Transition to developing countries: initiatives underway to cover potential losses
The government is cautious about the challenges the country would face after its transition to a developing country in 2026.
This was reflected in the finance minister’s budget speech to parliament on Thursday.
“We have already incorporated the necessary strategies for this into the 8th five-year plan and a detailed action plan is being prepared by the economic relations division,” AHM Minister of Finance Mustafa Kamal said.
Economists said the minister’s statement on initiatives to address the challenges showed the seriousness of the government’s intention to tackle the problem.
However, they suggested the timely implementation of the work plan.
Kamal in his budget speech said the government has already taken steps to take advantage of the GSP + benefit in European Union countries after graduation.
As part of its initiatives, Bangladesh has signed a preferential trade agreement with Bhutan and is working to reach similar agreements with 11 other countries, he added.
Although the minister spoke of several initiatives to overcome post-graduation challenges, he gave no indication of the measures taken by the government to eliminate corruption.
He said the government is striving to improve Bangladesh’s position in the Ease of Doing Business Index in order to increase foreign direct investment in the country.
Kamal said the government was implementing various megaprojects, including the Padma Bridge, which would help create new jobs and increase national income.
The United Nations Development Policy Committee (CDP) recommended removing Bangladesh from the list of least developed countries (LDCs) in 2026. Bangladesh, before the advent of Covid-19, was due to leave the group in 2024 .
In the 2021 CDP exam, Bangladesh ranks highly in all three graduation criteria, with a per capita income of $ 1,827 (requirement of $ 1,222), an economic vulnerability index of 27 (requirement of 32 or less ) and a human asset index of 75.4 (requirement of 66 or higher).
Bangladesh’s export earnings and the flow of cheaper foreign aid and subsidies will decline after graduation from LDC status, according to a government study last year.
The expected loss of exports and grants and the increase in debt service costs would lead to an increase in the current account deficit, according to the study titled “Impact Assessment and Adaptation Strategies to Graduate Bangladesh from the Status of PMA “.
The report was prepared by the General Economy Division, a wing under the Ministry of Planning.
The biggest blow will come in the form of the loss of duty-free market access. According to the study, the projected export loss of clothing products in the European Union and non-EU markets is estimated at around 5% of total exports in the 2017-18 financial year.
This loss is estimated at $ 7 billion in fiscal year 27, which would increase steadily to reach $ 13 billion by fiscal year 31.
Political actions will be needed to counter these projected losses, according to the study, adding that the loss of concessional loans will increase debt service costs.
The report, however, said the reclassification of LDCs would open the door to market-based borrowing by the public and private sectors. Bangladesh will become more dependent on borrowing from relatively more expensive sources. Private sector external debt will also increase.
The third important factor will be the loss of foreign subsidies, currently received by the public and private sectors.
The combined impact of these three types of losses will directly affect the balance of payments, and the current account deficit could reach 0.9-1.4% of GDP in fiscal year 27.
Fahmida Khatun, executive director of the Center for Policy Dialogue, said there should be a guideline for dealing with post-graduation challenges in 2026, as exports, soft loans and business benefits will decline.
“If the government were to make sudden decisions in 2027, it would not be wise. So we must prepare now to overcome the challenges,” she said.
Fahmida said domestic resource mobilization would be very important after graduation and appropriate guidelines should be prepared in this regard.
Ahsan H Mansur, executive director of the Policy Research Institute, said the political issue is important as the country will exit LDC status after 2026.
He underlined the need to plan the mobilization of internal resources.