Nepal's LDC
graduation
Kathmandu, Nov. 29
The country that feels
elated with erratic boosts in export backed by products flourished on customs
arbitrage – such as palm and soyabean oil - is set to graduate to a ‘developing
nation' from the 'Least Developed Country (LDC)' category after about
five-and-a-half decades.
But the private sector
is dispirited with the epoch-making national ascendence.
It has long been
grumbling over the decision to graduate the country without strategies in place
to support the business and industries in the post-November 2026 scenario. The
country will lose preferential trade access and duty-free/quota-free access to
the markets in developed nations. Garments, carpets, and textiles will be
immediately affected as the application of tariff will increase their price and
make them less competitive. Small and Medium Enterprises (SMEs) and women
entrepreneurs will be most affected.
The COVID-19 pandemic, economic slowdown during the past couple of years
and Gen Z protests and business losses have shaken investor confidence, said
Anjan Shrestha, Senior Vice-President of the Federation of Nepalese Chambers of
Commerce and Industry (FNCCI).
"The private sector contributes more
than 81 per cent to the country's Gross Domestic Product (GDP) and 86 per cent
to the employment. If it loses confidence, entire economy will suffer," he
said.
According to Shrestha,
Nepal needs to go for a review, in line with Bangladesh, and urge the UN to get
three years' time for additional preparation. Bangladesh has decided to make a
reassessment of the status of the economy to decide whether it is ready to
graduate next year.
He warned that
graduating with the current economic situation would decrease Nepal's exports and
its dependency on India would be further increased.
Many businesspeople
participating at a dialogue on LDC graduation organised by the South Asia Watch
on Trade Economics and Environment (SAWTEE) in Kathmandu the other day demanded
'meaningful transition' with better preparation and maintaining support to the
exporters and producers.
They, including
President of the Confederation of Nepalese Industries (CNI) Birendra Raj
Pandey, said that the business community is in a situation where they
continuously call for reforms and facilitations but the government doesn't
respond to it or adopts piece-meal approach in addressing constraints.
Meanwhile, the private sector is portrayed as 'fearful of the progress'.
"It only means
the private sector needs enabling environment to boost its confidence,"
said Pashupati Dev Pandey, President of Garment Association of Nepal.
Trade experts and
economists have also voiced their concerns that Nepal's meagre export trade
might face a serious blow with the raised duties across the developing and
developed nations.
In 2024/25, Nepal
exported goods worth Rs. 277 billion – an astounding growth of 81.8 per cent
compared to 2023/24 – which was 13.31 per cent of the total international
trade. Nepal imported goods worth Rs. 1804.12 billion last year.
But soya-bean oil
(solely dependent on imported raw materials) occupied 38.5 per cent share in
the total exports while the traditional products like carpets and cardamom that
have steady trade were exported worth Rs. 10.7 billion and Rs. 7.7 billion,
respectively.
Govt should listen
to vulnerable groups
While the government
maintained that the graduation means improving the image of the country with
improved creditworthiness, access to broader commercial financing and empowered
status to negotiate trade deals as a 'developing country', the private sector
said that it is not ready and industries must be
safeguarded from negative impacts.
This is the time to
make proper assessment and move ahead with pragmatic policies and strategy.
"I would like to make a note that no industries should suffer, there
should be safeguards to save industries should there be any adverse
impacts," said Gokarna Awasthi, Director General of the FNCCI.
Stating that it was
not the LDC status but policy and political instability and government
inefficiency in creating better ‘doing business environment’ behind the poor flow
of Foreign Direct Investment (FDI) into Nepal, he said, "Government should
listen to the businesses that are likely to be most-affected and devise
strategy accordingly."
While studies have
shown that Nepal's exports could drop by only 4.3 per cent due to the
application of tariffs, producers said it will impact the labour-intensive
business sectors – garments, textiles, carpets and handicrafts, and thousands
of employments might be affected.
Following the
graduation, Nepal will lose any favour and leniency in compliance of rules and
meeting deadlines, it has to strictly follow the international trade rules like
any other developing country. That means it will have to follow the rules on
par with China and India. Industrial intellectual property and pharmaceuticals
will be the most-affected.
Being an LDC, Nepal is receiving a small
fund in grants, LDC-specific funds, technical assistance and capacity building
programmes, facility to travel to the United Nations events and is allowed to
offer subsidies on the exports of agricultural products.
Balram Gurung,
President of Nepal Carpet Manufacturers and Exporters Association, said that
every business sector is hesitating to invest and there is less interest in
expanding business and production.
He asserted that Nepal
should seek deferral on the ground of immaturity in economy and international
trade. "Europe and the USA are major markets for Nepali carpets. We must
enhance the quality and find ways to be cost-effective. So, I recommend
postponing it until we achieve competence," said Gurung.
30% higher
production cost
The landlockedness,
poor trade infrastructure, low-quality energy supply, low productivity of the
workforce and less-advanced technology have their toll on the cost of
production, making it higher by about 30 per cent compared to India and
Bangladesh. Natural disasters, road obstructions and lack of lab facilities
further push the cost up. Losing preferential treatment and duty-free
quota-free entry to the developed markets would mean Nepali products will lose
their competitiveness, and the market as well.
Meanwhile, despite
producers' continuous demand, the government hasn't addressed the customs-duty
issues on raw materials and finished goods which, in case of some agriculture
and health products, have almost similar rates. In the past several decades, inadequate
efforts were made to create a robust trade infrastructure. The country needs
world class laboratories, more dry ports, railway-lines for cargoes, air-cargo
facility and cold stores.
