Private sector suggests postponement graduation from LDC

The private sector has asked the government to postpone the graduation of Nepal to the Developing Country (DC) status from the current Least Developed Country (LDC) status.

Submitting a written recommendation to the Ministry of industry, Commerce and Supplies today, Federation of Nepalese Chambers of Commerce and Industry (FNCCI) president Shekhar Golchha said that Nepal should not hurry to graduate from LDC. If Nepal graduates from LDC, it will not be able to enjoy the benefits including zero tariff and grants from the development partners. The developing country will get loan, and it will also be exempted from zero tariff, provided for LDCs by India, China, US and the EU. “Nepal will also not receive any development grants, if it graduates,” he said,” asking the government not to hurry.

Earlier too, Nepal had postponed its graduation from LDC till 2021, though the country had met two of the three criterion that are necessary to graduate to graduate from LDC. Nepal had fulfilled two criterion – Human Assets Index (HAI) and Economic Vulnerability Index (EVI) – in 2015, which was enough for graduation. The HAI should be 66 or above, EVI 32 and below, and per capita income should be $1,222. Nepal’s HAI and EVI scores stood at 68.7 and 26.8, respectively, which was enough for graduation from LDC, though the per capita income was less. But writing a letter to UNDP, Nepal asked to postpone its graduation as the country wanted to graduate on the basis of per capita income, which is thought to be more sustainable graduation. 

Any country meeting two of the three criterion – HVI, EVI and per capita income – could be graduated from LDC, or a country can graduate, fulfilling only one criteria, if it has $2,444 per capita income.  Nepal’s per capita income currently hovers around $1,000 but in the changed context of coronavirus pandemic, there is a doubt that the per capita income even remains same, as some 6 million Nepalis lost their employment, during the lockdown imposed by the government – from March 24 for 120 days – and subsequent prohibitory orders aimed at containing the spread of Covid-19.

According to the latest UNCTAD report on LDCs too, the world economic crisis brought by the Covid-19 pandemic may affect the previously planned graduation of LDCs that is the exit of some countries from the group of LDCs. 

The LDCs that have better weathered the Covid-19 pandemic from a health policy perspective are those with a broader and more sophisticated base of productive capacities in their economy, the UNCTAD report reads, adding that more generally, the same reasoning also applies to their capacity to respond to other shocks like medical, economic or natural disasters. “Countries that have been able to develop a denser and more diversified fabric of productive capacities have shown greater resilience and have been better prepared to weather different types of shocks.”

The Covid-19 pandemic is estimated to contract the GDP per capita LDCs by 2.6 per cent in 2020 from already low levels, as these countries are forecast to experience their worst economic performance in 30 years, according to the UNCTAD report. “At least 43 out of the 47 LDCs will likely experience a fall in their average income,” it reads, adding that extreme poverty in LDCs is projected to expand by 32 million in 2020 to reach 377 million people. “The poverty rate will rise from 32.5 per cent to 35.7 per cent in 2020, due to the Covid-19-induced economic crisis.”

Meeting the criterion is not only enough for any LDC to graduate, but it also has to prepare a transition plan, so that it keeps sailing above, otherwise, the country could again demoted to LDC. Nepal also has to prepare a transition strategy as it will lose some preferential treatment.

According to a report prepared by the National Planning Commission (NPC) and the United Nations Development Programme (UNDP) also, the Covid-19 pandemic may have profound impacts on the graduation criteria, with new risks of rising trade and export costs impacting external markets, and the need for more concessional aid, including debt relief, to overcome multiple crises. With new impact analysis, Nepal also need to bring a transitional strategy.

Graduation from LDC status becomes effective three years after the United Nations General Assembly (UNGA) takes note of the recommendation made by the Committee for Development Policy (CDP) under the United Nations Economic and Social Council (UNESC) to graduate a country. Though, the government is in hurry to graduate Nepal, Nepal’s graduation will be effective in 2024, if the committee recommends graduation at its next triennial review in 2021.