In and out of LDC: Bangladesh case

Bangladesh, along with 47 other countries, became member of LDCs (least developed countries) 45 years ago on the basis of their per capita income, literacy rate and expectation of life. As LDCs the 48 countries enjoyed a total of 136 facilities including special treatment for official development assistance, preferential market access, rules of origin in respect of exports, patent flexibilities and aid for trade. These were substantial measures of assistance and the LDCs' efforts to break out of the low equilibrium trap characterizing their economies greatly benefited from them. The advantages did not accrue automatically, the LDCs as a group had to negotiate and bargain for each and every concession that was granted by the developed countries and international bodies. Bangladesh can legitimately take credit for corralling some of these when it was the leader of the group. As a result, Bangladesh's leadership in promoting LDCs' interests has been widely appreciated.
But soon Bangladesh will have to leave the group as has been indicated by the recently released report of UN Conference on Trade and Development (UNCTAD). The departure that will kick in 2018 and become formal in 2024 will be a recognition of achievements made by Bangladesh in socio-economic development. Though all the three criteria (slightly different from those used for inclusion in the group) have not yet been met by Bangladesh, the present trends promise that these thresholds will be crossed before the deadline. Bangladesh is projected to graduate in 2024 meeting all the three relevant criteria: (a) the income criterion, (b) the Human Asset Index and (c) Economic Vulnerability Index. According to the UNCTAD report, 2016, a LDC can graduate if it meets two of the three criteria or on the basis of the income criterion if the country's income doubles.
At present Bangladesh meets only the criterion relating to Economic Vulnerability Index (EVI). The threshold income criterion for graduation requires an average of $1242 (from 2011 to 2013) but Bangladesh's progress in this respect amounts to $1150 making the target unfulfilled. Interestingly, the income per capita, according to Bangladesh Bureau of Statistics, has been shown as over $1200 in the last survey. The basis of calculation by UNCTAD appears to be different.
In terms of EVI Bangladesh has been shown to have scored 25.1 against the required 32 or below, and thus fulfilling the target. Economic vulnerability is a complex matter, rooted in domestic political and external economic shocks (global economic turmoil). As a dynamic factor and dependant variable this criterion makes cooping capacity of a country uncertain and its achievement at a particular time cannot be considered satisfactory for the long term. Comprising so many independent variables, EVI will most likely behave like moving goal post, making a final judgment difficult and unpractical. Thus even when Bangladesh graduates out of LDC it will remain vulnerable to these internal and external shocks. It is not known if UNCTAD has taken this into account.
The third criterion, Human Asset Index (HAI), fixing 66 or above as the target and Bangladesh having scored 63.8 can be said to be within reach.
FACILITIES PROVIDED BY LDC STATUS: Graduation out of LDC by 2024 by Bangladesh involves deliberation on three issues. The first is whether Bangladesh made the most of the facilities provided by LDC status. The fact that the country has debunked the 'basket case' scenario and evolved into a role model for development gives the lie to the negative epithet. Receiving grant and loan on concessional terms from bilateral and multilateral institutions has been of great advantage to the country. It has made more external assistance available and less onerous debt servicing burden possible for the country. LDC status has enabled the country to enjoy duty-free access (and also quota free) to European market and Japan, two of Bangladesh's major trading partners. Until recently, Bangladesh was given GSP facility by America which helped a number of export goods. Greater commitments have been made to Bangladesh for grant/loan from the climate fund because it is a LDC. The substantial progress made by the country in poverty reduction owes significantly to targeted external assistance for this purpose. Assistance received as a LDC enabled Bangladesh to achieve most of the targets of Millennium Development Goals (MDGs) well ahead of the deadline and surpassing other developing countries. Gender equality achieved in primary and secondary education and reduction of infant mortality owed not insignificantly to helps received in various forms as a LDC. All told, Bangladesh has made proper and timely utilization of facilities and assistance offered to it as a LDC. As a result, the country is now about to make transition to the next stage, that of middle-income country. The status of lower middle-income country has already been accorded by the World Bank.
WHAT IS REQUIRED TO BE DONE: The second issue involved in connection with graduation from LDC status concerns consideration of what is required to be done to fulfil the unmet conditions. Given the criteria for this by UNCTAD the answer is obvious: make all efforts to reach the targets. The first, increasing per capita income from the present $1190 (according to UNCTAD estimate) has to be raised to an average of $ 1242 which is not a tall order. With gross domestic product (GDP) growth having crossed the milestone of 7.0 per cent per annum and now clocking 7.2 per cent, the first criterion can be met confidently well before 2018, the year the graduation process will kick in. The massive infrastructure programme and expansion of utilities, particularly generation of electricity embarked upon by the government with local and external resources can be expected to create the conducive environment for accelerated investment that is required for GDP growth on a sustained basis.
The target for the second criteria of graduation, EVI, has already been met and satisfied the requirement though, as pointed earlier, this raises questions about long-term sustainability, being subject to several independent variables whose directions are problematic. However, this criterion does not appear worrisome, given the existing record.
The third criterion for graduation involves improvement and expansion of education in primary and secondary tiers and availability of health services to all, particularly the vulnerable groups. This will require not only increase in budgetary allocations to this sector but also reform in the service delivery system. The latter task will not be easy as seen from the experiences of many countries. The priority should, therefore, be given to preventive health measures like immunization, safe drinking water and sanitation.
ATTAINING GREATER HEIGHT: One may ask at this stage, since LDC status confers so many benefits why should Bangladesh be anxious and keen to graduate beyond it? The answer is, firstly, because of self-respect. Secondly, it has to be pointed out that graduation is the inevitable outcome of the growth momentum that is continuing as a result of sustained efforts over the years. As the character Oscar in Guntar Graas's novel Tin Drum, realized remaining a dwarf permanently cannot be an option for a living being. It is demeaning and degrading. Bangladesh also, as a steadily growing country, has to develop to attain greater height. Outgrowing existing stature is the law of nature, Oscar found out.
More important than a smooth graduation strategy that culminates in 2024 will be the adjustment process in the post-LDC stage. Particularly crucial will be to keep up the momentum and volume of exports. According to an estimate, Bangladesh's exports are likely to fall between 5.5 to 7.0 per cent when the country loses duty-free market access upon graduation from the LDC status. At that stage product and market diversification will be crucial. More critical will be the need to increase productivity for maintaining competitive edge with other countries exporting same products. This will require structural reforms.
The second area where graduation from LDC status will disadvantage Bangladesh is in respect of foreign aid and loan. As a non-LDC country Bangladesh will not be eligible for grant or concessionary loan. The reduction in the volume of grant and loan will have to be compensated through increased volume of export earnings and remittances by migrant workers. To achieve the latter more skilled labour have to be sent abroad with simpler and cheaper ways of migration. The adjustment process will take sometime and for this the 'grace' period of three years after 2024 should be sufficient. But the planning of the strategy for adjustment of the economy in post-LDC stage has to start now. Like Oscar in Guntar Graas's nobel Bangladesh will have to grow with unflinching willpower.                                
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