The Political Economy of Bangladesh’s LDC Graduation
By Anis Chowdhury
SYDNEY, Apr 7 2026 (IPS)
Bangladesh is scheduled to graduate from the least developed country (LDC) status in November this year after more than half a century. Bangladesh joined the UN club of LDCs in 1975 and consistently met all three graduation criteria – per capita Gross National Income (GNI), human asset and economic vulnerability – since 2018.
Anis Chowdhury
RMG’s dominance and failure to diversify
Bangladesh is indeed a leading, often the highest, user of Duty-Free Quota-Free (DFQF) facilities among LDCs, largely driving its RMG sector growth through the European Union (EU)’s Everything But Arms (EBA) scheme. This reliance on preferential access has made Bangladesh a dominant exporter among LDCs.
However, the RMG sector’s dominance also made Bangladesh highly vulnerable. In the late 1970s when the RMG sector started its journey, it accounted for less than 5% of Bangladesh’s total exports. By the end of the 1990s, this proportion had reached about three-fourths. After more than four decades, since 2013, it has been hovering between 80-85%, according to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
Bangladesh’s heavy reliance on a single export item makes its export basket one of the least diversified among the global economies. This is starkly different from South Korea, a country from which Bangladesh received technical assistance to usher in its RMG sector. South Korea’s textile industry accounted for 33.3% of exports in 1970; it declined to 22.6% within two decades in 1990 as the economy diversified. By 1975 South Korea became a major exporter of electrical machinery and appliances, transport equipment and various other manufacturing products.
Bangladesh’s vulnerability does not arise only from its export product concentration. Bangladesh’s export market is also not diversified with close to 60% going to the EU and UK with apparel comprising more than 90%. The USA, which does not provide any LDC related preferential market access, accounts for about 16% Bangladesh’s exports.
Here, too, Bangladesh’s experience differs from that of South Korea. With the diversification of the economy, South Korea’s exports by destination also became less concentrated. For example, while around 63% of South Korea’s export went to Japan alone in 1960, the combined market share of Japan and the USA fell to around 56% by 1975.
The South Korean State’s autonomy from groups with a vested interest is well documented. Thus, its policies were driven by broader national interest. On the other hand, Bangladesh’s policy space has been captured by the RMG sector.
Undoubtedly, the preferential treatment by the state helped the RMG sector expand rapidly; but at the high cost of failure to diversify. Professor Munir Quddus of Prairie View A&M University and President, Bangladesh Development Initiative (BDI) compared the RMG sector’s support environment with Leather exports to demonstrate the RMG sector’s state capture. His findings, summarized below, are revealing:
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 some of these subsidies have been in existence for nearly 50 years, prudent policymaking demands that it is high time to redirect scarce resources to support other potentially dynamic export sectors.
Being used to state support, the RMG sector ignored the need for raising productivity. The sector’s average labour productivity is lower than Bangladesh’s competitor countries except Cambodia. The sector’s compliance with the environmental and labour standards has also come under scrutiny. However, it seems by becoming too big through state support, the sector’s demand cannot be ignored.
The cosy relationship between the RMG sector leaders and the fallen kleptocratic regime is well-known. The regime allowed them to flourish through loan defaults and state subsidies and in return the business leaders were cheering on the fascist regime hoping to see its continuation. Understandably, they were fearful that they might not enjoy the same crony relationship with the Interim Government led by Nobel Laureate Professor Muhammad Yunus; thus, they cried foul and campaigned for a postponement of LDC graduation.
LDC graduation as structural transformation
The Interim Government accepted the White Paper’s recommendation and viewed the LDC graduation momentum as an opportunity to accelerate structural transformation of the economy. Despite bureaucratic inertia, it did succeed in improving business environment, such as significant reductions in times to obtain business licenses/certificates/permits, simplifications of customs procedures and fast-tracked implementation of national logistic and national tariff policies. It also identified the bottlenecks for potential sectors, such as pharmaceuticals, leather & footwear, electronics, light engineering and fishing & agro-based industries and took measures to remove or ease them.
No doubt a lot still needs to be done as part of an ongoing process of reform and policy adjustment. But that cannot be used as a justification to request a delay on the basis that the preparation is inadequate, particularly when Bangladesh’s macroeconomic performance is far better than the most LDCs, including Nepal and Lao People’s Democratic Republic (Lao PDR), the two countries scheduled to graduate along with Bangladesh.
Thanks to the macroeconomic management of the Interim Government which succeeded in preventing a total collapse of the economy; it restored discipline in the financial and banking sector, rebuilt the country’s foreign exchange reserves, stabilized the exchange rate and earned the confidence of international financial leaders to re-open trade financing and maintain foreign investment inflows. It earned the diaspora community’s confidence resulting in increased remittances. The Interim Government concluded Economic Partnership Agreement (EPA) with Japan in record time, ensuring duty-free market access for 99.9% of its products. It also initiated EPA talks with other major trade partners, including the EU.
Graduation delay: Bad signal for LDCs and win for vested interest
The UN-DESA uses three criteria for LDCs – GNI per capita, human asset index (HAI) and economic vulnerability index (EVI). Its evaluation in February 2025 shows that Bangladesh is in a much better position than Nepal and Lao PDR in terms of GNI per capita and EVI. Bangladesh with higher GNI per capita is economically less vulnerable than Nepal and Lao PDR, both of which suffer from additional disadvantages of landlockedness.
Bangladesh’s economy is projected to grow at a faster rate (around 5.0%–5.1% in FY 2005-26 and 5.7% in FY 2026-27 according to the ADB) than both Nepal and Lao PDR despite slightly elevated inflation rates. Bangladesh also performs better in logistics, ranked 88th out of 139 countries by the World Bank compared to Nepal’s rank of 114th and Lao PDR’s 115th. Bangladesh also has better productive capacity according to the UNCTAD’s productive capacity index.
Bangladesh will continue to enjoy DFQF market access for three more years after its graduation as endorsed by the WTO. Australia and Canada indicated extended periods of DFQF access until at least 2034. The UK will allow 92% Bangladesh products duty-free access after 2029. Therefore, a delay for a better performing Bangladesh will be a bad signal for the LDCs aspiring to graduate from LDC status.
It will also mean a win for the vested interest groups and stalling of the momentum towards accelerated structural transformation. The state capture by the RMG sector has already become clear; a highly professional and successful central bank governor has been replaced with a failed (loan defaulter) garment sector businessperson with no background in banking or international macroeconomics. The Transparency International Bangladesh views “such a decision risks turning the central bank once again into an instrument of business lobbies dependent on defaulted loans and political connections, rather than safeguarding national interest, as was the case during the authoritarian kleptocratic regime”.
Bangladesh will be better off spending its diplomatic efforts to secure GSP+ facilities in the EU and EPA with its trading partners instead of lobbying for a LDC graduation delay. It should worry more about EU’s new, stricter and mandatory Environmental, Social, and Governance (ESG) regulations. Whereas ESG failure may cost Bangladesh 30% of EU exports, strict compliance can function as powerful catalysts for production upgrading and accelerating structural transformation while achieve sustainable development goals (SDGs).
Anis Chowdhury, Emeritus Professor, Western Sydney University (Australia). He held senior UN positions in Bangkok and New York and served as Special Assistant to the Chief Advisor for Finance (with the status and rank of State Minister) in the Professor Yunus-led Interim Government. E-mail: anis.z.chowdhury@gmail.com
IPS UN Bureau