Bangladesh’s graduation into a developing country: The problems and the prospects

It is no longer a question of whether or not, or even when and how, Bangladesh is going to graduate from the Least Developed Country status into a 'Developing Country'. It is very well known now that after having successfully met all the three criteria set by the Centre for Development Policy (CDP) of the United Nations in its triennial review in 2018, and with a very commendable development since then in all sectors of the economy and society, Bangladesh will easily cross the same hurdles in the second review in 2021. Although the formal review is scheduled to take place between 6th and 9th February this year, that is, 2021, both dates included, the members of the CDP have already visited Bangladesh and are learnt to have expressed their satisfaction with the progress of the country. The government is preparing a write-up, likely to be sent to them by 18th of January, 2021, to a set of issues discussed by the visiting team. These are not about the required three criteria, where Bangladesh has achieved enough and to spare. These are all about how the country proposes to handle the post-graduation challenges.

Graduation of the country, or any country for that matter, from an LDC to a 'Developing Country' is in itself quite a challenging affair and tends to create division among its population. This state of affairs, apparently enigmatic, is not difficult to understand. While this graduation means a definite betterment of the economy and society in general leading to a rise in people's standard of living, the division arises for another set of reasons. Because it comes with a price tag not greatly appreciated by all sections of a society. Bangladesh, like the rest of the LDCs, enjoys, most of us are aware, a bundle of privileges in (1) market access, (2) loan facilities, (3) grants, travel facilities and certain other UN and donor considerations. While all of these are important and helpful, the first two of these privileges are pre-eminent among them. It was felt that the LDCs, with their multifarious shortcomings, found themselves at a serious disadvantage to compete with others with their exports to the rest of the world, especially in the developed countries, potentially the main consumers of their products. Taking these into consideration, through unilateral consideration, bi-lateral and multilateral consultations, the developed world came up with certain measures helpful for market access of the products of the LDCs. These are broadly known as GSP schemes. It stands for Generalised System of Preferences in case of the European Union (EU) and Generalised Scheme of Preferences for the USA. The European Union System is broader and all-encompassing so far as its reach is concerned to the exports from the LDCs. 

The European Union, tentatively beginning its trade concessions to the LDCs in the earlier part of the first decade of this century, formalised it in 2012 by issuing a notification meant to help the poorer countries export their products to the markets of the EU countries. It was later amended in 2016, and they adopted a scheme called EBA (Everything but Arms). It is still there. It means that an LDC may export any amount or quantity of any and all of its legitimate products to any   and all of the countries of the Union without any duty or charges except arms and ammunition. The Rules of Origin regulation has, of course, to be observed for understandable reasons. Bangladesh is probably the greatest beneficiary of this system. It has now climbed up to be the second largest exporter of apparels in the world second only to China, although the gap between the exports of apparels from these two countries is very wide. Bangladesh's export earnings, riding on the bandwagon of the apparel sector, has, over a period of nearly two decades, witnessed manifold increase. But the dependence of our expanding export has been so much on the apparel sector as for it to claim nearly 85% of the country's total export earnings. While it has not been an obstacle to our passage of the vulnerability criteria in the 2018 CDP assessment, nor, it is understood, is it going to be so in the crucial 2021 assessment as previously hinted at. But it is going to be a severe burden in our post-graduation years. 

Availability of investible capital is in severe shortage in the LDCs. Liberal lending facilities at concessionary rates of interest by the multilateral development partners like the World Bank, ADB, IFC and rich nations like Japan, China, Canada, Korea, the UK, etc. and by some of the other rich countries as well as project aids, though not always that benign, grants and many other concessions provided to the LDCs, no doubt, help them in many ways. The new entrepreneurial class in our country has, in fact, risen on the crest of the liberal market access and concessionary lending facilities provided by those institutions and countries. 

Now, while graduating out of the LDC group to the club of the developing countries, though overcrowded, definitely speaks of a country's rise in stature, both financial and otherwise, and , naturally, in the status of its citizens, the division in the society we have earlier written about is based on some genuine grounds. Many in the entrepreneurial class and some of the economists have already voiced their serious concern about the impending graduation, and have even suggested to the government to take it up with the CDP, ECOSOC or the UN to defer our assessment in 2021 so as not to graduate in 2024. The major ground they offered was the depredation of the economy and the consequential fall in income, both individual and national, of the country, the severe rise in poverty and so on. They, therefore, argue that if Bangladesh now graduates, earmarked for 2024, it will not be sustainable, because our exports will face applicable tariffs in all our major export destinations, concessionary rates of lending by the multilateral lending institutions, countries and agencies will cease and all other facilities provided to the LDCs will be stopped. They foresee a world of doom in graduation in 2024. 

Their fear is not unfounded, and does provide us with some very important food for thought. It has been estimated by UNCTAD some time back that Bangladesh's graduation is likely to erode an estimated amount of US$7 billion from her annual export earnings. Our factory owners, especially the apparel exporters, feel, quite rightly, one might say, that the imposition of leviable Customs duties and other charges on their products globally, especially so in the EU, Canada, China, India, Japan, Australia and in the rest of the world, will throw their global business into a severe chaos. This anxiety would be doubly compounded when we consider that their competing country, Vietnam, has already signed a Free Trade Agreement (FTA) with the EU, our largest market. They have already done so with China and India. Vietnam, China, Australia, a total of 15 countries have already signed what is called RCEP. That and some other trade agreements under negotiation in different areas of the world, where we have business interests, is likely to catch us off guard. Some of these issues were dealt with, in short, by the present author in one of his articles published elsewhere.1 

We are not sure if any country under assessment by the CDP for graduation may legitimately request for a deferment of her graduation as per schedule. What we know is that the CDP, despite a country having qualified for graduation in two consecutive triennial assessments, may not recommend it to the ECOSOC/ UN General Assembly for graduation and make it wait for the next assessment. This happened with Nepal and East Timor in the previous assessment in 2018. That was the second triennial consecutive assessment for both and both of them had qualified. But the CPD did not recommend either of them on grounds of unsustainability. These two countries, along with Bangladesh, Myanmar and Lao P.D.R. will, hopefully, come out successful in their second consecutive triennial assessment in 2021 to finally graduate in 2024.

