Experts Say/Effective steps needed to make 3-year extension for LDC graduation fruitful
Despite receiving an extension to its Least Developed Country (LDC) graduation readiness period of three years Bangladesh faces a big challenge in getting the most out of the extra time. With the preferential tariff, low-cost and RMG heavy approach not being enough, Bangladesh must boost its export competitiveness before November 24, 2029.
Economists and experts say there must be visible improvements in export diversification, market expansion, productivity, technology development, skill development and trade deals over the extension period. Banking, tax, energy, ports and customs reforms must also be undertaken to lower business costs and improve the investment climate.
The United Nations General Assembly on October 29 decided to extend Bangladesh’s LDC graduation readiness period to November 24, 2029. While providing time to fix structural issues there are expectations Bangladesh will make meaningful economic reforms.
The government already has a detailed plan in place to undertake the necessary reforms. The National Roadmap for Smooth, Sustainable and Irreversible LDC Graduation 2026-2029, developed by the National Graduation Monitoring & Coordination Committee headed by the Finance Minister Amir Khosru Mahmud Chowdhury, outlines key areas of focus during a recent speech in an event. These include macroeconomic stability, preserving trade benefits, export diversification, production capacity and international collaboration.
"We’re not fully prepared for graduation. So we need that extra three years strategically. We have to make sure we’re improving our core economic indicators. We will implement the necessary reforms. We have to improve skills and not let our citizens face any shocks," Finance Minister Amir Khosru said.
The roadmap has been approved by the national Coordination Committee. Time-bound plans have also been sent to the European Union and United Nations outlining key reforms which will occur in the banking, taxation and business sectors. These reforms are expected to be monitored annually by both bodies so the focus must be on implementation.
"The government has already developed a time-bound action plan to get the most out of the extra time we’ve been given. We want to finalise the FTA with the Europeans before graduation. We will also have made progress in trade deals with eight to ten countries by 2027," Commerce Minister Khandaker Abdul Muktadir said in a programme earlier.
Bangladesh has already signed their first Economic Partnership Agreement (EPA) with Japan on February 6. This includes trade in goods and services, investment, e-commerce, intellectual property, customs and trade facilitation. However, more processes must be done before the agreement becomes fully operational.
The government is also seeking FTAs/CEPAs with Canada, Malaysia, Mauritius, United Arab Emirates, South Korea and Turkey. It is also aiming to join the Regional Comprehensive Economic Partnership. However, experts say unless they tackle tariff concessions, rules of origin and market barriers exporting will not be increased.
Structural Reforms and Competitiveness
Sakif Shameem, chairman of Centre for Strategic and Economic Research (CSER) and managing director of Labaid Hospital Group said the extra three years should not be seen as an achievement but an opportunity to improve structural issues.
"We’re very reliant on preferential tariffs which is a big risk. We can’t just rely on low labour costs anymore. We must look at improving productivity, producing quality products, on-time delivery, using technology, being environmentally friendly and ensuring our workers’ rights are protected."
There should be more investment in modern machinery, automation, digital quality control and energy efficient machinery. Workers should also be trained to adapt to the new technologies.
Port, customs, transport and energy issues are causing increased costs to exporters. The delays at Chattogram Port, complex customs processes and inefficient container handling is causing competitiveness issues. The National Single Window must be implemented effectively, customs automation must be done and better rail and inland waterways must be established. There must also be steady gas and electricity supplies.
"Environmental and social considerations are becoming increasingly important for the European market. If we don’t improve our emissions, waste, recycling, chemicals and workers’ rights we may struggle to maintain our international buyers," he added.
Tariff concessions, trade talks with the EU, GSP Plus requirements, trade deals and energy and logistics solutions should be a priority in fiscal year 2026-27. Over the next two years there should be tangible progress in man-made fibre production, API production, environmental reforms in the leather sector, agro-processing, investment in technology and skill development.
All reforms should have agencies responsible, clear timelines, funding and tangible goals. Progress reports should also be published annually.
