MNZGamerX
Trusted Member
Mustafizur Rahman
Published: 13 October 2026
Bangladesh is slated to graduate from the UN’s least developed country (LDC) category on 24 November 2026, with adverse implications arising from the loss of international support measures, particularly the erosion of market access preferences for its all-important export-oriented apparel sector. But this is happening alongside the country’s middle-income graduation, which will make LDC graduation harder to sustain.
LDC status itself does not have direct implications for a country’s terms of external borrowings, except for access to concessional funds from a few dedicated sources, such as aid for trade for LDCs and LDC-focused climate funds. Still, middle-income graduation does. Borrowing terms hinge primarily on a country’s status according to the World Bank’s income categories. Unlike the UN’s LDC criteria, the Bank’s income categories rest exclusively on per capita gross national income. Moving from a lower to a higher category has significant implications for the concessionality of borrowings.
This matters for Bangladesh because its low domestic resource mobilisation makes borrowing terms particularly important. Bangladesh graduated from the low-income category to the lower-middle-income category in July 2015. This meant that the country would gradually lose access to the most concessional terms of the World Bank’s soft loan window, the International Development Association, which then offered a service charge of only 0.75 per cent, a grace period of up to 10 years and a repayment period of up to 40 years.
Since then, the share of non-concessional loans in Bangladesh’s total loan portfolio has been rising and is expected to keep climbing as the country’s per capita income increases. So borrowing terms are expected to become more stringent in the coming years. Indeed, some recent loans carried annual interest rates as high as 2–4 per cent, with much shorter grace and repayment periods — the 2016 US$11.38 billion loan from Russia, for example, was incurred at an effective interest rate of about four per cent per annum.
The change in borrowing terms is also important because Bangladesh needs to borrow increasingly larger amounts overseas to address the challenges of LDC graduation. Shifting from preference-driven competitiveness to skills, productivity, technology and structural change-driven competitiveness requires the country to mobilise more investible resources from domestic sources and through foreign borrowings.
Not surprisingly, Bangladesh’s external debt-servicing obligations have been rising. According to the Economic Relations Division, the country’s external debt servicing rose to US$4.5 billion in the 2025–26 financial year, a significant rise on what it was only a few years ago. The Finance Division projects about US$7.6 billion by 2028–29. Debt-servicing obligations will keep growing as grace periods on several large infrastructure loans end and repayments begin.
The challenge of larger foreign borrowings at higher costs is underpinned by Bangladesh’s low domestic revenue mobilisation capacity. At around 8 per cent, Bangladesh’s revenue-to-GDP ratio remains one of the lowest in the developing world. Almost the entire annual development program must be financed from borrowings, either domestic or external.
Successive governments in Bangladesh have attempted to raise the revenue-to-GDP ratio through a wide range of measures, with little success. The government is undertaking further initiatives to the same end, a number of them articulated in its 2026–27 budget. These include institutional reforms such as separating the revenue authority’s policy and implementation functions, reducing tax expenditure by rationalising subsidies as well as modernising and digitalising tax collection through e-submission, incentivising cashless QR-based transactions and ensuring interoperability of systems.
But raising the revenue-to-GDP ratio will hinge largely on effective changes in tax-related administrative and governance structures, reduced corruption and a broader revenue base.
Bangladesh has asked the United Nations to extend its preparatory period for LDC graduation. The Committee for Development Policy has backed an extension, though it favours a shorter one than the three years Dhaka sought, and the General Assembly is due to decide before 24 November. If an extension is granted, it will help Bangladesh implement its Smooth Transition Strategy. Regardless of the outcome, Bangladesh must focus on raising domestic resource mobilisation and prudently managing external sector borrowings as part of its strategy to make LDC graduation sustainable.
If Bangladesh is to contain debt-servicing pressure and avoid the middle-income trap, it will need to significantly raise the efficiency of all government operations, both recurrent and developmental.
Good governance, transparency, accountability and zero tolerance of corruption must inform all public expenditures. A lack of these was a key reason for the inordinately high non-performing bank loans — about 32.8 per cent of all outstanding loans — and associated problems afflicting the financial sector and the overall economic performance of Bangladesh. Ensuring good value for money in implementing projects financed mostly by borrowing, maintaining exchange rate stability and prudently managing external debt ought to be given top priority by Bangladesh’s policymakers.
Bangladesh’s capacity to manage LDC graduation will depend critically on how successfully the country navigates the challenges of middle-income graduation.
