By Our Reporter

Nepal is set to graduate from a Least Developed Country to a developing nation in 2026. On paper, that sounds like progress. In practice, it puts the economy under pressure at a time when many sectors are still fragile. The shift removes long-held advantages but does not automatically build new strengths. That gap is where the real challenge lies.

The government, led on the economic front by Finance Minister Dr Swarnim Wagle, has promised to create jobs at home. That promise now faces a clear test. Graduation demands preparation, not just confidence. Even the finance minister has hinted that Nepal may not be fully ready, reflecting concerns from the private sector.

The most immediate impact will fall on export industries. Nepal has long benefited from duty-free access to markets such as the European Union. That advantage has helped sectors like garments, textiles, and carpets survive despite higher production costs at home. Once tariffs apply, these products will face tougher competition. Buyers will shift to cheaper suppliers. Margins will shrink, and some factories may close.

The numbers are not small. The International Labour Organization estimates that around 132,000 jobs could disappear within five years if no action is taken. About 142,000 workers are currently employed in these export sectors. Even a partial decline would hit employment hard.

The impact will not be evenly spread. Women make up a large share of the workforce in garment and carpet industries. When firms cut costs, they often reduce jobs at the lower end first. That means women face a higher risk of losing income. The setback goes beyond employment. It affects financial independence and slows progress made in bringing women into the formal economy.

Looking beyond exports, graduation exposes deeper structural issues. Nepal relies heavily on foreign aid and remittance income. Domestic production remains limited. Savings are low. Investment depends more on external support than internal strength. Reports on LDC economies show that this pattern is common, but it becomes harder to sustain after graduation.

Aid flows tend to decline once a country moves out of LDC status. At the same time, access to concessional financing becomes tighter. That forces countries to rely on costlier borrowing. Nepal risks entering this phase without a strong production base to support it. In simple terms, the safety net weakens before the economy becomes fully stable.

Still, not every sector faces decline. Some areas can gain if policies are clear and consistent. Tourism stands out. Nepal already has a natural advantage, but the sector remains underdeveloped. With better infrastructure, stable policies, and promotion, tourism can absorb a large number of workers. Estimates suggest it could create over 100,000 jobs, which would offset losses in manufacturing.

Construction offers another path. Urban growth, infrastructure projects, and housing demand continue to rise. This sector can generate jobs quickly, especially for semi-skilled workers. However, it needs steady investment and fewer bureaucratic delays.

Information technology also shows promise. It does not depend on physical exports in the same way as traditional industries. With better internet infrastructure and supportive policies, IT services can grow without facing tariff barriers. That makes it a practical option in a post-graduation economy.

To make these gains real, Nepal needs targeted investment. The ILO estimates around 682 million dollars would be required across key sectors to balance potential job losses. That figure is not small, but it is manageable with proper planning and prioritization.

External risks complicate the situation. Rising tensions involving Iran, United States, and Israel have increased uncertainty in global energy markets. Nepal depends heavily on imported fuel. Higher oil prices quickly translate into higher costs across the economy. That weakens both industries and household spending.

Remittance adds another layer of risk. Millions of Nepalis work in Gulf countries. Any instability there affects jobs and income. According to Nepal Rastra Bank, remittances remain a major pillar of the economy. A slowdown would reduce consumption and put pressure on foreign exchange reserves.

The transition to developing country status, then, is not a single event. It is a process that touches every part of the economy. Some sectors will struggle. Others can grow. The outcome depends on how early and how clearly the country prepares.

Nepal does not need dramatic shifts. It needs steady decisions. Protect vulnerable industries where possible. Invest in sectors that can expand. Improve coordination between policy and implementation. Most importantly, focus on building internal capacity instead of relying on temporary advantages.

Graduation marks progress, but it also removes excuses. The next phase will depend less on external support and more on domestic choice.

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