Article written by Amb. Farooq Sobhan, Distinguished Fellow, BEI on “Taking Bangladesh’s LDC graduation seriously”, Dhaka Tribune, 26 August 2020
OP-ED: Taking Bangladesh’s LDC graduation seriously
We cannot afford to lose any more time
The global economy is going through a severe and prolonged health and economic crisis inflicted by the Covid-19 pandemic. Like other developed and developing economies, Bangladesh has also been seriously affected by the pandemic.
Earlier in the year, the shutdown of economic activities to contain the spread of the virus resulted in massive socio-economic consequences which led to a loss of jobs and a consequent increase in poverty levels. Export receipts plummeted in March-May 2020 but produced better than expected results during June-July 2020.
However, returning to a robust growth trajectory in a sustainable manner will depend on how fast the global economy recovers from the ongoing pandemic-induced recession in the leading economies in the world.
For Bangladesh, there is an additional burning issue which is its upcoming graduation from the group of least developed countries (LDCs). Before the coronavirus pandemic hit the global economy, Bangladesh was preparing to graduate from the group of LDCs in 2024 with the expectation that it will meet the required criteria for LDC graduation at the United Nations triennial review which is scheduled to be held in 2021.
The recent official data seems to suggest Bangladesh’s registering a much stronger economic performance in comparison with most global economies and if this should continue to be the case at the time of the UN triennial review next year, it is more than likely that Bangladesh will qualify for graduation from the group of LDCs in 2024.
Given its impending graduation, Bangladesh needs to be well prepared to tackle any likely adverse consequences arising from LDC graduation, particularly in relation to the export sector. Apparel exports, which have single-handedly propelled export growth, are under pressure due to the global economic downturn.
The loss of duty-free preferences in many different markets following graduation in 2024 — such as Australia, Canada, India, Japan, the EU, and the UK — would put severe pressure on Bangladesh’s competitiveness. Therefore, as the global economy recovers from the pandemic, restoring and sustaining a robust export performance will be a critical factor in ensuring Bangladesh’s smooth LDC graduation.
As export diversification has been a long-standing challenge, the imminent LDC graduation requires unleashing the export potential of various promising export sectors while sustaining and perhaps even expanding the export of readymade garments (RMGs). Moreover, graduation also demands that engagement with the country’s trading partners is expanded and strengthened.
It is in this context that the Bangladesh Enterprise Institute (BEI), an independent and non-profit think tank, which works closely with the private sector and policy-makers on trade policy and development issues, has published a substantive report which details evidence-based policy inputs to deal with the challenges of LDC graduation, in particular with the issues of export diversification and export competitiveness.
The publication, Navigating New Waters: Unleashing Bangladesh’s Export Potential for Smooth LDC Graduation, is based on a detailed analysis of several key issues that need to be given serious attention in the run up to graduation.
The study, which was undertaken by a team of economists led by one of Bangladesh’s leading trade economists, Dr Abdur Razzaque, highlights the country’s impressive export performance over the past decade just before the advent of the global pandemic.
The report makes a detailed analysis of long-standing challenges related to external competitiveness and export competitiveness and how these challenges should be addressed. In this context, the analysis has made insightful comparisons of Bangladesh with its main competitors such as China, India, and Vietnam.
The book examines four major export destinations — the EU, the US, India, and China — with a view to considering various options to promote Bangladesh’s exports in these markets after its LDC graduation. It explains various existing provisions such as duty-free market access to the EU, India, and China, and possible transition strategies. The analysis also provides various routes through which the trade partnership with the US can be strengthened.
One salient feature of the publication has been a comprehensive analysis of the export potential and prospects in six selected sectors: Leather, plastic, furniture, pharmaceuticals, jute, and services, and the policy support required to expand exports in these sectors.
For each of the sectors, the research shows the export prospects in the global market on a country-wise basis; how Bangladesh is faring with other competitors; areas of bottlenecks for an enhanced export response, and how certain policies can help in expanding exports in each of these sectors. The analysis draws on inputs and suggestions from industry experts and provides specific policy recommendations.
Given the graduation timeline, Bangladesh needs to take the relevant issues seriously. We hope that this publication can make a meaningful contribution to the policy discourse by identifying and bringing together the most pressing issues which require urgent attention.
Amongst the many suggestions in the book, it has been pointed out that currently, only the EU allows an additional three-year transition period after graduation. This means that Bangladesh can continue to enjoy the current market access to the EU until 2027 even if it graduates in 2024. Bangladesh should, therefore, engage with other important preference-granting countries such as Australia, Canada, China, and Japan, urging them to follow the EU model of offering an extended transition period.
Another important recommendation made in the report is that since India continued to offer the same market access to the Maldives even after the latter’s LDC graduation, through a specific article under SAFTA, Bangladesh should enter into negotiations with India seeking the same concessions following its graduation as an LDC.
Overall, the publication has put forward a number of practical policy options and recommendations in dealing with the emerging and evolving circumstances arising from Bangladesh’s impending LDC graduation. It is now important to debate and discuss these recommendations and craft a detailed export strategy within the framework of a medium-term plan covering the period 2020-2030.
Along with the loss of preferential market access, Bangladesh will also lose many other policy concessions that it currently enjoys as an LDC. Therefore, it is of immense importance to consider how the available policy space can be best utilized over the next few years to develop a new policy framework geared to meeting all the challenges the country will face following its graduation from LDC status.
While it is perfectly understandable that both the government and the private sector are preoccupied with dealing with the impact of the Covid-19 pandemic on the economy, it is important that the preparations for LDC graduation are not neglected.
While some people believe that Bangladesh should opt to delay LDC graduation, until now there has not been any change in the official position. Suffice it to say, that along with mitigating the Covid-19 induced consequences, preparation for LDC graduation cannot afford to be placed on the backburner.
Collectively, the country’s think tank community can be a source of useful support for policy-makers in charting a future course of action to ensure a smooth and sustainable LDC graduation. It is important to recognize that Bangladesh seriously lacks capacity in matters relating to trade policy, trade negotiations, and implementation-related issues.
Rather than lose any further time, work should begin immediately on developing a comprehensive, coherent, and implementable policy framework addressing the multiple challenges that Bangladesh will face in the lead up to LDC graduation and the decade thereafter.
Farooq Sobhan is Distinguished Fellow and Board Member, Bangladesh Enterprise Institute.