DHAKA -- Bangladesh and Nepal, two struggling South Asian economies, have been granted three more years before graduating from least developed country (LDC) status, easing their trade access as they make further preparations for reclassification after successive internal and external shocks.

The move, granted at a meeting of the United Nations General Assembly on Thursday, came ahead of their scheduled move up from the LDC category on Nov. 24, in line with a decision by the assembly three years ago. The two were classified as LDCs in the 1970s.

The United Nations Economic and Social Council (ECOSOC) said in its recommendation that the two countries' graduation preparations had been set back by the lingering effects of the COVID-19 pandemic, climate change-related disasters geopolitical conflicts and disruptions to international trade and energy supplies. Uncertainties around migrant employment, remittances and tourism had added further pressure, the council said.

These external shocks have coincided with domestic upheaval, such as youth-led uprisings in both countries that led to changes of government. In 2024, protests in Bangladesh caused then-leader Sheikh Hasina to flee to India, and it was only in February that a new government was elected to replace an interim administration. In March, Nepal elected rapper-turned-mayor Balendra Shah as prime minister following widespread protests last fall.

ECOSOC also called for the two countries to move ahead with domestic reforms aimed at addressing persistent structural vulnerabilities, such as lack of export diversification, financial sector instability and overreliance on foreign remittances and tourism. It also emphasized the importance of cooperation with bilateral, regional and multilateral development and trade partners.

"The political transitions that took place recently have compounded external shocks and constrained the governments' capacity to respond," said General Assembly President Khalilur Rahman, adding that the three additional years are "not a retreat from graduation," but "an investment in making it succeed."

The assembly also encouraged Bangladesh to advance structural reforms, and asked Nepal to implement a clear time-bound plan to adjust and reprioritize its transition strategy, as the Himalayan nation was recently hit by a devastating flood linked to human-induced climate change "The full preparations have to be taken by both the private and public sectors," said Md. Fazlul Hoque, administrator of the Federation of Bangladesh Chambers of Commerce and Industry, "because we won't get a further chance in the future."

As members of the LDC group, Bangladesh and Nepal have long enjoyed duty-free and quota-free market access, low-interest credit support and special preferences in international trade. Graduation from the category could have curtailed or eliminated these benefits, which their governments insist they still rely on. Moving up from LDC status would have resulted in an average tariff of 12.50% on their exports, according to analysis by the RAPID Bangladesh think tank.

Mustafizur Rahman, a distinguished fellow at the Dhaka-based Centre for Policy Dialogue think tank and previously a government adviser on LDC transition strategy, termed the extension a "golden opportunity" for both Bangladesh and Nepal to prepare. But he noted that they cannot rely on LDC benefits indefinitely.

"We must shift away from market access-dependent competition and move toward efficiency-, productivity- and investment-dependent competition," he said, adding that logistics, infrastructure and trade mechanisms all need to be upgraded.

Although Bangladesh has signed economic partnership agreements with Japan and South Korea, and the European Union had offered to extend duty-free access for three years after it moved out of LDC status, Dhaka's trade preparations for the transition had been seen as lacking.

"We also need to sign more of these kinds of trade deals so that when we graduate from LDC status in 2029 we can maintain our market access," Rahman said. "I think our regional cooperation also needs to be deepened so that we can utilize it for our graduation from LDC [status]."

Faruque Hassan, a former president of the Bangladesh Garment Manufacturers and Exporters Association, said that the deferment would help Bangladesh and Nepal, but that they should push for a further extension, aiming for six years, to further reduce the risks of LDC graduation. "Many countries fell into the middle-income trap after the LDC privileges were removed," he said.

Zahid Hussain, a former lead economist at the World Bank's Dhaka office, said lessons need to be learned from the previous lack of preparation. "If this extended time creates a false sense of security and a relaxed mode, the urgency will be lost and the bought time will be completely useless," he said. Syful Islam is a contributing writer.