President of
Federation of Export Entrepreneurs Nepal Govinda Prasad Ghimire said, "We
must seek deferral for at least three years so that we could use the period to
transfer technology and reduce the cost of production."
Lagging behind peers
Nepal was one of the
first 25 countries to be categorised as the LDCs in 1971, and was supposed to
receive international support for being a vulnerable economy.
But, in the last 55
years, the country's economy moved at a snail's pace with per capita income
(PCI) of Nepali people increased by 20 times to reach US$ 1460 in 2025 from $70
in 1971.
Laos's PCI increased
41 times during the same period and reached $1970 from just $48, according to
Laos Statistical Information Service. Likewise, the World Bank's data shows
that Bangladesh's PCI in 2024 is $2593.
This analogy is
presented here because Nepal, Laos and Bangladesh are scheduled to graduate
together next year.
By 2021, Nepal had met
two of the three criteria – the Human Assets Index (HAI) and Economic
Vulnerability Index (EVI) – that would qualify a country to graduate from the
LDC. The HAI assesses the status of health (such as life expectancy and child
mortality), and education (such as adult literacy and school enrollment ratio),
and EVI assesses the national economy's exposure to natural shocks – remoteness,
drought, natural disaster and instability in agricultural production. In 2022,
the Global Hunger Index reduced the level of hunger in Nepal from severe to
moderate.
But the country failed
to meet the criterion on the PCI which is set at US$ 1,306 by the Committee for
Development Policy (CDP). However, following the
restoration of democracy, Nepal made significant achievements with poverty
going down to 17 per cent in 2020, school enrolment rate reaching 94.5 per cent
in 2024 and literacy rate reaching 77 per cent from 33 per cent in 1991.
Private sector's failure?
However, economists maintained that it was
equally a failure of the private sector as well. While the country met the
graduation criteria in three triennial reviews in 2015, 2018 and 2021, the 12th
National Plan had formally adopted the vision to become a developing nation
within two decades.
The private sector is aware of the fact
that Nepal sought a deferral in 2015 citing the devastating Gorkha Earthquake
that year followed by a trade blockade by India. In 2021, the UN's Economic and
Social Council (ECOSOC) officially endorsed Nepal's graduation with five-year
preparatory period so that the impacts of the COVID-19 pandemic could be
mitigated.
While Nepal already adopted a 'Smooth
Transition Strategy (STS)' to make the graduation sustainable, the private
sector claims that the government has just fulfilled its paperwork
requirements. "No concrete steps have been taken to support the business
and boost investors' confidence," they said.
But Economist and Executive Director of the IIDS Dr. Bishwas Gauchan asked a
question to the private sector - Why are we sticking to the low-morale naming
the COVID-19 pandemic as a major culprit?
"Besides, the
private sector businesses should be focusing on innovation and benefitting from
the transition. This game of blaming each other would take us nowhere," he
said.
According to him,
since Nepal can't compete with China, India and Bangladesh with traditional
products and services, it must find new opportunities in business and
industries that are based on the geographical and resource-based realities. But
the private sector and government both failed in taking any initiatives towards
it, said Dr. Gauchan.
Likewise, Joint
Secretary of the National Planning Commission (NPC) – the focal agency for LDC
graduation – Khom Raj Koirala said that since the triennial review of the LDCs
would happen in 2027 and Nepal is set to graduate a year earlier, it would be
wise to accept the realities and move ahead with preparations.
"The government
is aware of the multiple shocks experienced after deciding to graduate –
earthquake in 2015 and multiple quakes thereafter, COVID-19 pandemic and recent
Gen Z protests," he said.
He tried to assure the
businesses that the government is in close communication with Nepal's
Ambassador to the United Nations. "If Bangladesh and Laos receive any
facility or consideration, we can also demand it," said Koirala, while
assuring that the government will take concrete steps to help the private
sector in increasing competitiveness and productivity.
Focus on
technology, innovation
Former Vice-Chair of
the NPC Dr. Min Bahadur Shrestha said that seeking deferral now is like
deciding to stay in the same class at the time of graduating from it.
However, according to
former secretary of the government and Senior Fellow at SAWTEE Madhu Marasini, the
situation is not as pessimistic as many think.
"Let's not go for
the deferral from the graduation, albeit there are chances to have a couple of
additional years in transitional period after the graduation," he said.
About 80 per cent of
the international trade will not be affected by graduation – except some
products like garments and carpets that are more sensitive and less competitive
in the international markets. "So, focus should be on transferring latest
technology, finding new ways of doing business rather than urging the
government to seek postponement in LDC graduation," said Marasini.
'Have no fear'
Former Ambassador of
Nepal to the United Nations Dr. Gyan Chandra Acharya suggested making reforms
with incentives to the private sector.
"The world won't
stop after November 2026, let's not fear the graduation," he said while
warning, "Our tendency is to sleep over the achievements and wake up when
a fresh crisis hits the nation." But he stressed on public and private
cooperation to make the graduation workable for the economy and businesses.
Stating that the
country will lose only a small portion of international financial support,
Nepal can showcase post-graduation achievements to obtain more financial
resources.
Economists, including Executive
Director of the Enhanced Integrated Framework Dr. Ratnakar Adhikari, said that
one of the ways to reducing cost of trade is to improving customs efficiency
and trade facilitation with paperless and digital processing.
Nepal should expand
its domestic market as India did it successfully, diversify the export market
and sign bilateral trade agreements as Cambodia did with China and South Korea.
Published in The Rising Nepal daily on 30 November 2025.
