DHAKA, Sep 5, 2026: Bangladesh's emergence as the world's second-largest apparel exporter is only one part of a larger economic transition. With garments still generating more than 80% of merchandise exports, slower economic growth and impending LDC graduation are adding pressure to diversify into engineering, pharmaceuticals, leather, plastics, advanced textiles and services while investments in ports, energy and logistics seek to expand the role of its Bay of Bengal location in regional trade.
Merchandise exports reached about $48.38 billion in FY2025-26, according to Bangladesh Bank. Knitwear and woven garments together accounted for about 80.5% of total merchandise export earnings. At the same time, several smaller export categories recorded faster growth, including engineering products, jute and jute goods, plastics, leather and leather products, and chemicals.
Engineering-product exports increased by 29.30% during the fiscal year, while jute and jute goods rose 8.93%, plastics 8.66%, leather and leather products 7.98%, and chemical products 7.93%. The difference in scale remains substantial: the combined garment industry generated more than $38 billion, while engineering products accounted for less than $1 billion.
The export figures therefore show both sides of Bangladesh's transition. Several non-RMG sectors are growing faster than the established garment base, but their contribution remains relatively small compared with apparel. The question is not whether diversification has begun, but how significant that diversification is becoming as Bangladesh approaches a change in its international trade status.
Diversification beyond RMG
The World Bank has identified leather goods, footwear, light engineering, plastics, and electrical and automotive supply chains among sectors with scope for export development. Its export-competitiveness programme has also documented growth among participating non-RMG firms and the creation of nearly 180,000 jobs.
Research by the Centre for Policy Dialogue has examined both diversification within the apparel industry and expansion into non-RMG sectors. Its work identifies higher-end and man-made-fibre apparel alongside assembling plants, light engineering, IT-enabled services, electronics, leather products and environmentally friendly jute products.
This creates two distinct dimensions to Bangladesh's export-diversification process. One is diversification within garments, including movement toward products and fibres that are different from Bangladesh's traditional cotton-based export mix.
The other is diversification beyond garments into manufacturing and services with different production requirements, technology needs and international markets.
RAPID's current competitiveness research is examining a range of potential private sectors in the post-LDC environment, including jute goods and handicrafts, IT-enabled services, semiconductors, leather and footwear, agro-processing and frozen fish and shrimp.
The available export data, however, show that this diversification remains at an early stage when measured against the scale of the garment industry.
LDC graduation and changing market access
Bangladesh is scheduled to graduate from the United Nations least-developed-country category on Nov. 24, 2026.
The government requested an extension of the preparatory period in February. The UN Committee for Development Policy considered the request and concluded that an extension would be appropriate subject to progress on domestic reforms. The current UN LDC portal continues to list Nov. 24, 2026 as Bangladesh's scheduled graduation date.
The European Union is particularly important to Bangladesh's export economy. EU-Bangladesh goods trade reached €23.3 billion in 2025, and the EU accounted for 21.5% of Bangladesh's global goods trade, making it Bangladesh's largest trading partner. Textiles represented almost 94% of EU imports from Bangladesh.
The EU's revised Generalised Scheme of Preferences provides Bangladesh with a transition period after LDC graduation. Bangladesh and the other LDCs scheduled to graduate in 2026 will continue benefiting from Everything But Arms preferences for three additional years, at least until the end of 2029. They also have the opportunity to apply for GSP+, subject to the scheme's eligibility requirements.
The transition therefore separates two dates that are important to Bangladesh's exporters: the country's scheduled UN graduation in November 2026 and the continuation of EBA preferences into the following years.
The US market
The United States represents another major part of Bangladesh's external trade environment. Under the US-Bangladesh Agreement on Reciprocal Trade signed in February 2026, the United States established a 19% reciprocal tariff rate for originating goods from Bangladesh, with specified products covered by a zero reciprocal rate. The agreement also contains provisions concerning Bangladesh's treatment of US goods and several non-tariff measures.
The US and EU therefore present different market-access arrangements for Bangladesh at a time when the country's export industry is already assessing the implications of its LDC transition.
