The government of Laos has taken the unique step of stating its ambition to graduate from the UN list of Least Developed Countries (LDC) by 2020.
LDCs represent the poorest and weakest segment of the international community, according to the United Nations, and include more than 880 million people (about 12 percent of the world population), but with less than 2 percent of global GDP and about 1 percent of the trade.
Philippe Hein, a member of the UN Committee for Development Policy (CDP), who reviews the LDC group, says this is unprecedented. “Our experience is that all of those countries so far who have been identified as potential candidates for LDC graduation have resisted this,” he told IRIN.
The main concerns for countries exiting LDC status are a potential reduction in overseas development assistance (ODA) and preferential trade treatment, Hein said. In 2010 Laos received US$413.79 million in ODA, the Organization for Economic Development and Co-operation and Development (OECD) reported.
One-quarter of the $15 billion budget for the government’s 2011-2015 development plan is to be funded by donors and development partners.
To help countries adjust, the UN General Assembly introduced a three-year transition period in 2004.
Minh Pham, UN Resident Coordinator and Resident Representative of the UN Development Programme (UNDP) in Laos, said the fact that the country has both volunteered itself for graduation and set a fixed date highlights its ambitions to become a middle-income country.
But doing so will prove a challenge, say experts. The World Bank notes that 27.6 percent of the country’s 6.5 million inhabitants live below the poverty line.
UN criteria for moving beyond LDC status include a per capita income threshold; a human assets index measured by health and education indicators; and a strong economy that can withstand shocks, such as natural disasters. A country must meet two of the three criteria to be eligible for graduation.
Learning from their experiences could prove vital. At a UN meeting to discuss the transition process in New York on 26 March 2012, the Maldives expressed their concerns that they had failed to maintain levels of developmental assistance and access to concessionary finance.
A statement by Jeffrey Salim Waheed, Maldives First Secretary to the UN, said this had “led to massive shortfalls and the formation of risky economic policies, some of which have proven to be harmful to the nation’s economic stability.”
However, Pham believes Laos could avoid such a situation. “We are confident that, given the build up of foreign direct investment in the country over the years, particularly in hydropower energy, the revenues generated in this investment will more than make up for any phasing out of development assistance.”
Hein said the implications of graduation must be looked at on an individual country basis. “Cape Verde is an interesting case - some donors left but ODA has now increased.”
Net ODA disbursements for Cape Verde went up from $195.6 million in 2009 to $336.76 million in 2010, according to OECD , which Hein attributes partly to the country’s reputation for aid effectiveness and good governance.
The UN Conference on Trade and Development (UNCTAD) estimates that at its current rate of progress, Laos could potentially meet all three criteria by 2015. It would then need to repeat this at the next review, three years later, to be eligible for graduation.
The Fourth UN Conference on the Least Developed Countries in Istanbul, in May 2011, adopted a programme of action that aims to graduate half of the 48 LDCs by 2020. At prevailing levels of development this will be a distinct challenge.
“Nobody wants to stay an LDC, but when the time comes to graduate they say, ‘We are going to lose something.’ They are worried. The attitude here in Laos is quite different - the way it’s going, the others have to learn from Laos,” said Hein.
Laos is planning the first steps in developing a strategy for LDC graduation at a two-day conference with over 150 participants, government officials, and experts in Vientiane, the capital, on 16 and 17 May.