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Following a formal request from the interim government, the UN is going to carry out an independent review of the state of the country's economy prior to its graduation from LDC status scheduled for November 2026. The government's request came in response to the country's top business and trade organisations' demand for deferment of Bangladesh's graduation from its current LDC status by five to six years so the economy could get itself adequately prepared to undertake new responsibilities and risks in the post-graduation phase to ensure that the transition leads to lasting success. The post-graduation challenges include, for instance, the loss of duty-free access to its largest overseas export market, the European Union (EU). The preferential treatment that Bangladeshi export goods now enjoy in the EU market would be withdrawn at the end of the three years' post-graduation grace period in 2029. The concern is after 2029, the EU would impose 12 per cent tariff on our export products. That could lead to a 6.0 to 14 per cent drop in exports, the business leaders fear. Exports to Japan and Canada would also face higher tariffs. Obviously, as a consequence Bangladeshi exportable goods would lose their competitiveness in the international market. So, to avoid such prospects, the business community has been pushing for the deferment of the LDC graduation. At a press conference held in late August this year, the trade bodies in favour of deferment expressed optimism that the extended period, if granted, would provide them with greater scope for export diversification, development of skilled manpower in automation and artificial intelligence and thereby build capacity for facing future challenges and thus ensure sustainable competitiveness in the global market. Also, the added concern was that post-graduation, the World Trade Organization (WTO)'s special and differential treatment would end rendering patent rules stricter for Bangladesh's pharmaceutical sector and thereby increase compliance costs. So, if the graduation time is extended by five to six years as requested by trade leaders, Bangladesh could meanwhile get the opportunity to secure trade deals with different countries as well as economic blocs, the business leaders believed.
The independent UN review will be carried out by an international consultant in collaboration with a Bangladeshi expert so as to ensure a comprehensive and balanced evaluation of the economy. The review is expected to start within a month and concluded by mid-January 2026. However, according to experts, though the UN review would be helpful for Bangladesh's case for deferment, yet there is no guarantee that it would lead to the expected result. But Bangladesh can still argue in favour of deferment showing that the Solomon Islands' graduation was deferred on the grounds of the island nation's vulnerability to climate change. On the other hand, Angola's graduation was deferred as the price of oil, the mainstay of the country's economy, fell sharply. In that case, there is no reason why Bangladesh cannot make its case, since it is also a nation highly vulnerable to climate change. Moreover, it has recently underwent a violent political change following a student-led upsurge in July 2024. So, the arguments in support of deferment of Bangladesh's LDC graduation seem sufficiently persuasive. Bangladesh can also put the argument to the visiting UN team that the country's readiness in accordance with its Smooth Transition Strategy (STS) is still not satisfactory if only due to last year's violent political transition and uncertain economic situation.
Notably, Bangladesh's first deferment of graduation until 2026 came through an assessment in 2021. Initially, a transition period of three years was granted, which was later extended for five years as a fallout from the severe Covid-19 pandemic.
While Bangladesh should spare no effort to delay its graduation for a period necessary for its preparation, it should not also forget to intensify its endeavours to diversify its exports base. Unfortunately, during the last two decades, the successive governments failed to make any tangible progress in this regard. However, three projects which have some links to expanding the country's narrow export base have been implemented thanks to the loans provided by the multilateral lenders. These are in addition to the 'One District One Product' initiative taken at the government level. But the immense potential of the leather and leather goods, pharmaceuticals and light engineering products has remained largely untapped. The weakest spot of the Bangladesh's export sector being its practically total dependence on the Readymade Garment (RMG) sector, which earns about 85 per cent of the country's export revenue, needs urgent addressing. Multilateral loan, for instance, from the World Bank (WB) worth US$48 million for an export diversification project, which was implemented between 1999 and 2024, helped diversify only RMG-based exports. Meanwhile, the share of the knitwear subsector grew to US$2.0 billion by 2023-24, which was equivalent to 38 per cent of the total RMG exports volume (valued at US$50 billion in 2024). The second WB-funded project titled, 'Export competitiveness for jobs' worth US$119.12 million has been implemented since 2017 to strengthen competitiveness of the leather, footwear, light engineering and plastic goods. It is worthwhile to note in this connection that the WB project helped create 90,000 jobs. Similarly, an Asian Development Bank (ADB) loan worth US$300 million through 'Skills for Employment Investment Program' is indirectly linked to export diversification by way of improving the light engineering sector. However, experts are of the view that such projects are not enough for diversifying the country's export sector. They, on the other hand, stressed overcoming the country's limitations regarding skilled manpower and technology, logistics, necessary market intelligence and, most importantly, Foreign Direct Investment (FDI). These limitations are holding back the economy's efforts at export diversification significantly.
Consider the phenomenal growth of our Southeast Asian neighbour Vietnam between 1995 and 2022. In 1995, its overall export was worth US$4.83 billion, whereas in 2022 it was a whopping US$384 billion with which Bangladesh hardly bears comparison. The reason for Vietnam's success lies in its diversification of exports into areas like electronics, automobiles, processed agricultural goods, etc. Bangladesh, on the other hand, at US$4.18 billion in 1995, could earn a revenue of merely US$59 billion in 2022. That is because, we are left with no other options.
So, whether Bangladesh succeeds in getting a deferment of its LDC graduation or ignores the UN's reassessment by January 2026, it must redouble its efforts to diversify exports keeping in mind the path taken by Vietnam.