November 24, 2026. The day four years in the future is going to be another remarkable day in our national calendar. Bangladesh, with its rapidly growing economy, is set to leave the Least Developing Country category in 2026. The confirmation came on November 24 last year, with the United Nations General Assembly (UNGA) adopting a resolution on allowing Bangladesh to graduate into the developing country level during the 40th plenary meeting of its 76th session following a recommendation of the Committee for Development Policy (CDP).
So, starting from 2021 to the next four years down the line, Bangladesh’s economy has to pass through crossroads before graduating from LDC and launching the campaign of “branding Bangladesh in the world.” While the path to graduating from LDC is already a challenging one, the obstacles posed by Covid additionally put us backwards. However, in the last fiscal year of 2021-2022, Bangladesh was able to pull back the economy by a big margin. But, in the meantime, Russia invading Ukraine on November 24, began a war that has affected the economy over the globe. The possibility of a global recession in 2023 is rising high. The World Bank, in a comprehensive study in September, stated that “As central banks across the world simultaneously hike interest rates in response to inflation, the world may be edging toward a global recession in 2023 and a string of financial crises in emerging market and developing economies that would do them lasting harm.
Currently, the world economy is experiencing a steep downfall coupled with supply chain disruption and high inflation. Not to mention the food and energy crisis due to the war puts the economy on a more critical stance. Amid such twofold crises, the path of graduating from LDC has become more challenging. However, the years coming will determine how we elevate our economy and embrace the situations that come with an LDC Graduation status.
Criteria for LDC Graduation
The General Assembly (GA) and the Economic and Social Council (ECOSOC) have given the Committee for Development Policy (CDP) the authority to review the list of LDCs every three years and to recommend the inclusion or graduation of eligible nations based on the factors of income, human capital, and economic and environmental vulnerability.
If a country reaches the criteria’s specified inclusion or graduation requirements, they are able to join or leave the LDC group. The inclusion thresholds are lower than the graduation thresholds. This imbalance attempts to make graduation a lasting process. Key indicators that are reflective of enduring structural disadvantages are used to gauge each of the three criteria. These indicators were chosen because they are methodologically sound, uphold the consistency of the criteria, guarantee that all countries are treated equally throughout time, and are routinely updated for all nations. They are updated on a regular basis to reflect better data accessibility and new research’s learnings.
Each of the indicating elements has their own rationale and methods for being such key factors. These also come with their own thresholds signifying if a nation is eligible for graduation. The rationale behind Income or Gross National Income (GNI) is that, GNI per capita gives data on a nation’s total level of resources as well as its income situation. The threshold for GNI was set on the basis of this rationale. The three-year average of GNI per capita, as determined by the World Bank to identify low-income nations, serves as the inclusion threshold. It is $1,018 at the review in 2021. A 20% increase over the inclusion criteria is the graduation threshold. It is $1,222 at the review in 2021. The graduation threshold is double what it is for income-only students. It is $2,444 at the review in 2021.
The Human Asset Index (HAI) has a similar rationale and threshold. According to the United Nations, The HAI serves as a gauge of human capital. Low human capital indicates significant systemic barriers to sustainable development A lower HAI indicates less human capital development. Since 2015, the CDP has used absolute HAI standards to decide who qualifies for inclusion and graduation. The inclusion cutoff has been established at 60. The enrollment level is 66, and the graduation barrier is set at 10% over that number.
An indicator of structural susceptibility to economic and environmental shocks is the Economic and Environmental Vulnerability (EVI). A high sensitivity level suggests significant structural barriers to sustainable development An increased EVI indicates a greater economic fragility. Since 2015, the CDP has used absolute thresholds for the EVI to evaluate a student’s eligibility for admission and graduation. The inclusion criteria for this has been set at 36. The admission level is 32, while the graduation barrier is set at 10% less.
Over the past decade Bangladesh was able to meet the thresholds required in each of these criteria indicators. With all those requirements met, Bangladesh still has to keep with the margins and projected growth estimates, given in the resolution of approval, to graduate from the LDC status within 2026.
The Path to LDC Graduation of Bangladesh: A Brief Description of The Process
Graduating from the Least Developed Country category is seen as a major milestone for any country as it signifies the progress that has been made toward achieving some of its development goals. Since being categorized as a Least Developed Country by the United Nations in 1975, Bangladesh has tenaciously worked to achieve that graduation status.
