Nepal was in the world’s least developed country (LDC) category for 50 years, since 1971, characterised by a low per capita income and meagre exports. In 2021, the United Nations Committee for Development Policy (CDP), in its triennial review meeting, recommended the graduation of the country from the LDC category. Normally, countries get three years to prepare for graduation. Nepal requested for five years. In the event, the country would successfully graduate from the LDC category in 2026. That would mark a departure from a 55-year-old identity of a least developed, poor, inefficient, and vulnerable country.

LDC graduation and federalism

There is no standard manual to follow in terms of helping the country in dealing with its challenges. The only path to success is the one that a country walks on by accommodating people at the bottom of the pyramid. As Nepal prepares to become a developing country, it will have to deal with the challenges of strengthening institutions that could be the foundation for developing a developing nation. The country’s needs are uniquely different while it is preparing to graduate from the LDC category. That’s primarily because it is also going through a transition of making a shift from a central administrative system to a federal one, as guided by the Constitution of Nepal, 2015. The federal government has multiple roles that it must balance. On the one hand, it should work on empowering and strengthening the capacity of federal-level institutions so that they can become world-class institutions. On the other hand, all the sub-national governments are also looking for support from the federal government in order to become more independent and operate autonomously as mandated by the constitution.

As the country is embarking on a journey of holding federal and provincial level elections on November 20 this year, there will be a new set of leadership in place. The new leadership will herald the path of preparation. The preparation should not be sector oriented but structurally designed, so that the institutions become more capable of addressing the issues and tackling the challenges.

Key challenges

The local and provincial governments have been facing challenges in utilising the resources that they have, mainly because of a lack of skilled human resources and weak institutional capacity. Both the layers of government, local and provincial, have been looking towards the federal government for support and guidance to develop the ability to independently manage and mobilise their resources. Moreover, they should also be able to generate revenue through their own sources. To complement and fulfil this gap, the federal government should provide support to the local and provincial governments in order to enable them to be able to mobilise the resources they already have and generate more revenue sources on their own. Meanwhile, the federal government should also strengthen the capacity of institutions at the federal level so that there won’t be any gap while transitioning from LDC to a developing country in the post-2026 period.

Some of the key challenges that we should be focusing on have been outlined in the Country Climate and Development Report 2022 of the World Bank. By acknowledging the development progress that Nepal has made so far, the report has highlighted some of the critical areas that need attention in the short, medium and long term. The report also has some specific actionable items suggested to mitigate the climate risk in the future. The report suggests that the priority areas of transition should be (i) taking an integrated approach to water, agriculture and forests, (ii) harnessing the hydropower opportunity and energy transition, (iii) managing sustainable urbanisation, and (iv) strengthening low-carbon resilient connectivity. As the country’s growth trajectory was always challenging, now, with the climate change-induced risks, the growth path has become more challenging. With that, the policy choices and their trade-offs will be even more challenging in the days to come. Against this backdrop, blended with Nepal’s transition to federalism, graduation from the LDC category and becoming a developing country is going to be a rocky path to tread, especially in the absence of sound institutions that can steer the country’s course.

The Country Climate and Development Report 2022 has noted that the new constitution has enabled the country to become more effective in handling climate change-induced disaster risks. Furthermore, the report states that the federal administrative system encourages decentralised development with actions relating to climate change and disaster risk reduction embedded into the exclusive jurisdiction of the local bodies. Local bodies have been empowered with extensive fiscal autonomy and resource mobilisation and management responsibilities. However, these local bodies have been facing challenges due to a lack of technical human resources and institutional capacity.

There are several other tasks that the federal government should be looking at and paying attention to. But all these activities will be shelved till the new government is formed after the elections are completed. The new government will have a fresh mandate along with a list of work to do that can unlock the path of becoming a vibrant developing country in the region with huge export potential and an attractive environment for more foreign direct investment (FDI) to flow into the country. There are other equally important areas that we need to focus on while we are walking on the path of becoming a developing country, such as developing strong urban economic corridors based on an agglomeration approach. These corridors can facilitate the process of economic take off by the time we reach 2030. These all are broadly linked to the government's 15th periodic plan.

The notion of freshness

As we prepare to develop the 16th periodic plan, the focus should be more on transition from a least developed country to becoming a developing country. The opportunities and challenges of becoming a developing country are enormous as the country will have to spend scarce resources on building institutions that can deal with the challenges that we will be facing when we move forward towards the landscape of climate change-induced risks and damages. As we have entered a more complex world of policy choices, our efforts should be more streamlined towards making the right policy trade-offs in the coming days. This gives us a message that the country needs more skilled human resources and better policymakers to deal with the challenges.

The time ahead is so challenging that we also need better legislators who can contribute to a better policy-making process in the country. The federal government has more to do, but it will be equally challenging for the local and provincial governments. With this note, I hope the new set of people entering the gates of Nepal’s parliament house through a new round of elections will be mindful enough of our needs, challenges and opportunities as a nation, which will soon become a developing one.