Chapter 6: Graduation progress and prospects for Commonwealth LDCs

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6.1 Key factors influencing graduation progress and post-graduation transitions   6.2 Towards sustainable graduation for Commonwealth LDCs

At the start of the IPoA, a key objective was for half of the countries in the LDC group to meet the graduation criteria by the end of the decade. However, only 20 countries achieved this objective and four countries graduated, including Maldives (2011), Samoa (2014) and Vanuatu (2020) among the Commonwealth members.

Two Commonwealth LDCs – Solomon Islands (2024) and Bangladesh (2026) – are scheduled to graduate during the next programme of action. The CDP has recommended the extension of Bangladesh’s preparatory period from 2024 to 2026 in view of the impacts of the COVID-19 pandemic, and the simultaneous challenges created by the Rohingya crisis and the resulting influx of refugees, on the country’s progress towards graduation (ECOSOC, 2021b). The extension is intended to give Bangladesh more time to prepare for a smooth and sustainable transition. Bangladesh is the largest economy and exporter of all the LDCs scheduled for graduation and is likely to face greater challenges post-graduation (WTO and EIF, 2020).

The graduation prospects for Kiribati and Tuvalu, which were initially recommended for graduation in 2021, will be reviewed in 2024. Zambia met the criteria for graduation for the first time in 2021 but may struggle to meet the graduation thresholds at the next triennial review in 2024 if the COVID-19 pandemic is prolonged. The same applies to the remaining Commonwealth LDCs that have not yet met the graduation criteria. Moreover, a prolonged pandemic and ongoing vulnerabilities to other external shocks pose additional risks for the two recently graduated Commonwealth countries, Samoa and Vanuatu.

Ahead of the next programme of action, this chapter examines the graduation and post-graduation prospects of Commonwealth LDCs, taking into account the challenges presented by the COVID-19 pandemic.

6.1    Key factors influencing graduation progress and post-graduation transitions for Commonwealth LDCs

6.2.1 Trade-related considerations

Implementation of the IPoA did little to expand LDC trade, and the goal of doubling the share of LDCs in world trade by 2020 was not met (see Chapter 3). The COVID-19 pandemic stalled progress further and caused a decline in LDC exports (see Chapter 5), threatening prospects for meeting the SDGs (CDP, 2020).

On top of the challenges posed by COVID-19, Commonwealth LDCs still face many of the same exogenous and endogenous constraints to trade they faced during the IPoA. A changing global trading landscape, marked by increasing protectionism and rising trade tensions, restrictive customs procedures, supply constraints, inadequate trade‐related infrastructure and a lack of diversification in their exports and export markets, continues to handicap their ability to expand their trade and graduate from LDC status (ECOSOC, 2021b). The loss of preferences in key markets post-graduation threatens to exacerbate these difficulties in the case of graduated LDCs.

Firms in LDCs often encounter difficulty accessing international markets owing to inadequate transport infrastructure and logistics services. The scope to improve their logistics is evident from the 2018 Logistics Performance Index (LPI) (Table 18), with four Commonwealth LDCs ranking in the bottom quartile and all but one (Rwanda) of those included in the LPI falling in the bottom half.

Table 18: Rankings and scores for Commonwealth LDCs on the LPI, 2018

Source: World Bank LPI

The development of digital infrastructure can facilitate trade and enhance connectivity for LDCs. However, the LDC group has not fared well in implementing digital and sustainable trade facilitation measures compared with the global average (Table 19). Documentary evidence requirements also pose obstacles for LDCs to make better use of preferential rules of origin. These remain underutilised by Commonwealth LDCs who are WTO members, particularly in agriculture. In some instances, the level of underutilisation amounts to 100 per cent of eligible goods in the agriculture sector (WTO, 2019).

Table 19: Digital and sustainable trade facilitation rate, 2021 (%)

Source: Commonwealth Secretariat (calculated using UN Global Survey on Digital and Sustainable Trade Facilitation)

International support to increase the share of LDCs in world trade remains limited. This is especially true for graduating LDCs. In 2017, at the WTO’s Ministerial Conference in Buenos Aires, LDC Ministers called for positive interventions to support graduating countries (WTO, 2017), including measures to avoid the adverse impact of discontinuing their S&DT (ibid.). However, formal WTO procedures and related support measures and S&DT provisions for LDC members have not yet been agreed (WTO, 2020a). On the other hand, Commonwealth LDCs that are not members of the WTO (Kiribati and Tuvalu) face accession challenges, which prevent them from benefiting from most of the WTO’s S&DT provisions.^[1]

