Nepal to graduate in 2026 to developing country

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.

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. 

Nepal to graduate from LDC by 2025: UN

Nepal is among the 16 countries that will graduate to the developing country status from the current Least Developed Country (LDC) category by 2025, according to a report by the UN agency.
The United Nations Conference on Trade and Development (UNCTAD) report states that Nepal is projected to graduate only in two criterion – human asset index (HAI) and economic vulnerability index (EVI) – of the three criterion. "If this is the case, this will be the first time that the income criterion has not been met at the time of graduation," says the report.
A LDC must have gross national income (GNI) per capita of $1,242 for graduation. Nepal needs to double from its current GNI that stands at $752,
"Nepal also has to boost economic growth to spur the income, one of the three criterion to graduate, though meeting the two criterion is enough to graduate," the Least Developed Countries Report 2016 'The Path to Graduation and Beyond: Making the most of the Process' noted.
The report also said that most of the countries, whose graduation is expected by 2024, have included graduation as an explicit goal in their development plans and programmes.
"Five of these countries – Nepal, Bangladesh, Bhutan, Laos and Myanmar – have set explicit timetables," it said. "Also of the 16 countries projected to graduate by 2025, only four – Afghanistan, Bhutan, the Lao People's Democratic Republic and Nepal, all in Asia – are landlocked."
According to senior economist at the UNDP Nepal Basudeb Guha-Khasnobis, the situation in Nepal has been improving in recent months. "If things move as according to the plan, Nepal could also meet the income criteria by 2022,” he added.
Nepal became eligible to graduate from LDC category as it met two criteria – HAI and EVI -- in 2015. Once a country is eligible, it is evaluated every three years to check the sustainability of the graduation. Guha is of the view that Nepal will sustain coming two triennal reviews by the Committee for Development Policy (CDP) slated for 2018 and 2021.
The National Planning Commission (NPC) had, in its 13th Plan, included a target of graduation by 2022, bringing forward from 2030 in the 12th Plan. The commission's approach paper on graduation by 2022 includes 'strategic directions and action' for each of the three criteria as well as for monitoring and evaluation.
A country is graduated from the LDC category not only on the basis of meeting three criteria – GNI per capita, HAI and EVI once, it also has to sustain thresholds for at least two criteria or reach double the GNI per capita threshold – income-only graduation – in two consecutive triennial reviews.
Graduation process is only the first milestone in a marathon of development, not the winning post of a race to escape the LDC category, Guha said, adding that it marks the end of a political and administrative process, not the completion of an economic or developmental process.
Guha said that economically how a country graduates is more important than when.
But some economists are of the view that the graduation will cut foreign development resources and preferential treatment that a country gets as LDC as it would reduce development finance, which becomes less concessional, and also access to climate finance may be reduced. Likewise, after graduation a country will also lose potential preferential market access that is estimated at $4.2 billion per year across LDCs as a whole.
However, Guha claims that the effect of losing preferential market access depends on coverage and structure of LDC – specific preferential schemes, product composition of exports, and distribution across markets and also fallback tariffs after graduation.
But a graduating country benefits from a grace period – normally three years – before graduation effectively takes place. This period, during which the country remains an LDC, is designed to enable the graduating state and its development and trading partners to agree on a 'smooth-transition' strategy, so that the planned loss of LDC status does not disrupt the socioeconomic progress of the country. A smooth-transition measure generally implies extending to the graduated country, for a number of years after graduation, a concession the country had been entitled to by virtue of LDC status.
However, Guha suggested Nepal to form national policy agenda to address macroeconomic policy frameworks combining stability with investment dynamism and employment generation, scaling up public investment – including projects that strategically address bottlenecks in the productive sector – increased fiscal space: improved tax systems, diversification of revenue sources and addressing illicit financial flows, improved access to credit and financial services, notably for farmers and SMEs, coupled with accelerated transformation of rural economies: upgrading agriculture, promoting non-farm activities for effective and sustainable graduation.
The UN has currently designated 48 countries as LDCs. The list of LDCs is reviewed every three years by the CDP – a group of independent experts reporting to the United Nations Economic and Social Council (ECOSOC). The CDP, in its report to ECOSOC, may recommend countries for addition to, or graduation from, the list of LDCs.
The UN report also notes that while the 48 LDCs comprise around 880 million people – accounting for 12 per cent of world population – they face such serious structural barriers to growth that they account for less than 2 per cent of world GDP and around 1 per cent of world trade.

