Bijay Damase

KATHMANDU: The National Planning Commission has announced that Nepal is the only country in the developing world to be upgraded without meeting the standard for per capita income. This situation presents challenges for Nepal in maintaining its growth and sustainability.

Nepal, classified as a least developed country (LDC) since 1971, will be upgraded to a developing country by December 2026. The United Nations has set three criteria for this transition: gross national income per capita, human capital index, and economic and environmental vulnerability index. A country can be upgraded by meeting two of these three criteria.

Despite its low per capita income, Nepal has accepted its transition to a developing country in 2026. During a five-year transition period, Nepal will continue to enjoy current benefits while seeking alternatives to replace those post-upgrade.

The recently passed 16th Plan of the NPC identifies per capita income growth as a major challenge and outlines strategies to address it. The plan emphasizes the need to boost national income to sustain progress in the human capital index and economic and environmental vulnerability index. According to the periodic plan, Nepal’s per capita income should reach US$1,306 by 2024, but it currently stands at $1,300.

Nepal has surpassed the human capital index target of 66, reaching 76.3. Additionally, it has reduced its economic and environmental vulnerability index from the target of 32 to 29.7.

To increase per capita income, the plan includes developing entrepreneurship, creating income-earning opportunities through internal employment, increasing remittances by focusing on high-income countries, and enhancing agricultural, industrial, and service sector productivity. It also highlights the need for short- and medium-term skill development and technical training to transform unskilled and semi-skilled workers into competitive manpower.

Nepal’s economic growth is slow, with the National Statistics Office estimating a 3.9 percent growth rate for the current fiscal year. The government aims for 6 percent growth in the upcoming year.

Beyond increasing per capita income, Nepal faces challenges in formulating macro and sectoral policies, mitigating impacts on international trade, securing financial resources for development and service delivery, and creating employment opportunities.

The National Planning Commission stresses the need for thorough preparation and long-term policies to address these challenges. According to the 16th Plan, Nepal will face issues like expensive loans and subsidy cuts after the upgrade. Special international concessions and assistance currently received will be reduced or gradually phased out, necessitating strategic planning to manage the impacts.

Minimizing the impact on international trade will be challenging. Nepal will lose customs and quota-free market access to the developed and developing countries, affecting exports to the European Union, the United Kingdom, China, Japan, Canada, Australia, and South Korea. The export of ready-made garments, textiles, carpets, perfumes, cosmetics, leather products, and metal products will be particularly impacted.

The 16th Plan suggests preparing for preferential trade agreements or diversifying exports by improving product competitiveness. The upgrade will also challenge Nepal in managing financial resources for development and service delivery. Development partners' loans will become costlier, and access to funds for LDCs will diminish. High-interest loans with shorter repayment periods will replace subsidized finance, and foreign grants and scholarships will decrease. Nepal must increase internal resources and identify alternative financial assistance sources.

Nepal needs to enhance its internal investment environment and infrastructure. The potential impact on export trade, foreign aid, and development management will also affect employment. To create more job opportunities, the plan recommends studying, researching, and developing goods and services with export potential, and increasing investment in professional skills for the labor force.

Yamlal Bhusal, joint secretary at the National Planning Commission, emphasized the need to implement the strategies outlined in the 16th Plan. Some policies and programs have already been incorporated into the budget. Bhusal believes that achieving the targets is feasible if the government follows the plan.

Former Secretary Gopinath Mainali highlights the need for structural changes in the economy for meaningful upgrading. He advocates for strengthening infrastructure development, inclusive development, and growth policies and programs. Mainali also suggests that the government should pursue partnerships and cooperation with multinational companies at regional and international levels.