Nepal’s LDC graduation: ILO flags job risks, urges investment to boost competitiveness

• Least Developed Country (LDC) graduation could hit key sectors like garments and textiles, with exports projected to fall up to 4.3% and tariffs set to rise.
  
• Strategic investments in skills, productivity, trade, and technology could offset losses and generate new jobs.
  
• Coordinated action by government, private sector, and workers’ organisations is essential to protect workers and strengthen competitiveness.

Nepal’s move to graduate from Least Developed Country (LDC) status comes with both promise and caution. A joint Employment Impact Assessment by the International Labour Organization (ILO) and National Planning Commission (NPC) provides an evidence-based analysis of how this transition may shape the country’s economy and labour market between 2026 and 2030.

According to the ILO, graduation reflects development progress and opens doors to deeper global integration. At the same time, it brings the gradual loss of trade preferences, exposing key sectors such as garments and textiles to higher tariffs, stricter compliance requirements, and stronger competition.

The assessment, using economy-wide modelling and stakeholder consultations, projects export losses of between 2.5% and 4.3% of total exports after graduation. Apparel and textile industries are expected to be hardest hit, especially in major export markets. Average tariffs are also expected to rise, notably for vegetable products and cereals.

Existing structural challenges, including high production costs, limited access to capital, and a fragile manufacturing base, could increase pressures on export-oriented sectors, ILO said. Thus, the report cautions that women and informal workers, who are concentrated in vulnerable industries, may face disproportionate risks.

Numan Özcan, ILO Country Director for Nepal, said at the launch event that graduation is not the end but a transition into a more competitive environment with fewer international support measures and higher expectations.

“With this report, we wanted to put forward evidence which calls for early action if we are to protect jobs. The real test is how Nepal can translate graduation into better jobs, stronger enterprises, and greater economic security for everyone,” he added.

Balancing risks and opportunities

While short-term shocks are anticipated, the report highlights potential opportunities. Simulated policy measures in trade facilitation, tourism, and ICT indicate that proactive investment could reduce negative impacts, strengthen competitiveness, and create new jobs.

Key recommendations include addressing supply-side constraints, improving productivity, complying with labour rights, upgrading skills, and strengthening value chains. Preparation for stricter trade requirements, such as those under the Generalised Scheme of Preferences Plus (GSP+), is also essential. Temporary trade preferences may continue, but they have set expiration timelines, making early action crucial.

Dr Prakash Kumar Shrestha, Honourable Vice-Chairperson of the National Planning Commission (NPC), said the NPC had been involved to ensure the report aligns with Nepal’s 16^th Plan, which focuses on employment creation. He noted that as Nepal prepares to graduate from the LDC category this November, the country is approaching a historic milestone.

“Achieving a successful transition will require coordinated efforts across all levels of government and strong partnerships with the private sector, workers’ and employers’ organisations, and development partners,” he shared.

Coordinated action needed

The assessment stresses the importance of tripartite collaboration to manage the transition effectively. Launch discussions included projections on GDP and labour markets and fostered evidence-based dialogue to safeguard jobs and enterprises.

Krishna Prasad Sapkota, Joint Secretary, Ministry of Labour, Employment and Social Security (MoLESS), said Nepal has a grace period until 2030 to manage the transition, particularly in employment. The ILO is supporting a 10-year strategy focused on job creation, strengthening employment service centres, and improving employment management, he noted.

Meanwhile, workers’ representatives and private sector leaders echoed the call for inclusive action. Jyotsna Shrestha, Chairperson, Employers’ Council and Vice Chair of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), shared: “For the private sector, our goal is clear: we want Nepal’s graduation to succeed, but it must also be sustainable — protecting existing jobs while creating new opportunities for the future workforce.”

Preparing for a successful transition

The report emphasises that Nepal’s LDC graduation requires proactive, inclusive policies to protect vulnerable workers and strengthen competitiveness. With timely preparation and targeted reforms, the transition could support resilient labour markets, sustainable growth, and shared prosperity, with the ILO reaffirming its commitment to helping ensure economic progress translates into decent work for all.

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Lead image / ILO