Bangladesh鈥檚 graduation from the least developed country to a developing one in 2026 will bring to an end to the offering of cash benefits worth about Tk聽14,000 crore by the government to the export-oriented businesses, said finance ministry officials.
The direct cash subsidy to the exporters cost the government about Tk聽10,000 crore in the past financial year of 2024-25 while the tax rebates to them deprived the national exchequer of about Tk聽4,000 crore in the same financial year, said the officials.
Once the country starts graduating on November 24, 2026, and hangs up the LDC tag it has been carrying since 1975, the government will have to withdraw cash subsidies and tax benefits as per rule of the World Trade Organisation.
The end of the subsidy regime and the tax exemption are among many concerns for the exporters especially the readymade garment manufacturers before the graduation.
鈥楤esides the cash subsidy, there are others concerns,鈥� said Bangladesh Knitwear Manufacturers and Exporters Association president聽 Mohammad Hatem.
Inefficiency at the country鈥檚 port, hassle in customs procedure and the energy shortage are not less concerning issues which are very challenging for the LDC graduation, added the BKMEA president.
On August 23, the International Chamber of Commerce, Bangladesh along with 15 other trade bodies urged the government to defer the country鈥檚 graduation from the LDC bloc for three to five years.
Emphasising more time on the way to the transition towards the developing country, leaders of the trade bodies at a press conference titled 鈥楲DC graduation: challenges ahead鈥� in the capital Dhaka said that the transition in the next year could upset exports and increase borrowing costs.
The cash subsidy along with a dozen other benefits enjoyed by the RMG exporters has helped the country become the second largest apparel exporter after China.
All the benefits that also include income tax rebate, bonded warehouses, duty drawback, duty-free import of machinery, back-to-back letters of credit, interest rate subsidy, tax holiday and retention of earnings in foreign currency helped the RMG exporters fetch $39.35 billion in FY2025 from less than $1 billion FY1990.
Finance ministry officials said that the exporters were fond of direct cash incentive that was introduced in 1986.
They also said that the government had deferred the implementation of a major policy decision on the gradual withdrawal of cash subsidy on export due to pressure from the businesses especially the RMG exporters.
In the past July, the interim government extended the cash incentive regime on exports by about 11 months.
The original plan to phase out the cash incentive by January 2026 has been extended until November 24, 2026, just two days before the official exit from the LDC bloc.
Finance ministry officials said that two phases, out of the four as part of the phasing out cash incentive regime, had already been implemented over the past one year.
The third phase was scheduled to be implemented from July 1, 2025, while the fourth and final phase would take effect in January 2026.
But pressure from the country鈥檚 businesses, the reciprocal tariff by the United States and the trade tension with India led the finance ministry to suspend the implementation of the third phase until December this calendar year.
Research and Policy Integration for Development chair Mohammad Abdur Razzaque said that the RMG sector was the main beneficiary of the cash incentive regime and the sector would face main challenges during the graduation from the LDC bloc.
The RMG is the mainstay of the country鈥檚 exports, accounting for over 80 per cent of the annual income from the exports.
The incentives helped them remain competitive on the global market, said the RAPID chairman.
Centre for Policy Dialogue distinguished fellow Mustafizur Rahman said that direct cash support had always been important for the exporters although there was debate about its usages.
The cash incentives have allegedly been abused by dishonest exporters through fraudulent activities, forgery, misrepresentation of export consignments and companies receiving incentives for goods they did not export.
In 2018, the Bangladesh Bank, which distributes the cash incentive, in an investigation found abuses of cash incentive worth Tk聽43 crore by eight exporters in collusion with two banks.
