Nepali Prime Minister K P Sharma Oli called it “a matter of pride” — proof that Nepal is moving “towards self-reliance.” But the reality is more sobering.
Oli was referring to the country’s impending November 2026 bump up to developing country status, from the current recognition as a Least Developed Country (LDC). Landlocked Nepal has been an LDC since the United Nations created the label in 1971 to bolster international support for the most disadvantaged member states.
There are three criteria for LDC graduation: per capita income, Human Assets Index (HAI), and Economic and Environmental Vulnerability Index (EVI). To graduate, countries must meet two of the three criteria at two consecutive U.N. triennial reviews. Nepal has now exceeded the thresholds for graduation on two criteria — the HAI and the EVI — on three consecutive occasions: 2015, 2018, and 2021.
Next year, Nepal will be the first country to graduate without meeting the per capita income criterion. During the last review in 2021, its per capita income was $1,027 compared to the requirement of $1,222.
In 2015 and again in 2018, Nepal turned down the chance to graduate, citing the continuing impact of the 2015 earthquakes, as the country was not in a position to bear the added responsibilities of graduation.
Graduation comes with its own set of challenges. After November 2026, due to higher tariffs, the country’s exports could go down. Nepal will no longer be eligible for grants and soft loans reserved for LDCs. Multilateral institutions like the World Bank and the Asian Development Bank (ADB) will also rethink their soft loans and grants, making them less concessionary, and loan repayment times will be shorter.
This is vital as aid from multilateral institutions makes for the bulk of Nepal’s foreign aid, contributing 60-65 percent of the total aid disbursement in 2023/24, with the ADB being the largest provider.
To take just one example of the kind of challenges Nepal will face, the World Bank has already increased its annual interest on loans to the country, from 0.75 percent to 1.5 percent. The maturity period on such loans has been cut from 40 years to 30 years.
But most of the bilateral funds will be unaffected, as such funds rely more on individual interests of donor countries than specific U.N. criteria.
The problem for Nepal is that it has failed to develop a robust base for sustainable economic growth and development, which is partly why it is reliant on foreign aid. Many Nepalis struggle to make sense of the fact that while India and China, Nepal’s two neighbors, have consistently grown at over 5 percent over the past decade, Nepal, from a much lower economic base, has only managed an average of 4.3 percent growth in the same time.
Nepal’s impending graduation is attributed to the country’s success in health and education measures. There has, for instance, been tangible progress in cutting maternal and infant mortality and in increasing enrollment in secondary education. Yet most Nepalis still cannot access quality healthcare and education.
Most of the annual national budget goes unspent, while what little gets spent is nearly always wasted. Corruption is high, and service delivery is substandard. People aren’t convinced their lives are improving in any important way.
In fact, the national economy could have collapsed were it not for inbound remittance, which continues to break records year after year. In 2024, the country received nearly $14.19 billion in remittances. According to the World Bank, Nepal’s growth model is heavily reliant on remittances and tourism, and as such a slowdown in partner countries’ growth could result in a decline in both remittances and tourism, further hindering economic growth.
The prime minister says that as a developing country, Nepal will attract quality investment. But there are no such indicators. Nepal remains a poor place to invest, with onerous laws hampering businesses.
Tellingly, people don’t trust the current crop of leaders with economic growth and development. These leaders have ruled the country repeatedly since the 1990 political changes. They have been tried, tested — and found wanting. The little development Nepal has seen is not because of its top leaders but despite them. As such, the level of frustration is high, which is also reflected in the high exodus of Nepali youth.
Over 850,000 Nepalis sought jobs overseas in 2024. Currently, over 7 million young people have been living abroad for over five years, which, along with other absentees, represents about 23 percent of the country’s total population.
Oli won’t miss any chance to gloat about his own greatness and to make tall promises. He has in the past vowed that landlocked Nepal would have its own ships on the high seas and there would be piped gas to all Nepali homes. Such promises, when not followed through, only add to public frustration.
Nepal’s graduation from the LDC category might be something to celebrate on paper. But without political will, institutional reform, and a strong economic strategy, it risks becoming a hollow milestone.