Dev financing reforms crucial for graduating LDCs

Different countries like Bangladesh will face more challenges during the post-LDC era as multilateral development financing shrinks against an increased demand for funds due to the Russia-Ukraine war and the impact of Covid-19 pandemic.

To address the challenges, development partners should step up their efforts to enhance funding for domestic resource mobilisation in the countries which are now awaiting LDC transition as well as reforms of multilateral development financing.

Experts made these observations at a webinar titled “Multilateral Development Finance: Supporting an Inclusive and Sustainable Recovery in South Asia” organised by Centre for Policy Dialogue (CPD) and Organisation for Economic Co-operation and Development (OECD) on Friday.

According to the report on Multilateral Development Finance 2022 released by the OECD team at the webinar, ongoing global challenges have intensified following the Covid-19 pandemic and the Russia-Ukraine war. As a result, the demand for funds in least developed countries (LDCs) has also increased.

The report showed that in such reality, multilateral development institutions and countries have also increased their amount of funds by 31 percent in 2020 comparing to 2019.

But this growth is far less than the demand. The report also said that in 2022 there is a deficit of 60 percent compared to the amount of aid that is needed in the world’s aid-seeking countries.

Under such circumstances, economic development must be socially inclusive and environmentally sustainable. Otherwise, the problem will increase all over the world.

LDC issue

Some countries, including Bangladesh, will graduate from LDC status in the near future. The OECD report says that although multilateral development financing is increasing, the amount of low-interest and easy-term concessional loans, is decreasing.

In such a scenario, LDC-graduated countries will face more challenges when they lose trade privileges and get less access to low-interest funds. So, the discussants have proposed reforms of financing.

Nisha Arunatilake, Director of Research, Institute of Policy Studies of Sri Lanka (IPS) cited an example of her country and said that development partners always co-finance various projects with the government.

In this case, if those are not really development projects, others have nothing to do. In such a reality, funding should be provided to private enterprises as well as the government by reforming the multilateral development financing system.

Highlighting the issue of Bangladesh, Prof Mustafizur Rahman, distinguished fellow of CPD, said that the tax-GDP ratio of Bangladesh is half of that of Nepal. If Bangladesh can make this ratio equal to that of Nepal, it will not have to seek help from anyone for the financing of SDG implementation and post-LDC transition.

Therefore, development partners should help countries like Bangladesh to enhance their capacity to increase domestic resources, he added.

The experts said that the development partners should not only provide funds but also see the effectiveness of the funds. At the same time, they fear that the new geopolitical context may create problems in terms of funding.

Paras Kharel, Executive Director of South Asia Watch on Trade, Economics and Environment (SAWTEE), of Nepal said that countries like Nepal and Bangladesh will need a huge amount of funding after graduation from LDCs. But the geopolitical situation surrounding the Russia-Ukraine war could create new problems if development partners are divided.

Prof Sachin Chaturvedi, Director General of Research and Information System for Developing Countries (RIS), India said that his country has always extended its helping hand to neighbouring countries, including Bangladesh. After LDC graduation, they will find India next to them. He also called on the OECD countries to reduce the cost of sending remittance and quality foreign investment.

Debapriya Bhattacharya, distinguished fellow of CPD, said regional partnership and coordination should be increased to graduate from LDC. At the same time, the accountability of the governments should be increased.

While speaking as the chief guest, Kazi Nabil Ahmed, a member of the Parliamentary Standing Committee on Ministry of Foreign Affairs, said that many LDCs, including Bangladesh, are facing problems due to the Covid-19 pandemic and Russia-Ukraine war.

The government is trying to deal with it with the help of its own policies and development partners, he added.

Fahmida Khatun, Executive Director of CPD, conducted the webinar.