The government has acknowledged that Nepal is struggling to implement its transition plan from Least Developed Country (LDC) status due to a severe budget shortfall, putting major international trade and aid benefits at risk once the country graduates to developing country status in 2026.
Speaking at the National Assembly's Committee on Development, Economic Affairs and Good Governance on Sunday, Minister for Industry, Commerce and Supplies Damodar Bhandari said the government has allocated only Rs 40 million in the current fiscal year for implementing the 'Smooth Transition Strategy', which is far short of the over Rs 4 billion required.
“It will be difficult for us to achieve the desired result with this amount,” Bhandari said, citing both financial and institutional coordination challenges as major barriers.
Nepal has been listed as an LDC since 1971. In preparation for graduation, the government formulated the Smooth Transition Strategy to ensure a quality, sustainable shift. However, Bhandari warned that the country is not adequately prepared to handle the economic consequences of losing LDC privileges.
After graduation, Nepal stands to lose duty-free and quota-free market access for exports under the World Trade Organization's special provisions for LDCs. Export subsidies on agricultural products will be restricted, and those on non-agricultural products will be reduced. These changes are expected to reduce Nepal's export trade by around 4 percent, directly affecting approximately 10,500 workers in sectors such as garments, carpets, and pashmina.
Nepal will also lose access to concessional loans and targeted development aid from bilateral and multilateral partners, including the Asian Development Bank, World Bank, UNDP, and UNICEF. The country must also comply with liberalization commitments applicable to developing countries and will no longer benefit from intellectual property flexibilities under the TRIPS agreement—posing risks for Nepal’s pharmaceutical and technology sectors.
However, Secretary at the Ministry of Industry, Commerce and Supplies Govinda Bahadur Karkee said the government is in talks with the European Union, Turkey, and other partners to continue certain LDC-related trade preferences even after graduation. He added that domestic subsidies for agricultural and non-agricultural local products will remain intact.
Climate-related funding under the United Nations Framework Convention on Climate Change will also continue post-graduation.
Minister Bhandari emphasized the urgent need to enhance domestic production and productivity, warning that without increasing the contribution of industries to the country’s GDP, Nepal’s economic challenges will persist. -- RSS