Three criteria for graduation have been set by the United Nations Committee for Development Policy (CDP) – GNI per capita, Human Asset Index (HAI), and Economic Vulnerability Index (EVI).
In 2018, the graduation threshold for GNI per capita was USD 1230, 66 or above for HAI, and 32 or below for EVI. On completion of its review of the LDC category in 2018, CDP found out that Bangladesh’s GNI per capita was USD 1274, 73.2 for HAI and 25.2 for EVI. Therefore, on March 15, 2018, for the first time, it was announced that Bangladesh has met the graduation criteria. Bangladesh is also the first least developed country to fulfil all three graduation criteria. On 16 March 2018, at an event at the Permanent Mission of Bangladesh, Mr. Roland Mollerus, Chief of the CDP Secretariat handed over to H.E. Permanent Representative of Bangladesh Ambassador Masud Bin Momen an official letter conveying that Bangladesh had qualified for graduation for the first time. This is considered “Year 0.” Three years from “Year 0,” during the Triennial Review, the UN Department of Economic and Social Affairs (UN DESA) and UNCTAD start working on the ‘graduation assessment.’ Based on the second assessment, CPD recommends graduation in its report to the ECOSOC which is then endorsed by it. The General Assembly then takes note of the recommendation for graduation in a resolution issued during the first session following the ECOSOC endorsement. During the 40th plenary meeting of the General Assembly’s 76th session, a resolution was issued on 21 November 2021 which recalled ECOSOC’s resolution of 8 June 2021 and took note that the Committee has issued a five-year preparatory period for Bangladesh to prepare for a smoother transition taking into account the post-Covid shock that the countries need to recover. The Committee will also analyse in its 2024 Triennial Review if the five-year preparatory period has been sufficient to manage the shocks of Covid-19 and make any recommendation that may be necessary including a further extension.
The Relevant Policies and Projects and Their Impacts to Solidify the Road to Graduation
Since 2018 Bangladesh has started its journey to solidify its graduation as a least-developed country. Major developments were made, important policies were taken, and infrastructural contracts were signed that will further help to boost the country’s economy. Among all the infrastructural and economical advancements that took place in 2018 the launch of the Bangabandhu-1 satellite, economic growth being above 7% for the third consecutive year, starting of the Padma Bridge Rail Link Construction, the deal signing for the Chittagong elevated expressway can be addressed as the highlights. Moreover, Bangladesh was the third-highest recipient of remittance in South Asia and the 11th-highest globally in 2018. According to ‘Sustainable Development Goals: Bangladesh First Progress Report 2018,’ the Bangladesh government had taken extensive measures to reduce poverty. The report states: “The Government has adopted policies and programmes to address the multidimensional nature of poverty in the country. These include fostering accelerated, inclusive and resilient growth, increasing coverage and effectiveness of social protection, achieving gender parity, increasing the size, reach, and diversity of microcredit programmes, promoting financial inclusion and providing a stable macroeconomic environment.” Policies had also been implemented in 2018 to ensure food security and nutrition. For instance, the introduction of nutrition-fortified rice, distribution of iron-folic supplementation among pregnant, lactating women and adolescent girls, Vitamin A distribution for children, deworming, salt iodization, maternity leave for mothers to assist breast-feeding, and implementation of the WASH programme emphasizing quality water, sanitation and hygiene are some key policies and programmes that have helped to achieve better SDG results. To further improve the challenges to zero hunger, Delta Plan 2100 has been implemented which will address future uncertainties in climate change, socio-economic development, population growth and regional cooperation, etc. In 2018 a minimum wage of 8,000 takas for the RMG workers was also set. All these people-centric policies had a positive impact as the Human Development Index in 2019 climbed up a spot from 136 to 135. This statistic further improved in 2022 as Bangladesh secured the 129th position in the HDI. One of the key indicators of HAI is the child mortality rate. Bangladesh has achieved incredible achievements in terms of child mortality. The Bangladesh government was able to reduce the number to 31 out of 1000 live births in 2019 from 222 in 1971 with their effective policies.
