LDC graduation: scopes and challenges

by Tasmiah Nuhiya Ahmed | Published: 00:05, Mar 25,2018 | Updated: 22:32, Mar 24,2018


THE future belongs to those who believe in the beauty of their dreams. Bangladesh, the largest least developed country in terms of population and economic size, on March 16, for the second time in its history of independence, has been garlanded with a new feather in its crown of achievements in development. By becoming qualified for promotion from LDC, Bangladesh has taken its position to a new pinnacle.
The least developed countries are the most vulnerable members of the international community having low income and severe structural and physical impediments to sustainable development. Graduation of an LDC is based on significant improvements in the country’s development prospects. Bangladesh was categorised as an LDC in 1975. From then, Bangladesh has widely been recognised as a remarkable achiever in the field of socio-economic development. The successful attainment of the Millennium Development Goals lays the solid foundation for its higher future development goals.
The mission by the secretariat of the UN Committee for Development Policy measures the LDC category on the basis of gross national income per capita, a human assets index and an economic vulnerability index of a country. A country must exceed thresholds on two of the three criteria at two consecutive triennial reviews to be considered for graduation. Bangladesh is the first LDC ever to graduate on the basis of all three criteria.
However, this graduation will carry a lot of both opportunities and challenges. There will be benefits but there will be costs to pay as well. Overcoming these challenges is critical for a smooth graduation process.
Challenges are integral for any development process. It derives from time, people, policy and/or circumstances. Provided these issues are critically analysed and strategically planned for, most can indeed be turned into opportunities for the development progress. There is no obvious single solution or silver bullet to transform the socio-economic and governance systems of a country in a manner to convert the challenges into opportunities for sustainable economic and social development. The changing economic environment and perspectives associated with LDC graduation can open up new windows of opportunities that can actually help Bangladesh to take necessary steps with a fresh endeavour to become an upper middle-income country by 2031 and high-income country by 2041.
While reaching the graduation threshold is vital, the long-term sustainability of the same is more critical. This is said because of the fact that experience shows that graduating countries continue to face serious structural challenges and vulnerabilities. It becomes, hence, essential for the graduating country to continue with its course of development with a view to avoiding any potential relapse to this category. LDCs are thus required to ensure structural transformation by developing productive capacities, gaining access to modern technologies and diversifying their economy.
It has been seen that for LDCs and graduated countries, cross-border trade makes important contribution to their GDP growth and sustainable development. The free trade agreement between the countries bears special significance and carries high potentials. FTA also contributes to employment generation, promotes regional economic integration and foster competition and innovation.
Consistent structural transformation and lower vulnerability are crucial for implementing the measures with a view to overcoming the challenges following this graduation. It is also vital to see how trade agreements, technological advancement and energy industry can foster economic growth. At the root, it is very essential that LDC economies must have greater connectivity, productivity and innovation. Experts advise that this can be achieved through diversification. Development strategies which involve collaboration with a large range of stakeholders have been proved to be beneficial for the well-being of people and society.
Bangladesh has been seen as well on track to continue with its development journey in the coming decades. Bangladesh has already achieved 7 per cent+ GDP growth and this growth will increase more by implementation of the seventh Five Year Plan. Therefore, it is expected that Bangladesh’s graduation from LDC will be a sustainable one.
Strengthening global partnership are crucial for development and sustainable graduation. Development partners play a critical role in ensuring smooth transition strategies. Key issues at the country level for achieving sustainable graduation include building on synergies between the fight against poverty, increasing inequalities and social cohesion; local economic development and civil society participation; with focus on youth and women; strengthening the domestic private sector, value chains in key sectors (agribusiness, fisheries and tourism); improving the investment climate; job creation with focus on youths and expanding the fiscal base.
Bangladesh needs to take measures on issues ‘beyond graduation’ which are required for necessary structural transformation particularly for the post-graduation transition phase for ensuring ‘smooth graduation. We hope that Bangladesh’s LDC graduation will be a balanced graduation and will be a unique example to cite. For Bangladesh, it is critically important to prioritise the future strategies in view of the smooth transition from LDC. Experts advise that focus should be given on longer-term development pathway rather than on meeting the statistical eligibility for graduation. It is understandable that sustainable post-graduation will critically pivot on maintaining the past momentum. The quality of structural transformation will be a key determinant in terms of smooth graduation.
In the context of smooth transition and graduation from LDC, keeping all these in mind, the Bangladesh Development Forum in one of its reports in 2018 has concluded that Bangladesh needs to focus on, inter alia, the followings:
Bangladesh needs to improve significantly its investment outlook for the private sector. In doing so, the government has to provide sufficient infrastructure in all the sectors, including power sector. In this context, the flow of FDI would need to increase and diversify. Bangladesh will have to increase activities related to social developments. It may have to enact and enforce various regulatory policies, which are more business and trade friendly. It may be done by introducing policies that provide for reduced cost of doing business in Bangladesh. Increasing effort is necessary to diversify exports in order to reduce vulnerability of Bangladesh’s economy. It may be a good idea to engage more than before the non-resident Bangladeshis in the progress and the next level of growth for Bangladesh.
A major limitation to expanding industrial development in Bangladesh is limited access to capital market by their enterprises. Local Capital market has shallow access to international capital market due to poor sovereign credit ratings and currency risks. It should be under consideration for raising capital for enterprises towards building productive capacity. Bangladesh may also opt for exploring the possibilities of taking advantage of non-LDC-specific trading arrangements such as the various GSP schemes for the developing countries or seek to negotiate trade agreements in ordered to avoid MFN tariff rates.
According to international criteria, Bangladesh is in a comfort zone in terms of debt sustainability and fiscal space. Thus, there is the cushion for borrowing more from external sources to bridge the resource gap. However, continued prudent borrowing policy focusing on blending of loans from concessional and non-concessional sources/types may be explored. The non-concessional credit may only be mobilized for infrastructure and income generating projects. Structural opportunities like natural resource endowment, domestic resource, agricultural productivity and youthful population should be explored and utilized for the desired transition.
Non-structural opportunities such as flow of remittances, the use of ICT, regional integration, and searching of emerging development partners need to be explored. Structural Risks like high poverty and inequality, low human capital and weak economic governances have to be tackled effectively and minimized to a reasonable level. Emerging risks like climate change, violent extremism, and managing shocks and vulnerabilities (like Rohingya crisis) are to be managed with extreme care and attention. Strategic partnership is required to facilitate smooth graduation strategy including implementation and monitoring road map, partnership between private and public and alignment of DPs policy with national development strategy.
We believe that Bangladesh has an opportunity to become a leader among the LDCs graduates and Bangladesh may achieve the same through undertaking sincere and efficient measures as discussed in this piecemeal. Bangladesh should see all the dreams coming true if the citizens have the courage to pursue them.

Tasmiah Nuhiya Ahmed is a research assistant (law) at the Bangladesh Institute of Law and International Affairs.

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