LDC graduation in 2026

Now that the government has made it known that deferring the country's graduation from Least Developed Country (LDC) status is not in its thinking, businesses should get the message straight. For years, policymakers, businesses, and economists have deliberated on strategies to mitigate post-graduation difficulties. The primary concern has always been the loss of trade benefits and economic preferences that LDC status provides. After all these years businesses in the country are still at unease about the competitive business landscape of the near future.

In a series of meetings held recently, businesses have asked for deferment of two to three years to be able to better adjust with the open-field competitive environment. This week the president of the Dhaka Chamber of Commerce and Industry (DCCI) urged upon the government to defer Bangladesh's graduation from least developed country (LDC) status for at least 2 to 3 years considering the prevailing global and local economic challenges. He made the observations at a Focus Group Discussion on "Implementation of the STS (Science and Technology Studies) for Smooth Transition from LDC Status" jointly organised by the Support to Sustainable Graduation Project (SSGP), Economic Relations Division (ERD) and DCCI. On a similar note, at a press briefing, the president of the Bangladesh Chamber of Industries (BCI) asked the government to take steps for deferment of the scheduled graduation by at least three years.

LDC graduation, besides meeting the critical requirements in terms of clear economic indicators, means that a country set to graduate is believed to have overcome the structural handicaps that warrant special treatment from the international community. The UN classifies a country as an LDC if it has per capita income of little over $1,000 a year. A country with so low per capita is perceived as economically vulnerable and scores badly on a range of human indicators, including nutrition, child mortality and enrolment in schools.

Since the term LDC was coined five decades ago, only four countries have graduated so far: Botswana (1994), Cabo Verde (2007), the Maldives (2011) and Samoa (2014). For a country like Bangladesh 'branded' as an LDC since its inception -- although much of its growth and successes owe hugely to its being termed so -- graduation is indeed a winning post, a milestone in the country's long-term economic and social development. But there are challenges, some apparently daunting, that the country will have to take on squarely.

Now, what are the main challenges of graduation that have caused worry among the businesses? To start with, Bangladesh would face stiffer competition from rivals in international trade, especially in exporting, as graduation will cut deeply into the preferential benefits that the country currently enjoys from well over forty countries - the EU being the largest provider accounting for around 54 per cent of the country's exports. Upon graduation from the LDC league, Bangladesh is likely to lose about $2.7 billion in export earnings every year. This is because exports will be subjected to 6.7 per cent additional tariff as preferential duty benefits from different countries and trading partners will no longer be available.

At present, Bangladesh is a major user of duty-free and quota-free market access, with shipments under this facility accounting for 72 per cent of the total exports. Regional trade agreements and bilateral initiatives cover about 90 per cent of the total exports, and thus preferential market access is of special significance.

Furthermore, upon graduation, products made in Bangladesh will become more expensive to buyers and consumers in key export markets. In this context, it may be recalled that according to the United Nations Conference on Trade and Development (UNCTAD), Bangladesh's exports may decline by 5.5 per cent to 7.5 per cent due to preference erosion and exports becoming costlier. No doubt, preference erosion in major exporting countries will thus have implications for export competitiveness and export earnings, and consequently, for GDP growth, employment generation and poverty alleviation.

Beyond trade, the country will also be hit when it comes to foreign aid. Concessionary financing from the International Development Association, the part of the World Bank that helps the world's poorest countries, and multilateral assistance with special benefits will also not be available upon graduation and attaining the middle-income status. The benefit of technical cooperation and other forms of assistance will also be affected. Concessional borrowing is another important area to be hit hard. As per the WB criteria, if a country's per capita income remains above $1,400 for three consecutive years, the rate of interest would surge to about 2.0 per cent from 0.75 per cent-a facility that Bangladesh currently enjoys like all other LDCs.

These difficulties were anticipated years ago, and think tanks such as the Centre for Policy Dialogue (CPD) have long been urging the government and private sector to prepare for the transition. The government, too, has taken some steps to gradually reduce business incentives to help business sectors adjust to the post-LDC scenario.

Following its graduation, Bangladesh will not be left in the desert as there will be a transition phase which will allow the existing cushioning to continue for some time-three years or so.

The government's decision seems to be a step in the right direction, even though challenges are likely to be there after graduation. In a free-trade world, facing competition rather than remaining protected by trade preferences is in the best of interests of the country's trade and commerce as this will ultimately strengthen the economy and enhance our global competitiveness.

wasiahmed.bd@gmail.com