LDC graduation and beyond  

LDC graduation and beyond   

So, finally, as things stand now, Bangladesh is set to quit the Least Developed Country (LDC) club — a long cherished dream to shed off the unease of being at the rock bottom of the global league of countries. A report prepared by the Economic Relations Division (ERD) on the challenges and opportunities related to transition from LDC status makes the point clear while it focuses on the problems that graduation is likely to cause in the coming days and how to ride those out.

The ERD report comes as the United Nations panel named Committee for Development Policy (CDP) is expected to put Bangladesh in its graduation list this year as the country has met all three criteria for graduation: Gross National Income (GNI) per capita, Human Assets Index (HAI) and Economic Vulnerability Index (EVI). Going by the usual practice, CDP will review Bangladesh's progress in 2021, and after a three-year transition period official graduation from the LDC category will take place.

Like all good things that come with a baggage — opportunity cost as the Economists call it - graduation is no exception. Graduation is the process through which a country ceases to be an LDC. This, besides meeting the critical requirements in terms of clear economic indicators, means that a country set to graduate is believed to have overcome the structural handicaps that warrant special treatment from the international community — beyond the one generally granted to the developing countries. The UN classifies a country as an LDC if it has per capita income of little over $1,000 a year. A country with so low per capita is perceived as economically vulnerable and scores badly on a range of human indicators, including nutrition, child mortality and enrolment in schools. 

Since the term LDC was coined 45 years ago, only four countries have graduated so far: Botswana (1994), Cabo Verde (2007), the Maldives (2011) and Samoa (2014). For a country like Bangladesh 'branded' as an LDC since its inception — although much of its growth and successes owe hugely to its being termed so -- graduation is indeed a winning post, a milestone in the country's long-term economic and social development. But there are challenges, some apparently daunting, that the country will have to take on squarely.

Now, what are the main challenges of graduation? To start with, Bangladesh would face stiffer competition from rivals in international trade, especially in exporting, as graduation will cut deeply into the preferential benefits that the country currently enjoys from well over forty countries - the EU being the largest provider accounting for around 54 per cent of the country's exports.

According to the aforementioned ERD report, upon graduation from the LDC bracket, Bangladesh is likely to lose about $2.7 billion in export earnings every year. This is because exports will be subjected to 6.7 per cent additional tariff as preferential duty benefits from different countries and trading partners will no longer be available. At present, Bangladesh is a major user of duty-free and quota-free market access, with shipments under this facility accounting for 72 per cent of the total exports, the ERD report said. Regional trade agreements and bilateral initiatives cover about 90 per cent of the total exports, and thus preferential market access is of special significance, the paper added.

 The ERD report has mentioned that upon graduation, products made in Bangladesh will become more expensive to buyers and consumers in key export markets. In this context, it may be recalled that according to the United Nations Conference on Trade and Development (UNCTAD), Bangladesh's exports may decline by 5.5 per cent to 7.5 per cent due to preference erosion and exports becoming costlier. No doubt, preference erosion in major exporting countries will thus have implications for export competitiveness and export earnings, and consequently, for GDP growth, employment generation and poverty alleviation.

Beside exports, the country will also be hit when it comes to foreign aid. Concessionary financing from the International Development Association, the part of the World Bank that helps the world's poorest countries, and multilateral assistance with special benefits will also not be available upon graduation and attaining the middle-income status. The benefit of technical cooperation and other forms of assistance will also be affected. Concessional borrowing is another important area to be hit hard. As per the WB criteria, if a country's per capita income remains above $1,400 for three consecutive years, the rate of interest would surge to about 2 per cent from 0.75 per cent — a facility that Bangladesh currently enjoys like all other LDCs.

All these clearly point to the flip side of quitting the LDC group. No doubt, the country in the years ahead has to find ways to minimise the challenges as far as possible. The ERD report has thus called upon the commerce ministry to initiate effective policy measures to facilitate exporters and manufacturers during and after graduation. The report, putting emphasis on domestic resource mobilisation, advised the government to improve road, power, and port facilities to make up the impact of preference erosion in export markets. Risks like high poverty and inequality, low human capital and weak economic governances have to be tackled effectively and be minimised to a reasonable level, the report added. In this connection, it may be relevant to refer to UNCTAD's observation in its LDC Report-2016 wherein the key message was that graduation must not be seen as an end in itself, and that meeting the vital parameters will require additionally an element of dynamism and momentum in the economy to carry the progress further on. The focus should not be on graduation alone, but rather on 'graduation with momentum', as coined by the UNCTAD. It is this momentum that can lay the foundation for long-term development and allow potential pitfalls to be avoided far beyond the country's exit from the LDC category.

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