Least Developed Countries Report – serie

In 2023, the combined GDP of the LDCs was 10 per cent below the level it would have reached had the pre-pandemic (2010-2019) growth trend been sustained. As a result, at least an additional 15 million people in LDCs are now living in extreme poverty, with their governments severely constrained in their ability to sustain adequate investments in public services or invest in advancing development progress. The Report highlights the urgent need for concerted action to restore fiscal space in LDCs through the lasting resolution of the debt crisis, reform of the international financial architecture, and the mobilization of climate finance to enable needed investments towards low-carbon transition and green structural transformation. Without which, the SDGs and sustainable development cannot be realised. The Report advances several recommendations aimed at advancing the reform of global development finance, which in its current state, is deficient in terms of its quantity, quality, structure, cost and ease of accessibility. The Report also contains a detailed analysis of the possible role of central banks in shaping the financing of sustainable development and green structural transformation in LDCs. While the contribution of central banks to dealing with climate change has been discussed in developed countries, this is the first time this type of analysis is done in the context of the LDCs.

Policymakers in the least developed countries are under pressure to transform carbon markets into a viable pathway to deliver on the Sustainable Development Goals and low-carbon structural transformation. This begs the question of whether and how these markets can both address the unique challenges of these countries and help them to contribute to global efforts to mitigate climate change. The report highlights the outcomes of past and current participation by least developed countries in carbon markets and identifies opportunities and risks from the emerging framework for carbon markets under the Paris Agreement. Towards the maximization of the benefits of carbon markets for LDCs, the report provides actionable recommendations for least developed country policymakers and climate negotiators, and for their development partners.

Graduation is the process through which least developed countries (LDCs) cease to be members of the LDC category, in recognition of their advances in development. In principle, it marks a shift from dependency to a greater degree of self-sufficiency and emergence from the development ""traps"" which beset LDCs. However, the loss of access to international support measures (ISMs) tied to LDC status at graduation can give rise to important economic costs, including an estimated 3–4 per cent of export revenues in the case of trade preferences. During the 45 years since the establishment of the LDC category, only four countries have graduated from LDC status; and the Report's projections indicate that the target of half of the LDCs graduating by 2020 is unlikely to be met. This partly reflects the inadequacy of the existing ISMs. The projections also suggest a fundamental shift in the composition of the group, which by 2025 will consist almost entirely of African countries and include only one small-island economy. The Report argues that graduation should be viewed as part of a longer and broader development process, and emphasizes the need for ""graduation with momentum"" - an approach which goes beyond fulfilment of the statistical criteria for graduation to lay the foundations for future development. This means prioritizing structural transformation of the economy, development of productive capacities, upgrading technology and raising productivity. The Report highlights several policy areas essential to achieve ""graduation with momentum"" - rural transformation, industrial policy, science, technology and innovation policy, finance and macroeconomic policy, employment generation and women's empowerment. It calls on the international community to contribute by fulfilling their commitments in areas such as aid and technology. It also suggests possible revisions to the graduation criteria to reflect more appropriately issues such as structural transformation, environmental sustainability and gender equality.

This publication takes stock of 50 years of development experience since the establishment of the LDC category in 1971. Most LDCs growth has been erratic, and they have not closed the income gap with other developing countries. This stems largely from the inefficacy of domestic and international policies in addressing structural impediments to structural transformation, i.e. low level of productive capacities, excessive export orientation, limited policy space, weak state capacity, technological backwardness, limited entrepreneurial development and insufficient investment in human capital formation. For the coming decade, the report proposes an overhaul of development policies and strategies in favour of initiatives that are centred on the development of productive capacities and led by a developmental state, which successfully aligns foreign agents' dealings with LDCs to national development goals and priorities.