Nepal’s LDC Graduation in 2026 Brings Opportunities but Raises Job Risks, ILO Report Warns

Export-oriented sectors such as garments and textiles are expected to face the greatest impact, particularly in major international markets where Nepal currently benefits from preferential tariffs.

As Nepal prepares to graduate from Least Developed Country (LDC) status in November 2026, a new report by the International Labour Organization (ILO) and the National Planning Commission (NPC) warns that the historic transition could bring both economic opportunities and significant employment risks.

The report, “Employment Impact Assessment on Nepal’s LDC Graduation,” provides a detailed analysis of how the country’s economy and labour market may evolve between 2026 and 2030, as Nepal moves into a more competitive global trading environment.

While graduation reflects Nepal’s development progress and opens the door for greater global integration, it will also lead to the gradual loss of preferential trade benefits, exposing key industries to new pressures.

Export Losses Expected After Graduation

Using economy-wide modelling and consultations with stakeholders, the study estimates that Nepal’s exports could decline by between 2.5 and 4.3 percent after the country exits the LDC category.

Export-oriented sectors such as garments and textiles are expected to face the greatest impact, particularly in major international markets where Nepal currently benefits from preferential tariffs.

Once the country graduates, average tariffs on Nepali exports are expected to increase, especially for products such as:

• Apparel and textiles

• Vegetable goods

• Cereals and other agricultural products

Higher tariffs, stricter trade compliance standards and stronger international competition could intensify pressures on industries that already face structural challenges.

Structural Challenges in Nepal’s Manufacturing Sector

The report highlights several structural constraints that could make the transition difficult for Nepal’s economy.

These include:

• High production costs

• Limited access to capital

• A fragile manufacturing base

• Weak value chains and productivity gaps

Without reforms, these factors could reduce the competitiveness of Nepal’s export industries in global markets.

The findings were presented at a launch event attended by representatives from government institutions, employers, workers’ organisations, development partners and the media.

Women and Informal Workers Face Higher Risks

The study also warns that the economic effects of LDC graduation may not be gender-neutral.

Women and informal workers—who make up a large share of Nepal’s workforce in vulnerable sectors such as garment manufacturing—are expected to face disproportionate risks of job losses or income insecurity.

Protecting these workers will require targeted policies to strengthen labour protections and create new employment opportunities.

Transition Could Also Create New Opportunities

Despite the risks, the report emphasises that LDC graduation could serve as a catalyst for economic transformation.

Policy simulations in areas such as trade facilitation, tourism and digital services suggest that strategic reforms could offset potential export losses and create new jobs.

ILO Country Director for Nepal Numan Özcan said the transition represents a critical moment for the country.

“Graduation is not an end,” Özcan said. “It is a transition into a more competitive environment with fewer international support measures and higher expectations.”

“The real test is how Nepal can translate graduation into better jobs, stronger enterprises and greater economic security for everyone.”

Preparing for Stricter Trade Standards

The report calls for urgent reforms to help Nepal adapt to stricter international trade requirements.

These include preparations for frameworks such as the Generalised Scheme of Preferences Plus (GSP+), which offers trade benefits but requires stronger compliance with labour, environmental and governance standards.

Recommended reforms include:

• Improving productivity and industrial competitiveness

• Strengthening labour rights compliance

• Upgrading workforce skills

• Building stronger domestic value chains

Although some trade preferences may remain temporarily after graduation, these arrangements have fixed expiration timelines, making early preparation essential.

Government Calls for Coordinated National Response

Dr Prakash Kumar Shrestha, Vice-Chairperson of the National Planning Commission, said the report aligns with Nepal’s 16th national development plan, which prioritises employment creation.

“As Nepal prepares to graduate from the LDC category this November, we are approaching a historic milestone,” Shrestha said.

“This report helps us understand how to mitigate potential export losses and strengthen domestic employment.”

He stressed that successful transition will require coordinated action across government institutions and strong partnerships with the private sector, workers’ organisations and development partners.

Ten-Year Strategy for Employment Creation

Nepal has also been granted a grace period until 2030, allowing time to adjust to the new economic environment.

According to Krishna Prasad Sapkota, Joint Secretary at the Ministry of Labour, Employment and Social Security, the government is working with the ILO on a 10-year employment strategy.

The initiative will focus on:

• Strengthening employment service centres

• Improving labour market management

• Expanding job creation programmes

“If we manage this period well—especially in areas such as employment—we can minimise potential losses,” Sapkota said.

Tripartite Cooperation Key to a Just Transition

Labour unions and business leaders at the event also emphasised the need for cooperation between workers, employers and government institutions.

Binod Shrestha, President of the Joint Trade Union Coordination Centre, said workers must be treated with dignity to ensure sustainable progress.

Similarly, Jyotsna Shrestha, Chairperson of the Employers’ Council and Vice Chair of the Federation of Nepalese Chambers of Commerce and Industry, stressed the importance of protecting existing jobs while creating new opportunities.

Turning Graduation into Sustainable Growth

The central message of the report is clear: Nepal’s LDC graduation must be supported by proactive and inclusive economic policies.

With targeted reforms, coordinated action and strong partnerships, the transition could become a steppingstone toward stronger labour markets, sustainable economic growth and shared prosperity.

The ILO has reaffirmed its commitment to working with Nepal’s government and social partners to ensure that development progress leads to decent work and economic security for all workers.