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5-year transition period to face LDC graduation challenges

Bangladesh, the largest least developed country (LDC) in terms of population and economic size seems to leave the LDC category by 2026 fueled by better health and education, lower vulnerability and an economic flourish.

“Bangladesh has seen broad-based gains in health, education, infant mortality and life expectancy,” said Daniel Gay, LDC expert in UN DESA’s Development Policy and Analysis Division.

5-year-transition-period-LDC-graduation-challenges
Figure 1: Urgent diversification of the export basket can offer sustainability in the international trade arena for Bangladesh.

The Committee for Development Policy (CDP) convenes at UN Headquarters in New York for its review on 12-16 March 2018 because, for the first time, the country is expected to meet the three criteria for graduation.

The CDP, comprising 24 independent development experts from around the world meet every three years to review the list of LDCs, based on a rigorous methodology using a wide range of sustainable development indicators like per capita income, human assets index and economic vulnerability index. A country must prove thresholds on two of the three criteria at two consecutive triennial reviews to be fit for graduation. There is hardly any country which has managed all three criteria.

According to the UN, the requirements for transitioning into a developing nation as determined during the 5-day review meeting held between February 22 and 26, Bangladesh scores as following:

Bangladesh-scores-against-UN’-requirements-transitioning-developing-nation
Figure 2: Bangladesh’s scores against UN’s requirements for transitioning into a developing nation.

There arose some recommendations on the country’s appeal to extend the final terminal period to 2026 from 2024 by the government-formed central committee, comprising specialists from private and public sectors, to think of ways for upcoming challenges in the post-LDC era.

There is an opinion to allow foreign direct investment (FDI) in the textile sector, especially in its backward linkage industries, to become more competitive in the global market. Bangladesh’s backward linkage products of the textile sector should attract FDI through joint-venture.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Dr. Rubana Huq demanded the formation of a central committee comprising of private sector think-tank representatives, researchers and trade experts to deal with any bilateral or multilateral discussion challenges in trade and economic relations after the LDC graduation.

Otherwise, future trade deals like free-trade agreements (FTAs) and preferential trade agreements (PTAs) will be in disarray.

Prof Mostafizur Rahman, distinguished fellow at Centre for Policy Dialogue (CPD) said, “At a time when we are set to celebrate the golden jubilee of our independence, the country achieved international recognition for its sustained development in the socio-economic indicators. We have to utilize this opportunity to attract foreign investments and take credits from the foreign countries.”

The CPD fellow Prof Mustafiz described about heavily-protected trade in Bangladesh can be a major hurdle since higher tariff rates.

To tackle this problem independent trade policies, rules and regulations for upgrading trade competitiveness, to take benefits as well as to offer facilities to trade partners though high dependency on RMG is somehow acceptable as the global textile market is much larger than other products.

Vietnam gets duty-free quota-free (DFQF) market access to the US through the recently signed Trans-Pacific Partnership (TPP) deal which is a major setback for Bangladesh as after 2026 15% tax will have to pay.

For that instance, CPD fellow suggested standing with other LDC-graduating countries in the next ministerial World Trade Organization (WTO) conference in Geneva in November for more trade benefits.

TRIPS benefit will be helpful for the local pharmaceutical industry.

Urgent diversification of the export basket can offer sustainability in the international trade arena.

Upgrading the country’s education system for developing manpower with higher productivity is necessary. The prime minister’s adviser-Salman F Rahman said in a virtual roundtable that skills development is very important because skills are considered as the software of economic growth while infrastructure is the hardware. Further attention is required to ensure policy consistency in the country’s economic zones.

Bangladesh’s duty structure is determined not only based on protectionism, but also on productivity and local market size where India can formulate a very liberal duty structure as its domestic market is big and productivity in its industrial units is also higher compared to that of Bangladesh.

Private investors want to know the predictability and continuity of policies of the National Board of Revenue comparing with India, China and Vietnam after graduation.

Bangladesh can hail a milestone and sustainable development in the socio-economic indicators will bring opportunities as well as challenges since it will lose trade benefits in export destinations and lose competitiveness to its competitors.

Also, it will increase Bangladesh’s credit rating, which will in turn help issue sovereign bonds and boosts the confidence of global lenders.

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