Bangladesh must see LDC deferral as a strategic window

Least Developed Country (LDC) graduation is a major milestone that reflects progress in economic growth, poverty reduction, human development, and industrialisation.

Bangladesh passed all three indicators (i.e., gross national income per capita, human resources index and economic vulnerability index) in the triennial assessment of 2018 and 2021. Accordingly, the United Nations officially approved Bangladesh's graduation. 

The graduation would recognise Bangladesh's remarkable achievements over the past decades. It was finally recommended in 2021 that Bangladesh would exit the LDC in 2024. However, due to Covid-19, the deadline has been postponed by two years. As a result, Bangladesh is scheduled to graduate from the LDCs in November 2026.

Due to severe macroeconomic volatility, lingering post-pandemic scars, global geopolitical conflicts, and recent domestic political transitions, Bangladesh has already submitted a formal request in February 2026 for a three-year deferral. The UN review chain runs through the UN Committee for Development Policy (CDP), then ECOSOC, and finally the UN General Assembly. On 1 June 2026, the CDP recommended an extension of the preparatory window to 24 November 2029.

However, the country must see it as a strategic window, not a finish line.

LDC graduation is apparently a double-edged sword for Bangladesh. While it represents international recognition of Bangladesh's achievements, graduation also brings significant challenges. It means Bangladesh may gradually lose (i) Duty-free and quota-free access in the export markets; (ii) Special treatment under World Trade Organization provisions, and (iii) Preferential development financing from international partners. The loss of preferential treatment in global markets could affect export competitiveness, foreign investment, and economic stability. The country needs homework to better prepare for the transition.

In the past, no significant preparation has been made considering the LDC transition despite the extension of the deadline. It is to be noted that delaying graduation is not without risks. It could send a negative signal to foreign investors about Bangladesh's economic confidence. Moreover, long-term competitiveness depends on reform, not only on retaining LDC privileges.  

The highest emphasis needs to be placed on diversifying export products and destinations. To ensure a smooth transition (2026–2029), Bangladesh must adopt comprehensive strategies focusing on trade competitiveness, industrial diversification, human capital development, institutional strengthening, and economic resilience. The government and private sector must collaborate on an aggressive, dual-track strategy focusing on internal reforms and external negotiations.

Bangladesh should focus less on delaying graduation, and more on preparing for post-LDC competitiveness. Careful preparation is essential to maximise the benefits of graduation while minimising potential risks. Bangladesh's new leadership must take several measures on a priority basis. 

The highest emphasis needs to be placed on diversifying export products and destinations. To ensure a smooth transition (2026–2029), Bangladesh must adopt comprehensive strategies focusing on trade competitiveness, industrial diversification, human capital development, institutional strengthening, and economic resilience. The government and private sector must collaborate on an aggressive, dual-track strategy focusing on internal reforms and external negotiations.

Accelerate export diversification: It is essential to reduce over-dependence on readymade garments. The RMG sector constitutes over 80% of total export earnings. The sectors like pharmaceuticals, ICT, agro-processed goods, and light engineering must be strengthened. Targeted fiscal incentives and infrastructure support need to be provided to high-yield alternative sectors, specifically pharmaceuticals, leather goods, agricultural processing, and light engineering.

Strengthen domestic resource mobilisation: Bangladesh has one of the lowest tax-to-GDP ratios globally (under 9%). Effective decisions are required on crucial matters such as increasing the tax-to-GDP ratio and modernising the revenue administration. The National Board of Revenue must expand the tax net, digitise customs processes, and reduce discretionary tax exemptions to generate the domestic capital needed for development. 

Implement financial sector reforms: We need to collaborate with international partners (such as the IMF's multi-year reform program) to reduce banking-sector Non-Performing Loans (NPLs), build up foreign exchange reserves, and align exchange rate mechanisms with global market realities.

Upgrade skills and infrastructure: We need to bridge the domestic productivity gap. Investment  heavily in technical vocational training (TVET) will scale up the labor force from low-skill to semi-skilled/skilled tiers. Simultaneously, we need to take measures to optimise the operational logistics of major infrastructure investments (e.g., Matarbari Deep Sea Port, economic zones) to minimise business lead times.

Secure EU GSP Plus Status. The European Union is Bangladesh's largest export destination. Bangladesh must proactively reform labor laws, human rights conditions, and environmental protections to qualify for the EU's GSP Plus scheme, which preserves preferential access for developing countries.

Sign bilateral Free Trade Agreements (FTAs). Bangladesh must shift away from unilateral preferences and negotiate comprehensive FTAs and Preferential Trade Agreements (PTAs) with key economic players, including India, China, Japan, ASEAN, and the Mercosur bloc.

The recommendations to extend Bangladesh's LDC preparatory period to 2029 is a timely buffer against current macroeconomic headwinds. However, this deferral is a strategic window, not a finish line. The true test of Bangladesh's economic maturity lies in utilising the next three years to build an agile, diversified, and highly competitive business ecosystem capable of thriving without international safety nets. 

As mentioned earlier, LDC graduation is both an achievement and a critical turning point for Bangladesh. While the country will face short-term challenges, especially in trade competitiveness, it also presents an opportunity to transition toward a more diversified, innovation-driven, and resilient economy. By implementing strategic reforms in trade, industry, human capital, and governance, Bangladesh can not only mitigate the risks of graduation but also accelerate its journey toward becoming an upper-middle-income country.

Sketch: TBS

Dr Sajjad M Jasimuddin is a professor (professeur senior) at Kedge Business School and Head of the Geopolitics Strategy Lab (France). He previously held faculty positions at several universities based in Bangladesh (Dhaka University), Saudi Arabia, the UK, the UAE, and China. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.