Why Bangladesh needs more time for LDC graduation
Bangladesh is attempting to graduate with an economic structure that still resembles that of an LDC
Eight years ago on 22 March, Dhaka erupted in celebration. A colourful procession rolled out from Doyel Chattar, festooned with banners and buoyed by orchestra music. Balloons were released at Dhaka University.
Back then, LDC graduation was framed as a national triumph, a validation of governance, and, crucially, a legacy project of the now-ousted Prime Minister Sheikh Hasina.
Today, that narrative is unravelling.
A newly released UN Graduation Readiness Assessment tells a far more sobering story: Bangladesh may have met the formal thresholds to graduate from the Least Developed Country category, but it remains structurally unprepared for what comes next.
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And that distinction between eligibility and readiness is now at the heart of a critical policy reversal as the current government is looking to defer the graduation.
The illusion of readiness
The United Nations has long emphasised a simple but often ignored principle that graduating from LDC status is not just about crossing statistical thresholds. It is about ensuring that development gains are not reversed once international support mechanisms are withdrawn.
By that standard, Bangladesh's preparedness is deeply questionable.
The assessment identifies four core vulnerabilities that continue to define the economy: dependence on international support measures, weak trade diversification, limited domestic resource mobilisation, and acute exposure to climate risks.
Take domestic resource mobilisation for instance. Bangladesh's tax-to-GDP ratio remains among the lowest globally, severely limiting fiscal space. Even medium-term targets fall short of what is required for a lower-middle-income economy.
In practical terms, this means the state lacks the capacity to absorb shocks — whether from the loss of trade preferences, reduced concessional financing, or external volatility. And the economy is yet to recover from the turbulence it faced from 2022 to 2025.
The report states that weak revenue mobilisation is "one of the most binding preparedness gaps" in Bangladesh's transition.
A narrow economy in a changing world
If fiscal weakness is one pillar of vulnerability, export concentration is another.
Bangladesh's export success has been built overwhelmingly on a single sector — ready-made garments. Apparel accounts for over 80% of merchandise exports, with limited diversification even within the sector itself.
This model worked under LDC conditions, where preferential market access and policy flexibilities provided a cushion. But post-graduation, that cushion disappears.
The UN assessment warns that Bangladesh remains "anchored in a narrow export base and limited industrial upgrading", with low value addition and constrained pathways for diversification.
Upon graduation, preference erosion could translate into billions in lost exports, eroding competitiveness at a time when global markets are already tightening.
Economic growth specialist and COO of Rancon Infrastructure and Engineering Subail Bin Alam's assessment captures this risk with precision.
"For too long, the RMG sector has been our safety net, accounting for over 80% of our exports. However, the 'LDC Graduation' means we are about to lose Generalised System of Preferences (GSP) benefits, which could result in an estimated $8 billion in annual export losses. Beyond apparel, the export basket is dominated by low-complexity products, reflecting a pronounced capability gap and limited scope for adjacent diversification," he explained.
In other words, Bangladesh is attempting to graduate with an economic structure that still resembles that of an LDC.
A preparatory period lost to crisis
If the structural weaknesses are longstanding, the failure of preparation is more recent — and more damning.
The five-year preparatory period, granted by the UN to ensure a smooth transition, was meant to be a time of reform, coordination, and strategic planning. Instead, it became a period of crisis management.
The UN report notes that the past five years were "largely consumed by crisis management, economic stabilisation and political survival," rather than long-term preparation.
This is consistent with the government's own admission. In its letter to the UN Committee for Development Policy, Bangladesh acknowledged that the preparatory period "has not functioned as intended".
Global shocks played a role — the Covid-19 pandemic, the Ukraine war, tightening financial conditions. But domestic factors were equally significant: financial sector irregularities, policy rigidity, and ultimately, the political upheaval of August 2024.
The result is an economy entering 2026 with depleted reserves, high inflation, weak investment, and limited fiscal space.
As applied macroeconomist and Director of Sydney Policy Analysis Centre Jyoti Rahman puts it, "The economic landscape has been severely battered. Honestly, from an external perspective, it is clear the economy is caught in a long-term entanglement. We saw a total stagnation of private investment throughout 2025 following the July Uprising. We have entered 2026 facing deep economic uncertainty, exacerbated by global conflicts and an acute energy crisis."
