Bangladesh LDC Graduation Status & Aftermath

Bangladesh LDC Graduation Status & Aftermath

Bangladesh is known as a third-world country with huge potential. Despite being a small country with over 16 crores of people, Bangladesh had quite a few successes over the last several decades. However, the country will complete graduation from the Least Developed Country (LDC) in 2026. Although Bangladesh has been known to the world as a least developed country for the past 46 years, Bangladesh has completed all the criteria for LDC graduation set by the United Nations Committee for Development Policy (CDP) in the previous decade. This has also resulted in double recommendations for Bangladesh LDC graduation in 2018 and 2021, respectively. As Bangladesh has received multiple assistance from the developed country to achieve self-reliance as an LDC, the country can no longer enjoy those benefits after graduation.

This article will discuss the advantages and drawbacks of being an LDC graduate and the steps to be taken to overcome those drawbacks

Bangladesh Becoming LDC Graduate

To become an LDC graduate, any country has to fulfill any two of these three criteria, which are – Gross National Income (GNI), Human Assets Index (HAI), and Economic and Environmental Vulnerability Index (EVI). In 2018, Bangladesh fulfilled all these three criteria for the first time. However, once a country fulfills these criteria to become an LDC graduate, as per United Nations Committee for Development Policy (CDP), these conditions must be fulfilled two more times at an interval of 3 years. In 2021, Bangladesh fulfilled these conditions for the second time, and if Bangladesh can fulfill these requirements for the third time in 2024, Bangladesh will be considered an LDC graduate country. However, after graduation, Bangladesh will be given a 3-year grace period to comply with the new regulations. 

In the UN’s Committee for Development Policy (CDP), GNI refers to any country’s income per capita, HAI means the level of human assets a country has, and EVI indicates any country’s economic and environmental shock adaptation capacity. Bangladesh’s GNI in 2021 was $1,827, which is 30.2 percent higher than LDCs average score. Also, in the same year, Bangladesh’s score on the HAI was 78.1, which is 26.2 percent higher than the LDC average score of 57.6. For EVI, the lower the country’s score is, the better the country. In 2021, Bangladesh’s EVI score was 33.6 compared to the average score of LDCs of 39.1. These benchmarks assess a country’s ability to sustain development and the associated support needed to maintain that ability. Bangladesh has performed well in all three indicators in the first two phases and has maintained stability even during economic and environmental disasters such as the Covid-19 pandemic.

Benefits Of Bangladesh’s LDC Graduation

Graduating from the LDC group refers to achieving a seal of global approval for developments that will brighten Bangladesh’s image in countries worldwide. In addition, Bangladesh already has an affable business environment. So, after graduation, foreign direct investment (FDI) inflow will increase by channeling positive signals for foreign investors. This growing FDI and inevitable structure and policy formation will result in a higher tax-to-GDP ratio once Bangladesh graduates from the LDC group. 

Moreover, due to good industrial governance and sustainable development, Bangladesh may be entitled to GSP+, a special incentive that slashes tariffs on goods exported to the EU from low and middle-income countries. This way, graduation will boost Bangladesh’s self-assurance while dealing with international financial players. Also, it will increase the country’s brand value because LDC graduation will make the economy more lucrative to global lenders. 

Leaving the LDC group will also upgrade the “Sovereign credit rating,” which indicates the creditworthiness of Bangladesh because, with graduation, it will move out from the list of risky countries. This will imply a reduced cost of international finance due to an improved perception regarding country-level market risks. 

However, these benefits may not seem so much at first glance, but graduation from LDC Group will give Bangladesh enormous positive exposure. Think of it this way: Bangladesh will get better attention from global leaders as a developing country, which will gradually increase its reputation. Moreover, as a developing country, Bangladesh will be known as having a more self-sustained economy in the global court. Overall, the set of recognition the country will get, it will help Bangladesh to become a developed nation by the next 20 years. 

