New fears over LDC transition, crisis may worsen

❐ BD Digest Desk

Although Bangladesh is scheduled to graduate from the Least Developed Country (LDC) list in November 2026, the government has warned that the transition could create new risks for the country in the current economic and global situation.

A report by the Ministry of Finance said that the loss of special trade and policy privileges for LDCs could further put pressure on the economy amid high inflation, slow economic growth, record increases in defaulted loans, pressure on external debt repayments, and uncertainty in international markets.

The government has prepared the report ahead of the United Nations Economic and Social Council (ECOSOC) meeting next week. It argues for pushing back the LDC transition deadline by another three years to November 2029.

According to the report, if the conflict in the Middle East continues, it could disrupt fuel supply and increase oil prices in the international market, increasing Bangladesh’s import costs and inflationary pressures.

At the same time, there is also a risk that Bangladesh’s export competitiveness will be weakened if Bangladesh’s competing countries sign free trade agreements (FTAs) with the European Union (EU) and the United Kingdom.

The government has also expressed concern that the Office of the United States Trade Representative (USTR) is investigating Bangladesh’s overcapacity. It also risks imposing additional tariffs on Bangladesh’s exports due to its tough stance against child labor and forced labor. The United States is currently Bangladesh’s largest single export market.

The report says that Bangladesh, as an LDC, will have to lose a large part of the international support measures (ISMs) it currently receives after graduation. These benefits play a particularly important role in the ready-made garments and pharmaceutical industries.

The United Nations Conference on Trade and Development (UNCTAD) has also identified dependence on these benefits as one of Bangladesh’s major weaknesses in the post-transition period.

According to the Ministry of Finance, political instability has eroded investor confidence in recent years. At the same time, potential free trade agreements as an alternative to preferential market access have not yet been finalized. As a result, more time is needed to prepare before the transition.

The report also highlights some of the weaknesses in the country’s macroeconomic performance. While economic growth was above 6 percent in the five years leading up to 2021, it has since slowed. Inflation has been above 8 percent since 2022, and poverty is expected to increase further in 2025.

It said that import expenditure has increased significantly due to the increase in the prices of energy and essential commodities in the international market. Currently, more than a quarter of the total import expenditure is being spent on these products. Between July and May of the 2025-26 fiscal year, the cost of importing oil has increased by 72 percent and that of fertilizer by 44 percent. This has also put pressure on foreign exchange reserves.

The report also expressed concern about the banking sector, saying that the highest level of non-performing loans has created a structural liquidity crisis in the banking system for credit distribution and investment.

At the same time, the government’s fiscal capacity is being squeezed as interest and installment payments on foreign debt increase. This could also impact government spending on infrastructure, health, education, and social security programs.

The report also cited the Rohingya crisis and global trade uncertainties, saying that despite tariff and quota-free benefits, exports are not growing at the expected rate due to high interest rates, rising fuel prices, and rising production costs.

On the other hand, the government’s financial pressure is also increasing as the repatriation of the Rohingya is delayed.

Given these realities, the government needs at least two more years to assess, stabilize the economy, and prepare for a sustainable transition from LDC. That is why international support is being sought to postpone the transition to November 2029 instead of 2026.