LDC Graduation’ has been quite the buzzword for the past one month in Bangladesh. Bangladesh has been in the LDC or Least Developed Countries bloc since 1975. On this year’s March, the latest round of country reviews by the UN Committee for Development Policy revealed that Bangladesh entered the graduation process of earning the title of ‘Developing Country’ and projected that the country will get out of the LDC category by 2024.
LDC Identification and Criteria:
There are many of us who don’t know how United Nations categorizes countries as LDC or what it actually takes to get out of this category. We also have to keep in mind the fact that entering the graduation process and actually graduating from LDC is not the same thing.
With 47 countries currently on the list of LDCs, the Committee for Development Policy (CPD) of UN reviews it every 3 years to make recommendations on the inclusion and graduation of countries. Now, there are some criteria which are used to for doing so and they are:
For example, at the 2018 review, the inclusion threshold was set at GNI per capita of $ 1025 and the graduation threshold was set 20 percent higher at GNI per capita of $ 1230. This gap works to ensure sustainable graduation.
Human Assets Index (HAI) measures the level of human capital in a country. The inclusion threshold for HAI has been set at 60 whereas the graduation threshold has been set at 66.
The third criteria measured by Economic Vulnerability Index (EVI) shows the structural vulnerability of countries to environmental and economic shocks.
So, a higher EVI is an indicator of a higher economic vulnerability. The inclusion threshold has been set at 36 and the graduation at 32. Also, the only income graduation threshold has been set at GNI per capita of $ 2460
The Case of Bangladesh:
Bangladesh has surpassed all the thresholds for graduation by a large margin in the first review of March. Its GNI per capita is $ 1,610. Its HAI is 72.9 which is higher than the threshold value of 66 and its EVI is 25 which is lower than the threshold value of 32.
In 2021 there will be a second review on the progress of Bangladesh by the UN Committee for Development Policy, which will be followed by its official graduation from the LDC category after a three-year transition period.
If the country maintains its position in all three categories for the next six years, it will eventually graduate from the LDC bloc by 2024. Till now, Bangladesh is the only country to have met all the three criteria to be eligible for graduation from LDC.
Benefits of Graduating from LDC:
Well, no country wants to be on the list of LDCs. For any country, getting out of LDC is a matter of pride. Bangladesh will surely gain more importance in the international arena once it graduates from LDC.
Once Bangladesh gets out of LDC the world will consider its economic basis to be strong. As such foreign investors will tend to be attracted to invest more in this country. UN Assistant Secretary-General Haoliang Xu said during a visit to Bangladesh that the graduation would send “strong message to investors that Bangladesh is a right place for investments.”
He also said that there would be more assistance from UN to assess the impacts of graduation of Bangladesh.
When a country is in the LDCs the international perception towards the country is sure to be not positive. The concept that the LDCs have low capacities, underdeveloped infrastructures, and weak institutions are prevalent in the international community. Getting out of it will surely work as a proponent for breaking this perception. As a result, foreign investments will increase in the country.
Besides, the rating agency will rate give high ratings to Bangladesh in terms of investment which will lower the cost of investment given there is the sufficiently large amount of investment.
The GSP+ scheme provided by European Union to the vulnerable developing countries works as an incentive for the developing countries to follow international human rights conventions and laws.
Besides, withdrawal of certain privileges after graduation will enhance the competitiveness of domestic producers and exporters which will allow for new innovations and business methods.
What are the facilities Bangladesh enjoy as an LDC?
If Bangladesh officially graduates from LDC in 2024 it will still be getting all the facilities it gets as an LDC until 2027. But after 2027 all the preferences it gets will cease to exist. So Bangladesh has 9 years to prepare itself to face all the challenges it might face after graduating from LDC.
But what are the challenges Bangladesh will actually be facing? To answer this, first, we need to know what facilities Bangladesh enjoy as an LDC.
As an LDC, Bangladesh receives preferential treatment from many significant support measures aimed at the development of its economy. Bangladesh as an LDC is entitled to the World Trade Organization (WTO) Special and Differential Treatment (SDT) provisions. The country has also benefitted from the tariff concessions under the Generalized System of Preferences (GSP) of WTO.
