Is it too late to hit pause on LDC graduation? 

On 22 March 2018, just before 4pm, a lively procession set off from Doyel Chattar. Bright banners, festoons, and placards adorned the scene, while decorated vehicles and horse carts moved through the streets to the sound of an orchestra. Organised by the Ministry of Information, the procession made its way through Dhaka, ending at the western gate of the Bangabandhu National Stadium.

Earlier that day, at 11am, amidst cheers and music at the Smriti Chironton premises in Dhaka University, the Vice-Chancellor released balloons and festoons. It was a celebration marking Bangladesh's achievement of becoming eligible to graduate from the Least Developed Country (LDC) status to a developing country. 

The previous regime left no stone unturned to paint it as a seismic event and a grand success for them. It was also seen as a commendation by the international community, marking a country's success in meeting key economic criteria. 

While the LDC graduation is certainly a prestigious crown, there are concerns that it may be too heavy for our heads. 

As the weak Bangladeshi economy steadily tries to get back on track and recover from 15 years of corruption, it is evident that the policy implementation for LDC graduation has not been completed, and the data used to show the Bangladesh economy as eligible may not be entirely accurate. So, LDC graduation in 2026, too, may be premature. 

When we graduate from the LDC status, we will lose 10-12% duty-free access in some markets. We will not be able to provide export subsidies. Our export sectors need to be competitive enough to absorb the loss and fill the gap. We needed better infrastructure, but we have not achieved that.

Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID)

In the last years of the previous regime, Bangladesh's economic achievements have been framed around its upcoming graduation from LDC status. Sheikh Hasina touted this transition as a sign of the country's progress and resilience. 

However, the economic realities underpinning the LDC graduation expose the fragile foundations of the government's optimism and the misleading portrayal of the benefits.

When she met Chief Adviser Prof Muhammad Yunus in New York on 29 September, UN Under Secretary-General and High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, Rabab Fatima, assured him of her office's full support for Bangladesh's smooth transition towards LDC graduation. 

But are we prepared for it? 

The impact of LDC graduation on our exports 

The benefits of LDC status, such as preferential market access and concessional loans, will no longer be available post-graduation​​. Bangladesh, having enjoyed duty-free quota-free access to major markets like the European Union, is likely to face severe economic consequences, particularly in the RMG industry. 

Even though the EU and the United Kingdom, which account for a large share of Bangladesh's garment exports, have agreed to extend preferential treatment for three years after graduation till 2029, beyond that, Bangladesh will be subject to the same tariffs as other developing nations​​. 

This will likely result in an 8-10% reduction in export revenues, which could amount to a loss of approximately $2.5 billion annually​.

The loss of these benefits, alongside the economic shocks caused by the Covid-19 pandemic, global conflicts, and rising inflation, paints a bleaker picture than what the government was willing to admit​.

The United Nations Conference on Trade and Development (UNCTAD) in 2016 projected that Bangladesh could experience a reduction in exports between 5% to 7%, depending on various scenarios post-graduation. 

A study titled 'Pathways to Bangladesh's Sustainable LDC Graduation: Prospects, Challenges, and Strategies' estimates that the country will face a 6.7% increase in tariffs due to the loss of LDC preferential treatment, potentially leading to a contraction of exports valued at approximately $2.7 billion. At a crucial time for our dwindling foreign reserves, the loss would be hard to absorb.

In a research paper titled 'Navigating LDC graduation: Modelling the impact of RCEP and CPTPP on Bangladesh,' it has been found that Bangladesh's graduation will lead to a fall in GDP and RMG exports by 1.53% and 11.8%, respectively. 

Another research titled 'Bangladesh's Export-Oriented Apparel Industry and LDC Graduation' shows that the loss of preferential market access, particularly in the EU, would have significant repercussions. The estimated decline in exports to the EU is around $1.6 billion, while the figures stand at $175 million for Canada and $29 million for Australia. 

Misrepresentation of economic realities

Sheikh Hasina's government had consistently promoted Bangladesh's rapid economic growth, particularly in sectors such as ready-made garments (RMG), pharmaceuticals, and remittances. However, experts and industry leaders have repeatedly argued that the government's portrayal is misleading. 

The economic data used by the government to justify LDC graduation has also been called into question. Bangladesh Bank recently revealed that export figures had been inflated by nearly $10 billion, raising serious doubts about the accuracy of other economic metrics, such as GDP and export-to-GDP ratios​. 

This data discrepancy not only undermines the credibility of the government's claims but also suggests that Bangladesh is ill-prepared for the economic realities of post-graduation life. 

