BANGLADESH is poised to transition from being the least developed country in 2026. The achievement holds significant importance for the nation. However, this endeavour is full of challenges. One of the most significant and demanding situations is the effect on Bangladesh’s exports. A recent study found that Bangladesh’s graduation will result in a decrease in GDP of 1.53 per cent and a decrease in RMG exports of 11.8 per cent, respectively.
Bangladesh enjoys advantageous market access to numerous advanced global destinations under the Generalised System of Preferences, GSP, due to its classification as a least developed country. This enables Bangladeshi exporters to trade with these nations, exempt from import duties and potentially benefiting from reduced export-import tariffs. Nevertheless, following the conclusion of the least developed country graduation process, Bangladesh will no longer meet the criteria for receiving GSP benefits. This is expected to lead to improved tariff policies on exports from Bangladesh, potentially reducing their competitiveness in those respective markets.
The impact of LDC graduation on Bangladesh’s exports will likely vary depending on a particular commodity. The garment industry is highly susceptible to significant impact, given its status as the primary sector for export in Bangladesh, which holds around 81 per cent of total exports. Also, it is the world’s second-largest exporter of clothes, which holds 7.9 per cent of the global cloth industry. However, this garment industry heavily relies on GSP benefits, and the potential withdrawal of these advantages could lead to job losses and decreased exportation. Overall, the economy will be impacted.
The LDC graduation may negatively impact other export industries, including leather, textiles, and food products. These sectors also derive advantages from the GSP benefits, and the potential loss of these benefits might reduce their competitiveness in international markets. Bangladesh seeks to strengthen its competitiveness to alleviate the repercussions of its graduation from the category of LDCs in its export sector. This entails allocating resources towards educational and developmental initiatives, enhancing infrastructure, and broadening the range of exported goods and services.
If we look at Bangladesh’s export data, we can see it relies on the western economy. The United States ($8.72 billion), Germany ($8.36 billion), Spain ($3.6 billion), the United Kingdom ($3.29 billion), and Poland ($2.94 billion) are the top five destinations for Bangladesh’s exports. As a result, GSP withdrawal might have a more significant impact and influence other countries to capture the western market. The biggest challenge is not having SAARC or Asian nations on the export list. So, there is a vast unexplored market to capture for Bangladesh. To avoid risks, Bangladesh has to search for those nations and have an individual trade policy with them.
In addition to the difficult circumstances that were mentioned earlier, the LDC graduation could also be hindered by shifts in the geopolitical environment. The current trade conflict between the United States and China is expected to have a detrimental impact on Bangladesh’s exports. This happens mainly because the United States and China play a significant role as crucial markets for Bangladeshi goods. However, as Bangladesh is a heavy exporter of clothes, it can take advantage of this trade war to capture the Chinese share (31.7 per cent), if it can make an individual favourable trade policy with western nations.
Since the crisis in Ukraine has disrupted global delivery networks, Bangladesh’s exports may suffer as an indirect result of the conflict in Ukraine. The ability of Bangladeshi exporters to bring their goods to other markets may become more difficult due to this, mainly when it takes a side and when we have multiple investments going on that are being funded by Russia. Despite these challenges, Bangladesh can use the LDC graduation as an opportunity to reinforce its economic system. Bangladesh can enhance its competitiveness and attract funding from overseas businesses by taking the proper steps. This may help create jobs and diversify the financial system.
The following is a set of tangible measures that Bangladesh can adopt to alleviate the consequences of LDC graduation and capitalise on the associated prospects:
Investing in R&D: The potential for Bangladesh to improve the quality and competitiveness of its products further can be realised through allocating resources towards research and development initiatives. This measure could mitigate the adverse effects resulting from the withdrawal of GSP benefits.
Infrastructure improvement: Bangladesh has the potential to enhance its infrastructure, specifically by investing in the development of ports and highways, thereby facilitating the seamless exportation of commodities. Consequently, this can boost the attraction of foreign investment when they can transport their products overseas in a short time.
Diversify export base: Bangladesh has the potential to enhance its export base through the development of new goods and the exploration of untapped markets. This measure has the potential to reduce its reliance on the textile sector. For example, it can move to IT exports following India, as the labour costs of IT professionals are still cheaper than in many other countries.
Establishment of novel trade agreements: Bangladesh has the potential to engage in fresh trade deals with developed nations, thereby securing entry into markets that align with its preferences. For example, Bangladesh can trade with African countries for pharmaceutical products, where the market is new. This measure could mitigate the negative impact resulting from the withdrawal of GSP benefits.
Partnerships with foreign companies: Bangladesh has the potential to establish collaborative alliances with international corporations to foster advancements in its technological and manufacturing domains. This measure could enhance the country’s competitiveness within the global economy.
Trained labour force creation: Most export-generation sectors rely on physical labour. Bangladesh must improve its efficiency by creating a qualified and effective labour force.
By implementing these measures, Bangladesh can leverage the LDC graduation as a strategic opportunity to enhance its economic growth and augment its competitiveness in the global export market.
The dynamic nature of the geopolitical scene necessitates that Bangladesh remains adequately prepared to adapt to these fluctuations. By staying aware of the most recent advancements and LDC graduation in 2026, Bangladesh can make well-informed trade and investment policy decisions. This measure will assist the nation in mitigating risks and capitalising on emerging opportunities, even after graduation.
Ahasan Ahmed, a fellow at Centre for Governance Studies, is a PhD student at Indiana University–Purdue University Indianapolis, USA.