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Session 1:Challenges of graduation and their relevance with

development priorities of the 2030 Agenda for Sustainable Development

Thimphu, Bhutan1 October 2019

Yusuke TatenoEconomic Affairs Officer

Countries with Special Needs SectionMacroeconomic Policy and Financing for Development Division

ESCAP

Questions

- What are LDCs? How does a country leave the list (“graduate”)?

- What are the costs of graduation? Do former LDCs pay higher tariffs on their exports? Must LDC graduates pay more to access development financing?

- What are the benefits of graduation? Is LDC graduation the same as becoming a middle-income country? Have any graduates slipped back?

- What needs to be done to prepare for graduation? How does the UN support graduating LDCs? Does graduation mean a country has achieved the SDGs?

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Structure

• LDCs and graduation process

• Progress of Asia-Pacific LDCs towards graduation

• Implications of LDC graduation

• Relevance to SDGs

• ESCAP’s support to LDCs

Least Developed Countries

• Category created in 1971

• Defined as “low-income countries confronting severe structural impediments to sustainable development”

• Have exclusive access to certain international support measures (ISMs), in particular in the areas of development assistance and trade.

• 12 LDCs in the Asia-Pacific region; 47 LDCs globally

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LDC graduation

• The Committee for Development Policy (CDP) reviews the list of LDCs every three years

• The graduation thresholds must to be met for any two of the three criteria in two consecutive triennial reviews (or income-only)

• Only 5 countries have graduated from the LDC category: Botswana (1994), Cabo Verde (2007), Maldives (2011), Samoa (2014) and Equatorial Guinea (2017)

• Istanbul Programme of Action aims to enable half of LDCs to become eligible for graduation by 2020.

Gross National Income per capita Human Assets Index Economic Vulnerability

Index

$1,230 or aboveIncome-only:

$2,460 or above66 or above 32 or below

Year 0: LDC meets graduation criteria for the first time

Year 3: LDC meets graduation criteria for the second time

Year 3: CDP submits recommendation for graduation to ECOSOC, taking into account UN assessments and country statements

Year 3: ECOSOC endorses graduation and GA takes note

Year 3-6: LDC prepares smooth transition strategy (preparatory period)

Year 6: Graduation becomes effective (transition period starts)

Bangladesh, Lao PDR, Myanmar

Nepal, Timor-Leste

Bhutan, Solomon Isl.

Vanuatu

Kiribati, Tuvalu

Afghanistan, Cambodia

Process of LDC graduation

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Status of Asia-Pacific LDCs at the 2018 review

Source: UN DESA

Country

GNI per capita(average: 2014-

16)

Human assets index

Economic vulnerabilit

y index

Have the criteria been met?

Afghanistan $ 633 48.4 39.3

Bangladesh $ 1 274 73.2 25.2

Bhutan $ 2 401 72.9 36.3

Cambodia $ 1 075 68.9 34.8

Kiribati $ 2 986 84 73.7

Lao PDR $ 1 996 72.8 33.7

Myanmar $ 1 255 68.5 31.7

Nepal $ 745 71.2 25.1

Solomon Islands

$1 763 74.8 51.9

Timor-Leste $ 2656 66.6 56.8

Tuvalu $ 5 388 90.1 56

Vanuatu $ 2 997 78.5 47

Graduation thresholds

≥ $ 1 230 ≥ 66 ≤ 32

• Of the region’s 12 LDCs, 10 met the thresholds for graduation as of 2018

• Vanuatu (2020), Bhutan(2023) and Solomon Islands (2024) are due to graduate.

• ECOSOC will make decision on Kiribati and Tuvalu no later than 2021

• CDP will consider Bangladesh, Lao PDR, Myanmar, Nepal and Timor-Leste for graduation in 2021

Structural impediments to sustainable development: Economic Vulnerability

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Structural impediments to sustainable development: Economic Vulnerability

Countries EVI Population Remoteness

Share of pop. in low

elevated coastal zones

Export concentration

Shares of agriculture, forestry and

fisheries

Victims of natural

disasters (%)

Agricultural instability

Export instability

Kiribati 73.7 100.0 83.0 100.0 90.7 37.9 91.3 73.9 38.5Sao Tome & Principe 41.2 95.6 53.2 62.4 58.0 18.3 0.0 19.8 30.4

