Info Service on UN Sustainable Development (Feb18/04)
7 February 2018
Third World Network
United Nations: LDCs' outlook improving, but fraught with uncertainties
Published in SUNS #8615 dated 6 February 2018
Geneva, 5 Feb (Kanaga Raja) - While real GDP growth for the Least
Developed Countries (LDCs) as a group is forecast to strengthen somewhat
to 5 per cent in 2017 and 5.4 per cent in 2018, the modest improvements
in the international context fall short of what would be needed to
spur growth and structural transformation in the LDCs.
This is one of the main conclusions of the United Nations Conference
on Trade and Development (UNCTAD) in a new report titled "Selected
Sustainable Development Trends in the Least Developed Countries 2018".
The report was released at the sixty-sixth executive session of the
Trade and Development Board of UNCTAD on Monday (5 February). The
Board is meeting here from 5-7 February.
The report provides a brief assessment of recent economic trends and
progress towards selected Sustainable Development Goals (SDGs) targets
and indicators in the LDCs.
According to the report, most African and island LDCs, in particular,
might find it hard to re-embark on the sustained growth trajectory
that characterized the pre-crisis period, while growth resumption
might be somewhat more in reach for Asian LDCs.
"Although LDCs as a group have so far continued to display positive
(albeit weakening) rates of economic growth, their resilience to the
unfolding conditions at the worldwide level is gradually weakening,
and their outlook for the near to medium-term future remains somewhat
improving but fraught with uncertainties," it said.
Lacking any decisive and coordinated policy action to strengthen global
demand, redress the extreme levels of inequality across and within
countries, and tackle financial vulnerabilities associated with rising
indebtedness and volatile capital flows, the international economic
scenario remains lacklustre.
Globally, economic growth is expected to somewhat strengthen in the
coming years. However, the moderate improvements expected for 2018
are likely to fall short of the robust and sustained expansion necessary
to support a decisive advance in LDC performance, said UNCTAD.
Withstanding the slowdown without cutting key investment spending
will be critical for LDCs to maintain their economic momentum, and
keep tackling their multi-faceted infrastructural gaps.
Meanwhile, in the context of feeble recovery of international trade
and moderate commodity prices, LDCs remain unlikely to find in international
trade a meaningful solution to their growth slowdown, and this meagre
outcome could further affect FDI flows (which have already deteriorated
Coupled with the levelling-off of aid flows, as well as workers' remittances,
this suggests that the vast majority of LDCs will continue facing
sizeable current account deficits, possibly exacerbated by foreign
exchange fluctuations (an appreciation of the dollar, or a depreciation
of their local currencies), inflating import bills and foreign-denominated
If these risks materialize, the increasing pressure on the balance
of payments will intensify external financing requirements of the
"Outbreaks of civil unrest in politically unstable LDCs, humanitarian
crises, and adverse environmental shocks will only increase economic
vulnerabilities further, hindering investments and jeopardizing the
hard-won progress made on the social development front."
Similar prospects for the global economy make it all the more imperative
for the international community at large to embark in renewed concerted
efforts for a "global new deal", capable of delivering inclusive
At the same time, recent trends suggest that the ongoing tepid recovery
alone is unlikely to provide sufficient support for most LDCs to reverse
their long-standing marginalization and income divergence, while embarking
on a sustainable development path.
Redressing such widening global inequalities and leaving no one behind
thus requires meeting long-standing commitments towards the LDCs,
as well as matching the level of ambition of the SDGs with a corresponding
enhancement of the international support measures in favour of the
world's most vulnerable countries, said the report.
ECONOMIC GROWTH AND STRUCTURAL TRANSFORMATION
According to the report, after weathering reasonably well the aftermath
of the 2009 great recession, in the 2015- 2016 biennium the LDCs bore
the brunt of the global trade slowdown and of the anaemic recovery
associated with insufficient global demand and mounting levels of
In 2016, the LDC combined gross domestic product (GDP) experienced
its lowest real growth rate since the beginning of the century (3.8
per cent), with as many as 14 LDCs (out of 45 for which individual
country data is available) suffering a deterioration of real GDP per
Preliminary data for 2017 and projections thereafter suggest that
some improvements are indeed taking place, with the LDC growth rate
back at 5 per cent in 2017 and a projected 5.4 per cent for 2018.
