Graduation from Least Developed Country Status: Thresholds and Transition Considerations -, Study notes of International Management

Download Graduation from Least Developed Country Status: Thresholds and Transition Considerations - and more Study notes International Management in PDF only on Docsity! 23L O C A L D E V E L O P M E N T A N D G L O B A L I S S U E S IV. Review of the list of least developed countries A. Introduction 1. The Committee for Development Policy is required, pursuant to Economic and Social Council resolution 1998/46 of 31 July 1998, annex I, paragraph 9, to conduct triennially a review to determine the countries to be added to or graduated from the list of least developed countries. Since the previous review was conducted in 2000, the Committee conducted another review in 2003. 2. The Committee bases its identification of the least developed countries on the consideration of three dimensions of a country’s state of development: its income level, its stock of human assets and its eco- nomic vulnerability. The Committee thus uses (a) gross national income (GNI) per capita as an indicator of income; (b) the Human Assets Index (HAI) as an indicator of the stock of human assets; and (c) the economic vulnerability index (EVI) as an indicator of economic vulnerability. In addition, because the underlying concept of the least developed country category excludes large economies, in 1991 the General Assembly in its resolution 46/206 endorsed the principle that no country with a popula- tion exceeding 75 million should be considered for addition to the list, as had been set forth in the report of the Committee for Development Planning on its twenty-seventh session.15 3. For each review, the Committee determines threshold levels for each of the three indicators. These thresholds are used to identify the countries to be added to or graduated from the category. To be added, a country must satisfy all three criteria. To become eligible for gradua- tion, a country must meet an adjusted set of thresholds for two of the same three indicators; to qualify for graduation, it must do so in two consecutive reviews. The Committee understands, however, that its role is to assist in identifying which countries are eligible or qualify for grad- uation from least developed country status, based on the application of 15 See Revolution and Reform in Eastern Europe and the Soviet Union: the Global Development Impact. Report of the Committee for Development Planning on the twen- ty-seventh session (22-26 April 1991) (United Nations publication, Sales No. E.92.IV.2), para 242. CDPREP03.qxd 28/10/2003 9:50 AM Page 23 (Black plate) 24 T H E C D P R E P O R T 2 0 0 3 the criteria adopted by the Committee and endorsed by the Economic and Social Council. The decision on whether the countries should be graduated is the responsibility of the Council and, ultimately, the General Assembly. 4. The Economic and Social Council, in its resolution 2002/36 of 26 July 2002, took note of the recommendations of the Committee regard- ing three major changes to the criteria for the identification of the least developed countries: first, that gross national income (GNI) per capita should replace gross domestic product (GDP) per capita as the indica- tor of income; second, that, as it was a better indicator of the level of education, the gross secondary school enrolment ratio should possibly replace the gross combined primary and secondary school enrolment ratio in the Human Assets Index (HAI) (previously called the Augmented Physical Quality of Life Index (APQLI)); and third, that the percentage of the population displaced by natural disasters could be used as a supplement to the economic vulnerability index (EVI) when suitable data became available. 5. The Committee has made improvements to the new criteria for the identification of the least developed countries adopted in 2000. However, it considers that there is scope for further methodological improvements in this before the next triennial review. Particular atten- tion should be given, as in the past, to the quality and reliability of indi- vidual indicators and the way in which the criteria are applied. B. Criteria for the identification of the least developed countries in 2003 1. Gross national income (GNI) per capita 6. The initial list of countries to which the criteria for identifying the least developed countries were applied during the 2003 review comprised all countries classified by the World Bank as low-income in any one of the three most recent years.16 The Committee gave special attention to the low-income countries with