Promises to world’s poorest need to be kept to stop massive inequalities, new trends show

05 February 2018

UNCTAD analysis shows that development indicators for the 47 least developed countries are trending downward, raising the alarm for the international community

Economic development in the world’s most-disadvantaged countries – mostly in sub-Saharan Africa – is stalling against the background of a lukewarm global recovery, risking widening inequality, new analysis from UNCTAD has revealed.

Data suggests that the 47 least developed countries (LDCs), a long-established category of nations requiring special attention from the international community, will fall short of goals set out in the 2030 Agenda for Sustainable Development unless urgent action is taken.

“The international community should strengthen its support to LDCs in line with the commitment to leave no one behind,” Paul Akiwumi, Director of UNCTAD’s Division for Africa, Least Developed Countries and Special Programmes, said.

“With the global economic recovery remaining tepid, development partners face constraints in extending support to LDCs to help them meet the Sustainable Development Goals.”

GDP growth rates will likely continue to fall short not only of their 2002–2008 average, but also of their 2010–2014 levels, Mr. Akiwumi said.

“Inequalities between the LDCs and other developing countries risk widening.”

The analysis highlights that LDC growth averaged just 5% in 2017 and will reach 5.4% in 2018 – below the target of 7% growth envisaged by target 1 of Sustainable Development Goal 8 on promoting sustained, inclusive and sustainable economic growth.

Relying on commodities

In 2017, only five countries (of the 45 LDCs for which data is available) achieved economic growth at 7% or higher: Bangladesh (+7.1%), Djibouti (+7%), Ethiopia (+8.5%), Myanmar (+7.2%), and Nepal (+7.5%).

The analysis contends that too many LDCs remain dependent on primary commodity exports.

While international prices for most primary commodity categories have trended upwards since late 2016, this modest recovery barely made a dent to the significant drop experienced since 2011, particularly in the cases of crude petroleum and minerals, ores and metals.

In 2017, LDCs as a group were projected to register a current account deficit of $50 billion, the second-highest deficit posted so far, at least in nominal terms.

This stands in contrast to figures for other developing countries (not LDCs), all developing countries taken together and developed countries, all of which, as groups, registered current account surpluses.

Projections for 2018 suggest that the current account deficits of the LDCs are expected to grow further, making worse possible balance-of-payments weaknesses.

Only a handful of LDCs, according to estimates by the International Monetary Fund, recorded current account surpluses in 2017, including two recipients of relatively large amounts of aid – Afghanistan and South Sudan – as well as Eritrea and Guinea Bissau.

All other LDCs recorded current account deficits of varying sizes, ranging from less than one percentage point of GDP – Bangladesh and Nepal – to more than 25% in the cases of Bhutan, Guinea, Liberia, Mozambique, and Tuvalu.

Aid levels

Special foreign aid commitments for LDCs amounted to $43.2 billion, representing only an estimated 27% of net aid to all developing countries.

This suggests a 0.5% increase in aid in real terms year-on-year.

This trend supports fears of a levelling-off of aid to LDCs in the wake of the global recession.

“This analysis signals a clarion call for action,” said Mr. Akiwumi. “The international community needs to pay increased attention to their commitments toward LDCs.”

The analysis was presented to UNCTAD member States at a meeting of its governing body in Geneva, Switzerland, on 5 February.

LDC trends

Among other trends highlighted in the analysis are:

  • LDCs will not achieve the Sustainable Development Goals unless they speed up wholesale restructuring of their economies.

  • The pace of LDCs structural transformation remains sluggish, with many of them falling short of the inclusive and sustainable industrialization envisaged in target 2 of Sustainable Development Goal 9 on building resilient infrastructure, promoting inclusive and sustainable industrialization and fostering innovation.

  • Between 2006 and 2016 real manufacturing value added increased in nearly all LDCs although in most countries this was accompanied by a relative decline in the manufacturing share of total value added, pointing to a widespread risk of premature de-industrialization among LDCs.

  • In 2016 LDCs accounted for barely 0.92% of global exports; roughly the same level as in 2007.

  • LDCs’ combined trade deficit has been widening significantly in the wake of the financial crisis, rising from $45 billion in 2009 to $98 billion in 2016, pointing to the association between the weak development of domestic productive capacities and structural deficits in the trade balance.

  • Aid to LDCs remains far below the target of 0.15–0.20 per cent of donor countries gross national income agreed in 1981.

  • In 2016, only a handful of donor countries appear to have met the commitments under target 2 of Sustainable Development Goal 17.

  • Denmark, Luxembourg, Norway, Sweden, and the United Kingdom provided more than 0.20 per cent of their own gross national income to LDCs, while the Netherlands met the 0.15 per cent threshold.

  • Aid tends to be skewed towards a relatively small pool of LDCs, with the top-ten recipients – which often include countries affected by humanitarian emergencies and conflict – accounting for roughly half of total disbursements to the group.

  • Recent data suggests that levels of external indebtedness have been surging across LDCs, both in terms of stocks (relative to gross national income), and – even more so – in terms of burden of debt services.

  • Resources sent by individuals to LDCs as a group (remittances) totalled $36.9 billion in 2017, down by 2.6% compared to the peak of $37.9 billion in 2016.

  • In absolute terms, the largest recipients of remittances among LDCs included Bangladesh ($13.6 billion in 2016), Nepal ($6.6 billion), Yemen ($3.4 billion), Haiti ($2.4 billion), Senegal ($2 billion) and Uganda ($1 billion).

  • In 2016, remittances accounted for as much as 31% of GDP in Nepal, 29% in Haiti, 26% in Liberia, 22% in the Gambia, 21% in the Comoros, 15% in Lesotho, and they exceeded 10% of GDP in Senegal, Yemen, and Tuvalu.