Nepal’s LDC graduation at risk due to budget shortfall, warns Minister Bhandari

KATHMANDU, MAY 18: Minister for Industry, Commerce and Supplies, Damodar Bhandari, stated that Nepal lacks sufficient budget to graduate from its current Least Developed Country (LDC) status to that of a developing country by 2026.

Speaking at a meeting of the Committee on Development, Economic Affairs and Good Governance under the National Assembly on Sunday, Minister Bhandari highlighted the challenges in implementing the government's ‘Smooth Transition Strategy’. He cited inadequate budget and poor inter-agency coordination as major obstacles.

“Nepal needs over Rs 4 billion to implement the preparatory activities and action plans for LDC graduation. However, only Rs 40 million has been allocated in the current fiscal year,” Bhandari said, expressing concern. “It will be difficult to achieve the desired results with such a limited budget.”

Nepal was designated as an LDC in 1971. To ensure a smooth, sustainable and high-quality transition to developing country status, the government formulated the ‘Smooth Transition Strategy’.

During the meeting, Minister Bhandari urged all relevant agencies to perform their roles diligently in enforcing the strategy. Emphasizing the need to enhance production and productivity, he asserted that unless the contribution of the industrial and manufacturing sectors to the Gross Domestic Product (GDP) increases, economic challenges will persist.

The meeting also discussed potential negative impacts and challenges Nepal could face during and after the transition. It was noted that Nepal would lose key international trade and development aid benefits it currently enjoys as an LDC.

Minister Bhandari noted that the country's export trade is projected to decline by 4 percent due to the loss of LDC-specific trade facilities. This could adversely affect Nepal’s economic growth and impact approximately 10,500 workers in sectors such as garments, carpets, and pashmina.

Nepal will also lose preferential treatment for services and service providers under the World Trade Organization (WTO), including 'duty-free' and 'quota-free' access. Export subsidies on agricultural products will be restricted, and subsidies on non-agricultural exports will be reduced after graduation.

To mitigate these impacts, Nepal is holding discussions with the European Union, Turkey, and other countries to continue certain trade facilities, informed Govinda Bahadur Karki, Secretary at the Ministry of Industry, Commerce and Supplies.

However, domestic facilities provided by the government will continue. Subsidies for the internal trade of agricultural products will remain unchanged, and support for non-agricultural local products will also not be withdrawn.

The transition is also expected to lead to a reduction in development assistance from bilateral and multilateral development partners, including major donors such as the Asian Development Bank and the World Bank.

After graduation, Nepal must comply with market liberalization commitments applicable to developing countries. As a low-income country, Nepal will no longer be eligible for concessional loans and will lose access to specific aid allocated by UN agencies like UNDP and UNICEF, which are reserved for LDCs.

Furthermore, Nepal will lose the flexibilities under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which may adversely affect the pharmaceutical sector. The transition is also expected to hamper technology transfer.

Nonetheless, the meeting concluded that Nepal will still be eligible for climate-related funding from the United Nations Framework Convention on Climate Change (UNFCCC).

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