economies in transition of Eastern Europe 16 The World Bank’s list of low-income countries changes from year to year as a result of changes in the cut-off point and the differences in growth among countries over time. CDPREP03.qxd 28/10/2003 9:50 AM Page 24 (Black plate) 27L O C A L D E V E L O P M E N T A N D G L O B A L I S S U E S Population Per capita EVI 2002 GNI (mod- (millions) (US dollars) HAI EVI ified)a LDC Afghanistan 23.3 523 11.6 50.1 49.0 LDC Angola 13.9 447 25.6 48.5 46.8 LDC Bangladesh 143.4 363 45.3 22.9 29.5 LDC Benin 6.6 367 40.2 57.0 56.4 LDC Bhutan 2.2 600 40.4 40.6 41.0 LDC Burkina Faso 12.2 217 26.5 49.3 47.0 LDC Burundi 6.7 110 19.7 53.8 49.6 LDC Cambodia 13.8 263 44.5 49.7 48.1 Cameroon 15.5 583 43.8 31.9 31.2 LDC Cape Verde 0.4 1 323 72.0 55.5 56.7 LDC Central African Republic 3.8 277 29.9 43.1 42.0 LDC Chad 8.4 203 26.1 59.2 56.6 LDC Comoros 0.7 387 38.1 59.1 58.7 Congo 3.2 610 55.2 50.3 46.8 Côte d'Ivoire 16.7 687 43.0 25.4 25.9 Democratic People's Republic of Korea 22.6 440 62.9 32.8 29.5 LDC Democratic Republic of the Congo 54.3 100 34.3 40.8 42.3 LDC Djibouti 0.7 873 30.2 48.6 49.5 LDC Equatorial Guinea 0.5 743 47.2 64.4 55.8 LDC Eritrea 4.0 190 32.8 51.7 50.2 LDC Ethiopia 66.0 100 25.2 42.0 40.7 LDC Gambia 1.4 340 34.0 60.8 56.5 Ghana 20.2 337 57.9 40.9 41.9 LDC Guinea 8.4 447 30.3 42.1 40.0 LDC Guinea-Bissau 1.3 170 31.2 64.6 60.7 LDC Haiti 8.4 493 35.3 41.7 43.5 India 1 041.1 450 55.7 13.5 19.6 Indonesia 217.5 610 73.6 18.1 21.9 Kenya 31.9 350 49.3 28.4 29.0 LDC Kiribati 0.1 923 67.5 64.8 60.4 LDC Lao People's Democratic Republic 5.5 297 46.4 43.9 43.4 LDC Lesotho 2.1 573 45.4 44.2 44.5 LDC Liberia 3.3 285 38.7 63.1 58.3 LDC Madagascar 16.9 253 37.9 21.6 27.0 LDC Malawi 11.8 177 39.0 49.0 49.4 Table 2 LEAST DEVELOPED AND OTHER LOW-INCOME COUNTRIES: CRITERIA USED IN DETERMINING ELIGIBILITY FOR LEAST DEVELOPED COUNTRY STATUS CDPREP03.qxd 28/10/2003 9:50 AM Page 27 (Black plate) 28 T H E C D P R E P O R T 2 0 0 3 Population Per capita EVI 2002 GNI (mod- (millions) (US dollars) HAI EVI ified)a LDC Maldives 0.3 1 983 65.2 33.6 37.5 LDC Mali 12.0 230 19.9 47.5 45.4 LDC Mauritania 2.8 377 38.2 38.9 37.7 Mongolia 2.6 393 63.3 50.0 48.9 LDC Mozambique 19.0 220 20.0 35.6 39.2 LDC Myanmar 49.0 282 60.0 45.4 45.6 LDC Nepal 24.2 240 47.1 29.5 31.0 Nicaragua 5.3 395 60.8 39.4 42.5 LDC Niger 11.6 180 14.2 54.1 53.1 Nigeria 120.0 267 52.3 52.8 51.1 Pakistan 148.7 437 45.5 20.2 26.1 Papua New Guinea 5.0 673 46.2 36.1 38.6 LDC Rwanda 8.1 230 34.1 63.3 59.6 LDC Samoa 0.2 1 447 88.8 40.9 50.8 LDC Sao Tome and Principe 0.1 280 55.8 41.8 37.0 LDC Senegal 9.9 490 38.1 38.4 38.8 LDC Sierra Leone 4.8 130 21.7 45.7 43.3 LDC Solomon islands 0.5 657 47.3 46.7 49.1 LDC Somalia 9.6 177 8.5 55.4 53.1 LDC Sudan 32.6 333 46.4 45.2 46.5 Timor-Leste 0.8 478 36.4 b b LDC Togo 4.8 293 48.6 41.5 42.8 LDC Tuvalu 0.01 1 383 63.7 70.3 67.3 LDC Uganda 24.8 297 39.8 43.2 41.6 LDC United Republic of Tanzania 36.8 263 41.1 28.3 30.2 LDC Vanuatu 0.2 1 083 57.4 44.5 46.4 Viet Nam 80.2 390 72.7 37.1 39.4 LDC Yemen 19.9 423 46.8 49.1 49.0 LDC Zambia 10.9 317 43.4 49.3 47.6 Zimbabwe 13.1 463 56.5 33.7 30.3 Table 2 (continued) Note: Thresholds for inclusion in the list of least developed countries are population less than 75 million; per capita gross national income (GNI) less than $750; Human Assets Index (HAI) less than 55; and economic vulnerability index (EVI) greater than 37. A country must meet all the criteria. Thresholds for graduation from the list of least developed countries are: per capita GNI greater than $900; HAI greater than 61; and EVI less than 33. A country must meet at least two criteria to be eli- gible for graduation. The letters "LDC" before a country name indicate a country that is currently designated as a least developed country. Figures in boldface type indicate a graduation criterion that has been met by a current least devel- oped country. a EVI with sixth component: percentage of population displaced by natural disasters; threshold for inclusion: greater than 38; threshold for graduation: less than 34. b Data unavailable. CDPREP03.qxd 28/10/2003 9:50 AM Page 28 (Black plate) because this margin would be sufficient to distinguish the countries that had developed significantly better human assets. According to the agreed guidelines, the threshold for inclusion in the list of least devel- oped countries under this index is an HAI value of 55. The threshold for graduation under this index is 61. 