Solomon Islands 51.9 78.7 84.6 36.8 60.0 43.9 73.7 16.5 36.5

Timor-Leste 56.8 67.2 68.7 2.7 57.3 11.4 61.8 19.7 100.0

Tuvalu 56.0 100.0 88.0 100.0 51.2 36.9 79.4 0.9 17.9

Vanuatu 47.0 90.9 90.0 3.4 50.3 44.1 95.3 31.9 8.6

Afghanistan 39.3 16.3 52.1 0.0 26.2 38.8 76.6 32.1 52.5

Bangladesh 25.2 0.0 35.7 25.5 36.0 24.4 87.9 8.6 7.0

Bhutan 36.3 74.3 52.3 0.0 31.2 28.0 44.4 38.9 25.3

Cambodia 34.8 28.4 44.5 20.5 24.4 46.4 92.6 29.6 13.5

Lao PDR 33.7 41.4 58.0 0.0 13.9 31.5 79.7 19.4 24.0

Myanmar 31.7 9.8 40.1 31.4 29.8 43.4 63.5 14.6 29.0

Nepal 28.4 19.0 52.7 0.0 4.6 52.6 76.4 9.8 20.4

Structural impediments to sustainable development: Low Human Assets

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Structural impediments to sustainable development: Low Human Assets

Countries HAIPrevalence of undernourishment in tot. pop.

Under 5 mortality (per 1000)

Maternal mortality (per 100,000 live

birth)

Literacy rate Gross secondary enrolment ratio

Kiribati 84.0 100.0 73.2 92.9 72.8 85.7Sao Tome & Principe 86.0 85.8 85.6 87.4 86.9 84.7Solomon Islands 74.8 85.2 90.4 90.9 78.8 42.7Timor-Leste 66.6 63.5 75.9 82.5 44.4 74.2Tuvalu 90.1 91.7 90.7 91.7 93.2 84.6Vanuatu 78.5 96.8 89.3 93.9 77.6 49.8Afghanistan 48.4 70.0 63.4 67.3 9.0 50.7Bangladesh 73.2 83.2 85.3 85.7 63.7 59.5Bhutan 72.9 75.0 86.4 88.0 42.7 82.4Cambodia 68.9 82.8 87.5 87.0 65.2 38.9Lao PDR 72.8 79.8 67.3 83.9 79.6 57.4Myanmar 68.5 80.2 75.3 85.5 67.4 45.9

Nepal 71.2 94.8 85.2 78.8 46.2 66.2

Implications of LDC graduation

LDC-specific entitlements or ISMs will be phased out:• Loss of trade-related ISMs

• Market access preferences (DFQF/EBA, GSP for LDCs, RoO flexibility)

• Preferential treatment (WTO rules/TRIPS, export subsidies)

• Possible reductions in ODA from bilateral and multilateral donors

• Loss of access to exclusive mechanisms (Tech. Bank, Inv. Support, LDCF, EIF/AfT, access to ACWL)

• Loss of access to other LDC-specific support (UN budget, travel benefits, etc.)

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Botswana (1994) Cabo Verde(2007)

Maldives (2011) Samoa (2014)

Net ODA as share of GNI

Pre-graduation Post-graduation

Source: WTO Secretariat

Note: Ten-year, or less, averages prior to and after graduation

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Implications of LDC graduation

• Graduation sends a strong signal of:• A more investor-friendly climate

• Good infrastructure

• Stable political situation

• Predictable macroeconomic policy

• Country’s commitment to sustainable development

Larger flows of FDI

Better credit ratings

Note: it is difficult to establish the causal relationship due to the limited number and diversity in situations

Data source: WDINote: Ten-year average prior to graduation and ten-year average, or less, post-graduation

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Botswana(1994)

Cabo Verde(2007)

Maldives(2011)

Samoa(2014)

Pre-graduation Post-graduation

FDI, % of GDP(pre- and post-graduation)

Relevance to SDGs

• LDC graduation and the progress towards SDGs are complementary • LDC indicators cover various SDGs. Out of the 14 underlying indicators,

• 4 are official SDG indicators:

• HAI: Percentage of population undernourished (SDG 3)

• HAI: Maternal mortality ratio (SDG 3)

