Private Sector Lobbying to Delay Nepal’s Graduation to Developing Country Status by One Year

Although Nepal is scheduled to graduate from the Least Developed Country (LDC) category to a Developing Country by 2026, the private sector has intensified lobbying to postpone the transition by one year. Businesspersons argue that the economic losses suffered during the recent “Gen Z Movement” have left them ill-prepared for the immediate withdrawal of LDC privileges.

Nepal’s graduation timeline has been fixed for November 2026. The United Nations (UN) determines eligibility for graduation based on three indicators: Gross National Income (GNI) per capita, Human Assets Index, and Economic and Environmental Vulnerability Index. A country must meet at least two of these criteria. While Nepal does not meet the GNI threshold, it qualified under the other two indicators.

The government has been preparing for the transition. However, following the recent political and economic unrest, the private sector began lobbying for a one-year extension. Discussions are currently ongoing among the Ministry of Industry, Commerce, and Supplies, the Ministry of Finance, and private sector representatives. Business leaders have argued that an immediate upgrade would result in the loss of trade benefits while many firms are still struggling to recover from recent disruptions.

Hem Raj Dhakal, vice president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said the private sector has proposed deferring graduation for at least one year. He noted that the economy has yet to stabilize following the Gen Z protests, during which businesses suffered significant losses. Dhakal emphasized that Nepal’s heavy reliance on imports, weak export performance, and the lingering impact of unrest make it difficult for industries to adapt quickly to the post-LDC environment.

Loss of Trade Privileges

As an LDC, Nepal currently exercises duty-free export privileges for most products in European and American markets, as well as similar zero-tariff access to China. Development partners have also provided technical assistance to small and medium enterprises (SMEs) under this status. Once Nepal graduates, these trade benefits will be gradually phased out, forcing domestic products to compete with lower-cost producers globally.

Dhakal warned that the loss of LDC benefits could reduce Nepal’s exports by at least 5 percent. The shift could also increase borrowing costs and pose challenges for public financial management, as noted in a report by the National Assembly’s Committee on Development, Economic Affairs, and Good Governance.

Although developed countries have pledged to continue preferential treatment for three years after graduation, it remains uncertain whether countries like China will maintain existing benefits. Currently, Nepal enjoys duty-free access given by China to more than 8,000 products. Exports to India, Nepal’s largest trade partner, are governed by bilateral and regional trade agreements under the South Asian Free Trade Area (SAFTA).

Pharmaceutical Industry at Risk

A study by the South Asia Watch on Trade, Economics and Environment (SAWTEE) highlighted that graduation could significantly affect Nepal’s pharmaceutical industry. As an LDC, Nepal is allowed to manufacture patent-protected medicines without paying royalties or obtaining consent from patent holders. Losing this exemption would increase production costs and, consequently, the prices of essential medicines, potentially undermining the country’s public health system.

Government Yet to Decide

The government has not made any official announcement regarding an extension. Finance ministry officials said internal discussions are ongoing but no formal decision has been reached. According to a senior official at the finance ministry, while the private sector has raised valid concerns, the government is also considering the positive implications of graduation, such as enhanced investor confidence and a stronger international image.

“Graduation will remove Nepal from the list of least developed countries and help shed its image as one of the world’s poorest nations,” the official said. “This can attract more foreign investment and improve Nepal’s economic standing globally.”

Currently, officials are deliberating whether to adhere to the original 2026 schedule or delay the process by a year, citing the country’s transitional political and economic situation. Nepal had earlier postponed its LDC graduation in 2018 and 2021 due to the 2015 earthquake and the COVID-19 pandemic. The UN, however, has already approved Nepal’s graduation for 2026.