To graduate, or not to graduate till 2032: LDC graduation of Bangladesh
The discussion is now moving around the question whether the country would go for LDC graduation next year, or whether the graduation should be postponed till 2032
- Bangladesh scheduled to graduate from LDC status in November 2026.
- Graduation based on UN's per capita income, human capital, and vulnerability criteria.
- Loss of trade benefits like duty-free exports could impact the economy.
- Business leaders demand postponing graduation until 2032.
- Government not considering deferral; decision rests with next elected government.
- Urgent reforms needed to prepare for sustainable growth.
The issue has again been raised and is now being discussed. The issue is nothing other than the graduation of Bangladesh from a least developed country (LDC) to a developing country.
The discussion is now moving around the question whether the country would go for LDC graduation next year, or whether the graduation should be postponed till 2032.
The debate about the timing of our LDC graduation has been going on for quite some time.
Keep updated, follow The Business Standard's Google news channel
A few months ago, a high-level government decision was made that as per the earlier agreement, Bangladesh would go for LDC graduation in November 2026.
At that point, it seemed that the issue has been settled once and for all. But it now appears that the discussion on that issue is yet on. In that context, it is necessary to focus on some broader dimensions of the issue.
First, the list of the LDCs was first made in 1971 on the basis of certain pre-determined criteria. Currently, there are 44 LDCs in the world and most of them are in Africa. Bangladesh was included in the LDC list in 1975.
Second, how does the process of graduation from an LDC to a developing country work? There are two steps in the process – recommendation and decision.
The issue of LDC graduation is recommended by the United Nations' Committee for Development Policy (CDP) on the basis of three indicators – per capita income, level of human capital, and economic and environmental vulnerability.
A country is recommended for LDC graduation if either it fulfils two of the three criteria or it can double its per capita income.
It is important to mention that with the passage of time and the emerging realities, these criteria changed over time. On the basis of the CDP recommendation, the UN General Assembly decides on the issue of graduation of an LDC to a developing country.
Every three years, a triennial assessment of the LDCs is carried out for graduation. Till now, only 8 countries have made it from the LDC to the developing country status. Our neighbouring countries Bhutan and the Maldives are part of these 8 countries. For the 2026 graduation, apart from Bangladesh, Nepal and Laos are also in the pipeline.
Third, the issue of delaying the graduation process is determined by the UN. Sometimes, because of some special situations in a country, the world body may delay its graduation process. For example, the LDC graduation of such Pacific Islands like Vanuatu and Kiribati was delayed a couple of times because of their high environmental vulnerabilities. Similarly, even though Nepal qualified for graduation in 2015, because of a devastating earthquake in the country, it was delayed till 2021.
Fourth, Bangladesh fulfilled three of the four criteria of LDC graduation as early as 2018. The achievement remained intact in 2021 when the triennial review was done. Bangladesh was scheduled to be recommended for graduation in 2024. However, because of the Covid pandemic, the issue of Bangladesh's graduation recommendation was delayed till November 2026.
Fifth, why is there so much excitement as well as concerns about the LDC graduation? Primarily, there are two reasons. One, a graduation from an LDC status to a developing country status represents honour and prestige for an LDC. In the development journey of a country, this is a valuable milestone. Two, with the graduation, the country concerned loses a number of benefits of the global economic and trade system. If a country is not a priori prepared to tackle those challenges, it may end up in a problematic situation.
In the past, the pressure for delaying the LDC graduation of Bangladesh has been coming mainly from the ready-made garments industry. As an LDC, Bangladesh has been enjoying a number of benefits in the global market – e.g. duty-free exports, flexible conditionalities, export-assistance etc. Bangladesh will lose these facilities once it graduates into the developing country category. In fact, the latest demand for delaying the graduation process of Bangladesh has also come from the top business organisations of the country. Five arguments have been made in support of the demand for delaying the graduation process.
First, if the graduation is delayed, as a response to the US tariff blow, it would be possible to ensure free-trade agreements with European Union, the United Kingdom, the ASEAN countries, and the Gulf states. If Bangladesh graduates to the developing country category next year, Bangladeshi goods would face a tariff up to 12% in such large markets as the EU and the UK. As a result, our exports may decline from 6-14%.
