National Planning Commission

NEPAL

Assessment of Implementation of the Istanbul Programme of

Action for the LDCs for the Decade 2011-2020

Government of Nepal

Singhadurbar, Kathmandu

November, 2019

Preface

Nepal has full commitment on the graduation from the LDC status and has given its highest

priority through its national plans, policies and programs since the adoption of the landmark

Istanbul Programme of Action (IPoA). The Government of Nepal does not perceive this as an

isolated milestone but rather as a process that demands a thorough consideration of up-front costs

and back-end benefits. The LDC Graduation is an integral part of Nepal’s overall development

strategy. Nepal has expressed its overall readiness of the country to graduate from the LDC

Category meaningfully, smoothly, sustainably and irreversibly. The government has set the

Vision of "Prosperous Nepal, Happy Nepali" and the ambitious goals in the current Fifteenth

Plan (2019-2024) aligning with graduation by 2022, achieving the Agenda 2030 and becoming a

middle-income country by 2030, and a high-income country by 2043.

The United Nations Committee for Development Policy identified that Nepal had met two of the

three thresholds for graduation, i.e. related to human assets and economic vulnerability indices in

the last two consecutive triennial reviews. While the calculation of Nepal’s statistical criteria for

2018, the performance was however inadequate in terms of gross national income (GNI) per

capita which was well below the designated threshold. The Human Assets Index (HAI), reflects

quantitative achievements in enrolment, literacy, undernourishment and mortality, but needs to

focus efforts in enhancing quality in public services in Nepal. The Economic Vulnerability index

(EVI), too, hardly measures the recurring nature of different forms of vulnerability of Nepal to

external shocks including natural disasters.

In this background, the Government of Nepal has prepared the report on Assessment of

Implementation of the Istanbul Programme of Action for the LDCs for the Decade 2011-2020

and submitted it to the UNOHRLLS. The graduation from LDC status can be sustained with an

operative development strategy and consultative process in a climate of greater political stability

and faster economic pace in the country.

 
Table of Contents 
List of Tables  i 
Acronyms  ii 
Executive Summary  iv 
I.  Introduction  1 
1. Background  1 
II.  National Development Planning Process  5 
1. Development Planning before 1990  5 
2. Development Planning, 1991-2007  6 
3. Development Planning, 2008-2018  8 
4. Vision 2043 and the Fifteenth Plan (2019-2024)  10 
5. Challenges  11 
III.  Assessment of the Implementation of the IPoA  13 
1. Productive Capacity  13 
2. Agriculture Food Security and Rural development  14 
3. Trade  16 
4. Commodities  17 
5. Private Sector Development  18 
6.  Human and Social Development  21 
7.  Multiple Crises and Other Emerging Challenges  29 
8.  Good Governance  34 
9.  Mobilizing Financial Resources for Development and Capacity Building  35 
9. Progress towards Graduation  37 
IV.  Coherence and linkages with the 2030 Agenda and other Global Processes  41 
V. Towards the next LDC Agenda  44 
References  48 
 

List of Tables

Table 1 : Human Development Indicators of Nepal

Table 2 : Progress in Health Indicators

Table 3 : Gender Development Index of Nepal (2017)

Table 4: Educational Achievement Indicators based on GPI

Table 5: Social Protection Coverage

Table 6: Resource Mobilization

Table 7: Nepal's Progress Status for LDC Graduation Criteria

Table 8: Investment Requirements to Meet SDG Targets

Acronyms

ADS Agriculture Development Strategy

AIDS Acquired Immune Deficiency Syndrome

BFIs Banks and Financial Institutions

BIMSTEC Bay of Bengal Initiative for Multi-Sectoral Technical and Economic

Cooperation

BOP Balance of Payments

CBS Central Bureau of Statistics

CDP Committee for Development Policy

DFIs Development Finance Institutions

DRRM Disaster Risk Reduction and Management

EVI Economic Vulnerability Index

FCGO Financial Comptroller General Office

FDI Foreign Direct Investment

FITTA Foreign Investment and Technology Transfer Act

FNCCI Federation of Nepalese Chamber of Commerce and Industries

FY Fiscal Year

GCRI Global Climate Risk Index

GDI Gender Development Index

GDP Gross Domestic Product

GFCF Gross Fixed Capital Formation

GLOF Glacial Lake Outburst Flooding

GNI Gross National Income

GoN Government of Nepal

GPI Gender Parity Index

GSP Generalized System of Preferences

HAI Human Assets Index

HDI Human Development Index

HIV Human Immunodeficiency Virus

HS Harmonized System

IMR Infant Mortality Rate

IPoA Istanbul Programme of Action

IPRs Intellectual Property Rights

KM Kilometre

KPIs Key Performance Indicators

LDC Least Developed Countries

LLDC Landlocked Least Developed Country

LPG Liquefied Petroleum Gas

MAPs Medicinal and Aromatic Plants

MDGs Millennium Development Goals

MEDEP Microenterprise Development Programme

MICS Multiple Indicator Cluster Survey

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MoF Ministry of Finance

MoICS Ministry of Industry Commerce and Supplies

MoWSS Ministry of Water Supply and Sanitation

MoYS Ministry of Youth and Sports

MT Metric Tonne

MW Mega Watt

NDHS Nepal Demographic and Health Survey

NER Net Enrolment Rate

NIB Nepal Infrastructure Bank

NLFS Nepal Labour Force Survey

NPC National Planning Commission

NPR Nepali Rupees

NRB Nepal Rastra Bank

NSEs National Sector Export Strategies

NTIS Nepal Trade Integration Strategy

NTMs Non-Tariff Measures

ODA Official Development Assistance

ODF Open Defecation Free

OECD Organization for Economic Cooperation and Development

OOF Other Official Flows

PPP Purchasing Power Parity

SAFTA South Asian Free Trade Area

SDGs Sustainable Development Goals

SDP Sector Development Plan

SEZA Special Economic Zone Act

TOE Ton of Oil Equivalent

U5MR Under-five Mortality Rate

UN United Nations

UNCTAD United Nations Conference on Trade and Development

UNDESA United National Department of Economic and Social Affairs

UNDP United Nation Development Programme

USD United States Dollar

VPOA Vienna Program of Action

WASH Water Sanitation and Hygiene

WB World Bank

WEF World Economic Forum

WTO World Trade Organization

Executive Summary

1. Background

The Istanbul Programme of Action (IPoA), 2011–20, was adopted in May 2011 by the Fourth

United Nations Conference on Least Developed Countries (LDCs). It represents high-level

commitments and ownership of LDCs and their development partners in the spirit of a renewed

and strengthened global partnership. The overarching goal of the IPoA is to overcome the

structural challenges faced by LDCs to help them eradicate poverty, achieve internationally

agreed development goals and enable graduation from the LDC category. The IPoA has five

guiding principles and eight priority areas of action to be implemented in close partnership

between the LDCs themselves and international development partners. The support measures

from the development partners devised for the programme period have focused on the priority

areas of action to facilitate structural transformation of LDC economies, achieve at least seven

per cent annual growth rate and enable half the number of LDCs to meet the criteria for

graduation by 2020.

2. Nepal's Progress towards LDC Graduation

Nepal is one of the 47 LDCs. It has a population of 29.5 million and per capita income of

USD1047 (CBSa, 2019)

. The country is now passing through the transition from a unitary

system to a federal system of governance after the successful conclusion of the peace process. It

is also going through the post-disaster reconstruction phase following the devastating

earthquakes of 2015. The Constitution of Nepal, promulgated in September 2015, guarantees

civil rights, establishes a federal polity with three tiers of government and guides the

development roadmap towards prosperity.

The country is determined to achieve inclusive and high economic growth and to graduate from

the LDC category by 2022. Nepal's development plans and programmes are geared towards the

direction set by IPoA for poverty eradication and graduation from the LDC category.

The United Nations Committee for Development Policy (CDP) found Nepal eligible for

graduation from LDC as it met two of the three thresholds in its triennial reviews of 2015 and

The preliminary estimates of per capita GDP for FY2018/19 is USD1,034 and per capita disposable income is

USD1,364 according to the National Accounts (CBS, 2019).

2018. At the time of both reviews, Nepal's GNI per capita was well below the graduation

threshold of USD1,242 and USD1,230 respectively. But the Human Assets Criteria, measured by

the Human Assets Index (HAI), was found to be above the graduation threshold of 66. Similarly,

vulnerability measured by the Economic Vulnerability Index (EVI), was also below the

maximum threshold of 32. Nepal is the first country to be eligible for graduation without meeting

the GNI per capita (income) criterion. Nepal considers this a key risk for a smooth and

sustainable graduation and so the decision to graduate was deferred until the next CDP triennial

review, scheduled for 2021. At the same time, Nepal is committed to implement the 2030

Agenda of Sustainable Development and achieve the Sustainable Development Goals (SDGs).

The country’s Fifteenth Plan (2019-2024) has set the vision of "Prosperous Nepal, Happy

Nepali" and milestone targets for 25 years' development pathway to become a middle-income

country by 2030 and a developed country by 2043.

3. Progress towards IPoA Implementation

Guided by the spirit of IPoA principles and priority areas of action, Nepal has implemented its

national policies and programmes to achieve the broad IPoA goals on schedule. While the IPoA

has a positive role to play in the country’s development process, the specific goals and actions

may not fully be realized by 2020.

Productive Capacity Currently available indicators show that Nepal has made satisfactory

progress in, for instance expanding infrastructure, enhancing productive capacities. However,

such improvements in limited areas are not sufficient for employment creation and poverty

reduction to the desired extent. Structural transformation is slow, as the contribution of

manufacturing value added to GDP has fallen over the years.

Agriculture, Food Security and Rural Development Over the review period, the structure of

agriculture sub-sectors has changed, shifting from subsistence farming to commercial

agriculture. This indicates the importance of commercialization in agriculture sector which

contributed in improving food security situation in Nepal. However, enhancing agricultural

productivity and reducing regional and rural-urban disparities remains a challenge for the

inclusive and sustainable development in Nepal.

Trade and Commodities Nepal’s international trade pattern has changed significantly in the

review period. Various policy measures have been taken to improve trade competitiveness and

terms of trade through diversification. However, Nepal's exports have fallen in absolute terms

over the review period reducing its already paltry global share from 0.005 percent in 2011 to

0.0047 percent in 2018. The result is a high trade deficit that is more than almost 40 percent of

the GDP. Although Nepal's export base is broad in comparison with other LDCs, the

merchandise items in exports and imports baskets are almost the same for the review period

indicating a lower level of export sophistication. Increasing cereal items in its import basket is

making the country food-dependent. This increases its vulnerability to rapid declines in export

earnings and capital flows, which are related to global crises and challenges, such as increased

food insecurity, and volatile fuel and commodity prices.

