After being labelled a least developed country, an euphemism for being one of the poorest countries in the world, for 50 years, Nepal may by 2026 climb a notch and be officially recognised as a developing country.

The United Nations Committee for Development Policy (CDP), following a four-day review that ended on Friday, recommended Nepal's graduation from the least developed country (LDC) category with a preparatory period of five years, according to a statement issued by Nepal’s Permanent Mission to the United Nations in New York on Friday.

Nepal has met the criteria for graduation for three consecutive reviews based on two of the three set categories.

Nepal has met the criteria threshold of the Human Assets Index (HAI) and the Economic and Environmental Vulnerability Index (EVI) but not that of the gross national income (GNI), the statement said.

The promotion is not, however, a done deal and Nepal has the five-year preparatory period.

In order to make this recommendation irreversible during the review after three years, Nepal has to meet several challenges to make the economy stable and, first and foremost, chart out a national level strategy to this end, say experts and diplomats.

“This is an opportunity for Nepal and challenges remain but it should not delay in charting out a national strategy on how to graduate in five years,” said Gyan Chandra Acharya, former UN under secretary-general and High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS). “We should work on structural reforms to meet the criteria.”

In particular as Nepal is set to lose donor support and this has to be offset by income through trade.

While Nepal scored 72.1 in the Human Assets Index, the threshold being above 66 and 25.5 in the Economic and Environmental Vulnerability Index, the threshold being below 32, in the Gross National Income Nepal’s was $1027 while the threshold is $1230.

The government is, however, planning to announce $1400 as the gross national income on the basis of revised indices, according to Kewal Prasad Bhandari, secretary at the National Planning Commission.

Since Nepal will lose the economic support given to least developed countries once it graduates, preparations need to be made so that it does not suffer economically, experts said.

“Nepal should start immediate negotiations with the EU, India, China, Japan and other countries so that our trade will not be hampered,” said Acharya.

Nepal had earlier too requested for the graduation in 2015 and 2017 but later rolled back the decisions. The Sushil Koirala government had decided to backtrack on seeking gradual graduation from the least developed country category after the 2015 earthquake.

Again in January 2018, the National Planning Commission asked Prime Minister Sher Bahadur Deuba to take a decision to seek graduation in 2021 only after meeting robust and sustainable economic development and respectable average per capita income though Nepal had met the criteria.

Then Nepal had set the target to become a middle-income country by 2030.

But with Friday’s decision the graduation of Nepal will be effective in 2026 after the preparatory period ends. Due to the circumstances of Covid-19 pandemic, the three years of normal preparatory period has been expanded to five years.

Although it is good for Nepal’s standing on the world stage and its confidence to graduate from the least developed country category, it could lose some multilateral funds and opportunities although it will continue to get the support till 2026.

But with the right strategy and planning during these five years, Nepal should not lose much, according to experts.

“LDCs are getting huge concessions on doing trade and once we graduate, we will lose the concession. Therefore, we have to begin negotiations now with major trading countries,” said Acharya. “We also have to hold talks with major donors like India, China, the US, Japan and others to seek more help to meet the threshold from graduation so that we can easily take off.”

There are other concerns. Nepal is the fourth most vulnerable country to climate change in the world and mitigation efforts need to be addressed, according to Acharya.

“The situation of multi-dimensional poverty is not improving. The cost of doing business is high,” said Acharya, the former foreign secretary who served as UN under secretary general from 2010 to 2017.

Whether Nepal will be able to meet the challenges of graduation remains to be seen.

A report released by the National Planning Commission, the focal agency to prepare the country strategy for the graduation, in December last year had stated that Nepal also needs to conduct a fresh review of the scheduled graduation plan considering the impact Covid-19 pandemic and must prepare a transition strategy in cooperation with trade and development partners to avoid adverse impacts from the country’s graduation as it risks losing preferential treatment and as the Covid pandemic has had a profound impact on global economy, with new risks of rising trade and export costs impacting external markets, and the need for more concessional aid, including debt relief, to overcome multiple crises.

Govinda Raj Pokhrel, former vice chairman of the commission, said that Nepal should not have requested the United Nations to consider the graduation from least developed country status at this moment because he does not see any advantage to Nepal.

“We have to stabilise the economic indicators for at least three years. I see big challenges. Second, we will lose some concession and facilities as an LDC nation. We need to negotiate with multilateral and bilateral donors to ensure aid and investment even after the graduation. Our income level has not met the threshold and some other vulnerability is still posing risk due to the Covid pandemic,” said Pokhrel.

Nepal’s former permanent representative to the United Nation, Madhu Raman Acharya agrees with Pokharel’s assessment.

“It is not good to be part of poor’s club as we have been tagged as LDC for 50 years,” Acharya told the Post. “But we may lose some opportunities after graduating like concessions and facilities received as an LDC country. We should ensure that our aid regime or economic cooperation that we are receiving from India, the US, China, the EU and other countries would not hamper during the transition time and after being graduated.”

Nepal has to prepare the strategic plan for five years and should have alternative plans when its access to many international funds will be cut off, according to Acharya.

“We should build our economy competitively and begin trade negotiations with the trading countries,” said Acharya.

But government officials are not worried.

“We will continue to get bilateral and multilateral loans from the World Bank and the Asian Development Bank but after we graduate, the chunk of foreign direct investment will have to increase,” Bhandari, the Planning Commission secretary, told the Post.

The government is preparing a strategy and already making the exit plan from the least developed country category.

“We will identify the areas that will be affected after graduation,” said Bhandari. “But it is not good to remain poor. The graduation process will build the national confidence that we are no longer a least developed country. The stature and credit of the country will increase following the graduation process.”