Calls Grow for Nepal to Seek Deferral of LDC Graduation

Nepal’s private sector has urged the government to seek more time before exiting the Least Developed Country (LDC) category, warning that the economy is not ready to absorb the post-graduation shocks. 

The concern dominated a policy dialogue held in Kathmandu on Friday, November 28, as stakeholders questioned whether Nepal’s resilience is strong enough to sustain the loss of LDC-specific support measures.

South Asia Watch on Trade, Economics and Environment (SAWTEE), a Kathmandu-based think tank, organised the discussion under the theme “Nepal’s LDC Graduation Preparedness”. The event reviewed Nepal’s current economic position and examined how recent domestic disruptions have affected its transition plans.

Nepal is scheduled to graduate from the LDC group in November 2026. Graduation is seen as a major national milestone. It signals global recognition of progress and could attract more investment. Yet it will also end several forms of international support. These include preferential market access for exports, concessional finance, and patent exemptions for pharmaceutical products. Many at the event warned that the loss of these benefits could hit key industries at a fragile moment.

The dialogue assessed whether Nepal should request a deferral of graduation or seek an extension of the preparatory period. Several speakers said a longer transition would give Nepal room to rebuild investor confidence, restore production capacity and strengthen export competitiveness.

Minister for Industry, Commerce and Supplies Anil Kumar Sinha said the government must take stock of where Nepal stands. He stressed the need to assess progress and identify urgent measures to ensure a smooth and secure transition.

Private sector leaders described a challenging economic environment. 

Anjan Kumar Shrestha, Senior Vice President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), stated that while LDC graduation is a significant national achievement, it also brings major policy challenges. 

“Recent protests and slowing economic growth have left micro, small and medium-sized enterprises — already struggling to recover from COVID-19 — under added pressure, with investor confidence remaining low,” said Shrestha. “Nepal faces the loss of duty-free, quota-free market access and other international support, which will particularly affect garments, carpets, and pashmina.”

Persistent infrastructural bottlenecks further strain the economy.

“Given this, Nepal urgently needs at least a three-year extension for LDC graduation, to be used to mitigate transition impacts,” Shrestha added. “Instead of enduring prolonged uncertainty, the focus should be on building self-reliance and restoring national confidence through thorough preparation.”

Birendra Raj Pandey, President, Confederation of Nepalese Industries (CNI), stated that Nepal’s LDC graduation is a national aspiration, but preparation is crucial.

“With GSP+ conditions still in progress and the economy underperforming — further affected by the GenZ protests, low investor confidence, and excess liquidity — a deferral request may be necessary,” said Pandey. “While there are pros and cons, industries should not suffer.”

Similarly, Pashupati Dev Pandey, President, Garment Association of Nepal, pointed out that the question is not when we should choose to graduate but how prepared we are for the graduation. “This is a bit difficult at the time when even the government is considering to suspend existing support such as export cash incentive,” he added.

Balram Gurung, President of the Nepal Carpet Manufacturers Association, stated that Nepal needs to enhance its competitiveness, as it lags behind other carpet-exporting countries. 

“Strengthening competitiveness must therefore be a priority, as without preferential market access, Nepal’s carpets may struggle in global markets,” said Gurung. “Until such competitiveness is achieved, pursuing an LDC deferment could be a necessary approach.”

Darshana Shrestha, First Vice President, Federation of Woman Entrepreneurs’ Associations of Nepal (FWEAN), highlighted that graduation is a matter of pride for the country but private sector is worried about whether the termination of preferential market access would increase the cost of Nepali products, which is already high due to weak competitiveness.

Govinda Prasad Ghimire, President, Federation of Export Entrepreneurs, emphasized the need to raise awareness on Nepal’s upcoming LDC graduation at the provincial and local levels. He highlighted that higher trade costs continue to pose significant challenges for businesses, underscoring the urgency of prioritizing quality enhancement, technological upgrading, and timely policy reforms.

Dr Kalpana Khanal, Senior Research Fellow at the Policy Research Institute, highlighted that Nepal continues to grapple with an investment gap and excess liquidity, underscoring the need to boost productivity and ensure scalability across sectors. She emphasized that, to minimize the impact of LDC graduation, Nepal must proactively negotiate with trade partners and work toward expanding its trade regimes.

Madhu Marasini, Senior Fellow, SAWTEE noted that the private sector’s approach toward Nepal’s LDC graduation remains hesitant, driven largely by a lack of confidence. He observed that the national discourse is still heavily centered on traditional industries, urging that emerging sectors —such as ICT— be given equal attention.

Ravi Shanker Sainju, Vice chair, SAWTEE, highlighted that Nepal faces the highest logistics costs in South Asia. He noted that weak internal distribution systems and an inefficient supply chain have severely affected the country’s overall logistics performance. He also stressed that capacity development, improved access to finance, and other targeted support measures are essential for strengthening the resilience and competitiveness of SMEs.

Summarising the key points of the discussion, Ratnakar Adhikari, Chair of the session, emphasized that the government should actively engage stakeholders and take them into confidence. Furthermore, he suggested the need for product and sectoral diversification, and called for the establishment of a multi-stakeholder mechanism with clear plans and roadmaps to effectively monitor, evaluate, and lead the implementation process.

The event saw participation of policy makers, private sector representatives, members of civil society, media and experts.