Nepal lacks budget for graduation from LDC status, faces loss of key facilities after upgrading

Kathmandu, May 18: Minister for Industries, Commerce and Supplies Damodar Bhandari mentioned that Nepal does not have a sufficient budget to graduate from the current Least Developed Country (LDC) to the status of a developing country by 2026.

At the Committee of Development, Economic Affairs and Good Governance meeting under the National Assembly on Sunday, Minister Bhandari stated that implementation of the ‘Smooth Transition Strategy’ remains a challenge due to inadequate budget and lack of ‘smooth’ coordination among the inter-agencies. Minister Bhandari shared, “Nepal needs over Rs 4 billion to implement the preparatory activities and action plans for graduation from the LDC status.

But we only have a Rs 40 million budget in the current fiscal year.” Bhandari worried, “It will be difficult for us to achieve the desired result with this amount.” It may be noted that Nepal was listed as an LDC in 1971, and the government formulated the ‘Smooth Transition Strategy’ to ensure the smooth, quality, and sustainable transition of Nepal to the developing country status.

Minister Bhandari in today’s meeting urged all the relevant agencies to deliver at their best to enforce the strategy. Emphasizing the need to enhance production and productivity, Bhandari asserted that as long as the contribution of the industries and production to the country’s Gross Domestic Product (GDP) does not increase, the problems would persist.

The meeting dwelt on the likely negative impacts and challenges Nepal would face during the transition and after the upgrade. Nepal, after graduation, will lose key international trade and development aid benefits that it has been reaping as an LDC country; it was discussed. He said that it was predicted that the export trade of the country would decrease by 4 percent due to the exemption of LDC facilities.

The decline in exports could affect the economic growth of the country and adversely impact as many as 10,500 workers currently employed in sectors like garments, carpets and pashmina. The country will no longer receive preferential treatment for services and service suppliers from the World Trade Organisation, such as ‘duty-free’ and ‘quota-free’.

The export subsidies on agricultural products will be restricted while subsidies on non-agricultural products will be slashed following the upgrading, it was shared in the meeting. To retain these facilities, Nepal is discussing the continuation of such facilities with the European Union, Turkey and other countries, informed Govinda Bahadur Karki, Secretary at the Ministry of Industry, Commerce and Supplies.

The facilities being received from the government will, however, continue. The subsidies for the internal trade of agricultural products will also remain the same. The subsidy on the non-agricultural local products will not be removed. Likewise, the upgrading will also witness cuts in the development assistance from the bilateral and multilateral development partners to Nepal.

Major donor agencies such as the Asian Development Bank and the World Bank will reduce aid and clip facilities. Upon graduation, Nepal has to comply with the liberalization-related pledge as a developing country. Nepal, being a low-income country, would no longer receive concessional loans. Development agencies like the UNDP and the UNICEF allocate specific aid to the LDCs.

Following the graduation, Nepal will no longer be entitled to the aid. In addition to that, Nepal will also be deprived of intellectual property flexibilities under the Agreement on Trade-Related Aspects of Intellectual Property Rights, affecting the pharmaceutical sector. Similarly, technology transfer is also bound to face issues after the upgrade, the meeting concluded.

Nevertheless, climate-related funding from the United Nations Framework Convention on Climate Change will continue, it was shared in the meeting.