KATHMANDU: Nepal was classified as a Least Developed Country (LDC) by the United Nations in 1971 due to its low income, weak human assets, and economic vulnerability. Over five decades, it benefited from trade preferences, concessional financing, and international support.

Despite setbacks like the 2015 earthquake and the COVID-19 pandemic, Nepal met all graduation criteria in the 2021 UN review. Graduation is now scheduled for 2026 after a five-year preparatory period.

This marks a development milestone, opening new opportunities for investment and global engagement, but also poses challenges as Nepal will lose critical LDC-specific privileges and must ensure sustainable, inclusive growth.

This explainer will delve into the historical background of Nepal’s inclusion in the LDC category, the criteria and timeline for graduation, reasons behind the deferred transition, the opportunities and risks that lie ahead, and the broader national and international significance of this development.

What is the background of Nepal being listed as a Least Developed Country (LDC)?

Nepal was included in the United Nations list of Least Developed Countries (LDCs) in 1971, the same year the LDC category was created. This classification was based on three key criteria: low income, weak human assets (such as education and health), and economic vulnerability.

As a landlocked and mountainous country with a history of political instability, limited industrialization, and weak infrastructure, Nepal fit the LDC criteria. Despite some development progress in the 1980s and 1990s, recurring natural disasters, internal conflict, and governance challenges hindered sustained growth.

Being on the LDC list meant Nepal received special international support measures, including preferential trade access, concessional financing, and technical assistance. These privileges helped the country address structural weaknesses while working toward graduation.

Nepal began showing signs of improvement in various indicators during the 2000s. However, the 2015 earthquake, blockade, and political transition delayed graduation efforts.

It wasn’t until 2021 that Nepal met the required thresholds in all three LDC criteria for the second consecutive triennial review, setting the stage for a planned graduation from LDC status by 2026.

On what basis and when did Nepal meet the criteria for LDC graduation?

Nepal qualified for graduation from the LDC category during the United Nations Committee for Development Policy (CDP) triennial review held in February 2021.

 Graduation is assessed based on three criteria: Gross National Income (GNI) per capita, Human Assets Index (HAI), and Economic and Environmental Vulnerability Index (EVI). A country must meet at least two of these criteria in two consecutive reviews or have GNI per capita at least double the threshold.

Nepal had first met the criteria in 2015, but graduation was deferred due to the 2015 earthquake and subsequent humanitarian crisis. In 2021, Nepal again met all three thresholds: its GNI per capita exceeded the minimum requirement ($1,222), the HAI showed significant improvement in health and education, and the EVI score indicated reduced vulnerability to shocks.

Although the COVID-19 pandemic had created new challenges, Nepal’s long-term structural progress was recognized. Based on this, the UN recommended Nepal for graduation with a preparatory period of five years, aiming for official graduation in November 2026.

This time frame was extended from the usual three years due to pandemic-related setbacks, providing Nepal additional time to plan a smooth and sustainable transition from LDC status.

Why was Nepal’s graduation deferred until 2026 despite meeting the criteria in 2021?

Although Nepal fulfilled all three LDC graduation criteria in the 2021 triennial review, the United Nations granted a five-year preparatory period, extending the actual graduation date to November 2026.

This decision was primarily influenced by the impact of the COVID-19 pandemic on Nepal’s economy and public services. The pandemic severely disrupted tourism, remittances, and small-scale enterprises—key sectors in Nepal’s economy—while also straining healthcare and education systems.

Recognizing these setbacks, Nepal formally requested a longer transition period than the usual three years. The UN accepted this request, allowing additional time for Nepal to prepare policies, build institutional capacity, and mitigate the risks of losing LDC-specific support measures such as concessional financing, duty-free access, and international aid.

The five-year window also allows Nepal to conduct a smooth graduation strategy, including trade negotiations, private sector strengthening, and structural reforms. This period was deemed essential not just to maintain developmental momentum but also to safeguard against potential economic shocks post-graduation.

The deferred timeline ensures Nepal is not forced into a premature exit from LDC status, providing more flexibility and resilience-building in the face of global and domestic uncertainties.

What opportunities does Nepal’s graduation from LDC status create?

Graduating from the LDC category opens a range of opportunities for Nepal to reposition itself as a more credible and attractive player in the global economy.

