Why Bangladesh needs economic liberalisation before LDC graduation

In recent times, economic liberalisation has become a driving force behind Bangladesh's ongoing structural transformation. To understand the significance of this shift, one must look at the historical framework established in the aftermath of the Second World War. 

The 1944 Bretton Woods Conference laid the foundations for a new global economic order, leading to the establishment of institutions such as the World Bank and IMF, as well as the framework that would eventually give rise to the World Trade Organization (WTO). 

These institutions were intended to move the world away from the protectionist economic policies that had prevailed before the war and towards a liberalised, multilateral trading system. Influenced by economists such as John Maynard Keynes, the post-war world moved towards a monetary system based on the US dollar and gold, with the aim of fostering economic stability and open markets. 

Economic liberalisation has since played an important role in shaping economies and promoting a more balanced and inclusive global economic system. In the case of Bangladesh, the path toward liberalisation has been complex and non-linear. 

Following independence in 1972, the initial policy focus was heavily centered on nationalisation, which was later reversed through waves of denationalisation and reform. By the 1980s, the landscape began to change as Bangladesh engaged more deeply with IMF-backed credit facilities and World Bank poverty-alleviation programs. These conditional interventions pushed the economy to deregulate and open the private sector. 

While the regional experiences of India and Sri Lanka demonstrated the potential for rapid integration into the global market through trade liberalisation and border opening, Bangladesh's journey has remained more cautious. Bangladesh may not be equipped enough to implement the liberalisation across the board though it is highly required once we believe the need of economic competitiveness in the global context.

As Bangladesh undergoes an economic transformation driven by its LDC graduation, economic liberalisation and the transition towards an open economy have gained significant attention. However, while Bangladesh accepts the principles of economic liberalisation in theory, a substantial gap remains between this commitment and its practical implementation. 

For years, the country has relied heavily on high import tariffs and protective measures to shield domestic industries, while also generating significant revenue for the National Board of Revenue (NBR). However, this protectionist approach is becoming increasingly untenable as Bangladesh prepares to graduate from LDC status in 2029. As the country approaches this milestone, its reliance on trade-distorting measures for revenue generation must give way to more sustainable policies that promote competitiveness.

The upcoming LDC graduation is a game changer, demanding a fundamental rethink of the economic and related policies that shape Bangladesh's economic dynamics and trends. To remain competitive in the post-graduation environment, the government must coordinate its fiscal and monetary policies to ensure they do not create unnecessary barriers to cross-border trade and investment flows. 

True liberalisation requires a level playing field where local and foreign investors operate under the principles of national treatment, with equal access and opportunities. This is no small task, as many local micro, small and medium-sized enterprises (MSMEs) are currently ill-equipped to compete in an open market with fewer barriers. Bangladesh must embrace an open and liberal market economy, a core principle of globalisation and multilateral trade, while pursuing welfare-oriented economic policies guided by the World Trade Organization's (WTO) most-favoured-nation (MFN) and national treatment principles.

Sri Lanka and India have made significant progress in economic liberalisation, while Bangladesh remains behind. The bureaucracy must adopt a more open and flexible approach to facilitate the gradual deregulation needed for a smoother liberalisation process. International stakeholders such as the IMF also advocate a stable and well-governed global financial system. 

In line with this, Bangladesh has long emphasised the need for robust corporate governance in the financial and banking sectors to ensure financial stability, discipline and market-driven interest and exchange rates. Had effective governance been in place, Bangladesh might not have faced such a high level of non-performing loans (NPLs) in recent years. 

Achieving stronger corporate governance while simultaneously increasing the tax-to-GDP ratio is a delicate balancing act. Moving away from a high-tariff regime is essential, yet it creates immediate vulnerabilities for industries that have long relied on state protection. Amid geopolitical instability and rising business costs, this transition must be managed with extreme care.

We are currently navigating Globalisation 4.0, characterised by rapid technological advancements and complex global supply chains. Yet, Bangladesh is still grappling with the remnants of earlier industrial models. For the country to thrive, it must align its development planning with the evolving requirements of the WTO and international financial institutions. This transition requires a concerted effort to move beyond the control-heavy economic management of the past.

The much-needed single-window system (STS), designed to create a hassle-free business environment and streamline public service delivery, should be a top priority for post-LDC graduation readiness. This agenda also requires pragmatic, results-oriented and inclusive liberalisation across sectors to benefit all stakeholders, especially the private sector, the lifeblood of the economy. 

By fostering a more open, transparent and competitive business environment, Bangladesh can better address the challenges of its upcoming LDC graduation. Embracing these reforms is essential to ensure the country's continued progress towards healthy, prosperous, inclusive and sustainable economic development.

Dr AKM Asaduzzaman Patwary is a macroeconomic policy researcher and analyst. 

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.