Is Timor-Leste Ready to Lose Its “Least Developed” Status?

Is Timor-Leste Ready to Lose Its “Least Developed” Status?

(Image/Asia Foundation)

DILI, 29 January, 2020 (TATOLI) — Timor-Leste could lose its official United Nations designation as a “Least Developed Country” by 2024, if it continues to meet development and income criteria, a meeting of local NGOs and development leaders heard today.

Members of the UN Department of Economic and Social Affairs are in the country to assess how prepared Timor-Leste is for its ‘graduation’ from LDC status.

Charles Davies, Program Management Expert at UN DESA, said it must be assessed whether Timor should still be considered among the countries with “the most severe impediments” to sustainable development.

“[LDCs] are the most vulnerable members of the international community,” he said 

The UN’s Resident Coordinator for Timor-Leste, Roy Trivedy, said graduation would have “huge implications” for the development sector, saying his experience in the United Kingdom suggests the graduating from LDC status changes the attitude of donor countries.

“There is a lot of pressure on politicians everywhere to reduce  aid to ‘middle income’ countries,” he said.

He said collaboration between UN DESA, government, business, NGOs and other stakeholders on the transition beyond LDC was important, because at the moment there is “very little understanding among many people, including development partners” about what benefits LDC status brings, and how to adjust when those benefits are gone.

“The private sector needs to know” the change is coming, he said.

What is a ‘Least Developed Country’?

Since 1971, the United Nations has recognised least developed countries (LDCs) as a category of states deemed ‘highly disadvantaged’ in their development process, for structural, historical or geographical reasons.

Currently there are 47 LDC countries, home to around 880 million people. Only five countries have ever graduated: Botswana, Cabo Verde, Equatorial Guinea, Maldives, and Samoa. 

Most LDCs are already members of the World Trade Organisation, but Timor-Leste is one just eight which is yet to join. 

In order to graduate, countries must be above two of the three following thresholds:

1 — Gross National Income (GNI) per capita (approx. USD $1,230);
2 — Human Assets Index (HAI), covering health and education outcomes; and
3 — Economic Vulnerability Index (EVI), or how prepared the country is for shocks, such as natural disasters.

In 2018, Timor-Leste met criteria 1 and 2, but the government requested a delay in the process, concerned things were moving too fast.

The benefits are stacked towards trade

LDCs benefit from a number of dedicated international support measures in the areas of trade, according to the UN portal Gradjet. 
The trade concessions guarantee LDCs duty free, quota free market access to most developed countries.

Tariffs for existing TL exports — dominated by oil — would likely not change for major markets, according to an impact assessment prepared by UN DESA in 2018.

But there would be significant imposts for future exports to China and India. For example, vanilla and ginger exports, now tariff-free, would attract a 50 per cent tariff in China; black pepper 70 per cent.

In any case, Namsuk Kim, also from UN DESA, told the meeting it was clear Timor “isn’t benefitting enough” from the trade privileges of LDC, because its exports are overwhelmingly dominated by tariff-free oil exports.

And his observation from meetings with local industry, civil society and government is that Timor-Leste isn’t ready to move on.

“[TL] doesn’t have enough productive capacity to graduate” at this moment, he said.

The consequences for aid money

Gradjet said international donors officially commit to providing a certain proportion of their development assistance to LDCs. 

Although LDCs leaving the category sometimes, understandably, expect to lose these benefits, in practice many donors have continued to support them afterwards.

The visit by DESA staff is just the first step in developing what Mr Davies called “smooth transition strategies” for Timor-Leste after graduation, which would continue until 2022.

And he said a Small Island Developing State (SIDS), Timor-Leste would continue to receive priority from important funding sources such as the Green Climate Fund.

The UN’s Committee for Development Policy (CDP) makes recommendations to the Economic and Social Council on a country’s graduation from LDC status.

Its next review, in 2021, will focus on prospects for the oil and gas industry, and the pace of Timor’s economic diversification, Mr Davies told the meeting. If Timor-Leste continues to meet eligibility to graduate, the earliest possible graduation date is 2024.

More detail is available at www.un.org/ldcportal

Reporter: Robert Baird


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