Finding new support for Timor-Leste’s graduation from least developed country (LDC) status

The United Nations established the category of least developed countries (LDCs) to assist the poorest and most vulnerable members of the international community. LDCs receive special “international support measures (ISMs)” falling mainly into three categories: (1) trade preferences, (2) development assistance and capacity building (e.g., LDC Fund for adaptation to climate change, the Enhanced Integrated Framework (EIF) to help LDCs use trade as an engine for growth, and the Technology Bank for LDCs), and (3) financial support to participate in international organizations and meetings. 

LDCs are identified based on three criteria: gross national income (GNI) per capita, a human assets index, and an economic vulnerability index. The UN Committee for Development Policy (CDP), a group of independent experts appointed by the Secretary-General, is responsible for recommending to the Economic and Social Council (ECOSOC) and the General Assembly which countries should be included in and which should graduate from the category. While a country needs to agree before it is included in the list of LDCs, its consent is not needed to graduate. At the same time, CDP’s review aims to be broad-based, using a range of economic, health, education and environmental indicators rather than just income. Also, rather than a mechanical review based purely on indicators, the decision takes into account information on the specific context of each country.

CDP applies a number of measures to ensure that countries do not keep moving into and out of the LDC category. Firstly, lower thresholds are applied for inclusion in the category rather than graduation; for instance, in 2018, a country’s GNI per capita had to be lower than $1,025 for inclusion but above $1,230 for graduation. Secondly, countries have to meet thresholds for two of the three indices to qualify for graduation – the only exception being the “income only” threshold where a country’s income is more than double the graduation threshold (i.e., $2,460 per capita in 2018). Thirdly, CDP conducts reviews every three years (in 2015, 2018, 2021 and so on) and a country has to meet the requirements for graduation at two successive triennial reviews to quality. Fourthly, as mentioned above, CDP applies judgement in the process. Fifthly and finally, a CDP recommendation to graduate a country from the LDC list must be approved by ECOSOC after which the General Assembly must take note of the finding. 

Timor-Leste is one of 12 of the 47 LDCs currently meeting the criteria for graduation. Timor-Leste has met the criteria for graduation at two successive triennial reviews: in 2015 (based on the income-only threshold) and 2018 (in two ways: based on the income-only threshold and—marginally—the human assets index). CDP has not, however, recommended Timor-Leste’s graduation yet largely because of uncertainty about the sustainable growth of the country’s income, which at present depends heavily on oil and gas. In 2021, CDP it will review the sustainability of Timor-Leste’s development progress, focusing on the prospects of the oil and gas industry as well as economic diversification and further improvements in human assets.

 With the large number of LDCs expected to graduate in the next few years, the Economic Analysis and Policy Division (EAPD) of DESA has recently launched a project on “New support measures for graduating Belt and Road LDCs”. The project aims to identify targeted assistance measures and strengthen policy frameworks and institutional arrangements for the adoption and use of these measures in six pilot LDCs: Bangladesh, Cambodia, Lao PDR, Myanmar, Nepal and Timor-Leste. Among other things, the project will strengthen analysis of the context and support consultation processes between a range of stakeholders as well as development and trading partners in each country. This project runs until October 2022 and is supported by the UN Peace and Development Fund, established with a generous contribution from the Government of China.

 Graduating LDCs are encouraged to elaborate a national smooth transition strategy to address the possible impacts of graduation. There is a recognition that these strategies have often been developed at too late a stage, if at all. From the side of trading and development partners, support has often been provided in the form of transition periods to the loss of trading preferences. Some graduating LDCs have emphasized that the impacts of graduation can best be addressed through their national development plan.

In the past, it has been a struggle to identify “new support measures” or “incentives” tailored specifically to help graduating LDCs with the transition period, or to encourage graduation. One reason for this is that the potential category of “new support measures” or “incentives” for graduation is very broad. In Timor-Leste, for instance, the government and development partners have been investing for many years in programmes to upgrade the country’s infrastructure, strengthen health and education, develop the business climate and private sector and create marketable skills in the population. They all remain critical problems for the country but are not new ones.

 Partly because of these conceptual difficulties, the UN Committee for Development Policy (CDP) in early 2019 developed a set of proposals to improve support to graduating LDCs that focused mainly on the process, emphasizing that the international community’s support to graduating LDCs should be more timely and better coordinated. Among other things, an Inter-Agency Task Force on Graduation was set up to coordinate efforts by the UN at the international level. The CDP also reiterated a General Assembly recommendation that each graduating LDC establish a consultation mechanism with its development and trading partners, something that in turn could be merged with or make use of the existing donor round table processes that many LDCs have established, and enabling each graduating LDC to match its own priorities with support that development and trading partners are ready to provide.

 It is therefore now a good time for Timor-Leste to start developing its smooth transition strategy for LDC graduation together with the international community. In more substantive terms, what then could a “new support measure” for graduation consist of? Preparations on this topic for the next global Programme of Action for LDCs are focusing on productive capacity, certainly an important issue for Timor-Leste. As the country is currently pursuing membership of both the World Trade Organization (WTO) and the Association of South-East Asian Nations (ASEAN), Timor-Leste will want to ensure it benefits as much as possible from membership in both organizations—more generally based on its ability to produce and export, and more specifically based on its terms of membership in each organization. Access to finance for graduating LDCs is also a priority for other graduating LDCs and is the subject of an ongoing initiative by the Office of the UN Secretary-General. Most donors indicate they do not anticipate sudden changes in development assistance specifically because of LDC graduation, but longer-term changes in the levels and composition of support are likely to continue. While Timor-Leste continues to develop its capacity to access private and loan financing in marketable sectors such as infrastructure, it will want to ensure sufficient public and grant funding remains available in areas such as education, health and rural development on which its most vulnerable populations – and indeed the country’s long-term development aspirations – rely.

The EAPD/DESA project will attempt to make substantive contributions to both the national and global discussion on support measures for graduating LDCs as expressed by Mr. Liu Zhenmin, Under-Secretary-General for Economic and Social Affairs, “[we need to find] better ways for the UN system and international partners to support graduating countries and to recommend improved graduation procedures, bearing in mind the upcoming new Programme of Action on the LDCs. Also, we should not forget how capacity development work can be undertaken in support of graduating and graduated countries” (at the 21st Session of the Committee for Development Policy, 11 March 2019, New York).

For more information, contact Namsuk Kim, EAPD/DESA kimnamsuk@un.org

 Further reading and resources

• Timor-Leste 2018 ex ante assessment of the impacts of graduation from the LDC category: https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/CD…
• 3-minute video on the LDC category: youtube.com/watch?v=zrgNZqeOkkE
• Information on support measures: un.org/ldcportal
• Information on LDC graduation: gradjet.org
• Handbook on the LDC Category: ly/ldchandbook2