Benefits and challenges of Bangladesh's graduation from LDC status
Despite gloomy environment precipitated by the unprecedented pandemic which has almost forced the global economy to its knees, Bangladesh has still been beaming bright rays of hope. Only recently, Bangladesh got the final recommendation to graduate from the status of a Least Developed Country (LDC) to a Developing Country by the relevant UN Committee. Though Bangladesh will get another five years in general to make the official graduation to prepare itself, this was perhaps the best news for Bangladesh in the year of birth centenary of Father of the Nation Bangabandhu Sheikh Mujibur Rahman and as well as when the country was poised to celebrate the golden jubilee of its independence. The news arrived on February 26 at 9:30 pm Bangladesh time. A similar news about the first round of recommendation for the graduation came around the same time in 2018. That time, we received the good news by achieving simultaneous elevation in three indicators -- Income per capita, Human Assets Index (HAI), and Economic and Environmental Vulnerability Index (EVI). We learned that the UN's Committee for Development Policy (CDP) would meet again in three years for the second review of this progress. As already indicated that evaluation episode ended a few days ago. During these three years, under her dynamic leadership, our prudent Prime Minister has kept the development journey of Bangladesh afloat by coordinating with all the departments and groups concerned with development. At a time when almost all countries of the world are struggling to save 'lives and livelihoods' from the attack of Covid-19, she has been taking the economy of Bangladesh forward with great efficiency despite the persistent health challenges. Even in these difficult times, not only have we achieved 5.24 per cent growth in the last financial year, but we have also launched the Eighth Five-Year Plan. In the first financial year of the plan, we dream of achieving a growth rate of 7.8 per cent. As a result, the current trend of increasing per capita income will persist. Per capita income has been a major driving force behind Bangladesh's amazing socio-economic transformation. Since coming to power in 2009, the Hon'ble Prime Minister has focused on accelerating growth. Along with Infrastructure development including fast-tracked mega projects and trade facilitation, she has kept the wheel of the economy running with various types of incentives during this Covid crisis. As a result, while the total GDP size was $103.5 billion in FY 2008-09, it has increased to $330.2 billion in FY 2019-20. This means that the size of the total economy has more than tripled in this one era. Since our population growth rate is stable (around 1 per cent with fertility rate around 2 per eligible couple), the growth rate of per capita income has been much more than three times during this period. According to the CDP criteria, the per capita income of only 1,230 dollars would've been enough to hit the desired mark. In 2020, our per capita income was 1,827 US dollars. At present, it is 2,064 US dollars. Not to mention the success of agriculture and the progress of remittances and exports being the driving forces of our economy. In a single decade, exports have increased from $15.57 billion to $40.54 billion. Reserves have increased from $7 billion to $44 billion. The poverty rate has come down from 48.9 per cent to 20.5 per cent, although it has seen a temporary rise because of the fallout of Covid-19.
Like per capita income, Bangladesh's achievement in the other two indicators has also been highly promising. Criteria for human Assets Index threshold for graduation is 66 points, whereas our achievement is 75.4. In the Economic and Environmental Vulnerability Index (EVI)., Bangladesh's score is 27 points, well below the required threshold of 32. The lower the number, the better this index. In that regard, we have shown unexpected success in tackling climate challenges along with the Rohingya and Covid crises. The CDP's final recommendation will go to the Economic and Social Committee (ECOSOC) in June, and later to the General Assembly of the UN in September this year. Because of the Covid crisis, we will get two more years with the usual three years of preparatory period. This means that in 2026, we will officially become a developing country.
The credit for achieving this final recommendation by meeting all the criteria twice in a row goes to our wise leadership and all the hardworking people of this country. In a press conference held the day after receiving the good news, the Prime Minister said that this achievement was possible thanks to the joint efforts of people. Bangladesh will take its place as a confident and dignified developing country in the world. This graduation will also bring forth additional benefits to our entrepreneurs. Being LDC means we were on the list of risky countries, which is why our 'sovereign rating' couldn't be increased. As a result, we had to accept higher rates both in securities and interests on commercial loans accessed by the private sector. This graduation will further improve our country rating. Confidence in Bangladesh will increase in the minds of multilateral investors. It will be easier to get foreign loans despite a slight rise in the interest rates. Interest rates will, however, be lower for the private sector. The cost of LC confirmation of our traders will be reduced by the foreign banks. More and more foreign investment will flow into our country enhancing employment opportunities. Our VAT, tax, and revenue collection will increase. At the moment, our tax-to-GDP ratio is very disappointing. We need to accelerate revenue collection at a huge rate by increasing the use of technology and manpower efficiency.
As a benefit of this graduation, public and private investment in higher education, training and healthcare will increase. The government is already moving ahead developing many mega projects including special economic zones and high-tech parks. In this new reality, many foreign entrepreneurs will surely take advantage of these modern infrastructures. The construction of another state-of-the-art terminal at our international airport will also help attract many foreign investors. After the graduation, international trade will be more competitive. To compete with foreign competitors, Bangladesh will have to make major changes in its import-export policies in the post-graduation period. Despite the pressure, these policy reforms will be good for everyone in the end. For the same reason, our factories need to be more environment and labour-friendly. Using green energy, ensuring the rights of workers will increase the urge to make our industries more modern and humane. This change will be essential for exporting goods at competitive prices. In the changed situation, economic diplomacy needs to be made smarter and more aptly focused.