Private Sector Development Nepal's economy is private sector-led with public sector

consumption and GFCF limited to 14 percent and 15 percent respectively for FY2018-19 (CBS,

2019a). The contribution of cooperatives has increased in recent years, but the impact is limited.

The private sector has been playing a pivotal role in the development of financial and capital

markets, quality health services, tourism, hospitality, and education, including information and

communications technology sectors. Change in the sectoral composition of GDP, however, has

been much slower, indicating poor structural transformation and low productive capacities. The

share of manufacturing, which was the driver of economic growth during the 1990s, has

decreased in recent years. This undermines efforts made by the government, the private sector

and development partners to promote private sector development in Nepal.

Human and Social Development Nepal has made remarkable progress in human and social

development, including health, education, water and sanitation, youth and women’s

empowerment, and social protection over the review period. Nepal has realized universal

primary education, with good improvements in the literacy rate, across all age groups. But

improvement in learning, employability and productivity outcomes of educational attainments

are not satisfactory. Data indicate that a considerable number of children are still out of school.

Notable progress has been achieved in reducing child and maternal mortality rates, including the

infant mortality rate (IMR), under-five mortality rate (U5MR) and Maternal Mortality Rate

(MMR). The proportion of births attended by skilled providers has increased significantly. But

vii

there is still a long way to go to achieve universal health coverage, to reduce the risk of non-

communicable diseases and transport injuries, and to improve the nutritional status of women

and children.

Access to basic drinking water has reached to 88 percent and basic sanitation facilities have been

available for up to 99 percent of the population respectively. As progress accelerated, Nepal was

declared Open Defecation Free (ODF) on 1

October 2019, the first country to achieve ODF

status in South Asia. But increasing access to quality water and improved sanitation remains a

major challenge due to poor drinking water quality, inefficient functionality of water supply

systems, and high regional disparity in access to WASH services.

The introduction of old age pension for senior citizens in 1995 was a milestone for social

protection initiatives in Nepal. Major social protection schemes currently available are cash

transfers, in-kind transfers, access to services, social insurance, public works,

employment/livelihood creation, and care services. By 2018, about 17 percent people benefited

from these schemes, and government spending on social protection reached about 12 percent of

the government budget and over 5 percent of GDP. However, social protection measures have

been found inadequate in mitigating the adverse impact of unexpected shocks, which may push

the marginalized people below absolute poverty.

Nepal has made good progress in youth development, gender equality and women’s

empowerment. More than one-third of members are women in the Federal Parliament and

Provincial assemblies whereas more than 40 percent members of local level assemblies are

women. For the first time, Nepal witnessed women as Head of State, Chief Justice, and Speaker

of the Parliament. The proportion of women has also significantly increased in government

service in recent years. Indicators show that impressive progress has been made in women's

economic empowerment in the private and business sectors. This is reflected in the Gender

Development Index, which is now at 0.92. However, disparities in educational, health and

income related outcomes within the gender groups are still high.

Multiple Crises and Emerging Challenges Nepal’s economic outlook looks optimistic in the

medium to longer terms. It has recovered from various shocks, such as conflict and political

transition, border disruptions, and natural disasters including devastating earthquakes. Despite

the optimism in Nepal’s economic outlook, the country remains vulnerable to multiple shocks,

viii

including environmental shocks, while the possibility of fall-back to the trajectory of slow

economic growth cannot be ruled out. Major crises and challenges include geological hazards

such as earthquakes; climate change induced disasters like floods, drought and landslides;

unfavourable labour markets; investment gaps and food insecurity.

Mobilization of Resources for Development Finance and Capacity Development Nepal has

maintained comfortable macroeconomic stability over the review period. The gross national debt

is about 30 percent of GDP in 2018, with average debt servicing expenditure below 3 percent of

GDP. This has been possible due to low budget execution rates, in particular low capital

spending and a significant rise in government revenues. It gives great potential of raising more

finance from official development assonance (ODA) where the challenge is to increase the aid

utilization capacity of government machinery. Despite considerable efforts made to mobilize

domestic resources for development finance, Nepal faces a huge financing gap, and ODA has

continued to be the largest source of development financing. At the same time, foreign direct

invest has increased substantially, but without a visible impact on structural change.

Good Governance at all Levels Governance in Nepal has undergone significant changes and

reforms after the promulgation of the Constitution in 2015. The country is politically divided into

753 local level and seven provinces. The election of local government after almost two decades

has raised hopes of strengthening the country’s governance system.

4. The 2030 Agenda for Sustainable Development

The 2030 Agenda for Sustainable Development has been one of the guiding principles for

Nepal's development efforts after 2015 to ensure that no one is left behind. The Constitution of

Nepal, 2015 also carries the aspiration of the Agenda 2030. Most of the sectoral plans, priorities

and targets are aligned with the Sustainable Development Goals (SDGs), while some are in the

alignment process. This reflects Nepal's commitment to achieving the SDGs within the given

timeframe. The 17 SDGs have been synchronized within the results framework of Fourteenth

Plan (2016-19). The Fifteenth Plan has fully incorporated the SDGs in the national and sectoral

goals, strategies and working policies. The annual programmes are fully aligned with the targets

and indicators of SDGs. The budget allocation in the annual programmes has also given high

priority for SDGs and auditing has also been done against the SDGs indicators. Some of these

initiatives have started to yield promising results. The Needs Assessment, Costing and Financing

Strategy for SDGs, however, shows that further efforts are required to mobilize resources for

achieving the SDGs targets. Similarly, the Government of Nepal (GoN) has published planning

and monitoring and evaluation guidelines for provincial and local level and has developed the

SDG localization guidelines for provinces and local level providing the hands-on tools and

techniques for incorporating SDGs in planning and implementation of sub-national level.

5. Towards the Next LDC Agenda

Nepal believes that the IPoA adopted for 2011-2020 will be a landmark for various reasons.

Since the adoption of the IPoA in 2011, many LDCs have made notable progress in economic,

social and human development. However, IPoA is not going to meet the goal set to enable half

the number of LDCs to be eligible for graduation by 2020, and most of the people of LDCs live

in poverty. It is therefore a matter of deep concern that only a few countries are going to have

graduated from the LDC category by the end of this decade. From this perspective, Nepal is

hopeful that the upcoming UN Conference on LDCs will be able to address the unfinished

concerns of LDCs related to trade and development, tackling the inherent challenges of low

productive capacity and maximizing the ability of LDCs to exploit the opportunities brought

about by the process of globalization.

6. Organization of the Report

The report is organized in five core chapters. With the background, the first chapter briefly

summarizes the key implementation status of IPoA and government endeavours in Nepal. The

chapter also includes the methodology adopted for needs assessment, scope and coverage of the

report and some limitations. The second chapter assesses the plans, policies and strategies

adopted in line with the principles and priorities of IPoA and the Agenda 2030. In such an

assessment, mainstreaming and localizing of the agenda in national planning, implementation

and monitoring framework is especially looked into.

The third chapter discusses progress made to date in the IPoA’s priority areas of action. It also

presents the specific programmes and projects that are being implemented by government and

then identifies the gaps that have to be bridged to achieve the goals and targets within the given

timeframe. The fourth chapter is devoted to examining the implementation of IPoA and other

national strategies in the light of their coherence and linkages with the SDGs and other global

agendas.

The fifth chapter concentrates on exploring the policy and institutional options necessary for the

next LDC agenda to be adopted at the Fifth UN Conference on LDCs that will coincide with the

remaining 10 years of the SDGs implementation. The way forward for sustainable graduation

related to policies and development objectives for accelerated, sustainable, and inclusive

economic growth is presented in the last chapter.

I. Introduction

1. Background

Nepal is not only a least developed, but also a landlocked country located between India and

China, two large emerging economies. It has made remarkable social indicators in recent years.

Over these years, poverty has declined remarkably, social development indicators have improved

substantially, gender disparity has narrowed, and social inclusion has improved. For rapid

transformation of the economy and moving to a higher trajectory of growth, Nepal is committed

to graduate from the Least Developed Country status by 2022. To meet such a target, necessary

preparations are underway.

Adoption of the new constitution in September 2015 after a long political transition has created

an enabling environment for accelerated development in Nepal. Transformation from unitary to

federal system of governance with three tiers has further enhanced the prospect of more

participatory and equitable development. More noticeably, the newly elected stable government

has come forward with the long-term vision of ‘Prosperous Nepal, Happy Nepali’. Hence the

periodic plan, strategies, policies and programmes are designed to create prosperity in the

country in the near future. The implementation of the IPoA is an integral part of such

endeavours.

Adopted in 2011, the IPoA has set the goal of enabling half of LDCs to meet the criteria for

graduation by 2020 (UN, 2011). Following the IPoA, Nepal through its Thirteenth Plan (2013-

2016) formally set the goal of graduating from LDC status by 2022 with accelerated growth and

poverty reduction. Nepal is fully committed to accomplish the IPoA goals within the stipulated

time. For this, optimum utilization of natural, financial and human resources, promotion of

technological innovation, prioritization of infrastructure development and employment

generation have been given a high priority. Similarly, improvements in productive capacity

through structural policy reforms, improved governance and focus on IPoA priority areas have

remained our prime agenda.

In 2015, the Committee for Development Policy (CDP) found that Nepal is pre-eligible for

graduation from LDC as it had already met two of the three thresholds. At the time of the 2015

review, though Nepal's GNI per capita was estimated at USD 659, well below the graduation

threshold of USD 1,242, as noted by CDP in its 2015 Report, the Human Assets Index (HAI) at

68.7 was above the graduation threshold of 66. Similarly, the Economic Vulnerability Index

(EVI) at 26.8 was below the maximum threshold of 32. At its 2018 triennial review of the LDCs,

the CDP again found Nepal eligible for graduation from the LDC category. Despite GNI per

capita lagging far behind the threshold, the HAI and EVI scores satisfied the requirements.