In 2002, the WTO General Council adopted guidelines intended to facilitate the accession of LDCs. These guidelines, which were strengthened in 2012, urged WTO members to exercise restraint when demanding concessions from acceding LDCs. However, these guidelines do not apply after LDCs have graduated, and graduated LDCs are not eligible for LDC-specific technical assistance and capacity-building for accession and post-accession activities after their smooth transition period has ended. Countries that accede to the WTO before graduation will have to negotiate a specific transition period during the negotiations for accession and will assume WTO obligations after the process is complete. As a result, Kiribati and Tuvalu, who are not members of the WTO, might incur additional costs associated with implementing WTO obligations after graduating. 

The WTO Services Waiver adopted in 2011 allows members to provide market access preferences to LDCs in services sectors. However, implementation of the waiver has proven challenging. Since the Nairobi Ministerial Decision on a waiver in 2015, it has been difficult for Commonwealth LDCs to build a critical mass of preference-granting countries. To date, only 25 WTO members have notified the sectors and modes of supply to which they would grant preferential treatment to LDCs. Moreover, even when preferences are available, Commonwealth LDC services suppliers must establish commercial contacts with consumers in those markets to take advantage of the preferences. These suppliers may have limited capacity to conform with domestic services regulations – such as credit, health insurance or visa requirements – in export markets. In certain instances, services suppliers in Commonwealth LDCs may even be unaware of the existence of the waiver provision. Some Commonwealth LDCs also face being ineligible for the waiver in the future. If Kiribati or Tuvalu accede to the WTO after graduation, they will lose the opportunity to benefit from the waiver. In addition, Commonwealth countries scheduled for graduation, including Solomon Islands and Bangladesh, will not benefit from the waiver once they graduate.

The ongoing discussion on fisheries subsidies at the WTO is yet another case in point. Graduating LDCs are unlikely to benefit from these initiatives even if an agreement, with flexibilities for LDCs, is reached, should they graduate before the final agreement comes into force.

Following the post-graduation transition period, LDCs will stop benefiting from preferential trade schemes such as duty-free quota-free (DFQF) provisions (e.g. the EU’s Everything But Arms). In some cases, they are considered under Generalised System of Preferences (GSP) arrangements. However, some of these schemes, such as the EU’s GSP+, require the graduated country to have signed, ratified and implemented conventions covering various issues such as labour standards, human rights and environmental protection. Preferences can be withdrawn unilaterally when a LDC fails to comply with GSP+ provisions.

Some Commonwealth LDCs also face difficulty capitalising on advantages afforded by the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). On 29 June 2021, WTO members agreed to extend the TRIPS transition period for LDCs to protect intellectual property under the agreement for a further 13 years until 1 July 2034. The extension was requested by LDCs, citing the impact of the COVID-19 pandemic in exacerbating the challenges they face to develop viable technological bases as well as their limited resources to implement all of the agreement’s provisions (WTO, 2020b). However, the extension of the transition period is unlikely to benefit LDCs in the short to medium term given their limited capacity to innovate and put in place intellectual property rules. In addition, Commonwealth LDCs scheduled for graduation, including Solomon Islands and Bangladesh, will not benefit from this provision if they graduate before July 2034.

6.1.2 Financing constraints

Even prior to the onset of the COVID-19 pandemic, Commonwealth LDCs had limited domestic financial resources and relied significantly on external debt and foreign aid (see Chapter 4). The severe and lingering economic impacts of the pandemic mean prospects for international financing, including ODA, remain uncertain (see Chapter 5). Access to ODA is likely to be more competitive as the finance bilateral donors provide is not necessarily LDC-specific. At the same time, Commonwealth LDCs are expected to continue to seek ODA before and after graduation to support their development objectives.

Graduation is also likely to exacerbate the financing challenges confronting some Commonwealth LDCs. Graduating LDCs will lose access to certain funding schemes such as the Least Developed Countries Fund (LDCF) and may find it difficult to plug the ensuing financial gaps.

6.1.3 Environmental vulnerabilities

Commonwealth LDCs remains vulnerable to both natural disasters and the effects of climate change, which pose serious challenges to their future growth and development (discussed in Chapter 7). The incidence of natural disasters such as floods, cyclones and droughts, some of which occurred with increasing frequency over the course of the IPoA, have exposed their vulnerability and threaten to hinder their progress towards graduation.

