Nepal’s Strategy to Graduation from LDC Status

1. Nepal’s Strategy to Graduation from LDC Status Rabi ShankerSainju Joint Secretary Ministry of Commerce

2. Presentation Outline • Background • Criteria for Determining of LDC Status • Present Status of Nepal : Trend Analysis of LDC Criteria • Policy Implications

3. Background • In 1964, the establishment of LDCs was advocated in UNCTAD I, Geneva • LDCs categories were examined in detail in UNCTAD II in 1968 • In 1969, UN General Assembly acknowledged the need to alleviate problem of underdevelopment in LDCs • In 1970, the International Development Strategy for the second UN Development Decade recognized the existence of a group of countries that required special attention and help. • Nepaljoined the LDC category in 1971 • Starting with 25 countries, the current LDC list comprises of 47 countries: 33 in Africa, 13 in Asia Pacific & 1 in Latin America (Haiti) • Three eligible countries declined to be an LDC: Ghana, Papua New Guinea and Zimbabwe • Since inception of the categorization only three countries graduated out: Botswana (1994) & Cape Verde (2007) Maldives (2011) Samoa (2014) Equatorial Guinea (2017)

4. UN Conferences on LDCs • In 1981, UN LDC I held in Paris adopted the Substantial New Programme of Action(SNPA) for the 1980s • In 1990, UN LDC II held in Paris adopted the Programme of Action for the Least Developed Countries for the 1990s (PoA 1990) • In 2001, UN LDC III held in Brussels adopted The Brussels Programme of Action (BPoA) for Least Developed Countries • In 2011, UN LDC IV held inIstanbul adopted Istanbul Programme of Action (IPoA) : • Goal of IPoA: To overcome structural challenges faced by the LDCs in order to eradicate poverty, achieve internationally agreed development goals and enable graduation from LDC category. • Aim of IPoA: Enable half number of LDCs to graduate by 2020

5. Benefits for being LDCs • Access to concessional foreign assistance • ODA: 0.15 percent of GDP of OECD to be allocated to LDCs • Preferential Market Access • Duty free & quota free market access for products • Priority access to technical assistance for capacity building • Aid for Trade • Flexibilities in implementation of different international agreements including in the areas of trade, Intellectual Property Rights, standards • Reduced financial obligations regarding contribution to international institutions • The graduated LDCs will continue to receive all special and differential treatment for the next three years after graduation as well as also during the preceding six years, i.e. six years after reaching the threshold mark

6. Rational for Graduation • It reflects success in achieving major development goals: • increased per capita income, • strengthened human capacities and • reduced economic vulnerability. • Graduation brings with new opportunities and potentials. • Signals improvement to private and public partners opening new promising economic prospects. • Points to reduction in risk for investors and higher creditworthiness, • Lead to better access to private development finance. • Favorable perception of the business environment conducive to increased private investment, particularly FDI.

7. Rational for Graduation • Open many options for financial and technical assistance as well as preferential market access available to non-LDCs. • Graduation implies nation's pride indicating that it has the capability to achieve what other LDCs have achieved over the past few years. • Provides long term alternative policy scenarios on the future course of development. • Provide dynamic process of development based on a long term time horizon which is more important for planning. • Relevant to short/medium term implementation of long term planning targets and guide the country's future development endeavors. • Useful for anticipating changes and for understanding events that are likely to happen. • The graduation brings upon achieving competency in several areas.

8. Nepal’s Long Term Vision • The 12th Plan (2010/11- 2012/13)adopted vision to create a prosperous, peaceful and just Nepal by transforming her from a LDC status into a developing nation within a two-decade period. • The UN LDC 1V held in Istanbul in May 2011 adopted the Istanbul Programme of Action (IPoA) for LDCs which has aim to enable half number of LDCs to graduate by 2020 • In line with the aim of the IPoA, Government of Nepal decided to graduate from LDCs by 2022 in May 2013 • The Thirteenth Plan (2070/71-2072/73) has specially focused on achieving further progress toward graduation and adopted broad based and inclusive development approach to overcome the structural challenges in order enable graduation from the LDC category.

