The road to 2026: Bangladesh’s graduation from LDC and what lies ahead
As Bangladesh prepares to graduate from Least Developed Country status in 2026, the loss of trade preferences, reliance on garments, and weak institutions threaten its future growth—making urgent reforms and coordinated action critical
Bangladesh is on track to graduate from the Least Developed Country (LDC) category in 2026, having met the United Nations' economic and social criteria. Its per capita income has more than doubled the required level, and key health and vulnerability indicators are within acceptable ranges.
However, concerns have arisen following recent government reports highlighting problems with data accuracy and the political influence exerted during the previous regime over national statistics. These issues cast doubt on the reliability of growth measurements that inform national policies.
The economy is heavily dependent on the Ready-Made Garment (RMG) sector, which accounts for 84% of exports and generates over $46 billion annually. Bangladesh has made notable social progress, including reductions in maternal mortality, achieving gender parity in primary education, and increasing women's participation in the workforce.
Despite this, the country faces significant risks arising from its economic structure. The concentration of the RMG sector—72% of exports go to the EU and North America—leaves Bangladesh vulnerable to shifts in trade agreements. Domestic value addition in garments also remains low compared with competitors, and efforts to diversify exports into pharmaceuticals, ICT, and leather have been limited.
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Institutional weaknesses compound these challenges. Bangladesh ranks poorly in regulatory quality and government effectiveness, and the business environment remains cumbersome. The banking sector continues to struggle with non-performing loans, while climate change is expected to cause annual losses of 1.5 to 2 per cent of GDP, placing further pressure on the economy.
Looking ahead, the loss of preferential trade access with the EU poses the most immediate threat to export competitiveness. Reduced access to concessional financing may also create a funding gap of $2 to $3 billion per year. Other risks include erosion of export competitiveness, institutional capacity gaps, reduced climate finance, and growing global protectionism.
Three scenarios outline Bangladesh's post-graduation future.
In the best case, with about a 20 per cent probability, Bangladesh successfully negotiates extended trade preferences, upgrades its garment sector, expands ICT exports, and maintains high GDP growth of 6.5 to 7 per cent.
The most likely scenario, with a 55 per cent chance, involves partial extensions of trade preferences, slower growth in garments and emerging sectors, and GDP growth of 5 to 5.5 per cent.
The worst-case scenario, with a 25 per cent probability, includes the full loss of trade preferences, contraction in the garment sector, higher fiscal deficits, and slower GDP growth of 3.5 to 4 per cent.
Immediate priorities for Bangladesh include establishing a National Graduation Task Force reporting to the highest levels of government, initiating urgent trade negotiations with the EU with the support of international organisations, engaging trading partners to safeguard exports, and launching a statistical reform programme with IMF assistance.
Over the next one to three years, the country should focus on creating a fund to diversify exports, reforming public administration, establishing a climate finance unit, and starting a national programme to upgrade workforce skills.
Structural reforms within three to five years should include completing WTO compliance, fully operationalising special economic zones for high-value industries, implementing a national digital economy strategy, and creating a sovereign wealth fund for climate resilience.
While Bangladesh's graduation is a major accomplishment, its readiness remains moderate to low, with a preparedness score of 4.2 out of 10 and a high projected difficulty of 7.8 out of 10.
The period between 2026 and 2028 will be critical, as multiple economic shocks may occur. Without urgent, coordinated action, there is a significant risk that Bangladesh may graduate to middle-income status but face slowing per capita growth.
Success will require strong policy coordination across trade diplomacy, economic restructuring, governance reform, and climate adaptation. Establishing a powerful Graduation Management Office with cross-ministerial authority will be essential to managing these challenges. A cabinet-level decision on graduation management and emergency measures should be made as a matter of priority.
The author is a former President of Dhaka Chamber of Commerce and Industry (DCCI).
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.
