Monday, 6 December, 2021

Nepal's Graduation From LDC

Uttam Maharjan


The UN Committee for Development Policy (CDP) has recommended that Nepal be graduated from the LDC status to the club of developing countries. The recommendation is based on the country meeting the required criteria. The country has met the human assets index (HAI) and economic and environmental vulnerability index (EVI) but failed to meet the gross national income (GNI). The country scored 72.1 in the HAI (threshold being above 66) and 25.5 in the EVI (threshold being below 32). The country has not been able to meet the GNI criteria because its per capita income is USD 1,085. For a country to be graduated to a developing country, its per capita income should be USD 1,230. Nepal has been given five years as a preparatory period to prepare to become a developing country in 2026. The preparatory period, which is usually three years, has been extended to five years at the request of the country due to the impacts on its economy of the COVID-19 pandemic.

Robust development
It may be noted that Nepal qualified for graduation to a developing country in 2015, the year when the Gorkha earthquake rattled the country, resulting in the loss of thousands of lives and the devastation of economic structures. As such, the graduation was deferred at the request of the country. In 2018 again, the country qualified for developing country status but requested the CDP to postpone the graduation till 2021 on the recommendation of the National Planning Commission that robust and sustainable development plans be formulated and implemented for economic development and a decent per capita income be achieved during the three years from 2018 to 2021. And the country made a plan of becoming a middle-income country by 2030.
This time, Nepal has decided to graduate to a developing country after being an LDC for the least 50 years. The country has five years to improve its economy. Being an LDC, the country has been receiving facilities like concessional loans, grants and aid from bilateral and multilateral donor agencies. It is also said that the country postponed graduating to a developing country in 2015 and 2018 for fear of losing concessions and assistance exclusive to LDCs. There are LDC-specific international support measures (ISMs) related to international trade but the country has not been able to take advantage of this facility.
The forthcoming five years are crucial for Nepal. These are the preparatory or transition period which should be devoted to making strides in the economic development front. After being a developing country in 2026, the country will lose assistance and concessions from bilateral and multilateral donor agencies. This implies that the country will have to face several challenges. That is why the country should build economic capacity by devising an appropriate strategy for economic development. Such a strategy may be devised in collaboration with the country's trade and development partners to make it more practical and viable in view of trade risks and high trade cost.
The country should initiate negotiations with such trading partners as the USA, the EU, India, Japan, and bilateral and multilateral donor agencies. It should be ensured that the aid and cooperation being received by the country from its trade partners like the USA, the EU, India and Japan are not trammelled. In fact, trade is a strong medium for accelerating development in the country. For this, various sectors of the economy like agriculture, industry and trade should be beefed up within the country. Trade, not aid, should be the mantra for development. As the country's imports preponderate over exports, the time has come to review the import-export situation and take measures to reduce the trade deficit by taking import-substitution measures and increasing exports.
Although Nepal will lose some aid and opportunities after becoming a developing country in 2026, its image will be enhanced in the international arena. Remaining in the club of LDCs for 40 years is not a small deal. The time has come for the country to move on. Despite being landlocked, prone to natural disasters and vulnerable to climate change, the country has made significant headway in the socio-economic field. The economic growth of the country for the last few years has been impressive. Although the COVID-19 pandemic has affected the economy, the country will bounce back and reverse the impacts of the pandemic on the economy. Now the impacts of the pandemic are wearing off and the ongoing vaccination drive has held out hope for the economy to revive.
Nepal has been dependent on friendly countries and donor agencies when it comes to embarking upon development projects. This dependence syndrome has, in a sense, deprived the country of being self-sufficient. So this is the right time for the country to initiate measures towards autarky by exploiting natural resources, and indigenous knowledge and skills. If need be, technology can be imported from advanced countries. This is the age of globalisation, where technology transfer is considered normal.

There may be apprehensions that after being a developing country, Nepal will lose facilities and opportunities exclusive to LDCs, thus hampering the country's development endeavours. But the point is being a developing country is far better than being an LDC. The people of the country can preen themselves on being the citizens of a developing country, which will be a matter of national glory. However, the road to being a developing country is not smooth. The country will have to make concerted efforts to that end. The country has two other important targets to fulfil. One is materialising the dream of becoming a middle-income country by 2030 and the other is meeting the SDGs by the same year. If sincere efforts backed up by political will are in place, there will be no question of the country failing in its efforts to fulfil its cherished goals.

(Former banker, Maharjan has been regularly writing on contemporary issues for this daily since 2000.