Tuesday, 30 May, 2023

Bangladesh’s Graduation from LDC: The Challenges and Resilience

Noor Mohammed (Noor)

Bangladesh is all set to graduate from a Least Developed Country (LDC) in November 2026 after starting as one of the world's poorest countries in 1971. With a unique tale of poverty reduction and growth, Bangladesh is one of the LDCs that have had the most success. Bangladesh is on course to leave the UN's list of the LDC in 2026, along with trade benefits and development funds including official development assistance, debt relief, technical assistance, and other forms of support tied to LDC status and provided by other countries. Currently, there are 46 LDC countries in the world and Bangladesh is one of them with Afghanistan, Nepal, and Bhutan from SARCE nations.

Performance in the three requirements, namely, Gross National Income (GNI), Human Assets Index (HAI), and Economic and Environmental Vulnerability Index (EVI) measure a country’s income levels on a per capita basis, levels of human assets, and the ability to adapt to economic and environmental shocks. These benchmarks assess the capability of a country to continue its path of development and its corresponding assistance needs. Bangladesh has performed exceptionally well in terms of all three indexes, where passing only two would suffice for a recommendation in graduating from LDC status. After meeting all three criteria for the second time in February 2021, Bangladesh received the final recommendation to graduate. Bangladesh is the lone country to fulfill all three criteria for the transition from the least developed country as it aims to become an upper-middle-income country by 2031 and a developed one by 2041. Bangladesh met the criteria twice, once in 2018 and again in 2021. However, with fewer hues and cries, Bhutan will graduate in 2023. Nepal was selected to graduate from LDCs in 2018. However, the authorities of Nepal requested to postpone it until 2021. It was later pushed back an additional five years. Angola was expected to graduate in 2021, but the preparatory period was extended by three years because of the economic difficulties of the country. Cambodia will also graduate from LDC status in 2027, one year later Bangladesh, Laos and Nepal are expected to do so.

Although this is a noteworthy achievement for Bangladesh, graduating LDC status brings more tangible challenges than benefits. As part of the LDC bloc, the country currently enjoys support measures that can broadly be categorized into three areas— international trade, development assistance, and support in international forums. Upon graduating from LDC status, the country would lose access to these comforts leading to potential issues in trade, financing and development support. Bangladesh could lose some export earnings worth $6.38 billion annually to its five largest export destinations following graduation. Possibly the most significant component for the country, Bangladesh continues to enjoy preferential market benefits known as the Generalized System of Preferences (GSP), which includes Duty-Free and Quota-Free (DFQF) access for exports to international development partners of the World Trade Organization (WTO). The country enjoys duty-free access to 38 countries under GSP including the UK and 27 EU countries, where many of our apparel exports are concentrated. Although Bangladesh stands to lose this access, reformation in human rights and labor rights regulations could renew the country’s DFQF access under the Everything But Arms (EBA) initiative of the EU for a smooth transition.

On the contrary, graduating from LDCs provides numerous benefits. It would communicate tangibly economic strength, more capable people resources, and enhanced resilience to economic and environmental shocks. Given that Bangladesh has seen various amounts of FDI over the last decade; consistent growth is more likely with a departure from the LDC classification. As a result, Bangladesh's international standing will improve. Bangladesh will be recognized internationally for its progress. Our value will increase in the international market, and we will gain status as citizens of developing countries. The country's credit rating will increase. There will be a big branding of Bangladesh. The world will get the message that the economy here is booming and a big market is being created here. One of the conditions for the transition from LDC is to pass the Economic Fragility Index criteria. Bangladesh has been able to fulfill this condition means there is relatively less risk to the economy. These factors will have a positive impact on investment in the perception of investors. Increasing FDI has been linked with overall economic benefits for developing countries. Studies show that higher FDI leads to technology spillovers in the sense that cleaner technologies and know-how are transferred and human capital formation in the form of more effective and efficient workflows. Moreover, linkage with foreign investors directly enhances trade integrations internationally and allows for a more competitive business environment in the country. Apart from this, Bangladesh would also hold more stakes during negotiations and in global partnerships owing to potentially better deals and policy initiatives. Moreover, an indirect, albeit significant, impact would be a boost in people’s confidence in both the economy and prospective growth opportunities.

In 1971, the UN General Assembly created the LDC category. Prior to Bangladesh, other nations with smaller populations and economies graduated from the LDC status. Bangladesh's graduation has significant relevance in terms of the global and local contexts when the economy and people are taken into account. It is high time that priorities should be given to issues relating to bilateral trade agreements and regional cooperation. The local level should speed up preparations at the same time. To advance toward sustainable development, heads of state and government must address present issues, win international support and cultivate partnerships to bring about the kind of transformational change that may solve enduring disparities and marginalization.


The writer is the General Secretary of Bangladesh Community Qatar