Acharya, G. C. 2012. Global Development Agenda and the Least Developed Countries. GREAT Insights, Volume 1, Issue 3. M 2012. Maastricht: ECDPM
Many of the noble ideas on promoting effectiveness of development cooperation have been initiated and analyzed by the OECD, which has created positive impact on the ground around the world.We are confident that this tradition would be continued, while giving due consideration to the concerns and aspirations of almost 900 million people living in the least developed countries (LDCs). We are confident that this tradition would be continued, while giving due consideration to the concerns and aspirations of almost 900 million people living in the least developed countries (LDCs).
What binds them all LDCs together is that all of them, irrespective of their location, have a high level of poverty in proportion to their total population, low human and social development, low income level and high vulnerability to external and internal shocks. Therefore, the main challenge for them is how to bring about structural transformation leading towards a sustained and inclusive growth, while building resilience from various shocks.
The UN conference on LDCs held last year in May, 2012 in Istanbul, Turkey, assessed the progress made so far in reducing poverty and promoting sustainable development in a holistic and comprehensive manner. It looked at both the domestic situations and global development cooperation framework. It set the economic growth target at 7 per cent with inclusiveness to have a dent on poverty alleviation. In order to achieve that, the conference gave due priority to a host of issues, but financing for development was particularly stressed, as there is a need for speeding up inclusive growth and huge resource gap in LDCs.
Domestic resource mobilization in LDCs: limited prospects
LDCs face particular difficulties on financing for development due to various reasons. Because of the high level of poverty and low economic growth, they have less domestic resources available to them compared to the enormous development challenges. While the average rate of internal revenue to GDP is at around 10 to 13 per cent, the investment requirement is at least around 25 per cent of GDP. This gap in investment needs to be filled up to effectively deal with the challenges of grinding poverty.
Private investment is also low in LDCs precisely because a large chunk is spent on consumption. The capital formation is therefore at less than 10 per cent of the gross income. During the Istanbul conference, LDCs committed themselves to consistently enhance their domestic resource mobilization through internal reforms, better administration of tax, private sector development, and formalization of their economic activities, good governance, accountability and capacity building. But they also called for enhanced and strengthened international cooperation and support to fill the resource gap. They stressed that it is not only a moral imperative, it is in the interest of the international community that we lift all the boats together to have a better and peaceful world order. And, it is entirely feasible to provide more resources given the tremendous progress that has been made at the global level in the last 50 years and the capacity and commitment of the global community to promote global welfare.
The LDCs are aware that ODA alone will not bring about development and progress in any country in a sustainable manner. But the capacity of the LDCs is so limited now that there is no alternative to it at least in the medium term. However, there has to be a comprehensive approach to extend the necessary support for the LDCs. ODA commitment should be met as promised and consider the possibility of enhancing the share going to the LDCs, given their structural constraints and limited capacity to deal with them on their own. There should be more facilitatory measures like Aid for Investment for promoting Foreign Direct Investment in the productive sector in LDCs, more comprehensive market access for the LDC products, facilitatory technology transfer and capacity building. Such a comprehensive and enhanced level of support for the LDCs in the short to medium term will not only have a salutary impact on reducing poverty rapidly in these countries, but that will also help create sustainable domestic resource base for self-sustained growth in LDCs.
Global development framework must be made more coherent, transformative and supportive of the LDCs. We need a paradigm shift to deal with entrenched poverty which has been exacerbated by the new and complex global challenges. The current global financial and economic crises, which are of a short term nature, should not detract us from the medium term to the long term promotion of the global development agenda. And LDCs should be at the forefront in pursuing our inclusive global agenda.
Gyan Chandra Acharya is Ambassador, Permanent Representative of Nepal to UN and the Chair of the LDCs
This article was published in GREAT Insights Volume 1, Issue 3 (May 2012)
Gyan Chandra Acharya