Natural disasters also pose a major threat to countries on the cusp of graduation as well as those that have already graduated, most of which did not meet the Economic Vulnerability Index (EVI) threshold in 2021 (ECOSOC, 2021b). Among Commonwealth members, neither Solomon Islands (which is next in line to graduate among the Commonwealth LDCs) nor the Maldives, Samoa and Vanuatu (all of which graduated during the course of the IPoA) met the EVI threshold in 2021, which stood at 32 (Table 20). Zambia, which met the graduation criteria for the first time in 2021, also failed to surmount the EVI threshold. These countries, along with those that have not yet met the graduation criteria, remain vulnerable to the impacts of climate change and natural disasters. This will continue to pose serious challenges to their sustainable growth and development paths.

Table 20: Vulnerability status of current and recently graduated Commonwealth LDCs, 2021

Source: United Nations ECOSOC LDC data

6.2 Towards sustainable graduation for Commonwealth LDCs

The dawn of a new programme of action after the conclusion of the IPoA presents an opportunity to step up international co-operation in support of LDCs, especially in view of the impact of the COVID-19 pandemic on these countries. Indeed, the CDP calls for “new multilateralism” to strengthen mechanisms that help developing countries, especially LDCs, to accelerate their development and attain the SDGs (CDP, 2020). Various actions at the international level can support graduation and enhance the post-graduation prospects of Commonwealth LDCs.  

First, the multilateral trading system must support LDCs to develop productive capacities and diversify their economies to help them address their developmental challenges. This requires special measures that meet the specific challenges faced by these countries collectively and individually, and should be done in a way that does not compromise environmental sustainability. As a priority, Commonwealth LDCs must be supported to lessen their dependence on exports of commodities and low-value added products and services.

Second, the design of support measures should take into consideration the anticipated benefits that graduating LDCs will have to forego (Table 21). In this regard, it will be important to sustain preferences, technical assistance and capacity-building support granted to LDCs. The LDC Group has put forward a proposal to extend unilateral market access schemes for graduated LDCs for 12 years after their effective date of graduation. This could be accompanied by a work programme for specifically agreed phaseout periods. The proposal would allow more time to agree specific solutions for graduated LDCs, instead of adopting a case-by-case approach that provides little certainty to Commonwealth LDCs in the queue for graduation – namely, Solomon Islands and Bangladesh.

Table 21: Examples of benefits foregone by LDCs upon graduation

Third, development partners must continue to support the efforts of Commonwealth LDCs to improve and upgrade existing infrastructure and build new infrastructure that is necessary for economic diversification.

Fourth, development partners must do more to help facilitate technology transfer to LDCs and support their innovation efforts to address the significant digital divides within Commonwealth LDCs and between them and more developed countries that continue to hold back more meaningful participation in the digital economy (see Chapter 2). Technology transfer can play an important role in upgrading production and enhancing productivity, while also supporting climate change adaptation and mitigation (see Chapter 7).    

Fifth, progressive debt relief provided by the governments of creditor countries is essential to help LDCs avoid debt crises and enable them to channel resources to development projects that support graduation and enable post-graduation sustainability. To ensure that external debt is sustainable, multilateral development banks may increase access for LDCs to concessionary borrowing for the purposes of meeting part of their recurrent costs and increased capital expenditure. This can also help LDCs lessen the risk of debt distress.  However, LDCs need further assistance to mitigate the risk of exposure to increased debt vulnerability through precise diagnosis of the sources of debt distress.

Considering that ODA is not LDC-specific, graduating LDCs must identify ongoing projects that require financial assistance from donors beyond graduation and present them for negotiation towards a transition strategy with their major development partners. In this regard, Commonwealth LDCs must consider carrying out Financial Needs Assessments (FNAs) to develop a donor resource mobilisation strategy. Such FNAs should explore areas that require donor assistance to address the specific vulnerabilities of LDCs in areas that might hinder their smooth graduation and continued development post-graduation. A lack of financial assistance is likely to cause delayed graduation or regression of graduated countries.

Finally, Commonwealth LDCs scheduled for graduation, as well as those that have recently graduated, require financial and technical assistance to enhance their disaster risk management and build resilience to future shocks. This is likely to become more urgent amid the increasing frequency and intensity of natural disasters owing to climate change, as discussed in the next chapter.

^[1] LDCs that are WTO members may benefit from several S&DT provisions relating to WTO obligations, such as more extended transitional periods and the provision of technical assistance. LDCs that are not WTO members will have to negotiate these with WTO members. This is despite non-WTO LDCs receiving market access to the preferential schemes of WTO developed country members.

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