LDC graduation or deferral: Is Bangladesh ready for the post-LDC era?

Bangladesh is set to graduate from the Least Developed Country (LDC) status in November 2026. This will be considered as a milestone once celebrated as a triumph of development. However, the national conversation has shifted; the feeling that was once a cause for celebration now evokes worry. Business leaders warn that the economy’s foundation is fragile, strained by macroeconomic instability, elevated interest rates, evolving and uncertain political transition, and waning investor confidence. With almost 85 percent of exports concentrated in ready-made garments, the loss of duty-free access to major markets threatens to erode export volumes and put millions of livelihoods at risk.

The hard truth is that in the past few years since graduation was confirmed, Bangladesh has made little tangible progress in addressing the structural reforms required for a smooth transition. The earlier celebratory tone overlooked the fact that time alone does not guarantee readiness. The question is, if we could not deliver meaningful reforms in the past decade, what gives us confidence that they can be achieved in the short run-up that remains?

The challenges are well-known. Our export base remains dangerously narrow. Even pharmaceutical exports, currently benefitting from TRIPS waivers, will lose their cost advantage post-graduation, not just for Bangladesh but also for the millions in other countries who rely on affordable medicine. Bangladesh is already far behind competitors like Vietnam and India in securing important free trade agreements (FTAs) with major markets. An FTA between India and the UK and FTAs for Vietnam with the EU and Canada are stark contrast to Bangladesh’s limited progress, a small preferential trading agreement (PTA) only with Bhutan.

Global conditions are no less demanding. Trade tensions, such as the US’s reciprocal tariffs under the Trump administration, highlight how the rules of World Trade Organization (WTO) are ignored in ways that are less sympathetic to the LDCs. Post-graduation, Bangladesh will face higher compliance costs related to labour standards, environmental sustainability, and intellectual property rights. In the EU, our single largest export destination, duty-free access will remain for another three years until 2029, but new challenges, including ESG reporting and stricter labour compliance, will impose additional costs and uncertainty.

The government and development partners have explored the notion of a “smooth transition,” with the Economic Relations Division producing two reports on graduation and private investment and the Bangladesh Investment Development Authority (BIDA) assessing investment diversification. These are important steps, but reports alone cannot deliver reforms. Without alignment among political and business stakeholders and bureaucracy, the reform agenda risks stalling. And herein lies the danger: deferring graduation could inadvertently create another comfort zone, delaying the very reforms that are already overdue.

It now needs to be decided, by both policymakers and the business community, whether Bangladesh should actively pursue a deferral of LDC graduation. There is precedent for such extensions, as some LDCs in the past have sought and secured more time. There is nothing wrong in seeking for this breathing space when the current domestic and global headwinds are strong. But such an appeal must be very well-grounded on evidence-based arguments. Three of the LDCs, namely Bangladesh, Nepal and Lao PDR, are scheduled to graduate simultaneously in 2026. The problem is, if only Bangladesh seeks for an extension, it may not gain the required traction internationally, while a collaborative appeal with Nepal and Lao PDR could carry more weight. However, initial indications suggest that the deferral debate is not particularly active in those two countries, which could complicate the possibility of a coordinated approach.

While attempting to seek a deferral of graduation, the bigger question is whether a deferral would actually help. Without an urgent, coordinated reform drive spanning trade policy, industrial diversification, investment facilitation and skills development, any extension would be wasted time. The forthcoming political transitions (with the possibility of the parliamentary election in February 2026) may complicate the picture further. The question is whether the incoming or potential ruling parties are prepared to navigate the post-LDC landscape.

There is no simple solution going forward. Bangladesh also needs to explore opportunities to deepen regional trade integration, possibly through accession of regional blocs such as the Association of Southeast Asian Nations (ASEAN) and Regional Comprehensive Economic Partnership (RCEP) , and prepare the private sector to face increased compliance requirements. It has to reform investment facilitation frameworks, improve institutional capacity, and advocate diversification of both exports and export destinations. A reinvigorated commitment to attracting substantial foreign direct investment (FDI) is also fundamental to the reform project, since FDI can provide not only capital but also technology, managerial skills, and entry into new markets.

Ultimately, LDC graduation is not voluntary; entry into the club may be, but exiting is inevitable once the criteria are met. The choice we have is whether to make it a symbol of sustained capability or an exposed vulnerability. If reforms are deferred under the guise of a graduation delay, we risk turning a historic milestone into a prolonged stumble.

Dr Selim Raihan is professor in the Department of Economics at Dhaka University, and executive director at the South Asian Network on Economic Modeling (SANEM). He can be reached at [email protected].

Views expressed in this article are the author’s own. 

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