How realistic is Bangladesh’s qualification for LDC graduation

Bangladesh has fulfilled all three essential criteria quite well to qualify for graduation to the final list of developing countries. Afterwards, the country was under observation for several years. From next year (2026), Bangladesh will officially graduate to the list of developing countries. Since independence, this will be the biggest achievement in the country’s economy. No country wants to remain a least developed country (LDC) forever. Every country aspires to graduate to the developing country list as quickly as possible. An LDC receives several benefits from developed countries, but those are not considered prestigious. Rather, they are granted out of a kind of sympathy. No country wants to remain an LDC or poor country. To be able to graduate to the developing country list is highly honourable for any nation.

But the reality is that no country can become a developing or developed country overnight simply by wishing it. Bangladesh is going to be included in the final list of developing countries from next year. We genuinely want Bangladesh to attain the status of a developing country and, gradually, to be included in the list of effective developed nations. But the question is, how credible and realistic are the economic achievements Bangladesh claims, based on which it has qualified for this graduation?

During the previous government’s tenure, various economic statistics were inflated so that people would be overwhelmed by their development activities. These statistics had little factual basis. Based on such misleading information, Bangladesh is now about to graduate to the final list of developing countries from next year. It is essential to analyse thoroughly what gains or losses Bangladesh might face after this graduation. Some time ago, one of the country’s leading business associations demanded that the graduation be deferred by 10 years. However, the interim government wants to proceed with the graduation on schedule, i.e. from next year.

At an event held in the capital, Centre for Policy Dialogue (CPD) Executive Director Dr Fahmida Khatun explained how various statistics were exaggerated during the previous government’s rule. She said that most of the statistics shown to display economic success were inflated and imaginary. These statistics were used to try to convince the outside world of our economic progress. There was even a desperate attempt to present Bangladesh as a “role model” for other developing nations on the international stage. For example, export statistics can be cited—there was no consistency between the export earnings published by the Export Promotion Bureau and those reported by Bangladesh Bank.

Every year, the International Monetary Fund (IMF), World Bank, and Asian Development Bank (ADB) would forecast GDP growth for Bangladesh, and the government would always show growth at least 1 to 1.5 percentage points higher. By the end of the fiscal year, neither party would budge from their stance. Surely, a country’s GDP growth rate for a given year cannot be two different figures. Local and foreign private investment was exaggerated. Sensitive figures like inflation and unemployment were shown to be lower. According to the Bangladesh Bureau of Statistics, the number of unemployed people in the country is currently around 2.6 million. Would even a madman believe this figure? Under top-level government instruction, the Bureau would prepare data accordingly.

The foreign exchange reserve figures presented by Bangladesh Bank were not realistic. They included loans given from the reserve to the Export Development Fund and other sectors. But when the IMF approved a $4.7 billion loan to Bangladesh, they imposed a condition that the actual reserve must be shown. Any amount not in the hands of Bangladesh Bank and not readily usable can never be considered part of the foreign currency reserve. Due to this condition, reserves are now calculated on a net basis.

The Bangladesh Securities and Exchange Commission (BSEC) organised foreign “roadshows” to attract foreign investment in the capital market. These required huge expenditures. But the nation never learned how much investment was actually attracted through these roadshows. Bangladesh was described as an investment-friendly destination. But how much investment have we actually been able to attract? Inflated success stories may earn brief applause, but eventually the truth will be revealed.

Through one of its studies, the Centre for Policy Dialogue (CPD) has fairly conclusively found that if Bangladesh graduates to the list of developing countries in its current state, the economy will face various complications. Over the past 15 and a half years of one-party rule, the economy has been disrupted in multiple ways. The credibility of the data based on which Bangladesh has qualified for graduation is not 100%. Moreover, once Bangladesh is finally listed as a developing country, it will lose several international benefits. Currently, as an LDC, Bangladesh enjoys duty-free Generalised System of Preferences (GSP) benefits for exporting products to 27 countries of the European Union. Although the EU has said it will continue GSP benefits for three more years after graduation, i.e. until 2029, they will then offer a new trade benefit called GSP+. However, the conditions to qualify for GSP+ are unlikely to be met by Bangladesh.

In that scenario, there is a risk of a significant decline in Bangladesh’s exports to the European Union. CPD’s research states that Bangladesh may incur an annual financial loss of USD 8 billion due to its graduation to the final list of developing countries. After graduation, Bangladesh will have to pay commercial interest rates when taking loans from various international organisations. Loan conditions will also be tougher. This problem won’t only be with the EU; similar issues will arise when establishing economic relations with other countries too.

After graduation, foreign investment in Bangladesh may decline. The limited amount of foreign direct investment (FDI and joint ventures) that Bangladesh currently receives is largely due to the GSP benefit. It is true that the domestic market in Bangladesh is gradually expanding. Consumers’ capacity and tendency to spend is increasing. But that is not the only reason for foreign investment. If a foreign entrepreneur invests in Bangladesh, produces goods and services, and exports them to the 27 EU countries, that company pays no duty—because Bangladesh enjoys GSP benefits from the EU.

Suppose a US company invests in China and exports goods to an EU country—in that case, the company would have to pay at least 12% duty on the total value of the exported goods. If that same company instead sets up a factory in Bangladesh and exports to an EU country, it would not have to pay any duty. After Donald Trump became President of the US, he imposed higher tariffs on products from China, Canada, and Brazil. As a result, foreign companies may consider relocating investment away from China. Even Chinese companies may relocate to other countries. In that case, Bangladesh should be a top choice. But if Bangladesh loses GSP benefits, foreign companies might lose interest in investing here. LDCs like Bangladesh receive various international concessions from developed countries. Once they become developing nations, those benefits cease.

Bangladesh’s export trade depends heavily on the EU and the US. Over 80 percent of total export earnings come from these two regions. Especially, the ready-made garment export sector is practically dependent on the EU and US. The US once provided quota facilities to Bangladesh—under which it imported a fixed volume of goods each year. The EU has provided GSP benefits to Bangladesh since 1976. When the global free-market economy was launched in 2005, the US cancelled the quota and gave Bangladesh limited GSP benefits instead. But later, due to allegations of violations in labour laws and conditions in the garment sector, the US suspended GSP benefits to Bangladesh. The USD 8 billion annual loss estimated if Bangladesh graduates is not final—the losses could be far greater. Therefore, no decision should be made emotionally.

Being placed on the list of developing countries is not the only matter—whether we can maintain that achievement is equally important. There are several examples of countries that lost their developing country status after achieving it, for various reasons. They were again relegated to the LDC list. This happened in neighbouring Nepal. Though Nepal once graduated to the developing country list, it was later reclassified as an LDC due to its inability to manage natural disasters. Therefore, all steps should be taken carefully and thoughtfully.

MA Khaleque: Retired banker and writer on economic affairs