Ideally, graduation should mark a transformative change in the Nepali economy, which is in the

process of structural change. It is expected to help reduce poverty, diversify economy, generate

employment, raise productive capacity and accelerate growth to accomplish IPOA targets and

SDGs on time. Amidst such brighter prospects, there are certain downside risks as well. One the

one hand, Nepal will probably be the first country ever to graduate without meeting the income

criteria. On the other hand, a highly vulnerable external sector and low productivity are common

features of the Nepali economy. Nepal is also highly vulnerable to natural disasters and climate

change. As a mountainous country in the hotspot of climate change impacts, the challenges

facing Nepal are further compounded. The trade frictions between China and US and slowdown

of economic growth of India and China may have the impacts on trade and economic

performance of the country. These reflect the challenges for Nepal’s sustainable graduation.

Against this background, Nepal recognises the need for intensive preparatory work, taking both

strengths and weaknesses into consideration. Therefore, it is an opportune moment for Nepal to

ensure a smooth transition to graduation by identifying policy, institutional and structural gaps

and devising a robust strategy to address them. Considering this, for sustainable and irreversible

graduation, Nepal requested the CDP in its expert group meeting held in February 2018 to re-

consider Nepal's graduation at the triennial review scheduled for 2021. The CDP decided not to

recommend graduation and deferred until the 2021 review.

A mixed approach combining both quantitative and qualitative techniques have been followed in

the study. The assessment of progress status of development programmes is mainly based on

secondary data and information. Such quantitative data have been used to identify trends and

patterns of various priority sectors and activities. The qualitative analytical approach has been

followed to assess the plans, policies, and strategies pursued to support and facilitative the

implementation of programmes designed to achieve the set targets.

Such an approach is also known as a sequential explanatory approach in which data collected

through quantitative and qualitative methods are processed and interpreted to draw conclusions

and develop suitable strategies. In the course of the study, the experts' views and stakeholders’

opinions (qualitative data) have also been collected and processed before drafting the report.

The report consolidates the existing data and information with a focus on the priority areas of

actions under the IPoA framework. Since the IPoA is based on commitments, accountability and

partnership between LDCs and its development partners to undertake concrete actions in related

areas, the report tries to track the progress made so far by Nepal in the identified areas. Efforts

were made to integrate data and information across a wide range of economic, social and

environmental areas consistent with the IPoA’s objectives.

The report therefore tries to cover the national and subnational policies, plans, strategies and

programme initiatives that aim to achieve goals and targets set by IPoA in the priority areas of

actions. These are (i) productive capacity, (ii) agriculture food security and rural development,

(iii) trade, (iv) commodities, (v) private sector development, (vi) human and social development,

(vii) multiple crises and other emerging challenges, (viii) mobilization of financial resources and

capacity, (ix) good governance at all levels, and (x) progress towards the graduation agenda.

The IPoA also highlighted that the national the efforts of LDCs should be complemented by

supportive global programmes, measures and policies aimed at expanding the development

opportunities of countries with respect to their national priorities. Therefore, attempts have been

made to enhance coherence and linkages of national policies and plans with the Agenda 2030

and other global development processes. Similarly, it tries to highlight priority areas of action

that the Fifth UN Conference on LDCs should address to support and facilitate countries in

attaining the SDGs, including measures at the national, regional and global levels to eradicate

poverty and accelerate graduation over the next 10 years.

As the study report is based on secondary sources of information, the quantification of progress

status of eight priority areas are based on such information. The inability of the IPoA to define

the indicators so that they can measure the performance of the priority areas of action has

necessitated such an approach. Given the limitations or non-availability of certain data, some

indicators (mainly in governance, private sector development, employment, and youth

development related areas) have been obtained from the international sources such as the World

Bank and the World Economic Forum.

In the absence of an IPoA-consistent macroeconomic framework, data available in the existing

framework have been used to capture dynamic linkages between macroeconomic variables such

as GDP, trade, investment, ODA, domestic borrowing, and revenue mobilization. Therefore,

analysis of progress and against targets should be interpreted cautiously. As the federal system of

governance has started only recently, availability of data and information at the province level is

limited and requires a more disaggregated analysis.

II. National Development Planning Process

Nepal has made enormous efforts to achieve rapid socio-economic development since six

decades through the development planning process. The brief review below reflects the efforts

Nepal has been making in its development planning and implementation process.

1. Development Planning before 1990

Before the establishment of a democratic system in 1951, Nepal was considered one of the

world’s most isolated countries and its economy was stagnant. The National Planning

Commission (NPC) was established in 1956 as a specialized and apex planning body of the

government. The NPC was given responsibility to formulate a national vision, overall

development and sectoral policies, periodic plans and programmes for Nepal (NPC, 1956). It is

chaired by the Prime Minister and has one full-time Vice-Chair, six members, and one Member-

Secretary, with a fully staffed secretariat. The NPC is mandated to assess resource needs,

identifies sources of funding, and allocate budgets for development plans, projects and

programmes.

The NPC also serves as an intellectual hub for the exchange of new development ideas and

proposals from scholars, the private sector, civil society, and development partners. In the initial

years, plans were focused on institutionalization of democratic policies and systems of

government with the overarching goal of socio-economic development. The major achievements

of the planned development process, in the early stage, were establishment of connections with

the outside world, adaptation of foreign aid policy and programmes, increasing cooperation with

development partners, and the launch of development programmes and projects.

The broad objectives of previous plans were largely to increase production, generate

employment, fulfil basic needs, and raise the living standards of people. The plans were focused

on improving the capacity of development administration, and enhancing the public and private

sectors' contribution to accelerating economic growth and development. Similarly, attempts were

made to promote economic stability, ensure social justice, and decentralize development efforts

to achieve regional balance. For this, strategies were designed to improve the economy’s

productive capacity through effective use of the available natural and human resources in close

coordination with development partners for harnessing benefits from the international

development programmes.

During the period prior to the restoration of democracy in 1990, a three-year plan and six five-

year plans were formulated and implemented. Despite the aim of achieving rapid economic

growth to take forward the pace of socio-economic transformation of the country through

planned development efforts, there were gaps between targets and achievements. One of the

major weaknesses of the plans was an inability to clearly establish relationships/linkages among

the goals and objectives, priorities, strategies and programmes of the plans (NPC, 1992). At the

same time, a lack of basic infrastructure and technology, weak market mechanisms and an

undeveloped private sector were equally responsible for poor performance of the development

plans.

More importantly, the planning process was top-down and could not garner people's participation

in the process of plan formulation and implementation. Lack of accountability in the governance

system made the planning process weak and left it poorly institutionalized. The gains of the

planned development process were unevenly distributed, resulting in inequality and a widening

absolute gap between rich and poor.

2. Development Planning, 1991-2007

The Eighth Plan (1991-1996) was implemented following the restoration of a multi-party

democratic system in 1990. The planning process was participatory and bottom-up where

programmes and projects were identified in close consultation with Village Development

Committees, District Development Committees, and regional and national level stakeholders

including political parties and development partners. The key objectives of the Plan were to

achieve sustainable economic growth, alleviate poverty and reduce regional disparities.

Accordingly, available economic, human and institutional resources were prioritized to help

achieve the set objectives.

The Plan (1991-1996) emphasized a liberal, market-oriented economy by encouraging

government to play an active role in facilitating economic activities, promoting the private sector

and building a physical infrastructure to enhance economic activities. The principal objective

was to achieve sustainable economic growth by alleviating poverty and reducing regional

imbalances (NPC, 1992). The plan targeted populations living below the poverty line and

envisioned the village as a centre of development. Programmes were focused on formulating

integrated and inter-regional programmes that created productive assets based and employment

opportunities to alleviate poverty. For this, the government adopted a decentralization policy

effectively by delegation of authority to local bodies with the transfer of resources required to

execute the programmes and projects.

In the same spirit, the sole objective of the Ninth Plan (1996-2001) was poverty alleviation,

which targeted a reduction of the population living below the poverty line to 10 percent within

20 years by increasing economic growth rates and reducing population growth rates (NPC,

1997). High priority was given to employment generation, productivity enhancement, good

governance, human resource development and the empowerment of women. The Agricultural

Perspective Plan (APP) was designed as a basis for increasing production, providing food

security, and increasing employment and income. Additional authority was devolved to local

bodies to make them capable, strong, autonomous and accountable for poverty alleviation.

Capacity development of local bodies was focused to help them achieve rapid sustainable and

inclusive development.

The major focus of the Tenth Plan (2002–07) was on poverty alleviation and raising the living

standards of people to help achieve sustainable development and social justice. This was the first

plan of the 21st century and is also known as the strategic document of poverty alleviation, since

it was formulated with the sole objective of poverty alleviation (NPC, 2002).To achieve the

objective, high, sustainable and broad-based economic growth; social and rural infrastructure

development; targeted programmes for disadvantaged groups; and good governance were

pursued as strategic areas for interventions. To make this plan result-oriented and to optimize the

use of scarce resources, programmes and projects were prioritized and classified as Priority One

), Priority Two (P

) and Priority Three (P

). Programmes and projects classified under the

category P

had been ensured with adequate resources, followed by P

and P

Despite efforts to create a paradigm shift in policy regime and series of reform initiatives, the

Nepali economy performed less satisfactorily between 1990 and 2007. This was characterized by

slow growth, socio-economic underdevelopment, technological backwardness and a low level of

human development. Slow economic growth was due to power outages lasting many hours, weak

infrastructure, inadequate supply of skilled human resources, low capital formation, political

instability, and out-migration of working age population in search of job opportunities. Instead of

commendable progress made in reducing extreme poverty and hunger, low income and human

poverty remains the major challenge for Nepal's planned development initiatives.

3. Development Planning, 2008-2018

Nepal’s development planning went through a transition along with political transformation

between 2008 and 2018. To ensure sustainable peace and inclusive development after a decade-

long conflict and the People's Movement of 2006, Nepal implemented four development plans

over 11 years. Although interim in nature, these plans attempted to capitalize the opportunities

present after the end of a decade long conflict, change in the political system, people's aspirations

for rapid development and well-being, and a new paradigm in the international development

landscape.

This was an important period for Nepal, because it saw a successful conclusion to the country's

political transformation through the adoption of the federal Constitution in 2015. Amid internal

and external turmoil as well as natural shocks, Nepal successfully set milestones for socio-

economic development by realizing most of the targets of Millennium Development Goals

(MDGs) set for 2015. Nepal implemented the IPoA for LDCs for 2011-2020 and is

mainstreaming the 2030 Agenda for Sustainable Development into its development plans and

policies. More importantly, it was the period when Nepal set the overarching goal of graduation

from LDC to a middle-income country in 2030.

