Challenges and Strategic Path Forward
Bangladesh is set to graduate from the Least Developed Countries (LDC) group in 2026, but this transition brings both challenges and opportunities. While some urge a deferment due to concerns over trade benefits, the country’s development trajectory is strong. This article explores the implications of graduation, the potential risks to key sectors like exports, and the strategies Bangladesh must adopt to ensure a smooth and successful shift to a developing nation status.
LDC Graduation to be Held Without Ifs and Buts: Are We Prepared?
Bangladesh is set to graduate from the group of least developed countries (LDCs) next year, though a section of businessmen and stakeholders is advocating for the deferment of this graduation. They argue that graduation will pose several challenges to the economy by reducing existing benefits, especially in international trade, which may impact exports and, in turn, the entire economy.
Let’s explore what challenges lie ahead after graduation, and what strategies Bangladesh should adopt to face those challenges.
In 1975, Bangladesh joined the LDC group. For graduation, an LDC needs to meet at least two of the three graduation criteria to be considered for graduation: a Gross National Income (GNI) per capita of $1,306 and above, a Human Asset Index (HAI) of 66 and above, and an Economic Vulnerability Index (EVI) of 32 and below.
Bangladesh first met the criteria for graduation in 2018. In fact, the country met all three criteria, which was sustained in the next review held in 2021. As a result, Bangladesh was set to be recommended for graduation, with the graduation expected to be effective from 2024.
However, graduation for all LDCs eligible for graduation at that time was deferred by two years due to the adverse impacts of the COVID-19 pandemic on the economies of these countries.
Graduation from the group is based on meeting the criteria stipulated for leaving the LDC group. Inclusion in the LDC group is voluntary, but graduation is compulsory.
Other Cases of Deferment
Decisions regarding the graduation of several Pacific Island LDCs—such as Vanuatu and Kiribati—were deferred multiple times, as these countries are highly vulnerable to environmental challenges. Samoa’s graduation timeline was deferred by three years when it was hit by a tsunami.
Nepal, an LDC that first met the graduation criteria in 2015, was not recommended for graduation in the 2018 triennial review due to the devastating earthquake in April 2015, which wreaked havoc on the country’s economy and people’s well-being.
Angola, which was scheduled to graduate in February 2021, had its graduation deferred to a later date due to the deterioration of its economy.
Why Businessmen Wanted Deferment
The call for Bangladesh’s graduation deferment is being led by the country’s export-oriented Ready-Made Garment (RMG) sector. Deferment would allow Bangladesh to continue enjoying various special and differential treatments in exports, which it currently receives as an LDC.
Due to its LDC status, Bangladesh enjoys preferential access to almost all markets, derogation from obligations of trade-related Intellectual Property Rights agreements, aid for trade support, flexibility with many compliance requirements, and financial support for participation in various global fora, among other benefits.
LDC preferential treatment allows Bangladesh’s apparel to enjoy significant preferential margins in almost all destination countries, except the US market. Preferential market access is particularly important for the apparel sector, as import duties on these items tend to be significantly high in all major export markets.
Additionally, Bangladesh has benefitted significantly from the derogation from TRIPS compliance, as evidenced by the impressive performance of the country’s pharmaceutical sector, both in domestic and external markets.
Among the LDCs, Bangladesh has the distinction of being the country that has benefitted the most from LDC preferential treatment, due to its higher supply-side capacities compared to most other LDCs.
As a result, it will face the most significant shocks by losing preferential treatment in international trade.
Currently, 78 percent of Bangladesh’s total exports are LDC-induced, and 38 countries allow zero or lower duty benefits to Bangladesh as an LDC.
After graduation, Bangladesh may lose $8 billion worth of exports if appropriate measures are not taken in time. These losses could result from the removal of GSP+ facilities and trade deals.
No Possibility of Deferment
Professor Muhammad Yunus, chief adviser of the interim government, instructed his cabinet colleagues to prepare for Bangladesh’s status graduation from a least developed country (LDC) to a developing nation in November 2026, effectively doing away with all speculation.
Many, including a section of economists and businesspeople, were in favour of a deferment by a couple of years.
Even after considering the hyperbole about the development track record promoted by the previous government of Sheikh Hasina, the White Paper states “there is hardly any plausible reason, as of now, for Bangladesh to request a deferment of the exit date from the group”.
Even if the government could decide to submit a request for the deferment of graduation, it would have must present strong supporting arguments. The UN General Assembly will need to be convinced of the reasons and justifications for such a request.
Asking for deferment has political costs as well. Bangladesh’s deferment would leave it as the only country in the South Asian region—along with war-ravaged Afghanistan—remaining as an LDC beyond 2026.