NPC mulling seven-year 14th plan

National Planning Commission (NPC) is mulling to make 14th 'five-year' plan seven year long.
During discussions on the Approach Paper for the 14th periodic plan today, some planning commission members proposed that the plan – that creates a structure, picks priority areas and sets targets for the country's economic development – be made a seven-year-long one for this time, according to planning commission vice chair Dr Govind Raj Pokharel.
"We have started discussions on the approach paper for the 14th plan from today," he said, adding that different members had put forward varied opinions.
The 14th periodic plan will start from the next fiscal year 2016-17.
Since, Nepal will have seven years to graduate to developing country from current Least Developed Country (LDC) status, some members proposed that we take this into account and align the periodic plan accordingly, Pokharel added.
Nepal is planning to graduate from its current LDC status to a developing country status by 2022.
Earlier, the planning commission had prepared Three-Year Interim Plans thrice due to prolonged political transition. The planning commission had brought three-year interim plans to align with constitution making process from the Constituent Assembly (CA). But historically, planning commission has been bringing five-year plan since almost six decades. But the planning commission has brought three year interim plans thrice since the second political movement of 2008.
The third Three-Year Interim plan (2013-14 to 2015-16) – also the 13th plan – aimed at preparing groundwork for Nepal to graduate to developing country status in the next 10 years from 2013 to 2022.
Though Nepal will technically graduate to developing country before 2022 – as it has already met two of the three criterion set for graduation – its sustainability has been under question, especially after the devastating earthquake of April 25, May 12  and series of aftershocks.
The earthquake floored many buildings – including world heritage sites, public buildings, schools, police posts and important infrastructure in addition to private buildings – pushing as many as a million people into poverty, according to the Post Disaster Needs Assessment (PDNA) report.
Out of the three criterion set by the United Nations Committee for Development Policy, Nepal has already met two – Economic Vulnerability Index (EVI) and Human Assets Index (HAI) – graduate to developing country. But it cannot meet per capita GNI threshold.

Nepal to graduate to developing country from LDC before deadline

Nepal is going to graduate 'technically' to developing country status from the current Least Developed Country (LDC) status before the deadline of 2022.
Nepal has met two – out of the three – criterion to graduate to the developing country, informed National Planning Commission member Swarnim Wagle.
Of the three, a LDC has to meet atleast two criterion – Economic Vulnerability Index (EVI) and Human Assets Index (HAI) – or one criteria that is per capita gross national income (GNI) – to graduate to the developing country, according to the  UN Committee for Development Policy. But for that a country’s per capita GNI should be twice the UN threshold that is $1,242. But, UN data revealed that Nepal’s per capita gross national income stands at $659, which is way below the UN threshold.
Nepal has met Economic Vulnerability Index (EVI) and Human Assets Index (HAI) to graduate to developing country, concluded the meeting of UN Committee for Development Policy – a body under the UN Department of Economic and Social Affairs – held in New York on March 23-27.
However, Nepal has failed to meet the first criteria that is per capita gross national income (GNI), which should be $1,242 or more, which is fixed by the UN for 2015, though it has met the two other criterion.
Human Assets Index (HAI) – that is the level of the human capital present in a country that includes indicators on gross secondary enrollment ratio, and under-nourishment, under-five mortality and literacy rates – needs to be 66 or above to be eligible for graduation. Nepal scored 68.7, which is 2.7 points more than the UN threshold.
Likewise, Economic Vulnerability Index (EVI) – that measures a country’s vulnerability to external economic and environmental shocks using the eight indicators – should be 32 or less for graduation. Nepal scored 26.8, which is below the UN threshold of 32.
"Since Nepal has met the two non-income criteria, it can graduate on technical grounds,” Wagle said, adding that Nepal is now under review. "Nepal will have to sustain these achievements till 2018, when the UN will conduct another review. If it is able to sustain the current achievement, the UN Economic and Social Council will forward the proposal on Nepal’s graduation to the UN General Assembly in 2018."
The country will then formally graduate to developing countries after three years by 2021, after formal decision by the UN General Assembly. However, graduation to developing country will make Nepal unfit to get benefit that it is receiving as a LDC. Thus Nepal needs to increase its competitive capacity and increase domestic production by investing more on physical infrastructure and industries.
The planning commission has reset the deadline to 2022 – bringing it down by eight years from 2030 – last year during the third three-year interim plan.
Nepal now needs to propel economic growth to sustain the achievements and elevate it to middle income country by 2030 from the current low income country, Wagle added.