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Post-graduation challenges and opportunities for Bangladesh

Trade 2022-06-24, 11:00pm


Jehangir Hussain.

Jehangir Hussain

Following graduation from the Least Developed Country (LDC) group Bangladesh is possibly headed to lose about $2.7 billion in export earnings annually.

Though Bangladesh would lose some of the opportunities, new opportunities would open up for it, expects the Economic Relations Division.

The ERD advised the Ministry of Commerce to make policy frameworks, supportive of exporters and manufacturers for the period covering the duration and post-graduation from the LDC group.

The ERD also advised the government to augment domestic resource mobilisation, improve road, power, and port facilities to offset the effects  of losing duty free market access

It also called for diversification of exports in order to minimise vulnerability of the national economy.

Bangladesh has been in the LDC group for 43 years.

After its graduation from the LDC group, Bangladesh would be subjected to 6.7 per cent additional tariff as many countries and trading partners would withdraw duty-free and quota-free benefits of Bangladesh, according a paper prepared by the Economic Relations Division on the challenges and opportunities regarding its transition from the LDC group.

ERD made the study as a United Nations Committee for Development Policy (UNCDP) is expected to place Bangladesh in its graduation list this year.

The UN Committee would place Bangladesh in the new category as it met the  criteria of Gross National Income (GNI) per capita, Human Assets Index (HAI) and Economic Vulnerability Index (EVI).

Following review Bangladesh's progress by the UNCDP and a three-year transition period the country’s graduation from the LDC group would take place in 2024.

Currently, 72 per cent of exports of goods and services of Bangladesh get duty-free and quota-free market access, according to the ERD paper.

Goods and services of Bangladesh enjoy varying degrees of preferential market access to over 40 countries, according a study done by  the Centre for Policy Dialogue in March 2021.

As regional and bilateral trade agreements account for about 90 per cent of total exports from Bangladesh , preferential access is of special significance says the  ERD paper.

European Union, the destination of 54 per cent of exports from Bangladesh, provides preferential market access to its goods and services.

Following graduation, Bangladesh's exports would be subjected to  8.7 per cent tariffs by the EU, according to the CPD.

Following graduation, goods and services of Bangladesh would, therefore, be  more expensive.

According to the United Nations Conference on Trade and Development (UNCTAD) exports from Bangladesh might decline by 5.5 per cent to 7.5 percent.

Following graduation, Bangladesh is also expected to lose low interest credits from the International Development Association, the soft loan window of the World Bank.

Several mega projects needing borrowing might not get traditional concessional credits.

According to the World Bank’s criteria, if a country's per capita income goes  above $1,400 for three consecutive years, the rate of interest would go up to about two per cent from  0.75 per cent, as Bangladesh gets now.

Despite Bangladesh’s sound track record of managing its public debt and repayment of debts, the ERD sees the risk of foreign debt burden increasing  due to non- availability of  concessional credits.

Economists, however, view Bangladesh's reduced dependence on foreign aid as a positive development.

Bangladesh’s dependence on foreign aid accounts for 1.3 per cent of its gross domestic product (GDP).

These factors are not applicable for Vietnam as it was never in the LDC group. 

Bangladesh will lose trade benefits in export destinations when it finally transitions into a developing country

Bangladesh’s recommended graduation from the group of the least developed countries (LDCs) to a developing country comes at a time when the country is set to celebrate the golden jubilee of its independence.

The development has brought joy to the country along with new challenges in the area of trade and commerce — especially for exports in the global market, following the graduation in 2026.

The United Nations Committee for Development Policy (CDP) recommended Bangladesh’s graduation from the LDC group after the second round of review.

In March 2018, the CDP declared Bangladesh eligible for the graduation from the LDC group after it had fulfilled the requirements in all three criteria — gross national income per capita, human assets index and economic vulnerability index during CDP’s 5-day review meeting held in February.

According to the UN, per capita income of $1,230 is one of the requirements for transitioning into a developing nation. Bangladesh’s per capita income currently stands at $1,827 and its score in the Human Assets Index (HAI) is 75.3 against a threshold of 66.

Bangladesh’s current Economic Vulnerability Index (EVI) is 27.3 points while the required   score ought to be below 32 points.

The UN committee also recommended following appeal by Bangladesh to extend the final terminal period to 2026 from 2024.

Following the recommendation by the CDP for Bangladesh to become a developing nation, the proposal would need endorsement of the UN Economic and Social Council (Ecosoc).

The UN General Assembly is due to approve the proposal in September.

The graduation can be hailed as a milestone for Bangladesh and reflects the country’s sustained development in the socio-economic indicators.

It has brought opportunities as well as challenges since Bangladesh will lose trade benefits in export destinations and lose competitiveness to its competitors following the graduation.

The recognition will bring new opportunities and enhance Bangladesh's branding to global investors and other groups.

Bangladesh needs to utilize this opportunity to attract foreign investments.

It will also increase Bangladesh's credit rating.