Graduation of Bangladesh from LDC status have been discussed in this presentation. It covers Conceptual issues, How Bangladesh compares with of other LDCs, Graduation implications, Towards sustainable graduation: Importance of productive capacity, Challenges to sustainable graduation and Policy issues

1. Bangladesh: Graduation from LDC
Dr. Md. Taibur Rahman
Project Manager, UNDP
trsumon@gmail.com
5 May 2018
1Presented by Dr. Md. Taibur Rahman

2. Presentation outline
• Conceptual issues
• How Bangladesh compares with of other LDCs
• Graduation implications
• Towards sustainable graduation: Importance of
productive capacity
• Challenges to sustainable graduation
• Policy issues
2Presented by Dr. Md. Taibur Rahman

3. What is Least Developed Country (LDC)?
• Least developed countries (LDCs) are low-income countries confronting
severe structural impediments to sustainable development.
They are highly vulnerable to economic and environmental shocks and
have low levels of human assets.
• There are currently 47 countries on the list of LDCs which is reviewed
every three years by the Committee for Development (CDP).
• LDCs have exclusive access to certain international support
measures (ISMs) in particular in the areas of development
assistance and trade.
3Presented by Dr. Md. Taibur Rahman

4. LDC Inclusion Criteria
• Inclusion Thresholds: 2018 Triennial Review
Gross National Income
(GNI) per capita $1,025
Human Assets Index
(HAI) 60 or below
Economic Vulnerability Index
(EVI) 36 or above
4Presented by Dr. Md. Taibur Rahman

5. Income Criterion
Rationale
• GNI per capita provides information on the income status and the overall level of resources available to a
country
Thresholds
• The inclusion threshold is set at the three-year average of the level of GNI per capita, which the World
Bank defines for identifying low-income countries. At the 2018 review it was $ 1,025.
• The graduation threshold is set at 20 per cent above the inclusion threshold. At the 2018 review it was $
1,230.
• The income-only graduation threshold is twice the graduation threshold. At the 2018 review it was $
2,460.
Methodology
• GNI is calculated from national accounts data converted into USD using the World Bank Atlas method
(to reduce impact of short-term exchange rate fluctuations)
• GNI per capita is derived by dividing GNI in USD by the annual population of a country
Data sources
• GNI per capita is calculated by the United Nations Statistics Division on the basis of its National
Accounts Main Aggregates Database
• Population data are taken from the United Nations Population Division
5Presented by Dr. Md. Taibur Rahman

6. Human Asset Indicators
6Presented by Dr. Md. Taibur Rahman

7. Composition of HAI
7Presented by Dr. Md. Taibur Rahman

8. EVI Indicators
8Presented by Dr. Md. Taibur Rahman

9. Composition of EVI
9Presented by Dr. Md. Taibur Rahman

10. What Does «Graduation» Mean?
“Graduation from the LDC category inherently means that a country
has reached a level of development that no longer requires LDC-
specific support from the international community” (CDP
Background Paper No. 14, 2012).
• Graduation marks a shift from dependence primarily on
International Support Measures (ISMs) to dependence on markets
— that is, from dependency to a greater degree of self-reliance.
• Graduation is the first milestone in a marathon of development, not
the winning post in a race to escape LDC status. It marks the end of a
political and administrative process, but not the completion of an
economic or developmental process.
10Presented by Dr. Md. Taibur Rahman

11. Differences between LDC Graduation and attaining MIC
Least Developed Countries Category Income-based Classification (MIC and
others)
UN classification World Bank classification
Single category (LDC) Four categories (LIC, LMIC, UMIC, HIC)
Purpose: To provide eligible countries with LDC-
specific international support measures
Purpose: To make lending decisions
Identification criteria: GNI per capita, HAI and EVI Identification criteria: GNI per capita
Graduation pathways: Two (minimum) - crosses
thresholds for two out of three criteria, or GNI per
capita is twice the graduation threshold level, for two
consecutive years
Graduation pathway: One - crosses the income
threshold for that year
Long process of exit; at least six years from meeting the
graduation criteria for the first time
Short process of exit; immediately after the
classification is assigned
Population cannot exceed 75 million to be included
(since 1991)
No limit on population
11Presented by Dr. Md. Taibur Rahman

