Published in The Daily Star on 15 December 2014
Bangladesh’s Development Status
Middle income vs LDCs
Fahmida Khatun
FOLLOWING the media briefing on November 27 to launch UNCTAD’s Least Developed Countries (LDC) Report 2014, Centre for Policy Dialogue (CPD) faced criticism from two ministers of the present government. Having read media reports and such displeasure, many have expressed their curiosity on middle income and least developed countries. In this connection, this write up attempts to make a few issues clearer.
First of all, CPD, neither at the media briefing nor on other occasions, say that Bangladesh cannot become a middle income country by 2021. As a matter of fact, CPD expressed its hope back in 2007, much before many did so. Thus, Goal 3 of “Bangladesh Vision 2021” published by CPD in August 2007, that emerged from a consultative process with participation of people from all walks of life across Bangladesh in 2006 reads: “We believe that Bangladesh has the potential to join the ranks of the middle-income counties by 2021” (p 14). Later, CPD was happy to see that the Sixth Five Year Plan (2011-15) of Bangladesh spelt out the objective of becoming a middle income country by 2021. Similar hope was expressed in the election manifestoes of 2008 and 2014 of the ruling Awami League. It is noticeable that none of these documents referred to coming out of the LDC status by 2021; they only highlighted the middle income status.
It is well known that for operational lending activities, the World Bank categorises countries in four groups: low income, lower-middle income, upper-middle income and high income countries. According to the World Bank, a lower-middle income country will have a per capita income between $1,045 and $4,125 and an upper-middle income economy needs to have a per capita income between $4,126 and $12,745 in FY2015. This is calculated using the Atlas method of the World Bank and updated every year.
However, such classification, based purely on income, does not capture the structural strength and weaknesses of countries. Even with high income, a country may be an LDC due to its weaknesses in social progress. Thus, based on economic and social indicators, the UN categorises countries into three groups: least developed, developing and developed countries. The Committee for Development Policy of the UN Economic and Social Council (ECOSOC) establishes the LDC status of countries every three years based on three indicators: (i) per capita income, based on three years’ average; (ii) human asset index (HAI), based on nutrition, adult literacy, child mortality and school enrolment; and (iii) economic vulnerability index (EVI), based on natural shocks, trade-related shocks, physical and economic exposure to shocks, population size and remoteness.
A country can graduate from LDC category if it meets at least two graduation criteria during two consecutive triennial reviews of the LDC list. However, a country can opt for coming out of the LDC list if its per capita income is double the graduation threshold at the time of such review. For example, Equatorial Guinea, even having an income of $14,320 in 2013 has the LDC status. Among Saarc countries, Bhutan with a per capita income of $2,460 in 2013 is also an LDC. Both these countries have achieved the income threshold for graduation a few years back. Thus, even after being a middle income economy, a country may not graduate from LDC status unless requirements are met adequately.
Bangladesh was included in the LDC list in 1975. According to the most recent review of the LDC list in March 2012, Bangladesh is still an LDC. In 2013 per capita income of Bangladesh was $900 while HAI and EVI were 32.4 and 54.7 respectively — all of which were below the graduation threshold. One should not confuse here that using 2005-06 base year, Bangladesh Bureau of Statistics estimated per capita income of Bangladesh in 2013 at $1054. And UNCTAD LDC Report 2014 uses World Bank’s Atlas method for consistency.
The next review for graduation from LDC status will be held in 2015 where Bangladesh is not included. So the earliest that Bangladesh can achieve the eligibility criteria is the 2018 triennial review. Given its trend of progress, particularly in per capita income and HAI, we can expect that Bangladesh will achieve the eligibility for inclusion in 2018 triennial review. Then the process will take the following course. During 2018-2021, Bangladesh’s development progress will be monitored and UNDESA will prepare an impact assessment of its graduation, while UNCTAD prepares a vulnerability profile for the Committee for Development Policy. Bangladesh will then be invited to present its views to the Committee based on which the Committee may recommend its graduation. Assuming that ECOSOC endorses the Committee’s recommendation and the UN General Council takes note of the decision of ECOSOC in its session in the same year, then Bangladesh’s graduation will take effect in 2024. The period 2021-2024 is the grace period during which Bangladesh has to prepare a transition strategy while the Committee monitors progress.
Coming out of the LDC list is surely the most coveted desire of every LDC as the dignity of a country is attached to this. Once graduated from LDC, a country can stand side by side with globally influential groups and can uplift its image. However, LDCs currently enjoy a number of privileges which will be discontinued after graduation. These include duty free-quota free market access, extension for compliance with TRIPS agreement, and access to targeted aid and support measures. Of course, once the ongoing Doha Round negotiation of the WTO is completed, duty will reduce for all countries. Moreover, bi-lateral trade agreements are already offering low or zero tariff access for exporting countries. Hence, the faster Bangladesh makes progress the better prepared it will be to withstand the impact of elimination of various special and differential treatments.
At the media briefing CPD discussed development trends of LDCs, their progress towards achieving MDGs and the need for structural change and productivity growth for fulfilling post-MDG agenda. It was mentioned that a number of LDCs could not attain the desired progress that calls for transformation of their own economies and change in the global economic system. Bangladesh’s achievement in the area of GDP growth, exports, remittances, food self-sufficiency and MDGs is remarkable. However, infrastructural bottlenecks, political instability and lack of good governance stand in the way towards faster advancement. For sustainable development Bangladesh needs to have a structural transformation towards more productive manufacturing sector and increased productivity of labour and capital.
Thus the view that CPD is not hopeful about Bangladesh’s becoming a middle income country by 2021 is totally wrong. Also CPD’s comment on Bangladesh’s graduation is based on facts and figures. It seems that some of us have mixed up various groups of countries categorised by various international agencies. However, CPD is not upset with the debate on the graduation of Bangladesh. CPD believes that constructive criticism on development policies can contribute towards a participatory, inclusive and accountable development process. Therefore, CPD welcomes debates on development policies. It has the professional strength and attitude to respect rational criticism that is based on full information on CP D’s work.
The writer is the Research Director of the Centre for Policy Dialogue (CPD)