LDC Graduation: Are we ready to take advantage of the opportunities?
Bangladesh must plan properly to turn the challenges of LDC graduation into opportunities if it does not want to be a victim of the middle-income trap
The relentless effort of the people of Bangladesh has paid off. Bangladesh is graduating from the Least Developed Countries (LDCs) category, scheduled to be effective in 2026. This is, no doubt, a matter of pride and celebration for everyone.
However, the transition from LDCs does come with a cocktail of challenges alongside the opportunities. With this gateway, we are entering a new world with multi-dimensional effects on almost all aspects, namely economic, socio–economic, environmental and geopolitical.
It is not possible to cope with the new era without considering the multi-dimensional aspects with equal importance. However, the direct and immediate area of attention is, of course, the economic aspect, which includes trade and commerce.
Impact on the economy: An early warning
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The most common economic challenge is the loss of LDC-specific International Support Measures (ISMs), such as preferential market access. The International Support Measures (ISM) for LDCs can be categorised into three broad types: Trade-related international support measures, Official Development Assistance (ODA)-related international support measures and General Support related to international support measures.
The decline of existing trade-related facilities will have an adverse effect on Bangladesh's exports, especially apparel products, to European and North American markets. It is estimated that Bangladesh may experience a shortfall of 8–10% of its gross export revenue, amounting to almost USD 2.5 billion annually, due to the loss of duty-free and quota-free market access.
Besides, the duty-free trading facilities that Bangladesh is currently enjoying under the World Trade Organization's (WTO) generalised system of preferences (GSP) will be curtailed once it leaves the LDC group.
With graduation, Bangladesh will no longer be eligible for LDC-specific special and differential treatment, aimed at facilitating LDCs' participation in international trade under a WTO agreement.
Additionally, Bangladesh is going to lose some of its advantages even under regional trade agreements such as the South Asian Free Trade Area (SAFTA) and the Asia Pacific Trade Agreement (APTA).
Moreover, Trade-Related Intellectual Property Rights (TRIPS) obligations may cause headaches for export-oriented industries, especially the pharmaceutical sector, which has a more than $3 billion (USD) market worldwide.
Most importantly, Bangladesh will have to comply with the WTO agricultural requirements post-graduation, which will not allow the continuation of subsidies currently being provided to the agriculture sector.
Development assistance usually plays a significant role in the economies of LDCs. Though Bangladesh's role in development assistance is not significant, the changing scenario has some impact. Once Bangladesh graduates, it will not be considered for grants and soft loans under official development assistance (ODA).
Besides, the developed countries' commitment to provide 0.15-0.20% of their GNI in the form of ODA to LDCs cannot be availed by Bangladesh. Moreover, the cessation of access to LDC-exclusive concessional finances may have a temporary negative impact on the country's development stride.
LDC countries have access to the Investment Support Programme—e.g., on-demand legal assistance—for investment-related negotiation and dispute settlement. The scope for scholarships and fellowships, along with research grants, will be reduced, which has an adverse effect on capacity-building.
The country will also not be entitled to the caps and discounts on subscriptions available for LDCs, resulting in higher contributions to different international organisations, like the UN.
Socio-economic Impact: Revamping is a perquisite
It is estimated that Bangladesh may lose 0.4–1.4% of its GDP annually because of the shocking effect on export earnings (GED, 2018). The direct and multiplier effects may influence the overall poverty reduction and employment generation measures.
It is assumed that, if not addressed properly, the target of eliminating extreme poverty by 2030 and reducing absolute poverty to 5% or less by 2041 may be very challenging. Again, the export of human resources may be hampered due to some obligations mandatory for the MICs.
Environment and Climate Change: A testing time ahead
Being the seventh most vulnerable country in the context of climate change, Bangladesh has to give up some of the global support schemes, such as the Green Climate Fund (GCF), which is a global financing scheme with special consideration for assisting climate-sensitive adaptation and mitigation measures in LDCs.
Besides, Bangladesh is going to lose the advantage of availing financial support from the Least Developed Countries Fund (LDCF) under the United Nations Framework for Climate Challenge (UNFCC). Additionally, the UN Technology Bank, which was launched to enhance the contribution of science and technology for the LDCs, will stop assisting Bangladesh once it moves to the bracket of developing nations.
Measures are already in place
The Government of Bangladesh (GoB) has taken the transition with utmost importance. The five-year plan has been designed in line with the need for graduation. The 8th Five-Year Plan (2021-2025) has been designed to cater to the needs of smooth graduation.