After the Chief Adviser’s statement, there are no ifs and buts regarding the LDC graduation so people now should think about its benefits and preparation for next steps.
What Are the Benefits of LDC Graduation?
Graduation will elevate Bangladesh to a dignified status as a developing country on the world stage. Being an LDC means that Bangladesh has been considered a “risky” country, which has hindered its ‘sovereign rating’ from improving.
As a result, the private sector had to accept higher rates for securities and interest on commercial loans abroad. This graduation may improve the country’s rating and increase confidence in Bangladesh among multilateral investors.
It will also become easier to obtain foreign loans, even if interest rates rise slightly. However, interest rates will likely be lower for the private sector. The cost of Letter of Credit (LC) confirmation for traders will be reduced by foreign banks.
More foreign investment may flow into the country, enhancing employment opportunities.
Our Preparedness
Bangladesh’s preparedness for graduation is still very low. For instance, Bangladesh has not signed any major trade deals with key trading partners that would protect its trade post-graduation.
The only preferential trade agreement (PTA) Bangladesh has signed is with Bhutan, which is insignificant. Despite lobbying with nearly a dozen trading partners, Bangladesh has not been able to sign any Free Trade Agreements (FTAs).
There has been some progress with Japan regarding the signing of a bilateral Economic Partnership Agreement (EPA), with a deal expected by the end of 2025. However, progress in negotiating the much-talked-about Comprehensive Economic Partnership Agreement (CEPA) with India has almost come to a halt.
Similarly, negotiations for FTAs with Indonesia, Malaysia, and Turkey, and efforts to join trade blocs such as the Association of Southeast Asian Nations (ASEAN) and the China-led Regional Comprehensive Economic Partnership (RCEP) have also stalled since August.
With limited progress on bilateral deals, Bangladesh largely depends on the multilateral trading system under the WTO. However, this system is under threat due to the Trump tariffs. Bilateral FTAs, EPAs, or CEPAs, alongside a stronger regional trading system, are seen as remedies.
So far, only a few countries and regional trade blocs have promised to continue preferential trade benefits for Bangladesh after its graduation. The EU has promised to extend these benefits for three years, until 2029, as it does for graduating LDCs. The UK, Australia, and Canada will continue providing preferential trade benefits for a certain period, but with stricter conditions.
Strategies Going Forward
The most prudent course of action for Bangladesh is to undertake the necessary preparations for a smooth and sustainable graduation from the LDC group.
Bangladesh has already prepared a Smooth Graduation Strategy, which should be implemented through energetic actions and urgent initiatives in a time-bound manner.
It will be important for Bangladesh to prepare for graduation in 2026 by implementing necessary reforms and ensuring structural transformation toward a sustainable graduation.
Trade policies, incentives, and import duties will need to be scrutinized to ensure compliance with global obligations that graduation entails. There must be a shift from preference-based competitiveness to skills- and productivity-based competitiveness as part of the sustainable graduation strategy.
Adequate measures must be taken to ensure compliance with TRIPS obligations, the Trade Facilitation Agreement, and other WTO-mandate agreements. Compliance with ILO conventions and protocols must also be enforced.
As noted, the EU, the UK, and several other preference-providing countries, including Canada, have agreed to extend preferential treatment for goods originating from graduating LDCs like Bangladesh for an additional three years following their respective graduation timelines.
Bangladesh will need to strengthen the competitiveness of its exports and integrate more into regional and global markets. CEPAs must be negotiated, and both offensive and defensive strategies must be designed accordingly.
In the absence of such trading partnerships and groupings, Bangladesh may have to export on a non-preferential basis, while its competitors—such as India, Pakistan, Vietnam, China, and Cambodia—enjoy preferential access in many markets due to bilateral and regional free trade agreements and CEPAs.
The global trading landscape is changing rapidly. There is increasing emphasis on greening trade and trade facilitation, and compliance requirements for both preferential and non-preferential trade are becoming more stringent.
Carbon emissions in production processes and supply chains are being tracked, and environmental, gender, and social considerations are coming into sharper focus. Ensuring compliance with these will require skill-based interventions, innovation in green technology, and training. Achieving these goals will require additional investment in infrastructure, technology, and capacity.
The upshot of the above discussion is that Bangladesh’s actions and priorities must focus on domestic preparatory measures and the implementation of a smooth and sustainable graduation strategy.
Reforms and structural changes must be in place, the capacity to access regional and global markets from a position of strength must be enhanced, and compliance with the newly emerging global trading regime must be ensured. Bangladesh’s efforts must be geared toward the new phase of its journey as a non-LDC developing country.