The Eleventh Plan (2008-2010), the first development plan implemented in the changed political

context set the vision of ‘Prosperous, Peaceful and Just Nepal’. The primary goal of this plan was

to reduce poverty, increase employment opportunities and make people prosperous. To achieve

the objective, the plan has emphasised: relief, rehabilitation and reintegration; pro-poor and

sustainable economic growth; increased investment in physical infrastructure; inclusive growth

and targeted development programmes; and prioritized social development with improved

governance (NPC, 2008). This was the first plan that recognized the active role of the

cooperative sector in the overall development process as an effective vehicle of poverty

alleviation. The plan incorporated special programmes for disadvantaged and marginalised

groups, including persons with disabilities, women, Dalits, Adibasi Janajatis, Madhesis, Muslim

community, and disadvantaged regions.

Considering lessons learned from the outcomes of previous periodic plans and changing

priorities of the people, the objectives and strategic areas of development plans have changed

over time. The Twelfth Plan (2011-2013), for instance, prioritized improving economic status of

the people through implementation of employment-centric, equitable and inclusive development

programmes and projects. Accordingly, strategies were adopted to bring about a direct positive

change in the living standards of the people by reducing economic and human poverty in an

effort to maximize the fruits of opportunities and to minimize the risks of challenges created

within the country and likely from the external environment (NPC, 2011). The approach paper of

Twelfth Plan set a goal to graduate the country from its LDC status by 2022.

After the IPoA was adopted in May 2011, Nepal revised (in May 2013) its earlier target for

graduation to 2022 in tandem with the IPoA’s overarching goal. To translate the goal set by the

IPoA into a reality, which aims to enable half the LDCs to meet the criteria for graduation by

2020, Nepal incorporated the graduation agenda in the Thirteenth Plan (2014-16).

The Fourteenth Plan (2017-2019) was based on the Constitution 2015 and Nepal's commitment

to the 2030 Agenda for Sustainable Development. The plan was envisioned to revive the country

from the impacts of the 2015 earthquakes, repercussions of the long political transitions and the

setback created by disruptions at the Nepal-India border points. Despite being an interim plan, it

considered the overarching objective of building a socialism-oriented prosperous nation based on

democratic norms and values while ensuring basic social services and maintaining food, health,

energy and job security to build a welfare state (NPC, 2016b). It has thus focused on the

sustainable path of prosperity while strengthening the national economy through participation,

independent and complementary role of public, private and cooperatives sectors under short to

medium-term development strategies.

During this period Nepal has made significant progress in MDGs, particularly on poverty

reduction and human development (NPC, 2016c). With the encouraging achievements of the

MDGs and the lessons learned—on what kind of global development agenda works at the

national level and what does not—Nepal reiterated its commitment to achieving the SDGs before

2030. Most importantly, the Fourteenth Plan has mainstreamed the 2030 Agenda with its in-built

results framework. The plan internalized key IPoA aspects and systematically integrated SDG

targets in a results monitoring framework (NPC, 2017).

The development plans after 2007 have been instrumental in mainstreaming the concept of

sustainable and inclusive growth in the development discourse and reorienting programmes such

as infrastructure development, socio-economic transformation, integrated spatial development,

and the fulfilment of basic needs of the people. Progress in development indicators in this period

were found to be satisfactory compared to those in the previous plans. Nepal has realized the

economic growth target of the Fourteenth Plan.

4. Vision 2043 and the Fifteenth Plan (2019-2024)

Following the promulgation of the Constitution of Nepal in 2015, the time came for Nepal to

address the people's aspirations for improving economic wellbeing and achieving prosperity.

This was an opportune moment to embark on formulating a long–term development vision and

an implementable strategy aimed at achieving socio–economic transformation of the country.

Nepal has thus set a long-term vision of socio-economic transformation to become a high income

country by 2043 i.e. per capita income USD12,100. This is guided by an overarching aim of

accelerating the pace of economic growth for smooth and sustainable development after

graduating from LDC and help achieve the SDGs and becoming a middle-income country by

2030. The Vision aims to eliminate poverty and achieve an annual average GDP growth of 10.5

percent through augmented productivity by harnessing internal resources such as hydropower,

agriculture, forests and natural resources. It is planned to double the share of industrial sector to

the GDP and reduce the contribution of agriculture sector to one-third. The long-term vision has

defined prosperity and happiness separately and set targets assuming FY2018/19 as the

foundation year for prosperity (NPC, 2019).

The Fifteenth Plan (2019-2024), the first plan of the Vision 2043, has identified the sectors with

particular growth potential, such as hydropower, tourism, agriculture and human capital

formation, as the drivers of economic growth. The plan is committed to harness the potential of

growth drivers by best utilizing the demographic dividend of an economically active young

population and aims to cater to the vast markets of neighbouring India and China with higher

connectivity.

Nepal believes a successful structural transformation would be instrumental in moving towards a

long-term sustainable development trajectory. Attempts have thus been made to maintain a

proper combination of policy reforms to enhance efficiency of the development tools, i.e.

hardware (e.g. infrastructure) and software (e.g. good governance) so as to reduce transaction

costs.

5. Challenges

Nepal has focused on attaining high GDP growth through a planned development process for

more than six decades. In such efforts, poverty reduction and economic prosperity remain the

key priorities. Although Nepal has made good progress in several aspects of social development

during past six decades of planning history, it has not effectively reduced inequality and

unemployment, unplanned migration, human capital formation. Eliminating poverty and rural

unemployment and promoting prosperity require large investment in all the economic fronts to

propel domestic employment and provide sustainable incomes to households. Lack of sufficient

investment is an undeniable truth, which has been the main challenge for economic prosperity.

Nepal has just overcome a prolonged political transition. The transformation from the erstwhile

unitary system of governance to a federal governance system should help to promote balanced

regional development and unlock the potential for investment in innovative sectors. Ensuring

good governance with transparency and accountability is vital for creating a conducive

environment for the private sector to thrive.

Reducing disparities among geographical regions, gender and socio-cultural status remains

challenge for inclusive and balanced development as expected. Social progress will not be

sustainable without meaningful economic development contributing to a rise in citizens’ incomes

and living standards.

Ensuring smooth access to finance for industry should be one of the priorities of development

planning to stimulate investment, improve productive capacity, increase growth and

employment, and help bring prosperity. Nepal has many inaccessible and rugged regions and

production and delivery costs are high for industry. Despite being a priority of the government,

connectivity poses significant challenges and requires a huge investment to overcome them.

Limited domestic resources is another major challenge for development financing, which is

reducing the effectiveness of the national planning process.

While growth alone cannot be sufficient to alleviate poverty, transformation of subsistence

agriculture towards commercialization and industrial development are indeed challenging.

Increasing the contribution of manufacturing sector in the economy and reducing trade deficit

remains vital challenge. Addressing the problem of labour market mismatch through market-

based skills development for employment, income generation and trade creation is also critical in

reaping the benefits of demographic dividend and human resources. Nepal has done its best to

mainstream all international development outcomes, including the IPoA, into its development

plans and policies. Challenges facing Nepal in this context include mobilizing resources to meet

the financing gap that looms large as the country gears up for economic growth and

development; localizing SDGs as well as IPoA and VPoA goals and targets into the country’s

new federal structure where each unit of government has a special role in resource mobilization

and development; and maintaining synergy and coherence while implementing different

international development outcomes vis-à-vis national and local development plans and policies.

III. Assessment of the Implementation of the IPoA

The primary objective of this report is to assess the achievements of the implementation of the

IPOA between 2011 and 2018. Therefore, all the possible quantitative and qualitative indicators

available and relevant to the IPoA's key principles and priority areas of action have been

reviewed and analysed. The quantitative indicators available for the period 2011 to 2018 have

been presented in the time series format to make the assessment simple and comprehensive.

Qualitative information obtained from consultation with experts has been synthesized in the best

possible way. The challenges faced during the implementation of the IPoA’s priority areas of

action have been identified to help develop the best policy options and provide a way forward for

improvement in the implementation and realization of the set targets on time.

1. Productive Capacity

The key to economic progress is economic growth. Economic growth depends primarily on

progress made in the nation’s productive capacity. A steady rise in living standards takes place

only when a nation's production of goods and services expanded more rapidly than the rise in

population. As identified in the IPoA, Nepal has given high priority to improving the productive

capacity of the economy. Emphasis is given to increasing the productive capacity of the

industrial sector by enhancing productivity of labour as well as capital inputs.

The current Fifteenth Plan has given high priority to employment generation and emphasis has

been laid on increasing value addition in agriculture and manufacturing products. To augment

the productivity of the sectors of comparative advantage, high importance is given to the

transport, tourism and hydropower communication sector as identified. For resource mobilization

and efficiency improvement, a public-private partnership approach has been adopted in

infrastructure development including road construction, urban development and hydropower

generation. Another area that the government has given high importance to is the financial

sector, which seeks to improve access to credit in rural areas that help increase the productivity

of natural resource-based small and micro-enterprises. Skills, technology and entrepreneurship

development programmes have been implemented in most districts to help increase the domestic

product based on local raw materials.

To reflect the progress made in improvement of productive capacity, quantitative indicators such

as value addition in agriculture and natural resource-based products, primary energy supply,

infrastructure including road networks, science and technology including telecommunication,

and tourism services, have been considered. Most indicators presented (Annex 1) show that

Nepal has achieved satisfactory progress in some areas, such as expanding road networks,

telecommunication coverage, availability of clean energy, and tourism and service industries.

Similarly, special economic zone has been established and government has started the

construction of garment processing zone, provincial industrial zones, and industrial villages.

However, the contribution of the manufacturing sector to GDP, which is one of the key

indicators of structural transformation and productive capacities, has been decreasing during the

review period. This indicates poor performance in structural transformation and improvement in

the productive capacity of the domestic industries. The manufacturing sector plays a key role to

improve domestic supply capacity, generate employment and help develop a sustainable and

self-reliant economy, which is a necessary condition for LDCs like Nepal for a smooth and

irreversible graduation. More importantly, manufacturing is the sector that can create more

employment opportunities and helps to increase income levels. Therefore, enhancing the

contribution of manufacturing sector in the economy is a major challenge for Nepal to increase

GNI per capita, one of the key indicators of LDC graduation where Nepal is still lagging behind.

