LDC graduation delayed: Who really wins?
The passage of the United Nations General Assembly (UNGA) resolution (A/81/L.8) approving Bangladesh’s request for an extension of the preparatory period for its graduation from the least developed country (LDC) category by three more years has been greeted in Bangladesh with a sigh of relief.
Instead of the end of November 2026, as previously scheduled, Bangladesh and Nepal will now graduate from their LDC status in November 2029. There is a feeling that Bangladesh has been saved from an imminent catastrophe.
In granting the extension, the UNGA gave due consideration to the severity of the challenges faced by Bangladesh and Nepal amid heightened risks of uncertain magnitude stemming from recent conflicts and associated disruptions in international energy and supply flows, uncertainties concerning global trade, as well as the complexity and specific nature of the recent political transitions in both countries, which may affect the governments’ capacity to respond to external shocks.
A slap in the Interim Government’s face?
Readers of this column may recall that the Interim Government was in favour of Bangladesh’s scheduled LDC graduation on 24 November 2026. So, many will try to present the UNGA resolution as a slap in the face of the Interim Government.
I, who was given the responsibility as the Chief Adviser’s Special Assistant to guide the country’s preparations for LDC graduation, have an obligation to explain the circumstances and actions of the Interim Government.
First, the decision to stay on course was not taken in a vacuum or in a whimsical manner. It was based on rigorous analyses of facts and the recommendations of experts responsible for the White Paper on the state of the economy.
Second, the Interim Government did not sit idle; it prepared a “Smooth Transition Strategy” and accelerated its implementation.
Third, the UN assessed Bangladesh’s LDC graduation preparations in February 2025 and found, “The five interrelated pillars [of Interim Government’s strategy] offer a comprehensive framework to address immediate and long-term economic challenges, facilitating a smooth and sustainable transition.”
Fourth, the heightened uncertainties in the global economy due to the illegal US-Israel war on Iran and Trump’s unilateral, whimsical, so-called reciprocal tariffs were absent at the time of the Interim Government’s decision.
Fifth, the Interim Government invited the United Nations to independently assess Bangladesh’s preparations in anticipation of Trump-tariff-induced global uncertainties and in consideration of the impending change of government following the February national elections and the new government’s capacity to respond to external shocks. The UN’s assessment report has been the key document for the UNGA’s resolution in favour of the extension granted.
Sixth, the UNGA resolution explicitly endorsed the Interim Government’s preparation strategy when it “invites Bangladesh to advance domestic reforms and continue to implement, during the extended preparatory period … its national smooth transition strategy.”
The above facts clearly demonstrate that the Interim Government was on the right track. Those who are out to delegitimise the Interim Government have no leg to stand on.
A win for Bangladesh?
The extra three years for preparations could be a win for Bangladesh, provided it accelerates the implementation of the Interim Government’s reforms and Smooth Transition Strategy, as the UNGA resolution explicitly recommends.
One of the Interim Government’s key reforms has been the elimination of cash subsidies to industries according to a clear timeline. In the 2024-25 fiscal year, these amounted to approximately 16,000 crore taka in the form of direct cash subsidies and reduced taxes.
Besides being a post-LDC graduation requirement under World Trade Organisation (WTO) rules, the elimination of cash subsidies is an urgent imperative given Bangladesh’s low tax revenue collections, resulting in high debt accumulation.
The urgency of this measure also arises from the need to accelerate Bangladesh’s structural transformation away from overdependence on a single sector, ready-made garments (RMG).
The bulk of the cash incentives goes to the RMG sector, limiting the government’s ability to support other potential sectors, such as light engineering, electronics, agriculture and processed food, fisheries, pharmaceuticals, leather and footwear, jute and jute goods, plastics, and information and communication technology (ICT), identified by the Interim Government.
Professor Munir Quddus of Prairie View A&M University has exposed the RMG sector’s stranglehold on the economy by comparing the RMG sector’s policy support with that of the leather and other sectors, as summarised below:
[Graphic: RMG sector policy support compared with other sectors]
The usual justification for such preferential treatment is that RMG is the “largest export sector and foreign exchange earner”. But the argument is perverse. Given that some of these subsidies have been in existence for nearly 50 years, prudent policymaking demands that scarce resources be redirected to support other potentially dynamic export sectors.
Unfortunately, this trend continues today. Out of the government’s 60,000 crore taka stimulus package for industries, announced in May this year, a paltry 3,000 crore taka has been allocated for export diversification. The first policy initiative of the new Bangladesh Bank Governor was to allow banks to advance loans to the RMG sector for paying wages. This defies the basic principle of economics, taught in the first year of undergraduate studies, that a firm’s revenue must cover variable costs, the bulk of which consists of wages, to minimise its losses.
One should seriously ask: why should this sector be protected when it cannot pay wages from its revenues despite being directly subsidised? Is this sector really helping the country by draining its scarce fiscal resources and weakening the country’s fragile banking sector, already saddled with non-performing loans owing mainly to it?
The UN resolution is a win for the RMG sector, which lobbied for a delay.
The government must withstand pressure from the RMG lobby to turn the respite given by the UN resolution into a win for Bangladesh.
It must “advance domestic reforms and continue to implement… national smooth transition strategy” developed by the Interim Government, as the UN resolution clearly advises.
Business as usual will take Bangladesh to a blind alley.
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Emeritus Professor Anisuzzaman Chowdhury is a former Special Assistant (for the Ministry of Finance) to the Chief Adviser of the Interim Government, led by Professor Yunus. He held senior United Nations positions in Economic and Social Affairs in New York and Bangkok. Email: a.chowdhury@westernsydney.edu.au; anis.z.chowdhury@gmail.com.