Challenges before Bangladesh on graduation from LDC  

Helal Uddin Ahmed     | Published: March 16, 2018 20:46:20


Having reached the lower middle-income country status in 2014, Bangladesh is now firmly poised to receive global recognition as an upper middle-income country by 2021. This in turn will lead to her graduation into a 'developing country' category from that of the 'least developed country' (LDC) status in 2024. The Secretariat of the UN Committee for Development Policy (CDP), a subsidiary body of the UN Economic and Social Council, confirmed through a mission sent to Dhaka back in October 2017 that the country was almost certain to satisfy all the three criteria for this graduation. This was slated to be vetted at the CDP review meeting in New York, USA, between March 12 and 15, 2018.

LDC categorisation is made and measured by the CDP on the basis of three criteria, viz. per capita income (Gross National Income or GNI), human assets index (HAI) and economic vulnerability index (EVI). For graduation from the LDC status, a country has to cross the LDC thresholds in at least two of these three indicators during two consecutive triennial reviews conducted by CDP. Bangladesh would most likely be the first ever LDC to graduate on the basis of fulfilling all the three criteria. Up until now, the five countries that have graduated from the LDC status are Botswana, Cape Verde, the Maldives, Samoa and Equatorial Guinea. Unlike Bangladesh, these are mostly small nations heavily dependent on natural or mineral resources.

When the World Bank Atlas method is applied, Bangladesh's Per Capita Gross National Income (GNI) of US$ 1,272 becomes higher than the LDC threshold of US$ 1,242, which fulfils the first criterion for graduation. The second criterion or Human Assets Index is calculated on the basis of five indicators, viz. infant (under-5) mortality rate, maternal mortality rate, undernourishment or malnutrition rate, adult literacy rate and gross secondary school enrolment rate. Bangladesh has made rapid strides in its human assets index over recent years and exceeded the LDC threshold for the first time in 2016. According to the Planning Commission in the country, Bangladesh has already achieved a score of 72 in this index, which is much higher than the LDC threshold of 66. On the other hand, the economic vulnerability index is calculated on the basis of eight indicators. These are: population, remoteness, low elevated coastal zones, export concentration, share of agriculture, forestry and fisheries, export instability, agricultural instability and victims of natural disasters. This index has consistently decreased in the context of Bangladesh since 2003, when it fell below the threshold for the first time. According to a Planning Commission source, Bangladesh's current score in this index is 24.9, whereas the score required for graduating from the LDC status is 32 or less.

Graduation into a developing economy from that of LDC will pose some significant challenges for the economy of Bangladesh. It is most likely that Bangladesh would be allowed a three-year transition period after the graduation in 2024 (up to 2027) before losing the duty and quota-free market access to its largest export market - the European Union (EU). Bangladesh is however expected to gain access to the Generalised System of Preferences Plus (GSP+) initiative after 2027 if it ratifies the 27 related conventions on human and labour rights, the environment and governance. Some business leaders opine that tariff is not a key obstacle to export success, and other economic challenges like infrastructure, exchange rate, energy prices and global economic outlook are more important. Besides, the country's economy is gradually undergoing a diversification process, especially into the services sector, which is likely to be less affected by LDC graduation as it does not have to face tariffs applicable to consumer goods.

A recently held workshop on LDC graduation organised by the Centre for Policy Dialogue in Dhaka highlighted the challenges likely to be faced by Bangladesh. These include availability of cheap loans and diminished trading facilities as well as the need for enhancing productivity, expediting investments and human resource development, tackling climate change and combating natural cum manmade disasters. Side by side with ensuring good governance, attention has to be paid to institutional reforms, extending legal protection to investors and promoting greater involvement of NGOs in human resource development including in the education and healthcare sectors. 

Bangladesh's graduation from the LDC status will undoubtedly be a major milestone in the nation's history, but pressing economic challenges would remain. These include raising the wages of the working poor without losing international competitiveness, and generating employment for over two million new entrants in the job market each year. Although Bangladesh enjoys comparative advantage mostly due to the cheapness of its labour force, yet low wages contribute to perpetuation of poverty among the poor working class. The pressures of overpopulation, threats from climate change, fluctuating energy prices and the rapid automation of production processes will also have to be tackled after Bangladesh graduates into an upper middle-income country from that of LDC from 2024 onwards. 

Experiences show that economic growth rate as well as exports, foreign aid and remittances have decreased in countries that graduated from the LDC grouping in the past. Therefore, caution has to be exercised in seeking loans at higher interest rates after the graduation. Besides, initiatives have to be taken for increasing manufacturing productivity in order to offset the effects of a reduction in trading facilities. Serious attention will also have to be paid to reducing economic inequality in the country alongside alleviating poverty and displacements in society. Most importantly, the benefits of graduation cannot be maximised in the absence of good governance, political stability and lack of consensus in the country.

 Dr. Helal Uddin Ahmed is a retired Additional Secretary of Bangladesh government and former Editor of Bangladesh Quarterly

hahmed1960@gmail.com

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