2. Agriculture Food Security and Rural development

In the 1990s, the country’s agriculture sector contributed more than 40 percent to GDP. The

contribution of this sector has gradually reduced to around 27 per cent in 2018. Nevertheless, the

agriculture sector still remains the major source for employment, food security and livelihood of

rural community. The high level of employment in agriculture with gradual reduction in its

contributions to GDP proves that agriculture productivity is not keeping pace with productivity

in other sectors. In the review period, it is observed that the structure of agriculture sub-sectors

has been changing from subsistence farming to commercial agriculture. However, the

productivity of the agriculture sector remains low over the period of IPoA implementation.

Indicators (Annex 2) show that Nepal’s food security situation has improved over time. The

government is providing subsidies to farmers in the form of inputs such as fertilizers and

agriculture credits. Transport subsidies are also given to ensure food availability in remote

districts that are vulnerable to food shortages. The government has given high priority to

increasing the storage capacity of food products. As a result, food security is supply-dominated,

focusing only on food availability while little attention is given to its three other dimensions:

access, utilization, and stability. The government has been implementing the 20-year Agriculture

Development Strategy (ADS) 2015-2035 where sectoral strategies have been devised to improve

productivity.

The GoN has given priority to the commercialization of agriculture and incentivizing the

corporate sector by providing interest rate subsidies in agriculture credits. The central bank is

also channelling bank credits in agriculture through mandatory and directed lending programmes

where banks and financial institutions (BFIs) are required to invest a certain percentage of their

total portfolio in agriculture. The Insurance Board and the Central Bank have implemented a

subsidized insurance programme to ensure that BFIs’ investments in agriculture will not default.

Insurance products have been developed to insure against damage of crops due to bad monsoons,

natural disasters such as floods, drought and hailstorms. Cooperatives and the private sector have

been encouraged to engage in large scale commercial production by introducing the concept of

agriculture clustering, e.g. by zone, super zone, and pocket area approach.

Despite efforts on multiple fronts, agriculture faces challenges in factor productivity,

commercialization of high-value crops, creating enabling environment for private sector

investment, and inter sectoral coordination. Despite the focus on rural development through

construction of road networks and community infrastructures, geographic disparities including

rural and urban gaps are major barriers for balanced and inclusive development. Apart from

income, variations in health, nutrition and education parameters across geographical regions as

well as in rural and urban areas are high. This has resulted in large variations in poverty across

geographic areas with respect to remoteness and market access.

However, adoption of the federal system of governance is expected to narrow the rural-urban

divide and promote regional balance. The Fifteenth Plan, which is based on the federal system,

has given special emphasis to addressing macro and sector-specific challenges for balanced rural

development. The macro challenges call for broad-based economic growth and inclusive

development. Improvements in the quality of rural roads, market systems and supply chains will

improve agriculture, food security and rural development.

3. Trade

The international trade pattern of Nepal has changed significantly in the last three decades.

Policy measures have been taken with the aim of improving trade competitiveness and to

diversify trade performance. Attempts are being made to identify the export potential of existing

products and new products for diversification. However, Nepal's trade performance remained

less than satisfactory over the years resulting in huge gap between exports and imports trade in

goods. Weak physical infrastructure, inadequate human resources in export-oriented industries,

absence of quality standardization of exports, a dearth of a strong legal framework and prolonged

political instability, among other factors, have adversely affected trade performance (Annex 3).

Therefore, improving trade competitiveness is one of the major agenda of the GoN. Accordingly,

trade policies and strategies have been revised in the changed global and national environments.

As envisaged by the Trade Policy 2015, National Trade Integration Strategy (NTIS) 2010 has

also been updated to NTIS 2016, which aims to improve export competitiveness through targeted

institutional support to stimulate trade within the framework of World Trade Organization

(WTO). The strategy has identified 12 sectors of high export potential and emphasizes product

research and market promotion, trade facilitation and support services. NTIS also focuses on

promoting modern technology among farmers and producers to improve production and post-

harvest practice to increase value addition across the supply chain and maintain quality in

agriculture-based exports. It also highlights the need for inter-agency coordination and

strengthened economic diplomacy to realize greater export potentials in both existing and new

markets. Some product-specific National Sector Export Strategies (NSESs) were also developed

and implemented in 2017 for the period 2017-2021. The government has implemented the Plan

of Action for the reduction of trade deficit focussing on strategic measures.

Nepal is a member of South Asia Free Trade Agreement (SAFTA) and the Bay of Bengal

Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). As an LDC,

Nepal enjoys certain privileges and special and differential treatment, including development

finance, trade preferences and technical assistance. However, as a landlocked economy, transport

costs to international markets are usually much higher for Nepal than for adjacent countries with

common land borders. Under the WTO framework, Nepal is entitled to concessional and duty-

free, quota-free market access conditions. Less stringent preferential rules of origin are granted

for goods originating in LDCs under the Generalized System of Preference (GSP) schemes.

Despite such preferential treatment and market access, Nepal has been facing difficulties in

addressing key challenges such as supply side constraints, transit and transportation costs

basically because it is landlocked and geographically remote. Growing Non-Tariff Measures

(NTMs) have been serious bottlenecks for Nepali products to get easy access to international

markets. The potential of hydropower exports remain untapped due to various reasons.

Most importantly, Nepal's exports have fallen in absolute terms after adoption of IPoA in 2011,

reducing its already paltry global share from 0.005 percent to 0.0047 percent. This is irony in

this, given that the IPoA and SDGs emphasize LDCs' improved participation in global trade, but

Nepal and many other LDCs have lost in terms of gains from trade (Razzaque, 2019). Low

production and productivity, non-tariff barriers in destination markets, weak infrastructure

related to quality, standards and laboratory facilities, poor development of value chain and

inadequate legal framework to protect Intellectual Property Rights (IPRs), along with the limited

use of existing preferences and potentials by Nepali exporters are major challenges for

improving trade competitiveness.

4. Commodities

The composition of Nepal's exports has changed gradually, shifting from agriculture and primary

commodities to processed and semi-processed manufacturing commodities. Despite this, the

primary handmade commodities and agriculture-related goods still dominate the country’s export

basket. On the other hand, imports are highly concentrated on commodities including petroleum

products, industrial raw materials, machinery equipment and vehicles. Looking at the sources

and destinations of exports and imports, Nepal is over-dependent on limited (mostly single)

markets. Annex 4 presents the scenario of the top 10 commodities by the first two digit of the

Harmonized System (HS) code, also called chapter, in terms of their relative share in total

exports and imports. Comparing the year 2011, 2015 and 2018, the pattern is found to be

consistent. The top 10 commodities have contributed about two-thirds of all exports and imports.

For these years, almost the same commodities are in the list of top 10 exports and imports items.

In exports: iron and steel items; carpets and floor coverings; coffee, tea and spices, including

cardamom and ginger; manmade staple fibres; manmade textile materials, apparel; and clothing

(garment) accessories are at the top of the list.

Looking at broader commodity categories, textile-related products (HS 54, 55, 57, 62, and 63)

are the most important export items, followed by agriculture products (HS 07, 09, and 20); and

steel and iron materials (HS 72 and 73). In imports, the major commodities that dominate the list

are petroleum; industrial raw materials, including semi-processed iron; industrial machinery,

heavy equipment and parts; vehicles and parts; and precious and semi-precious metals.

Interestingly, cereals (processed agriculture) products now appear within the top 10 of imported

commodities (Annex 4). Nepal used to export such commodities in huge volumes until two

decades ago. This indicates that Nepal has been losing its strengths in the commodities where it

had comparative advantages with tremendous potentials.

In terms of both exports and imports, India is the top destination as well as the top source.

Among the exports to India, coffee and tea, spices including ginger and cardamom, vegetables,

textile materials, staple fibres, other textile articles, and iron and steel are the major items.

Bangladesh was a major importer for the edible vegetables. For carpets and apparels, United

States, Germany, and other EU countries are major destinations. Turkey imports some staple

fibres. China is now emerging as an important trading partner with a significant rise in exports

and imports. Diversification of commodities is critical for LDCs to improve trade

competitiveness and enhancing the productive capacity of domestic industries. It is, however,

clear that Nepal has been unable to expand exports markets to get benefits from the regional

trading arrangements such as SAFTA and BIMSTEC and has not benefited from preferential

facilities under multilateral trading arrangements.

As its major trading partners and export commodities are limited, Nepal is vulnerable to external

trade aggravation and global economic downturns, oil price fluctuations and geopolitical

tensions. Nepal faces more challenges to move into the higher value-added products to reduce an

excessive dependency on imports. Within the set of landlocked LDCs, Nepal has lower export

sophistication than what was expected after the adoption of IPOA. This implies that developing

new products for exports is important for Nepal (Razzaque, 2019).

5. Private Sector Development

Private sector development has been a priority for Nepal since the 1990s. The government has

undertaken policy and regulatory reforms to strengthen private sector capacity. A more open and

flexible approach, including encouragement of foreign direct investment in the manufacturing

and financial sectors, has been instrumental in increasing investment and enhancing management

competitiveness of businesses. The Industrial Policy 1992 was a milestone in creating an open

and competitive environment for the private sector by curtailing government interference in price

fixing of industrial goods. The subsequent Industrial Enterprises Act; the Foreign Investment and

Technology Transfer Act; and the One Window Policy were major thrusts to market-driven

strategies, and the dominant role of private enterprise. As a result, the private sector was

encouraged to strengthen links between manufacturing, agriculture and service sectors. Emphasis

was given to promoting labour-intensive, local resource-based and export-oriented industries.

Since then, the private sector has played a pivotal role in the development of financial and capital

markets, quality health services, tourism and hospitality, education, and information and

communications technology sectors.

The GoN implemented a private sector development strategy – the Industrial Development

Perspective Plan: Vision 2020. The main thrust of this strategy was to promote public-private

partnership for restructuring and rehabilitating sick industries, and fostering promising future

industries, raising the productive capacity of domestic firms, spurring additional investment in

physical infrastructure, improving the supply of skilled manpower for industries, and creating an

enabling business environment. Implementation of the Industrial Perspective Plan, however,

could not bring the desired positive change in the industrial sector, since the contribution of the

manufacturing sector to GDP started to decline at the same time. Many private sector industries

with comparative advantages have been shut down and the country lost hundreds of thousands of

jobs, adversely affecting the development of micro, cottage and small-scale industries.

