Nepal failed to meet the criteria related to per capita income to graduate into a developing country from the least developed status as the per capita income of Nepalis declined in the fiscal year 2019-20.

The Central Bureau of Statistics, which released a revised national account estimate on Thursday, also estimated that the Gross National Income Per Capita or per capita income of the country plunged to $1,148 in the last fiscal year 2019-20 down from $1,171 in the fiscal year 2018-19. Per capita income means an average income of a person in a year.

Downturn in per capita income of the country has come to light a few days after the United Nations Committee for Development Policy (CDP) recommended Nepal's graduation from the least developed country (LDC) category with a preparatory period of five years. This means Nepal will be graduated into a developing country in 2026.

By issuing a statement on February 26, Nepal’s Permanent Mission to the United Nations in New York said that 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.

Even though the per capita income has not been taken into account to recommend for Nepal’s graduation, economists say that it is the most important component among the three for graduation. But Nepal has been struggling to meet the minimum threshold regarding the income for graduation.

“Graduation to the developing country without meeting the per capita income is important only symbolically,” said Shankar Sharma, former vice-chairman of the National Planning Commission. “On one hand, we are struggling to meet per capita income related threshold and on the other other, we are set to lose concessions entitled for the least developed countries as per the international treaties and agreements.”.

Nepal’s per capita income had earlier been growing smoothly most of the years if not substantially. The per capita income of Nepal surpassed the $1,000 mark for the first time in the fiscal year 2016-17 with average income of Nepalis growing to $1,019 per person per year.

This is the third time that Nepal suffered a downturn in per capita income in the last 10 years.

Earlier, Nepal had witnessed reduced per capita income in the fiscal years 2015-16 and 2011-12, according to the bureau. In the fiscal 2015-16, Nepal’s per capita income had gone down as the country suffered from double setback— deadly earthquake in April 2015 and subsequent Indian trade blockade. In the fiscal year 2011-12, the country’s per capita income was affected due to political instability.

Experts say without improving the income of the citizens, the country would not benefit just from graduating into a developing country.

Nepal’s economy suffered badly in the fiscal year 2019-20 with negative growth of 1.99 percent as per the revised estimate of the Central Bureau of Statistics.

With the Covid-19 pandemic affecting the economy, the country suffered back to back negative growth in the last quarter of the fiscal year 2019-20 and the first quarter of the fiscal year 2020-21, according to the bureau.

According to the World Bank, Nepal’s economy is expected to grow by just 0.6 percent in the current fiscal year. The impact of pandemic on the economy has been seen in the income of people.

“We can make up the loss in per capita income in the last fiscal year with robust growth in the upcoming fiscal years,” said Jagadish Chandra Pokharel, another former vice-chairperson of the National Planning Commission. “But the question is whether we can create a situation where the economy grows rapidly such as policy consistency, a conducive environment for the private sector to invest and grow their businesses and boost the government’s expenditure.”

He said that with the five-year preparation time given to Nepal to withstand the negative impact of the graduation from LDC, Nepal should take measures to enhance its competitiveness by improving governance, taking reforms measures and developing infrastructure.

“Obviously, preparing for LDC graduation is challenging but I think we have to go towards graduation with a conviction that we can overcome the challenges,” he said.

According to the report, Nepal Human Development Report 2020: Beyond LDC Graduation: Productive Transformation and Prosperity, released jointly by National Planning Commission and the United Nations Development Programme in December last year, Nepal must prepare a transition strategy in cooperation with trade and development partners to avoid adverse impacts from the country’s graduation to a developing country.

According to the report, the direct cost of graduation is moderate at least for the short to medium term as no larger impact on exports is foreseen.

But it says that there are possibilities of reduced exports in some markets due to high tariffs, and access to funds created specifically for the LDCs will be adversely affected.

Particularly, funding from the United Nations group is expected to go down although aid from multilateral donors like the World Bank and the Asian Development Bank as well as aid from most bilateral donors is not expected to be impacted.

For Senior Economist Govinda Nepal, moving towards LDC graduation was the right decision even though the country would be losing the preferential treatment in market access in the developing and developed countries and certain concessional loans and grants after graduation.

“For always staying as the least developed country, we developed the mindset of seeking support and concession instead of developing a tendency of facing the challenges,” he said. “We have got five years for preparation to address the potential losses in preferential treatment for being the LDC. It is also an opportunity for us to take concrete action to boost the income of people too.”

Earlier, Nepal had requested for 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.

This time, Nepal wanted to graduate despite a shortfall in per capita income. “Even though the country will face challenges for losing certain benefits of being a LDC. Graduation is a matter of prestige for the country and we have to prepare for the challenges,” said economist Nepal.