Roundtable Discussion on “Looking Beyond LDC Graduation” on Occasion of Celebrating Four Years of Thinking Aloud

001On May 12, 2018, SANEM celebrated 4th anniversary of its flagship monthly digest ‘Thinking Aloud’. On this occasion SANEM organized a roundtable discussion on “Looking Beyond LDC Graduation”, to present the stipulated major benefits and challenges of Bangladesh’s economic, social and environmental condition, while going through the graduation process and its aftermath. Dr. Selim Raihan, Executive Director of SANEM and Professor of Economics, University of Dhaka chaired the discussion and made the trigger presentation on “Looking Beyond LDC Graduation” along with Sunera Saba Khan, Senior Research Associate and Iffat Anjum, Senior Research Associate.

Bangladesh has successfully met all three criteria for LDC graduation in the first review in March 2018. It is expected that Bangladesh will be able to meet the graduation criteria in the second review in 2021 and will finally graduate from the LDC status in 2024. Benefits of graduation from the LDC status are cited to include an improved country-image and higher rating for investment by international rating agencies which may attract larger foreign direct investment. However, there are a number of risk factors for Bangladesh associated with its graduation from the LDC status. The biggest risk Bangladesh will face after graduation is stagnated growth of SDG goals. Simulation results from the global dynamic general equilibrium model suggest that the loss of preferences in the markets of European Union, Canada, Australia, Japan, India and China in 2027 (the year which will mark the end of preferences for Bangladesh if the country can officially graduate from the LDC status in 2024) might lead to an annual reduction in total exports of Bangladesh by 11% which would be equivalent to around US$ 6 billion given the current projection of growth in exports. Also, many of the exemptions of WTO provisions, including the cut in tariff and subsidies and adherence to intellectual property rights (especially for pharmaceuticals sector), which are currently enjoyed by Bangladesh as an LDC, will no longer be available after 2027. As Bangladesh has already graduated from the World Bank’s ‘low-income’ category to ‘lower-middle income’ category, the scope for loans at lower interest rates would be limited and this may result in balance-of-payments problems. Furthermore, graduation could have a more significant effect on access to ODA and other concessional financing. It is important to mention here that much of the aforementioned prospective benefits are not ‘automatic’ as the country has to work quite a lot to materialize those benefits. In contrast, almost all of the possible losses would be ‘automatic’ as soon as the country graduates from the LDC status.

Transition from ‘Lower Income’ to ‘Middle Income’ is not an undemanding task. As the country will have to face comparative high interest rates on loans from developed countries and international agencies with reduced repaying period and underemployment, as the proportion of workers employed in the informal sector is very high. Although the country outperformed the Sub-Saharan African countries but it was outperformed by the leading growing economies of South Asian and African countries. Therefore, the country has to prepare itself over the next 9 years to counter these challenges through effective strategies to sustain its past growth momentum to avoid the Middle-Income trap.

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Bangladesh’s private sector investment and foreign direct investment remain sluggish due to lack of investment friendly policies, weak competitiveness, delays of implementation of critical projects, institutional inefficiency, rent seeking, costly projects and poor physical and social infrastructures. Although the 7th FYP targets 8 percent real GDP growth rate by 2020 and there are aspirations to have 9 percent growth rate by 2030 but the investment requirements differ significantly with the assumptions of incremental capital output ration (ICOR), as to meet this aspiring growth investment-GDP ratio has to be increased annually by 0.7 percentage points which is more than two times higher than the current annual percentage points rise (0.3). The country needs to attract large volumes of private sector and foreign direct investment through enhancement of trade competitiveness, improvement in physical and social infrastructures, improvement in the quality of economic and political institutions, reforms in trade policy, monetary and fiscal policies, industrial policy and quality service delivery by the public institutions are very crucial to boost private sector investment.

Amidst increase in per capital income Bangladesh has a poor performance in employment generation. Between 2013 and 2016-17 the average annual GDP growth is 6.6 percent, but average annual jobs growth is 0.9 percent. Youth unemployment rate, gender wage gap increased. Manufacturing and female manufacturing jobs declined by 0.77 million and 0.92 million respectively.  Share of youth in NEET and (not in education, employment and training) increased and 87 percent of the NEET youth are female despite of increase in female participation.

In Bangladesh public expenditure on health and education sectors is one of the lowest and out of pocket health expenditure is the highest in South Asia. In order to meet the economic, social and environmental challenges of the country, the country needs to have significant institutional reform, as doing business ranking of Bangladesh one of the lowest.

In case of Bangladesh, LDC graduation will trigger foreign direct investment and Bangladesh needs surge of investment to accelerate its economy. However, with weak export competitiveness, inadequate social and economic conditions for private investment, lack of gender equity, vulnerability to climate and lack of good governance, it will be hard to achieve sustainable development. Bangladesh needs an inclusive approach to harness effective investment policies, efficient resource allocation among sectors, better governance, gender equity and sustainable climate change to tackle the risk of LDC graduation.

Press Coverage:

bdnews24.com ||  The Daily Star || Daily Ittefaq || Daily Samakal  || The New Nation 

The Daily Sun || Bangladesh Pratidin || The Financial Express  

 The News Today || The Independent