Centre for Policy Dialogue (CPD) organised a Dialogue on “Bangladesh’s Graduation from the LDC Group: Pitfalls and Promises” held on March 10, 2018 at Khazana Gardenia Banquet Hall in Dhaka. The dialogue was organised drawing on CPD’s recent study on Bangladesh’s LDC graduation.
Published in The Daily Star on Sunday, 11 March 2018
Quality governance, democracy crucial for LDC graduation
Rehman Sobhan also stresses political stability
Star Business Report
Continuation of the democratic process and political stability must be ensured before graduation from the least-developed country bracket, said a noted economist yesterday.
The graduation from the LDC would be smooth if there is quality governance, no threat of violence, no threat of political instability, said Rehman Sobhan, chairman of the private think tank Centre for Policy Dialogue.
Sobhan’s comments came at a dialogue styled ‘Bangladesh’s graduation from the LDC group – pitfalls and promises’ at a hotel in Dhaka yesterday.
Gowher Rizvi, prime minister’s foreign affairs adviser, acknowledged that much needs to be done to ensure quality governance. Bangladesh’s graduation narrative is different from its peer countries like Bhutan and the Maldives, according to Sobhan.
For instance, the Maldives is a country of single driver economy: the tourism.
“But, Bangladesh is different as there are several major key drivers of economy,” he said, while citing the thriving entrepreneurial class that has developed a competent garment sector and small and medium enterprises.
Bangladesh has a strong and dynamic workforce, mostly from rural areas, which have been contributing to productivity.
“Such a good number of labour force is not available in Bhutan.”
Migrant workers are another important factor in Bangladesh’s economic development, Sobhan said, adding that one will be hard-pressed to find someone in the rural areas who do not have any relative working abroad and sending remittance.
The farmers are also contributing to the economy: still 45 percent of the country’s population live in the villages.
The non-governmental organisations have also played an important role in the development process.
“The sky is the limit for Bangladesh,” Sobhan added.
The country is set to graduate into the developing country bracket in 2024 and it will get a grace period of three years to consolidate its new economic standing.
“Bangladesh’s graduation is expected to be a landmark success in contemporary development experience,” said Debapriya Bhattacharya, distinguished fellow of the CPD.
It is the only country to meet all three criteria for graduation.
However, the ongoing Rohingya refugee crisis is a blip in what has otherwise been a smooth-sailing passage to the developed country bracket.
Graduation from the LDC bracket will lead to erosion of trade privileges and loss of concessional lending terms from development partners.
After graduation, Bangladesh’s exports will face an additional 6.7 percent tariff, which could result in an estimated export loss of about $2.7 billion, said Mia Seppo, United Nations resident coordinator in Bangladesh.
The sum is 8 percent of Bangladesh’s export receipts in 2015.
United Nations Conference on Trade and Development estimated that exports may fall by 5.5 percent to 7.5 percent after graduation, Seppo said.
“Bangladesh as an LDC is a major user of the duty-free market access.”
In 2016, the value of exports from Bangladesh to preference granting countries was $24.7 billion, which accounted for 72 percent of the total exports.
Regional trade agreement and bilateral initiatives cover about 90 percent of the exports. “Thus, preferential market access is of special significance,” she added.
Mustafizur Rahman, another distinguished fellow of the CPD, suggested technology upgrades, skills endowment, productivity enhancement and higher competitive strength.
“Bangladesh will need to give high priority to all these areas by sound policymaking and high-quality implementation,” he added.
The country needs to look for more macroeconomic stability, said Khondaker Golam Moazzem, research director of the CPD.
Zahid Hossain, lead economist of the World Bank’s Dhaka office, suggested engaging more female workers in the production cycle.
Currently, female participation is 36 percent.
If the current 36 percent participation can be improved to 48-50 percent, the GDP will grow 0.7-0.8 percent more, he said.
Published in The Financial Express on Sunday, 11 March 2018
Good governance most critical to graduation from LDC status
Qualitative transition is very important, say experts
FE Report
Good governance is most critical in ensuring Bangladesh’s sustainable graduation from the least-developed country (LDC) status, experts said Saturday, as it entails challenges in aid and trade.
LDC graduation is not the end of the road, rather it is a milestone, they observed. It does not ensure structural transformation. Therefore, qualitative transition is very important.
Their views came at a Public Dialogue on ‘Bangladesh’s Graduation from the LDC Group: Pitfalls and Promises’ held in Dhaka Saturday.
