The Transition from Least Developed Country Status
- Emma R Marmol
- Jun 11, 2018
- 4 min read
By Dr Jodie Keane, Economic Adviser, and Dr Howard Haughton, Quantitative Analyst, Commonwealth Secretariat1
This blog is part of an ongoing series evaluating various facets of Development in Transition. The 2019 “Perspectives on Global Development” on “Rethinking Development Strategies” will add to this discussion.
To learn more about countries’ strategies for economic transformation, including a session on Least Developed Countries (LDCs), follow the 10th Plenary Meeting and High-Level Meeting of the OECD Initiative for Policy Dialogue on Global Value Chains, Production Transformation and Development in Paris, France on 27-28 June 2018.
The Least Developed Countries (LDCs) are an internationally defined group of highly vulnerable and structurally constrained economies with extreme levels of poverty. The Committee for Development Policy (CDP) is a subsidiary body of the United Nations Economic and Social Council (ECOSOC). Every three years, the CDP advises ECOSOC and the United Nations (UN) General Assembly on which countries should either enter or leave the LDC category. Since the category was created in 1971, only five countries have graduated and the number of LDCs has doubled on the basis of selected indicators (income, human assets, economic vulnerability). And when countries graduate they lose international support measures provided by the international community.
Looking ahead, an unprecedented number of LDCs will graduate by 2021, with four countries recommended for graduation and two more scheduled for graduation in 2020 and 2021.[2] However, forthcoming LDC graduates will do so mainly because of their country income status as opposed to substantial progress on the reduction of economic vulnerabilities.[3] This raises obvious concerns regarding sustaining their development momentum as well as advancing on the broader 2030 Agenda and the Sustainable Development Goals. Thus, what can be done?
Development entities such as the World Bank and the International Monetary Fund do not always have specific graduation support programmes or mechanisms for the LDCs. No established institutional mechanism exists for the phasing out of LDC country-specific benefits. As a result, entities may not always be able to support a country’s smooth transition process. Overall, the continuous engagement after graduation is mainly determined on the basis of mutually agreed country programme frameworks.
With the likely graduation of a number of Pacific Island Small States on income grounds from LDC status, the LDC Group will undergo an Africanisation by 2021. This raises questions regarding the creation of appropriate international support measures for highly indebted commodity dependent LDCs and the importance of sustainable infrastructure development. It is also clear that much more critical reflection is required regarding the appropriateness of international support measures to really ensure that no one is left behind.
Indeed, whilst never before at a single review have so many countries been identified for graduation, the issue remains contentious for some. Therefore, international support measures must adapt. Adaptation to existing support measures is required to induce structural economic transformation. These adaptations could include recognising sustainable infrastructure development as a catalyst for structural economic transformation and export diversification. How?
Undiversified exports and limited structural economic transformation undermine resilience to external shocks, including environmental ones. Infrastructure is a critical enabler of export diversification processes. The ability to access multiple markets also contributes to upgrading processes within global value chains, or what is termed “multi-chain” upgrading. The findings arising from the CHOGM18 Kickstarter assignment suggest that international support measures should be upgraded in line with contemporary understandings of global trade and investment trends. This type of support could be provided both pre- and post-graduation.
In view of this, we have pioneered an approach, for example, to assess the attractiveness of a country for infrastructure financing, which we piloted in Mozambique in partnership with the City of London. Major findings suggest the potential for leveraging the principles embodied within the Commonwealth Charter for Infrastructure Development. Given this, the Commonwealth Secretariat produced evidence-based research that we disseminated to transitioning member states via a toolkit. This assessment framework is an adaptation of a tool called InfraCompass developed by the Global Infrastructure Hub (GIH).[4]
The InfraCompass tool assesses six categories: Governance, Regulatory, Permits, Plans, Procure and Delivery. However, given the challenges LDCs face and based on the findings from the application of the GIH to Mozambique during March 2017, the InfraCompass assessment framework had to be modified. This entailed removing unnecessary evaluation criteria as well as creating two additional categories. One category involves contingent liability and state-owned entities and the effectiveness of a risk management framework for contingent liabilities deriving from state-owned entities as well as natural disasters. The other category pertains to macroeconomic stability and financial sector development, related to the depth of domestic markets and levels of debt sustainability. This enhanced framework, which can be applied at the project level, is expected to help facilitate more sustainable and inclusive investment policy frameworks. Ultimately, this is vital for enhancing export diversification processes, reducing economic vulnerability and boosting Gross National Income – all key avenues for supporting LDCs on their path to sustainable development.
[1] The views expressed are those of the authors and do not represent those of the Commonwealth Secretariat.
[2] Four countries—Bhutan, Kiribati, São Tomé and Principe and Solomon Islands—will be recommended for graduation from the least developed country (LDC) category, the United Nations Committee for Development Policy (CDP) announced. “This is a historic occasion,” said Professor Jose Antonio Ocampo, Chair of the Committee for Development Policy. “In the 47 years since the start of the Least Developed Countries category, only five countries have previously left the list.” He added that two more countries, Vanuatu and Angola, are scheduled for graduation in 2020 and 2021 respectively.
[3] See: http://www.oecd-ilibrary.org/docserver/download/bd68603d-en.pdf?expires=1517398790&id=id&accname=guest&checksum=768FDB806EDAFAFFA6A359487D7D2F6E
[4] The GIH is an initiative of the G20 whose remit is to “grow the global pipeline of quality, bankable infrastructure projects”. See: https://www.gihub.org/about/about/, accessed: March 20th, 2018.
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