The die in this regard has already been cast. The government of Bangladesh has started full throttle to face the assessment and qualify for graduation in 2024. Things in the related areas appear to be going well and we feel almost certain that Bangladesh will also qualify in this second assessment in 2021 enabling her to 'graduate' in 2024. We have, therefore, no way other than to jump into the fray and do all that is possible to sustain the momentum of development and arrive at the goal of becoming a middle income country by 2041, i.e., ensure a per capita income of US$4,000 or above by that year. It may be noted, however, that while the graduation into a 'developing country' will deprive us of the most important privileged market access with zero duty, some other opportunities would open before us. The marginal enhancement of interests charged will be more than offset by a wide range of sources of funds opening both before the public as well as the private sector of the economy. Foreign investments, both direct and through joint ventures, will pour in, initially hesitantly but later more and more of it once the outside capital starts believing in the country and infrastructure develops as it has now been doing. 

The GSP scheme of the EU, as it now stands, offers another window of opportunity to the newly graduating countries, like Bangladesh, when they cease to enjoy facilities under the EBA (Everything but Arms). It is called the GSP+ scheme. Even some responsible persons in the government and many in the businesses often talk of getting duty-and quota-free export opportunities like in the EBA through the GSP+ scheme. But they must carefully note that a country, any country newly graduating, in order to avail itself of the facilities provided under this scheme must, quite unlike in the EBA, fulfil certain conditions. The candidate-country must, to begin with, apply to the EC secretariat for the benefits under the GSP+ scheme stating that it fulfils all the conditions to avail itself of the facilities provided under it. Those conditions, in short, are the following: (a) a country must be considered vulnerable; the countries below the level of 'Developing Countries' are considered vulnerable;  I find it as a new condition and it is not clear if Bangladesh, after graduation, would be considered 'vulnerable' under this new dispensation; (b) the country, if qualified, will get duty-and quota-free benefit of export of only 66% of the tariff lines, and not 100%, as in the case of EBA, of the EU; (c) It must accede to, and ratify, all the 27 UN Conventions adopted by the EU; it may be noted here that Bangladesh has already done so in case of 26 of those Conventions, and has decided to do so with the remaining one relating to prohibition of child labour. There would, therefore, be no problem there; (d) Not more than seven of the country's export items to the EU would constitute more than 75% of its total export to the Union; we would have no problem here, either, as only apparels form more than that share; and (e) the candidate-country's total export, in an average of previous three years' exports shall not exceed 7.4% of the EU's total imports under the EBA scheme. Bangladesh is likely to encounter some serious problems here. 

Ms. Rensje Teerink, Head of EU delegation in Bangladesh, in a recent interview with a local English daily2,, has stated that, as per the estimate of the EU, in the year 2018, Bangladesh's share of exports under the EBA scheme to the EU countries stands at 24.4%. She has also mentioned in the same interview that the allowable limit under the scheme for any country shall not exceed7.4%, as mentioned above. This appears to be a very difficult situation. We are aware that the EU will review this scheme in 2023, just a year ahead of our graduation. Our diplomatic efforts must be directed at gaining the advantages under the GSP+ scheme. The members of the General Assembly of the UN are committed, through a UN resolution, that a country, once graduated, shall not be allowed to slide down. The provision of that resolution must be invoked both with the UN and the EU.
We may, in this connection, draw the attention of curious readers to an empirical study of what has happened to the countries that graduated earlier from the category of LDCs. Since the category came into force in 1971, and Bangladesh's inclusion in it in 1975, only seven countries have so far come out of the LDC category. They are---1. Botswana (1994), 2. Cape Verde (2007), 3. The Maldives (2011), 4. Samoa (2014), 5, Equatorial Guinea (2017), 6. Bhutan (2019) and 7. Vanuatu (2020). In my paper referred to in the footnote 2 below, we attempted at an empirical study to see what happens after graduation when the different kinds of concessions provided while a country is an LDC is withdrawn after her graduation. We have found, to our great satisfaction, that the economies of all the four countries we studied have gone up, one remains steady while none has gone down. Readers may like to take a look at our graphic representation to find out for herself the truthfulness of this study.

While we felt encouraged with the findings noted above, it must at the same time be kept in mind that the more than $300 billion dollar economy of Bangladesh is far too big and complicated than those studied. While we must continue to strive more and more seriously to sign as many meaningful FTAs and PTAs with as many countries as feasible and in as short a time as possible, we must strive harder and harder to raise our TAX: GDP ratio, which is the lowest in the region except perhaps Afghanistan. It is now a by-word in the informed circles in Bangladesh that our collected taxes are far less than the uncollected ones. It speaks a lot: corruption, administrative inefficiency, which includes lack of proper supervision, impunity, often encouragement to evasion, and a lack of political will to ensure collection of taxes. It is time we make a fresh start to collect more taxes to make up for the inevitable loss of Customs duties and other charges levied at the import stage owing to the future FTAs and PTAs, very essential to survive as a country in the rapidly changing international economic and trade scenario.  

The author is the Chief Executive Officer at the Bangladesh Foreign Trade Institute (BFTI)
1. The Financial Express, Dhaka, Ways to Face Post-LDC Challenges, Dated 24th November, 2019.
2. Star Business of the Daily Star, Dhaka, dated January 10th, 2021, pp B1-B2