"The picking up of the global economy, however, may well take
some time to consolidate and touch a greater number of countries.
Moreover, a number of risk factors, including unresolved flaws in
the prevailing economic policy framework, as well as heightened policy
uncertainties, loom large on this tepid recovery."
UNCTAD said the above situation can be traced to the prevailing conditions
of the world economy, and most notably to:
1. the anaemic recovery of developed economies, where aggregate demand
has remained stifled by austerity measures, high levels of inequality,
and uncertain "animal spirits" on the part of investors,
notwithstanding expansionary monetary policies and bullish financial
2. the slowdown of other (i.e. non-LDC) developing countries (especially
outside the East Asian region), with several so-called "emerging
economies" becoming increasingly vulnerable to trade and financial
3. the consequences of the strategic reorientation towards domestic-led
growth in China, which has affected world demand for key commodities.
"Unless these issues are tackled through adequate and concerted
policy efforts, there is a risk that a protracted lukewarm recovery
will render it difficult for LDCs to generate and mobilize sufficient
resources to strengthen their productive capacities, and foster economic
diversification," said UNCTAD.
International prices for most primary commodity categories have trended
upwards since the late 2016, but this modest recovery barely made
a dent to the significant drop experienced since 2011, particularly
in the case of crude petroleum and minerals, ores and metals.
Moreover, while the modest increase in commodity prices is projected
to continue throughout 2018, large price swings are unlikely given
slack supply capacities.
UNCTAD noted that growth performances across individual LDCs have
continued to display wide (albeit somewhat declining) variation in
2017, as they did in the earlier biennium.
It said three of the 45 LDCs for which data is available suffered
full-fledged recessions (i.e. negative real GDP growth), mainly because
of idiosyncratic shocks, such as internal conflict/insecurity situations.
This is the case of Yemen (-2.0 per cent), South Sudan (-6.3 per cent),
and Burundi (where a virtual stagnation in 2017 followed two consecutive
years of recession).
At the other end of the spectrum, several LDC economies have featured
among the world's most dynamic economies, and attained in 2017 the
SDG 8.1 target of seven per cent GDP growth rate.
This is the case of Bangladesh (+7.1 per cent), Djibouti (+7.0 per
cent), Ethiopia (+8.5 per cent), Myanmar (+7.2 per cent), and Nepal
(+7.5 per cent).
Though slightly missing the SDG target, various other LDCs posted
real GDP growth in excess of six per cent.
These were: Burkina Faso, Cambodia, Guinea, Lao People's Democratic
Republic, Rwanda, Senegal and Sierra Leone.
Notwithstanding some encouraging performers, it is sobering to note
that in 2017 only five of the 45 LDCs for which data is available
achieved the SDG 8.1 target.
This represents only a marginal improvement over 2016: the year with
the smallest number of LDCs meeting the seven per cent growth target
since its first adoption in the 2001 Brussels Programme of Action
for the LDCs.
According to the report, this situation raises even more concerns,
considering that the number of LDCs achieving the above-mentioned
objective is projected to remain well below pre-crisis levels also
Considered in conjunction with LDCs' comparatively rapid demographic
growth - on average 2.4 per cent per year in 2017- this faltering
dynamism is mirrored in the sluggish rise of real GDP per capita,
which, for the LDCs as a group, went from $639 in 2016 to $655 in
2017 (at current prices).
This implies for 2017 a real growth rate of GDP per capita reaching
barely 2.5 per cent, higher than in 2016 (1.6 per cent) but roughly
half of its pre-crisis level (and lower than that in the 2012-2014
Looking at the performance of individual countries, the generalized
slowdown of LDC economies over the last two-three years has been accompanied
by an increase in the number of LDCs experiencing gradual deteriorations
in the average standards of living, as measured by real GDP per capita.