Second, after LDC graduation, export subsidies and the flexibility in the Trade-related Intellectual Property Rights (TRIPs) will no longer be available. But as an LDC, Bangladesh would be enjoying this benefit of patent waiver till 2032. The country will lose this facility if it graduates to the developing country status next year. Bangladesh will then be under the full intellectual property rights law, as a result of which the prices of medicines will go up.
Third, Bangladesh would need time to enhance its industrial capabilities, to diversify its exports, to develop capable human resources for the Fourth Industrial Revolution, to attract quality foreign direct investments, to strengthen good governance, and to tackle the adverse impacts of the climate change. These are of critical importance for Bangladesh to survive and thrive in a free competitive market. Thus, if the graduation is delayed, both the public and the private sector can prepare themselves better for the post-graduation period.
Fourth, in the past also, the graduation process of a number of countries were delayed for political and economic reasons, even though they have fulfilled the graduation criteria. Extending the time for graduation is not unusual, particularly, if the countries face domestic political or external shocks, or lack in necessary reforms for graduation, or have not made sufficient progress in their infrastructural preparations.
Fifth, for the country's LDC graduation, the current economic realities of Bangladesh are not favourable to Bangladesh. Because of the power and gas crisis, there is no dependable supply of energy. As a result, sectors like readymade garments and drugs may not be able to meet the external demand. Increases in global interest rates and in domestic loan defaults have dampened the credit flow in the country. Foreign direct investments have declined. Increases in US tariffs have put additional pressure on the country's export sector.
Under such circumstances, more time is needed to resolve the country's energy crisis, financial sector reforms, stabilisation of exchange rates etc and hence the graduation should be delayed by 5 years.
Some observations are pertinent for these arguments.
First, the instability and the uncertainties of the global economic system, which might have prompted many to argue for delaying the graduation process now, may worsen by 2032. There is no guarantee that such a situation would not happen. If that really happens, the LDC graduation would face a more difficult, complex and critical scenario.
Second, there were definitive country-specific reasons for the countries whose graduation process was delayed in the past. The question is, can Bangladesh establish forceful definitive country-specific acceptable reasons if it wants a delay in its graduation? A number of people are of the opinion that the reasons which Bangladesh has been putting forward for delaying its graduation are somewhat general in nature, which may be present in other graduation contenders like Nepal and Laos. But neither of those two countries are asking for delaying their graduation and the issue is: can Bangladesh uniquely justify its appeal to the UN?
Third, some of the changes and reforms for which more time are being sought were supposed to be undertaken and finished during the past years. But those were not completed. What is the guarantee that during the next five to seven years, those changes and reforms would be undertaken and finished? If they remain incomplete even after the deadline, the status quo will continue even after seven years.
There is a broader awareness as to what will happen when Bangladesh graduates to the developing country status. For example, in the export sector, there will not be the tariff waiver facilities, the soft conditionalities of loan will evaporate. As a result, Bangladesh will have to go for market-based loans, which will increase the pressure of debt repayment as well as debt-servicing.
In other words, with the LDC graduation, Bangladesh is expected to lose a number of benefits and facilities which it has been enjoying as an LDC. These include the opportunity of getting loans at a very low interest rate, flexibility in the conditionalities of debt repayments, export facilities to at a zero or a very low tariff.
Some people are also saying that delaying the graduation process may somewhat harm the image of Bangladesh in the global perspective. Given that the country has met the criteria of graduation a long time ago and has maintained that achievement over the years, the request for delaying the graduation process may not be considered justified in the global arena.
The delaying request may not be seen favourably even in the regional context. Nepal and Laos have been working feverishly for the 2026 LDC graduation and till now, they have not talked of delaying the graduation. In 2023, Bhutan graduated from the LDC status without any request for delaying the graduation. Given all these, a request by Bangladesh for delaying its LDC graduation may hamper the credibility of the country's economic robustness.
In the ultimate analysis, the effective question is: in the post-LDC graduation era, what measures Bangladesh may take that will make the transition seamless and help the country to overcome the post-graduation challenges? One has to remember that these challenges are not only structural; if the global economic panorama changes, these challenges may appear in different forms.
The most prudent of Bangladesh would be to undertake appropriate and timely action for graduation from the LDC category to the developing country category.
