Deferring LDC graduation: Are we aiming right?

The discussion around deferring LDC graduation has reached a crescendo, with opinions sharply divided. On one side are those insisting deferral is essential; on the other, voices dismiss it as futile. A third contingent advocates for pursuing a deferral even as they urge ramping up preparations for the scheduled graduation in November 2026. 

Amid this swirl of perspectives, it is worth asking: where does the debate truly stand, and how should we chart our course forward? Time is indifferent to indecision, and it is only the unprepared who risk missing pivotal opportunities.

The case for deferment

The case for deferment hangs on trade preference erosion, loss of TRIPS Waiver, structural stagnation, and precedents of deferment.

Tariffs will rise sharply post-graduation in the EU from 0% to 9.6–12%, Canada from 16% to 18% and Japan from 7.4% to 12.8%. This could reduce exports by 6–14%, especially in garments and footwear. As Bangladesh's cost competitiveness erodes, buyers may shift orders to countries with FTAs or lower tariffs (e.g., Vietnam under EU–Vietnam Free Trade Agreement, Cambodia under Everything But Arms).

Post graduation, Bangladesh must comply with WTO's TRIPS rules, including 20-year patents on new medicines. TRIPS waiver allows generic production of patented medicines until 2033. Supposing the waiver expires in 2026, domestic pharmaceuticals will need to license patented insulin molecules. This will restrict access to newer formulations and cost royalties. Insulin prices, for instance, could then rise 11-fold to match global branded prices, increasing poverty among diabetic households by 15–200%.  

Export diversification in pharma, IT, leather, agro-processing, and light engineering are already stuck. Investment in human capital for automation, AI, and advanced manufacturing has far to go in attracting FDI that brings technology and sustainability. The state of governance and climate resilience is ill prepared to take on new competitiveness challenges in a turbulent global economy .

Electricity and gas shortages, congested roads, port bottlenecks, external debt stress, distressed bank loans, customs delays, currency devaluation, climate pressures, disruptions in the aftermath of the July 2024 uprising and global trade tensions have pushed back Bangladesh's development trajectory since the approval of Bangladesh's graduation by the UNGA in November 2021. 

Do these constitute adequate grounds for deferment recommendation from the CDP, endorsement of the recommendation from the  Economic and Social Council and approval from the UNGA by November 2026?

Negotiability of preference erosion 

The real risk lies in sourcing substitution. The empirical reality is nuanced. Many LDCs—including Bangladesh—have historically underutilised preferences due to restrictive rules of origin, compliance costs, and supply-side constraints. The margin of preference in key sectors is often wafer-thin. What matters more is the ability to deliver quality, scale, and reliability.  Over-reliance entrenched export patterns that are low-value, undiversified, and vulnerable to external shocks.

Bangladesh's  RMG sector is competitive beyond LDC tariff countries. Pharmaceutical exports have expanded. Digital services are emerging. These are not preference-driven—they are performance-driven. The erosion of preferences may sting, but it also forces domestic reforms to remove barriers to their diversification and deepening. 

WTO mechanisms offer transition support as do International Support Measures under EBA and bilateral frameworks. Rules of origin can be simplified. Strategic sectors can be protected through calibrated tariff structures. Bangladesh could enter the global market with the readiness to compete by reforming, repositioning, and rising by 2029 when preference erosion will begin to bite if not ready.

Flexibility of TRIPS 

Take insulin prices. The feared price shock is contingent on Bangladesh strictly enforcing TRIPS post-graduation without pursuing flexibilities such as patent exceptions. Most essential generics are off-patent. The potential to use compulsory licensing and parallel importation even post-graduation mitigates the risk of unaffordable prices and disruptive availability. Even under LDC status, Bangladesh must comply with many TRIPS provisions. The pharma waiver is sector-specific and time-bound. 

