BD at risk of losing $38 billion export in absence of LDC status

FT ONLINE

Bangladesh will face an export loss of $38 billion in the first five years of its graduation from the status of an LDC (Least Development Country) in the 2027 fiscal year (FY27) due to additional tariffs of about 6.7 percent.

The projection was made through a study of the Policy Research Institute (PRI), which was made public in the city recently.

Ahsan H Mansur, executive director of PRI, presented the study paper at the 4th Bangladesh Economic Forum (BEF) conference on the theme, "Strategies and Policies for an Upper-Middle Income Bangladesh", held at a city hotel.

The study projects RMG export loss in EU and non-EU markets in the absence of LDC to the tune of $ 2.7 billion. 

The loss will directly impact the country's balance of payments, leading to an increase in the current account deficit by 0.9 percent to 1.4 percent of GDP in FY27. 

As Bangladesh is highly dependent on its RMG export, it will face the highest average tariff rates in the absence of preferential arrangements, notes the study. 

With about 60 percent of the country's exports going to the EU, duty-free access will cease to be after the LDC graduation. Normal tariff barriers in the EU are unusually high for RMG products.

The study attributes the recent fall in exports to a slowing down of the EU economy. 

Export earnings of the country fell by 2.18 percent in the first three months of the current fiscal year, according to central bank data. 

The fall in foreign currency earnings pushed the current account balance into the negative, to $678 million in July-August, according to the central bank.  

Bangladesh will experience double graduation at the same time, one being the LDC graduation and the other being its rise to upper-middle-income status.

According to Dr. Mustafizur Rahman, Distinguished Fellow, Centre for Policy Dialogue (CPD), it will be a very critical period as the country will lose preferential trade support from developed countries.

"As a result, we will lose export during the transition period," he said, suggesting that policy reforms were a must to confront the risks associated with graduation. 

He mentioned that while in the EU market Bangladesh has to pay a 15 percent tariff, EU products enjoy a mere 3 percent tariff in the Bangladesh market. 

"So we should divert our export market to Asian countries and improve regional connectivity in terms of trade, investment, logistic, etc.," he suggested.

"We will have to focus on skills development and quality of products to continue the export growth", he added. 

"We have 1300 export items and we need to explore new markets for these products as we come out of our RMG-dependent exports", said Zaidi Sattar, chairman of PRI. 

Dr. Mustafa K. Mujeri, executive director of the Institute of Microfinance and former director-general of BIDS, identified three challenges for Bangladesh to move beyond the middle-income trap. 

The challenges are the development of fiscal capacity, improvement of state-owned financial enterprises and ensuring the role of private entrepreneurship in growth. 

Emphasizing a reform of public sector enterprises, Sadiq Ahmed, vice chairman of PRI, said reforms will enable them to earn positive rates of return on assets by corporatizing them, appointing professional management, lifting price controls, and removing all government interventions.

He asserted that the best option was to privatize most public banks or convert them to narrow banks.

"As an interim solution, make them fully autonomous with professional management, full compliance with prudential norms and hard budget constraints," he said.