| Project Detail |
Project Name Knowledge Support for LDC Graduation and Improving Investment Climate
Project Number 57341-001
Country / Economy Bangladesh
Project Status Approved
Project Type / Modality of Assistance Technical Assistance
The TA will create innovative and operationally relevant upstream knowledge solutions with a particular focus on improving the investment climate by streamlining business regulations, investment promotion, and institutional strengthening of key investment promotion agencies. The TA will also produce knowledge products (KPs) to foster private sector development and diversify the economy, enhance macroeconomic management, and facilitate climate-resilient sustainable development as the country graduates from least developed country (LDC) status in 2026. KPs will also be developed on strategic issues to help Bangladesh achieve its economic aspirations to become an upper middle-income country by 2031 and will focus on core sectors relevant to ADBs operations. The knowledge solutions will include preparing the background documents and inputs for overall policymaking, development plans, sector development, and potential project development.
Project Rationale and Linkage to Country/Regional Strategy
Bangladesh became a lower middle-income country in 2015 and is on track to graduate LDC status in 2026. Bangladesh aspires to become an upper middle-income country by 2031 and a high-income country by 2041. To achieve these aspirations, Bangladesh needs to attract substantial foreign direct investment (FDI) and domestic investment. The governments 8th Five-Year Plan for FY2021FY2025 targets an FDI inflow of 3% of GDP by FY2025. However, the recent FDI inflow has remained below 1% of GDP. Improving the investment climate is a prerequisite for Bangladesh to attract a higher level of investment. Streamlining business processes, regulations and certifications is critically necessary for improving investment climate. In addition, developing effective and efficient investment promotion mechanisms, and strengthening the institutional capacity of investment promotion agencies are urgently needed. Under TA 9602-BAN, ADB is supporting the Bangladesh Investment Development Authority (BIDA) in reviewing investment-related policies of Bangladesh and in developing an investment policy.
Following LDC graduation, Bangladesh will lose preferential access to its export products to most developed countries unless bilateral free or preferential trade agreements are signed with respective countries. Trade-related impacts will include the loss of LDC-specific market access provisions, LDC-specific special and differential treatment and flexibility under World Trade Organization (WTO) rules and regional agreements, and certain training and capacity-building mechanisms. Bangladesh would also lose access to duty free quota free (DFQF) arrangements for LDCs and to the least restrictive rules of origin reserved for LDCs, with significant impacts on the ready-made garments exports. A recent analysis reveals that the share of exports that use LDC-specific preferences is 70% for Bangladesh and a possible aggregate export decline of 14.3% for Bangladesh due to LDC graduation. In 2021, about USD 17.3 billion of textile and textile articles of HS classification section XI were exported to the EU. Out of this amount, 16.5 billion were entered under the Everything but Arms scheme for LDCs, which corresponds to a utilization rate of 96%. In other words, thanks to the preferential treatment granted by the EU these 17 billion entered the EU duty-free. Upon graduation, Bangladesh has the option to apply for the EUs GSP+ (Special Incentive Arrangement for Sustainable Development and Good Governance). Attaining GSP+ would provide Bangladesh with duty-free market access for textile and clothing products, but not the lenient rules of origin that have made their recent success story possible. Falling back to normal GSP status would see clothing exports levied with tariffs of 8% to 9.3%, or even with higher MFN rates which can significantly affect competitiveness. Other trade policy options should be explored, such as entering or negotiating bilateral, regional, or multilateral/plurilateral trade deals.
As requested by the Bangladesh government, ADB is supporting the government in preparing for smooth LDC graduation including improving investment climate and developing strategies for export diversification. One critical area of knowledge solutions under this TA will be developing strategies and reforms to deal with the impacts of graduation from LDC status with a strong focus on improving the investment climate and diversifying exports. This TA will also focus on developing knowledge solutions to support private sector development and strengthening macroeconomic management.
The Proposed TA will be closely aligned to the ADBs Strategy 2030. The TA is included in ADBs current country pipeline, and consistent with ADBs Country Partnership Strategy (CPS) for Bangladesh, 20212025. The CPS prioritizes the knowledge support for economic and sector analysis to facilitate the rapid structural transformation of the Bangladesh economy. ADBs Country Knowledge Plan 20212025 for Bangladesh envisions that upstream and strategic economic, sectoral, and thematic analyses will inform sector policy reforms and drive transformative investments to address complex development challenges.
Impact
Policy environment to support rapid, inclusive, and sustainable development in Bangladesh improved |