12. LDC Graduation: How Bangladesh is unique
*Average of calendar year 2014, 2015, 2016
• Bangladesh is the largest LDC in terms of population size
• Bangladesh is the first country to meet all three thresholds for LDC
Graduation GNI per capita, Human Asset Index [HAI], and Economic
Vulnerability Index [EVI]
Achieved eligibility in 2018
Criteria Threshold, 2018 LDCs Other
Developing
Countries
Bangladesh Laos Myanmar
GNI per
capita
US$ 1,230 or greater
(previous three-year
average)
US$ 1,229 US$ 7,064 US$ 1,274* US$
1,996
US$ 1,255
HAI 66 or greater 53.1 76.4 73.2 72.2 68.5
EVI 32 or less 41.3 34.7 25.2 33.7 31.7
12Presented by Dr. Md. Taibur Rahman

13. Figure 1: Per capita gross national income, US$, Atlas conversion,
1976-2018 (three-year averages)
Source: Committee for Development Policy Secretariat
13Presented by Dr. Md. Taibur Rahman

14. Figure 02: Human assets index, Bangladesh
and LDC average, 1999-2017
Source: Committee for Development Policy Secretariat
14Presented by Dr. Md. Taibur Rahman

15. Figure 3: Economic vulnerability index, Bangladesh and
LDC average, 1999-2017
Source: Committee for Development Policy Secretariat. Note: Bangladesh’s population index is zero as its
population is larger than 100 million. 15Presented by Dr. Md. Taibur Rahman

16. Comparison between Previous Graduated LDCs and
Bangladesh
Country (Year) Criteria
Botswana (1994) Economic and precautionary conditions
Cape Verde (2007) GNI per capita + HAI
Maldives (2011) GNI per capita + HAI
Samoa (2014) GNI per capita + HAI
16Presented by Dr. Md. Taibur Rahman

17. Comparison between previously Graduated LDCs and Bangladesh
Major take: Bangladesh’s GDP growth is impressive and the country is less dependent on
ODA, but domestic revenue is abysmally low, so is the FDI, and export concentration is high.17Presented by Dr. Md. Taibur Rahman

18. Bangladesh LDC Graduation – we are not quite there…
• Another CDP Review due in 2021
• Final graduation in 2024 if eligibility maintained in the
2021 Review
This gives Bangladesh Six Years to PLAN AND PREPARE
TO MANAGE THE TRANSITION.
18Presented by Dr. Md. Taibur Rahman

19. LDC Graduation Implications
Potential Costs:
• Loss of Preferential Market Access:
• WTO provision for Special and Different Treatment (SDT), Duty Free Quota Free (DFQF) market
access
• Autonomous, non-reciprocal initiatives through Generalized System of Preferences (GSP) schemes of
various countries
• Various Regional Trade Agreements (RTA) and special provisions for members that are LDC
• Bilateral trade initiatives.
• Loss of ODA (grants and concessional loans)
• Reduced travel benefits, scholarships and research grants
• Climate Finance: lose their access to LDC-specific funding
• Increased Budget caps
19Presented by Dr. Md. Taibur Rahman

20. Potential
economic losses
Trade related
losses
Higher
tariff
Lower
market
access
Stricter
rules of
origin
Lower export
competitiveness
Macroecono
mic stresses
(particularly
on BoP and
investment)
Lower GDP and
employment
Micro
impacts
Lower grants Lower concessional
loans
Lower social
spending
Lower infrastructure
development
Lower human
& social
capital
Lower capital
accumulation
Fiscal
imbalance
and crowding
out effect
Low
productivity
Economic crisis
Debt
unsustainability
Lower TA
Institutional
capacity
building
weakened
Lower
knowledge
transfer
Stringent
obligations
under TRIPs
Lower
safety net
Higher
economic
vulnerability
21Presented by Dr. Md. Taibur Rahman

