Nepal was among the first 25 countries categorized as Least Developed Countries (LDCs) by the United Nations General Assembly in 1971. This category was created to address the specific needs of poor, vulnerable, and resource-constrained countries. The aim was to help them overcome structural barriers and adverse conditions, paving the way toward sustainable development. The UN urged all member organizations to provide targeted international development measures—International Support Measures (ISMs)—to mitigate these challenges and accelerate progress.
After over 50 years in the LDC group, Nepal is scheduled to graduate from this category on 24 November 2026. The graduation clock is ticking with every passing moment.
Graduating from LDC status is undoubtedly a proud moment. It carries messages of achievement and national pride. We have waited for over half a century for this moment. It is also an opportune time to transform the economy and chart a sustained path of growth and prosperity.
However, LDC graduation is not just a certificate of success and celebration—it comes with significant responsibilities and challenges. Persistent efforts are required to ensure that graduation is smooth, irreversible, and sustainable.
Path to Graduation
To graduate from Least Developed Country (LDC) status, countries are assessed by the United Nations Committee for Development Policy (CDP) based on three key criteria: Gross National Income (GNI) per capita, which reflects the average income level of a country’s population; the Human Assets Index (HAI), which measures key elements of human development such as health and education; and the Economic and Environmental Vulnerability Index (EVI), which evaluates a country’s structural exposure to economic and environmental shocks. A country must meet the threshold in at least two out of these three criteria in two consecutive triennial reviews to be eligible for graduation.
To be eligible for graduation, a country must meet at least two of the three criteria in two consecutive triennial reviews. Nepal consistently met the thresholds for HAI and EVI in the reviews conducted in 2015, 2018, and 2021. In 2021, the CDP recommended Nepal for graduation in 2026, with a two-year extension to account for the slow recovery from the COVID-19 pandemic. Notably, Nepal is the only country recommended for graduation without meeting the GNI per capita threshold.
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The Challenging Moments
The transition from a low-income, least developed country to a more resilient and growing economy is a major milestone—but also a monumental challenge. Given the scale and vulnerability of Nepal’s small economy, the challenge is to make graduation smooth, sustainable, and irreversible. With November 2026 fast approaching, it is high time the Government of Nepal intensifies its preparations. Efforts must be consolidated and coordinated with international development partners, the private sector, and civil society—all key stakeholders in this national journey.
Graduation also comes with costs. Nepal is graduating at a time of sluggish economic growth and high youth unemployment. Domestic production and productive capacity are low, and the economy is constrained by inadequate infrastructure. Upon graduation, Nepal’s exports will become costlier as it loses the tariff preferences currently enjoyed as an LDC.
A 2022 study by the International Trade Centre (ITC) estimates that graduation could result in a 4.3% decline in projected exports, excluding the impact of changes in rules of origin criteria. For a country like Nepal—already grappling with a low export volume and an export-import ratio of roughly 1:10—this loss is significant. It will also have direct implications for employment.
Nepal will also forfeit concessions and access to international aid available to LDCs. The global development aid landscape is already shifting. After the US dismantled USAID and major donors pivoted from aid to defence spending, the future of development assistance looks uncertain. Nepal, a heavily aid-dependent country, must find sustainable financing solutions for the post-graduation period. While not directly tied to LDC graduation, the World Bank has already raised interest rates and shortened the maturity period of its loans to Nepal after the country crossed the per capita income threshold for International Development Association (IDA) eligibility (US$1,335).
This, however, does not mean that Nepal should not graduate or seek to remain in the LDC category. Graduation is a long journey that has taken over half a century. This analysis serves as a gentle reminder not to become complacent or take graduation for granted just because we’ve passed the LDC examination. Rather, it is a call for urgent strategic action.
Implementing the Smooth Transition Strategy (STS) 2024
Nepal has adopted the Smooth Transition Strategy (STS) as a comprehensive roadmap to guide its graduation from Least Developed Country (LDC) status. The strategy outlines targeted actions aligned with all three graduation criteria to ensure a smooth, irreversible, and sustainable transition. For the GNI per capita criterion, the STS recommends 111 actions focused on enhancing macroeconomic stability, ensuring fiscal sustainability, promoting trade and investment and driving economic transformation. Under the Human Assets Index (HAI), it proposes 26 actions aimed at strengthening productive capacity, particularly in health and education sectors. To address the Economic and Environmental Vulnerability Index (EVI), the strategy includes 30 actions related to tackling climate change, improving disaster risk management and advancing social inclusion.
In the 2021 triennial review, Nepal’s score on EVI was approximately 24.7—below the graduation threshold of 32. However, by 2024, the score had increased to around 29.6, indicating a decline in resilience and growing vulnerability. Altogether, the STS recommends 167 actions to be met for a smooth graduation. Each action is assigned a timeline, expected results, priority level, and a responsible agency. Yet, implementation remains a chronic challenge in Nepal.
A thorough review of the progress made on these actions is urgently needed. Accountability must be assigned to the responsible actors. Deadlines in the STS are tight, and every missed milestone increases the risk of vulnerability. Continuous supervision and follow-up are essential to translate plans into results.
Institutional Arrangement and Governance
The STS calls for strong national leadership and ownership throughout the implementation process. It emphasises inclusive dialogue and effective participation from the government, private sector, civil society, development partners, and major trade partners. However, progress on implementing the roadmap remains unclear.
The STS proposes institutional frameworks at both federal and provincial levels. A Steering Committee has been proposed under the Prime Minister's chairmanship, with an Implementation and Coordination Committee under the Vice-Chair of the National Planning Commission (NPC), and a Monitoring Committee under the NPC Secretary. At the provincial level, the Chief Minister is designated to lead implementation efforts.
While these mechanisms are well thought out, the real question is whether they are functioning effectively. These mechanisms must be urgently activated. Constant follow-up from the top is needed to monitor progress on the 167 actions.
Several bilateral negotiations remain pending with key trading partners. Some international agreements also remain unratified by Parliament, which are crucial for GSP+ eligibility. Bilateral Free Trade Agreements (FTAs) must be signed with countries of trade interest. The manufacturing sector must be promoted for import substitution and export promotion.
These are just a few of the actions that must be completed before the graduation deadline of 24 November 2026.
Conclusion
The clock is ticking. Nepali leaders and development partners must work hand in hand to make LDC graduation a transformative milestone in Nepal’s history. Let Nepal’s graduation be more than a technical formality or euphoric celebration. Let it be a smooth, irreversible, and sustainable achievement. Let it mark a momentous event that reflects the national aspiration of "Happy Nepali, Prosperous Nepal."
(The author is a former Finance Secretary, Government of Nepal)