Bangladesh needs to rev up investment for smooth LDC transition: UNCTAD

The UN Conference on Trade and Development (UNCTAD) has recommended augmenting private investment and revenue income for a smoother transition from Least Developed Country (LDC) to a developing one by 2026.

It also emphasised bolstering investments in improving manufacturing productivity, human capital, climate-resilient and digital infrastructures to improve physical and soft infrastructures.

The UNCTAD made the recommendations in its latest report titled The Least Developed Countries Report 2021 launched virtually on Monday.

In line with the United Nations Committee for Development Policy (CDP) decision taken in the second round of review, Bangladesh is going to graduate by 2026 as it attained all three criteria — gross national income per capita, human assets index and economic vulnerability index.

“Strengthening domestic resource mobilisation by improving tax administration systems and business environments to boost public revenues and private sector investments are relevant for Bangladesh to ensure smooth graduation and structural transformation,” said the report.

Bolstering investments in climate-resilient and digital infrastructures to improve physical and soft infrastructures could hinder efficiency in the transport and logistics sectors, the UNCTAD suggested.

Sustaining investments in human capital by improving access to education and the job market, while supporting technological upgrading and improvements to the science, technology and innovation (STI) ecosystem is very important, it added.

“For the LDC countries, the emerging challenges are Covid-19 and its consequence and climate change impact. Two-speed world recoveries leave most LDC behind,” Rolf Traeger, Chief of LDC section, UNCTAD.

“To mobilise sufficient development finance, LDCs need to strengthen their fiscal capacities, increase domestic resources mobilisation and improve the effectiveness of public expenditures,” he said.

LDCs would need to mobilise additional resources equivalent to 41.6 per cent of GDP until 2030 to meet these goals and they would need to speed on these areas as much as rich countries relative to the size of their economies, he added.

Addressing Covid-19 shocks crucial

The Covid-19 shock has triggered a process of Global Value Chain (GVC) restructuring, bringing renewed emphasis to supplier diversification, dependability and regional embeddedness.

“For a successful LDC graduation, Bangladesh needs to aggressively pursue GVC diversification, as increased tariffs from LDC preferential treatment loss and domestic infrastructural constraints pose a threat to continued export revenue and investment flows,’’ said the report.

In addition, Bangladesh will need to harness technological advancements to adjust its existing GVC linkages to sustain its export capacities. Overall, strategic industrial, trade and structural policies are needed for longer-term impact, it added.

The country can further harness technological ventures by strengthening connectivity and logistics through system-wide reform.

Extension of duty-free access and concessional loans demanded

LDC graduation is expected to reduce capital accumulation generated by external finance, while duty-free trade benefits to erode.

“After the graduation, Bangladesh needs a new type of policy support including the extension of duty-free market access by 12 years beyound 2026, if not then at least 7 years,” Centre for Policy Dialogue (CPD) Distinguished Fellow Professor Mustafizur Rahman.

“There is a need for international support. Bangladesh will need a huge amount of investment. As a result, the international community and donors have to redistribute investment,’’ he said.

As the flow of concessional foreign financing and grants will decline and interest rate might increase 2 to 3 per cent, the development agencies have to consider over investment distribution, he said.

On the other hand, Bangladesh has to march forward strategically to ensure structural transformation. In the case of export, we have to think about product diversification and value addition instead of depending on duty-free benefits, said the economist.

The UNCTAD report said Bangladesh can expect a lower degree of concessionality in accessing development finance, with resulting reductions in available policy space but the country will need to ramp up domestic resource mobilization efforts as external development finance decreases.

The country has experienced a widening resource gap averaging 6 per cent over the past 15 years – a gap largely covered by remittances of $18.3 billion in 2019.

For mobilizing resources and retain the growth momentum, Bangladesh has to double its share of manufacturing compared to 2019. To do so, the focus should be given to investment which would create employment and improve labor productivity, said Rolf Traeger.

For attracting investment, domestic and international policy should be integrated to attain the target. Here, there is a strong need for support from developed and developing countries, he added.

However, Commerce Secretary Tapan Kanti Ghosh expressed hope that Bangladesh would get an extension of duty-free trade benefits for few more years after its graduation.

Bangladesh is right now facing Covid-19 and climate change-induced challenges. Bangladesh is working with six sub-committees under the principal secretary to the prime minister to identify the challenges and probable ways after the LDC graduation of the country, said Tapan, who joined the event as chief guest.

Climate change impact should be addressed properly

Environmental policy is the key in a country affected by frequent natural disasters induced by climate change, as well as for Bangladesh’s smooth transition to developing country status.

“So, climate change can disproportionately hurt the livelihoods of the poor, climate change adaptation should become a policy priority to mitigate inequalities and avoid further marginalization of the poor,” said the UNCTAD.

Bangladesh’s high adaptation investment needs call for correspondingly increased national attention to the formulation of appropriate environmental policies, it said.

On top of that, Bangladesh has to focus on mobilizing climate finance, capitalizing on climate-resilient infrastructure, adopting green technology, and developing social protection for vulnerable groups affected by climate change, the UN body suggested.

Financing SDGs

The annual average investment requirements for LDCs to reach the SDGs are daunting, especially for targets related to structural transformation.

“Domestic resource mobilization is the crucial determination of institutional capacities and of SDG investment. Unleash private investment and boost tax revenues,” said Giovanni Valensisi, Economic Affairs Officer of UNCTAD.

As per the Bangladesh government estimates in 2015, SDG financing needs about $66.3 billion especially to weather climate change impacts.