Bangladesh seeks 3-year deferral of LDC graduation

Highlights

• Govt seeks a three-year deferral of LDC graduation
• Govt argues that five-year preparatory period did not function properly
• Bangladesh is scheduled to graduate on24 November this year
• UN CDP to review Bangladesh's request on 24–28 February

The government has formally sought a three-year deferral of Bangladesh's graduation from the Least Developed Country category, citing a series of global and local problems that have disrupted its preparatory efforts.

According to officials, a letter signed by Economic Relations Division 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 appeal and related matters.

As per the schedule, Bangladesh is set to graduate on 24 November this year.

Preparatory period did not work properly

In the letter, Bangladesh expressed deep appreciation for the international recognition of its development progress and the five-year preparatory period granted earlier to support a smooth transition following the unprecedented impact of the Covid-19 pandemic.

Since the CDP first recommended Bangladesh's graduation, the government has remained committed to ensuring the process is smooth, sustainable, and irreversible, the letter reads.

To that end, Bangladesh formulated its Smooth Transition Strategy (STS) with technical support from the UN Department of Economic and Social Affairs. A high-level steering committee, chaired by the head of government, has been overseeing its implementation.

Reform initiatives have also been rolled out to boost productive capacity, diversify exports, strengthen competitiveness, and enhance economic resilience.

However, the letter notes that the context in which Bangladesh has been preparing for graduation has been "exceptionally challenging".

"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," according to the letter.

Global turmoil, domestic strains

Among the external factors cited are the lingering aftereffects of the Covid-19 pandemic and sluggish global recovery; the Russia-Ukraine war and its spillover impacts on global energy and food markets, and the Middle East war; tightening global financial conditions; and slow recovery in international trade.

On the domestic front, irregularities in the financial sector, the July 2024 Uprising that resulted in a change of government, and the continued burden of hosting forcibly displaced Myanmar nationals have compounded the strain on public finances.

These combined shocks have led to macroeconomic instability, slower GDP growth, elevated inflation, declining trends in public and private investment, and a weakening tax-GDP ratio, according to the letter.

Foreign exchange reserves have come under pressure, imports of capital machinery and raw materials have fallen, and new job creation has slowed. The banking sector and capital market have faced mounting governance and macroeconomic challenges, contributing to a reversal in poverty reduction trends.

"As a result, policy focus necessarily shifted towards short-term stabilisation and crisis management," the letter said, adding that several priority actions under the STS could not be fully operationalised.

"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. Thus, the preparatory period has not functioned as intended," the letter reads.

Trade risks, preference erosion

The government also flagged growing uncertainty over post-LDC trade and market access.

Concerns include Bangladesh's probable ineligibility for the EU's GSP+ facility for its readymade garment exports, potential reciprocal tariffs by the US, evolving bilateral trade arrangements, and heightened instability in global trade rules.

Given the country's heavy export concentration in the RMG sector, alongside persistent energy and infrastructure constraints, "premature preference erosion due to graduation could undermine export competitiveness and development momentum," the letter reads.

Request under crisis response provision

In light of these considerations, the government warned that proceeding with graduation under the existing timeline could pose significant risks to macroeconomic stability, export performance, employment, and poverty reduction — potentially undermining the sustainability and irreversibility of graduation.

Accordingly, Bangladesh has requested the CDP to extend the preparatory period by an additional three years — until 24 November 2029 — under the crisis response provision of the Enhanced Monitoring Mechanism.

Authorities said such an extension would provide the policy space needed to stabilise the macroeconomy, consolidate reforms, and complete priority actions under the STS, ensuring that graduation aligns with the broader goal of sustained and inclusive development.

Sources said an initial assessment report could be prepared within two weeks of the February meeting. The CDP is expected to issue its observations and recommendations thereafter, with a final decision likely in September.

The ultimate decision will be adopted by the UN General Assembly, and the full recommendation and approval process could extend until September or October, officials added.

They noted that the formal review process has now begun, and subsequent steps will depend on the outcome of the ongoing evaluation.

Calling the move a positive step for Bangladesh's export sector, BGMEA President Mahmudul Hasan Khan told The Business Standard that 12 or 16 federations of businesses had raised this demand together.

He said, "As a result of this initiative, we will get some time to address the local and international challenges of trade and commerce. If we can utilise that time properly, it will be of great benefit."

For example, 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 carried out in stages, he said.

If rushed, there is a risk of securing unfavourable terms or overlooking key national interests, the BGMEA leader warned.

Dr Fahmida Khatun, executive director of Centre for Police Dialogue, said, "We are now in February, and the process of making decisions regarding promotion is time-consuming; it is not easy to complete this process before November. Therefore, from a practical perspective, the possibility of a time extension seems comparatively thin."

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, she said.

Bangladesh remains above the required thresholds in all three graduation criteria —GNI per capita, HAI, and EVI. Even in the most recent assessment, it met the benchmarks under each of these indicators, the CPD executive director said. 

She said that to get an extension, it is usually necessary to show that at least two of the main indicators have developed significant weaknesses or that the risks have increased.

Therefore, it may be difficult to secure an extension solely by showing macroeconomic pressure, she thinks.