Last week, the International Monetary Fund (IMF) came up with a gloomy projection of global economic growth. Prior to the annual spring meeting of the Fund and its twin, The World Bank, the projection appears disappointing. IMF projected the global economy would grow by 3.2 per cent in the current year while the last year the growth rate was 3.1 per cent. Thus, for the fifth year at a stretch, world economic growth rate is set to stay below 4.0 per cent - below 3.5 per cent, to be precise.
World economy, crumbled by global recession as a consequence of global financial crisis, experienced zero growth in 2009. Efforts were made to make a U-turn and global economy registered 5.4 per cent growth in 2010 but it dropped 4.2 per cent in the next year. In later years, world economic grew by over 3.0 per cent but failed to breach even 3.5 per cent psychological barrier.
The trend is likely to continue this year and the next year, as predicted by the IMF. The IMF projection is supported by the latest forecast of global trade.
The World Trade Organisation (WTO) unveiled its global trade forecast in the first week of this month. It said that growth in the volume of world trade would remain sluggish in 2016 at 2.8 per cent, same as in 2015. It is mainly due to slowdown in imports of the developed countries. Although demand for imported goods in developing Asian economies is likely to pick up, as forecasted by the WTO, it will not be sufficient to bolster the overall global demand for import. If global demand does not increase, export from the countries, especially Least Developed Countries (LDCs), will also not increase as expected. And it will be a blow to these poor countries.
LDCs UNDER PRESSURE: Share of the LDCs in global trade is still marginal - around 1.0 per cent of the global total of merchandise and service trade. These countries are, thus, trying hard to enhance their share mainly through exporting goods to the developed countries. That's why there is a continuous demand for 100 per cent access to the developed countries' market under the WTO framework. The LDCs have also been demanding reduction of non-tariff barriers (NTBs) which have virtually come down to near zero in almost all the developed countries.
It is to be noted that there is a slight mismatch between overall export and import statistics at the global level. The reasons for 'such asymmetry in international trade statistics include the different price systems between exports and imports, the different trade systems among countries, and also emerging issues such as re-exports and re-imports.'
Merchandise exports from the LDCs are still negligible. Due to slowdown in global demand, their merchandise exports dropped by 25 per cent last year while global merchandise export dropped by 13 per cent. Their total exports came down to $154 billion in 2015 which was $206 billion in 2014 (Table-1). Even in 2010, the combined exports of the LDCs were $162 billion, according to statistics available with the United Nations Conference on Trade and Development (UNCTAD). If projected slowdown in global trade continue, such countries will be facing another decline in their exports. Already, their share in global export came down to 0.97 per cent in 2015 which was over 1.0 per cent for the last seven years.
Total import of LDCs also declined by 9.0 per cent last year while global decline in import was 12 per cent. A significant portion of import of IDCs is generally used to provide input for manufacturing exportable items. Thus, lower imports also reflect reduced demand for exportable products.
Bigger decline in export than import widens LDCs' merchandise trade deficit, which stood at $130 billion in 2015. Their trade deficit has been widening since 2010.
NAIROBI PACKAGE IMPLIMENTATION: The concern of the LDCs is clearly reflected in the latest meeting of the group in the WTO. On April 13, 2016, the meeting of the Sub-Committee on LDCs took place in Geneva. In this meeting, LDCs representatives, headed by Uganda, now the LDC coordinator in WTO, urged the WTO members 'to ensure the implementation of recent decisions favouring LDC goods and services exports as they are experiencing falling commodity export revenues and widening trade deficits.' The concern is supported by the chair of the sub-committee and Dutch Ambassador Roderick van Schreven. He said: "Current developments in the world economy pose significant challenges for LDCs. They face an increased need to diversify their exports."
The meeting of the sub-committee, the first of its kind since the 10th ministerial conference (MC10) of WTO, took place in Kenyan capital Nairobi. In the meeting, representatives of LDCs legitimately raised concern over the implementation of Nairobi Package where LDCs' stake is not high but important.
By analysing the WTO's official press statement, it was found that LDCs stressed on three broad areas. These are: ensuring that national regulators of the other member countries recognise the agreements for preferential treatment to LDCs; providing assistance by the members to avail trade preferences in services, and developing or expanding rules or origin to avail greater market access.
The Nairobi Ministerial Declaration binds the other member-countries to follow relaxed rules of origin criteria for LDCs to make the scheme of preference giving really effective. Relaxing the rules of origin, however, take time as there are some complexities. As per Nairobi decisions, preference-giving countries have to notify the WTO on progress on the implemention of the relaxed rules of origin by the end of this year. But LDCs are rightly concerned over their legitimate multilateral trade benefit, especially when global merchandise trade is in a slower curve. So, they rightly hammered the issue.
Again, the demand for assistance to make the waiver in service trade is critical. Although it is not a binding commitment in Nairobi declaration, some extra effort is needed here to bring some positive impact on LDCs' services trade which is also very thin compared to global trade in services. LDCs services export stood at $41 billion last year, registering a moderate 4.0 per cent growth when merchandise export declined (Table-1). The amount is merely 0.86 per cent of global services export. Nevertheless, services export from LDCs is slowly rising and there is an opportunity for these countries to increase their share in services trade.
But, LDCs still need some assistance for capacity building to tap the waiver facility as well as relaxed rules of origin. In this connection, the meeting urged members to step up their pledged contributions to the Enhanced Integrated Framework (EIF)'s activities to bolster LDC trade.
One week before the LDC sub-committee meeting in WTO, EIF executive director met with LDC envoys to brief them about the latest update of the assistance. In December last, 15 donor countries pledged $90 million to support the LDCs through the second phase of EIF framework. But the amount is actually one-third of the estimated budget worth $270 million for the second phase of the programme. And it is also not clear when the more commitments will be made and disbursed. EFI second phase has started on January 01, 2016 and will continue until 2022. Some ambitious programmes like 33 diagnostic trade integration studies (DTIS), 14 projects to support the integration of trade priorities into national development strategies and 79 catalytic sector support projects based on country-identified priorities have been planned for the seven years. In the meeting, LDCs representatives urged WTO members to contribute to the EIF fund.
BANGLADESH PERSPECTIVE: Bangladesh's merchandise export growth is still in the single-digit level although the actual earnings have crossed the target during the first nine months (July-March) of the current fiscal year (FY'16). Export earnings grew by 9.0 per cent during the period under review against the annual target of 7.3 per cent. The moderate target of the export growth was probably set keeping the slower global economic trend in mind.
But, Bangladesh needs to take some additional effort to enhance exports by diversifying products as well as markets. Though the country's exports to the emerging markets faced some problems in recent years, these markets have good potential for future development. The WTO forecast also mentions that import in developing Asia might pick up. Developing Asia mainly includes China and India along with Indonesia.
Moreover, Bangladesh needs to move ahead on ratifying the Trade Facilitation Agreement (TFA). The government, however, says that the process of ratification is almost complete.