Graduation in 2026 doesn't automatically end the waiver unless Bangladesh fails to negotiate continuity. Historical precedents show mixed outcomes. Maldives and Guinea faced post-graduation challenges, but these were not due to TRIPS compliance per se. They lacked a robust domestic pharmaceutical industry. Bangladesh's pharma supplies 98% of domestic demand and exports to 150+ countries. Bangladesh could actively negotiate TRIPS flexibilities, build biopharma capacity, craft a public health-centered transition strategy, and assert a reform-driven narrative aligning global obligations with national resilience.

Delaying graduation based solely on TRIPS compliant pricing frames Bangladesh as perpetually dependent. Bangladesh can avoid risking such a narrative trap by seeking a tailored transition package from WTO, WIPO, and development partners—focused on pharmaceutical IP, technology transfer, and regulatory capacity. It could also negotiate a phased IPR enforcement roadmap, with carve-outs for essential medicines.

Relevance of precedents

The precedents exist, but the analogies are imperfect. They demonstrate that extensions are granted when there is clear regression on graduation metrics (objective slippage) or evidence of severe external shocks that could cause such regression (precautionary). Precautionary deferments are heavily scrutinised. Slippage on metrics—especially due to external shocks—carries more weight in justifying delays. 

Most deferral precedents involve at least some quantitative slippage. Apprehension about the loss of International Support Measures (ISMs) has surfaced in some cases — particularly for small, vulnerable economies facing disasters or pandemic shocks. Angola, Timor Leste, and Myanmar secured graduation delays due to civil conflict, natural disasters, or political instability. Vanuatu received extensions due to natural disasters. Political turmoil and economic uncertainty made the data itself questionable in Myanmar. Maldives, Bhutan, Nepal deferments were precautionary against destabilising shocks; they still met thresholds. Botswana, Cabo Verde, and Equatorial Guinea graduated without extending.  

Bangladesh is graduating alongside Nepal and Lao PDR. Neither has signaled intent to seek deferment.  Nepal has committed to graduating and is preparing through its LDC Graduation Smooth Transition Strategy, led by the National Planning Commission. Laos has put in place a Smooth Transition Strategy is in place, and no public statements or policy documents suggest deferment consideration. This makes Bangladesh's case look isolated and opportunistic, irrespective of how it is dressed, rather than part of a broader developmental reconsideration. Bangladesh is not uniquely fragile in the group of impending graduates.

Do we really have a case?

The justification for deferment must rise above routine assertions of unreadiness or concerns about waning competitiveness. Mere macroeconomic vulnerabilities, however acute, do not constitute the kind of exceptional, unforeseen calamity that would warrant postponement under prevailing CDP standards. The process itself is notably resistant to the influence of lobbying or sector-specific entreaties.

To be compelling, any request for delay must be anchored in robust data and sophisticated diplomacy, drawing its force from demonstrable disruptions—whether in tumultuous energy markets, severe climate shocks, abrupt shifts in global trade patterns, escalating climate risks, swiftly worsening institutional shortcomings, or emergent, previously unrecognised institutional erosion during the critical 2021-26 preparatory window. 

Precaution alone seldom suffices. No LDC graduate has formally re-entered the LDC list. Some graduates (e.g. Equatorial Guinea, Maldives)  faced "post-graduation depression", such as reduced export competitiveness, aid or macroeconomic shocks but none have led to official reclassification as LDCs. 

There must therefore be a substantive rationale for why the coming four years would not suffice for essential domestic reforms that could buffer trade and financial shocks post-graduation. Ultimately, one must ask: if eight years of advance warning have failed to yield meaningful progress, how would the prospect of a further five-year extension alter this outcome?

Why not seek deferment anyway? 

Is deferment truly the only mechanism available to remedy the underlying vulnerabilities? Might the political energies spent lobbying for a delay be more productively invested in forging robust, forward-looking solutions to the persistent challenges of competitiveness and compliance? It may be shortsighted to presume that pursuing a deferment is a risk-free endeavor—reputational costs and moral hazards are real and consequential. The incentive for meaningful reform grows sharper when graduation is embraced as an unavoidable milestone, rather than as a negotiable status whose uncertain horizon encourages inertia.

Zahid Hussain is former lead economist of the World Bank Dhaka Office.