Rising debt, US tariffs: Challenges Bangladesh faces on the road to LDC graduation

As Bangladesh pushes ahead with its plan to graduate from least-developed country (LDC) status, growing economic pressures—from rising debt risks to new US reciprocal tariffs—are complicating the path to a smooth transition.

Bangladesh's GDP data for the first three quarters of FY25 suggest a gradual recovery from the mid-year slowdown caused by political instability.

However, according to the country's latest submission to the UN Committee for Development Policy (CDP), inflation remains persistently high and unemployment among the educated labour force continues to rise, reflecting deepening mismatches between labour market needs and the skills produced by the education system.

The report also highlights a continued revenue shortfall linked to slow growth and weak investment.

It states that measures equivalent to 0.5% of GDP will be required in the upcoming fiscal year to raise additional revenue.

The interim government has begun re-evaluating large infrastructure projects undertaken in previous years.

Although Bangladesh is still categorised as a "low-risk" country, the IMF's recent staff mission signalled that this may be raised to "medium-risk" due to evolving domestic conditions.

The report says Bangladesh will be able to meet its external liabilities even during the expected repayment peak in FY27, but cautions that the country is entering a new phase of debt management as access to long-term concessional loans shrinks.

The banking sector remains fragile, weighed down by a large accumulation of non-performing loans during the previous regime.

Despite recent steps—restructuring bank boards, enacting a resolution ordinance and initiating mergers of five Shariah-based banks—the report says NPLs continue to expose governance and credit risk weaknesses.

Energy shortages, reliance on imported fuel and limited investment in renewables are identified as key constraints affecting domestic industries.

The report warns that US reciprocal tariffs are likely to directly affect world trade and Bangladesh's competitiveness in its largest export market.

Although Bangladesh has negotiated lower rates, the country recorded export declines to both the US and EU in August and September.

"Reciprocal tariff will bring additional impediment to smooth graduation," it says.

Speaking on the government's preparations, Senior Secretary (ERD) Anisuzzaman said reforms at ports, the National Board of Revenue and in the business environment are being implemented in anticipation of graduation.

He said a postponement would stall these reforms, adding that Bangladesh's submission to the UN-CDP is part of a regular process.

Any further clarification requested by the CDP will be provided before the committee meets in the third week of February.

Responding to a separate UN assessment requested by business groups, Anisuzzaman said their demands were not unified, with proposals for delays ranging from three to five years.

The government is implementing a Smooth Transition Strategy (STS), overseen by a high-level expert committee. Preparation activities are being monitored at the highest level of government.

Professor Mustafizur Rahman, distinguished fellow at CPD, said the government's report is reasonable as it presents information confirming that Bangladesh meets all three criteria for graduation.

However, he warned that challenges remain in ensuring sustainable graduation and delivering the 157 action points under the STS.

He said political uncertainty and last year's mass uprising had weakened preparation, and securing an additional three years would be beneficial.

Countries such as Samoa and Angola have previously postponed their graduation.

He added that investment has fallen, inflation is high, and concerns related to the election continue. Bangladesh has yet to receive a commitment from the WTO regarding post-graduation TRIPS waivers.

"Even if we apply for postponement, we must certainly continue to prepare," he said.

On whether a delay would be approved, Prof Mustafiz noted that the UN General Assembly will decide, following the CDP's opinion expected in February, around the same time national elections are due.

He said the government may apply for postponement at any time before the General Assembly meets.

The high-level STS committee, he added, has no mandate to recommend postponement; its role is limited to monitoring implementation.