He adds a crucial point, "The transition from LDC status is an inevitable and necessary milestone. However, the true challenge lies in our preparation."
That preparation, by most accounts, has been inadequate.
The cost of policy hubris
In retrospect, the problem was not the ambition to graduate. It was the politicisation of that ambition.
Under the previous Awami regime, LDC graduation was framed less as a technical process and more as a symbolic victory. The 2018 celebrations were not an isolated event — they reflected a broader narrative that equated eligibility with readiness.
That narrative discouraged caution.
"For too long, the RMG sector has been our safety net, accounting for over 80% of our exports. However, the 'LDC Graduation' means we are about to lose Generalised System of Preferences (GSP) benefits, which could result in an estimated $8 billion in annual export losses. Beyond apparel, the export basket is dominated by low-complexity products, reflecting a pronounced capability gap and limited scope for adjacent diversification."
Economists, business leaders, and development practitioners had, for years, urged a more measured approach. After the Covid-19 shock and the 2022 dollar crisis, calls for deferral grew louder.
Yet these concerns were largely ignored.
When Bangladesh government finally requested 3 years deferral for LDC graduation in February, 2026, Dr Fahmida Khatun, the Executive Director of Centre for Policy Dialogue (CPD) told TBS, "In the international arena, such decisions of time extensions are not driven by emotion or political rhetoric, but rather based strictly on data, statistics, and measurable indicators."
The data, it now appears, was pointing in a different direction all along.
Why deferral makes economic sense
Against this backdrop, the current government's decision to seek a three-year deferral is a necessary recalibration. Especially given the looming economic crisis due to the ongoing Iran War.
First, time is needed to negotiate post-LDC trade arrangements.
BGMEA President Mahmudul Hasan Khan said, "New trade opportunities — such as Free Trade Agreements, Preferential Trade Agreements or Economic Partnership Agreements — may open up. But these agreements do not materialise overnight. They require careful preparation, technical analysis, and lengthy negotiations. If rushed, there is a risk of securing unfavourable terms or overlooking key national interests."
At the same time, macroeconomic stability must be restored.
Jyoti Rahman explained, "In the immediate term, the government's primary duty is to maintain macroeconomic stability. It is about managed stability rather than just obsessing over the absolute reserve figure."
Moreover, structural reforms must be accelerated — particularly in taxation, banking, and the investment climate. As Subail Bin Alam cautioned, "When banks are burdened by bad debt, they stop lending to the 'missing middle', the SMEs. We cannot build a modern economy if our entrepreneurs are forced to borrow at 14–16% interest rates while competing against global players who have access to capital at 4–5%."
The consequences of proceeding without adequate preparation are not hypothetical.
Loss of trade preferences could erode export competitiveness. Reduced concessional financing could strain public finances. Withdrawal of policy flexibilities could limit industrial policy options.
The UN assessment points out that these risks are compounded by Bangladesh's continued reliance on LDC-specific support measures and limited institutional capacity to manage their withdrawal.
In short, the country risks losing the benefits of LDC status before it has built the resilience required to operate without them.
This is why the report warns that graduation, under current conditions, could "disrupt development gains".
That is not a risk any responsible government should take.
What must be done next
Deferral, however, is not a solution in itself. It is an opportunity — one that must be used wisely. Over the years, the experts have pointed out the priorities. Now the necessary measures need to be taken to increase our preparedness.
"At this juncture, we need more than just a budget; we need a detailed roadmap. The government should use the upcoming budget to outline exactly how they plan to achieve their long-term growth targets," Jyoti Rahman said.
However the Awami regime portrayed it, LDC graduation was never meant to be a trophy. It was meant to be a transition. For too long, that distinction was blurred.
Today, the reality is unavoidable: Bangladesh is not yet ready to graduate in a way that is smooth, sustainable, and irreversible. The data says so. The experts say so. Even the government, implicitly, acknowledges it.
And in policymaking, that is often the hardest and most necessary step.
Shadique Mahbub Islam is a journalist.
