Bangladesh is on track to graduate from its status as a Least Developed Country (LDC) in November 2026. This milestone comes after 46 years in the LDC category, having met all three criteria assessed triennially by the United Nations Committee for Development Policy (CDP). While this achievement signifies economic and social progress, it also brings substantial challenges that require strategic planning and timely action. Implications of LDC Graduation Graduating from LDC status means that Bangladesh will lose access to key international support measures in three primary areas: preferential trade benefits, concessional financing, and development assistance. These changes pose significant risks to trade, financing, and development initiatives, which are vital for the country’s economic growth.
Trade-Related Challenges
Currently, Bangladesh enjoys duty-free and quota-free (DFQF) access to 38 countries, including the UK and 27 EU nations, under the Generalized System of Preferences (GSP). The apparel sector, which constitutes the majority of Bangladesh’s exports, is heavily reliant on this preferential market access. Upon graduation, Bangladesh will face higher tariffs, with potential losses amounting to 14% of export earnings, equivalent to approximately USD 5.73 billion annually. Moreover, the country will have to align its tariff structures with World Trade Organization (WTO) policies, leading to reduced flexibility in protecting domestic industries.
GSP+ and Regulatory Compliance
The EU’s GSP+ scheme could provide a partial continuation of benefits, but eligibility requires meeting stringent conditions, including adherence to labor rights, environmental standards, and governance reforms. Bangladesh’s current share of the EU market, at 26%, far exceeds the GSP+ threshold of 7.4%, making compliance and negotiations critical to retaining market access.
Pharmaceutical Industry Impact
Bangladesh pharmaceutical sector, which currently meets 97% of local demand, will lose its exemption under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. This will end Bangladesh’s ability to produce patented drugs without royalty payments, increasing costs and reducing export competitiveness.
Financing and Development Assistance
Graduation will also mean the loss of concessional loans and grants from development partners. With institutions like the World Bank already transitioning to market-based loan terms, borrowing costs will rise significantly. Bangladesh will no longer be eligible for Official Development Assistance (ODA) earmarked for LDCs, including grants and technical assistance, which could strain public finances.
Current Preparations and Strategic Measures
The government reportedly has initiated several measures to address the challenges of LDC graduation, including forming committees and sub-committees to oversee the transition. Key strategies under consideration include: Bilateral and Multilateral Trade Agreements Bangladesh is negotiating Preferential Trade Agreements (PTAs), Free Trade Agreements (FTAs), and Comprehensive Economic Partnership Agreements (CEPAs) with 13 major trading partners, including India, China, Japan, and the USA. These agreements aim to ensure continued market access and mitigate the impact of losing DFQF benefits.
Export Diversification and Support
To reduce dependency on the apparel sector, the government is focusing on diversifying exports to include leather, light engineering, and home textiles. Tax exemptions and subsidies for emerging industries are being considered to enhance competitiveness. Additionally, productivity improvements and capital investments are being prioritized to ensure sustained growth in export-oriented sectors.
Enhancing Foreign Direct Investment (FDI)
Bangladesh is working to improve its investment climate to attract FDI. Simplifying business processes, ensuring policy stability, and addressing infrastructural gaps are key priorities. Increased FDI can offset the decline in concessional financing and support economic growth.
Strengthening Institutional and Regulatory Frameworks
Reforms in labor laws, environmental regulations, and governance are underway to meet international standards. These measures are crucial for securing GSP+ benefits and maintaining trade partnerships with key markets, particularly the EU.
Managing External Debt and Reserves
With rising external debt, careful management of foreign reserves and exchange rate policies is essential. The government is exploring alternative financing options and renegotiating terms with international lenders to maintain fiscal stability.
Bangladesh's preparedness for graduating from LDC status and its ability to handle the associated challenges is still far from ideal. The current state of the country’s economic indicators, such as GDP, GNP, export figures, and per capita income, raises significant concerns. These indicators appear to have been manipulated to gain political momentum, which led to the country’s LDC graduation. This is troubling, not only for Bangladesh’s current situation but also for future generations.
Bangladesh remains at a premature stage in terms of negotiating and signing Bilateral and Multilateral Trade Agreements with major countries. Reports suggest that the government and Bangladesh’s foreign missions have struggled to secure such agreements, which places the country at risk. Policy makers, relevant ministries, and regulatory authorities have been less proactive, often relying on political dialogue rather than effective action.
For LDC graduation to be sustainable, there must be a foreign policy that is guided by the right people in the right positions—individuals with the expertise and negotiating power to understand the complexities involved. Private sector involvement, alongside trade bodies, must be prioritized to ensure a coordinated strategy that reflects current circumstances. A comprehensive approach involving both government and private sector stakeholders is essential. Stronger foreign policy initiatives and more effective negotiation strategies are necessary for Bangladesh to thrive in the post-graduation phase. Only with careful planning, collaboration, and the right focus can Bangladesh overcome these challenges and build resilience for the future.
