Middle income trap: An induced outcome of the LDC graduation?

Bangladesh, like other nations, is facing difficulties in fully recovering from the Covid-19 pandemic, which has impeded economic activity and reversed some of the preceding decade's successes. If we try to comment on the growth trend of Bangladesh in the past 10 years, it was enormously high and properly aligned with the country being a developed one by the year 2041.

Similarly, our success in LDC graduation by the year 2026 tells us that we are not only focusing on our growth but also economic development. Because, in addition to the per capita income growth, LDC graduation status is given to a country after checking some robust development indicators like human assets and economic vulnerability to external shocks. However, behind this rosy picture, LDC graduation can also harm our country's economic robustness, as it might cause a reduction in exports due to an increase in competitiveness regarding cost issues. In this context, our international trade policies need to be restructured, and friendlier diplomatic ties should be created to reach bilateral trade agreements with as many countries as possible.

Coming again to the ravages of Covid-19 on the economy, we have seen how our health sector is unprepared to face any great health crisis. The public expenditure in the health sector should be greatly expanded in the post-Covid-19 period. The government's primary focus should be the implementation of a universal healthcare system. A more efficient healthcare system would also aid in the sensible allocation of funds for other pandemic-related emergency initiatives.

Bangladesh's government has adopted Vision 2041, which aims to reach high economic status through industrialisation. To boost exports, the plan stipulates an increase in manufacturing capacity and more investments in human capital development. However, many nations in the world have been stuck in the 'middle-income trap', unable to make the transition to high-income status. World Bank researchers initially proposed this trap after they discovered that just 13 of the 101 emerging economies designated as 'middle income' in 1960 had progressed to become affluent countries by 2008. Bangladesh might be able to avoid this trap by using its demographic dividend.

Mentionable that Bangladesh is passing through a gifted era of demographic dividend, which is supposed to end by the year 2040. So, within this time, Bangladesh must employ its youth potential to be a developed country. In this context, I think the government needs to invest enough in education, health, and skill development of its young population. By spending on making people more skilled and productive with correct policies, the government can substantially make the youth of our country worthier and more efficient in the labour market.

Given the large population size, Bangladesh has the potential to be among the largest markets in the world. However, the people of Bangladesh need to have more income to create a large consumer market. To earn more, people must be skilled enough to substantially add value to their work. Besides, Bangladesh always needs to be keen to diversify its export basket and cut costs in the production of tradable goods so that our factories can compete viably in the global market. Moreover, rather than obsessing about serving the needs of large companies only, the authorities need to support the informal economy, SMEs, to create enough job opportunities for the country's vast workable population. Effective policy measures, including greater access to finance, should be taken to facilitate the formalisation of informal businesses.

Dr Md Mahbubul Hakim is an associate professor at the Department of Economics, Shahjalal University of Science and Technology