Graduation from LDC comes at a cost | The Daily Star
12:00 AM, September 03, 2019 / LAST MODIFIED: 12:00 AM, September 03, 2019


Graduation from LDC comes at a cost

How can it be lessened?

A planning Commission report has revealed that once Bangladesh graduates from its least developed status to a developing country in 2027, it could lose USD 7 billion export earnings every year as it will no longer enjoy the trade benefits it currently is entitled to. One such benefit is zero duty on its shipments to the European Union, Canada, Australia and many more countries. In fact, the government’s impact assessment on LDC graduation report says the loss could be as much as USD 13 billion by 2031. So how can Bangladesh prepare to mitigate these shocks?

Negotiating bilateral trade deals has been suggested to be one way of avoiding such huge losses. It could, for instance, lobby with the EU to retain the GSP+ scheme so that Bangladesh can continue to enjoy zero percent duty rather than have to pay 9.6 percent after graduation.

But duties are not the only thing Bangladesh should be worried about. Multilateral concessional loans too will come down quite significantly according to the report which means the cost of borrowing will shoot up. Also the cost of interest of external debt will go up.

The report has given additional suggestions to lessen the hardship following graduation. These include increasing the tax to GDP ratio, keeping fiscal deficit at less than 5 percent and keeping the inflation rate at less than 5 percent. The report has also suggested spending on the education sector to be increased to 3.5 percent of GDP by 2031 from the current 1.8 percent. Bank monitoring should also be increased and default loans reduced to 7 percent or below by 2021. 

These are some important recommendations to strengthen the economy and buffer the aftershocks of graduation. While being upgraded to a better position in the international arena is something we aspire to, we cannot ignore the costs of this higher status. It is crucial that we improve our business climate to attract more investment, invest in human resources through education and training to develop a skilled workforce and make our financial sector healthy and free from the plague of loan default culture. We hope the government pays heed to these recommendations by the Planning Commission. These steps will take us many leaps forward economically and socially and will help to mitigate some of the bottlenecks that will inevitably appear, once we become a developing country.

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