Nepal is set to request the United Nations to postpone the deadline for upgrading from Least Developed Country (LDC) to Developing Country by three years. The government is preparing to formally send a letter to postpone the decision made by the United Nations earlier to upgrade to November 2026. 

The benefits enjoyed in international trade will be lost at once when a developing country is upgraded, the risk to the economy has increased due to the ongoing tensions in West Asia, Bangladesh, which is on the upgrade list along with Nepal, has requested the UN to postpone the deadline, and Nepal will also request to extend the deadline, taking into account the request of the private sector, an official from the Office of the Prime Minister and Council of Ministers said. 

The official said that Prime Minister Balendra Shah and Finance Minister Swarnim Wagle discussed the matter and agreed to send a letter. ‘A new government has been formed. It is expected to take at least two to two and a half years to prepare the financial basis,' he said, 'and we are preparing to request that the time be pushed back so that the decision does not have to be made again.'

The National Planning Commission has already given its opinion to the government on extending the upgrade by three years. An official from the Ministry of Finance said that the United Nations Economic and Social Council (ECOSOC) has also been informed about the extension of the deadline. Lok Bahadur Thapa is currently the chairman of ECOSOC, representing Nepal.

The Federation of Nepalese Chambers of Commerce and Industry has also suggested that the government formally request a re-evaluation from the United Nations and extend the deadline by at least three years. “The National Planning Commission’s own report on the Upgrading Strategy for Developing Countries shows that many programs still need to be implemented in Nepal,” said Paras Kharel, executive director of South Asia Watch on Trade, Economics and Environment (Sawati). “Given Nepal’s state of readiness, an extension seems necessary.”

Industry experts warn that the upgrade could seriously affect Nepal’s garment, pashmina and carpet, textile and handicraft sectors, especially in terms of high customs duties in export markets and strict rules on ‘proof of origin.’ Without a continuous international support mechanism, the country’s garment industry will face serious challenges, said Pashupati Dev Pandey, president of the Nepal Garment Association and a member of the federation’s executive committee. ‘The garment sector alone could lose more than 100,000 jobs,’ he said. ‘If Nepal postpones this upgrade for now, it will be a big relief for our industry.’

The National Planning Commission had published the ‘Easy Exit Strategy’ on 25 Baisakh 2081 to move up from the least developed country status in a smooth, sustainable and non-counterproductive manner. Experts point out that many important steps suggested by the strategy are still incomplete. Savati Executive Director Kharel says that Nepal needs to enter into bilateral trade and investment agreements with various countries to maintain access to the international market. He said that this requires extensive homework, institutional capacity and the skill of being able to talk firmly at the diplomatic level.

Due to being a least developed country, Nepal is able to re-produce ‘generic medicines’ from other countries with patents or intellectual property. This facility will be lost with the upgrade. According to experts, Nepal is weak in both market and product diversification. Economists argue that Nepal's lack of adequate preparation for the upgrade is being reflected in macroeconomic indicators. They say that despite sufficient financial resources in banks and financial institutions, high liquidity, low interest rates and weak credit demand indicate weak investor and business confidence. Although such indicators are not direct criteria for LDC upgrade, experts believe that they are important in the broader economic and political context.

International cooperation measures such as preferential market access, concessional financial assistance and patent protection exemptions for medicines will be partially or completely lost upon upgrading from the LDC category. To upgrade, a country must meet the thresholds set in at least two of the following in two consecutive UN reviews: gross national income per capita, human assets index and economic and environmental risk index. Experts say that Nepal decided to upgrade without meeting the criteria for gross national income per capita. They say that the difficulty in meeting even the minimum income requirement, despite being considered for upgrading for more than a decade, reflects deep structural weaknesses in the economy.

The tourism industry, one of Nepal's largest foreign exchange earners and employers, is now facing its most serious challenge after the Covid pandemic. Foreign direct investment in Nepal has long been weak and economists say private sector investment is needed at a much higher level for sustainable economic growth. About a third of approved foreign investment is inward. Concerns over good governance and financial transparency have deepened after Nepal was placed on the Financial Action Task Force's (FATF) 'grey list' in Falgun last year. According to experts, Nepal has not been able to fully utilize the facilities available to least developed countries in the last 35 years. Nepal could have been upgraded in 2018. But it was requested to postpone it after the 2015 earthquake and the 2020 Covid pandemic.