LDC Graduation Glitches

Once more, Nepal has requested the United Nations for the deferral of its scheduled graduation from the least developed country (LDC) to a developing nation. The Ministry of Foreign Affairs revealed the other day that Foreign Minister Shisir Khanal had written to the Chair of the UN Committee for Development Policy last week seeking a deferral of the country’s graduation until November 2029. Nepal was supposed to graduate by November 2026, along with Laos, after Bangladesh opted out in the context of a political upheaval two years ago. So, only Laos is set to graduate this year. The LDCs are a group of countries designated by the United Nations that grapple with the lowest indicators of socioeconomic development, hence they are provided with preferential market access, financial aid and technical assistance.  

As per a news report in this daily, the deferral has been sought in view of the recent national and international economic and political circumstances. The exact reasons cited are impact of regional conflict on the economy, risks of losing favoured treatment in international markets, slow transition preparation, prolonged impact of COVID-19 and risk of remittance decline in the wake of West Asian crisis. Nepal actually qualified to graduate as early as 2015, but it opted out following the Gorkha Earthquake that razed the infrastructure and adversely affected the larger economy. In 2018, the Committee for Development Policy recommended for graduation by 2021. But the COVID-19 pandemic hit in between, upsetting tourism along with domestic and foreign employment, and the country was forced to seek another extension; it was granted five years, until November 2026. 

Once the country graduates to a developing country status, it is likely to lose the duty-free quota-free access to advanced economies, options for concessional loans and grants from multilateral donors and support in travels to UN programmes. Hence, the private sector lobbied for yet another deferral in view of huge losses to assets of business establishments during the Gen Z protests last September. That was understandable, but it had been demanding for the deferral all along at risk of losing favoured treatment in international markets which can hamper production sector employment by up to 35 per cent. However, it is a paradox that the country, private sector in particular, has been unable to fully avail of duty-free and quota-free access in American and European markets due to a lack of capacity and competitive edge. It means a lot more must be done in the next three years so that Nepali businesses can compete in the global market while the government can limit its dependence on foreign loans and grants. 

Currently, the country is in the throes of immediate challenges unleashed by the Mideast conflict. The flow of migrant workers has shrunk and it is likely to reduce the inflow of remittances that keep the economy floating. The fuel prices have soared, hitting the construction sector hard, while the short supply of chemical fertilisers has posed a threat to agriculture sector. The World Bank has projected that the economy is likely to grow only by 2.3 per cent in the current fiscal year. So the request for the deferral is not without ground. However, it is imperative for the government, determined to turn the economy around through extensive policy and institutional reform, to implement a robust transition strategy by the deadline and to reduce the cost of industrial production, enhance infrastructure and take measures to ensure access to major international markets. The private sector needs to join hands with the government to expand its production capacity and boost competitive strength to steer clear of the challenges the graduation will unfold.