Finding new support for graduating LDCs

Many Least Developed Countries (LDCs) have implemented successful development policies. As a result, an increasing number of LDCs have graduated or are approaching graduation from the LDC category. While this is a cause for celebration, LDC graduation often raises anxiety [on possible implications of graduation], and thus enhancing graduation support should be essential to reduce such concerns.” (H.E. Ms. Mona Juul, Permanent Representative of Norway and President of the Economic and Social Council, at the Annual Ministerial Meeting of the Least Developed Countries, 26 September 2019, New York)

Given the large number of LDCs expected to graduate in the next few years, the Economic Analysis and Policy Division (EAPD) of DESA has recently launched a project on “New support measures for graduating Belt and Road LDCs”. The project aims to identify targeted assistance measures and strengthen policy frameworks and institutional arrangements for the adoption and use of these measures in six pilot LDCs: Bangladesh, Cambodia, Lao PDR, Myanmar, Nepal and Timor-Leste. Among other things, the project will strengthen analysis of the context and support consultation processes between a range of stakeholders as well as development and trading partners in each country. This project runs until October 2022 and is supported by the UN Peace and Development Fund, established with a generous contribution from the Government of China.

Graduating LDCs are encouraged to elaborate a national smooth transition strategy to address the possible impacts of graduation. There is a recognition that these strategies have often been developed at too late a stage, if at all. From the side of trading and development partners, support has often been provided in the form of transition periods to the loss of trading preferences, for instance. Some graduating LDCs have emphasized that addressing the impacts of graduation can best be addressed through their national development plan. There has been little progress in developing “new support measures” or “incentives” – beyond the existing International Support Measures (ISMs) – tailored specifically to help graduating LDCs with the transition period, or to encourage graduation.

One of the main reasons for this is that the potential category of “new support measures” or “incentives” is very broad. Donor countries could provide more finance and continue to ensure more is in the form of grants rather than loans, and the interest rates for loans is as low as possible. Both developed and developing countries can finance industries in LDCs and transport infrastructure that better connects them to global markets. They can provide more finance to help LDCs adapt to climate change and better manage their disaster risk and can consider new approaches that would make these funds easier to access. They can help LDCs access disaster insurance and other instruments aimed at managing risk such as catastrophe bonds and GDP-indexed bonds. Different, sometimes complex mixtures of public and private finance (e.g., blended finance) can be developed; blended finance is concentrated in sectors with high economic returns and so far has largely bypassed LDCs. LDCs themselves can take measures aimed at improving the business climate to attract more private sector investment, improving efficiency of their tax administration, improve their productive capacity – essentially become more developed – and international development partners can provide capacity development assistance with all of the above. The issue of financing will be discussed in details at an Expert Group Meeting on financing for graduating countries led by the Office of the Secretary General, 11-12 November 2019, New York.

New support measures could even be developed by and for individuals – by supporting tourism to and products from LDCs, or by governments providing direct cash transfers. Many potential options exist, and just as for the existing ISMs, it can be difficult to analyze which constitute a targeted response to the underlying constraints and vulnerabilities each country faces and which should better be offered to all developing countries. For instance, scaled up support to address climate change and disasters is of particular value to graduating LDCs that are small island developing States (SIDS); at the same time, it can be of particular value to all SIDS.

Partly because of these conceptual difficulties, the UN Committee for Development Policy (CDP) in early 2019 developed a set of proposals to improve support to graduating LDCs that focused mainly on the process, emphasizing that the international community’s support to graduating LDCs should be more timely and better coordinated. Among other things, CDP recommended developing a single “graduation assessment”, initiated as soon as a country meets the criteria for graduation, to study the possible impacts of graduation and consolidating assessments developed by separate organizations. An Inter-Agency Task Force on Graduation was set up to coordinate efforts by the UN at the international level, and country-level graduation task forces are recommended at the country level. The CDP also reiterated a recommendation to set up a consultation mechanism between a graduating LDC and its development and trading partners, something that in turn could be merged with or make use of the existing donor round table processes that many LDCs have established, and enabling each graduating LDC to match its own priorities with support that development and trading partners are ready to provide.

The EAPD/DESA project will attempt to make substantive contributions to the global discussion on support measures for graduating LDCs, as well as enhancing their national capacity, which is a much needed contribution as expressed by Mr. Liu Zhenmin, Under-Secretary-General for Economic and Social Affairs, “[we need to find] better ways for the UN system and international partners to support graduating countries and to recommend improved graduation procedures, bearing in mind the upcoming new Programme of Action on the LDCs. Also, we should not forget how capacity development work can be undertaken in support of graduating and graduated countries” (at the 21st Session of the Committee for Development Policy, 11 March 2019, New York).

For more information, contact Namsuk Kim, EAPD/DESA, kimnamsuk@un.org