Graduation Dilemma

With the seismic Gen Z movement, not only the nation’s politics but also the economy is facing a crisis. The youth uprising has pushed for broader political reforms. Still, it has dealt a blow to the economic sector as the country lost hundreds of billions of rupees when the public and private properties suffered arson and vandalism. The damage on this scale occurred as the economy, battered by the COVID-19 pandemic, was limping back. As a result of this heightened uncertainty, the World Bank (WB) has recently downgraded Nepal’s growth rate to 2.1 per cent from the projection of 4.5 per cent made in April this year. Although the Himalayan nation had demonstrated resilience and revival in the past, the current situation has impelled the new government to rethink the development strategy the country has been pursuing. 

A sort of dilemma is seen in its graduation to a developing nation from the Least Developed Country (LDC) next year. The call for deferring the graduation process has come to the fore in view of the looming bleak scenario of the national economy after the September 8 and 9 demonstrations.  Nepal has already delayed the graduation owing to the 2015 earthquake and the COVID-19 pandemic. It sounds unusual to vie for deferral again, as this will pose a question to the country’s economic capacity and credibility. The upgrade to the status of a developing country undoubtedly boosts the nation’s image as a destination for foreign investment. But a lacklustre economic performance may invite multiple economic shocks in the post-graduation phase. The country will no longer enjoy the favoured and duty-free access to the international markets in the US and Europe after its graduation.

 Due to the low productivity and high production and transportation costs, Nepali export items such as garments, handicrafts, carpet, felt and tea may not be able to compete with those of India, China and Bangladesh. According to a news report published in this daily the other day, Nepal exports garments worth about Rs. 10 billion a year, of which goods worth Rs. 4 billion enter the US market. Nepali items face difficulty in competing with Bangladeshi or Chinese products, even if a 10 per cent duty is imposed on them. The idea of deferral stems from the fact that it enables recouping the loss and creates the basic conditions. During the Gen Z protest, the physical capital, as measured by an important UN agency’s productive capacities index, was destroyed.

However, some others insist that Nepal should not seek postponement of the graduation but lobby to continuously get the advantages in the capacity of an LDC nation. The graduation will encourage the industries and exporters to improve the quality of their products and reduce their prices. The present government, formed on the foundation of the Gen Z movement, has given continuity to the Smooth Transition Strategy, formulated last year. During her digital interactions with Nepali ambassadors and heads of foreign diplomatic missions a few days ago, Prime Minister Sushila Karki urged multilateral and regional organisations for their cooperation for the smooth transition after the country’s graduation. 

The option for graduation deferral is not off the table, although such a proposal has not been suggested to the National Planning Commission (NPC), the focal agency for LDC graduation. The UN's Committee for Development Policy (CDP) will assess the countries and recommend graduation. Even if the government braces for graduation, it should put its best foot forward for enhancing trade infrastructure, the quality of ICT facilities and branding Nepali products.