9. LDC Identification

10. Low Income Criteria • The Low Income Criteria to be an LDC evolved over the years along with increases in the threshold for both inclusion and graduation • Low income criterion also evolved from GDP per capita (1971) to currently GNI per capita (2006) • Current threshold Inclusion-under $ 1035, Graduation-$1242

11. Human Asset Index Criteria • Human Asset Index is calculated based on four social indicators focusing on health and education all with equal weights: • ►Percentage of Population undernourished • ►Child (aged under 5) Mortality Rate • ►Adult Literacy Rate • ►Secondary School Enrolment ratio (gross) • As of the 2012 review the threshold for Human Assets Index (HAI) • ►Inclusion: 60 • ►Graduation: 66

12. Economic Vulnerability Criteria • The Economic Vulnerability is designed to reflect the risk posed to a country’s development by exogenous shocks, and on structural characteristics that determine the extent to which the country would be affected by such shocks • Threshold for Inclusion 36 (2012), Graduation 32 or lower (2012) • ►population size (smallness,<75 million) • ►remoteness:(minimum  average  distance  for  a  given  country  to  reach  a  significant  fraction  of  the  world  markets ) • ►merchandise export concentration (index of all commodities exported) • ►share of agriculture, forestry & fisheries in GDP • ►homeless owing to natural disasters • ► Share of population in low elevated area • ►instability of agricultural production • ►instability of goods and services

13. Linkage of Graduation indicators with SDGs GNI Per Capita Shock Index Enhance productive capacity (i.e. through higher labor productivity) Instability of export Instability of export Trade Shock SDG 1/5/8 Sustain income SDG 16/17 Victim of natural disaster Victim of natural disaster Natural Shock Increase ability to invest in human Instability of agricultural production Instability of agricultural production Economic Vulnerability Index SDG 7/11/13/ 14/15 Human Assets Index Adult Literacy Rate Adult Literacy Rate Exposure Index Exposure Index Population Population Size Under 5 mortality rate Under 5 mortality rate SDG 9/12 Remoteness Remoteness Location Increase resilience to natural shocks Gross Secondary Enrollment Rate Gross Secondary Enrollment Rate Merchandise export Concentration Merchandise export Concentration Economic Structure % of population undernourished % of population undernourished Share of agriculture, forestry, fishery Share of agriculture, forestry, fishery SDG 4/6 MDG 4/5 SDG 2/3 SDG 10

14. Trend Analysis of Low Income Criterion as calculated by DESA • Nepal’s  GNI  was  45.4%  of  the  graduation  threshold  in  2012, demonstrating  little  progress  over  the  years. • During  the  2006  triennial  review,  Nepal   had  a  score  of 35.6%.

15. Trend Analysis of Human Asset Improvement as calculated by DESA Analysis of individual components of HAI shows that under five mortality rate and adult literacy rate has been improved significantly while gross secondary school enrolment and indicator for undernourishment had stagnated.

16. Trend Analysis of Economic Vulnerability Index (EVI) as calculated by DESA • Human capital is an important source of growth in most endogenous models of economic growth. Education is used as proxy for human capital • Studies has shown that secondary education is the most important stage of education in terms of contribution to economic growth , particularly reduction in malnourishment

17. Gaps with Graduation Thresholds

18. Status of South Asian countries in 2015

19. Recap of the Timeline Analysis • Nepal has demonstrated considerable structural progress under the economic vulnerability criterion, partly to human capital criteria, but little improvement toward graduation thresholds under the income • It has already met one (EVI) criteria towards graduation and need to attain the other two. • This reflect a dual socio economic reality of potential prosperity and lasting poverty • 2021 can be the earliest by which Nepal can achieve de facto graduation and it can achieve de jure graduation 2024 from low income to lower middle income country based on GNI per capita

20. Strategies for graduation

21. Outcome of the development policies The development policies should result in: • broad-based • poverty reduction and lower incidence of poverty, • significant improvement in health outcomes, • universal access for children to school, • increased access to higher education and • improved standards of education, including skill development. • better opportunities for both wage employment and livelihood, • improvement in provision of basic amenities like water, electricity, roads, sanitation and housing. • Particular attention to the needs of the ethnic and socially excluded and marginalized population. • special attention to women and children and minorities and other excluded groups

22. Achieving Criterion 1: GNI per capita • With present level of growth rate (average 4.2 %) need around 16.7 years to double the of GNI. Sustained high economic growth is necessary to reach the per capita income threshold. • High levels of foreign direct investment (FDI), particularly in the energy and manufacturing sector, could drive such growth. • All segments of population must be able to participate in the growth process and contribute to growth • It is necessary to provide opportunity, capability, access and security to all for sustained growth and productive employment in the economy • ‘demographic dividend’ need to be tapped through • provision of higher levels of health, education and skill development • an environment for enhancing good quality employment/livelihood opportunities.

