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EXPLAINED: How UN Defines LDCs And What Will Change For Bangladesh, Nepal As They Graduate Out Of Group

The UN has laid out a five year transition period for Bangladesh, Nepal and Laos to graduate out of the LDC group. (File picture of a street vendor in Bangladesh capital Dhaka)

The UN has laid out a five year transition period for Bangladesh, Nepal and Laos to graduate out of the LDC group. (File picture of a street vendor in Bangladesh capital Dhaka)

The LDC category identifies countries faced with crushing developmental challenges. Moving out of the group is a sign of significant improvements

The United Nations (UN) has identified three countries — Bangladesh, Nepal and Laos — for leaving its category of Least Developed Countries (LDCs) by 2026. In a world of uneven distribution of wealth and unequal opportunities and access, a proper classification based on resources and needs can go a long way towards enabling a country to find the support and assistance it needs to help its people achieve their fullest human potential. But, then, how are countries classified in terms of their economic or development standards?

What Is An LDC?

The LDC classification was introduced by the UN in 1971 to identify countries that are “deemed highly disadvantaged in their development process, for structural, historical and also geographical reasons".

LDCs are thus specially designated as those that “are in need of the highest degree of attention from the international community" as they represent the members of the international community that face the “risk of deeper poverty and remaining in a situation of underdevelopment", the UN says, adding that in the 46 LDCs now — including Bangladesh, Nepal and Laos — more than 75 per cent of the population still live in poverty.

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Further, amid the hazardous impacts of climate change and the threats posed by a global health crisis like the one that unfolded due to the Covid-19 pandemic, LDCs are also seen as being “characterised by their vulnerability to external economic shocks, natural and man-made disasters and communicable diseases".

In fact, the longer-than-usual five years earmarked for Bangladesh, Laos (officially, the Lao People’s Democratic Republic) and Nepal is to “enable them to prepare for graduation while planning for a post-Covid-19 recovery", the UN said. The standard period for graduating out of the LDC is three years.

What Are The Criteria For Classification As An LDC?

The UN’s Committee for Development Policy (CDP) is tasked with recommending which countries should be included in the list of LDCs with the decision in that regard to be made by the UN Economic and Social Council and, “ultimately, by the General Assembly". According to the UN, the basic criteria for inclusion concern performance vis-a-vis a country’s per capita GNI, and its standing on a human assets index and an economic vulnerability index.

The 46 LDCs that have been at present identified comprise around 880 million people, representing 12 per cent of the global population, but less than 2 per cent of world GDP and around 1 per cent of world trade.

The ‘human assets’ criteria includes “indicators of nutrition, health, school enrolment and literacy" while the ones for economic vulnerability comprise “indicators of natural and trade-related shocks, physical and economic exposure to shocks, and smallness and remoteness".

Spelling out the situation faced by LDCs, a Union Ministry of External Affairs (MEA) note from 2011 says that they are marked by “extreme poverty, lack of productive capacity, absence of infrastructure and institutions; food and energy shortages; weak domestic market; dependence on commodity exports; high global health burden". It also pointed out that “vulnerability to external shocks and structural weaknesses have long held the LDCs in a state of under-development" and are heavily dependent on exports of commodities and natural resources for economic growth.

In fact, MEA notes that “India played an active role" in the setting up of the LDC group and that “the idea of creating a separate category of LDCs was discussed in detail and took shape in the 2nd UNCTAD Session held in New Delhi in 1968".

How Does A Country Graduate Out Of LDC Category?

The UN says that a review is undertaken every three years by the CDP whereupon it makes its recommendations for inclusion in and graduation from the category. Even though it notes that these recommendations are not solely based on the criteria scores but also include “complementary country-specific information and the views of the government are also taken into account". This is the second time since 2018 that the CDP recommended that Bangladesh be moved out of the LDC category.

A more granular look at the criteria explains how a country is able to graduate out of the LDC list although it must be kept in mind, per the UN, that the “graduation thresholds are set higher than the thresholds for inclusion… to ensure that graduation is sustainable".

Thus, on GNI per capita, the inclusion threshold is set at a three-year average in keeping with the cut-off determined by the World Bank for identifying low-income countries. As of 2021, the threshold is USD 1,018. To exit the LDC group, a country has to have this GNI per capita rise 20 per cent above the inclusion threshold, which in 2021 is USD 1,222. There is, incidentally, an income-only graduation threshold — where assessment on other criteria is presumably kept aside — which is twice the graduation threshold, or a GNI per capita of USD 2,444 in 2021. But in the normal course, a country has to meet the graduation thresholds “for any two of the three criteria in two consecutive triennial reviews".

UN says that since 2015, the CDP uses ‘absolute thresholds’ — which implies a value that is fixed over time as against a relative threshold that is based on contemporaneous outcomes — for the human assets and economic and environmental vulnerability indices. On the human assets index, a country’s score has to improve by 10 per cent (that is, it has to score 66) above the inclusion cut-off of 60, while on the vulnerability index, its score has to come down by 10 per cent to 32 from the inclusion threshold of 36.

Excluding the trio just named for graduation, six countries have so far exited the LDC group: Botswana, Cape Verde, the Maldives, Samoa, Equatorial Guinea, and Vanuatu.

What Are The Advantages/Drawbacks Of Being In/Out Of LDC Group?

The LDC list is a means of giving “a strong signal to the international community to the need of special concessions in support of LDCs". The UN says that these cover the areas of development financing, like the award of grants and loans, and special trade concessions like preferential market access. Countries are also encouraged to provide technical assistance to the LDCs.

A report by DD News notes that “graduation from LDC has double-edged impact on countries". Thus, while they stand to lose preferential support, grants and subsidies, etc., they also earn the “enhanced confidence of international financial bodies". Which means that these countries are henceforward regarded as having stable and robust political and economic institutions and policies to merit better credit rating and higher FDI inflows, which would work towards spurring economic growth.

How Else Are Countries Classified?

For the purposes of its World Economic Situation and Prospects (WESP) report, the UN says, countries are placed into three broad groupings: “developed economies, economies in transition and developing economies", although it notes that especially the economies in transition display conditions “that could place them in more than one category". But these groups are not neat silos and “within each broad category, some subgroups are defined based either on geographical location or on ad hoc criteria". India is identified by UN to be a “developing" and “lower middle income country".

Where countries are classified on the basis of their per capita gross national income (GNI) into high-income, upper middle income, lower middle income or low-income countries, the UN uses threshold levels of GNI per capita as defined by the World Bank “to maintain compatibility". Thus, countries with less than USD 1,035 GNI per capita are classified as low-income countries, those between USD 1,036-4,085 as lower middle income, from USD 4,086-12,615 as upper middle income and those with per capita income of more than USD 12,615 as high-income countries.

It is a different matter that several alternative classification systems have now been mooted to capture the real status of a country that do not focus solely on economic indicators, a case in point being the Gross National Happiness index proposed by Bhutan. There is also the Human Development Index of the UN and the Happy Planet Index proposed by the New Economics Foundation.

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first published:November 27, 2021, 09:13 IST