Bangladesh seeks 3-year deferral of LDC graduation
The Russia-Ukraine war drove up global fuel and food prices, while widespread monetary tightening and the impact of a global economic slowdown further strained the economy.
The government has formally requested a three-year deferral of Bangladesh's graduation from the Least Developed Country (LDC) category.
According to officials at the Economic Relations Division (ERD), a letter signed by Economic Relations Division (ERD) Secretary Md Shahriar Kader Siddiky was sent on 18 February to Jose Antonio Ocampo, chair of the United Nations Committee for Development Policy (CDP). The committee is scheduled to meet from 24 to 28 February to review Bangladesh's request along with related matters.
The secretary said Bangladesh remains deeply appreciative of the recognition of its development progress and of the extended preparatory period of five years granted to facilitate recovery from the unprecedented impacts of the Covid-19 pandemic.
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Since the CDP recommended Bangladesh's graduation, the government of Bangladesh has remained firmly committed to ensuring a smooth, sustainable and irreversible graduation, he added, mentioning various efforts to that end.
Notwithstanding these efforts, the global and national contexts in which Bangladesh has been preparing for graduation have been exceptionally challenging, the letter noted.
"While the country continues to comfortably meet all three graduation criteria - Gross National Income per capita, Human Assets Index and Economic Vulnerability Index - the preparatory period has been severely disrupted by a succession of overlapping external and domestic shocks."
These include the prolonged aftereffects of the Covid-19 pandemic and a sluggish economic recovery; the Russia–Ukraine war and its spillover effects on global energy and food markets; tightening global financial conditions; and delays in the recovery of international trade, according to the letter.
It also mentioned disruptions caused by conflicts in the Middle East and the Red Sea; heightened uncertainty in the global trade regime; irregularities within the domestic financial sector; the July 2024 uprising that led to a change in government; and the unresolved repatriation of Forcibly Displaced Myanmar Nationals (FDMNs), which has required significant allocations from the national budget, as contributing factors.
All these shocks have caused macroeconomic instability, a decline in GDP growth, elevated inflation, and declining trends in private and public investment and the tax-GDP ratio, the letter said.
"The country also observed pressures on foreign exchange reserves, [a] decline in imports of capital machinery and raw materials and low investment, which highly affected [the] creation of new jobs. Moreover, the domestic banking sectors and capital markets faced enormous challenges due to governance and macroeconomic factors."
Such persistent crisis and fragility of the financial sector directly contributed to a reversal in the poverty reduction trend, the ERD secretary said. As a result, policy focus necessarily shifted towards short-term stabilisation and crisis management, diverting attention from the preparatory process and limiting the ability to fully operationalise several priority actions under the Smooth Transition Strategy (STS), he added in the letter.
The five-year preparatory period, intended to provide space for structured preparation for graduation, has instead been dominated by crisis management, economic stabilisation and a struggle for survival, the letter read.
"Thus, the preparatory period has not functioned as intended. Furthermore, reversing the ongoing economic downturn and stabilising the macroeconomic situation will require considerable effort and time."
The letter also mentioned that uncertainties surrounding post-LDC trade and market-access arrangements have deepened amid growing instability in the international trade regime. These include Bangladesh's probable ineligibility for the EU GSP+ scheme for the RMG sector, the imposition of reciprocal tariffs by the United States and evolving bilateral trade arrangements with other countries, alongside the conclusion of major free trade agreements by competing economies.
"Given the country's high export concentration, particularly in the readymade garment sector, and persistent energy and infrastructure constraints, premature preference erosion due to graduation could undermine export competitiveness and development momentum."
In light of the considerations, Bangladesh is of the view that proceeding with graduation under the existing timeline could entail significant risks to macroeconomic stability, export performance, employment and poverty reduction, thereby undermining the sustainability and irreversibility of graduation, the secretary said.
Accordingly, he requested the CDP to consider extending the preparatory period for Bangladesh's graduation from the LDC category by an additional three years, until 24 November 2029, under the crisis response provision of the Enhanced Monitoring Mechanism.
Such an extension, he said, would provide the necessary policy space to stabilise the macroeconomic situation, consolidate reforms and complete priority actions under the STS and ensure that Bangladesh's graduation is fully consistent with the shared objective of sustained and inclusive development.
Sources said an initial assessment report may be prepared within two weeks after the February meeting. The CDP will then provide its observations and recommendations, with a final decision expected in September.
ERD officials said that last year, at Bangladesh's request, the United Nations conducted an assessment outlining the country's economic challenges but did not issue specific recommendations. Instead, the graduation process was described as "challenging" for Bangladesh.
The final decision will be adopted by the United Nations General Assembly, and the full recommendation and approval process could extend until September or October, officials said.
They noted that the formal review process has now begun, and subsequent decisions will depend on the ongoing evaluation.
Questions remain on timing, data strength of LDC extension move
Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), has raised concerns over the timing and evidentiary strength of the government's move to seek a delay in LDC graduation.
Speaking to The Business Standard, she said the initiative should have been taken earlier, noting that the interim government had at different times signalled both willingness and reluctance to consider postponement.
As recently as March last year, there appeared to be hesitation over the issue, despite earlier positive signals and the appointment of a foreign adviser to review the matter, she said.
Fahmida noted that with February already underway and the graduation process time-consuming, completing procedures before November would be difficult, making the prospects of securing an extension relatively slim.
She emphasised that any appeal must be grounded in rigorous data rather than political statements.
Bangladesh continues to remain above the required thresholds in all three graduation criteria — Gross National Income (GNI) per capita, the Human Assets Index (HAI), and the Economic Vulnerability Index (EVI) — including in the most recent assessments.
"The key question is what significant change has occurred within less than a year that would push these indicators below the thresholds," she said, asking whether GNI per capita has fallen sharply or whether HAI and EVI have deteriorated in a statistically demonstrable way.
While acknowledging challenges such as the long-term impact of Covid-19, the Russia-Ukraine war, global economic pressures, inflation, declining investment and foreign exchange stress, she noted that these must translate into measurable weaknesses in the core indicators.
Under the UN process, the Committee for Development Policy (CDP) reviews such cases, and extensions are not granted easily.
Therefore, Bangladesh must present a strong, data-driven and analytically sound case to justify any request for additional preparatory time, she added.