23. Achieving Criterion 1 (contd.) • create adequate livelihood opportunities with decent employment commensurate with the expectations of a growing labour force. • the pace of job creation must be greatly accelerated. this must come from a significant boost to the manufacturing sector of the economy, • Accelerate creation of more rural non-farm jobs opportunities through faster expansion in agro-processing, supply chains, • increase technical personnel for various aspects of farming and also maintenance of equipment and other elements of rural infrastructure. • creation of decent jobs/livelihood opportunities in service sectors.. • reforms to streamline not only the incentive structures for the farmers, but also the institutional framework in which agriculture and related activities take place.

24. Achieving Criterion 2: The HAI • Fulfilling all SDGs is a core aim of the Government of Nepal, and an essential part of the TYP of the country. • Progress made so far is close to the graduation threshold relevant to the human assets weakness criterion. • Further increase in budgetary allocations to the education and health sectors is needed • Special efforts need to be pursued in the areas of: • nutrition of children and women of reproductive age • child mortality , • secondary school enrolment , and • adult literacy.

25. Achieving Criterion 2(contd.) • Proper management of health professionals at all levels for achieving an expansion in the public provision of health services. • improvement in education and training capacities in health sector. • expand educational facilities and improving quality of education as key instruments for achieving faster sustained growth. • improve teacher training, upgrading curriculum and enforcing accountability for improving the quality of school education • academic reforms to provide greater flexibility and choice for students, • strengthen of research activity in Universities by establishing mutually-reinforcing linkages between teaching and research. • current “not-for-profit” prescription in the education sector should be reviewed in a pragmatic manner to ensure quality with equity. • Private initiatives in higher education, including viable and innovative PPP-models, need be actively promoted.

26. Achieving Criterion 3: EVI • Nepal has made significant progress under this criterion. • Effort to make Nepal a “land-linked” rather than land-locked country. • Productive capacities need to be expanded (infrastructure, private sector development, energy, science and technology) as to make • a development multiplier”, • an essential avenue for diversifying the economy and • increasing productive employment. • Reduce the impact of external trade shocks by improving agriculture and food security, and accelerating rural development. • Improve PFM and related macroeconomic policies in order to reduce dependence on ODA and diversify the origin of resource in flows. • Policies to mobilize domestic resources and remittances. • Improve environmental mgmt to address the effects of climate change, and to strengthen resilience through improved DRR/DRM.

27. Achieving Criterion 3(contd.) • Expand investment in infrastructure based on a combination of public and private investment through various forms of PPP. • Develop long term focus on urban planning to address heavy demand for better quality infrastructure in urban areas, especially water, sewerage, public transport and low cost housing. • Public investment in infrastructure will have to bear a large part of the infrastructure needs in backward and remote areas. • review the factors which may be constraining private investment, and take steps to rectify them. • PPP, with appropriate regulation and concern for equity, should also be encouraged in the social sectors, such as health and education. .

28. Conclusion • Improvement in the productive capacity is the major challenges and requires targeted assistance and strategies. • The government, the private sector, NGOs, CSOs and others need to coordinate for steering innovation and replicating it. • The external resources necessary to play a pivotal role in expanding its productive capacities, promoting FDI and trade, and adapting technological innovations. • 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 far labour-intensive manufacturing exports including expansion of production and export supply capacity.

29. Conclusion • The support from development partners to enhance its supply-side capacity and trade diversification, is very crucial. • 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. • The regulatory environment also needs to be streamlined to provide increasing access to financial services to poor • Nepal needs further efforts in good governance, the rule of law, the protection of human rights, and democratic participation. • It needs context-specific approaches to address poverty, security and governance in an integrated manner.

30. Thank You Allfor your kind attention