The United Nations Committee for Development Policy (CDP) has recommended for Nepal’s graduation from the Least Developed Country (LDC) category with preparatory period of five years. "This means that the graduation of Nepal would be effective in 2026," according to a press note issued by the Permanent Mission of Nepal in New York.
The CDP – in its triennial review held from February 22 to 26 – made the recommendation as Nepal had met the criteria for graduation for three consecutive reviews. Out of three indices which the CDP considers while deciding on the question of graduation – GNI per capita, Human Assets Index (HAI), and Economic and Environmental Vulnerability Index (EVI) – Nepal met the thresholds for the latter two, thus being eligible for graduation.
Though Nepal had met the graduation criteria for the first time in 2015, the CDP in its 2018 triennial review recommended to defer the graduation on the request of the government considering the setback on Nepal’s economy by the 2015 earthquake and other disasters in the following years.
Nepal – seeking a sustainable growth and graduation – had requested the UN to delay the graduation till 2021. The then vice chair of the National Planning Commission (NPC) Dr Swarnim Wagle recommended the government to delay the graduation as Nepal has long way to go to meet the GNI per capita requirement, which is considered the milestone for a sustainable graduation. The government – led by prime minister Sher Bahadur Deuba – wrote letter to the UN seeking postponement.
This time too, due to the extraordinary challenges posed by the Covid-19 pandemic and based on the request of the government, the normal preparatory period of three years has been extended to five. In addition to Nepal, Bangladesh and Lao People’s Democratic Republic have also been recommended for graduation by the CDP.
The CDP’s recommendation is an important milestone in Nepal’s development trajectory towards the national ambition of ‘Prosperous Nepal, Happy Nepali’ and the nation’s development aspirations as reflected in the fifteenth Periodic Plan, claims the press note.
The recommendation needs to be endorsed by the United Nations Economic and Social Council (ECOSOC) which shall then be ‘noted’ by the UN General Assembly later this year. Nepal will continue to have access to all LDC-specific support measures until 2026. The preparatory period of five years is given to provide adequate time for a smooth transition during which Nepal would be enabling itself to offset the loss of support measures exclusive to the LDCs. But a section of Nepal's business fraternity is still reluctant as they think that without improving the capacity and trade logistic cost, the loss of LDC-specific support measures will hit the country's economy.
"Nepal scored 72.1 in the HAI but the threshold being above 66, and 25.5 in the EVI, the threshold being below 32, whereas Nepal has $1027 Gross National Income, while the threshold is $1230. "The government is planning to announce $1400 as the gross national income on the basis of revised indices," according to National Planning Commission.
The private sector is however not comfortable with graduation. Though graduation will increase Nepal's reliability and credibility in the international arena for keeping its words, the country will lose the benefits it is getting due to least developed country (LDC).
Nepal currently enjoys duty free and quota free access to the Canada and US markets due to its LDC status. With graduation -- in five years -- Nepali will lose competitiveness in the international market as it has to compete with the goods produced by the great manufacturing giants.
Likewise, Nepal also has to face a gamut of challenges to make the recommendation irreversible during the review. With the current unstable politics and economy, Nepal must chart out a national level strategy to make Nepali produce more competitive. The planning commission, however, claimed that it is charting out the five-year strategy to bring the policy shift. But the government needs to be serious in dcreasing the cost of trade and private sector be serious on market competition. The resource crunch country will find it difficulty to even prepare the budget, as it is going to lose large chunck of aid from development partners apart from dutyfree quotafree market access.
Nepal should start negotiations with the EU, India, China, Japan and other countries so that the trade will not be hampered. But with the right strategy and planning during these five years, Nepal could mitigate the challenges. According to the National Planning Commission, Nepal also needs to conduct a fresh review of the scheduled graduation plan considering the impact Covid-19 pandemic and must prepare a transition strategy in cooperation with trade and development partners to avoid adverse impacts from the country’s graduation as it risks losing preferential treatment and as the Covid pandemic has had a profound impact on global economy, 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.
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