LDC graduation needs to be recalibrated

Bangladesh is set to graduate from the United Nations' Least Developed Country (LDC) status in 2026, an achievement initially seen as a significant milestone in its development journey. However, as the much-anticipated transition to a developing nation approaches, some critical questions have come up. Is Bangladesh ready to navigate the post-LDC challenges? After the graduation, the country will lose the trade benefits LDCs are entitled to. This raises concerns about the future of the country's export-oriented industries. Will exporters be able to maintain their competitiveness without these privileges? Can the economy withstand a potential decline in exports as a result of loss of preferential trade benefits in export? The government must carefully consider the implications of the graduation and determine the timeframe for a smooth transition based on economic realities.

In an exclusive interview with The Financial Express, Dr K.A.S. Murshid, the team leader of a 12-member task force formed by the interim government to reframe economic strategies, justified deferment of the country's LDC graduation considering the current economic situation. He categorically stated that Bangladesh is not yet ready to graduate from LDC status and warned that premature graduation could have serious negative consequences. The benefits of tariff preferences and external support are critical for Bangladesh at this juncture. A recent government strategy paper further pointed out that 75 per cent of Bangladesh's exports enjoy duty-free access to international markets due to its LDC status. Once Bangladesh graduates to a developing country, it will no longer be eligible for this preferential treatment. Instead, an average tariff of 20 per cent could be imposed on exports, depending on the importing country. The World Trade Organization (WTO) estimates Bangladesh's export to major markets could decline by at least 14.3 per cent after the loss of tariff preferences. Business leaders while taking part in an event, organised by the Dhaka Chamber of Commerce and Industry (DCCI) on Saturday last, also strongly favoured delayed LDC graduation in view of the current depressed business climate.

Nonetheless, while the timing needs to be recalibrated, LDC graduation is inevitable at some point. Bangladesh is one of the last few countries in Asia, alongside Afghanistan and a few island nations, to remain in the LDC category.  In 2021, Bangladesh fulfilled all the three eligibility criteria for LDC graduation involving per capita income, human assets, and economic and environmental vulnerability for a consecutive third time. Thus the United Nations General Assembly (UNGA) unanimously passed a resolution on Bangladesh's graduation from LDC category and was given five more years, till 2026, to prepare for the transition to a developing country.  But a series of external shocks, such as the COVID-19 pandemic and the Russia-Ukraine war, coupled with internal political instability and widespread corruption, have hindered the country's growth momentum. Money laundering, estimated at around $15 billion annually in the past decade has left the economy vilnerable. Now, there is a growing call from business leaders and economists for an extension of the LDC graduation timeline.

For a smooth transition, experts think, the government needs to ensure macroeconomic stability, secure preferential trade facilities with major international trade partners, diversify exports, enhance competitiveness and production capacity, and strengthen international cooperation and partnerships. Signing FTAs after careful calculation and maintaining regular dialogue with major trading partners are crucial for smooth trade facilitation in the post-LDC era. Additionally, the government needs to prioritise infrastructure development, port modernisation, reliable utility services, and increased worker productivity for sustainable economic growth. A well-managed transition to middle-income status will be of paramount importance to strengthen the country's economic resilience.