First, it enhances the country’s international image, signaling political stability, developmental progress, and improved governance. This can boost investor confidence, encouraging foreign direct investment (FDI) in key sectors like tourism, hydropower, and manufacturing.

Second, graduation strengthens Nepal’s voice and credibility in international forums, allowing it to negotiate trade and aid arrangements on more equal footing.

Third, it can catalyze domestic reforms. The need to sustain development without LDC-specific benefits compels the government to improve public institutions, ease the investment climate, and promote export diversification.

Additionally, Nepal will have the chance to integrate into global value chains with better branding as a developing economy rather than an LDC. Graduation also offers scope for developing tailored bilateral trade deals that go beyond traditional preferences.

Furthermore, domestic industries may be incentivized to enhance productivity and competitiveness in preparation for life after LDC status.

Overall, graduation represents not just an exit from dependency but a shift toward self-reliant, sustainable economic development—provided Nepal capitalizes on the transition effectively.

What challenges could Nepal face after LDC graduation?

Post-graduation, Nepal will face several structural and institutional challenges. A major concern is the loss of LDC-specific international support measures. These include duty-free/quota-free market access in developed countries, preferential rules of origin, concessional loans, and technical assistance.

The withdrawal of such support could impact exports, especially of garments, carpets, and other labor-intensive goods.

Similarly, concessional development financing may be replaced with costlier loans, putting strain on Nepal’s fiscal management. The country’s narrow export base, dependence on remittances, and weak industrial capacity could make it vulnerable to global shocks.

 Moreover, limited infrastructure, bureaucratic inefficiency, and policy inconsistency continue to deter investors.

Nepal also faces risks from climate change, which affects agriculture, water resources, and disaster resilience. Social challenges—like high youth unemployment, urban migration, and education-health disparities—may further complicate the post-graduation landscape. If economic growth does not keep pace with rising expectations, inequality and political dissatisfaction could grow.

While graduation marks progress, it also means Nepal must function without many past safeguards. Strategic planning, stronger institutions, and export diversification will be critical to sustaining momentum and avoiding a regression into dependency or stagnation.

What preparations has Nepal made to ensure a smooth and sustainable transition?

To prepare for a smooth transition from LDC status, Nepal has adopted a multi-sectoral graduation strategy. The government formed a national committee under the National Planning Commission (NPC) to coordinate policy, planning, and monitoring.

The strategy focuses on economic diversification, increasing competitiveness, expanding exports, and strengthening human capital. Nepal is negotiating extended trade benefits with development partners to ease the post-graduation shock.

For instance, the EU’s Generalized Scheme of Preferences (GSP+) and similar alternatives are being explored to retain preferential market access. The government is also prioritizing digital and green economic initiatives to modernize infrastructure and make growth more inclusive. Budgetary provisions and policy reforms are being aligned with long-term goals, such as those in the 16th Five-Year Plan and the Sustainable Development Goals (SDGs).

Capacity-building programs in trade negotiation, data systems, and financial management are underway. Similarly, Nepal is working with the UN and other multilateral agencies for technical and advisory support during the transition period.

However, many experts argue that implementation remains weak, and political instability could undermine progress. Hence, while a transition framework is in place, sustained commitment and timely execution will determine its success.

What is the national and international significance of Nepal’s LDC graduation?

Nepal’s LDC graduation holds both symbolic and practical significance.

Nationally, it marks a milestone in the country’s development journey, representing progress in poverty reduction, human development, and resilience-building. It boosts national morale and offers a narrative of success that can rally public and political support for further reforms.

Graduation validates decades of efforts by successive governments, development partners, civil society, and the private sector. Internationally, Nepal’s graduation enhances its diplomatic standing and credibility in global forums.

 It becomes a model for other conflict-affected, landlocked, and mountainous LDCs, showing that sustained efforts can yield results even under adverse conditions.

Graduation allows Nepal to participate in international trade, aid, and development negotiations from a stronger position.

It can influence global discourse on post-graduation support mechanisms, climate finance, and SDG implementation. However, with elevated status come heightened responsibilities.

Nepal must show leadership in climate adaptation, regional cooperation, and inclusive development.

LDC graduation is not just an endpoint but a beginning—a chance for Nepal to redefine itself as a resilient, competitive, and globally engaged developing country.