The government had downplayed the risks, instead focusing on the potential for increased foreign direct investment (FDI) and improved credit ratings following graduation. 

Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID), points out that export earnings are on the decline, and even before the LDC graduation, key industries like RMG are losing competitiveness due to reduced cash incentives and policy misalignments​. 

Dr Razzaque said, "To increase export competitiveness, we needed to boost ease of doing business, increase efficiency of the ports and the customs, and increase trade logistics. We could not do any such thing. 

"When we graduate from LDC status, we will lose 10-12% duty-free access in some markets. We will not be able to provide export subsidies. Our export sectors need to be competitive enough to absorb the loss and fill the gap. We needed better infrastructure, but we have not achieved that," he added. 

Also, the benefits of graduation are far from guaranteed. Countries that have previously graduated from the LDC category have struggled to attract the level of FDI that was anticipated, and Bangladesh's fragile financial sector, riddled with corruption and inefficiencies, is unlikely to inspire confidence among foreign investors​.

Ignoring industry concerns

Key industry leaders, particularly in the RMG sector, have expressed grave concerns about the impact of LDC graduation on their competitiveness. The Bangladesh Garments Manufacturers and Exporters Association (BGMEA) has warned that the loss of duty-free access to European markets will severely hurt the sector, which is already grappling with reduced incentives and rising costs​. 

Despite these warnings, the government had continued to push the narrative of economic progress without addressing the structural weaknesses that underpin the economy.

"The RMG sector has not yet solved its internal problems," said Dr Selim Raihan, Professor at the Department of Economics, University of Dhaka, and Executive Director at the South Asian Network on Economic Modeling (SANEM). "And it has not diversified its offerings. After LDC graduation, it will face numerous challenges." 

The pharmaceutical industry, another sector that has thrived under LDC-specific exemptions, is also set to face significant challenges post-graduation. Currently, Bangladesh benefits from a waiver on intellectual property rights under the World Trade Organization's (WTO) TRIPS agreement, allowing it to produce generic drugs without adhering to international patent laws​​. 

After graduation, this waiver will no longer apply, and the costs of producing essential medicines, such as insulin, are expected to rise dramatically. This will not only impact the pharmaceutical industry but also the millions of Bangladeshis who rely on affordable medication​.

Failure to prepare for the transition

The government's lack of preparation for the impending economic challenges is perhaps the most glaring issue. While other countries transitioning out of LDC status have implemented comprehensive strategies to mitigate the impact of graduation, Bangladesh's approach has been alarmingly inadequate. 

Dr Selim Raihan said, "In my opinion, the preparation for LDC graduation is not going well for Bangladesh yet. Our trade preferences will no longer be available. And to cope up with the new export scenario, we have not been able to diversify our export basket. Bangladesh's export basket is highly concentrated." 

Dr Razzaque said, "The policy awareness is there, but the lack of implementation is extremely visible in all major areas, including export diversification, export competitiveness, and trade negotiations." 

Moreover, the broader structural issues within Bangladesh's economy—such as corruption, a weak banking sector, and poor infrastructure—have not been adequately addressed. These issues will only become more pronounced as the country loses access to concessional loans and aid packages that have helped to cushion the economy thus far​​.

Economists have been talking about reforms for a long time to prepare for LDC graduation. But it fell on deaf ears. Dr Selim Raihan recalled, "We suggested a number of reforms in the banking sector, taxation, trade facilitation, infrastructural developments, and identifying the bottlenecks for export diversification. But those were not implemented in the way they had to be done. There is no visible improvement." 

Dr Razzaque said, "Without tariff rationalisation, post-LDC graduation will be difficult. If we want to access foreign markets, we need to open our markets to them as well. We don't have enough preparation for that." 

"Our macroeconomy is under pressure as well. You cannot meet the challenges when you are facing macroeconomic pressure," he added. 

"We are to graduate from LDC in 2026, if nothing changes. If so, we will need to do a lot of reforms in a very short time."  

Dr Razzaque is more optimistic: "Even after the current crisis, we still fulfil the three criteria to graduate from LDC."

While the graduation marks a significant milestone, the government's failure to address the long-term challenges associated with this transition will likely have far-reaching consequences. 

The interim government must take immediate steps to reform its economic policies, provide targeted support to vulnerable industries, and address the structural weaknesses that threaten to undermine Bangladesh's future prosperity. 

Only through a comprehensive and honest approach can Bangladesh hope to make the most of its transition from LDC status and secure a sustainable and inclusive future. And given the current situation, the option of trying to pause the LDC graduation should not be off the table.