In 2017, as many as nine LDCs were in this situation, including two
countries where the decline exceeded three per cent: Afghanistan (-7
per cent) and Yemen (-4.8 per cent).
The uneven and somewhat erratic growth trends are accompanied by sluggish
structural transformation, with many LDCs falling short of the inclusive
and sustainable industrialization envisaged in SDG target 9.2, said
The report said although there have been some encouraging signs, notably
in terms of rising output per worker and manufacturing value added,
in many instances economic expansion has failed to provide the foundations
for sustained structural transformation.
This concern is confirmed by the evolution of the sectoral composition
of output for LDCs as a group, between 2000 and 2016 (the latest year
for which data is available).
Although value added (measured in constant 2010 dollars) rose visibly
in both agriculture and industry, these sectors experienced a slight
contraction of their relative contribution to GDP: from 30 to 25 per
cent in the case of agriculture, and from 28 to 25 per cent in the
case of industry.
Services, conversely, increased their weight from 41 per cent to nearly
50 per cent of GDP.
"This sector conflates, however, widespread traditional activities
such as trade or transport, with circumscribed pockets of high productivity
services, such as finance or information and communication technologies."
Notwithstanding a considerable heterogeneity across individual LDCs,
these sobering considerations seem to apply also at country level.
If the importance of agriculture declined in more than two thirds
of the LDCs for which data is available - in line with the long-established
stylized facts - only in a handful of cases this coincided with a
significant expansion of the industrial sector; more often than not,
services enjoyed by far the largest relative expansion.
In fact, more than half of the LDCs actually display a shrinking of
the industrial sector's weight over the period considered (2006-2016),
including nearly all the LDCs where agriculture increased its share
On the positive side, between 2006 and 2016 real manufacturing value
added (MVA) increased in nearly all LDCs, with some of the top performers
(typically those experiencing the sharpest growth accelerations) reaching
annual growth rates exceeding 7 per cent.
On the negative side, though, 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 deindustrialization among
The evidence presented validates UNCTAD's views that, even during
phases of rapid economic growth, LDC economies have often struggled
to foster the emergence of high-productivity activities in the manufacturing
and specialized services sectors.
This situation, coupled with the capital-intensive nature of extractive
industries underpinning much of the pre- crisis boom, has failed to
generate sufficient employment outside (mainly small-holder) agriculture,
leaving the growing labour force to be re-absorbed mainly through
the expansion of (often low-productivity) services.
UNCTAD said LDCs' infrastructural gaps and supply-side bottlenecks
play a key - though by no mean exclusive - role in constraining productivity
growth and dampening prospects for economic diversification.
Modern energy provision deserves explicit mention in this respect,
not only because it is the specific object of SDG 7, but more fundamentally
because it is identified as a major constraint for 42 per cent of
LDC firms, and LDC countries nowadays account for the majority of
people lacking access to electricity worldwide.
INTERNATIONAL TRADE AND LDCs
According to UNCTAD's estimates, worldwide volume growth rates over
the previous year attained roughly 4 percent for the first three quarters
of 2017. International trade flows are expected to continue picking
up, but significant downside risks continue looming.
More fundamentally, even the expected modest expansion in world trade
is unlikely to reverse LDCs' long- standing marginalization in the
international trade arena; all the more so if it is coupled with a
protracted slack in global demand, and with tepid pickup in commodity
If between 2005 and 2013 LDCs' share of global exports of goods and
services had climbed up gently - from 0.75 per cent to 1.09 per cent,
respectively - much of these gains have evaporated in the last few
years. In 2016, LDCs accounted for barely 0.92 per cent of the total;
roughly the same level as in 2007.
Moreover, said UNCTAD, even though their share of world exports remains
higher with respect to merchandise goods than services, nearly all
the relative decline in LDC weight in world total exports can be traced
to the former element.
"Only three years away from the 2020 timeline, this worrying
situation underscores the difficulties in meeting the SDG 17.11 target
of doubling LDCs share of global exports, particularly in a context
of rather modest rebound of international commodity prices,"
said the report.
It also noted that in 2017 the LDCs as a group are 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 with other developing countries, which, as
a group, registered a current account surplus.
