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Deferring the LDC graduation of Bangladesh

| Updated: August 24, 2020 23:25:34

Deferring the LDC graduation of Bangladesh

Bangladesh's stride towards graduation from Least Developed Country (LDC) list is a great pride for the nation. Bangladesh was the first country which meets all the three criteria i.e., national income per capita, human asset index (HAI), economic vulnerability index (EVI) for graduating from LDC country status at the 2018 triennial review and is expected to graduate by 2024.

As per the United Nations (UN) definition, the Least Developed Countries (LDCs) are those that have low levels of income and face severe structural impediments to sustainable development. On December 1971, the UN formally endorsed LDC criterion and listed the 25 LDC and Bangladesh was included in this category in 1975.

The Committee for Development Policy (CDP), a subsidiary advisory body of the United Nations Economic and Social Council (ECOSOC), is responsible for recommending for inclusion, reviewing and monitoring for country progress and graduating the status of LDCs. A "triennial review" takes place by CDP in every three years to identify any country that may qualify for inclusion into or graduation from the LDC category. As of 2018, 47 countries are included in the LDC category of which 5 countries have already been graduated from LDC.

COVID-19 OUTBREAK AND BANGLADESH ECONOMY: The economy of Bangladesh was growing at a pace of over 8 per cent GDP growth rate for the last couple of years. However, the unexpected rise of Covid-19 severely hit the country both internally and externally. Due to pandemic situation, growth has fallen to 5.24 per cent, export earnings dropped 16.93 per cent and import plunged by 8.56 per cent in FY20. Furthermore, Foreign Direct Investment (FDI) inflow plummeted, in FY 2019-20 (July-March), to US$2.5 billion which was US$ 3.97 billion in the corresponding period of the previous FY. In the meantime, inflation has risen to 6.02 per cent in June 2020 where the average inflation of the FY was 5.65 per cent. Unlike the other sector, private investment is also projected to sharply decline to 12.72 per cent.

On the same note, the garment industry, which contributes 83 per cent of Bangladesh's total exports, experienced a demand shock through the massive cancelation of orders as fashion retail in developed countries almost collapsed. At the same time, it is facing a domestic supply shock triggered by closure of factories. In March-June of FY20, export to the EU and USA decreased by 44.93 per cent and 40.15 per cent respectively, and total export of RMG, leather & leather products and engineering products declined by 18.12 per cent, 21.79 per cent and 20.62 per cent respectively compared to the preceding year. It is apprehended that around 15-20 million people will be jobless, and unemployment rate may increase more than 20 per cent. Remittance earnings that hit its record high of US$18.20 billion in FY20 is expected to slump due to global job lay-off and fall of oil price as most of the wage earners' income comes from middle eastern countries.

To combat the present economic disruption and revitalise the economy of Bangladesh, the government has announced 19 stimulus packages amounting to Tk 1.06 trillion to:  increase public expenditure, introduce fiscal packages, expand social security programmes, and increase money supply.

LDC STATUS MATTER FOR POST-COVID-19: Bangladesh will face an increased tariff structure in destination markets after graduation compared to the LDC duty rate. Thereupon, Bangladesh will also lose the preferential market access for goods (DFQF facility), preferential treatment for services and service supplies, special treatment regarding obligations and flexibilities under WTO rules, IPR facility for pharmaceuticals, official development assistance (ODA), scholarships and other forms of financial support for education and research, caps and discounts on the contribution of LDCs to the United Nations system budgets, capacity-building for participation in negotiations, flexibility in reporting requirements etc. In a nutshell, phasing-out of preferences may substantially impact our economy along with the post COVID-19 new economic order.

COVID-19 IN UN CONSIDERATION: The next triennial review of LDCs is scheduled to take place from 22-26 February 2021. In this review, they will consider supplementary graduation indicators and country-specific analysis along with LDC criteria scores of 2019 data. Hence, the LDC requirement scores won't reveal the Covid-19 effect. After the triennial review of 2021, CDP will decide whether they recommend five countries, Bangladesh, Lao PDR, Myanmar, Nepal and Timor-Leste for graduation or not. In this regard, CDP also seeks information from the graduating countries about their priorities and support required for a smooth transition.

DEFERRAL FOR POST-COVID SUSTAINABILITY: To overcome the adversity of the economic distortion, The Bangladesh government may consider deferring graduation status from 2024 to 2027 considering the global economic fallout that would bring benefits for the country for at least 10 to 12 years. Longer term DFQF facility could attract more FDI and industry relocations to the country. Moreover, for being an LDC, Bangladesh could be considered a rewarding country for bilateral, multilateral, and regional agreements.

If deferral is not possible, there is a need to take a strategic restarting of the economy in a smart way with effective multilateral cooperation for getting back on track towards LDC graduation. Immediate negotiation needs to be started with developed countries to extend international support measures (ISM) for five more years after graduation and GSP facility from EU up-to 2030.

To conclude, the government needs to formulate a pragmatic LDC graduation strategy with comprehensive analysis for a smooth transition by avoiding the middle-income trap keeping the private sector in the steering wheel.

Mohammad Musleh Uddin (Adnan) is Research Associate and Deputy Secretary of Dhaka Chamber of Commerce & Industry (DCCI)


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