Nepal abandons LDC graduation plan

February 19, 2018

Nepal has abandoned the plan of relying on the non-income criteria framed by the United Nations (UN) to graduate from the Least Developed Country (LDC) category, fearing the transition would significantly reduce the flow of foreign aid and deprive the country of other international support measures.

Nepal’s intention was formally relayed by a delegation led by Bishnu Prasad Lamsal, secretary of the National Planning Commission (NPC), that recently visited the UN Headquarters in New York, the US.

“We have decided not to graduate based on non-income criteria as our capacity needs to be enhanced in various areas,” NPC Vice Chairman Swarnim Wagle told journalists on Sunday. 

The statement comes few weeks ahead of the formal hearing on Nepal’s graduation case at the UN. 

In March, 2015, a meeting of the UN Committee for Development Policy (UNCDP), a body under the UN Department of Economic and Social Affairs, had told Nepal that it was eligible for LDC graduation under non-income criteria. During that meeting, the UNCDP had said it would review Nepal’s case again in March, 2018 and confirm whether it was ready for graduation.

An LDC, like Nepal, can move to the group of developing nations if it meets two of the three criteria fixed by the UN. The first criterion fixed by the UN for LDC graduation is per capita gross national income, which, according to 2015 standard, should stand at $1,242 or more. 

Second is the level of the human capital present in a country, which is measured using Human Assets Index (HAI). The index includes indicators on gross secondary enrolment ratio, undernourishment, under-five mortality and literacy rates. An LDC which scores 66 or more in the index becomes eligible for graduation.

The third criterion for LDC graduation is the country’s vulnerability to external economic and environmental shocks, which is measured using the Economic Vulnerability Index (EVI).

This index includes eight indicators and an LDC’s score should stand at 32 or less for graduation. Of the three criteria, an LDC that meets only one criterion on per capita gross national income can also be eligible for graduation.

But for that the country’s per capita gross national income should be double the UN threshold. If not, an LDC can meet two other criteria and graduate to the group of developing nations. 

UN data show that Nepal’s per capita gross national income stood at $659 during 2015 review meeting, which was way below the UN threshold. However, Nepal had achieved a score of 26.8 in Economic Vulnerability Index, which was 5.2 points more than the UN threshold. Also, Nepal had scored 68.7 in Human Assets Index, which was 2.7 points more than the UN threshold.

“The meeting that will be held next month is likely to say that Nepal has sustained achievements made in 2015 and is ready for graduation,” Wagle said. 

If Nepal agrees to graduate, the UN Economic and Social Council will forward the proposal on Nepal’s graduation to the UN General Assembly. The country will then have to wait three years for graduation. This means the country has chances of graduating from the group of LDCs by 2021.

“But we have told the UN that some of the indicators for graduation are irrelevant to us and issues that are important for Nepal’s economic and human capital development have not been incorporated in the formula for LDC graduation,” Wagle said.

According to Wagle, EVI should also include threats such as earthquakes and trade blockades that can derail economic development, while HAI should look into quality of education and healthcare services rather than just numbers like primary school enrolment rate.

On top of these issues, LDC graduation on technical terms—that is without propping up per capita income—could cost the country dear, as Nepal would see reduction in foreign aid and gradually lose trade preferences, like duty-free, quota-free market access in the European Union and the US. If Nepal graduates on technical terms, the country will also gradually lose access to special World Trade Organisation waivers. These losses, according to experts, can hit Nepal’s exports and development endeavours. 

However, it is yet to be seen whether the new government led by KP Sharma Oli will heed recommendations made by the NPC, which included office bearers appointed by outgoing Sher Bahadur Deuba-led government.



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