A high-level committee has been set up at the Prime Minister's Office to devise appropriate strategies to meet the demands of sustainable LDC graduation. Seven subcommittees have been set up, involving major stakeholders (public and private sectors).
These committees have been entrusted with developing concrete recommendations. However, the key challenge here is to convert these recommendations into timely actions, plans, and policies. Hence, real-time monitoring and evaluation of progress are desperately needed at this stage.
Possible ways to cope with the new situation: Tasks for the public sector
The challenges are not unique to Bangladesh; rather, every LDC graduate faces similar challenges in the process. Nevertheless, the challenges here in Bangladesh are multi-dimensional in nature and require robust combined effort at three layers, i.e., institutional, organisational, and individual.
In order to bring in effective measures, a robust situation analysis is a must. In the meantime, the General Economic Division of the Planning Commission has tried to assess the situation, which has provided some valuable insights into indicating a pathway for effective preparation. However, the analysis of the available data suggests that capacity gaps remain at various levels: in the legal and policy regimes, at the organisational level and at the individual level.
In order to address the gap alongside specific actions, some generic interventions are required at policy, organisational, and individual levels.
Policy Interventions
A national-level combined action plan with a rigorous M&E framework needs to be put in place. Every ministry or division needs to prepare a strategic plan, considering its challenges and opportunities. We need to identify a list of policies or laws that need to be formulated or amended.
The identified actions then need to be incorporated into the Annual Performance Agreement (APA). A national-level monitoring and evaluation framework needs to be put in place to track its progress.
Organisational Intervention
The structure of public-sector organisations needs to be assessed in line with the needs and demands of the new situation. Measures need to be taken to fulfil the global requirements and obligations in terms of the MIC standard. An organisation-level LDC graduation committee needs to be formed to do that.
Individual Interventions
Measures need to be taken for skill gap assessment in the public sector. Capacity development programmes need to be put in place in line with the findings of the assessment. Well-planned measures need to be taken to create sector-wise specialised civil servants. The negotiation skills of civil servants need to be developed with a special focus.
Time for the private sector to play an effective role: Quality is the only safeguard
Export diversification will need to be given high priority both in terms of product and market concentration. Bangladesh will need to take adequate preparations to access the emerging opportunities in the global market, particularly in the markets of the neighbourhood regions.
Bangladesh's trade relations, particularly exports, have been primarily focused on North American and EU markets. Regional markets such as South Asia, East Asia, and the Association of South East Asian Nations (ASEAN) currently account for only about 12 % (CPD, 2023) of Bangladesh's global exports. In this connection, the development of regional value chains and production networks will be crucial.
Bangladesh will need to make a crucial transition from preferential market access-driven competitiveness to skills—and productivity-driven competitiveness. In this particular area, the private sector has a significant role. As the quality of the product will be the main determining factor for export earnings, the private sector has to take responsibility.
Most importantly, Bangladesh's current low technology embeddedness in its exports will need to be enhanced to diversify exports, increase productivity, and raise competitiveness.
In addition, specific actions are required, especially in the areas of trade and commerce, investment, fiscal policy, and monitoring policies.
We need to utilise the opportunity, such as an upgraded "sovereign credit rating." The graduation will boost the country's confidence in dealing with international financial actors and enhance its brand value, making the economy more attractive to global lenders. This implies a reduced cost of international finance due to improved perceptions of country-level market risks.
Bangladesh also needs to reduce its very high dependency on the RMG sector by diversifying its export basket and promoting the export of new products, e.g., plastic items, leather goods, frozen foods, etc.
The government should analyse the markets in different regions, such as Latin America, the Middle East, etc., and formulate strategies for penetrating those markets as part of diversifying export destinations.
Bangladesh should join different regional trade blocs and sign FTAs with individual countries, even at the expense of opening up the domestic market for reciprocal access.
Measures need to be taken to enhance product quality improvement in order to sustain global competition.
There is also a need to bring about change in the investment climate by simplifying the investment process, such as the introduction of a one-stop service for investors by the Bangladesh Investment Development Authority (BIDA).
Bangladesh may also negotiate with the WTO about not imposing all the conditions on developing countries at once, considering the economic fallout triggered by Covid-19.
We need to increase funds in R&D for a knowledge-based economy. We need to focus on local resource mobilisation. We need to focus on manufacturing high-value goods.
We need to bring reform in education and human resources development policies in line with the demand for LDC graduation.
The country must plan to turn the challenges into opportunities in the coming days. The absence of tailored and clearly defined roadmaps for addressing the post-graduation challenges may make Bangladesh a victim of the "middle-income trap."
Dr Mohammad Kamrul Hasan is a researcher and public administration practitioner
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
