Graduation from Least Developed Countries: Indicators, Issues and Strategies of Nepal

The National Planning Commission has drafted an Approach Paper to graduate from a least developed country to a developing country by 2022 .This is part of government plan announced in the 12th periodic plan and reinforced in the 13th plan. The approach paper to 13th Plan envisages Nepal to graduate to a developing country by 2022. Nepal is one of the 48 LDCs in the world. For Nepal to graduate to a developing country it has to meet two of the three criteria the United Nations has set: gross national income per capita and the threshold for human asset index which includes health, and nutrition index and Education index. The draft strategy says that Nepal will have to post an economic growth rate of 9.2% every year until 2022 to meet the criteria of Human Development Index, Human Asset Index and Economic Vulnerability Index and invest 17 trillion rupees over the next nine year.

From National Human Development Report (2017) : A Least Developed Country, according to the United Nations (UN), is one that exhibits the lowest indicators of socio-economic and human development in the ranking of all countries. The concept of LDCs originated in the late 1960s, with the objective of identifying the most disadvantaged developing countries in order to provide them with special assistance. The UN in its resolution 2768 (XXVI) of 18 November 1971 listed the first group of LDCs. LDCs have less developed overall infrastructure and fewer modern institutions for the efficient delivery of services or governance, including monitoring and evaluation (M&E), than do other countries. Their higher educational and/or research organizations, judiciary, banking systems, business corporations and the like are also less than adequately developed to match or compete at the international or regional levels. Furthermore, they have little capacity to engage with modern (international) market frameworks or adjust to rapid changes that happen in the larger markets or market-driven socio-economic order without external assistance. Therefore, a country graduating out of LDC status stands to lose these advantages. However, when a country graduates out, it is expected to maintain economic growth, have internal capacities and resources to invest in human capital, negotiate independently with other countries for trade and financial flows, establish newer forms of global partnerships, and so on. Also, the development partner (DP) countries often change their priorities towards those countries which have attained a certain development status, although there may be other reasons for their doing so.

From UN, LDC Portal: The identification of LDCs — defined as low-income countries suffering from severe structural impediments to sustainable development — is based on three criteria: (a) per capita gross national income (GNI), as an indicator of income-generating capacity; (b) the human assets index (HAI) as an indicator of level of human capital; and (c) the economic vulnerability index (EVI) as an indicator of structural vulnerability to exogenous shocks

Fig: LDC Identification

  

Table: Situation of Nepal for LDC Graduation on 2015

Source: UN 2015 triennial review

Situation 1: Gross National Income (GNI) per Capita                 

Achieving the GNI per capita threshold seems very challenging for Nepal. Current GNI per capita is $862 in government report (Economic survey 2016/17). Nepal needs significant improvement in GNI per capita from $862 to $1242 in 2022 in order meet the graduation threshold. It is the most challenging indicator for LDC graduation to Nepal. Therefore, strong macroeconomic policy options are required to bridge up the gap.

Situation 2: Human Assets Index (HAI)

The HAI is close to the graduation threshold. Government of Nepal Focused on social sector with high priority. The adult literacy rate, secondary education enrolment rate under 5 child mortality rate and child malnutrition rate have been noticeable improved as a result of intervention and incentives. Nepal fulfilled HAI criteria which needs to sustain and further improvement in the future.

Situation 3: Economic Vulnerability Index (EVI)

EVI is a composite index and it comprises eight indicators like the size of population, remoteness to international market, merchandise export, concentration, and share of agriculture, fishers and forestry, share of population in low elevated, instability of exports of goods and services, victims of natural disasters and instability of agriculture production. UNDESA reports shows an EVI value of 26.8 for Nepal which is adequate for graduation threshold, if any other catastrophic shuck do not impede the economy. However, Nepalese economy is vulnerable.

From UN, LDC Portal  : The Committee reviewed data on the LDC indices, indicators and additional relevant information to ascertain which LDCs could be recommended for graduation and which low-income developing countries could be included in the category. Accordingly, the Committee found Bhutan, São Tomé and Príncipe and Solomon Islands eligible for graduation for the second consecutive time and recommended them for graduation from the list. As decided at the 2015 triennial review, the Committee considered Kiribati again and found it eligible for graduation for the third consecutive time. It recommended the country for graduation and further recommended the creation of a category of countries facing extreme vulnerability to climate change and other environmental shocks. Kiribati, Tuvalu and similarly vulnerable countries within that category should receive support targeting these vulnerabilities. Nepal and Timor-Leste were also found eligible for the second consecutive time, but were not recommended for graduation. The Committee will consider Nepal and Timor-Leste again at the next triennial review, in 2021. At that time, it will also consider Bangladesh, Lao People’s Democratic Republic and Myanmar which were found eligible for graduation for the first time at the 2018 triennial review.

The LDCs at the 2018 triennial review:

Post-LDC Graduation Scenario/ Strategies

·         The post- graduation scenario will also remain challenging, mostly arising from the implications of the loss of LDC status and associated benefits such as development assistance and preferential treatments in international trade.

·         The concessional lending as well as market entry preferences accorded to Nepali exports in several developed.

·         Nepal needs to strengthen the pre-requestes required to support a stable and high growth rate and continue the momentum on the social development front.

o    Full and productive utilization of the available development assistance and trade preferences to tackle supply-side constraints, promotion of high value exports and search for niche markets abroad.

o    Re-orientation of the ongoing structural transformation to strengthen the industrial sector's and high value production contribution to GDP, which will help stabilize the growth rate, raise the income level and create high paying jobs.

·         The available resources and assistance to tackle the most blinding constraints to economic activities have to be effectively utilized with an objective to sustain high growth and rapid poverty reduction.

·         Challenging task is to make the GDP growth more responsive to industrial sectoral growth and high value agriculture productive and low value agriculture and service sector activities.

Issues and Challenges to adequately meet the prerequisites for high growth

·         Structural bottlenecks

Low quality HR and deficient skills, weak backward and forward linkages, fragmented value chain, negligible R and D investment , distorted labor market characteristic by high minimum wages and low productivity.

·         Supply-side constraints

The Lack of adequate supply of electricity, transport bottlenecks, lack of raw materials leading to high import content of goods, inadequate supply of key inputs to boost productivity and political disturbance.

Measures for LDC graduation

·         Improvement in the productive capacity is the major challenges and requires targeted assistance and strategies.

·         The government, the private sector, NGOs and others need to coordinate for steering innovation and replacing it.

·         The external resources necessary to play a pivotal role in expanding its productive capacities, promoting FDI and trade and adopting technological innovation.

·         Investing in agriculture sector need to be a priority area for Nepal as it related to food security and poverty reduction.

·         In trade sector, the country has to go for labor intensive manufacturing exports including expansion to production and export supply capacity.

·         The support from development partners to enhance its supply side capacity and trade diversification.

·         A series of targeted Programmes is needed to address the issue of pervasive poverty.

·         The economy needs increased access to financial resources in achieving sustained inclusive and equitable growth.

·         Nepal needs further efforts in good governance, the rule of law, the protection of human rights and democratic participation.

Conclusion

No country that has graduated without crossing the income threshold, Nepal attempts to graduate without meeting the GNI criteria. Achieving GNI per capita is still a challenging job in Nepal. Need to achieve high, broad based and sustained growth .Nepal needs further investment and initiate modernization in health and education sector to strengthen HAI. To improve EVI, macroeconomic stability is precondition. Similarly external trade balance should be maintained. The government has been making efforts to develop an enabling environment to accelerate the pace of the growth and development in partnership with private sector, corporate sector, non-government sectors and development partners as well.