21. Impacts: Tariff hike in external markets
• Following graduation, Bangladesh will face MFN tariff rates or reduced
preferential margins under standard GSP scheme in these markets.
• Bangladesh’s exports will face an additional 8.5% (weighted average)
tariff (WITS Tariff database).
• The preference margins for individual partners European Union, Non-
EU Australia, Canada and Japan are: 11.7%, 6.86%, 4.83%, 16.3% and
11.33% correspondingly.
• Graduation will likely also bring an end to Bangladesh’s market access
preferences under the South Asian Association for Regional Cooperation
(SAARC), including Preferential Trading Arrangements (SAPTA).
22Presented by Dr. Md. Taibur Rahman

22. Trade losses
According to UNCTAD estimates, export will
decline between 5.5% to 7.5%. Estimated export
loss in FY2030 will be 6.84 billion (5.5% decline
rate) and 9.32 billion (7.5% decline rate)-
equivalent to about 17.62% and 24.02%
respectively of it global export in FY2015.
23Presented by Dr. Md. Taibur Rahman

23. Loss of ODA (grants and concessional loans)
Bangladesh’s overall dependence on ODA has decreased.
The shares of grants and loans in the total disbursed foreign aid
was 90.5% and 9.5%in FY1972, which stood 12.5% and 87.5%
respectively in FY2017.
ODA still plays a significant role in crucial sectors such as
infrastructure, health and education.
For the period since independence up to June 30, 2015, about US$
65.44 billion of foreign aid was disbursed, of which US$ 26.50
billion is grant and US$ 42.65 billion is loan.
24Presented by Dr. Md. Taibur Rahman

24. Foreign aid still plays important role
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0
500
1000
1500
2000
2500
3000
3500
4000
FY2013 FY2014 FY2015 FY2016 FY2017
%ofGDP
US$million
Total foreign assistance (US$ million) Aid as % of GDP ADP/GDP ratio
25Presented by Dr. Md. Taibur Rahman

25. LDC Graduation Implications
Potential benefits:
• Trade and aid erosion impacts are small and less obvious.
• Benefits in terms of commercial relations (i.e. attractiveness to foreign
investors)
• Market perceptions to FDI, credit ratings, and access to international
lending
• Status effect in regional and international forums (i.e. bargaining power)
• Reaffirmation and strengthening of long-term development vision
26Presented by Dr. Md. Taibur Rahman

26. Beyond Graduation
Bangladesh will need to carefully plan and prepare to avoid getting
caught in a MIDDLE INCOME TRAP.
• The term ‘Middle Income Trap’ refers to countries which transformed themselves
from ‘low-income’ to ‘middle-income’ status and are then unable to move into
‘high-income’ status within a reasonable period of time.
• Middle Income Trap occurs due to:
• lack of structural transformation & competitiveness;
• weak productivity growth;
• high inequality; and
• weak governance.
27Presented by Dr. Md. Taibur Rahman

27. What are the Challenges?
• Lifting GDP growth to higher trajectory, 7% GDP growth will not be enough
• Slowdown in poverty reduction and bunching of poverty just above the poverty line (73% people)
• Rising inequality
• Delayed structural transformation
• Nondiversified export and manufacturing, excessive reliance on two growth drivers e.g. exports and
remittances
• Employment challenge, heading towards jobless growth? Female participation has been reversed, massive
underemployment meaning low productivity
• Stagnant private investment
• Fragile financial discipline
28Presented by Dr. Md. Taibur Rahman

28. • Low domestic revenue (lowest even in South Asia)
• Inefficient and inadequate public services delivery
• Unplanned urbanization and congestion
• Infrastructure, especially energy deficit
• Land scarcity and inefficient land market and management
• Stagnant productivity
• Higher climate change risks
• Inadequate and inefficient social protection
• Governance deficits
• Higher political risks
• Middle income trap 29Presented by Dr. Md. Taibur Rahman