Benefits Of Bangladesh’s LDC Graduation
Photo Credit:

Drawbacks Of Bangladesh’s LDC Graduation

Graduating from the Least Developed Countries (LDCs) group can have negative implications for Bangladesh. For example, Bangladesh will lose its financial assistance. Bangladesh currently enjoys preferential market benefits known as the Generalized System Of Preferences (GSP) from 38 countries that include duty-free and quota-free (DFQF) export access to World Trade Organization (WTO) partners. With graduation status from LDC, Bangladesh could lose around 14% of its export earnings, possibly the country’s most significant economical component. Graduating from the LDC group may mean losing access to this assistance. However, with the reformation in human rights and labor rights regulation, Bangladesh could renew its DFQF access under the “Everything But Arms (EBA)” initiatives of the EU for a smooth transition. 

Apart from direct trade benefits, Bangladesh also gets Special and Differential Treatment (SDT), which gives it special access to Trade-Related Intellectual Property Rights (TRIPS). Under this agreement, the country has free access to several Intellectual Property Rights (IPRs), the most important of which is the patent allowance in the pharmaceutical industry. However, the pharmaceutical industry, which could meet 98% of the local demand, would lose TRIPS access in 2026, even though the original agreement was supposed to last until 2033. Additionally, 12 The pharmaceutical industry would lose out because TRIPS lets them make patented drugs without paying royalties. Therefore, getting rid of the TRIPS agreement would also be a big problem for exporting sectors that depend on it.

A globally integrated risk assessment firm, Moody’s has given Bangladesh a rating of Ba3, which is considered “junk” or “high-yielding” country, making it a long way below “investment grade.” Also, when Bangladesh graduates, it will no longer be able to get help from development funds through grants and loans with low-interest rates and extended payment terms. This directly raises the cost of borrowing since non-concessional loans are harder to get, have less favorable terms, and have shorter payment periods. However, this outlook will likely improve after graduation because LDC graduates are less risky

Bangladesh has already started to face the consequences of becoming an LDC graduate aspirant from the biggest multilateral lenders. The World Bank has raised the loan repayment rate from 13.7 percent to 33 percent on non-concessional terms. JICA also revised its loan repayment duration and shortened it from 40 years to 30 years. Although Bangladesh has been able to reduce reliance on concessional debt to 48 percent in 2018, the issue still needs to be closely monitored.

Preparation For The Future

Since the country depends a lot on the RMG sector, which has been bringing in more than 80% of the country’s export earnings for the last few years, Bangladesh may get “Dutch Disease” after graduation. Dutch disease is an economic term for adverse incidents that happen when any country discovers a valuable natural resource that has an unexpected repercussion on the overall economy of a nation. To avoid this consequence, the government should promote the export of new products, such as plastic items, leather goods, frozen foods, etc., to add variety to what it exports. Also, the government should focus on the markets in different parts of the world, such as Latin America, the Middle East, etc., and develop plans for getting into those markets to diversify their exports.

As a part of the transition, Bangladesh has already taken up the initiative to join Regional Comprehensive Economic Partnership (RCEP) to get the duty benefits after becoming an LDC graduate. This will help Bangladesh to redress the negative impact on the balance of trade at the expense of opening the domestic market to foreign competitors. However, this competition will be intense, so Bangladesh should focus on improving the quality of domestic products. Moreover, to keep the economic growth rate steady after graduation in 2026, Bangladesh should focus on developing a knowledge-based economy, making proper use of its demographic dividends and local resources, manufacturing high-value goods, finding new export-oriented industries, and increasing connectivity on regional and global levels. 

To smoothen the transition, the UN will give Bangladesh an exceptionally extended period of three years. Bangladesh was able to move out of the group of developing countries because of its wise macroeconomic management and planned investments in infrastructure and human resource development. It is one of the few countries that has made good use of the special benefits for LDCs while also making more steps in international trade. However, Bangladesh needs to be smart about handling graduation because it will affect some preferential treatment and domestic industries that are still young. Overall, Bangladesh should turn its challenges into opportunities in the coming days. 

Leave a Comment