Kathmandu, May 16 — Nepal is getting ready to request the United Nations to delay its planned transition out of the Least Developed Countries category by three years, due to worries that the nation isn’t economically ready to lose the trade and development benefits associated with its present status.
The government led by Balendra Shah is soon to issue an official letter requesting a postponement of the UN’s previous decision to set Nepal’s graduation for November 2026.
A representative from the Office of the Prime Minister and Council of Ministers stated that the government chose to request an extension, highlighting worries about the potential loss of trade advantages and other benefits Nepal currently receives as a Least Developed Country, increasing economic risks caused by conflicts in West Asia, Bangladesh’s decision to also ask for a similar delay even though it is on the same path toward graduation, and growing demands from Nepal’s private sector.
An official stated that Prime Minister Shah and Finance Minister Swarnim Wagle had addressed the issue and decided to send the letter. “The government’s evaluation indicates that at least two to two and a half years will be required to establish a solid economic base for the nation,” the official mentioned.
The process of applying for a delay is also designed to guarantee that, after the graduation decision takes effect, Nepal avoids the possibility of regressing.
The United Nations Economic and Social Council (ECOSOC) has already been made aware of the suggestion to extend the deadline prior to sending an official letter. At present, Lok Bahadur Thapa serves as the president of ECOSOC on behalf of Nepal.
The National Planning Commission has already presented its proposal to the government for a three-year extension of the graduation period. According to a source from the finance ministry, “Since Finance Minister Swarnim Wagle has also mentioned in Parliament that the country should proceed only after enhancing its economic situation, we have recommended requesting a postponement,” said an official from the National Planning Commission, speaking under the condition of anonymity. “Arrangements are being made accordingly.”
As per the official, the commission has suggested postponing the graduation procedure, and the Ministry of Foreign Affairs is getting ready to move the issue ahead.
Demands for a delay have become more prominent in recent months as Nepal faces low output, slow growth, weakening business confidence, and economic instability exacerbated by the conflict in West Asia.
The private industry has also called on the government to postpone the transition.
The Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the leading private-sector organization in the nation, has urged the government to officially request a review from the United Nations and ask for a minimum extension of three years.
The LDC Graduation Smooth Transition Strategy released by the National Planning Commission highlights that Nepal still has substantial implementation tasks remaining,” stated Paras Kharel, executive director of the South Asia Watch on Trade, Economics and Environment (SAWTEE). “Considering Nepal’s current level of readiness, an extension seems essential.
The commission released the LDC Graduation Smooth Transition Strategy in February 2024 to get the nation ready for what it called a seamless, long-lasting, and permanent shift out of LDC status.
Nevertheless, professionals indicate that numerous essential actions mentioned in the plan are still unfinished.
Discussions and talks concerning free trade agreements with various nations have not yet started seriously. Nepal still needs to approve several international conventions in order to maintain duty-free access to the European Union market after completing the graduation process.
Kharel mentioned that Nepal needs to also engage in specific agreements like economic partnership deals and favorable trade arrangements, which all demand significant preparation, organizational capability, and enhanced negotiation skills.
In the pharmaceutical industry, Nepal will face a reduction in certain advantages that Least Developed Countries (LDCs) currently have, such as rules that permit the manufacture of generic medicines without patent limitations. Specialists also note that Nepal continues to be lacking in terms of market and product variety.
Economists claim that Nepal’s unpreparedness is evident in wider economic measures. High money availability in banks, minimal interest rates, and weak loan demand indicate limited confidence among investors and businesses.
Although these indicators are not direct factors for leaving the LDC category, specialists note that the larger economic and political environment is important.
Industry experts caution that the graduation could significantly impact Nepal’s textile and handicraft industries, especially in areas like clothing, pashmina, and carpets, because of increased tariffs and more rigorous origin rules in export markets.
Pashupati Dev Pandey, head of the Garment Association Nepal, stated that the nation’s textile sector would encounter significant difficulties if global support systems were not maintained.
The textile industry could lose over 100,000 jobs,” Pandey stated. “It would be a significant relief for the sector if Nepal postpones its graduation at this time.
Worries about Nepal’s preparedness grew following the political turmoil and damage associated with last year’s Generation Z protest.
In an article entitled “Reconsidering Nepal’s Imminent Graduation from LDC Status,” released in September of the previous year, Kharel from SAWTEE contended that the fatalities, damage, and economic turmoil resulting from the movement have increased Nepal’s weaknesses.
“This calls for a reevaluation of the decision to graduate, starting with a thorough yet quick dialogue among relevant parties, followed by gathering proof to build a solid argument for the incoming administration, which can officially request a postponement from the United Nations,” the article mentioned.
Completing the LDC status leads to a reduction or full removal of international support mechanisms, including favorable market access, low-interest loans, and exceptions from patent rules for medicines.
To earn graduation, a country needs to satisfy benchmarks in at least two out of three areas—gross national income per capita, the Human Assets Index, and the Economic and Environmental Vulnerability Index—across two successive UN evaluations.
Experts point out that Nepal has never fulfilled the income requirement and was poised to be the sole nation to exit the LDC category without reaching the minimum per capita income of $1,306.
In the 2024 assessment, Nepal reportedly missed the income threshold by only six dollars. Experts note that although Nepal has been under consideration for graduation for more than ten years, its failure to reach the minimum income level highlights significant structural issues within the economy.
Least Developed Countries often experience limited production capability, and the recent damage to physical infrastructure—a key element of the UN’s productive capacity index—has further deteriorated Nepal’s position.
The travel industry, which is among Nepal’s top sources of foreign currency and employment, is also encountering its greatest difficulty since the outbreak of the Covid-19 virus.
Nepal has historically seen limited foreign investment, with experts stating that consistent economic growth will depend on significantly higher private-sector investments than what the nation currently draws.
Approximately one-third of approved foreign investments are ultimately carried out, and experts note that images and videos depicting political instability shared on social media have further harmed Nepal’s reputation as a secure place for investment.
Anxiety increased when Nepal was added to the Financial Action Task Force’s (FATF) grey list in February 2025, only a few months prior to the unrest, heightening concerns about governance and financial openness.
Experts claim that Nepal has not fully taken advantage of the opportunities provided to Least Developed Countries during the last 35 years.
Nepal had the potential to graduate as early as 2018, yet it asked for extensions after the 2015 earthquake and the 2020 Covid-19 pandemic. However, multiple governments did not take advantage of the extra time to improve the nation’s readiness.
Nepal initially met the graduation standards in 2015 and remained eligible in the following triennial assessments held in 2018, 2021, and 2024 by the UN Committee for Development Policy.
However, due to the economy being affected by ongoing crises, political instability, and decreasing investor trust, numerous experts now think that Nepal’s intended shift to a developing nation status should be reevaluated.
