Bangladesh and Nepal postpone promotion to developed countries: economic and geopolitical challenges
Bangladesh and Nepal have recently decided to request a three-year extension for promotion to middle-income countries, thus postponing the deadline set for November 2026. Both countries have formally requested the United Nations Commission for Development Policy (CDP) to extend the preparatory period until November 2029, citing reasons related to political discontinuity, macroeconomic fragility, and expected losses in exports.
Promotion criteria and economic challenges
Despite Bangladesh and Nepal having met the formal criteria for promotion, with a per capita national income of $2,899 and $1,404 respectively, their productive capacity remains vulnerable. The loss of benefits linked to the status of Least Developed Country (LDC), such as preferential tariffs and favorable financing, could have a significant impact on their already fragile economies.
The disruptions in supply chains in the Red Sea and the Middle East, combined with high global interest rates, have further complicated the situation. The experiences of previously promoted countries, such as Botswana and Cabo Verde, demonstrate that a successful transition requires diversification of income sources and the building of fiscal buffers, conditions that are currently lacking in both Bangladesh and Nepal.
Specific challenges for Bangladesh and Nepal
Bangladesh, the second largest exporter of clothing in the world, risks losing billions of dollars in preferential market access to the European Union. Nepal, on the other hand, faces structural obstacles due to its landlocked position and dependence on transit through India. The lack of adequate infrastructure and effective trade agreements further limits their growth prospects.
For example, Nepal's dog chew (chhurpi) industry, which recorded exports worth 4.29 billion Nepalese rupees, is excluded from the European market due to unsatisfied health standards. Furthermore, recent geopolitical conflicts in Western Asia have caused an increase in maritime and air transport costs, putting pressure on small exporters.
Geopolitics as opportunity and constraint
The three-year extension offers both countries a grace period to implement structural changes. However, economic transformation requires simultaneous investments in infrastructure and institutions, in a context where competition among major powers has reduced traditional cooperation for development.
Nepal, in particular, is economically linked to India through open borders and transit routes. China, through the Belt and Road Initiative, has promised infrastructure projects, but so far the results have been limited. Triangular diplomacy between the United States, India, and China represents both an opportunity and a constraint for the economic development of these countries.
The decision to postpone promotion to middle-income countries is a strategic move that reflects current economic and geopolitical challenges. Bangladesh and Nepal must take advantage of this grace period to strengthen their economies and prepare for a successful transition.
The global economic context and challenges for Bangladesh and Nepal
The decision to postpone promotion to middle-income countries comes at a time when the global economy is undergoing profound transformations. The relocation of industries and state subsidies in advanced countries are reducing opportunities for developing countries to follow the growth model based on the export of low-cost labor.
Bangladesh, which is the second largest exporter of clothing in the world, risks losing billions of dollars in preferential market access to the European Union. The clothing industry accounts for about 80% of the country's merchandise exports, and the loss of this preferential access could have a significant impact on the economy.
Nepal, on the other hand, faces structural obstacles due to its landlocked position and dependence on transit through India. The lack of adequate infrastructure and effective trade agreements further limits its growth prospects. Nepal's dog chew (chhurpi) industry, which recorded exports worth 4.29 billion Nepalese rupees, is excluded from the European market due to unsatisfied health standards.
The opportunities and constraints of geopolitics
Lessons from previously promoted countries
The experience of previously promoted countries, such as Botswana and Cabo Verde, demonstrates that a successful transition requires diversification of income sources and the building of fiscal buffers. Botswana has leveraged its diamond resources to create a sovereign wealth fund and build credible institutions. Cabo Verde has obtained favorable financing through proactive diplomacy. Bhutan was promoted with sustained growth of 7.5% and universal health coverage.
However, these countries made the transition in a more favorable global context. Today, Bangladesh and Nepal face much less favorable conditions, with disrupted supply chains and high global interest rates.
Internal challenges and opportunities for reform
Both countries must address significant internal challenges. Bangladesh must diversify its economy and reduce its dependence on the clothing industry. Nepal must improve its infrastructure and strengthen its institutions to attract foreign investment.
The three-year extension offers both countries the opportunity to implement structural reforms and prepare for a successful transition. However, time is limited and the window of opportunity could close quickly.
In a rapidly evolving global context, the ability of these countries to adapt and innovate will be crucial for their economic future. International cooperation and investments in infrastructure and institutions will be fundamental to ensuring a successful transition.
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