Given the current economic situation, focusing on trade policy issues and improving export competitiveness should be a central part of Bangladesh’s reform agenda, said the Asian Development Bank in its latest policy brief.
With Bangladesh’s LDC graduation in 2026 and the current economic challenges, there is a growing realization that policy reforms to enhance export competitiveness might receive stronger domestic support than in the past, it said.
While national planning documents like the 6th, 7th, and 8th Five-Year Plans have recommended relevant reforms, these have not been adequately prioritized for implementation, according to the document.
This policy brief suggests several recommendations for promoting export diversification.
The policy brief, "Expanding and Diversifying Exports in Bangladesh: Challenges and the Way Forward", is authored by Mohammad Abdur Razzaque, an economist (Consultant), South Asia Department (SARD), ADB; Rabiul Islam Rabi, Research Analyst (Consultant) SARD, ADB; and Barun Kumar Dey, Senior Economics Officer, SARD, ADB.
Despite the success in readymade garment (RMG) exports, Bangladesh’s overall export volume remains modest and suffers from a staggering concentration.
Recent unfavourable macroeconomic developments and the impending graduation from least developed country (LDC) status, underscore the importance of expanding and diversifying exports.
High tariff protection favouring import-competing sectors, coupled with weak domestic product standards and compliance, have created policy-induced disincentives for non-readymade garments exports.
With over 70% of Bangladesh’s exports benefiting from LDC-specific trade preferences, graduation could impact export competitiveness.
Improving export competitiveness and achieving diversification will necessitate various actions, including tackling policy induced anti-export bias, enhancing product quality and standards, attracting
Foreign direct investment to connect with global supply chains, conducting prudent exchange rate management to promote external competitiveness, dealing with sector-specific supply-side constraints, and addressing the high business costs.
Proactively seeking trade preferences post-LDC graduation is also crucial for sustaining export competitiveness.
Recommendations include:
- Tackling policy-induced export disincentives is crucial for export diversification
- Lowering tariffs can stimulate domestic manufacturing, potentially balancing any revenue loss from reduced import tariffs
- Enhancing the export performance of non-RMG sectors requires eliminating discriminatory access to policy incentives. The bonded warehouse facilities, in particular, should be granted to all export sectors and units irrespective of whether they are 100% export-oriented or not
- Investing in capacity building to meet international quality and safety standards is essential for potential exporters. Acquiring relevant certifications is critical for building credibility and trust in global markets
- The government can further aid businesses by establishing or supporting accessible testing and certification facilities. Strengthening institutions responsible for quality control and compliance is also crucial, which involves investing in laboratories, equipment, and skilled personnel for efficient testing and certification
- Attracting FDI can be a driver of export growth and diversification
- Bangladesh needs to improve its investment climate, streamline investment procedures, and promote sustainable investment practices to attract foreign investors
- Tackling the high cost of doing business is critical for boosting investment and trade competitiveness
- Weak infrastructure, inefficient inland road transport, complex customs procedures, inadequate port facilities, and inefficient trade logistics contribute to longer lead times and higher costs
- The two-way shipping costs for exporters importing raw materials and exporting final products exacerbate the problem
- A prudent exchange rate management strategy could significantly enhance export competitiveness, benefiting sectors beyond the RMG industry
- An effectively managed exchange rate can offset some of the cost disadvantages faced by these sectors
- Addressing the sector-specific supply-side constraints can help with export response from non-RMG sectors
- This plan should be based on the constraints identified in studies like the Diagnostic Trade Integration Study and its 2023 update
- This targeted approach will ensure that interventions are focused and effective, directly addressing the issues that hinder the productivity and competitiveness of these sectors on the global stage
- Devising WTO-consistent export-incentive mechanisms is crucial for Bangladesh, given its impending LDC graduation. As export subsidies may not be possible after LDC graduation, learning from non-LDC countries can guide in formulating effective support measures
- Seeking trade preferences beyond LDC graduation comprises an important strategy for export competitiveness
