Crisis-hit Bangladesh braces for impact of U.N. economy upgrade

DHAKA — Bangladesh is set to exit a club that most countries are proud to leave.

But business leaders in the South Asian nation are warning that its looming graduation from least-developed country (LDC) status amounts to economic “suicide,” amid allegations that ousted Prime Minister Sheikh Hasina’s government faked growth data, which had once drawn international praise.

“We are not ready for LDC graduation right now. Why should we consciously commit suicide?” Bangladesh Chamber of Industries President Anwar-ul Alam Chowdhury told reporters last month, as he called for a three-year delay.

“If the graduation is not deferred, the economy will face a massive collapse,” he added.

Bangladesh is slated next year to shed the U.N. designation, which grants preferential market access, aid, special technical assistance and cheap loans to 44 poor nations, the majority in Africa.

The last Asian country to leave its LDC status behind was Bhutan in 2023, while seven others remain on the list, including Afghanistan, Cambodia and Myanmar.

A country of 171 million, Bangladesh was first recommended for graduation in 2021 as it met three key exit criteria linked to gross national income per capita as well as measures of health, education and economic vulnerability.

Bangladesh, which relies on the garment sector for over 80% of export earnings, won an extension until 2026 owing to COVID pandemic-linked economic shocks.

Officially, the country posted a nearly 8% GDP expansion in the 2017-2018 fiscal year, compared with about 6% when Hasina first came to power in 2009.

Student-led protests in August brought down the government of former Prime Minister Sheikh Hasina, who has since been accused of inflating Bangladesh’s economic data.   © Getty Images

The now 77-year-old, who fled to neighboring India after a student-led uprising in August, drew praise for what the World Bank in 2023 described as one of the world’s fastest-growing economies.

But in the aftermath of last summer’s deadly protests, questions are being asked about the reliability growth figures during Hasina’s tenure.

In December, a White Paper Committee tapped to investigate the issue said Hasina’s government manipulated currency exchange rates, inflated export earnings and spent public money excessively to artificially ramp up domestic output data.

“GDP growth was inflated by approximately 15%-20%,” one committee member was quoted as saying in local media.

In January, microcredit pioneer and Nobel Laureate Muhummad Yunus, head of Bangladesh’s caretaker government, also said that the figures were fabricated.

“She [Hasina] said, our growth rate surpasses everybody else. Fake growth rate, completely,” he told Reuters news agency, without elaborating.

The interim government, which is seeking Hasina’s extradition on a raft of allegations including murder, kidnapping and corruption, is talking with U.N. experts and others.

“Professor Yunus is actively consulting … to understand both the positives and negatives of LDC graduation, as well as how to ensure a smooth transition without disrupting trade,” Press Secretary Shafiqul Alam told Nikkei Asia. “A series of meetings are being held to discuss these issues. The government will make a decision after thorough consultations with all the stakeholders,” he added.

Advisers to the government have sent mixed messages in recent months, with one saying Dhaka will “not go for graduation hurriedly,” while another claimed Bangladesh has little option to avoid moving out of LDC status — and losing preferential access to the U.S. and other major markets.

The interim government under Muhammad Yunus is seeking Hasina’s extradition on a raft of allegations including murder, kidnapping and corruption.   © Reuters

Thousands of garment sector workers have been laid off due to factory closures since Hasina’s fall.

The critical industry, which makes clothes for some of the world’s biggest brands, would lose a designation that gives Bangladesh duty- and quota-free access to the European Union.

The country also hasn’t prepared for green energy transition or sourcing rules for non-LDC nations and the loss of preferential access to the EU market, said Shams Mahmud, a clothing industry executive.

“European destinations make up over 50% of the RMG (ready-made garment) industry in Bangladesh,” added Mahmud, former president of the Dhaka Chamber of Commerce and Industry. “With this single basket contributing 83% of export earnings, it will cause massive macroeconomic stress on the financial sector and stability.

“Bangladesh will be ready to graduate at a later date and emerge as a strong economic powerhouse.”

Kaiser Kabir, CEO and managing director of pharmaceutical manufacturer Renata, described the country’s GDP growth numbers as “grotesquely overestimated.”

“Businesses have been enduring an economic crisis since 2021, so we don’t really need another shock to hit our economy,” he said.

A study released in November said moving out of the club of least-developed countries could reduce exports by more than 14% in the first year due to new tariffs on shipments abroad.

Economist Mohammad Abdur Razzaque, the report’s author and a former national consultant on LDC issues, described delaying Bangladesh’s graduation as “unprecedented” with no guarantee of success.

“We can only ask the U.N. for extra time and we need to present a proper justification,” he told Nikkei. “We can argue that we are facing a macroeconomic crisis and a political crisis, and that chances are high it won’t be smooth if we transit now.”

The article appeared in the asia.nikkei