MPFD Working Paper on Nepal's graduation from LDC: Potential implications and issues for consideration

Working paper11 Mar 2020

Nepal has achieved significant socio-economic progress despite being confronted by unfavourable conditions such as its being landlocked and susceptible to natural disasters. It has demonstrated a paradoxical development pattern in which a relatively low long-term average economic growth has been accompanied by brisk poverty reduction. The country met criteria for graduation from the group of least developed countries (LDCs) in two consecutive United Nations triennial reviews in 2015 and 2018. With a per capita income of just 60 per cent of the graduation threshold level of per capita income, it was quite extraordinary for Nepal to meet the other two graduation criteria, the Human Asset Index and the Economic Vulnerability Index. It provides a classic case in which a country’s achieving LDC graduation thresholds do not adequately reflect its challenges of achieving sustainable development through building productive capacities as envisaged in the Istanbul Programme of Actions (IPoA) for LDCs. Most concrete LDC-specific international support measures (ISMs) are related to international trade from which Nepal has not been able to benefit much. While the IPoA and 2030 Sustainable Development Agenda anticipated LDC trade share to double by 2020, in reality, it has declined with Nepal’s merchandise exports falling in both absolute and relative terms. The 2018 United Nations Committee for Development Policy (CDP) decision to defer the recommendation of graduation until the next review was a judicious one and further deferments could also be considered as part of ISMs in helping Nepal consolidate its socio-economic achievements and securing Sustainable Development Goals. For Nepal, dealing with general development challenges, promoting external competitiveness, trade capacity building, and exploring enhanced trading opportunities in neighbouring and regional partner countries, amongst others, should remain important policy priorities.