Deferring Bangladesh’s LDC graduation and the road ahead
24 February 2026, 00:00 AM
Fahmida Khatun
'Last November, Bangladesh confirmed that it continued to meet all three LDC graduation criteria and remained on track for graduation in November 2026 despite economic shocks.' VISUAL: ANWAR SOHEL
The question of deferring Bangladesh’s graduation from the Least Developed Country (LDC) status has predictably resurfaced following the formation of the BNP government. Last year, the business community strongly advocated for the deferral, stating deep concerns about the country’s preparedness for a post-LDC reality. Although the interim government initially appeared to favour a deferment, it later decided not to pursue it. Now, the Economic Relations Division (ERD) of the new government has sent a letter to the chair of the United Nations Committee for Development Policy (CDP) requesting an extension of the preparatory period for LDC graduation until November 24, 2029.
Last November, Bangladesh submitted its 2025 annual report to the CDP, confirming that it continued to meet all three LDC graduation criteria and remained on track for graduation in November 2026 despite economic shocks, while progressing with its Smooth Transition Strategy. The three criteria are per capita gross national income (GNI), human asset index (HAI), and economic vulnerability index (EVI). To delay graduation now, the government will have to convince the CDP that the country’s socio-economic situation has deteriorated beyond its capacity to absorb post-graduation shocks.
In its latest letter, the government argued that concurrent global and domestic shocks such as the pandemic, geopolitical conflicts, financial instability, and political upheaval have disrupted preparation, strained macroeconomic stability, and constrained reform efforts. Increasing trade uncertainties and the risk of losing preferential access might weaken its competitiveness. Therefore, a delay would support reform consolidation and economic stabilisation.
The UN’s LDC classification carries significant practical benefits, including preferential market access, special and differential treatment under World Trade Organization (WTO) rules, concessional financing, and targeted technical assistance. Clear quantitative criteria determine graduation from this status, which requires a country to meet at least two of the three criteria in two consecutive triennial reviews. Alternatively, a country may qualify for graduation if its GNI per capita reaches at least three times the prescribed threshold, even if it does not satisfy the other two criteria.
The CDP, under the UN Economic and Social Council (ECOSOC), reviews each country’s performance every three years and recommends graduation once the criteria are met. ECOSOC then endorses this recommendation, and the UN General Assembly (UNGA) formalises the decision, typically providing a three-year preparatory period for the country to adapt to losing LDC-specific support.
Deferring LDC graduation is an exceptional measure and is not automatic or solely based on domestic preferences. The CDP might suggest postponement for the next triennial review. Alternatively, a government can formally notify the UN secretary-general of its concerns, allowing the matter to be discussed by ECOSOC or the UNGA. In rare cases, when severe economic downturns cause a country to fall below the graduation thresholds, the process is halted, and the country remains classified as an LDC until it meets the criteria again.
Deferrals of LDC graduation are rare, but not unprecedented. The Solomon Islands secured a three-year postponement in 2023 after catastrophic natural disasters and civil unrest severely weakened its development prospects. Similarly, Angola secured a delay when global oil price shocks pushed its economic indicators below the required thresholds; its strong diplomatic backing helped secure UN approval. In the Pacific, countries such as Vanuatu and Kiribati have experienced repeated postponements due to persistent environmental vulnerabilities, remaining on the LDC list long after initial eligibility for graduation. The Maldives’s smooth transition period was extended in 2005 following the Indian Ocean tsunami, and the country ultimately graduated from LDC status in 2011.
Closer to home, Myanmar’s graduation was deferred following political instability after the 2021 military coup, while Nepal received a postponement after the devastating 2015 earthquake disrupted its socioeconomic progress. Bangladesh and Nepal were initially scheduled to graduate in 2024, but the UNGA extended the timeline due to the Covid pandemic.
These cases have a common feature. Deferment was granted due to significant, well-documented shocks that substantially reversed development progress. The precedent indicates that postponement is mainly justified by severe economic, political, or environmental crises, rather than policy preferences alone. For Bangladesh, this presents a challenge. Although its economy has recently slowed and faces structural issues, the country’s key graduation indicators remain above UN thresholds, making deferment on empirical grounds hard to justify.
Regardless of the outcome of the deferment request, Bangladesh needs to prepare for leaving LDC status. Graduation signifies economic growth but it also requires major adjustments. Benefits like preferential trade access, concessional financing, and special treatment under global trade rules will gradually decrease. Without proactive measures, these changes could impact exports, fiscal stability, and jobs. The emphasis should therefore move from arguing over classification to enhancing domestic capacity and resilience.
Firstly, institutional and regulatory reforms are crucial for fostering sustainable and competitive growth. Robust institutions will underpin Bangladesh’s resilience after graduation. Strengthening trade negotiation skills to negotiate free trade agreements (FTAs) and preferential treaties with major markets is needed. Regulatory systems covering standards, quality, and intellectual property should meet international standards. Agencies handling trade and investment must develop analytical capabilities to predict market changes and adapt strategically to global challenges.
Second, fiscal and governance reforms should be implemented to sustainably manage increasing fiscal pressures. As concessional financing diminishes after graduation, boosting domestic resource mobilisation will become essential. Tax reforms should expand the tax base, cut exemptions, and enhance compliance. Tariff reform needs to strike a balance between keeping prices competitive and meeting revenue objectives. Ensuring transparent governance, fighting corruption, streamlining public procurement, and reforming the judicial system are vital for boosting investor confidence. Effective debt management and maintaining sufficient foreign exchange reserves will also support resilience against external shocks.
Third, Bangladesh needs to expand beyond ready-made garments to maintain sustained growth and long-term economic resilience. Investing in sectors like light engineering, agro-processing, pharmaceuticals, and IT services is crucial. Skills development and technical training should match the needs of emerging industries. Encouraging innovation via research collaborations, technology adoption, and public-private partnerships will elevate the economy along the value chain and boost global competitiveness.
Fourth, strengthening social protection systems and consolidating human capital improvements are crucial. A transition from LDC might raise economic risks for some groups, so robust social safety nets, retraining initiatives, and employment support can act as safeguards. Ongoing investment in health and education, as well as inclusive policies, can sustain human capital achievements and ensure sustainable development rather than increased inequality.
Bangladesh is at a critical juncture. Its future achievements will depend less on retaining LDC status than on implementing strategic reforms, strengthening institutions, and fostering collective determination to turn graduation into a chance for resilient, inclusive growth.
Dr Fahmida Khatun is an economist and executive director at the Centre for Policy Dialogue (CPD).
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