LDC Graduation: Bangladesh to Encounter Significant Challenges and Losses

LDC Graduation: Challenges, Strategies, and Implications Discussed

The decision on whether Bangladesh will graduate to the developing country category in 2026 will soon be discussed with key figures, including the chief adviser, in the cabinet, said Finance Adviser Salehuddin Ahmed at a discussion organized by the Economic Relations Division (ERD) at the InterContinental Hotel in Dhaka. “I will not elaborate further, as you will learn about it within a few days,” he stated, highlighting some challenges associated with the graduation process.

While Bangladesh met all three UN criteria for LDC graduation in 2021, the country can opt to delay the transition, according to a finance ministry official. At the event, Mohammad Abdur Razzaque, national consultant on LDC graduation, presented a study outlining strategies for a smooth transition. The study estimated that LDC graduation could reduce exports by 14.3% annually, with shipments subject to an average tariff of 6.7%.

Razzaque noted that other studies suggest even greater trade losses. For instance, the potential export loss to the EU could range from 5% to 19% under the standard Generalised System of Preferences (GSP). Projected tariff rates for apparel exports to the EU, Canada, and Australia are 9.5%, 17%, and 5%, respectively.

The textile and apparel sector is expected to experience the largest export decline, estimated at 14.7%, followed by food and leather products. The study also indicated significant macroeconomic impacts: garment export shocks could reduce GDP by 0.39% to 1.17% and employment by 0.41 to 0.88 million jobs. Additionally, the poverty rate might rise by 0.14 percentage points, labor income could fall by 5.5%, and household consumption would likely be affected.

The strategy paper further highlighted current economic challenges, including declining foreign reserves, inflationary pressures, and vulnerabilities in the balance of payments. These longstanding issues, compounded by external shocks such as the US-China trade war, the pandemic, and the Ukraine conflict, have disrupted global trade and complicated Bangladesh's development trajectory.

“These combined factors underscore the uncertainties and challenges Bangladesh faces in its graduation journey,” the paper stated.

Lutfey Siddiqi, special envoy on international affairs to the chief adviser, emphasized that the transition provides momentum for Bangladesh’s reform agenda. However, Syed Nasim Manzur, president of the Leathergoods and Footwear Manufacturers & Exporters Association of Bangladesh, urged careful consideration, noting recent declines in jute, furniture, and light engineering exports following reduced incentives.

Ichiguchi Tomohide, JICA Bangladesh’s chief representative, recommended key measures to support the transition, including establishing a single ministry for investment, operationalizing three economic zones, introducing a one-stop service center, and providing targeted incentives for sectors like automotive manufacturing.

Taffere Tesfachew, a UN Committee for Development Policy member, expressed optimism, stating that Bangladesh’s journey could serve as a model for other LDCs. The UN will convene a meeting on LDC graduation in New York on December 17, where critical decisions are anticipated.

Other speakers included Lamiya Morshed, principal SDG coordinator; M. Siraz Uddin Miah, principal secretary to the chief adviser; Gwyn Lewis, UN resident coordinator in Bangladesh; and ERD Secretary Md. Shahriar Kader Siddiky.