Investment: higher inflows, different composition
Foreign direct investment provides another measure of Bangladesh's changing economic environment. Net FDI inflows reached $1.77 billion in 2025, up 39.36% from $1.27 billion in 2024, according to Bangladesh Bank data reported by Invest Bangladesh.
The increase was not evenly distributed across the components of FDI. Reinvested earnings rose sharply and intra-company loans also increased, while equity capital recorded a much smaller increase. The composition therefore matters alongside the headline increase in total FDI.
Bangladesh's investment authorities have identified areas including advanced textiles, pharmaceuticals, agro-processing, IT-enabled services, renewable energy, light engineering, footwear, leather, logistics and electronics and assembly for targeted investment attention.
Research institutions have likewise linked export diversification with investment, technology, productivity, standards, logistics and access to international markets.
Connectivity and the Bay Terminal
Bangladesh's export structure is also closely connected to transport infrastructure. Chattogram is the country's principal maritime gateway. The World Bank says the port handles more than 90% of Bangladesh's international trade volume and 98% of its container traffic. The existing port is constrained by vessel size and operating conditions, limiting the efficiency of maritime trade.
The Bay Terminal project is intended to expand maritime capacity. The World Bank has committed $650 million to infrastructure for the project, including a climate-resilient breakwater and dredging. The bank says the terminal is designed to accommodate larger vessels, reduce vessel turnaround time and improve the efficiency of international trade. It estimates that the completed terminal could handle about 36% of Bangladesh's container volumes.
The project is also relevant to Bangladesh's regional-connectivity ambitions. Better port and road links can affect not only Bangladesh's own exports and imports but also the movement of goods between the country's ports and markets in neighbouring South Asia.
The commercial significance of that connectivity depends on the development of port capacity, inland transport, customs procedures and the volume of regional cargo using Bangladeshi routes.
Macroeconomic constraints
The export and investment picture is developing alongside weaker macroeconomic conditions.
The Asian Development Bank estimated that Bangladesh's economy grew by 3.7% in FY2026, below its earlier forecast, citing weak exports, subdued private investment and supply-side constraints. It forecast 4.5% growth for FY2027 while identifying energy-supply constraints and banking-sector vulnerability as risks.
The World Bank has likewise described Bangladesh's near-term outlook as challenging, citing weak growth, high inflation and financial-sector stress. Its current country outlook places FY2026 growth at 3.9%.
Bangladesh Bank reported point-to-point inflation of 9.16% in June 2026, while private-sector credit growth was 4.98% in May. Gross foreign-exchange reserves stood at $37.58 billion at the end of June.
Trade-policy researchers have also identified tariff and para-tariff structures as a factor affecting export competitiveness. The issue is particularly relevant for non-RMG industries that are seeking to compete internationally while also depending on imported machinery, intermediate goods and inputs.
The export structure
Bangladesh therefore enters the LDC transition with several developments taking place at the same time. Garments remain the overwhelming source of merchandise export earnings, while a number of smaller sectors have recorded faster growth. Research institutions are examining both diversification beyond RMG and upgrading within the apparel industry, including man-made-fibre and higher-value products.
Foreign investment recovered in 2025, but the increase included substantial growth in reinvested earnings and intra-company lending rather than a comparable rise in equity capital.
Market-access arrangements are also changing at different speeds. Bangladesh remains scheduled for LDC graduation on Nov. 24, 2026, while the European Union has provided an EBA transition through at least the end of 2029. The United States now operates under a new reciprocal-trade framework that includes a 19% tariff rate for Bangladeshi originating goods, subject to specified exceptions.
At the same time, Bangladesh is expanding port infrastructure and pursuing regional connectivity while facing slower economic growth, elevated inflation, banking-sector weaknesses, energy constraints and questions over trade competitiveness.
The available evidence therefore describes an export economy with a very large established garment base, smaller but faster-growing non-RMG sectors, changing market-access arrangements, recovering but compositionally uneven foreign investment, expanding connectivity infrastructure and continuing domestic constraints. The relative weight of these factors will become clearer as Bangladesh moves through the LDC transition and the trade arrangements that follow it.