There are various regional trade agreements (RTAs) where Bangladesh has preferential access. As an LDC, it also enjoys some special provisions such as South Asian Free Trade Area (SAFTA), the Asia and Pacific Trade Area (APTA) and Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC) Free Trade Area.
Bangladesh is one of the major exporters of Ready Made Garments (RMG) in the global market. It enjoys preferential access in markets of around 40 countries. Being an LDC, Bangladesh is a major user of ‘Duty-Free Quota-Free’ (DFQF) access to different markets like European Union, Japan, India, China, and Canada, the benefits of which runs into billions of dollars. Like other LDCs which are members of WTO, Bangladesh enjoys the special access under the “Everything but Arms” (EBA) initiative in the European Union.
Official Development Assistance (ODA) provided by different multilateral agencies like World Bank, ADB etc and bilateral agencies to the LDC will surely drop once that country graduates. Bangladesh has been the recipient of low-interest rate loans of International Development Agency (IDA) of World Bank for being in the LDCs for over 40 years. These aids will be cut once the official graduation takes place.
The pharmaceutical industry of Bangladesh has also been highly facilitated due to the special intellectual property rights it enjoys. WTO has facilitated flexibilities in the TRIPS agreement for the LDCs for creating a good technological base in those countries.
What are the challenges Bangladesh will be facing?
After 2027 Bangladesh will see a reduction in the above-discussed facilities it enjoys as an LDC if it graduates officially in 2024. As such the special preferential treatment will decrease and DFQF access will be denied by many countries.
Estimates say that Bangladesh will face an additional 6.7% tariff which could result in the export loss of around $ 2.7 billion after it graduates from LDC. UNCTAD estimates that export of the country may fall by 5.5% to 7.5%.
One of the main concerns is that the graduation from LDC will almost double the amount of contribution of Bangladesh to different UN-related agencies and organizations. The concessionary financing will reduce by a large amount of Bangladesh as soon as it graduates from LDC.
Different aids will see a cut down in its amount. The special treatments and low-interest loans from multilateral agencies and IDA will not be available.
For being an LDC, Bangladesh enjoys funding for scholarship, fellowship, participating in special training programs and other workshops by different international organizations. Besides, for conducting research works and policy analysis it also gets support from various agencies and organizations. It is very likely that these benefits will be removed after graduation.
Failing to meet the challenges will result in Bangladesh lagging behind despite being on the path of development. Dr. Selim Raihan, Executive Director of the South Asian Network of Economic Modeling (SANEM), emphasized on enhancing the capacity of the social infrastructure of Bangladesh to achieve desired growth rate. He said that otherwise, Bangladesh would fall into the ‘middle-income trap,’ a state where a number of countries are stuck in the lower-middle income status and are unable to move up.
Bangladesh foremost needs to diversify its export products. Bangladesh needs to increase its industrialization for increasing production and jobs.
Economics-Related Division of Bangladesh and relevant ministries should ensure the support to exporters and manufacturers after graduation from LDC. It is imperative for the country to mobilize domestic resources and enhance accessibility to financial services to promote private investment in new economic activities. There should be an inclusive and well regulated financial system which will promote savings.
There should be increased investments in quality education and vocational training to turn this bulk population into a resource. Youth population should utilize properly for a smooth transition.
Bangladesh needs to venture bilateral and regional agreements so that they can be utilized to implement various infrastructural projects. Exploring various non-LDC trade agreements is necessary to take advantage from all possible ways. Besides, the country also needs to enter into new negotiations regarding trade agreements to avoid MFN tariff rates. New emerging partners need to be explored for a smooth transition.
Capabilities of institutions and the bureaucratic system should be enhanced. Besides structural risks like high poverty, inequality and weak governance should be tackled effectively and immediately. Political turmoil, extremism, and risks related to climate change should be dealt with carefully. There should be increased effort to improve the technological sector of the country as well.
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