budget like providing incentives for seven more sectors with a view to attracting increased investment in diversified economic activities (RMG and non-RMG). The government has been establishing Special Economic Zones, expanding the EPZs, building IT parks and so on which will make incremental contribution in attracting FDI and local investment in different sectors.
Even though the government hailed some industries (e.g., jute, leather etc.) as the future growth drivers like RMG, that didn't happen in reality due to lack of a uniform, long-term strategic approach. Therefore, the GoB should prepare specific long-term strategies instead of short-term support structures for export diversification. The focus on such strategies should not be confined to only the manufacturing sector, but should also be extended to the service sector including ICT, tourism, health and transport, high-value agricultural products including non-rice crops, livestock and fisheries, training of high skilled migrant workers etc. Such strategies must be an integral part of the structural transformation process of the economy.
Graduated Bangladesh needs to be ready to confront emerging challenges. Climate vulnerabilities would be a major threat for the country in the coming decades and the country needs to take necessary domestic preparation and also raise its voice at the international level. In fact, Bangladesh's economic competitiveness would be under threat if the climatic vulnerabilities are not properly addressed. Being the President of the Climate Vulnerable Forum (CVF), it should promote clean energy-led growth both within and outside the country. Bangladesh should target sustainable industrialisation by ensuring human and labour rights, gender rights, environmental compliances and clean energy use. Bangladesh needs to target a transparent and accountable public sector which will curb corruption and ensure equal access and opportunities for all in economic activities. Reducing inequality should be a major target for the country. All these issues need to be reflected in the public policy documents and necessary actions and initiatives should be undertaken by the government in collaboration with other stakeholders including the private sector, CSOs/CBOs, development partners, international agencies and other important agents.
Dr. Khondaker Golam Moazzem is Research Director, Centre for Policy Dialogue (CPD).
