Bangladesh qualifies for LDC graduation: The beginning of the end

Debapriya Bhattacharya, a member of the United Nations Committee for Development Policy (UN CDP) and a distinguished fellow of the Centre for Policy Dialogue (CPD), talks about what it means to be transitioning from the grouping of the least-developed countries (LDCs), and the opportunities and challenges that await Bangladesh, in an interview with The Daily Star's Sohel Parvez.

DS: Bangladesh is set to exit the LDC Group. What is the new timeline?

Debapriya Bhattacharya (DB): The Committee for Development Policy of the United Nations (UN CDP) is set to recommend taking Bangladesh out from the list of the least-developed countries (LDCs). The country has met, for the second time, all the three eligibility criteria for LDC graduation involving income per capita, human assets, and economic and environmental vulnerability.

However, the exit now is to take place in 2026, i.e., five years hence. Bangladesh, before the advent of Covid-19, was set to exit the group in 2024. In response to a recent intervention by the government of Bangladesh, the UN-CDP has agreed to extend the transition period by two more years. Incidentally, the same has been done for three other graduating countries, namely Nepal, Bhutan and Laos.

DS: How will Bangladesh benefit from leaving the group? What is the historical experience in this regard?

DB: The exit of a country from the LDC group essentially means acquiring a seal of global approval regarding its development achievements. This is supposed to lead to, among others, enhanced confidence of the international financial actors regarding the markets of the concerned country. This implies reduced cost of international borrowing due to improved perception about country-level market risks. Thus, following the exit from the LDC group, the international credit rating of graduated LDCs has usually registered upgrade. This may result into augmented generation of investible resources.

It has been observed that, after leaving the LDC group, countries have experienced enhanced domestic tax collection and higher flow of foreign direct investment (FDI). On the other hand, access to external development finance did not diminish abruptly. Intake of foreign remittance has remained indifferent in these countries.

DS: But we know that Bangladesh will lose LDC-specific preferences following the transition, particularly in the area of duty-free quota-free (DFQF) access to export markets.

DB: Obviously, graduation from the LDC group would mean relinquishing a wide-variety of preferences and privileges currently enjoyed by Bangladesh. The most severe shock is supposed to be felt in the area of exports of apparels, particularly in its European and Canadian markets. It has been estimated that the country may experience shortfall to the tune of 8-10 per cent of its gross export revenue due to loss of DFQF provision - amounting to about $2.5 billion annually. Indeed, this amount is equal to about 85 per cent of the total export revenue loss of all graduating LDCs. However, Bangladesh will continue to enjoy market access preference in the European Union (and the United Kingdom) for an extra three years, i.e., until 2031.

At the same time, what surprises me is our enthusiastic preoccupation with export injury in comparison to almost total neglect regarding loss of concessionality in other areas of our economy. I guess this is a result of our uneven understanding of the implications of LDC graduation as well as due to the revealed lop-sided power balance in the country.

DS: What are the other areas to be impacted in Bangladesh due to LDC graduation?

DB: What we do not always keep in perspective that a "dual transition" is taking place in Bangladesh economy. Even before the LDC graduation, in 2015, Bangladesh has moved up from the low-income country (LIC) group to low-middle income country (LMIC) group. This has led to sequential departure from concessional access to official development assistance (ODA). For many international financial institutions, e.g., the World Bank and the Asian Development Bank (ADB), Bangladesh has become a "blended country" where disbursement of concessional finance is incrementally mixed with costlier lending provisions. Many bilateral providers are also increasingly resorting to such practices.

Thanks to LIC to LMIC transition, Bangladesh is also becoming constrained to access various vertical funds, such as the Global Alliance for Vaccines and Immunisations (Gavi).  LDC graduation will also affect our policy space to provide subsidy in the agriculture sector and to our infant industries. However, one of the most worrisome consequences of LDC graduation in the area of finance would be the loss of special access to climate finance, namely to the LDC Fund for Climate Change, managed by the Global Environment Facility.

DS: What about the impact on the pharmaceutical industry?

DB: The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) provides a special exemption (transition) period for the LDCs with regard to providing patent protection for pharmaceutical products. This exemption period is to end in 2033. In other words, Bangladesh's pharmaceutical industry will stop enjoying the flexibility seven years before the expiry of the globally stipulated preferential period.

However, we need to be mindful that there will be several other implications for Bangladesh in the area of intellectual property following the exit from the LDC category. These include, among others, the requirement to implement all substantive provisions of the Trips Agreement, loss of access to technology transfer schemes for LDCs, additional requirements to use special Compulsory Licences for export of medicines, and higher fees for global IP registration systems such as the Patent Cooperation Treaty.

DS: What needs to do be done to address the challenges emanating from LDC graduation for Bangladesh?

DB: Now that the timeline of the LDC exit trajectory is finalised, Bangladesh needs to draw up a robust "LDC Transition Strategy" covering the upcoming five years and beyond. This would herald the "beginning of the end" of our LDC graduation journey. This strategy should not only deal with the possible adverse fallouts of LDC graduation, but also lay out a pathway for "graduation with a momentum". This should ensure a smooth and sustainable development prospect for the country.

Early signals of unleashing this process may be already noticed. For example, Bangladesh is presently exploring alternative trading arrangements through bilateral (and regional) free trade agreements to counteract the anticipated trade shock. The post-Covid recovery plans and programmes have to be embedded in this transition strategy.

Please note that at this moment Bangladesh is pursuing a number of concentric development approaches, including implementation of the Eighth Five-Year Plan (2021-25) and the Second Perspective Plan (2021-41). We would need to take note of the Bangladesh Climate Change Strategy and Action Plan as well. Then, there is the Delta Plan 2100. We should not forget in this regard the importance of delivering in Bangladesh the 2030 Agenda for Sustainable Development in Bangladesh. Goes without saying, preparation (and not to mention actualisation) of a coherent, cogent and wholesome transition strategy for LDC graduation would need significant and forceful efforts.

With a view to ensuring inclusive development – underpinned by growth of investment, employment and income – building of "productive capacity" should be the fundamental and core priority in the Bangladesh context. This would entail economic diversification, technological upgradation and improvement of labour productivity. Focus on domestic market expansion and consolidation would be key in this regard. Essentially, the Sustainable Development Goals (SDGs) must be used as the guiding framework for crafting a winning transition strategy for LDC graduation.

DS: Does it mean that we will be left on our own once Bangladesh leaves the LDC group?

DB: Not necessarily. Currently, a number of global and bilateral initiatives are underway to articulate enabling measures for the graduating LDCs. At the WTO, the LDC Group has already made a number of submissions, including an omnibus proposal for according all existing preferences for 12 more years to all graduating LDCs.

The UN-CDP is also arguing for adoption of a host of international support measures in favour of the graduating LDCs. It has already developed proposals for a special monitoring mechanism for these countries and for launching of a "graduation support facility".

For Bangladesh, one of the major issues would be ensuring continued international support for maintenance and repatriation of the Rohingya refugees.

Hopefully, many of these efforts will get reflected in the outcome documents of the twelfth Ministerial Conference of the WTO, which is to take place in June 2021 and the fifth United Nations Conference on LDCs, to be held in January 2022.

Bangladesh, along with its international development partners and fellow LDCs, needs to intensify the technical and diplomatic efforts towards securing positive outcomes from these global processes now. This has to be part of the national LDC transition strategy. To this end, the country has to put in place a better coordinated and more resultative institutional outfit and mechanism at home.