Bangladesh Prepares for LDC Graduation Amid Economic Challenges
Bangladesh is set to graduate from the least-developed country (LDC) category next year, bringing both opportunities and significant challenges, particularly in international trade. However, the country is not fully prepared to tackle these challenges, according to Prof Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD).
Bangladesh has met the UN's graduation criteria in all three required categories: per capita income, the human asset index, and the economic vulnerability index. The official upgrade is expected at the UN General Assembly meeting in November 2026.
Challenges in Trade and Tariffs
Prof Rahman pointed out that although some business leaders have called for a delay in LDC graduation, postponement is difficult to justify. Even if Bangladesh were to defer the process, only Afghanistan and Bangladesh would remain in this category in the region.
The chief adviser to the interim government recently instructed all relevant stakeholders to ensure timely preparation for the transition. Echoing this directive, Rahman stressed the urgency of readying the economy for post-LDC challenges.
Currently, about 70 percent of Bangladesh's exports enjoy preferential trade benefits, which will be phased out after graduation. Tariffs in key markets such as the European Union (EU) will rise by approximately 11.5 percent, while Canada is expected to impose an additional 15 percent tariff.
"We are not taking adequate preparation," Rahman warned, emphasizing the need for enhanced productivity, streamlined trade facilitation, and improved compliance standards.
Transitioning to an Efficiency-Based Economy
Rahman underscored the need for Bangladesh to shift from a preference-based export model to an efficiency-driven one. Higher trade facilitation costs, inefficient logistics, and outdated regulatory frameworks hinder competitiveness. Addressing these inefficiencies will be crucial in reducing business costs and staying competitive in global markets.
Additionally, post-LDC graduation, Bangladesh will need to improve labor and environmental standards, as international buyers and consumers in developed countries will no longer overlook these issues.
"Now is the time to start focusing on these areas," he added.
Compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) will also pose challenges, particularly for the pharmaceutical sector, which may face difficulties in exporting products without patent exemptions.
Navigating the Global Trade Landscape
Commenting on the impact of global trade policies, Rahman cautioned against over-reliance on the U.S.-China tariff war. Although some believe that Bangladesh might benefit from trade restrictions imposed on China, the actual impact has been limited.
For instance, after the U.S. imposed a 25 percent tariff on China in 2016, Bangladesh did not experience significant gains in its ready-made garment (RMG) exports. This is partly because Bangladesh specializes in cotton-based garments, whereas China dominates the non-cotton textile market.
Rather than depending on geopolitical shifts, Rahman urged policymakers to focus on improving competitiveness through reduced business costs, better logistics, and enhanced productivity.
Free Trade Agreements and Industrial Standards
Rahman pointed out that Vietnam has established 52 bilateral and multilateral free trade agreements (FTAs), while Bangladesh has only one FTA with Bhutan.
One of the key challenges in signing FTAs is Bangladesh's dependence on import duties for revenue. Additionally, improved industrial and environmental standards will be necessary, as FTAs operate on a reciprocal basis.
Since LDC graduation is inevitable, Bangladesh has no choice but to upgrade its standards across all sectors, he stated.
Economic Stability and Inflation Control
Bangladesh has faced significant economic challenges, particularly in the early quarters of the current fiscal year. However, Rahman noted some positive developments, including slowing inflation rates, improved revenue policies, and a more stable exchange rate.
Exports have grown by double digits, and remittance inflows have reached their highest level in years. As a result, foreign currency reserves have stabilized, and the gap between the kerb market and official exchange rates has narrowed to Tk 1.5-2.
While inflation remains high at around 9 percent for both food and non-food items, rising wages have not kept pace with the cost of living, eroding purchasing power.
Rahman suggested increasing competition in the market by encouraging new importers, which could help stabilize prices. Additionally, stronger regulatory measures are needed to address extortion in supply chains and ensure adequate stock levels of key commodities.
Investment and Banking Sector Challenges
Investment remains a significant concern, as high-interest rates, a contractionary monetary policy, and rising non-performing loans (NPLs) have discouraged borrowing.
Rahman noted that many investors may be waiting for political stability before making long-term commitments. Addressing issues in the banking sector and improving the investment climate will be critical for future economic growth.
Strengthening Financial Oversight
On the issue of recovering laundered money, Rahman acknowledged ongoing efforts by the Bangladesh Bank, the Bangladesh Financial Intelligence Unit (BFIU), and the Anti-Corruption Commission (ACC). However, he emphasized the need for faster and more effective legal action.
Recovering illicit funds requires proper legal documentation and tracing ultimate beneficiaries. "If other nations can retrieve stolen money, so can Bangladesh," Rahman asserted. Strengthening financial oversight will also send a clear message that financial crimes will not be tolerated.
The Way Forward
As Bangladesh approaches LDC graduation, the country must focus on boosting competitiveness, improving trade facilitation, and strengthening regulatory frameworks. Enhancing industrial standards, increasing investment, and ensuring economic stability will be crucial to navigating the post-LDC landscape successfully.
"We must act now to prepare for these challenges," Rahman concluded.
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