The Government has promulgated Export Policy 2018-21 under the power conferred by section 3(1) of the Import and Export (Control) Act 1950. The objective of this policy is to update and liberalize the trade regime with a view to making Bangladesh a developing country. According to the government of Bangladesh, the policy is implemented- “To undertake target-oriented initiatives to raise export earnings to US$ 60 billion by the year 2021.” In 2019, Bangladesh’s export was 45.99 billion dollars which were 12.91% more than in 2018. The export trend then declined in 2020 due to the Covid-19 restrictions to 39.05 billion dollars. But it further increased to 44.39 billion dollars in 2021. Before the recent global crisis, Bangladesh was also self-sufficient in food, thanks to the timely policies taken by the government. However, the instability created in the world economy by the Ukraine-Russia war has forced Bangladesh to import wheat and other grains. Recently, IFC has also announced a 32.5-million-dollar loan to Singapore-based agricultural commodity-trading company Agrocorp International Pte Ltd, which also happens to be a major supplier of wheat and pulses to Bangladesh, to increase food security in a time of rising commodity prices.
With the persistent degradation of climate, Bangladesh’s vulnerability also increases. According to the Climate Risk Index 2021, Bangladesh remains 7th most vulnerable country to climate change. Bangladesh’s government has adopted a proactive approach to disaster preparedness to mitigate the damage rather than a reactive approach that mostly depends on relief and rehabilitation. Yet the country remains at high risk. According to the Vulnerability Report of Bangladesh, “Despite improving disaster preparedness, the country remains in the high-risk category, as assessed by INFORM, with a risk index value of 6 in 2019. This figure is higher than that of all neighbouring countries, with the exception of Myanmar (index value of 6.6). In comparison, the two other LDCs in South Asia, Bhutan and Nepal, had risk index values of 3 and 5, respectively, and the index value of India was 5.5.” The government has invested a total cost of Tk 334,913.50 billion on 678 projects between 2010 and 2019 to address the adverse effects of climate change in the future.
Moreover, the Air Quality Index suggests that Dhaka is one of the worst sufferers of air pollution and there has been little to no changes to make improvement. However, it is a matter of relief that the Bangladesh government has been vocally advocating for climate-related funding for the least contributing countries that are the worst sufferers of the problem. Moreover, Bangladesh is also working towards cooperation and collaboration to transform its infrastructure and make it more sustainable as well as environment-friendly. For instance, Bangladesh currently has 171 US Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (Leed) certified green factories, the highest number in the world. According to BGMEA, green factories are said to help cut down energy use by 40% and water consumption by more than 30% and also emit less carbon dioxide which further ensures environmental safety. Bangladesh is also getting funding from various countries and IGOs to build a renewable energy-based infrastructure. Recently, the government of Bangladesh and Germany signed two agreements, a Financial Cooperation Agreement and Grant Agreement under which Germany will provide 33 million Euros to Bangladesh. The grant money will be utilized in two ways- 10 million euros for a project titled ‘Renewable Energy and Energy Efficiency III’ and 23 million euros for ‘Climate Change Adapted Urban Development (CCAUDP).’ After assessing all the development policies and projects initiated since the first LDC graduation announcement in 2018, it is safe to say Bangladesh is moving towards a smooth transition from the least developed country category.
Key Takeaways:
< Gross Domestic Product growth rate in 2021 was 5.5%
< Merchandise exports growth rate in 2021 was 31.6%
< 94% of the export products were manufactured products in 2021, which signifies the lack of diversification in the export market.
< Bangladesh fetched $8.89 billion from service exports in FY22, which is 34.49% higher than FY21 export value (%6.61 billion) and $18.51% from FY22 target ($7.5 billion). This trend shows the importance of focusing on a more service-led economy. According to the SANEM 2022 Report, trade in services and tourism will quickly recover from the Covid shock and be more resilient in the future.
< GNI per capita recorded a sharp acceleration when sustained growth enabled the country to rise from a GNI per capita of $440 in 2004 to $1,940 in 2019.
< The country reduced the number of severely food-insecure people from 20.7 million in 2014–2016 to 17.2 million in 2017–2019 (FAO et al., 2020).
< Bangladesh has made great strides in reducing chronic malnutrition, with the prevalence of stunting dropping from 70 per cent in the early 1990s to 30 per cent in 2019.
