Success in these reforms could mitigate graduation shocks, sustain growth momentum, and position Bangladesh as a competitive middle-income economy. Failure risks prolonged vulnerabilities in finance and trade.
Bangladesh has outlined an ambitious reform agenda spanning banking sector cleanup, tax base expansion, and trade diversification as it seeks a three-year extension to smoothly transition out of the United Nations’ Least Developed Country (LDC) category.
The government’s draft action plan, prepared after consultations with the UN Committee for Development Policy (UNCDP), details 25 priority areas for implementation between 2026 and 2029, contingent on approval of the deferment request until November 2029. A high-level 15-member committee led by the Finance Minister will oversee execution, the government’s draft action plan says.
Bangladesh met the criteria for LDC graduation comfortably across income, human assets, and economic vulnerability indices years ago. However, the impending loss of preferential market access, particularly duty-free quotas under schemes like the EU’s Everything But Arms (EBA), poses significant risks. Estimates suggest potential annual export revenue losses of up to $17.5 billion post-graduation.
In February 2026, the government formally requested the extension from the UNCDP. Prime Minister Tarique Rahman personally wrote to the UN Secretary-General for support. The proposal is under discussion at the ECOSOC meeting in New York on July 21-22, 2026, with a likely endorsement expected before final notation by the UN General Assembly in September.
The UNCDP has indicated a preference for a shorter extension, making Bangladesh’s push for three full years critical for a “smooth transition.”
Banking Sector Overhaul as Top Priority
The banking sector, plagued by high non-performing loans (NPLs), capital shortfalls, and governance issues, stands at the forefront of the reform plan. The government aims to strengthen the Bangladesh Bank’s supervisory powers, finalise the Distressed Asset Management Act, and institutionalise annual health reviews of commercial banks covering asset quality, capital adequacy, liquidity, governance, and stress testing by December 2027.
Finance Minister Amir Khosru has emphasized the urgency of replenishing capital in banks and the private sector, noting that many banks are “practically bankrupt.” Recent budgets have allocated substantial funds, such as around Tk 40,000 crore in FY2025–26 for recapitalisation, alongside efforts to reduce NPLs and improve loan transparency.
IMF and World Bank assessments have repeatedly highlighted the need for restructuring, including better risk-based supervision and recovery of laundered funds. The draft plan aligns with these calls, aiming to restore depositor confidence and enable private sector credit growth.
Tax Reforms to Boost Revenue Mobilisation
Low tax-to-GDP ratio remains a persistent weakness. The plan targets full automation of the National Board of Revenue (NBR), integration of tax databases with banks and central depositories, reduction of discretionary powers of tax officials, rationalisation of exemptions, and stronger VAT compliance by June 2028.
Experts and the IMF advocate raising the tax-to-GDP ratio through better compliance rather than rate hikes – potentially reaching 12-15 per cent with digital tools and expanded filing. Reforms separating policy and collection functions at NBR are seen as steps in the right direction.
These measures are expected to ease fiscal strain amid inflation control needs and debt vulnerabilities flagged by international lenders.
Trade, Business Climate, and Export Diversification
A key deliverable is concluding Free Trade Agreements (FTAs) or Comprehensive Economic Partnership Agreements (CEPAs) with priority partners including South Korea, Oman, UAE, Hong Kong, and New Zealand within the extended period. Commerce and foreign ministries will monitor progress.
To improve the business environment, the government proposes a digital common application platform for licenses, provisional approvals within seven days, elimination of redundant clearances, and full operationalisation of the BanglaBiz one-stop service and National Single Window – most by June 2027.
Export diversification beyond ready-made garments (RMG) into pharmaceuticals, leather, ICT, agro-processing, jute, and light engineering is prioritised. This includes modernising industries, expanding digital financial services, and establishing a joint government-private sector taskforce.
Infrastructure, Logistics, and Broader Governance
Logistics costs are targeted to drop from 15 per cent to 10 per cent through port modernisation, customs reforms, multimodal connectivity, and the National Logistics Policy. Industrial infrastructure upgrades, such as central effluent treatment plants and new parks, are also planned.
Additional measures cover reliable energy supplies, skills development, environmental and labour compliance, pursuit of EU GSP+, and preparation for the end of WTO intellectual property waivers for pharmaceuticals.
Public financial management improvements include stricter project screening, real-time monitoring, and digital integration. The plan also emphasises digitising public services, anti-corruption efforts, and transparent institutions.
Challenges and Path Forward
Bangladesh’s economy faces headwinds including inflation, weak private investment, and global uncertainties. The reform roadmap aligns fiscal and monetary policies while addressing IMF-identified priorities like subsidy reduction and tax modernisation.
The draft is indicative and will be refined through stakeholder consultations, sources say. An inter-ministerial monitoring mechanism with monthly reviews will track implementation, supported by international technical assistance.
Success in these reforms could mitigate graduation shocks, sustain growth momentum, and position Bangladesh as a competitive middle-income economy. Failure risks prolonged vulnerabilities in finance and trade.