Moreover, projections for 2018 suggest that the combined LDCs current
account deficit is expected to expand further, exacerbating possible
balance of payment weaknesses and external debt vulnerabilities.
RESOURCE MOBILISATION IN LDCs
According to the UNCTAD report, in most LDCs, efforts to mobilize
domestic resources for investment are often undermined by the poor
development of domestic financial markets, the narrow tax base and
weak tax collection and administration systems, as well as by the
pervasiveness of illicit financial flows, notably through trade misinvoicing.
By virtue of national accounting identities, the weaknesses in the
development of LDCs' productive capacities, which typically lead to
structural trade deficits, is reflected in LDCs' heightened reliance
on external sources of funding in order to finance investments in
The external resource gap (that is, the difference between the gross
fixed capital formation rate and the gross domestic savings rate)
of LDCs as a group averaged 6.9 per cent of GDP in 2015, up from 4.9
per cent in 2014.
Recent data suggest that levels of external indebtedness have been
surging across LDCs, both in terms of debt stocks (relative to gross
national income - GNI), and - even more so - in terms of burden of
debt services (measures as interest payments relative to exports of
goods and services plus primary income).
Between 2014 and 2016, the external debt stock in the median LDC has
increased from 25.7 per cent of GNI to 27.8 per cent; simultaneously,
external debt service has climbed by roughly 25 per cent in two years,
attaining 1.32 per cent of exports of goods and services plus primary
income. This situation has raised some concerns especially in the
African region, where several countries have experienced sharp rise
in their level of external indebtedness.
According to the report, total net ODA disbursed to LDCs in 2016 amounted
to $43.1 billion, representing an estimated 27 per cent of net ODA
disbursements to all developing countries.
This implied a 0.5 per cent increase in real terms year-on-year compared
to 2015. This trend corroborates the fears of a levelling-off of aid
flows to LDCs in the wake of the global recession, to the extent that
in 2016 net ODA disbursements to LDCs remained lower - even in real
terms - than in 2013 ($43.3 billion).
The levelling-off of ODA flows to LDCs in the wake of the global recession
has thus contributed to the gradual shrinking of their magnitude in
relation to LDCs' own economic size, with net ODA accounting for roughly
4.5 per cent of LDCs' combined GDP in 2016, compared to 7.7 per cent
ten years before.
Equally important in the context of the 2030 Agenda for Sustainable
Development, ODA disbursements to LDCs remain far below the target
of 0.15-0.20 per cent of donor countries' GNI - a target which had
been first adopted in 1981.
UNCTAD said that only a handful of donor countries appear to have
met the SDG 17.2 commitments in 2016: specifically, Denmark, Luxembourg,
Norway, Sweden, and United Kingdom provided to LDCs over 0.20 per
cent of their own GNI, while the Netherlands met the 0.15 per cent
Averaging over all members of the Development Assistance Committee
(DAC), donor countries barely disbursed 0.09 per cent of their GNI
Had donor countries instead delivered on their pledges, LDCs should
have received additional development assistance worth $32-53 billion
in 2016, which might have supported much-needed investments and productive
capacity development, said UNCTAD.
Despite some improvements over the last 15-20 years, LDCs continue
to play a relatively marginal role in the global economy, accounting
for only 2.2 per cent of global FDI inflows, down from a peak of 3
per cent in the 2013-2014 biennium.
In 2016, inflows of FDI to LDCs as a group attained nearly $38 billion,
down 13 percent from the levels of the previous year. They amounted,
on average, to 3.6 per cent of LDC GDP in the same year, with a declining
weight in relation to LDCs' combined GDP.
Despite the reduction in FDI inflows, LDCs' stock of inward FDI has
continued its expansion unabated, and is now estimated to be worth
$326 billion (1.2 per cent of the global figure, or 33 per cent of
Given the importance of building strong backward and forward linkages
between foreign and domestic firms, it is imperative for LDCs to pursue
strategic policies to attract FDI while avoiding a "race-to the
bottom", and to enhance FDI development potential with a view
to accelerating structural transformation, said the report.