• HAI: Under-five mortality (SDG 3)

• EVI: Victims of natural disasters (SDGs 1, 11, 13)

• 8 are indirectly related to SDGs

• GNI per capital (SDGs 8 and 10)

• HAI sub-indicators covering SDGs 4, 5

• EVI sub-indicators covering SDGs 2, 8, 9, 13, 17

• To transmit the momentum of LDC graduation to achieving SDGs, key elements of the SDGs or IPoA have to be addressed as longer-term post-graduation strategies:

• Poverty, productive capacity, peace and stability, universal access to basic infrastructure services, domestic resource mobilization

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Income poverty remains persistent

Poverty reduction between 2000 and 2015 at the $1.90 international poverty line

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100Ti

mor

-Les

te

Solo

mon

Isla

nds

Bang

lade

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Lao

PDR

Vanu

atu

Kirib

ati

Nep

al

Mya

nmar

Tuva

lu

Bhut

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Pove

rty

head

coun

t rat

io 19902015

• Poverty rates at the 1.90 line dropped from 50+% in 1990’s to 12% in 2015.

• However, one in two people still live on incomes below $3.20 a day.

• People living in rural areas are 2.4 times more likely to be poor than people living in city areas

Most LDCs are structurally underdeveloped

0%10%20%30%40%50%60%70%80%90%

100%

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2010

2016

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2016

Afghanistan Bangladesh Bhutan Cambodia Lao PDR Myanmar Nepal SolomonIslands

Timor-Leste Vanuatu

Employment shares in LDCsAgriculture Industry Services

• Most LDCs are still “structurally under-developed” as agriculture is the largest sector interms of the number of employed.

• Movement out of Agriculture is still slow• Nepal, Solomon Islands, Vanuatu have been particularly slow

• Cambodia and Timor-Leste are outliers where the service sector is particularly large• In the case of the former employment in industry and agriculture are also comparable

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Limited productive capacity inhibits LDCs from undergoing dynamic transformation

Economic complexity index, change between 1991/1992 and 2016

Source: The Observatory of Economic Complexity, MIT Media Lab. Note: White bars on the figure represent improvements, while black bars represent deterioration.

Infrastructure gap remains

ESCAP Access to Physical Infrastructure Index (APII), measuring

• Access to energy

• Access to water and sanitation facilities

• Access to transport

• Access to ICT

Country or groupings APII score APII rank

Developed countries 0.63Developing countries 0.43LDCs 0.20

Bangladesh 0.28 28Bhutan 0.27 29Lao PDR 0.23 34Nepal 0.22 35Vanuatu 0.20 36Myanmar 0.20 37Cambodia 0.19 38Solomon Islands 0.11 39Afghanistan 0.07 40

26%

32%

42%

Composition of infrastructure financing needs

New demand

Maintenance

Universal access

Access to Physical Infrastructure Index (2017)

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Domestic resource mobilization efforts can fill the financing gap

Tax-to-GDP ratios inLDCs, 2014

Financing needs and infrastructure spending in

LDCs, LLDCs and SIDS

Conclusion

• There is a move from graduation strategies that focus on meeting the criteria for graduation towards post-graduation strategies to ensure a smooth and sustainable transition as graduation approaches• E.g.: Utilize existing smooth transition measures; prioritize

negotiation for additional support measures; build awareness; and celebrate graduation

• A better understanding of likely impacts of graduation, with sufficientdata and analysis, good preparation, and proactive engagement with development partners are critical.

• In the medium- to long-term, greater focus should be placed on enhancing domestic resource mobilization, complemented by strong international support and development cooperation, to improve tax and other revenue collection.

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How is ESCAP supporting LDCs?

• Knowledge products on key issues, such as the challenging and consequences of LDC graduation (e.g. Asia-Pacific Countries with Special Needs Development Report Series, national strategy papers on LDC graduation, etc.)

• Technical support and capacity building workshops on means of implementation: data, statistics, resource mobilization

• Support for regional follow-up and review (e.g. Asia-Pacific Forum on Sustainable Development, Regional final review of IPoA to be held in 2020)

• ESCAP Resolution “Supporting the smooth transition of the least developed countries in Asia and the Pacific towards a sustainable graduation” (2018)

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