Challenges Bangladesh will Face on the Transition from Least Developed Country (LDC)

Ahasan Ahmed | 28 April 2021
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The United Nations Committee for Development Policy (UNCDP)has recommended that Bangladesh upgrade its status from Least Developed Country (LDC) to the upper segment. Bangladesh achieved this upgrade after meeting the eligibility criteria in income per capita, human assets, and economic and environmental vulnerability.

Bangladesh previously planned to upgrade its status by 2024. However, the unexpected circumstances brought about by the Covid-19 pandemic has caused some changes in the eligibility criteria. This lead tothe Bangladesh government requesting some more time before moving to the next level. The UNCDP has agreed to extend the period by two years, so the status up-gradation is now scheduled to occur in 2026. The government needs to prepare a suitable strategy to cope with this up-gradation.

After leaving LDC, Bangladesh will improve in international credit rating. The increased rating will help in obtaining loans with slightly higher interest than before. However, Bangladesh will face some limitations with the export-import facility. It is estimated that export will fall by eight to ten percent after the graduation is completed, which will be equivalent to 4.5 to five billion dollars annually. Still, if we can make our business environment more suitable to enter, investors can come forward since our economy would be more stable. 

After the transition, countries usually have to increase internal revenue collection due to low donation collection from their sources. This means,initially, people from Bangladesh will have to bearan extra burden of taxes. To guarantee a swift and smooth transition, Bangladesh should ensure sustainable development with good governance.

Bangladesh has already worked on the implementation of the Eighth Five-year Plan. The country is also working on another target plan titled the Second Perspective Plan (2021-2041). However, the pandemic has forced the government to improvise with existing projects. 

Bangladesh will face the most challenges in two sectors, the pharmaceutical sector and the garments sector. Pharmaceutical companies do not have to pay for patent cost as per the rules for LDCs. So, people in Bangladesh are buying medicine at lower prices, and the sector is booming, extending its operation in various regions through exports. However, after graduating to the next level, companies will have to pay much more than before. Therefore, medicine will become more expensive.

The garments sector has lower costs due to cheap labour and tax redemption in some countries. But after graduation, Bangladesh might face some more criteria to adjust to improving the working labour situation. This might raise costs. The tax bracket will increase as well, leading to Bangladesh facing more competition. Thankfully, the EU and the United Kingdom will provide some more time for Bangladesh to adjust to these changes. 

Bangladesh is getting international help to manage its vast Rohingya refugees. A strategy must be drawn up on how to deal with this situation once graduation occurs.

Although there are some downsides to the transition,there can also be many new opportunities. Increased credit rating will help investors get foreign loans relatively easily. Improved status means a stable economy and sustainable change in society, which might attract more investment. Remittance inflow, one of Bangladesh's major indicators, might remain the same with a stable flow. 

To deal with the transition, the government, along with relevant organisations, must formulate a good strategy. The government should focus on ensuring development and the growth of investment, employment, individual income and productive capacity. It also needs to start communicating with other nations to manage their export-import-related relations to cover the limitations. The government also has to keep in mind that we need to meet the Sustainable Development Goals (SDGs) by 2030. To keep up with the advanced world, Bangladesh also requires economic diversifications, technological advancements and increased labour productivity. 

In conclusion, although upgrading status from LDC to the next level is good news for any country, Bangladesh will have to face several issues due to the transition. These issues can only be addressed through a sound national strategy.

Ahasan Ahmed, Research Assistant, Centre for Governance Studies(CGS). 

Views in this article are author’s own and do not necessarily reflect CGS policy.