Bangladesh will need to make substantial progress on domestic reforms aimed at addressing its deep-rooted structural weaknesses if it is to get a three-year extension to the timeline of its graduation from the least-developed country category, said the UN Committee for Development Policy.
“The Committee is of the view that an extension of the preparatory period by the General Assembly would be appropriate, provided that, during this period, Bangladesh advances significantly on domestic reforms aimed at addressing its persistent structural vulnerabilities,” it said in its assessment report.
The report was handed over to the government earlier this month and the finance ministry held a meeting on it. Finance Minister Amir Khosru Mahmud Chowdhury asked all ministries to submit plans for preparatory reforms in the case Bangladesh’s graduation is delayed until November 24, 2029.
Priority areas for capacity-building would include domestic resource mobilisation for macroeconomic stabilisation and creating necessary fiscal space, as well as building trade negotiation capacity for ensuring effective market access, the report said.
It also called for prioritising expenditures that build resilience and contribute to transforming the economy.
“Without significantly advancing on such reforms, it is difficult to see how an extension of the preparatory period requested by Bangladesh would contribute to a more sustainable graduation and a smooth transition. Hence, the extension should not be viewed as a pause or justification for delaying reforms.”
The committee advised that an extension should serve as a catalyst for accelerating reforms and implementing smooth transition measures, particularly those aimed at strengthening productive capacities, promoting economic diversification and preparing the private sector for graduation.
These measures require careful sequencing and will require continued attention throughout both the preparatory and the post-graduation transition period.
Bangladesh requested the extension of the preparatory period preceding graduation from the LDC status based on the argument that a series of external and domestic shocks over the past five years had constrained the country’s ability to prepare effectively for graduation.
“While Bangladesh meets the graduation thresholds in all three established LDC criteria by wide margins and faces a very low risk of falling below the thresholds in any of the criteria in the near- or medium-term,” the report said.
However, the committee also acknowledged the severity of challenges faced by Bangladesh amidst heightened risk of an uncertain magnitude stemming from the Middle East conflict and associated disruptions in international energy and supply flows, lingering effects of shocks that occurred in the recent past, uncertainties concerning global trade, as well as longstanding, persistent vulnerabilities of a domestic nature.
“Bangladesh is highly exposed to impacts from the current conflict in the Middle East.”
Even though these impacts are unlikely to reverse Bangladesh’s development progress to a point where it no longer meets the graduation criteria, they are likely to have negative repercussions on the country’s ability to effectively implement the smooth transition strategy (STS).
An extension would ensure time to better assess the impacts of the current crisis and to make changes to the STS that go beyond prioritising actions within the STS or making smaller adjustments.
It would also allow Bangladesh to adjust plans concerning post-graduation market access, the report said, acknowledging that several international support measures in this regard already contain multi-year transitional periods so that graduation does not lead to an immediate withdrawal of support.
“The Committee welcomes that Bangladesh is committed to advancing the implementation of its STS in a sequenced manner based on a clear prioritisation.”
Although the current graduation framework does not recognise domestic political transitions as grounds for extending preparatory periods, the complexity and specific nature of the recent political transition, including the change of government and the resulting disruptions to governance and policy continuity, may merit considering such factors within a broader interpretation of the graduation procedures, the report said.
The UN body emphasised that domestic factors exacerbate the impacts of external shocks and the capacity of the government to react to them.
“The overlapping and interrelated nature of the shocks, the current high degree of uncertainty and the lack of adequate resilience metrics do not allow for isolating impacts of individual shocks on the ability to prepare for graduation.”
The committee also reiterated its previous call for support to the country during the preparatory and the post-graduation transition period, independent of a decision on an extension of the preparatory period.
This includes maintaining access to non-LDC specific support such as concessional and non-concessional finance, extensions of LDC-specific international support measures for an appropriate time, and technical assistance.
The link between graduation and reform also highlights the importance of a robust monitoring mechanism, and the committee expects to receive, in upcoming national reports, detailed information on the progress in further preparing and implementing the STS, including progress towards measurable targets, financing of activities and any corrective actions undertaken in case progress is lacking.