Published: 13 October 2026
Bangladesh is slated to graduate from the UN’s least developed country (LDC) category on 24 November 2026, with adverse implications arising from the loss of international support measures, particularly the erosion of market access preferences for its all-important export-oriented apparel sector. But this is happening alongside the country’s middle-income graduation, which will make LDC graduation harder to sustain.
LDC status itself does not have direct implications for a country’s terms of external borrowings, except for access to concessional funds from a few dedicated sources, such as aid for trade for LDCs and LDC-focused climate funds. Still, middle-income graduation does. Borrowing terms hinge primarily on a country’s status according to the World Bank’s income categories. Unlike the UN’s LDC criteria, the Bank’s income categories rest exclusively on per capita gross national income. Moving from a lower to a higher category has significant implications for the concessionality of borrowings.
This matters for Bangladesh because its low domestic resource mobilisation makes borrowing terms particularly important. Bangladesh graduated from the low-income category to the lower-middle-income category in July 2015. This meant that the country would gradually lose access to the most concessional terms of the World Bank’s soft loan window, the International Development Association, which then offered a service charge of only 0.75 per cent, a grace period of up to 10 years and a repayment period of up to 40 years.
Since then, the share of non-concessional loans in Bangladesh’s total loan portfolio has been rising and is expected to keep climbing as the country’s per capita income increases. So borrowing terms are expected to become more stringent in the coming years. Indeed, some recent loans carried annual interest rates as high as 2–4 per cent, with much shorter grace and repayment periods — the 2016 US$11.38 billion loan from Russia, for example, was incurred at an effective interest rate of about four per cent per annum.
The change in borrowing terms is also important because Bangladesh needs to borrow increasingly larger amounts overseas to address the challenges of LDC graduation. Shifting from preference-driven competitiveness to skills, productivity, technology and structural change-driven competitiveness requires the country to mobilise more investible resources from domestic sources and through foreign borrowings.
Not surprisingly, Bangladesh’s external debt-servicing obligations have been rising. According to the Economic Relations Division, the country’s external debt servicing rose to US$4.5 billion in the 2025–26 financial year, a significant rise on what it was only a few years ago. The Finance Division projects about US$7.6 billion by 2028–29. Debt-servicing obligations will keep growing as grace periods on several large infrastructure loans end and repayments begin.
The challenge of larger foreign borrowings at higher costs is underpinned by Bangladesh’s low domestic revenue mobilisation capacity. At around 8 per cent, Bangladesh’s revenue-to-GDP ratio remains one of the lowest in the developing world. Almost the entire annual development program must be financed from borrowings, either domestic or external.
Successive governments in Bangladesh have attempted to raise the revenue-to-GDP ratio through a wide range of measures, with little success. The government is undertaking further initiatives to the same end, a number of them articulated in its 2026–27 budget. These include institutional reforms such as separating the revenue authority’s policy and implementation functions, reducing tax expenditure by rationalising subsidies as well as modernising and digitalising tax collection through e-submission, incentivising cashless QR-based transactions and ensuring interoperability of systems.
But raising the revenue-to-GDP ratio will hinge largely on effective changes in tax-related administrative and governance structures, reduced corruption and a broader revenue base.
Bangladesh has asked the United Nations to extend its preparatory period for LDC graduation. The Committee for Development Policy has backed an extension, though it favours a shorter one than the three years Dhaka sought, and the General Assembly is due to decide before 24 November. If an extension is granted, it will help Bangladesh implement its Smooth Transition Strategy. Regardless of the outcome, Bangladesh must focus on raising domestic resource mobilisation and prudently managing external sector borrowings as part of its strategy to make LDC graduation sustainable.
If Bangladesh is to contain debt-servicing pressure and avoid the middle-income trap, it will need to significantly raise the efficiency of all government operations, both recurrent and developmental.
Good governance, transparency, accountability and zero tolerance of corruption must inform all public expenditures. A lack of these was a key reason for the inordinately high non-performing bank loans — about 32.8 per cent of all outstanding loans — and associated problems afflicting the financial sector and the overall economic performance of Bangladesh. Ensuring good value for money in implementing projects financed mostly by borrowing, maintaining exchange rate stability and prudently managing external debt ought to be given top priority by Bangladesh’s policymakers.
Bangladesh’s capacity to manage LDC graduation will depend critically on how successfully the country navigates the challenges of middle-income graduation.
