Finance Division Secretary Khairuzzaman Mozumder hit the headlines this week as he expressed concerns regarding Bangladesh's graduation from the list of the least-developed countries (LDCs). Although he may have somewhat overstated them, these concerns were not unfounded. We shouldn't forget that 2024 was our original year of graduation - pushed back two years due to COVID-19. Khairuzzaman emphasised that after graduating from LDC status in 2026, Bangladesh would no longer benefit from duty-free exports under preferential tariffs. Although efforts are underway to maintain these benefits through bilateral and multilateral free trade agreements (FTAs), high import tariffs in Bangladesh present a major obstacle to successful negotiations.

Economists have stressed the importance of reducing tariffs in advance to prepare for the potential sudden drop in tariffs due to FTAs. However, little progress has been observed in this regard, posing a risk to the revenue sector. The situation calls for revenue sector reforms to counter these challenges, including the widening of the tax net. Khairuzzaman proposed that with necessary reforms, 10 million direct taxpayers could be achieved by 2026. The NBR's medium-term reform strategy is expected to be finalised by next June.

In order to ease the public into the system, we know the NBR has been working to increase the number of tax officers for issue resolution, with public hearings held in every tax commissionerate every week round the year.

The plan to enter into free trade agreements with other countries needs to be more robust moving forward. We know Bangladesh is keen to open negotiations with India for signing a Comprehensive Economic Partnership Agreement (CEPA), which would incorporate an FTA. Bangladesh and India have over $14 billion worth of two-way trade officially, and every year the turnover is growing. On completion of a joint study on the pros and cons of signing CEPA, the prime ministers of Bangladesh and India had last year asked the trade officials of both countries to start negotiations within 2022. But the formal negotiation has yet to get going, as India is said to be further scrutinising the joint-study report.

Similarly with Japan, a joint feasibility study on FTA commenced in December 2022. When the two sides met in Dhaka last July, it was said the study is set to be completed shortly and Bangladesh expects to strike the deal by 2025, before graduating from the LDC club. Similar negotiations are underway with Singapore, Indonesia, and at least 7 other countries. It remains to be seen how far each of these negotiations go, but an article in Nikkei Asia during a visit to Japan by the prime minister earlier this year highlighted how economic reasons alone would not be decisive towards the successful completion of these negotiations. Alongside Bangladesh's attractiveness as a growing economy, the country's importance as a 'potential China buffer' was held up.

It is thus perhaps understandable that a lot of these negotiations would seem to have stalled in the period leading up to the country's election. Once that bridge is crossed, we may have a better idea of the challenges we need to grapple with once our graduation is complete in 2026.