3. Economic vulnerability index (EVI) 10. Economic vulnerability can take a variety of forms. The vulnera- bility that has to be considered in the identification of the least devel- oped countries is structural economic vulnerability. For this purpose, the EVI should reflect the relative risk posed to a country’s development by exogenous shocks, the impact of which depends not only on the size of the shocks, but also on structural characteristics that determine the extent to which the country would be affected by such shocks. The EVI used by the Committee is therefore an average of five indicators: (a) merchandise export concentration; (b) instability of export earnings; (c) instability of agricultural production; (d) share of manufacturing and modern services in GDP; and (e) population size. 11. The Committee was informed that the quality of internationally comparable data on the number of people displaced by natural disasters had improved significantly. The Committee thus agreed that this infor- mation should be included in a modified EVI as a supplement to data on the instability of agricultural production. 12. The Committee fully recognized that small countries are econom- ically more vulnerable to external shocks than large ones because their economies are heavily dependent on external trade, are less diversified and suffer from diseconomies of scale. In particular, most small island least developed countries face a range of structural handicaps — such as high international transportation costs and relative isolation from main markets — that make them less vulnerable to external shocks. For that reason, it was suggested that the remoteness of countries might also be taken into consideration in future reviews. 13. As in the case of the HAI, the Committee decided that the EVI margin between thresholds for inclusion and graduation should be decreased from 15 to 10 per cent. According to these guidelines, the 29L O C A L D E V E L O P M E N T A N D G L O B A L I S S U E S CDPREP03.qxd 28/10/2003 9:50 AM Page 29 (Black plate) 32 T H E C D P R E P O R T 2 0 0 3 The Committee recalls that, in the 1997 and 2000 reviews, the country met two graduation criteria: its income per capita and HAI (formerly APQLI) were both well above the graduation thresholds. In the present review, its GNI per capita is not only the highest among the 65 countries but also more than twice the graduation threshold. Its HAI score ranks as the fourth highest among the least developed countries and is also above the graduation threshold. Its EVI (33.6) is also very close to the graduation threshold (33 or less). Given that Maldives meets two grad- uation criteria for a third consecutive time, the Committee concludes that the country qualifies for graduation. 21. The Committee was informed that the Government of Maldives had expressed procedural and substantive concerns to the Secretary- General about the interim vulnerability profile of Maldives that had been made available to the Committee. For its part, the United Nations Conference on Trade and Development (UNCTAD) informed the Committee that the profile had been prepared with substantial coopera- tion from the Government. The preliminary reaction of the Government to the interim vulnerability profile did not contain any material evidence to reverse the Committee’s view that Maldives technically qualifies for graduation. The Committee recognizes that Maldives faces special dif- ficulties and costs because it is a small, widely dispersed island econo- my and that it may lose important international benefits if it graduates from the list of least developed countries. (ii) Other countries meeting two graduation criteria in 2003 22. Samoa has the second highest average GNI per capita and the highest HAI among the 65 countries. Although the country is consid- ered economically vulnerable — as reflected in its EVI score (41), com- pared with a graduation threshold of 33 or lower — it is now the eleventh least vulnerable least developed country based on this criterion. Since it meets two graduation criteria, the Committee recommends that it be considered eligible for graduation. As a result, it might qualify for graduation should it fulfil the graduation criteria again in the 2006 review. 