High Reliance on Preferential Trade Benefits
A recent report by CSER titled 'LDC Graduation and Economic Shocks: New Opportunities and Structural Preparedness of the Export Sector' highlights the risks and opportunities.
While it is important that Bangladesh met the graduation criteria based on income, human asset, economic and environmental vulnerability indicators in 2018 and 2021 by the UN, there are two separate challenges. The first is meeting the graduation criteria and the second is building the capacity to compete internationally.
Nearly three-fourths of Bangladesh’s merchandise exports currently benefit from duty-free access to the market under various preferential trade agreements. Around 44% of Bangladesh’s exports go to the European Union. Around 95% of Bangladeshi products received duty-free access in 2023.
This can be seen in the RMG sector. In FY2024-25 Bangladesh’s total merchandise exports were around $48.28 billion. Of this $39.35 billion (81.5%) came from garments (BGMEA).
If Bangladesh lost preferential trade benefits its total exports could drop by up to 32% (UNCTAD 2025 Trade Preferences Outlook). However, this is not guaranteed. The actual impact depends on what changes to tariffs are applied to specific markets, what alternative trade deals are available, productivity improvements and what sourcing decisions buyers make (CSER Report).
Everything But Arms (EBA) currently gives duty-free and quota-free access to almost everything except arms and ammunition to the European Union. However, the EU’s new GSP comes into effect from January 1, 2027. Graduating LDCs have a three-year transition period and there is a possibility of receiving GSP Plus benefits.
However, GSP Plus is not automatic. Bangladesh must show improvements in workers’ rights, human rights, environmental considerations, governance and international convention implementation. There are specific protections for garments and textiles so even if they qualify for GSP Plus it does not guarantee duty-free status on all apparel items.
Rules of origin are also a concern. The EBA has had lenient rules of origin which have helped Bangladeshi garment manufacturers. However, alternative trade deals may require multiple stages of production including yarn to fabric and fabric to garment. This could cause issues especially for woven garment manufacturers who rely on importing fabrics.
Bangladesh is also facing increased competition from Vietnam, India, Cambodia, Sri Lanka and Pakistan. Vietnam has gained long-term advantages from their FTA with the EU. India has a large domestic market and strong raw material supply chains. Bangladesh must compete on productivity, quality, on-time delivery and a better business environment rather than low labour costs.
Lack of Diversification and Investment
The report highlights that Bangladesh has a lack of diversification in products and markets. Within the garment sector there is a lack of diversification with cotton basics dominating. International demand for man-made fibre apparels is increasing.
Modern textile infrastructure, research, technology, sportswear, technical textiles and high value garments must be invested in.
Outside of the garment sector pharmaceuticals, leather products, non-leather footwear, agro-processing, food, light engineering, electronics and digital services could become key export sectors.
More investment in research, international regulation and API manufacturing must be done in the pharmaceutical sector. Bangladesh must also prepare for changes to intellectual property post-graduation. Some flexibilities may be lost sooner for pharmaceuticals in LDCs.
The leather sector must be environmentally friendly and waste treated. Agro-processing must have cold chain facilities, food testing labs and international certification. Light engineering and electronics must have technology, funding and quality certifications.
Foreign investment, technology and long-term funding are also key. Policies must be consistent, tax predictable, utilities reliable, approvals quicker and one stop shops effective to attract investors. Governance in the banking sector, default loan management and more trade financing for SME exporters must also be done.
Environmental considerations are also becoming more important. While the Carbon Border Adjustment Mechanism currently applies to some products such as cement, iron & steel, aluminium, fertilisers, electricity and hydrogen the garment sector is currently not affected. However, European buyers increasingly want less emissions, recycling, responsible chemical management and improved labour standards.
Ultimately, the extra three years will only be useful if Bangladesh deliver tangible results from their reform promises. Immediate priorities should be securing alternative trade deals, improving logistics and energy, diversifying exports, embracing technology and developing skilled workers.
Graduating from LDC status is a key milestone in Bangladesh’s journey however, unless they develop a productive, diverse and competitive economy the achievement will not last. The real test will be whether Bangladesh’s exporters can maintain their position in the global market once preferential trade benefits start to fade.