Realisation of the upper middle income status and beyond

In early 2018, Bangladesh fulfilled all the three eligibility criteria for graduation from the list of Least Developed Countries (LDCs) of the United Nations. The Committee for Development Policy (CDP) is mandated by the General Assembly (GA) and the Economic and Social Council (ECOSOC) to review the list of LDCs every three years and to make recommendations on the inclusion and graduation of eligible countries on the basis of per capita income, a human assets index and an economic vulnerability index. The committee is comprised of 24 independent development experts from around the world who reviews the list of LDCs, based on a rigorous methodology using a wide range of sustainable development indicators which reflect long-term structural barriers. Thus, countries are eligible to enter or leave the LDC category if they meet the defined inclusion or graduation thresholds of the criteria. The graduation thresholds are usually set higher than the thresholds in order to ensure that graduation is eventually sustainable. Thus, Bangladesh now has the prospect of moving ahead from the list of LDCs subjected to the re-assessment of ECOSOC in 2024.

Likewise, according to the World Bank, Bangladesh became a lower middle-income country in 2015. The World Bank assigns the world's economies into four income groups namely, high, upper-middle, lower-middle, and low. This assignment is based on GNI per capita which is calculated using the Atlas method. The units for this measure and for the thresholds is current US Dollars. These classifications are used by the World Bank to aggregate data for groups of similar countries. Each year on 1st of July, the classifications are duly updated for two main reasons. First, factors such as income growth, inflation, exchange rates, and population change influences GNI per capita in each country and second, to inflation adjust and maintain the dollar thresholds by which separate the classifications fixed in real terms. After the new thresholds are determined, they remain fixed for 12 months regardless of subsequent revisions to estimates. As of July 1 2018, the new thresholds for classification by income are: high-income (>12,055 GNI/capita at current USD), upper-middle income (3,896 - 12,055 GNI/capita at current USD), lower-middle income (996 - 3,895 GNI/capita at current USD) and subsequent low-income countries.

At present there is a broad based aspiration that Bangladesh will soon move up to the middle-income country category. However, in order to ensure a successful transition to the middle income country status the country must find effective ways to overcome a number of challenges and obstacles. Given the backdrop of the fourth industrial revolution (4IR), at present there are still about 24 million people in Bangladesh who live below the poverty line and the labour force participation rate is only around 58.2 per cent. Thus, a lot of effort will have to be generated to increase the current GNI per capita of 1,909 USD to the middle income threshold of 3,896 USD in the coming years. Although, at first glance overcoming these hurdles may appear to be daunting, technology and innovation can play a key role to promote the sustainable growth of Bangladesh.

The government can adopt several strategies to amplify the overall gross national income. The government can take initiative to declare the next five years as the priority period for the development of overall capacity of the workforce. By introducing intensive skills training measures and initiatives to boost quality education, the government can amplify the stock of human capital in the country. This in turn will have multifaceted implications on economic growth and development of the country. Citizens with higher level of education and skills will be more proactive, innovative and productive. As a result, they will be able to avail better jobs at both home and abroad. The government can also increase employment and productivity through promotion of special economic zones and further integration into the global value chain. A rounded approach to reduce unnecessary transaction cost and various other forms of market failures can also improve the overall innovation scene and the flow of foreign direct investment in the country.

Many nations of the world are now investing heavily on research and innovation in order to stay ahead in the race of competitiveness. According to the Global Innovation Index (GII) of 2019, innovation is blossoming around the world despite the recent slowdown of the global economic growth. In fact, there has also been a shift in the global innovation landscape as some middle-income economies are on the rise. Countries around the world are now increasingly focusing on innovation quality than quantity. While it is true that the innovation inputs and outputs are not equitably shared by all the economies, but there are examples that economies can get different return on their innovation investments compared to their comparators. When it comes to innovation, being the small country that it is, Bangladesh offers immense potential. Bangladesh is well known for some of the cutting-edge social innovations and social enterprises have been a success story in Bangladesh. Consequently, prioritising investment on R&D activities across different sectors may also enable the country to both accelerate and sustain its growth journey.

Last but not the least, the government must also prepare for the imminent climatic threats that are ahead of the country and duly invest on technological solutions to reduce the environmental impact of development activities. It is imperative to keep in mind that drastic actions taken up for a short interval may sometime bring about some of the immediate expected results, but the question remains that what will follow in the long run? As the world prepares for embracing the forthcoming fourth industrial revolution, Bangladesh must also prioritize investment in R&D to grasp the immediate opportunities and mitigate the uncertainties of the future. Finally, increased investment in human capital formation and R&D activities will also ensure continued growth beyond the upper middle income status and help Bangladesh to escape the possible risk of being entangled in the 'middle income trap'.

Rafiqua Ferdousi is Research

sEconomist, SANEM.

[email protected]