The Industrial Policy 2010 promised easy entry and exit to investors, subcontract manufacturing,

tariff protection to local industries with high value addition, and ensured protection of

intellectual property rights. Under this policy, government support for the private sector is

prioritized to infrastructure development industries where special tax holidays are provided for

the industries established in rural and unindustrialized areas. The policy provided additional

incentives for the private sector to play an instrumental role in the improvement of social

development through Corporate Social Responsibility (CSR). The private sector contributes

about 80 percent share of capital formation in the economy (Annex 5).

The government has considered that private sector development is critical to achieving the

overarching objective of LDC graduation by 2022 and becoming a middle-income country by

2030. Accordingly, high priority is given to promoting a business-enabling environment through

continuous legal and structural reforms in the changed context of the federal system of

governance. Nepal Infrastructure Bank (NIB) has been established in partnership with the private

sector. To support that, the Public-Private Partnership and Investment Act, 2019 has been

enacted. This allows the Investment Board of Nepal to approve and provide full support to the

implementation of any investment that is more than NPR6 billion or to a hydropower project of

over 200-megawatt capacity. In the meantime, NIB has been mandated to finance growth

facilitating large infrastructure projects and also support raising capital from the market.

The government has recently enacted new Foreign Investment and Technology Transfer Act

(FITTA) and amended the Special Economic Zone Act (SEZA) with aim of attracting Foreign

Direct Investment (FDI) in the growth drivers and export potential sectors. The FITTA provides

a one-stop service and equal treatment of foreign investors. Equal treatment allows foreign

investors to avail themselves of benefits received by domestic investors such as tax concessions

and other incentives. However, quantitative indicators show that Nepal has been lagging behind

in terms of private sector development. The low level of private sector development has been

considered as both a cause and an outcome of the country's low level of economic development.

According to National Economic Census (2018), there are 9.23 million economic establishments

in the country in 2018 (CBS, 2019b), among them only 50.1 percent persons are engaged in the

economic activities. The Nepal Labour Force Survey (2018) reports that the labour force

participation rate was only 38.5 percent and 36.5 percent workers were engaged in the formal

sector.

As a consequences of policy and administrative reforms on entry, registration and operation of

businesses, Nepal has achieved remarkable progress in doing business index. According to

Doing Business Report 2020, Nepal has jumped from 110

position in 2018 to 94

position in

2019. The success was due to the improvements in dealing with construction permit, getting

credit, trading across border and enforcing contract. However, there is room for improvement in

starting a business and property registration.

Global Competitiveness Index have suggested that the environment for private sector

development needs to be improved further (Annex 5). The competitiveness of Nepal’s private

sector in today’s global economy is limited, given its small size, large degree of informality, and

low level of technological innovation. Most firms are small, operate in the informal market

space, and have limited economies of scale and profitability. Dominant large firms are generally

family-run and have survived mostly in sectors where competition is limited. Failure to manage

the domination of the informal sector may further hamper the private sector’s growth potential

and that of the economy as a whole.

However, there is huge potential for large scale investments from both domestic and foreign

private sectors, especially in sectors where Nepal has a comparative advantage. To capitalize on

that potential, the government is committed to policy and institutional reforms, development of

infrastructure and improving the investment climate by providing ready-to-invest projects. Apart

from such reforms, smooth access to finance, grants and seed funding provisions for start-ups

and scale-ups of attractive business models are major initiatives taken to accelerate private sector

development. Meanwhile, there are challenges that Nepal is facing in terms of sustainable private

sector development. Meeting the domestic demand currently fuelled by remittances and

promoting export competitiveness in the international markets to create demand outside the

country are key challenges. Enhancing supply-side capacity of domestic industries and a very

low level of FDI also pose a challenge for the gradual transition from a consumption to an

investment-led growth model in the medium-term and productivity-led growth in the long term.

6. Human and Social Development

Human development is fundamentally concerned with expanding people’s choices, which has

multiple dimensions and a widespread impact on the well-being of citizens. Human

Development Index (HDI) scores show that Nepal has made significant progress in all

dimensions of human development in the last two decades. Table 1 presents the progress made

by Nepal in HDI. The progress made in three dimensions of HDI is presented below.

Table 1: Human Development Indicators of Nepal

Year

Life

expectancy

at birth

Expected years

of schooling

Mean years

schooling

GNI per capita

(2011 PPP$)

HDI value

2011

66.9

12.3

3.3

2042

0.535

2012

67.3

12.3

2120

0.548

2013

67.6

12.4

4.2

2181

0.554

2014

12.2

4.5

2305

0.56

2015

69.9

12.2

4.7

2,353

0.566

2016

70.3

12.2

4.9

2,334

0.569

2017

70.6

12.2

4.9

2,471

0.574

Source: UNDP (2018).

Education

Nepal has made impressive progress in achieving universal primary education. The large

increase in the net enrolment ratios (NERs) across all levels and a gradual improvement in the

retention rate have been reflected in encouraging improvements in literacy rates for all age

groups. Despite such progress, the drop-out rate remains high. Learning, employability and

productivity of those completing several years of education are not satisfactory. Data show that a

considerable number of children are still out of school (Annex 6).

Several policies and programmes were instrumental to achieving the MDG education goal. These

included decentralization of school management to communities, supervision of schools by

resource centres, support to schools through per student grants, introduction of teacher licensing,

upgrade of entry qualifications of primary school teachers, and the establishment of a system for

assessing learning outcomes, and provision of midday meals, other health and nutrition

programmes, scholarships, and separate toilets for girls (NPC, 2016c). With the aim of

improving the quality of education further, the GoN has recently enacted the Compulsory and

Free Education Act 2018. In the Act, provisions have been made for the scholarship to the

children of martyrs, Dalits, ultra-marginalized families, and endangered communities, along with

children affected by political conflicts. Campaigns on literacy for all citizen and enrolment for all

as well as merit-based scholarships have been implemented for some time to encourage targeted

students to complete at least higher secondary level, and to increase the retention rate.

Special and customized programmes are being implemented in close cooperation with

development partners for differently-abled students. Various technical and vocational courses

and programmes have been introduced and an emphasis has been given to producing skills that

increase employability in domestic and foreign labour markets and enhance their productivity.

However, the gap between gross and net enrolment rates clearly indicates that dropping out is

still a problem. Learning outcomes that underscore the quality of education are major challenges,

especially in public schools. Acquisition and retention of key foundational skills, like literacy,

language proficiency, and numeracy are not so encouraging. Thus, addressing the challenges

around learning outcomes will help lay the foundation for broader skills development and

enhancement of labour productivity.

Population and Primary Health

According to the MDG Final Status Report (NPC, 2016), Nepal made commendable progress on

improving primary health between 2000 and 2015. It was able to meet all the targets under child

health – reducing IMR, reducing U5MR and increasing immunization against measles. The

immunization programme against measles was successful, as 92.6 percent of one-year old

children were immunized in 2015. That contributed to a remarkable decline in infant and child

mortality. Progress in combating HIV/AIDS, malaria and other diseases was impressive. The

spread of the Human Immunodeficiency Virus (HIV) has started to reverse. The national

response to HIV has been institutionalized. There is a national strategic plan to end the Acquired

Immune Deficiency Syndrome (AIDS) epidemic by 2030.

Achievement in maternal health is also encouraging since the maternal mortality rate is falling

continuously. The large reduction in the MMR is associated with the rapid fall in the total

fertility rate, which is reflected by the increased proportion of married couples using

contraception. The proportion of births attended by skilled providers is gradually increasing. The

proportion of women delivering their babies with the help of skilled birth attendants increased by

more than 50 percent from 2011 to 2016. Remarkable progress was made in reducing the

proportion of wasting and stunting children during the review period (Table 2). However, these

improvements are not uniform across ethnic groups and geographical regions, as disparities

between rural and urban areas and among eco-geographical regions and social groups remain.

Despite such progress, many other reproductive health related problems exist and special

attention is needed to meet the SDGs on schedule. There are vulnerabilities, basically on how to

reduce adult mortality and to address the main causes of mortality. Reducing the disparity in

gender and age group and addressing the underlying risk factors is challenging (WB, 2019).

Maternal mortality is still a leading cause of death for young women. Physical, behavioural, and

environmental risk factors contribute to the causes of death with gender disparity.

It is also necessary to prevent or cure the non-communicable diseases or injuries more effectively

to improve health outcomes. So, Nepal needs to address behavioural and environmental factors

such as the use of tobacco and alcohol, air pollution and access to safe water and sanitation and

road traffic accidents.

Table 2: Progress in Health Indicators

Indicators

2011

2016

Maternal Mortality Rate (Per 100,000 live births)

250

239

Under 5 Mortality Rate (Per 1,000 live births)

Infant Mortality Rate (Per 1,000 live births)

Neonatal Mortality Rate (Per 1,000 live births)

Wasting Children

11%

10%

Immunization Coverage Rate

87%

78%

Institutional Deliveries

35%

57%

Delivery by Skilled Health Personnel

36%

58%

Total Fertility Rate (births/women)

2.6

2.3

Unmet Needs of Family Planning

27%

21%

Source: DOH (2017).

Youth Development

Youths are the crucial change agents in political, economic and social fields. Experience shows

that countries utilizing the available youth population more wisely and efficiently have achieved

remarkable progress in socio-economic and human development. According to the Population

and Housing Census 2011, youth population (age group between 16 and 40) accounts for 40.35

percent of the country's total population. There has been a clear demographic dividend in Nepal

for at least a decade. Considering this window, Nepal has taken it as an opportune moment to

scale-up the youth development initiative as an integral part of LDC graduation and the SDG

agenda. A separate ministry, Ministry of Youth and Sports (MoYS), was established in 2008 and

an autonomous National Youth Council was also established under the Youth Council Act 2015.

National Youth Policy, 2015 and Youth Vision 2025 were formulated to mobilize various

ministries, government agencies, private sector actors and development partners to achieve the

SDGs in a coordinated manner (MOYS, 2016). Importantly, the Fifteenth Plan (2019-24), apart

from priorities, has included the strategies and working policies to mobilize youth organizations,

network with them and support them in leadership development and equip them to be able to

work as effective change agents. However, despite a number of policies, plans and strategies for

empowering youth, there are numerous factors impeding youth development in Nepal including

shortage of employment opportunities at home, easy out-migration and a low priority for brain-

gain.

