A return to self-sufficiency

  • Allure of special treatment creates protracted dependency; it shouldn’t incentivise a country to remain in LDC comfort zone
Nepal’s decision to delay its graduation from the LDC category must be based on plausible justifications accompanied by a credible, time-bound and measurable action plan to address concrete gaps

Mar 7, 2018-Since 1971, Nepal has remained in the Least Developed Country (LDC) category, together with another 46 nations. Now, Nepal is expected to meet two out of the three criteria for graduation in the upcoming review by the United Nations Committee for Development Policy (CDP) in March 2018, making it theoretically ready to graduate to the Developing Country category. The Istanbul Programme of Action of 2011 aims for half of the 47 LDCs to meet the graduation criteria by 2020. Nepal’s 13th periodic plan envisions that it will graduate by 2022. 

The three criteria for graduating from LDC status are determined by the Economic Vulnerability Index (EVI), Human Assets Index (HAI) and Gross National Income (GNI). As recommended by the outgoing National Planning Commission (NPC) leadership, Nepal’s newly elected government has chosen to remain in the LDC category at least until 2021, because though it has met the criteria for EVI and HAI, Nepal’s GNI per capita is $800, which is well below the UN threshold of $1242. 

Valid reasoning?

Those who made the decision to defer must have identified particular international support measures that Nepal is still in need of, and for how much longer this assistance will be required. And they also must have anticipated the consequences of graduating to developing country status, which could possibly render such support measures inaccessible. They must have carried out consultations with relevant parties before deciding to defer the prospective graduation until after 2021. 

There is need for clarity on whether the decision made regarding the deferral to graduate from LDC status was informed by a vulnerability profile report and impact assessment  on the implications of graduation, especially regarding special support measures, as is required by UN structures as part of the smooth graduation process. Or was it a hasty decision intended to prolong the comfort of differential treatment and special support that Nepal enjoys as an LDC? Is the deferral motivated by a reluctance to take bold but perhaps achievable steps that will be to Nepal’s benefit in the long term? There are several such curiosities.

The probable loss of support measures were what led to the decision to defer Nepal’s graduation to developing country status. But how valid is this reasoning? First of all, deferring Nepal’s graduation will not change the fact that irrespective of the date, the special benefits enjoyed by a graduating LDC inevitably ends in line with graduation policies. Second, discontinuation of international support measures (technical cooperation to improve capacity to widen development efforts, financial assistance, and international trade measures and regional cooperation to expand the production base) do not happen immediately but after three years, as it takes that long for a country’s graduation to come into effect after a decision is made. This period is meant to enable the graduating country and its development and trading partners, the World Bank (WB) and International Monitory Fund (IMF) to prepare for a smooth and sustainable transition. The period could even be extended in exceptional cases, as dictated by the circumstances of a graduating country, as seen in the cases of the Maldives, Samoa, Vanuatu and Equatorial Guinea, all of whom have graduated. Third, to ensure that graduation is not disadvantageous to the graduating country, and to ensure that it is sustainable and does not disrupt the country’s development progress, the UN has stipulated four ‘safety measures’; development, financial and trade partners will support the implementation transition strategy, World Trade Organisation (WTO) members will extend existing differential treatment for a period tailored to the need of the graduating country, development and trade partners will extend LDCs 

preferential market access for an appropriate period, and any abrupt reductions 

in development or technical assistance will be avoided. Fourth, support from bilateral and multilateral partners such as the WB and the IMF, is unlikely to be affected due to graduation from the LDC category since these entities do not recognise the LDC status in their engagement with individual countries. Fifth, according to the CDP, while the graduated and graduating countries continue to face challenges, these challenges have not led to the consideration of any graduated country’s return to the LDC class. 

Graceful exit

Nepal’s decision to delay its graduation from the LDC category must be based on plausible justifications accompanied by a credible, time-bound and measurable action plan to address concrete gaps that will ultimately lead to graduation by 2020. Nepal should no longer be allured by the comfort of LDC preferential treatments in overcoming its multi-dimensional development challenges. Given the ensuing stability following political transition, Nepali decision makers must now demonstrate courage and determination to achieve the only unmet (third) criterion by 2020, consistent with the aim of Istanbul Plan of Action, while sustaining the progress achieved in the other two thresholds. Sound policies with a clear strategic vision must be ensured in order to overcome all the risks, vulnerabilities and gaps Nepal’s policy makers may be wary of—possibly including chronic poverty and worsening trade deficit, persistent high unemployment, inequitable distribution of wealth and rights, substandard life quality, energy deficit, poor public service, dilapidated infrastructure, inefficient disaster risk management, ineffective participation of private sector, and weak environmental and climatic risk management. Development visions of Nepali political parties and the private sector give hope that the country may well be able to come together to excel in promoting sustainable progress without further delay. For international credibility, Nepal needs to be ready at the earliest for a sustainable exit from the LDC category that will be in line with its own commitment.

Privileges should not incentivise a country to remain in the LDC comfort zone.  The allure of long-lasting special treatment creates complacency and protracted dependency. Competent UN structures and the LDCs’ partner institutions should ensure that support measures incentivise the LDCs to overcome their gaps as early as possible. A review will be required to see if post-graduation transitional support needs to be reinforced to boost the LDCs’ graduation confidence. Firm policies and effective transitional support measures are essential to prevent a country from clinging to the LDC confines due to concerns of real or perceived unconvincing transitional support. Note that if the UN structures establish that an LDC country has satisfied the criteria, the UN does not need the country’s approval to declare it graduated. After nearly half a century in the club, Nepal deserves to gracefully and sustainably graduate from the LDC category.

- Wostey works for the United Nations; views expressed are personal

Published: 07-03-2018 07:46

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