Originally published by OECD Development Matters blog on 30th April 2021

On 4 December 2020, Vanuatu shed its official classification as one of the world’s least developed countries (LDC). This significant milestone – called ‘graduation’ – is something that only five other countries have managed to achieve in the last 40 years. And Vanuatu’s graduation achievement may be the most impressive of all given that, over the past few years, not only has it has weathered significant economic and social fallout from repeated natural disasters, but also a major drop in tourism revenue due to border closures during the global COVID-19 pandemic.

At this time of exacerbated economic vulnerabilities, some have questioned whether this is the right time for Vanuatu to leave its LDC status behind. Indeed it is a courageous choice – on the surface it may seem that there is more to lose than gain from graduation. Graduating countries usually surrender international support measures earmarked for LDCs such as preferential market access, targeted multilateral aid funding, free legal advice and technical assistance from some United Nations agencies, as well as travel support to attend international UN meetings.

While the impact of losing international support measures will depend on what goods a country exports, the trade agreements it is part of, and other factors, the UN’s Committee for Development Policy’s (CDP) LDC graduation impact assessments have shown that the loss of these measures doesn’t actually make much of a practical difference.

In the case of Vanuatu, goods exports only make up around 7% of overall economic output and their destinations are not to main preference-granting countries. The loss of preferential market access is thus not anticipated to significantly impact the economy. When it comes to aid funding, Australia and New Zealand – two of Vanuatu’s major bilateral development partners – have assured Vanuatu that their support will not be contingent on Vanuatu’s LDC status.

Perhaps counter-intuitively, graduation can actually trigger more funding, as it demonstrates to development partners and the private sector that the country is growing and ready to do business. Take the case of Vanuatu’s neighbor, Samoa, which graduated in 2014. Data from the Lowy Institute shows that in the years following Samoa’s graduation, aid to the country actually increased.

For Vanuatu, the reality is that there is never going to be a ‘good time’ to graduate. As the world’s most at-risk country for natural hazards, there is no escaping the challenges that these will continue to pose to the country’s social and economic progress. Recognising this, Vanuatu instead chose to focus on wisely structuring its five-year transition period in a way that will maximise its graduation success.

An unprecedented request

When Vanuatu’s Council of Ministers met in September 2020 to decide how to proceed with a looming graduation date, they were presented with two options. Option one was to request to the UN that their graduation be deferred – something that had already taken place five years earlier due to the devastating impact of cyclone Pam.

Option number 2 was to proceed with graduation and seek for deferment of international support measures until the end of the transition period. Deferment of international support measures had never before been requested by a graduating country – there was no precedent and no guarantee it would be endorsed by the UN General Assembly (UNGA). Despite this, the Ministers decided to proceed with Option 2.

A few weeks later, Vanuatu’s Prime Minister Bob Loughman proudly addressed the UN General Assembly, asserting: “Our development journey has never been better… [but] it has not been easy to decide whether Vanuatu should graduate or not…with much deliberation, the Government took a bold step to be an example to the UN family, that we are strong and resilient despite the natural characteristics of our existence.”

Behind the scenes, Vanuatu’s ambassadors worked to secure support for the deferment request. And when the General Assembly announced its endorsement of Vanuatu’s request, it sent an important signal to the international community – that even though Vanuatu is standing on its own two feet, it is still in need of support. The UN endorsement also added nuance to the overarching graduation narrative – changing it from simply a story of loss, to a story of supporting strength.

While the UNGA does not actually have the power to mandate that bilateral and multilateral partners defer their support measures to graduating LDCs, UN resolutions do carry weight in negotiations with development partners. And as Vanuatu enacts its smooth transition strategy over the coming five years, support of development partners will be crucial.

Several UN initiatives are already underway in Vanuatu to bolster these efforts. The U.N Committee for Development is piloting an enhanced graduation support facility, designed to help Vanuatu negotiate new trade and investment arrangements, particularly with their main trading partners and donors. Lessons from the UNCD pilot will be used to improve the support offered to other graduating LDCs in future. In addition, the UN Economic and Social Commission for Asia and the Pacific is implementing a capacity building programme that supports government trade officials to be more prepared for trade negotiations. With COVID-19 expected to continue to challenge Vanuatu’s tourism sector and wider business landscape well into the future, both these UN efforts will support the Vanuatu government to lead a rapid revenue recovery for the nation.

With Bhutan, Angola, the Solomon Islands and São Tomé and Príncipe scheduled for graduation and another seven LDCs being considered in the coming years, there’s a lot that can be learned from Vanuatu’s early preparation, bravery, adaptability and focus on partnerships to ensure a smooth graduation process.

While COVID-19 may intensify existing fears around the loss of support that comes with graduation, Vanuatu’s example shows that it is possible to find a meeting point on preparing early while having plans that are adaptable and responsive to global changes and challenges. The importance of vocal support from the international community in buoying a graduating country’s confidence, particularly at this uncertain time in human history, cannot be understated.

Thank you to Luisa Letlet and Brill Palmer from Vanuatu’s Ministry of Trade Tourism Commerce and Ni-Vanuatu Business, and Daniel Gay for their contributions to this piece.