Water and Sanitation

Nepal has made impressive progress in expanding the coverage of basic water supply, sanitation

and hygiene practices. Progress in the water and sanitation sector accelerated after the adoption

of the new constitution, which recognizes access to water and sanitation as a fundamental human

right. The government has given high priority to sanitation and hygiene facilities. A separate

Ministry of Water Supply and Sanitation (MoWSS) was established in 2015. Nepal has

developed a comprehensive Water Sanitation and Hygiene (WASH) Sector Development Plan

(SDP) which has set targets, approaches and a road map for holistic development of the WASH

sector to ensure achievement of the SDGs by 2030. A decentralized service delivery arrangement

has been established and implemented, which has made sanitation promotion a social movement.

GoN has been providing fiscal transfer to provinces and local level through conditional and

special grants for improve safe drinking water. As a result, according to the latest Nepal

Demographic and Health Survey (NDHS-2016), 95 percent of households are using improved

drinking water facilities. Access to improved sanitation also dramatically increased from 40

percent in 2011 to 99 percent in 2018 respectively (MOF, 2019). Nepal has been declared as

Open Defecation Free (ODF) on 1 October 2019, the first country to achieve ODF status in

South Asia.

Increasing access to quality water and improved sanitation is still a major challenge due to poor

drinking water quality, inefficient functionality of water supply systems, and high regional

disparity in access to WASH services. Nepal’s Multiple Indicator Cluster Survey (MICS-2014)

reports that only 29 percent of water sources (at point of collection) were free from bacterial

contamination (E. coli) while only 18 percent of households had their drinking water free from

bacterial contamination. Disadvantaged and marginalized populations are more vulnerable to

poor hygiene practices in schools and health care facilities. The devastating earthquakes in 2015

damaged WASH facilities along with hundreds of thousands of houses and buildings, making the

smooth operation of the WASH infrastructure in the country more challenging (UNICEF, 2018).

Gender Equality and Empowerment of Women

Nepal has made good progress in gender equality and women’s empowerment, particularly on

the political front. About 40 percent of all local, provincial and federal level elected positions are

occupied by women representatives. According to the Election Commission of Nepal, at least

14,000 women were elected in the latest local elections. Women now occupy chairs and deputy

chairs of rural municipalities as well as mayors and deputy mayors of municipalities including

ward chairs and members. 37.7 percent members are women in the Federal parliament and 34.4

percent women members are elected in the provincial assemblies. And for the first time, the

Head of the State, Chief Justice, and Speaker of the Parliament were all women in 2017.

In the civil service, the representation of women has increased significantly in the last decade

due to affirmative action and positive discrimination. Currently, 23.2 percent civil servants are

women (PIS, 2019). However, the presence of women civil servants in decision-making is still

very low. The introduction of a gender-responsive budget system for more than a decade has

helped to increase gender-responsive programmes and projects across sectors. As part of

economic empowerment, women are engaged in the low productive activities. The Federation of

Nepalese Chamber of Commerce and Industries (FNCCI), a private sector umbrella organization,

is also currently led by a woman President. The recent National Economic Census 2018 reports

that 26.9 percent of the total establishments have women founders and 29 percent were the

managers of such establishments. Similarly, 40 percent employees are women in the

establishments (CBS, 2019b).

Table 3: Gender Development Index of Nepal (2017)

Indicators

Female

Male

Life expectancy at birth

72.2

Expected years of schooling

12.6

11.8

Mean years of schooling

3.6

6.4

GNI per capita (2011 $PPP)

2219

2738

HDI values

0.522

0.598

Female-Male ratio (GDI)

0.925

Source: UNDP (2018).

Nepal has successfully achieved gender equality at the secondary education (Grade 1-12) with

the net enrolment rate adjusted by Gender Parity Index (GPI) scores of 1.01 in 2018 (Tables 3

and 4). The GPI adjusted literacy rate also shows that gender equality is improving significantly.

Gradual improvement in the female teacher participation rate in primary as well as secondary

education also indicates gender empowerment. However, disparities in educational outcomes

within the different social groups, geographical locations, and income level of the households are

still high.

The Constitution has adopted the principle of proportional participation of women without any

gender discriminations where rights have been granted for women to participate in all state

organs, including areas such as education, health, employment and social security. The New

Industrial Policy 2010 has also made special provisions to ensure more employment

opportunities for women. Special Provisions for women entrepreneurs have been made in the

Industrial Enterprise Act 2016 with the aim of promoting female entrepreneurship. In line with

the SDG agenda, achieving gender equality and empowering all women and girls, Nepal also

undertook reforms to help women to attain equal rights to economic resources including land,

other forms of property and financial services. The Industrial Enterprises Act 2016 has a special

provision for women entrepreneurs of 35 and 20 percent exemption on the industry and industrial

property registration respectively. The companies shall have 15 percent tax exemption if they

have more than 50 percent women, disabled or dalit employees.

Table 4: Educational Achievement Indicators based on GPI

Indicators

2015

2016

2017

2018

Net Enrolment Rate (Grade 1-12) based on GPI

0.99

0.98

0.99

1.01

Female Teacher Participation Rate (Basic level)

38.8

40.7

41.2

43.1

Female Teacher Participation Rate (Secondary level)

14.1

14.8

16.13

17.4

Source: MOF (2019).

However, the Third National Labour Force Survey (NLFS-III) shows that there is a bias in terms

of gender equality in the workplace (CBS, 2019c). NLFS-III reveals that the proportion of

women employed is about 13 percent. The ratio of unemployed women is 13.1 percent against

10.3 percent for men. The labour force participation rate of women is lowest at 26.3 percent in

comparison to 53.8 percent for men. Similarly, labour underutilization rate of women is higher at

49 percent in comparison to that of men, which is 32 percent. The NLFS-III also reports that the

gender pay gap in Nepal is as high as 30 percent. The ratio of women to men in tertiary

education has increased over the last decade.

Social Protection

Nepal has implemented many social protection programmes including children grants and cash

transfers to senior citizens, people with disabilities, endangered ethnic communities, and single

women. Targeted programmes on poverty reduction and employment as well as public work and

micro-insurance are also other social protection schemes. Social protection programmes initiated

by government agencies in isolation, however, lacked coordination. The government has now

taken initiatives to consolidate social protection schemes building an integrated national social

protection framework and implement them through single window system.

The introduction of the old age pension for senior citizens in 1995 was a historic beginning in

social protection initiatives in Nepal. Successive governments have added schemes to provide

relief to the poor and marginalized sections of the population. A large array of programmes

under different headings, such as cash transfers, in-kind transfers, access to services, social

insurance, public works, employment/livelihood creation, labor market interventions and care

services are under implementation. Major social protection programmes include universal old-

age pension for all citizens above a certain age, child protection grants for children under five,

disadvantaged castes and regions, a disability allowance, education-related social transfers such

as caste-based stipends, school meals in government schools, and a child birth grant to the

women in remote areas.

Fourteen percent of the population has been benefited from social protection schemes (NPC,

2019). Government spending on social protection reached about 12 percent of the budget and

over 5 percent of the country's GDP on social protection programmes (Table 5). Importantly, the

Constitution 2015 has recognized social protection as one of the fundamental rights of Nepali

citizens. The federal government has the role of policy design, standard setting and coordination.

To facilitate the process, the federal government has promulgated two major legislation related to

social protection: the Labour Act, 2017, Pension Fund Act, 2019 and Contribution-based Social

Security Act, 2017. The Social Security Act, 2017 and its regulations provide legal foundations

for the introduction of the schemes. The first contributory programme includes medical, health

and maternity benefit, accidental and disability benefit, benefits for dependent family members

and old-age benefit. After the devastating earthquakes of 2015, shock-responsive social

protection schemes were introduced. These schemes aim to strengthen the community's resilient

capacity. Evidence suggests that such schemes scale up protection in response to unforeseeable

shocks in low-income, fragile and conflict-affected communities or areas.

Table 5: Social Protection Coverage

Indicators

2012

2013

2014

2015

2016

2017

2018

Enrolled Beneficiaries of Social

Protection Schemes (100 thousands)

217.3

216.1

226.6

224.6

255.7

Social Protection Expenditure

(Rs. 10 Million)

10.9

15.8

12.5

15.0

20.1

38.3

39.6

Social Protection Expenditure (%

to GDP)

1.80

2.57

1.97

2.22

2.90

5.51

5.28

Source: MOF (2019).

Despite impressive progress made in poverty reduction through social protection, eradicating

poverty and vulnerability remains a major challenge. Poor growth performance, lack of

productive employment, endemic natural disasters, gender violence, climate change and rising

prices are the main manifestations of vulnerability. Social protection measures initiated by the

GoN, so far, have been found inadequate to mitigate the adverse impact of unexpected shocks.

The attention of social protection must be guided to prevent marginalized people falling below

absolute poverty due to economic and natural shocks.

7. Multiple Crises and Other Emerging Challenges

With political stability and a momentum for development, the economy of Nepal has a positive

outlook in the medium to longer terms. It has recovered from shocks such as conflict and

political transition, border disruption in the southern part, and natural disasters including the

earthquakes. The economy is now growing by an average of about 7 percent per annum. The

government has taken a long-term vision of 'Prosperous Nepal, Happy Nepali' and is

encouraging both domestic and foreign investors to invest their capital in the areas such as

infrastructure, energy, manufacturing industry, tourism and hospitality sectors. However, despite

the positive prospects Nepal is still vulnerable to multiple shocks, and the impacts of climate

change. Some of the key areas of possible crises and emerging challenges are briefly discussed

below.

Natural Disasters

The socio-economic progress achieved by Nepal since the adoption of the IPoA was significantly

derailed by the earthquakes of 2015. According to the Post-Disaster Needs Assessment Report,

one-third of the population was impacted severely, which pushed about 3 percent of the

population below the poverty line (NPC, 2015). More than half a million homes and 19,000

classrooms were destroyed. There was widespread disruption of water supply, sanitation and

health facilities. Since 2015, most of the damaged properties has been reconstructed. But full

recovery is still underway and may take more years. Exposure to intense cyclonic frequency in

insular regions and exposure to the movement of tectonic plates are acute dimensions of the

country’s vulnerability.

The country straddles the fault line between two major tectonic plates – the Indian plate and the

Eurasian plate, which push against each other. This process periodically causes earthquakes

when strains built up along the fault lines. Historically, there has been a dangerous seismic

activity every 70 to 100 years in Nepal. According to seismic experts, only a small section of the

fault under Nepal ruptured in April and May 2015 earthquakes and aftershocks. This means that

a very large amount of energy remains stored in the ground with high risk of another large

earthquake in Nepal.

