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BANGLADESH REACHING THE MIDDLE

Updated: Aug 8, 2018


For the current 2018 fiscal year, low-income economies are defined as those with a gross national income (GNI) per capita, calculated using the World Bank Atlas method, of $1,005 or less in 2016; lower middle-income economies are those with a GNI per capita between $1,006 and $3,955.In 2015 Bangladesh took a step forward from being a least developed country (LDC) to being a lower middle-income country (LMIC).The graduation from  being a LDC to a LMIC is worth mentioning as there have only been 5 other countries who have been able to take the same step forward. ‘The LDC category was introduced by the United Nations in 1971, when there were 25 LDCs’ as stated by the executive director of Centre for Policy Dialogue (CPD).

As of 2018, there are 47 countries in this category. Amongst the 5 other countries who have also been able to graduate from being a LDC to being a LMIC, Bangladesh is the only country to have met all three criteria necessary to attain LMIC status, which consists of GNI per capita, Human Assets Index and Economic Vulnerability Index.

The standard GNI of a country should be US$ 1230 for graduating from the LDC group, which in case of Bangladesh, is now US$ 1272 according to Centre for Policy Dialogue (CPD) and US$ 1271 according to the Bangladesh Bureau of Statistics (BBS). The Human Assets Index (HAI) is a composite index of education and health used as an identification criterion of the LDCs by the United Nations Committee for Development Policy (UNCDP). The HAI is a measure of the level of human capital; low levels of human assets indicate major structural impediments to sustainable development. The standard of human assets index of a country needs to be 66 or above for elevation from LDC status which is 72.8 according to CPD and 72.9 according to the BBS for Bangladesh. The HAI is composed of 5 indicators grouped into a health and education sub-index.


The Economic Vulnerability Index (EVI) is the last criterion used by the UNCDP in the identification of LDCs. The EVI is a measure of structural vulnerability to economic and environmental shocks. The EVI is composed of eight indicators, grouped into various sub-indices. In case of EVI, the standard index is 32 or less which is 25 in Bangladesh according to the CPD and 24.8 according to the BBS, meaning Bangladesh is much ahead of the standard index in all aspects.

Bangladesh reaching LMIC status is an accomplishment, however, it also implies that the country must progress even further. The new status will help in branding Bangladesh. Investors will be interested to invest in the country given its strength in certain areas such as the size of its Gross Domestic Product (GDP), exports and population compared to other LDCs. These will help improve Bangladesh's credit rating, which in turn will raise the country’s recognition at the macroeconomic level. Bangladesh will have more opportunities for taking commercial loans from the international market at a competitive interest rate. As a lower-middle-income country, Bangladesh is no longer eligible for low interest loans which means Bangladesh will have to take loans from the development institutions and other sources with a high interest rate and shorter repayment period.

Bangladesh is regarded globally as an example of remarkable progress in poverty reduction and human development, despite daunting challenges. The World Bank Group’s new Country Partnership Framework (CPF) 2016-2020 will support Bangladesh to achieve its vision of reaching middle income status by its 50th birthday in 2021.The country is at an important juncture, where with the correct policies and timely action, it can move to the middle-income bracket. For that, Bangladesh will need to accelerate growth. The World Bank Group’s assistance will help Bangladesh to accelerate growth, foster social inclusion and strengthen climate and environmental management. Bangladesh will need to create more and better jobs for the 2.1 million youths entering the job market every year according to the World Bank. But to do so, Bangladesh will need to remove the barriers to higher growth posed by low access to reliable and affordable power, poor transportation infrastructure, limited availability of serviced land, rapid urbanization and vulnerability to climate change and natural disasters, among others. Under the new framework, the Bank Group will help Bangladesh to remove barriers to higher growth and job creation.

After graduation in 2021, there will be a grace period of 3 years when Bangladesh can enjoy all LDC-specific benefits. So, there are approximately 10 years for the country to prepare itself to start the new journey. Bangladesh will have to prepare for a smooth graduation by taking steps to handle possible issues they may face in the future. Bangladesh's major challenge will be to face “preference erosion” due to the LDC graduation. Bangladesh is entitled to have duty-free access to the European market under the “Everything But Arms” initiative. This is a huge opportunity for the country as more than 60 percent of its export goes to the European market. Except for the apparel exports to the USA, Bangladesh receives duty-free market access for all products in all developed countries. Due to the graduation, Bangladesh will lose about 8 percent of its total exports because of the imposition of additional tariff on its exports by 6.7 percent without a preferential treatment. A Centre for Policy Dialogue (CPD) study reveals that the loss will be equivalent to USD 2.7 billion. This graduation will bring many opportunities while simultaneously leaving Bangladesh with new impediments to overcome. To battle these impediments the overall capability of the economy has to be improved. This can be achieved through diversification of the economy, training and skill development of human resources and technological upgradation. To attract foreign investment, the economy has to go through structural changes, achieve resource efficiency, and improve productivity. The labour force displaced due to technological upgradation should be able to find themselves engaged in self-employment through micro, small and medium enterprises. In order to make up for the loss to be incurred by the preference erosion and end of various international support measures, Bangladesh must improve its export competitiveness and diversify both markets and products for export. According to the executive director of the Centre for Policy Dialogue (CPD) Bangladesh must remain active at the World Trade Organization to realise any potential benefit. In the post-graduation period, the country will still be eligible for Generalised System of Preferences or “GSP Plus” benefits for market access. To gain access to this, countries usually have to comply with stringent conditions such as improved work conditions, higher poverty alleviation efforts, women's empowerment and reduction of carbon emission.

As we celebrate Bangladesh’s latest achievement, we have to recognise that we live in a world filled with turmoil and new challenges around every corner. Bangladesh has set an ambitious goal for itself which with proper implementation will result in growth as an economy and a country as well.


Sadaf Swapnil Ahmed                                                                   

Editor, Economics

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