Questions frequently asked about LDC graduation

What are least developed countries?

How does a country leave the list (“graduate”)?

Is graduation automatic?

How many countries have left the category so far?

Which countries will leave next?

What are the costs of graduation?

Do former LDCs pay higher tariffs on their exports?

Must LDC graduates pay more to access development financing?

What are the benefits of graduation?

Is LDC graduation the same as becoming a middle-income country?

Have any graduates slipped back?

What needs to be done to prepare for graduation?

How does the UN support graduating LDCs?

Does graduation mean a country has achieved the Sustainable Development Goals (SDGs)?

Is graduation the end of the story?

Q: What are least developed countries?

A: Least developed countries (LDCs) are those which have low incomes, are vulnerable to economic and environmental shocks and have low levels of human assets. Three criteria are used to decide whether or not a country is an LDC – a measure for income per capita, a human assets index and a vulnerability index. In 2019 there were 47 countries on the UN list. LDCs are home to about a billion people but account for less than two per cent of the world’s gross domestic product and about one per cent of global trade in goods.

Q: How does a country leave the list (“graduate”)?

A: A country can graduate from the LDC category by meeting two of the three criteria at two consecutive triennial meetings of the UN Committee for Development Policy (CDP). At the second meeting the CDP can recommend the country’s graduation. Graduation itself normally happens three years later.[1] For example if a country met two of the three criteria at both the 2018 and 2021 meetings of the CDP, it could be recommended for graduation and consequently leave the LDC category in 2024. Alternatively a country can graduate if its per capita income level is more than twice the income graduation threshold, currently $1,230, at two consecutive triennial reviews.

Q: Is graduation automatic?

A: No, in addition to the criteria, the CDP also takes into account the government’s view and a UN impact assessment and vulnerability profile. To provide a comprehensive view of the country’s situation, the UN is piloting an integrated “graduation assessment” which will include the conclusions of these assessments as well as inputs by the UN country team and partners.

Q: How many countries have left the category so far?

A: By 2018 five countries had left the list. Botswana was the first to leave, in 1994. The next to exit was Cabo Verde (2007), followed by Maldives (2011), Samoa (2014) and Equatorial Guinea (2017).

Q: Which countries will leave next?

A: Vanuatu will graduate in December 2020 and Angola in February 2021. Bhutan will leave in 2023. Sao Tome and Principe and Solomon Islands are scheduled to graduate in 2024. Seven other countries, all in the Asia-Pacific region, have met the criteria for graduation at least once and are on track to leave in the coming years.

Q: What are the costs of graduation?

A: LDCs benefit from a number of dedicated international support measures in the areas of trade, official development assistance and others, including travel support to UN meetings and reduced budgetary contributions to international organisations. Donors officially commit to providing a certain proportion of their development assistance to LDCs. Several countries or regions give special tariff preferences to the exports of LDCs. Although LDCs leaving the category sometimes, understandably, expect to lose these benefits, in practice many donors have continued to support them afterwards.

Q: Do former LDCs pay higher tariffs on their exports?

A: Trade preferences are often phased out slowly. For example the European Union’s Everything But Arms initiative is extended for a standard period of three years.  In some cases, trade preferences are not used, due to the nature of exports and/or the existence of other preferential schemes. Some export destinations do not have LDC preference schemes. To establish a clear picture of the costs of graduation in all areas, including trade, the UN conducts an “impact assessment” for countries that have met the graduation criteria for the first time.

Q: Must LDC graduates pay more to access development financing?

A: There is no evidence to suggest that graduated LDCs immediately face higher interest rates on loans. The World Bank and International Monetary Fund do not officially recognise the LDC category, so graduation has no impacts on loans or grants from these institutions. A small number of institutions and bilateral partners take the LDC category into account but do not base their decisions exclusively on whether a country is an LDC. Hence, graduation itself is unlikely to have significant impacts on the terms of loans for most countries.

Q: What are the benefits of graduation?

A: Broadly, achieving such an important development milestone can be celebrated as a key stage in a country’s history and therefore can provide a – perhaps unquantifiable – boost to national and international sentiment. LDC governments may target graduation as a gauge of development progress and therefore benefit from a perception of success. It is possible that foreign investment may increase as outside perceptions improve. This is difficult to measure. Credit ratings agencies do not take the LDC category into account when deciding sovereign bond ratings, although they do use some of the subsidiary indicators. No support measures exist exclusively for graduating countries, but some institutions and countries provide so-called ‘smooth transition’ support in line with relevant UN resolutions.

Q: Is LDC graduation the same as becoming a middle-income country?

A: No. Although graduation is a sign of development progress, people often confuse the strict process of UN LDC graduation with the general notion of development improvement or the transition into middle-income status. Because income per capita is only one of the three criteria used for LDC graduation, LDC graduation does not mean becoming a middle-income country. Several LDCs will have reached middle-income status years before graduating from the LDC category. An LDC might graduate because it meets the human assets and economic vulnerability criteria, without crossing the income threshold.

Q: Have any graduates slipped back?

A: None of the five countries to graduate so far have fallen back into the list. The criteria are designed asymmetrically, so that it is harder to leave the list than it is to be included in the first place. The length of time during which a country is under consideration – totalling at least nine years – means that development must be sustained over a long period. The CDP monitors countries during and afterwards to ensure that progress is on track. Several countries which have faced setbacks like natural disasters during the graduation process have had their preparatory period before graduation extended.

Q:What needs to be done to prepare for graduation?

A: Careful management of the transition to graduation and beyond is essential. In general, LDC governments are recommended to establish a consultative mechanism to help with the preparation of the transition strategy, in order to mitigate the potential impacts of the withdrawal of international support measures. For example, if LDC governments need more financial resources, domestic tax reforms and international tax cooperation and transparency will be important in ensuring long-term fiscal sustainability.

Q: How does the UN support graduating LDCs?

A: Various UN entities provide specific support to LDCs during the graduation process. The UN system provides support to all graduating countries in the form of workshops to exchange experiences, build awareness, and propose transition strategies for graduation and beyond. The UN also provides background information and tailored analysis on graduation, disseminated through the Gradjet website.

Q: Does graduation mean a country has achieved the Sustainable Development Goals (SDGs)?

A: Graduation signifies partial progress toward the SDGs, since some of the LDC indicators can be found in the goals. However, graduated countries will continue to face challenges in pursuing the objectives outlined in Agenda 2030. Progress towards these broader objectives requires improved domestic policy choices as well as international support within a reinvigorated multilateral system.

Q: Is graduation the end of the story?

A: Graduation is only a waypoint, not an endpoint. Much more remains to be done, and the UN encourages governments to graduate ‘with momentum’ so that progress continues well into the future.

 

[1] The CDP’s recommendation needs to be endorsed by the UN Economic and Social Council and the General Assembly. There is a preparatory period of (at least) three years.