The Committee for Development Policy (CDP), a United Nations Panel in New York, has formally announced that Bangladesh now has the eligibility to graduate to the status of a developing country from that of a Least Developed country (LDC). Bangladesh has apparently met all the three criteria for the first time to be acknowledged as a developing country. This decision coincided with the 98th birth anniversary of Bangabandhu Sheikh Mujibur Rahman. It could not have come at a better time.
The three criteria used for assessing this change were Gross National Income (GNI) per capita, Human Assets Index (HAI), and Economic Vulnerability Index (EVI). According to the UN’s graduation threshold, the GNI per capita of a country has to be $1,230 or above. Bangladesh’s GNI per capita according to this panel is now $1,272.
In terms of the HAI, a country must have a score of 66 or above. Bangladesh’s score is now 72.8 -- well above the threshold. The HAI, it may be noted is an indicator of nutrition, health, adult literacy, and secondary school enrollment rate.
In the context of economic vulnerability index (EVI), a country’s score has to be 32 or below. Bangladesh’s score is 25 in the EVI, an indicator of natural and trade-related shocks.
Bangladesh, according to the World Bank, is the only country to have met all the three criteria at the same time for becoming eligible to graduate from the LDC bloc.
Almost a graduate
It is understood that the CDP will review Bangladesh’s progress in 2021, and the country’s official graduation from the LDC category will take place after a three-year transition period. If the country maintains its position in all the three categories for the next six years, it will eventually graduate from the LDC bloc. There will be two more reviews in 2021 and 2024 to ensure graduation from the LDC list.
Several intensive discussions and seminars convened in this regard by economists in Dhaka have correctly drawn attention to the need for relevant authorities to address several issues that exist within this evolving paradigm.
Zahid Husain of the World Bank office in Dhaka has commented that: “We need to make much more progress in reducing the percentage of undernourished population and this is more challenging than reducing the percentage of population in poverty.”
He has also noted that maintenance of stability in agricultural production will be a challenge due to decrease in farmland and also because of adverse effects of climate change. Adequate support for adaptation and mitigation measures will consequently be required due to climate variability.
The UN initiated the process of granting LDC status in 1971. At present the total number of LDCs is 47. Five countries have so far graduated from such designated LDC status: Botswana in 1994, Cape Verde in 2007, the Maldives in 2011, Samoa in 2014, and Equatorial Guinea in 2017.
It is however quite clear that Bangladesh’s graduation will have some implications for its economy and also its regulatory regime. This will apply to challenges that exist within different sectors of our economy -- banking, trade (export diversification), and areas related to technical cooperation.
It has been an uphill task but we are slowly inching forward -- what we need to remember is that political stability, transparency, accountability, and being free of corruption are essential
In this context, it has been pointed out that once the country gets out of the LDC bloc in 2024, it will have to overcome hurdles that will appear because of our loss of duty-free and quota-free market access to the EU under the Everything but Arms initiative.
A study carried out by the Economic Relations Division in December 2017 has suggested that Bangladesh might lose close to $2.7 billion in export earnings every year once it graduates from the LDC bracket. This has persuaded relevant government authorities to urge the private sector to give importance to the diversification of exports in the following sectors -- agriculture and agricultural processed goods, pharmaceuticals, and leather.
Another challenge will be with regard to securing the benefits of technical cooperation and other forms of assistance such as fund support for special training as well as for research. The scope of the credit accessibility might also be diminished.
The last few weeks have seen the media reporting positive and negative aspects within our economy. Now that Bangladesh has been cleared for moving upwards, we need to address some existing issues with greater care.
In this context, while welcoming increase in export earnings from RMG by 8.3% in the October to December, quarter of 2017 (compared to 2016). and the report that 88% of Alliance factories have been certified as having become compliant with required safety standards, we need to also focus on resolving difficulties associated with the question of rules of origin.
Second, our expatriate work force is continuing to suffer from lower wages compared to that given to workers from Sri Lanka and India due to lower technical skills. This is creating difficulties and needs to be addressed. Third, higher import against comparatively lower exports has resulted in trade deficit soaring by 92% to $10.12bn during the July- January period of the current financial year compared to the same period in the last fiscal year.
This has partially resulted in our foreign exchange reserve slipping below $32bn. Fourth, the volume of non-performing loans in the country’s banking system has jumped 19.51% in 2017, despite close monitoring by the Bangladesh Bank. This needs to be tackled through stronger recovery drives by the commercial banks and re-scheduling of loans.
Fifth, it has been noted in the ADP evaluation report prepared by IMED under the Planning Ministry that use of foreign aid in development projects has gradually slowed down because of corruption, lack of capacity and skills, and absence of transparency.
A glimmer of hope
Despite some of the aforementioned constraints, the Deputy Managing Director of the International Monetary Fund (IMF) Tao Zhang has stated that “macro-economic performance in Bangladesh is set to remain robust in the coming year and inflation will remain broadly stable.” This brings forth a glimmer of hope in the horizon.
Prime Minister Sheikh Hasina and the private sector entrepreneurs deserve credit for this progress.
It has been an uphill task but we are slowly inching forward -- what we need to remember is that political stability, transparency in decision-making, accountability in implementation of projects, and being free of corruption are essential.
Only then will our progress be sustainable and inclusive. We will also need not only investment, both local and foreign, but will also have to address the issue of labour-intensive manufacturing in an evolving world which is slowly embracing technology and automation.
Muhammad Zamir, a former Ambassador is an analyst specialized in foreign affairs, right to information, and good governance. He can be reached at [email protected]