There is a constant emphasis on export diversification and exploring new markets to reduce risks and increase export volumes. However, tangible progress in this area remains limited. The performance of Bangladesh’s foreign missions, in particular, has been disappointing. These missions should be given clear trade development targets, but unfortunately, there is no effective performance improvement mechanism in place to monitor and guide their efforts.
Private sector involvement is critical in driving this agenda. Through innovative approaches, the private sector can explore new markets and open up more avenues for export growth. The heads of the relevant ministries must act promptly and efficiently, setting clear targets to enhance export development. Moreover, the head of the government should prioritize monitoring the performance of these ministries. A systematic review of their actions, coupled with corrective measures when necessary, will ensure that export diversification and market expansion initiatives are progressing effectively. By focusing on product diversification and tapping into new markets, Bangladesh can significantly boost its export potential and mitigate risks.
Bangladesh has set ambitious targets for Foreign Direct Investment (FDI) inflows but continues to fall short due to significant barriers that deter international investors. One major challenge is the delayed operationalization of Special Economic and Processing Zones (SEPZs), which reduces their potential to attract investors and foster industrial growth. This delay limits the anticipated benefits of these zones in driving foreign investment. Concerns raised by multilateral development agencies highlight persistent issues such as corruption, complex tax policies, inadequate infrastructure, bureaucratic inefficiencies, and a poor ranking in the cost of doing business index. Governance and transparency challenges exacerbate unpredictability and increase perceived risks, discouraging potential investors.
The complexity and inconsistency of tax regulations create uncertainty, making it difficult for businesses to plan long-term investments. Additionally, deficiencies in transportation, energy, and logistics infrastructure remain critical obstacles, hindering business scalability and reducing operational efficiency. Lengthy and non-transparent bureaucratic procedures further contribute to high transaction costs and delays, increasing the overall cost of doing business. Bangladesh also significantly trails its regional peers in business efficiency, as reflected in global rankings. This inefficiency deters investors seeking a streamlined, predictable, and business-friendly environment.
Bangladesh's upcoming graduation from Least Developed Country (LDC) status could intensify global market competition and result in the loss of preferential trade benefits, potentially discouraging foreign investment. To mitigate these challenges, Bangladesh should consider requesting a deferral of its LDC graduation by 5–7 years. Immediate engagement with UN bodies and multilateral agencies is crucial to present a strong case, highlighting the socio-economic implications of premature graduation.
To enhance the investment climate, priority must be given to operationalizing Special Economic and Processing Zones (SEPZs). Streamlining project approvals, resolving land acquisition issues, and ensuring adequate utility supply are critical steps. Partnering with private sector stakeholders and foreign investors can accelerate the development of these zones.
Strengthening anti-corruption measures is essential, including implementing stricter penalties and promoting transparency through e-governance solutions. Simplifying the tax code and providing clear, predictable guidelines will encourage investor confidence. Additionally, targeted tax incentives should be introduced for high-impact sectors such as renewable energy, ICT, and manufacturing.
For infrastructure development, the government should allocate increased funding to upgrade transportation networks, port facilities, and power grids. Public-Private Partnerships (PPPs) can be leveraged for large-scale projects. Bureaucratic processes must also be streamlined, with the establishment of one-stop service centers to facilitate business registration, licensing, and permits. Reducing the number of regulatory approvals required for starting and operating businesses will further enhance efficiency and attract investment.
To improve the cost of doing business, the concerned authorities must focus on minimizing procedural delays and lowering administrative costs. Benchmarking against regional competitors like Vietnam and India can help identify actionable reforms to enhance business efficiency and competitiveness. The interim government, in office since August 2024, has a unique opportunity to demonstrate decisive leadership and implement impactful changes.
Immediate actions should include:
• Addressing key barriers: Prioritize resolving issues related to governance, transparency, infrastructure, and regulatory inefficiencies.
• Advocating for LDC graduation deferment: Engage proactively with international stakeholders and UN bodies to justify a delay, citing socio-economic vulnerabilities.
• Strengthening institutional frameworks: Implement reforms that create a more investor-friendly environment, including enhancing policy predictability, improving service delivery, and fostering public-private collaborations.
By taking these steps, the government can build investor confidence, boost economic resilience, and lay the groundwork for sustainable growth in a competitive global landscape.
Mohd. Jamil Hossain, Columnist. He can be reached at [email protected].
Messenger/EHM