However, after the transition, we may lose some of the ongoing benefits. Only by acquiring skills, it is possible to make up for that loss. Moreover, the tariff benefits that we now enjoy in India, China, and developed countries may be lifted after 2026, although the European Union will continue its benefits for Bangladesh up to 2027. If we can conduct appropriate economic diplomacy, we can extend the duration of this preparation period even longer. Just like Vietnam, we can even make free trade agreements with developed countries and alliances. Let's start this in the subregion first.
It should be kept in mind that the privileges we used to get as an LDC in copyright, patent, ICT, and service sectors might no longer be available to us after the graduation. Our pharmaceutical industry will continue to get duty-free benefits in the developed world till 2033. Until then, the terms of the IPR will remain relaxed. We can also import technology and raw materials on easy terms till that time. Afterward, we must get accustomed to more sophisticated trade including our own research and patents. We have to develop the mentality to accept this challenge in the garment sector as well. Even with a high tariff, we have been showing our strength in RMG exports in the United States. Our allocations may be reduced in climate funding as well, although we didn't get much funding in this field anyway. The scholarships and grants we receive from international and developed countries for human resource development, including education and health, may be reduced. However, it is also possible to cut some corners by bargaining. The World Bank, IMF, ADB, JICA will raise interest rates on their long-term loans. This process has already begun in some cases. Still, it shouldn't frighten us. By the diversification of agriculture and exports and the use of technology, we can certainly increase productivity. By increasing the capacity of infrastructure development, easing business environment, improving port and logistics management, we can make our products competitive in the world even after paying tariffs. So now we have to focus on new products, new markets and modernisation of production methods. If we can focus on the knowledge-based and green economy in the future and develop the human resources accordingly, Bangladesh will march ahead strongly even after the graduation.
The fighting spirit that Bangabandhu has instilled in our nation's core and the way Bangabandhu's daughter is wisely leading our development journey have all played a big role in our achievement. Alongside, there's nothing left to say about our hardworking people's amazing ability to fight against the odds to move forward. However, this is not the end of the story. The trend of economic growth that we have set in motion not only has to be kept intact but also needs to be accelerated. South Korea has become a developed country today by doing so. Vietnam is also walking that path. Malaysia, Thailand, and China are also traveling on the same route. Therefore, we mustn't lose track as we have a long way to go in the path of inclusive high growth by mobilising domestic and foreign resources. We have to clear our heads from absurd concerns about not getting a low-interest loan from international organisations, grants from the UN, and free tickets for government officials after graduating from LDC. How much foreign assistance do we take as grants and discounts anyway? Almost all loans have become 'non-concessional.' Bangladesh must run in the field of the world economy as a strong competitor utilising the opportunity of geopolitical reality. Many foreign entrepreneurs from China have already started coming to Bangladesh to take advantage of the 'Rules of Origin'. Foreigners will export their products from Bangladesh. We need to keep in mind that a large part of their income from the export of these products should be reinvested in Bangladesh. With the steady rise in per capita income, the number of our middle and high-income people is also increasing rapidly, so is their demand for high-quality tech-savvy products. Foreign investors are certainly paying attention to this growing domestic market in Bangladesh as well. So, the business of new technology-based products will also increase in our domestic market. Indeed, the future businesses will all be digital.
Therefore, we need to quickly change the identity of the 'net importer' country and increase the institutional and infrastructural opportunities to create more import substituting options and export-oriented industries. We have to increase our policy-focus towards achieving the capacity of supplying raw materials of our export products by local and foreign entrepreneurs based in our EPZ, BEZA, BEPZA, Special Economic Zones. In the meantime, we have made tremendous progress in the production of cement, petrochemicals, and high-quality yarn. By developing these ancillary industries, on one hand, the demand for raw materials for industrialisation in the domestic market is being met, on the other hand, the value addition from our per-unit export income is also increasing. This transformation must go on.
To accelerate this trend of development, the policies pursued by the present government to provide uninterrupted power supply, uninterrupted transportation, efficient port management, efficient manpower, and improvement of digital governance should be continued. Along with business-friendly policies and information to make our individual sectors more efficient, further modernisation of the financial sector and good governance, and, above all, to sustain our strength in the post-epidemic new world, there is no alternative to further strengthening the strategy of green and inclusive sustainable development. The thrust on eliminating corruption at all levels must also remain active. Bangabandhu's daughter is fully committed to the implementation of these policies. We have observed this quality of leadership with great attention in preventing this unimaginable epidemic, especially in vaccine management. However, there is nothing to be complacent about it as there has been a global surge in infections lately. We must follow precautionary health rules as strictly as desired. Undoubtedly, she sees far ahead. May this policy-prudence and our desire to achieve public-private-social capability continue in the post-LDC graduation period as well. Surely the days ahead will be ours.
Dr Atiur Rahman is Bangabandhu Chair Professor of Dhaka University and former Governor of Bangladesh Bank