Smooth LDC Transition

 Prime Minister Pushpa Kamal Dahal Prachanda has expressed his commitment to eradicate poverty and reducing inequality to meet the Sustainable Development Goals by 2030. Speaking at the United Nations General Assembly, he said that the government was committed to ensuring a smooth, sustainable, and irreversible graduation from the LDC category. The Prime Minister stressed the scaling up of affordable finance to the LDCs including through the SDG stimulus package, and addressing the debt distress of LDCs by 2025 and providing coordinated and appropriate debt solutions. 

He demanded the developed nations to fulfill their commitments to providing 0.7 per cent of the GNP as the Official Development Assistance to developing countries and 0.15 – 0.20 per cent to the LDCs. In such a scenario, Nepal must work with the private sector and international stakeholders like the UN, bilateral and multilateral development partners to ensure it retains maximum facilities that it has been obtaining now and enable the public and private sector institutions to compete at the global scale after the transition. 

Nepal is heading to take the new development status after 55 years since it was included in the group of the LDCs in 1971. To graduate from the LDC, a country should fulfill the requirements of at least two of the three parameters – Gross National Income (GNI) per capita income (PCI), human assets index (HAI), and economic and environmental vulnerability index (EVI). 

To graduate from the LDC, a nation must have a GNI per capita of at least US$ 1,242 for two consecutive triennial reviews, must show that it has improved its human capital in order to achieve the human assets requirement through education, health and nutrition, and must exhibit that it is able to withstand external economic and natural disasters or sudden shift in the price of goods. Graduating from the LDC is about improving the image of the country through its economic, social and environmental development.

However, upgrading to a developing country means losing various economic benefits it has been getting for being an LDC, duty-free and quota-free access to the markets in the developed countries like the USA, Australia, and the European Union, and concessional loans and grants for development work. The private sector is apprehensive of 'losing the markets' in developed countries while a section development experts and economists, including policymakers, are worried about the potential loss of the developmental support from the international development partners.  

For a country like Nepal, which is unable to finance its development projects with its own income, and is in need of spending more than US$ 17 billion in a year on an average to meet the Sustainable Development Goals (SDGs) or to be a middle income country by 2030, losing the options for concessional financing option could be challenging. 

According to the Ministry of Finance, Ministry of Foreign Affairs and Ministry of Industry, Commerce and Supplies and National Planning Commission, efforts have been put to make the transition smooth to save the private sector and the national economy from any anticipated or unanticipated shocks. The government has been in communication with the European Union and other developed nations to continue the facilities such as zero customs duty and general system of preference being offered to Nepali products in their countries. 

Meanwhile, there has been a significant progress in negotiating the GSP Plus facility with the European Union. GSP Plus is special incentive arrangement for sustainable development and good governance that supports vulnerable developing countries. Such countries can benefit from complete duty suspensions for products across approximately 66 per cent of all the U tariff lines, including sensitive products. 

Published in The Rising Nepal on 20 September 2023.