Structural transformation needed to graduate from LDC

Kathmandu, Dec. 16: The United Nations Conference on Trade and Development (UNCTAD) has said that the structural transformation of the economy through industrial policy, rural development, employment generation, productive investment and technological upgrading were crucial to upgrade Least Developed Countries (LDCs) into the developed category.

In the report, LDC Report 2016 – The path to graduation and beyond: Making the most of the process, UNCTAD said that LDCs were required to build the essential infrastructure, upgrade farming technologies and practices, and develop agriculture research and development and effective extension services.

It suggested the countries work for rural economic diversification, through the development of non-farm activities.

Calling on the LDCs to develop 'graduation-plus' strategies, the UN body has grouped policies that support establishing the foundation for continuing the development process into six areas of function, while highlighting gender as a cross-cutting issue.

The six areas are rural transformation, industrial policy, science and technology and innovation policy, finance, macroeconomic policies and employment generation.

UNCTAD asked the countries to exploit more intensively those sectors that were consistent with the current comparative advantage along with encouraging the expansion of the higher-level industries.

According to the report, the economic growth in the LDCs has declined steeply since 2012, reaching a low of 3.6 per cent in 2015.

"Such a weak economic growth is a serious obstacle to generating and mobilising domestic resources for structural transformation and investment in the development of productive capacities. It also hampers progress towards the United Nations Sustainable Development Goals (SDGs)," read the report.

In the face of a lackluster global economic environment that is depressed by weak demand in the developed countries, a continuing slowdown of international trade, a sharp decline in growth or even recession in many developing countries, and high or rising debt in both the developed and developing countries, the economic outlook for the LDCs as a group for the next two years remains uncertain, according to the report.

However, it has projected the real Gross Domestic Product (GDP) of the LDCs as a whole to grow at 4.5 per cent in 2016 and 5.7 per cent in 2017.

The report has recognised three major vicious circles affecting the LDCs – poverty trap, commodity trap and weak productive bases and limited export diversification.

"Many LDCs suffer from a poverty trap, with low income and limited economic growth, giving rise to high levels of poverty, which, in turn, act as a brake on economic growth. Similarly, they suffer from a commodity trap, as they depend heavily on commodity production and trade for employment, income savings and foreign exchange," read the report.

It also said that weak productive bases and limited export diversification in the LDCs gave rise to very high import content in production and consumption, and chronic current account deficits.