By Shanker Man Singh

It has become apparent that the Ministry of Finance has started its homework on the preparations to be made for the implementation of the strategy to be adopted when Nepal is upgraded from the least developed country group to a developing country. The Finance Minister has mentioned that Nepal will proceed with the work to be done with full preparation. Although it is estimated that after the upgrade, Nepal will have strong access to development and commercial investment, contribution to the development of new trade and economic partnerships, sustainable development, building a national image, and increased credibility, how can we explain that this is not so easy? It is expected to have an impact on commodity exports, prices, employment and other sectors.

By November 2026 Nepal is going to be upgraded to the developing country status. Nepal will lose some benefits that come with LDC status, such as preferential market access for goods and services, flexibility in implementing World Trade Organization (WTO) rules, international development measures and special financing.

The United Nations Committee for Development Policy (UN CDP) had previously recommended the Himalayan nation for an upgrade in its last assessment. "Nepal will be a unique example as the first country to graduate from the LDC category without meeting the Gross National Income (GNI) criteria. However, it must be made as smooth and sustainable as possible.

For Nepal, graduation is a critical step towards realizing the national aspiration of a prosperous and developed Nepal. The three indicators considered by the CDP are GNI per capita, the Human Assets Index (HAI), and the Economic and Environmental Vulnerability Index (EVI).

Nepal should seize the opportunity to graduate to regain lost momentum on the global goals and make significant strides in the Decade of Action. Nepal will continue to have access to all LDC-specific assistance measures by 2026.

In addition,  Nepal, Bangladesh and the Lao People's Democratic Republic have also been recommended by the CDP for graduation, which has been good for the country.

'Developing' is a relative term, a stage in progress - a stage before something reaches its final state. Nepal in 2025 is certainly more developed than Nepal in 2010, which was more developed than Nepal in 2000. But the average trend around the world Nepal has not been able to keep pace with the development happening around the world.

So can Nepal be considered developing? No, not when compared to other countries, but yes when compared to Nepal in the past.

The majority of Nepalis only have survival in mind, development is far away. As a society, the Nepali people are still very uneducated, very deeply ‘superstitious’, rarely know the meaning of ‘human rights’ and have not yet reached the complexity and sophistication in thinking required to compete with other developing countries of the world.

Nepal should properly utalize the available resources. Peace and security should be maintained. Since Nepal can produce up to 83 thousand megawatts of hydropower, it should try to produce as much hydropower as possible.

Nepal has illiteracy, poverty, superstition, unemployment, brain drain, discrimination, traditional thinking, backwardness and many other problems. Nepal should try to solve all these problems.

Leaders should be honest and educated, and the people should be able to choose the best representatives because most of the leaders are involved in corruption.

According to the United Nations Conference on Trade and Development (UNCTAD), many LDCs face two major challenges beyond graduation: the risk of reverting to LDC status and the middle-income trap.

There is a risk of reversal at every graduation, mainly due to outflow shocks such as the impact of the COVID-19 pandemic, climate-induced disasters, and trade shocks, which are also major threats to the Nepalese economy.

Due to the persistence of several problems, including low levels, it faces the difficult task of achieving sustainable economic growth to progress from the current lower-middle-income country to a high-income country. There are several economic implications of the upgrade.  

Although Nepal will be eligible for the Generalized System of Preferences (GSP) available to developing countries, it is much less generous than the duty-free, quota-free (DFQF) market access that many advanced economies offer to LDCs. For example, exports from Nepal to European Union countries will face an average tariff increase of about 5% under the GSP, which will mainly adversely affect the garment, textile and carpet industries.

A study has shown that Nepal could lose 4.3% of its exports due to tariff changes after its upgradation, mainly due to the loss of preferential market access and stricter rules of origin (ROO) in the EU, Turkey and the United Kingdom (UK). In addition, the government will have to keep some additional restrictions in place in its policy space as it will need to remove export subsidies, especially on agricultural goods.

 Thus, Nepal will face competitive pressure on export products as international support measures are withdrawn after graduation. Mobilizing the necessary financial resources for the necessary investments to put LDCs on a rapid growth path remains a major challenge in implementing the Doha Program of Action (DPoA), adopted by the UN to provide differential treatment to LDCs, which is closely aligned with the Sustainable Development Goals (SDGs).

In addition, Nepal will lose access to Aid for Trade (AfT) under the Enhanced Integrated Framework (EIF) and the United Nations Capital Development Fund (UNCDF) five years after its graduation. After graduation, the minimum grant element of Official Development Assistance (ODA) loans decreases until it is classified as a Low-Income Country (LIC); however, Nepal has also become a ‘Low-Middle-Income Country’ (LMIC), due to which the lending conditions have become relatively tighter.

As such, the coming years will be a defining period for Nepal to navigate its transition from a LDC to a middle-income developing country, with both opportunities and challenges. Consequently, a smooth, irreversible, inclusive, resilient, and sustainable transition is crucial for a successful graduation.

The country needs to make serious efforts towards poverty reduction to develop its productive capacity, expand its export base, diversify its economy and sustain its high graduation rate in the long term.    Engaging the private sector, civil society and the international community is equally important when it is pursuing the sustainable graduation agenda. Aligned with the Sustainable Development Goals (SDGs) and existing government policies, it emphasizes human investment, science and technology, structural transformation, international trade, climate change, and pandemic recovery as part of Nepal’s transition from LDC status. Partnership for implementation, monitoring and reporting.

To ensure strong partnerships and to ensure effective implementation, monitoring and reporting of the Smooth Transition Strategy (STS), several committees should be established. Providing incentives and technical support to micro, small and medium-sized enterprises (MSMEs) is important to foster innovation, job creation and economic diversification. This support could include e-commerce platforms, digitally enabled green innovations, and tools for digital and financial literacy.

Encouraging public-private partnerships, especially in infrastructure development, will leverage the private sector's expertise to deliver large projects.