Nepal Seeks UN Extension to Delay LDC Graduation
Nepal is considering requesting the United Nations to delay its scheduled graduation from the category of Least Developed Countries (LDC) by three years. This move comes amid growing concerns that the country is not economically prepared to lose the trade and development privileges associated with its current status.
The government, led by Prime Minister Balendra Shah, is preparing a formal letter to seek an extension for Nepal’s graduation, which was initially set for November 2026. The decision follows discussions between the prime minister and Finance Minister Swarnim Wagle, who both expressed concerns about the economic implications of graduation.
Reasons for the Request
Several factors have influenced the government’s decision to request a deferral. These include:
- Loss of Trade and Preferential Facilities: As an LDC, Nepal currently enjoys various trade and development benefits. Graduation would mean losing these advantages, which could negatively impact the economy.
- Economic Vulnerabilities: Tensions in West Asia and Bangladesh’s own request for a similar deferral have heightened concerns about Nepal’s economic stability.
- Private Sector Pressure: The private sector has also urged the government to delay graduation, citing the need for more time to prepare for the transition.
An official from the Office of the Prime Minister and Council of Ministers stated that the government believes at least two to two-and-a-half years will be needed to build a strong economic foundation. The goal is to ensure that once the graduation decision is implemented, Nepal does not face the risk of slipping back into an underdeveloped status.
Steps Being Taken
The United Nations Economic and Social Council (ECOSOC) has already been informed about the proposal to defer the deadline, even before a formal letter is dispatched. Lok Bahadur Thapa, who represents Nepal as the president of ECOSOC, is involved in this process.
The National Planning Commission has recommended a three-year extension to the graduation timeline. According to an official at the finance ministry, the commission has emphasized the importance of improving economic conditions before proceeding with graduation.
Challenges Ahead
Despite the proposed deferral, several challenges remain. Nepal faces issues such as low productivity, sluggish growth, and declining business confidence. The ongoing conflict in West Asia has further intensified economic uncertainty.
Experts highlight that many crucial steps outlined in the LDC Graduation Smooth Transition Strategy, published in February 2024, remain incomplete. These include:
- Free Trade Agreements: Studies and negotiations related to free trade agreements with different countries have yet to begin in earnest.
- International Conventions: Nepal still needs to ratify several international conventions required to retain duty-free market access to the European Union after graduation.
Kharel, an expert from the South Asia Watch on Trade, Economics and Environment (SAWTEE), emphasizes that Nepal must negotiate special agreements such as economic partnership agreements and preferential trade arrangements. These require extensive groundwork, institutional capacity, and stronger negotiating ability.
Sector-Specific Concerns
The textile and handicraft sectors, particularly garments, pashmina, and carpets, are expected to face significant challenges due to higher tariffs and stricter rules of origin in export markets. Pashupati Dev Pandey, president of the Garment Association Nepal, warns that the garment sector alone could lose more than 100,000 jobs without continued international support mechanisms.
Broader Economic Indicators
Economists argue that Nepal’s lack of preparedness is reflected in broader macroeconomic indicators. High liquidity in banks, low interest rates, and weak credit demand suggest low investor and business confidence. Although these indicators are not direct criteria for LDC graduation, experts say the broader economic and political context matters.
Historical Context
Nepal first met the graduation criteria in 2015 and continued to qualify in subsequent triennial reviews. However, repeated crises, political uncertainty, and declining investor confidence have weakened the economy. Experts now believe that Nepal’s planned transition to developing-country status needs to be reconsidered.
Conclusion
Nepal’s request to delay its LDC graduation highlights the complex economic and political challenges the country faces. While the government seeks to build a stronger economic foundation, the path forward remains uncertain. The outcome of this request will have significant implications for Nepal’s future economic trajectory.