Country’s leading think-tank Centre for Policy Dialogue organised the event for deliberations on the pros and cons of the status change as Bangladesh is poised to say goodbye to world’s poor-country club.
Experts at the dialogue observed that the role of government is critical to ensuring smooth graduation from the LDC status through creating enabling environment for investment, economic diversification and use of LDC-specific external assistance.
Analysing data from the peer economies which are on the path to LDC graduation, Dr. Debapriya Bhattacharya of CPD observed that Bangladesh is found to be weaker in attracting FDI, labour productivity and export diversification compared to co-graduating countries.
“However, it has a strong manufacturing sector and robust economic growth compared to others,” the economist said about the positive factors that count in determining a country’s status in the community of nations.
Noting that the countries which have already graduated from the LDC status have exhibited slowing economic growth, falling shares of ODA and remittances thereafter, the CPD Distinguished Fellow called for structural shift towards high value-added industries, strengthening governance, mobilizing domestic resources, developing infrastructure and investing in human development.
Mentioning that Bangladesh is currently enjoying preferential market access in a large number of developed countries,
experts also warned that export earnings may drop in the aftermath of graduation following the loss of preferential-trade benefits.
“After graduation, Bangladesh’s export will face an additional 6.7 per cent tariff in these markets, which could result in an export loss of around $2.7 billion. United Nations Conference on Trade and Development (UNCTAD) estimates that exports may fall by 5.5 per cent to 7.5 per cent,” said Mia Seppo, UN Resident Coordinator in Bangladesh.
In this context, he called for formulating a comprehensive exit plan to effectively offset the withdrawal of trade supports from developed economies.
“While fulfilling the criteria of LDC graduation is a moment to celebrate, we should still be mindful of inequality prevailing in the country,” said Prime Minister’s Foreign Affairs Adviser Gowher Rizvi.
“And global experience shows that when growth rate increases, remedy for inequality becomes much more difficult,” he noted about the flipside of the growth in the event of not maintaining a balance in redistribution of its benefits.
The foreign affairs’ adviser also pointed out that despite recent reduction in poverty rate, the country is far from eradicating the curse of poverty.
“We know our effort to eradicate poverty has been quite impressive, but we have not been able yet to eradicate poverty,” Mr Rizvi told the meet.
He added: “No country which has corruption has been able to eradicate poverty…
Therefore, we must be mindful and careful about the question of governance so that this achievement does not get compromised.”
Professor Rehman Sobhan, Chairman of the CPD, said the main transition point really depends on the quality of governance and the nature of the institutional arrangements.
He noted that Bangladesh is already endowed with strong entrepreneurial capability, dynamic and competitive working-age population, capable and hardworking farmers and a large number of migrants spread across the world.
“Now, we need appropriate policies to incentivise those farmers, those entrepreneurs, those working population and those migrants to be part of the development process,” said the economics professor.
According to a World Bank assessment, Bangladesh has become a lower-middle- income country in terms of Gross National Income per capita (GNI), joining those with annual incomes of $1,046 to $4,125.
Published in Dhaka Tribune on Sunday, 11 March 2018
CPD: Political stability must to reap benefits of developing country
‘To enjoy the benefits of graduation, Bangladesh needs to ensure good governance. Without good governance, there are chances of creating institutional and policy weaknesses’
To enjoy the benefits of graduating to a developing country from a least developed country, Bangladesh needs political and democratic stability, a think tank has said.
Centre for Policy Dialogue (CPD), an economic think tank held a dialogue on ‘Bangladesh’s Graduation from the LDC: Pitfalls and Promises’ in the capital on Saturday.
Speakers at the dialogue said that for a smooth transition political stability and good governance are key elements, along with the other issues.
“Bangladesh’s graduation to a developing country from an LDC is a landmark success in the contemporary development experience. Bangladesh is graduating with a large population, sizeable economy, exports and progress in poverty alleviation – the first LDC to meet all three criteria at the time of graduation,” said Debapriya Bhattacharya, distinguished fellow of CPD.
“If there is no stability and sense of unity in the country, we may lag behind in utilizing the graduation as an advantage and opportunity,” Debapriya said.
To enjoy the benefits of graduation, Bangladesh needs to ensure good governance. Without good governance, there are chances of creating institutional and policy weaknesses, he said.
