Nepal has formally decided to postpone its graduation from the Least Developed Countries (LDC) category for at least three years, citing worsening economic and geopolitical challenges that it says have weakened the country’s preparedness for the transition.

The Ministry of Foreign Affairs said on Friday that Nepal has begun the formal process to defer its graduation deadline until November 2029, arguing that the current economic and political circumstances could severely affect the country after losing LDC-specific international support measures.

Foreign Minister Shisir Khanal sent a formal letter to the chair of the United Nations Committee for Development Policy on May 13 requesting the postponement.

“We have formally informed the United Nations about Nepal’s decision to seek deferment,” said Lok Bahadur Poudel Chettri, spokesperson for the Ministry of Foreign Affairs, during a press briefing on Friday.

The ministry listed five major reasons behind the request.

First, Nepal cited regional conflicts and disruptions in global supply chains that have affected remittance inflows and weakened economic activity. The World Bank has projected Nepal’s economic growth at only 2.3 percent in the current fiscal year, significantly below the country’s historical average annual growth rate of around 4.3 percent over the past decade.

Second, the government warned that graduation from LDC status could lead to a 35 percent decline in jobs in productive sectors because of the loss of duty-free and quota-free market access currently enjoyed by LDCs.

Third, the ministry said implementation of Nepal’s Smooth Transition Strategy has been slower than expected. The strategy was designed as a comprehensive framework to help Nepal manage the loss of international support measures, including concessional financing and preferential market access, after graduation.

The plan focuses on maintaining macroeconomic stability, strengthening productive capacity and improving trade competitiveness to prevent economic shocks and large-scale job losses.

Fourth, the government pointed to the continuing impact of geopolitical conflicts and climate change at a time when Nepal’s economy has not fully recovered from the Covid-19 pandemic.

Fifth, Nepal cited pressure on remittance inflows, rising fuel, food and fertiliser prices and the broader economic impact of the West Asia conflict on tourism and the national economy.

The International Labour Organization had earlier warned that Nepal could lose around 132,000 jobs and suffer nearly $1 billion in economic losses within five years of graduating from the LDC category in November 2026.

According to the ILO assessment, around 67,000 men and 65,000 women could lose employment, largely due to export declines following the end of LDC-specific trade privileges.

Former trade secretary and trade expert Rabi Shankar Sainju said Nepal had failed to utilise the additional time provided by the United Nations after the Covid-19 pandemic.

“Nepal even prepared a transition strategy, but it remained largely a government document because the state failed to strengthen the private sector and increase productivity,” Sainju said.

He said Nepal’s preparedness for graduation remains weak despite earlier postponements.

“Firstly, Nepal failed to negotiate trade arrangements with countries providing facilities to LDCs. The country’s trade diplomacy has remained weak for years,” Sainju said. “At the same time, the private sector could not diversify products and markets because of insufficient government support.”

Instead of strengthening industrial infrastructure and productivity, Nepal focused mainly on extending preferential trade treatment and collecting customs revenue, making the economy increasingly import-dependent, he added.

Calls for postponing graduation had intensified in recent months as Nepal struggled with sluggish growth, weak productivity, declining business confidence and uncertainty linked to the conflict in West Asia.

Nepal could have graduated as early as 2018, but sought deferments following the 2015 earthquake and the Covid-19 pandemic in 2020. Analysts say successive governments failed to use the additional time effectively to improve the country’s economic resilience and productive capacity.

Nepal first met the graduation criteria in 2015 and continued to qualify in subsequent triennial reviews conducted by the UN Committee for Development Policy in 2018, 2021 and 2024.

Graduation from LDC status would mean the partial or complete loss of international support measures, including preferential market access, concessional financing and patent-related exemptions for pharmaceuticals.

To graduate, a country must meet thresholds in at least two of three criteria — gross national income per capita, the Human Assets Index and the Economic and Environmental Vulnerability Index — in two consecutive UN reviews.

Nepal has never met the income criterion and was set to become the only country to graduate from the LDC category without crossing the minimum income threshold of $1,306 per capita.

In the 2024 review, Nepal reportedly missed the income benchmark by just six dollars.

Economists say Nepal’s failure to achieve even the minimum income threshold despite being under consideration for graduation for more than a decade reflects deep structural weaknesses in the economy.

The country continues to suffer from low productive capacity, while repeated destruction of physical infrastructure has further weakened Nepal’s standing in the UN productive capacity index.

The tourism sector, one of Nepal’s largest sources of foreign exchange and employment, is also facing its most serious challenge since the pandemic.

Foreign investment remains weak, and economists say Nepal needs far greater private-sector investment to sustain economic growth. However, only around a third of approved foreign investments are eventually realised.

Analysts also say that images and videos of political unrest circulating on social media have damaged Nepal’s reputation as a safe destination for investment.

Concerns over governance and financial transparency deepened after the Financial Action Task Force placed Nepal on its grey list in February 2025.