Is Graduation From LDC Status Risky?

Hira Bahadur Thapa


After the unveiling of the Oli-led government’s policies and programmes for the next fiscal year (2076-77 BS) on Baisakh 22 by the President before the joint session of federal parliament, a lively debate has started whether it is prudent on the part of Nepal to graduate from the status of the Least Developed Country (LDC) by the year 2022 as proclaimed earlier. This discussion on this issue among the Nepali economists is not irrelevant given the fact that Nepal may be denied various economic incentives she has been enjoying in the capacity of her LDC status as decided by the U.N., should Nepal graduate from the above status as planned.
There is a popular English proverb that goes: “Look before you leap” the essence of which is any decision on any subject needs to be thoroughly scrutinised beforehand, otherwise, it may lead to disaster later. The moral lesson behind this proverb is applicable to us under the present circumstances. If Nepal joins the group of developing countries abandoning her LDC status, no doubt her international image would improve and she may be looked upon by other countries around the world with greater respect but the fundamental question here is whether Nepal can sustainably move ahead even without accessing to different facilities, the index of eligibility of which is the UN-recognised LDC status. Are we able to afford not being a LDC, which will affect our economic transactions significantly in a variety of ways.
A few examples can be cited based on available empirical evidence to clarify how does non-LDC status impact on the Nepali economy provided her graduating endeavours receive fruition. The foremost of such facilities is concerning trade preferences both in terms of regional and multilat-eral agreements. Quite noticeably, even though SAARC (South Asian Association for Regional Cooperation) has not achieved desired success in implementing its regional trade agreement but its provisions related to giving some concessionary treatment to products of LDCs while imposing tariffs within this group like Nepal and Afghanistan, show that LDC status counts in regional matters too.
Likewise LDCs are entitled to receiving favourable treatment while trading multilaterally, say, for example, no imports tariffs on a selected number of exportable items of LDCs. The US has also provided some trade concessions to Nepal considering her LDC status. China is no exception in this case but whether Nepal has been able to take advantage from this facility is another question because unless Nepal produces and exports the identified items in sufficient quantities, concessions will be meaningless. Even World Trade Organisation (WTO) has several provisions that have been made to help boost the trading opportunities of the Least Developed Countries, by offering them additional facilities, which are not available to non-LDCs.
Another instance of how Nepal has been reaping the benefits of her present status can be had from her assessed annual contributions to the UN on account of her membership. Such contributions are paid by all of its members, and America is still in the lead position among all contributors although her percentage of 25 of UN budget paid to the world organisation has come down a little bit following its government’s strong lobbying in the early 2000s for reducing the share of contributions. Japan is next to the US in terms of annual contributions. Nepal is among the least paying contributors (. 001 per cent of UN budget) as is shared by other LDCs. Such payments are made regularly and in hard currencies. Had Nepal graduated from this status earlier, her an-nual contributions to the UN and other specialised agencies would have gone up percentage-wise. Therefore, joining the group of developing nations would necessarily increase Nepal’s financial obligations annually.
Moreover, Nepal may not be able to receive concessionary loans or grants from the international institutions like the World Bank, International Monetary Fund and other related agencies once she loses her LDC status.
Nevertheless, this scribe is not lobbying through this opinion piece for not graduating from the LDC status and join middle-income countries. What my submission is that we should vie for this upgrade only after we are fully prepared to cope with the new situation of handling our economy successfully. This means in other words that Nepal should have attained a stage when her annual growth rates are high enough say more than the current (6 per cent) rate albeit our ambitious plans are afoot to achieve double digit economic growth rates from next fiscal year, which begins from first Shravan and ends up in the last day of Asar.
One needs to have a quick but independent critique of new policies and programmes of the gov-ernment, which has been recently-publicised and passed by the federal parliament, amidst the protest of the opposition party nonetheless. Policies and programmes would be better judged not by what ruling party’s lawmakers and those from the opposition bench argue in the debate on the subject, but by what budgetary measures would be in place to support their implementation.
There are reservations on the part of some experts vis-a-vis the projected annual economic growth rates of the country, and their submission looks valid based on the current economic data made available from the Central Bureau of Statistics. Many hesitate to agree that Nepal would achieve double digit growth rate next year while the situation of Foreign Direct Investment (FDI) remains so bleak despite the government’s initiative of holding second Investment Forum. Approximately speaking Nepal’s FDI is just half per cent of country’s Gross Domestic Product (GDP), which is not encouraging taking into consideration our needs for boosting industrial, agricultural and employment potentialities so that there could be accelerated economic growth as we see in China and India, whose investment in Nepal is so crucial.
Hence, no rush for graduation at the moment though Nepal should prioritise economic growth through adequate investment in industry, agriculture and in education and health so that income gaps can be squeezed and our popular slogan of “Prosperous Nepal, Happy Nepali” is materialised.

(Thapa was Foreign Relations Advisor to the Prime Minister from 2008 to 2009. He writes on contemporary national and international issues)  

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