‘Substantial gaps’ found in LDC readiness
Bangladesh has met the criteria to graduate from Least Developed Country (LDC) status, but serious gaps in trade readiness, macroeconomic stability and institutional strength could threaten a smooth transition in November 2026, according to a new independent assessment commissioned by the United Nations (UN).
The report was prepared at the request of the interim government, which sought an independent review from the United Nations Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS).
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Ahead of the scheduled graduation this year, business leaders had been urging the interim government to seek a delay of up to six years, arguing that the country is not ready for life without special trade privileges.
Shared with the Chief Adviser’s Office earlier this month, the report said that Bangladesh met the graduation thresholds for income, human assets and economic vulnerability in successive UN triennial reviews. The UN General Assembly approved graduation in 2021, granting a five-year preparatory period.
That window, however, has been anything but calm.
“Political instability and governance disruptions have severely constrained policy continuity, weakened institutional cooperation, and delayed or derailed key reform processes,” the report said, adding that the interim government’s mandate was inherently transitional.
Instead of laying the groundwork for a smooth transition, the past five years were marked by overlapping global and domestic shocks.
“Rather than a period of strategic preparation and institutional strengthening, the past five years were largely consumed by crisis management, economic stabilisation, and political survival,” said the report.
A student-led mass uprising in August 2024 brought down the previous government and ushered in an interim administration. “This political upheaval was superimposed on a macroeconomic crisis that had been accumulating for years.”
‘SUBSTANTIAL GAPS’
According to the report, trade preparedness remains a weak spot for Bangladesh.
The country currently enjoys preferential access to markets such as the United Kingdom, and has secured an economic partnership deal with Japan recently. But the European Union remains the biggest risk.
Almost three-quarters of Bangladesh’s merchandise exports benefit from LDC-specific preferences. That makes the transition more complex than for most countries that have graduated in the past.
Progress in energy and logistics has been slow. Besides, the economy still leans heavily on readymade garments, which generate more than four-fifths of export earnings. Efforts to diversify have yet to bear fruit, and new legal frameworks to support exporters are incomplete.
The wider economic backdrop adds to the strain.
Growth has slowed, inflation has stayed high, and the banking sector is in crisis. Public debt has climbed, and exports face global headwinds.
Sustained inflation has eroded purchasing power, pushing an estimated 90 lakh people into poverty. The poverty rate has risen from 18.7 percent in 2022 to about 21.2 percent in 2025, reversing gains made since the 1990s.
“The reversal of poverty reduction gains demonstrates the fragility of development achievements under macroeconomic stress,” the report said.
According to it, institutional readiness is also in question. Implementation of the Smooth Transition Strategy (STS) has been slow, while coordination and monitoring across ministries are patchy.
Non-performing loans have reached historic highs, limiting credit to the private sector.
The report said that real growth, which topped 7 percent before the Covid 19 pandemic, has lost momentum in recent years. Employment fell by 19 lakh between 2023 and 2024, with women bearing the brunt.
Meanwhile, external pressures are mounting.
The United States has imposed reciprocal tariffs of 19 percent on imports from Bangladesh, adding to existing duties and squeezing exporters further. More trade shocks during the transition could drive up adjustment costs.
CRITICAL VULNERABILITIES
The report identifies six major risks to smooth and sustainable graduation. Those are erosion of trade preferences, fiscal fragility, debt sustainability pressures, banking sector weaknesses, structural competitiveness gaps and limited access to climate finance.
Bangladesh currently enjoys duty-free access to the EU. After 2029, clothing exports to the bloc will face tariffs of 12 percent. But market competitors such as India and Vietnam will continue to pay zero duty.
The EU accounts for roughly half of Bangladesh’s exports, meaning even small shifts in competitiveness could have outsized effects.
Safeguard provisions under the EU Generalised Scheme of Preferences (GSP) remain unresolved.
“This represents the single most critical unresolved trade policy challenge with potential to severely erode competitiveness in Bangladesh’s largest export market.”
Another vulnerability is narrowing fiscal space and rising debt burden.
Revenue mobilisation fell to 6.8 percent of GDP in the financial year 2024-2025. Debt servicing now absorbs 31 percent of government revenue. In August 2025, the IMF World Bank Debt Sustainability Analysis moved Bangladesh from “low” to “moderate risk” of debt distress.
“This fiscal fragility severely constrains capacity to finance investments and social protection measures needed for graduation-related adjustments.”
Structural costs further weigh on competitiveness. Logistics costs amount to about 16 percent of GDP, well above the global benchmark of around 10 percent. Energy inefficiencies and infrastructure bottlenecks add to production expenses.
Setting out 157 time-bound actions across five pillars, the STS was adopted only in February 2025, limiting the effective implementation horizon before graduation.
“Stakeholder consultations consistently indicated slow and uneven implementation progress, with limited momentum in competitiveness-critical areas,” the report said.
WHAT NEXT?
The assessment urges Bangladesh to seek a safeguard waiver or alternative arrangement with the EU to avoid steep tariffs on apparel after 2029.
It also calls for faster tax reforms to lift the revenue to GDP ratio, a comprehensive plan to tackle non-performing loans and a reliable, reasonably priced energy supply for exporters.
Due to the “unprecedented and cumulative series of shocks”, many stakeholders believe the country may need three to five more years to prepare, according to the report.
It said Bangladesh could approach the UN Committee for Development Policy (CDP) to request a deferral on the grounds that exceptional circumstances have undermined its readiness.
The report stresses anchoring macroeconomic stability through credible monetary and exchange rate policies, ensuring foreign exchange access for exporters and shoring up the banking system before the graduation clock runs out.
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