Bangladesh started a new journey recently even as it qualified to graduate into a developing nation from a Least Developed Country (LDC) after 45 years. The United Nations Committee for Development Policy (UNCDP) recommended the graduation in its final evaluation, held recently.
“This achievement is an outcome of our relentless planning, hard work and efforts over the last 12 years. The people of this country have made it possible. We have only provided the people with policy support from the Government,” reportedly stated the proud Prime Minister of Bangladesh, Sheikh Hasina on the latest achievement even as notwithstanding the development, as per experts, exports, especially readymade garments, considered the lifeline of the country’s economy, is expected to take a hit. And if reports are to be believed, the post-LDG export loss may create new poor as well.
At least 66,622 people would fall below the poverty line due to the decline in exports following Bangladesh’s graduation to a developing nation from the group of least-developed countries, according to the Impact Assessment and Coping up Strategies of Graduation from LDC Status for Bangladesh of the General Economics Division of the Planning Ministry.
It maintained that the number of poor is likely to increase from 24.09 million to 24.16 million, however, 86,568 new people may turn poor under the medium export shock scenario, implying a head count poverty rate of 13.18 per cent.
All said and done, the wait is ultimately over! The United Nations has recommended Bangladesh as a developing country recently. With this, Bangladesh has started a new journey.
Now, the country is scheduled to officially become a developing country in 2026 as the UNCDP recommended that the country should get five years, instead of three, to prepare for the transition due to the impact of Covid-19 on its economy even as until 2026, Bangladesh will continue to enjoy the trade benefits as an LDC.
According to media reports, the UNCDP’s recommendations will now be sent to the United Nations Economic and Social Council or ECOSOC for endorsement in June 2021 and the UN General Assembly is scheduled to approve the proposal later in September.
The Chair of the CDP subgroup on LDCs, Taffere Tesfachew, shared the decision of recommendation at a briefing held recently after the second triennial review of the LDC category of UNCDP, the five-day review meeting which began on 22 February 2021, at the UN headquarters in New York even as Bangladesh has managed to meet, for the second time, all the three eligibility criteria for the graduation involving human assets index (HAI), income per capita and economic and environmental vulnerability index or EVI.
In the briefing, Taffere Tesfachew said they would take some other measures considering the fallouts of the Coronavirus pandemic on the economy of the newly graduated countries, adding they would analyse at the 2024 triennial review if the extension was needed while also improve monitoring systems, pay special attention to the impacts of the pandemic, and alert ECOSOC of action whenever needed. EvenMyanmar and Lao People’s Democratic Republic also met the graduation criteria for the second consecutive time whilst Nepal met the criteria in 2018.
The UNCDP, however, deferred the decision on Myanmar and Timor-Leste to the 2024 triennial review, as per the Chair of the CDP subgroup on LDCs.
Meanwhile, as per media reports, the United Nations Conference on Trade and Development or UNCTAD had made a separate report on Bangladesh’s economic vulnerability profile following the Coronavirus fallout even as the UNCDP has reportedly given the final recommendation based on the UNCTAD report and a position paper of Bangladesh Government that was submitted to the UN committee earlier for assessment even as the UNCDP in its second triennial review assessed the economy of Bangladesh and found a strong fulfilment of all three required conditions for the graduation.
The country, in the HAI criterion, scored 75.4 points, well above the requirement of 66 and was well ahead in the gross national income (GNI) criterion: its per capita income was US $ 1,827 in 2019 against the threshold of US $ 1,222 while in the EVI, a country’s score has to be less than 32, and Bangladesh’s score was 27.3.
For information, even if the concept of the LDCs originated in the late 1960s, the first group of LDCs was listed by the United Nations back in 1971 — LDCs are usually low-income countries confronting severe structural impediments to sustainable development —.although there were 25 countries in the list of LDCs in 1971, the number is 47 now with Bangladesh first listing as an LDC in 1975.
Meanwhile, as per reports, when Bangladesh was included in the LDC group in 1975, the poverty rate of the country was 83 per cent even as in 1981-82, the figure was 74 per cent while Bangladesh’s poverty rate declined to 20.5 per cent in 2019 from 40 per cent in 2005, according to data from the Bangladesh position paper.
