In exactly six months, Nepal will no longer be a Least Developed Country (LDC). It will be classified as a middle income nation although still developing. The new classification follows Nepal meeting two key UN thresholds: the Human Assets Index which measures education, health and mortality; and the Economic & Environmental Vulnerability Index where it scored 24.7. If it had scored 32 it would have remained an LDC.
Clearly Nepal, according to the UN, while still a poor country and economically vulnerable and with high exposure to natural disasters, is slowly moving up the economic and development ladder. Which is good news, it suggests despite political instability of the last decade and more, some things have continued to improve.
But there’s also bad news. The Kathmandu Post published the details of a report by the UN’s International Labour Organisation which warned that the day Nepal moves out of LDC status, it will lose economic benefits many related to its export industries. More alarming, 1,32,000 jobs could be lost!
“It is a transition into a more competitive environment with fewer international support measures and higher expectations,” warned Numan Ozcan, director of the ILO Country Office in Nepal. “For business owners, factory workers, and workers in small shops, hotels, transport or the informal economy. It can become very real and personal,” he said indicating loss of jobs as the country will be moving into a more internationally competitive economic sphere. Apparel, textiles and carpets could be the worst hit.
Can Nepal manage this transition smoothly and efficiently with minimum disruption, that is the challenge. Important to note, Nepal has a new government comprising largely untried politicians barring a few exceptions. The new government can be expected to explore new trading arrangements such as the Gneralised System of Preferences with Europe that gives concessions provided labour and other standards are met.
Can Nepal expect to remain competitive while adhering to these standards? Ozcan said the standards are crucial: “This is about signalling to investors, buyers and citizens that Nepal is serious about fair competition built on rights and quality—not on a race to the bottom.”
Nepal has to shape up. Ozcan outlined four key priorities: protecting workers through stronger labour market policies, including re-skilling, up-skilling, job-matching services and expanded social protection; strengthening enterprise competitiveness through productivity gains, quality upgrades and deeper integration into global value chains; investing in people—particularly women and young workers—so that skills development aligns with future growth sectors; and using social dialogue to ensure a fair transition involving government, employers and workers.
All this requires the new Nepali government to work in close consultation with business and industry to ensure stable long term pollicies, identification of the right market opportunities, building infrastructure including stable power and trade facilitation.
