Between rock & hard place

  • Nepal has no choice but to put LDC graduation plan on backburner for now

Feb 20, 2018-

The National Planning Commission (NPC), the apex body that frames the country’s development plans and policies, has recommended that the government shelve its plan to graduate from the Least Developed Country (LDC) category on non-income criteria for the time being. The recommendation was made fearing the shift may significantly reduce the flow of foreign aid to Nepal and deprive the country of other international support measures.

The concern raised by the NPC is genuine, as countries like the Maldives faced tremendous problems following graduation due to loss of preferential treatments in trade, such as duty-free, quota-free market access to the European Union and the United States.

LDCs can graduate to the grouping of developing nations if they meet two of the three criteria fixed by the United Nations (UN). First is per capita gross national income. Second is Human Assets Index (HAI). And third is Economic Vulnerability Index (EVI).

An LDC can automatically graduate if its per capita gross national income is double the UN threshold. If not, it can meet two other criteria to graduate.

Nepal, which has per capita income of $862, has not met UN’s 2015 per capita gross national income threshold of $1,242 or more. But it has met two other criteria—HAI and EVI—which make Nepal eligible for LDC graduation. Based on this result, the UN Committee for Development Policy (UNCDP), in March, 2015, informed Nepal that it could graduate if it is able to sustain the achievements till 2018. The UN body will review Nepal’s case in March this year and is likely to say that the country’s score in HAI and EVI are above the threshold and can leave the grouping of LDCs.

If Nepal agrees to graduate, the UN Economic and Social Council will forward the proposal on Nepal’s graduation to the UN General Assembly. Nepal will then have to wait for three years to graduate, meaning the country has the option of becoming a developing nation by 2021.

If Nepal opts to graduate, the flow of grants will gradually fall, as developing countries are deemed capable to funding expenses on their own. The developing nation’s status will also lead to gradual phasing out of preferential treatments, like duty concessions, for Nepali exports. Also, the country may no longer be entitled to waivers extended by the World Trade Organisation. These losses will hit Nepal’s exports and create shortage of funds to meet development expenses. So, Nepal has no choice but to put the graduation plan on the backburner for now.

Yet the allure of concessions should not encourage Nepal to remain in the league of LDCs for a long time because foreign investors look down upon such countries, where governments are deemed to be weak and everything is unstable. So, Nepal should focus on enhancing productivity to stimulate economic growth in order to leave the LDC category as early as possible.

Published: 20-02-2018 07:25

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