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Navigating out of the LDC bloc

  • Published at 01:32 pm April 6th, 2018
Navigating out of the LDC bloc
Bangladesh marks a monumental milestone as it accomplishes the three requirements, necessary to graduate from the LDC bloc. As per the UN, a nation must have the following prerequisites: Human Assets Index (HAI) of 66 or above, gross national income (GNI) per capita of $1,230 or above for three years, and an Economic Vulnerability Index (EVI) of 32 or below. Bangladesh, being an economy worth $686.5 billion, has an HAI of 72.9, per capita income of $1,610, and an EVI of 25. This achievement can yield immensely constructive results but only if a few considerable challenges are overcome. The new designation appointed to Bangladesh will help to usher in prominent boons like better foreign affairs and investments. It serves to emphasize the thriving economy of our country that is advancing at an unprecedented rate with a mission to eradicate poverty and hunger. Our transition to a developing country will not only ameliorate Bangladesh’s global recognition but will also indicate that the nation has a strong economy. UN Assistant Secretary-General Haoliang Xu expresses that “as an LDC, the signal to investor community is that it is not the best place for investment”. He later asserts that this conversion will depict a “strong message to investors that Bangladesh is the right place for investments”. Consequently, the economic risks associated with public and private sector outlays will decrease, simultaneously lowering the cost and prompting further investments. Moreover, this graduation will boost Bangladesh’s credibility in terms of international finance, as it will be easier to acquire profitable loans at viable interest rates, which can be utilized to propel our economic and social welfare to a greater extent.
Our transition to a developing country will not only ameliorate Bangladesh’s global recognition but will also indicate that the nation has a strong economy
In order to harness these benefits, we need to navigate through a plethora of uncertainties. High export tariffs, expensive foreign loan and the middle-income trap are just a few of numerous prominent challenges. Bangladesh may see itself suffering from “preference erosion” due to this graduation. Under the “Everything But Arms” initiative, Bangladesh is capacitated to a duty-free access to the European market. Bangladesh receives a duty-free access for all products in developed countries all over the world, excluding apparel exports to the United States. However, this privilege will be revoked once the graduation has been consolidated. With more than 60% of its exports flowing to the European market, CDP’s research director Dr Khondokar Golam Moazzem speculates that Bangladesh is likely to lose about $2.7 billion in export earnings every year once it graduates from the LDC bracket. He also added that “The country’s exports will face an additional 6.7% tariff once it graduates from the LDC status and exports may fall by 5.5-7.5% as a result of the withdrawal of preferential access.” Additionally, an executive director of the South Asian Network of Economic Modeling (SANEM), Dr Selim Raihan, stated that it is essential to amplify Bangladesh’s social infrastructure to attain the desired economic growth rate. “Otherwise Bangladesh would fall into the ‘middle-income trap’, a state where a number of countries are stuck in the lower-middle income status and are unable to move up,” he said. Judicious leadership corroborated by execution of appropriate policies is vital to achieve the middle-income status. By diversifying the export industry and enhancing the social infrastructure to accommodate more investments, Bangladesh can hope to avoid the potential drawbacks of the anticipated graduation. Haoliang Xu, said, “You have many years to prepare yourself for the loss of benefits. But you have a lot of years to prepare for reaping much higher level of benefits for not being an LDC.”