23. The data for two countries — Kiribati and Tuvalu — indicate that they meet two graduation criteria (GNI per capita and HAI). However, while they are technically eligible for future graduation, the Committee CDPREP03.qxd 28/10/2003 9:50 AM Page 32 (Black plate) 33L O C A L D E V E L O P M E N T A N D G L O B A L I S S U E S recommends that they should not be considered. In the case of Kiribati — whose three-year average GNI per capita (US$ 923) is just above the graduation threshold of US$ 900 — GNI per capita fell constantly over the past four years, from US$ 1,130 in 1998 to only US$ 830 in 2001. In the case of Tuvalu, only GDP per capita data are available. In addi- tion, the Committee stresses that these are the two most economically vulnerable countries in the initial list according to the EVI. C. Smooth transition of countries graduating from least developed country status 24. The fact that a country that has long been recognized as “least developed” qualifies for graduation is an indication of some success in its development and in its ability to achieve a degree of structural change in its economy. These successes, in turn, are likely to have been largely attributable to a mix of sound domestic policies and propitious external conditions. With regard to the latter, international support has frequently played a central role and the capacity to use world market opportunities may also have been important. 25. Despite the progress they have achieved, countries that qualify for graduation from least developed country status are likely to continue to have a limited capacity to withstand exogenous shocks. A sudden with- drawal of external support is likely to constitute such a shock and to have negative effects, possibly reversing some of the development progress achieved. Countries that qualify for graduation from the least developed country category should be commended for their success and not penalized for it by the imposition of such a shock. 26. The Committee recalls the importance that it has consistently attached to “smooth transition” measures for graduating countries, as elaborated in the reports of its third and fourth sessions.18 It also recalls that the Economic and Social Council, in its resolution 2002/36, reiter- 18 See Participatory Development and Governance: Africa’s Special Needs. Report of the Committee for Development Polcicy on the third session (2-6 April 2001) (United Nations publication, Sales No. E.01.II.A.4), paras. 114-117. See also Capacity-building in Africa: Effective aid an human capital. Report of the Committee for Development Policy on the fourth session (8-12 April 2002) (United Nations publication, Sales No. E.02.II.A.4), paras. 158-163. CDPREP03.qxd 28/10/2003 9:50 AM Page 33 (Black plate) ated the importance of ensuring a smooth transition from least devel- oped country status, which it had emphasized in earlier resolutions (Council resolutions 2000/34 and 2001/43), in keeping with the obser- vation made in 1991 by the General Assembly in its resolution 46/206 on the importance of ensuring that graduation from least developed country status would not disrupt the progress in the development of graduating countries. 27. The Committee was informed that the importance of securing smooth transition for graduating countries had begun to be taken into account by the multilateral trading system, as the question of the treat- ment of graduating member States was in the agenda of the Work Programme on Small Economies of the World Trade Organization. The Committee suggests that, with the general trend towards freer trade and erosion of trade preferences for all developing countries, least devel- oped country benefits should be maintained when a country graduates, as the cost to trading partners would be negligible and the benefit to the graduating country will gradually dissipate as trade barriers for all developing countries fall. The Committee recommends that the Economic and Social Council encourage relevant development partners and multilateral organizations to accelerate the progress in their treat- ment of graduation issues, including the provision of technical assis- tance through the Integrated Framework for Trade-related Technical Assistance to Least Developed Countries. 28. The Committee therefore recommends that a meeting of experts on the overall question of smooth transition be organized in order to cast light on the likely treatment of graduating countries by their main bilat- eral and multilateral partners. 29. It was stressed that the treatment of graduating countries by their bilateral and multilateral partners — notably with regard to trade pref- erences — could be decided upon only in international organizations, such as the World Trade Organization. It was recalled that graduation would imply the loss of a number of significant advantages, in particu- lar preferential market access and extended deadlines for implementa- tion with regard to World Trade Organization obligations. The Committee also recommends that, in each case, graduation should trig- 34 T H E C D P R E P O R T 2 0 0 3 CDPREP03.qxd 28/10/2003 9:50 AM Page 34 (Black plate)