Poverty trap and structural reforms

| Updated: October 24, 2017 00:30:18

Poverty trap and structural reforms

Is this too general an observation that to get out of poverty trap enmeshing most poor countries, international assistance is a must? Poverty trap is no rhetoric. Examination of the poverty situation in countries that are dubbed least developed shows it as a condition that manifests itself through various symptoms, many of which are contagious. Being integral appendages to each other, these symptoms weigh heavily on the overall economic structure in ways that most of these countries cannot afford to cope with on their own. This, in a way, highlights the UNCTAD's review of the state of poverty of the LDCs in its LDC Report-2016. Countries can only break out of such vicious circle, the Report says, with international support in finance, trade and technology.  
Inadequacy of international support measures for developmental needs of the LDCs has been viewed as largely accounting for the poverty trap in expanding its net. "These are the countries where the global battle for poverty eradication will be won or lost," said UNCTAD Secretary-General Mukhisa Kituyi, adding, "A year ago, the global community pledged to 'leave no one behind', but that is exactly what is happening to the least developed countries." Global poverty, the Report stresses, is increasingly concentrated among the group of 48 countries (LDCs), which are falling further behind the rest of the world in terms of economic development. The proportion of the global poor in the LDCs, according to the Report, has more than doubled since 1990, to well over 40 per cent. Their share of those without access to water has also doubled to 43.5 per cent in the same period. And these countries now account for the majority (53.4 per cent) of the 1.1 billion people worldwide who do not have access to electricity, an increase of two thirds. This leaves many LDCs stuck in a poverty trap, a vicious circle in which poverty leads to poor nutrition and health, lack of education, undermining productivity and investment. This in turn blocks the sustainable development needed to reduce poverty. 
In fact, the idea of creating the LDC category was primarily motivated to provide support to these countries in areas they needed most and which they couldn't be expected to develop on their own. In a globalised world with technology emerging as a predominant force to shape things for the better, lagging behind means digging into the rock bottom where chances of keeping up with the rest of the world become increasingly slim. There are areas where these countries can progress substantially, but mobilising resources in those areas efficiently requires support, especially technology transfer from the advanced world. The UNCTAD Report has thus called for improvements in such areas through:   
n Fulfilment by donors of their long-standing commitments to provide 0.15-0.20 per cent of their national income for assistance to LDCs, to make aid more stable and predictable, and to align it more closely with national development strategies.
n Faster progress towards 100 per cent duty-free and quota-free access for LDCs' exports to developed countries' markets.
n Renewed efforts to break the stalemate on special and differential treatment for LDCs in the World Trade Organisation negotiations.
n Full and timely operationalisation of a technology bank for LDCs in 2017, with adequate financing and due regard for each country's level of development.
n Improved monitoring of technology transfer to LDCs.
It is true that increasing exports have kept the growth momentum of many of the LDC economies. Bangladesh, no doubt, is a glaring example, although the grim reality remains that the bulk of its export remittances comes from a single sector-- currently fraught with many challenges-- the readymade garment (RMG) sector. Along with the RMG remittances, expatriate workers' remittances have been the key to much of the resources that apparently lend a rosy picture, but surely not rosy enough as uncertainties pertaining to export prices and movement of workers are potential threats to sustaining the growth momentum. This is precisely why the need for structural change, especially in putting thrust on productivity, industrial policy, science, technology and innovation, and investment emerges as the key determinants of sustainable progress. Otherwise, progress in one area is likely to be eaten up by deficiencies in others, or such progress or development, say in exports, does not add to the flesh of the economy, and if at all, only temporarily. Researchers have been calling it a paradox for quite sometime. Growth in the absence of massive structural improvements and transformation is likely to further fuel up the paradox.
Recognising that this transformation is a gigantic task LDCs cannot handle all by themselves, provisions are there in various international texts, including that of the WTO, where the pledges and commitments to assist the LDCs look all very fine. But in reality, many of those haven't either materilised at all or are ill-conceived to be of any considerable benefit to these countries.        
It is relevant here to mention that under the MDGs, global poverty was halved by rapid progress in the more advanced developing countries. But a central goal of the post-2015 development agenda, dubbed Sustainable Development Goals (SDGs), is eradication of poverty by 2030. In achieving this, the task will be most challenging for the LDCs. Their performance will largely determine the success or failure of the whole post-2015 development agenda. Eradicating poverty in 15 years is a much more ambitious goal than the MDG target of halving it. This is because LDCs are trapped in a circle of economic and human underdevelopment. Real economic progress depends on reversing this process in order to unleash an upward spiral of economic and human development by harnessing the synergies between the two. So, economic growth in terms of measurable parameters is not enough. It must be accompanied with structural transformation and creation of jobs in higher-productivity activities. The sooner this is understood by the international community, especially donors and development partners, the better.
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