The COVID-19 pandemic is having devastating impacts on people and economies of Asia-Pacific least developed countries (LDCs) because of their high level of social vulnerability associated with underdeveloped public health systems, large informal sectors in which workers do not have adequate social protection, and limited policy space or institutional capacity to respond to shocks. In addition, immense economic impacts are arising from the disruption of supply chains and international travel restrictions. Consequently, the pandemic could undo years of development progress made by LDCs to achieve the sustainable
development goals (SDGs).
LDCs may face additional challenges due to their graduation from the LDC status as LDC specific international support measures (ISMs) such as preferential market access for goods and services and preferential access to development finance will be phased out upon graduation. These countries will thus be exposed to more competition in the global market, both in terms of international trade and access to external finance. This will make their development efforts and their engagement with the global economy more strenuous.
One of the common characteristics of Southeast Asian LDCs is their low level of productivity and the asymmetry between sectors that employ most of the workforce and sectors that contribute most to output. In part, this is explained by the pattern of structural transformation that they have gone through, whereby a transition to services has bypassed the relatively higher-productive, employment-generating dynamism of the manufacturing sector. Also, little progress has taken place in within-sector upgrading in the agricultural sector, failing to facilitate value added activities in rural areas. Instead, these countries have at best expanded
their existing industries, including resources sectors (in the case of Lao PDR, Myanmar and Timor-Leste) and the garment industry (in the case of Cambodia and Myanmar). This has inhibited the structural transformation that allows employment to shift to more productive activities and more advanced activities to emerge.
Renewed efforts at structurally transforming these economies are therefore pertinent, especially in view of the challenges that Southeast Asian LDCs may face in the wake of the COVID-19 pandemic and after graduating from the LDC status. Doing so successfully will require a boost in productive capacity through, for instance, investment to upgrade education and training quality and the implementation of an effective strategy aimed at structural transformation. Such efforts will need to be complemented and supported by policy measures to address the vulnerabilities revealed by the COVID-19 pandemic as well as an adequate
transition strategy that will mitigate potentially adverse impacts of graduation and ensure a smooth transition that allows for further progress using the momentum of graduation.
It is therefore important that policymakers of Southeast Asian LDCs have the capacities to understand how structural transformation and graduation from the LDC status are connected in their specific country circumstances and what policy measures need to be taken to ensure continuous developmental progress. These capacities will enable them to formulate policies and national development strategies that facilitate structural transformation that leads to building productive capacity as well as resilience to external shocks while ensuring that graduation from the LDC category will not disrupt their efforts aimed at sustainable development.