Talking about the challenges after graduation, CPD Chairman Rehman Sobhan said: “Behind all these challenges lies our capability for quality of governance and the sustainability of our democratic process, where you create a sustainable environment where people can transit from one era to another without the threat of violence and the fear of political instability.”
“Bangladesh will graduate to a middle income country by 2021, but there will be technical challenges in 2024. Political stability and continuity is a challenge,” said prime minister’s International Affairs Adviser Gowher Rizvi.
“There is growing inequality in the country. Growth rate is high but inequality remains. Despite all efforts, we have not been able to eradicate poverty,” he added.
He also focused on increasing women’s participation in the workforce, saying: “Currently there are 36% women in workforce and if we can increase it to 48% to 50% it will help enhance 0.8% GDP.”
“Bangladesh’s graduation is integrated not only with the economy but also politics, which is going a through critical time,” Foreign Secretary Md Shahidul Haque said.
Bangladesh has to keep itself politically, economically, socially and culturally stable, said Shahidul.
What will happen after graduation
As an LDC country, Bangladesh enjoys duty free market access to European countries and other developed countries. After graduation, Bangladeshi exports will face an additional 6.7% tariff.
Bangladesh will lose the concessional loans from development partners, which will cause interest rates to rise.
To remain competitive in the global export market, Bangladesh will have to focus on negotiation to enjoy duty free market access and find other sources of low cost loans.
“From previous experiences, we have seen that after graduation most countries witness a decline in GDP, foreign aid and remittances. As a result, the financial systems of those countries come under pressure, especially when revenues from tax do not increase,” said Debapriya.
But a good number of countries receive FDI to offset this crisis.
“The question is whether Bangladesh will be able to attract FDI,” said the economist.
Though Bangladesh is moving forward with export processing zones and export has increased, production is concentrated in a handful of products. The productivity of workers is lowest among LDC countries, he added.
“As an LDC, we have greatly benefited from various protective advantages in the form of duty-free access to a variety of countries, and reserved markets which provided the take-off point, and initially catalyzed the arrival of the South Koreans to enable us in initiating the garments industry,” said Rehman.
“Entrepreneurs must be incentivized by creating appropriate environment of governance, regulatory environment, and a sustainable financial sector operated on competitive principles,” he said regarding the improvement of entrepreneurship.
He also urged the government to create a genuine partnership, as opposed to an adversarial relationship between the state and NGOs to take forward human development even further.
He also highlighted the importance of upgrading migrants’ skills and protecting them since they are the main source of Balance of Payment Sustainability.
In ensuring a smoother graduation and to over come the challenges to enjoy its benefits, experts suggested addressing issues like inequality, Rohingya crisis and climate change shocks.
“Structural risks like extreme poverty and inequality, low human capital and weak economic governance must be tackled effectively. Addressing inequalities by ensuring equality of opportunities, particularly in health and education are per-requisite for equitable growth,” said Mia Seppo, the resident coordinator and UNDP resident representative.
Emerging risks like climate change, violent extremism and managing the shocks and vulnerability of Rohingya crisis to be managed effectively, said Mia.
To keep the continuing the pace of development, investment outlook for the private sector needs to be improved significantly. In doing so, the government has to provide sufficient infrastructure including power. FDI flow needs to rise and diversify, she said.
How to sustain the graduation and make it inclusive
After graduating to a developing country, Bangladesh will enjoy a four year tenure to retain progress and ultimately it will be declared in 2024. In retaining the progress, Bangladesh should focus on some issues like product diversification, negotiation skills to enjoy trade facilities and concessional loans.
To remain competitive in the global export markets, experts suggested products diversification as Bangladesh is dependent on RMG sector for its over 80% export earning. Bangladesh has to focus on negotiation skills for trade facilities and free trade agreement, Debapriya said.
To make graduation sustainable and inclusive, Bangladesh has to boost new industries by improving productivity, Debapriya said.
Focus should be given on the upgradation of agricultural sector. On the other hand, the industry people have to ensure productive jobs for the people coming from the rural areas especially from agriculture, he added.
“After graduation, Bangladesh has to increase investment both from local and foreign investment, which has been stagnant for around a decade,” economist AB Mirza Azizul Islam said. Product diversification as well as productivity enhancement is a must, he added.
Labour incentive manufacturing will go, and Bangladesh will have to think about how to embrace technology and automation, said World Bank Bangladesh lead economist Zahid Hussain.