Similarly, the extreme poverty rate also reportedly declined sharply to 10.5 per cent in 2019 from 25.1 per cent in 2005, the paper said even though different studies reportedly underlined the poverty rate has increased a bit because of the fallouts of the Coronavirus pandemic.
The poverty rate may jump to 13.24 per cent under the high export shock scenario as the number of new poor will be 125,168, the document said while adding that with more than 8.5 per cent economic growth, the head count poverty is projected to drop to 13.1 per cent in 2027 under the business as usual scenario.
Economic contraction due to LDC graduation may cause the poverty level to rise, it stated even as the head count poverty rate reportedly declined to 24.3 per cent in 2016 from 31.5 per cent in 2010, aided by higher economic growth, job creation and robust flow of remittance.
However, gains in poverty reduction remain highly precarious as most households that escaped poverty did so by only a small margin, the document said even as commenting on the GED observations, Executive Director of the Policy Research Institute of Bangladesh, Ahsan H Mansur reportedly said that the real impacts of graduation could be understood after 2024, the year when the country will start facing the graduation challenges.
New people may fall into poverty because of graduation as market access for Bangladesh will get squeezed. However, if Bangladesh can obtain the generalised system of preferences (GSP) Plus status in the European Union, the poverty rate might not increase as higher exports will generate jobs, Mansur reportedly stated.
There is a possibility of gaining the status as Bangladesh is a major exporter to the bloc, reportedly stated the Executive Director of the Policy Research Institute even as he went on to add that if Bangladesh can meet EU conditions, which include ratifying 27 international conventions in the areas of governance, environment, labour and human rights, the EU may offer the country the GSP Plus status.
Offering the GSP Plus status to any country is a political decision of the EU, reportedly said Mansur, adding that Bangladesh needs to lobby with the EU while also suggesting the Government should initiate talks with Germany and France to gain the status after 2024.
If the GSP Plus status is not granted, Bangladesh should continue lobbying with the EU to strike a trade agreement bilaterally to continue the existing trade privilege after the graduation, Mansur said.
It may be mentioned here that the EU accounts for nearly 60 per cent of exports and 64 per cent of garment shipment while the reduction in garment shipment, which makes up more than 80 per cent of exports, would likely lead to a national income loss, the Government’s analysis meanwhile added.
The impacts on the returns to the capital factor have been found to be significantly smaller than the impacts on the labour factor. If LDC graduation is not handled properly, it may lead to a rise in income inequality, the GED analysis said adding that the major loser from the drop in garment exports to the EU will be the labour factor as labour returns may decline about 5.5 per cent under the export loss simulation over the business as usual scenario.
It further said the implications of the graduation may have deleterious impacts on the economy and social welfare if not planned appropriately while also projecting an export loss of 4.9 per cent to the EU in 2027 in the low export shock scenario even as the drop will be 9.8 per cent in the medium export shock scenario and 14.7 per cent in the high export shock scenario.
While depending on the extent of the erosion of garment exports to the bloc, the cost of LDC graduation may not be small, the GED said, calling on the Government to adopt proper strategies to offset the loss.
Meanwhile, as per the former Lead Economist of the World Bank’s Dhaka office, Zahid Hussain, the pandemic has severely affected businesses, workers, migrants and their households even as the export sector also faced major setbacks as international orders were suspended, affecting around four million workers, mainly women, in the garment industry alone.
Vulnerable workers in the agriculture and urban informal sectors also lost earnings while all surveys done since the onset of the pandemic suggest large increase in the number of poor, Hussain said while adding that there is a pressing need to protect the livelihoods of both formal and informal workers.
“Beyond the crisis, the Government needs to move structural reforms forward to strengthen social protection, including the establishment of a comprehensive national pension system as envisioned in the National Social Security Strategy adopted in 2015,” reportedly underlined the former lead economist of the World Bank’s Dhaka office, adding, “It will be important to make sure the assistance is speedily and efficiently delivered to the targeted.”
So, even if it is a matter of great pride that the country has started a new journey of growth and development after it qualified to graduate into a developing nation from an LDC after around 45 years, proper planning and action are apparently required to take care of certain contingencies, including the risk of creating new poor, that might emerge subsequent to the export loss.