< Between 2000 and 2019, on average, almost seven natural disasters occurred every year in the country. The greatest number of natural disasters occurred in 2019. However, in terms of deaths, 2007 was the most devastating year, as 5,635 people lost their lives.
Challenges and Way Forward of LDC Graduation
The LDC graduation brings certain benefits for Bangladesh for sure. Aside from broadening the country’s economic horizon, the graduation creates a new generation of opportunities. However, everything must come with certain caveats or obstacles. After the LDC graduation Bangladesh will have to take on new challenges to maintain the status of being a Developing Country. These challenges will certainly be much bigger and tougher and will be similar to a king holding on to their crown. The way forward in such circumstances will most obviously call for a more versatile and innovative approach to each of the problems.
Although the graduation is a significant accomplishment for Bangladesh, the transition from LDC status entails more practical obstacles than rewards. As a member of the LDC group, the country now receives aid in three areas: foreign trade, development assistance, and support in international forums. After graduating from LDC classification, the country would lose access to these benefits, potentially causing problems in commerce, funding, and development assistance.
The initial challenges will be posed from the trade and international market access. Following graduation to LDC classification, Bangladesh might lose 14% of its annual export profits, or $5.73 billion. Bangladesh continues to benefit from preferential trade privileges such as the Generalised System of Preferences (GSP), which include Duty-Free and Quota-Free (DFQF) access for exports to World Trade Organization international development partners (WTO). Under GSP, the country has duty-free access to 38 countries, including the United Kingdom and 27 EU countries, where the majority of the country’s garment exports are located.
Although Bangladesh may lose this access, reformation of human rights and labor rights rules may allow the nation to reapply for DFQF access under the EU’s Everything But Arms (EBA) strategy for a smooth transition.
GSP+, an expansion of the standard GSP, is likely to provide new regulations in which Bangladesh would not be considered a “major supplier” and would be subject to stricter regulatory compliance. The plan requires that an exporting country’s percentage of total EU imports not exceed 7.4%, which Bangladesh now has at 26%. Given that the EU is our main garment export market, losing these facilities necessitates close monitoring and renewal efforts.
These effects on Bangladeshi exports have intriguing implications for imports. Raw materials (excluding machinery and parts) for the manufacturing of export goods now have no import tariffs, according to the Bangladesh Investment Development Authority (BIDA). Given the possibility of lower exports as a result of increased tariffs, demand for certain imported commodities is expected to fall. This has further implications for commercial ties with nations such as India, China, and the United States, potentially increasing trade deficits with the respective countries.
Financing is going to be another one of the affected areas after the LDC graduation. Moody’s, a world renowned investor service, presently grades Bangladesh at Ba3, a ‘junk’ or ‘high-yielding’ status that is well below investment grade. Because LDC graduates are perceived as less hazardous, this prognosis is expected to improve. Any upgrade in credit rating however, would be contingent on variables such as actual GDP growth, public debt level, efficient governance, and overall ability to repay obligations. Furthermore, graduating implies that Bangladesh will no longer be eligible for concessional loans (low interest rates with extended payback terms) and development fund awards. This immediately raises borrowing costs since non-concessional loans are more rigorous, have fewer attractive terms, and have shorter payback durations.
Bangladesh would be compelled to impose particular import taxes in accordance with WTO regulations in order to generate domestic money. This means decreased import tax income from previously higher import rates, as well as potentially greater expenses connected with comparable sectors competing with goods from overseas marketplaces with lower tariffs (leading to more market entry). Even if domestic revenue from income tax is not anticipated to vary theoretically, tax structures might be raised in an undesirable circumstance if the government suffers difficulties satisfying non-concessional foreign debt responsibilities.
Although Bangladesh is scheduled to graduate from LDC classification in 2026, it will continue to receive LDC perks and assistance for three more years to enable a seamless transition and preparedness. This implies that the changeover will take place in two stages: the formal jump in 2026 and the real strike in 2029, allowing the nation seven more years to prepare to lose all LDC benefits. The country has already begun preparations in several forms, beginning with budget reforms and policy creation. The Prime Minister’s Office’s Principal Secretary has already organized a group comprising seven sub-committees composed of private sector players and researchers to oversee the full reformation exercise and assess all potential problems associated with upgrading to LDC status.
Authors-
Shiddhartho Zaman
Nayeema Nusrat Arora
