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16 days ago

Aid for Trade in new reality

Photo: ADB
Photo: ADB

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Over the years, global trade has become more challenging, especially for developing and Least Developed Countries (LDCs). The main reason behind the challenges is a rise in geo-political tension and conflict, making trade costlier and slower for many developing nations. The trade data also reflect that. For instance, the value of the global merchandise exports of the LDCs declined by 4.60 per cent to US$ 256 billion in 2023 from US$ 269 billion in 2022. At the same time, merchandise imports of LDCs also dropped to $316 billion from $355. As a result, the share of LDCs in world exports and imports stood at 1.10 per cent and 1.30 per cent, respectively, last year. It is a disappointing development as the LDC's share of global trade was targeted to reach 2.0 per cent of global trade by 2020, as per the Sustainable Development Goals (SDGs).

To support developing nations, particularly LDCs, in enhancing their trade capacity, the Aid for Trade (AfT) initiative was launched around two decades ago under the World Trade Organization (WTO)'s umbrella. The core idea behind the initiative was to build the trade capacity and infrastructure of the countries needed to benefit from trade opening.  It encourages donor countries to provide a part of their aid to developing countries to facilitate trade. Thus, the AfT is part of the Official Development Assistance (ODA), which includes grants and concessional loans targeted to trade-related programmes and projects. The role of the WTO in this connection is to encourage additional flows of AfT from bilateral, regional and multilateral donors to entertain requests for trade-related capacity building from beneficiary countries, support improved ways of monitoring and evaluating the initiative, and encourage mainstreaming of trade into national development strategies by partner countries. 

As the initiative became a work programme of the WTO, it has started a biennial global review since 2007 to strengthen the monitoring and evaluation of AfT. In the last week of this month, the ninth global review took place in Geneva. The three-day event witnessed discussions and debates mainly focusing on food security, digital connectivity, and mainstreaming trade.

The 2024 edition of the joint WTO-OECD Aid for Trade at a Glance was also released on the inaugural day of the event. The report showed that between 2006 and 2022, over 90 bilateral and multilateral donors contributed a total of US$ 648 billion of funding to 'promote the integration of developing economies and LDCs into the multilateral trading system, unleashing their export potential and strengthening local livelihoods.' It also showed that AfT disbursements reached $ 51.1 billion in 2022, a 14 per cent year-on-year increase in real terms. Total commitments also surged 31 per cent in 2022 to $ 65 billion. Lower-middle-income economies are the primary recipients of AfT, representing 38 per cent of total disbursements, followed by LDCs and other low-income economies, which accounted for 28 per cent or $14.1 billion in 2022. Since 2006, LDCs have received US$189 billion in AfT. The Enhanced Integrated Framework is the main mechanism through which LDCs access AfT under the WTO framework. The latest publication, however, doesn't provide the key data of AfT, making it difficult to know the status of country-specific update of aid for trade.

A key challenge regarding AfT is identifying trade-specific or trade-related aid. Aid provided for a sector like 'transport and storage' obviously facilitates trade, while assistance for 'agriculture, forestry and fishing' supports a country's food security, besides assisting trade.  So, there are some overlaps on AfT, though it is not a significant barrier to enhancing trade-linked aid. Another challenge is the negotiation of assistance among donors and recipients. A recipient's perception of AfT may not be the same as that of a donor. Over 55 per cent of AfT is provided by bilateral donors, primarily countries that are members of the Organisation for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC). Other Aid for Trade financing is mostly provided by multilateral donors, such as the World Bank and the Asian Development Bank. Monitoring the aid is another area where donors and recipients may differ.

Bangladesh has long been one of the five top recipients of AfT. In 2020, the country received $2,492.1 million as AfT, which was two-fifths of the country's annual Official Development Assistance (ODA). Like many other countries, AfT has proved critical for Bangladesh, and it will need such aid shortly.

The country's response to the 2024 joint OECD-WTO Aid for Trade monitoring and evaluation survey questions is also indicative of its effort to enhance trade for overall socio-economic development. As poverty reduction targets are among the trade priorities of 82 per cent of countries that responded to the survey, Bangladesh pointed out that creating two million jobs annually is a big challenge. The job creation means 'creating bridgeheads into the global export market'. Recognising that the size of the domestic economy is small, the Eighth Five Year Plan (July 2020 -June 2025) of the country 'aims to expand exports of goods and services to move to higher growth path and grow out of poverty.'

As Bangladesh is set to strip off the LDC tag by 2026 along with Nepal and Cambodia, a new reality has already emerged for the country.  The scope of getting soft-loan or untied-aid will be reduced, and the country has to negotiate for hard-term loan or conditional-aid. Thus, getting more AfT will also be challenging and subject to performance. In this connection, extensive effort is necessary to maintain the flow of AfT. This is not just a task, but a call to action for all involved in Bangladesh's economic development.

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