29. The Importance of Productive Capacities
”Building productive capacity is essential for
achieving high and sustainable growth, structural
transformation, and creation of employment and
decent jobs. Progress towards structural
transformation will not only reduce the exposure
of these countries to shocks, but also enable them
to sustain a GDP growth rate of at least 7 per cent
per annum, and help them meet the criteria for
graduation”.
•LDC IV Monitor Report 2014: Analytical Perspectives
30Presented by Dr. Md. Taibur Rahman

30. What are Productive Capacities?
Three major aspects of productive capacity
Productive resources – natural resources, human
resources, financial capital, physical capital.
Entrepreneurial capabilités – coré compétences;
technological capabilités.
Production linkages – exchange of goods and services;
flows of information; human and financial resource
flows – between sectors and between enterprises.

31. The Core Processes through which Productive Capacities Develop
• Capital accumulation – increasing capital stocks of various kinds through investment.
Key input is finance
• Human and social capital accumulation, Key inputs are quality education and skills
• Technological progress – introducing new goods and services or methods of
production through application of knowledge in production (learning and
innovation). Key input is knowledge
• Structural transformation
• Economic diversification
• Enabling regulatory and institutional framework
• Good governance 32Presented by Dr. Md. Taibur Rahman

32. How Productive Capacities Develop
Technologic
al Progress
Structural
Change
Productive
Capacities
Capital
Accumulation
Technologic
al Progress
Structural
Change
Productive
Capacities
Capital
Accumulation
Global
Integration
• Trade
• Technology
• Knowledge
• Finance
• People
Institutions
• National
o States
o Markets
o Firms
o Financial systems
o Knowledge systems
• International
International and
regional regimes for:
o Trade
o Finance
o Intellectual
property
o Technology
o Migration
o Labor
Demand
• Net Exports
• Consumption
• Investment
33Presented by Dr. Md. Taibur Rahman

33. Structural Transformation is the Key…
Stage Product
Specialization
Growth Driver Development Outcomes
1 Primary Products Abundant Land &
Cheap Labour
Low Income Trap
2 Labour Intensive
Simple Manufacturing
Low Labour Cost led
Simple Manufacturing
Products/Exports
Graduation from Low to Lower-
Middle Income
3 Hi-Tech
Manufacturing
Capital Intensive &
Productivity led
Technically
Sophisticated
Products/Exports
Graduation from Lower-Middle
to Higher-Middle Income
4 Services (High-Level) Innovation-led
Knowledge based
Economy
Graduation from Upper-Middle
to High-Income
34Presented by Dr. Md. Taibur Rahman

34. What is Structural Transformation?
•Structural transformation is a process in which the relative importance, inter-linkages
and organizational structure of different sectors and activities within an economy
changes over time.
•In the context of least developed countries and graduation, aspects of structural
transformation are:
> Increasing division of labor
> Relative decline of low productivity agriculture and low value-added activities and
relative increase in manufacturing and high- productivity services
>Increasing share of the employed population engaged in formal rather than informal
economic activities
> Introduction into the country of new tradeable sectors, including both import
substitutes and export activities
> Reduction in dependence on primary commodities for export
> Increase in local value-added and density of local linkages
35Presented by Dr. Md. Taibur Rahman

35. Ongoing Government Initiatives
• Established a high-powered, 10-member National Task Force to steer the
preparations for the graduation;
• Initiated an impact assessment study;
• Government has requested CDP for early impact assessment;
• SDG tracker has been linked with progress towards LDC Graduation;
• All concerned Ministries have been instructed to undertake respective
(ministry-wise) impact assessments; and
• Government has requested UNCTAD for early vulnerability assessment
36Presented by Dr. Md. Taibur Rahman

36. Major policy issues
Bangladesh will need to carefully address several policy issues for a sustainable
graduation. This will require:
• Enhanced domestic resource mobilization
• An effective debt management strategy
• Exit plan to address withdrawal of trade support
• Effective economic diplomacy
• Enabling environment for private sector development
• Innovative financing and global partnership to support development
• A robust transition/graduation strategy 37Presented by Dr. Md. Taibur Rahman