With such a high disaster risk, Nepal has enacted Disaster Risk Reduction and Management

(DRRM) Act 2017, which is expected to help mitigate some of the larger risks. The act focuses

on coordination and management of all activities pertaining to disaster management, disaster risk

reduction, disaster recuperation and disaster response, as well as monitoring and mitigation

measures on climate change. The government has implemented the National Disaster Risk

Reduction Policy 2018 and National Disaster Risk Reduction Strategic Action Plan (2018-2019)

for policy intervention and programmatic implementation of the Act. Following legislation,

policy guidelines have also been adopted at the local level to incorporate disaster risk

management in local government development plans. The upcoming Catastrophe-Deferred

Drawdown Option (CAT-DDO) operation supports further reforms in reducing risks from

natural disasters.

Climate Change

Global warming resulting from climate change, to which Nepal’s contribution is negligible, is

also threatening to melt Himalayan snow and glaciers thereby rendering the glacial environment

unsafe for humans. Recent reports, including that of ICIMOD

, have shown that even if the

global temperatures are contained within 1.5 degree C above pre-industrial levels, one-third of

the snow in the Himalayas will melt by 2100.

Continued warming has affected Himalayan ecology, including snowfall patterns and ice melting

– most substantially in terms of glacier retreat and significant increases in the size and volume of

glacial lakes, making them more prone to Glacial Lake Outburst Flooding (GLOF). There are at

least 20 lakes at risk in the mountainous region, and there is growing concern that an earthquake

or excessive precipitation could prompt GLOF, washing away settlements and destroying

infrastructure, such as hydroelectric plants, roads and bridges along river basins. More

worryingly, melting Himalayan glaciers could have a huge impact on water resources and fluvial

ecological systems of Nepal and those downstream.

Risks from climate-related natural disasters are also high and may impact Nepal’s development

process and growth trajectory, requiring early action to ensure that sources of growth are

climate-resilient to the maximum extent possible. Erratic monsoons regularly cause climate-

related disasters, such as drought, floods, and landslides. These undermine agricultural

production, affecting infrastructure, and reversing gains in poverty reduction. In addition, rainfall

patterns seem to have changed dramatically over the years. It is no longer easy to predict when

the monsoon rains will come or how long they will last.

The Global Climate Risk Index (GCRI) ranks Nepal as the 11

most affected country in the

world in the last 20 years and the fourth most affected country in 2017. This was further

reinforced by the country’s first tornado, which hit two Terai districts in March 2019 and

resulted in a loss of $4.6 million worth of crops and livestock (WB, 2019). As mentioned above,

the implementation of the DRRM Act, 2017 provides guidelines and a framework for all three

http://www.icimod.org/himap

levels of government to help mitigate the risks. Figure 3 indicates the farmland destroyed and

damage in crops due to climate change-related natural disasters (floods, drought and landslides).

Figure 3: Farmland Damaged by Natural Disasters (flood, drought, landslides)

Source: MOF (2019).

Labour Markets Mismatch

Economic diversification, structural transformation and broad-based income growth are crucial

to employment generation. They can also help in meeting the SDGs on schedule. However, due

to its inability to enhance the productive capacity of domestic industries, Nepal has not been able

to create quality jobs. This has resulted in persistently high unemployment, with huge numbers

of unskilled people going abroad in their search for jobs – and an enormous waste of productive

human potential. It is also associated with deteriorating social cohesion in families and

communities. Meanwhile, domestic industries are facing a shortage of skilled human resources.

The gap is being filled by the people arriving to fill those vacancies from a southern

neighbouring country. Therefore, it is challenging to create a conducive environment to generate

employment and minimize skills mismatch.

Trade Deficit and Remittance Dependency

It is well documented that remittances have significantly contributed to raising household

incomes and reducing poverty in Nepal. The flow of remittances, however, depends on the

availability of employment opportunities to Nepali workers in host countries. The expanding

economy of host countries have always provided a growing pool of jobs for migrants, thereby

inducing a higher level remittances inflow. But any stagnation and recession in the host

economies may have severe and adverse impacts on foreign employment and remittances. Nepal

has no leverage vis-à-vis economic policies and decisions in host countries. Therefore, its

vulnerability is very high.

Given the geographical concentration of Nepali migrant workers in oil-producing countries, a

decline in oil prices always constitutes a major risk for Nepal’s remitted income with direct

consequences on domestic consumption, savings and overall economic growth. It is therefore a

matter of concern that Nepal's heavy dependence on large-scale labour migration has added a

specific dimension to its economic vulnerability. Ever increasing trade deficits and resulting

Balance of Payments (BOP) crises indicate the growing vulnerability of the country’s external

sector. The persistence of a large current account deficits is putting pressure on Nepal’s foreign

exchange reserves, though currently these are adequate to import goods and services for more

than seven months.

Nepal is also heavily dependent on imports of goods and services as well as on petroleum

products, which include petrol, diesel, kerosene and Liquefied Petroleum Gas (LPG). The price

of these products is always subject to external shocks. The expenditure on imported fossil fuels

has generally exceeded the income Nepal generates from the export of all commodities. This will

have very serious economic consequences in future because if the trend continues, the country

may not be able to import basic necessities such as medicine and food due to the shortage of

currency reserves.

Risks related to Nepal’s Landlocked Location

As a landlocked country, Nepal has no direct access to sea ports. Its ability to trade competitively

in goods largely depends on the neighbouring countries' transit facilities. Ensuring smooth and

efficient transit facilities is necessary to harness the benefits of global trading system. This also

affects the domestic market system and the supply chain.

Food Security

Agriculture contributes 27 percent to the country's GDP. It continues to be the main source of

food supply to the growing population. Nepal’s cereal crop production – its staple foods –

depends heavily on monsoon rains. Consequently, agricultural production is not free of setbacks,

slumps and sharp fluctuations. The production of crops that depend on the regular provision of

surface water, such as paddy rice and maize, has been highly vulnerable to fluctuations in the

monsoon rainfall pattern. Inadequacies in soil moisture due to delayed or poor rains, and

repeated shortages of fuel for irrigation and land preparation, have curbed the expansion of food

and cash crop production.

The years of conflict deterred investment in agriculture on which more than 60 percent of the

population depends. Subsistence farmers, small plots of land and stagnant production have made

the country dependent on imported food items. The World Food Programme has been providing

food assistance to Nepal. As Nepal has been a net importer of food grains in recent years, the

situation may aggravate if the supply of such products is affected. The excessive dependence on

subsistence farming may also increases environmental degradation as a result of depletion of

forest resources. This, in turn, will lead to biodiversity loss and desertification. Food insecurity is

therefore a major challenge for the country.

Investment Gap

There is a risk that growth will slow due to the gap between the requirement and availability of

investment funds. That may create risks in meeting investment requirements in physical

infrastructure and in raising productive capacity. The financing strategy of SDG estimates that

Nepal requires average USD19.7 billion annually during 2016-2030 to achieve the SDGs targets

which is 47.8 percent of the GDP. World Bank (2019a) also reports that Nepal needs

infrastructure investment of around 10 to 15 per cent of GDP annually for the next 10 years to

accelerate the growth required to achieve the targets of IPoA and SDGs. There is financing gap

of 13.8 percent of GDP to achieve SDG targets. The government has investment commitments

worth about USD17.5 billion from the Nepal Investment Summit held in March 2019. However,

realization of these investments remains a huge challenge.

8. Good Governance

The country is politically divided into seven provincial governments and 753 local government

units. The Constitution of Nepal provides revenue and expenditure management power explicitly

to central, provincial and local governments. The election of local governments after almost two

decades has raised hopes of strengthening governance system in Nepal. The implementation of

federalism is expected to improve governance quality and service delivery to a great extent. Sub-

national governments are engaged in planning and resource management and financing the basic

needs of the population by ensuring quality services and equitable distribution of resources based

on development needs. But there are capacity challenges such as duplication in programme

implementation resulting in allocative inefficiency, especially at the provincial and local levels.

This poses a risk to service delivery. Furthermore, capacity challenges have impeded the

functioning of subnational governments.

9. Mobilizing Financial Resources for Development and Capacity

Building

For long, the economy of Nepal has been confronting the problem of low investment, low

growth and limited employment opportunities. Despite notable progress in poverty reduction and

social fronts, Nepal is still a low income LDC. However, it has maintained comfortable

macroeconomic stability throughout the review period. The gross national debt is below 30

percent of GDP with average debt servicing expenditure below 3 percent of GDP. This has been

possible due to low budget execution rates, in particular low capital spending and a significant

rise in government revenues (Table 6). Government revenues in the form of taxes, grants and

other non-tax revenues have gradually served as the major source of government finance and

investment programmes. However, in terms of tax revenue, imported goods have contributed

heavily to indirect tax. Without increasing the share of direct taxes, which remains relatively

low, the growth of revenue may not be sustainable in the long run.

Table 6: Resource Mobilization

Indicators

2011

2012

2013

2014

2015

2016

2017

2018

Domestic Resource Mobilization (Ratio to GDP)

Gross Domestic Saving

14.0

11.0

10.6

11.9

9.2

4.1

13.4

17.8

Gross National Saving

37.0

39.5

40.7

45.7

44.1

40.1

46.4

47.1

Gross Fixed Capital Formation

21.4

20.8

22.6

23.5

28.7

31.4

34.7

Total Government Expenditure

21.6

22.2

21.2

22.1

25.0

26.7

31.3

35.9

Total Revenue Collection

14.5

16.0

17.5

18.2

19.1

21.4

22.8

24.0

Foreign aid (Ratio to GDP)

4.2

3.4

2.8

3.1

3.0

3.2

3.7

4.3

National Debt Indicators (Ratio to GDP)

Outstanding Total Debt

32.5

34.3

32.7

28.2

25.6

27.9

26.3

30.2

Outstanding External Debt

19.0

20.3

19.7

17.7

16.1

17.3

15.5

17.3

Debt Servicing (Interest & Principal)

2.3

2.9

2.7

3.5

3.4

2.7

2.4

External Debt to Revenue (Ratio)

130.8

126.6

112.6

97.3

84.6

80.7

68.0

72.3

FDI (Ratio to GDP)

1.14

1.57

1.48

0.50

0.65

0.85

1.94

2.34

Remittances (Ratio to GDP)

18.5

23.5

25.6

27.7

29.0

29.5

26.0

24.9

Source: CBS (2019a); FCGO (2018); and NRB (2018)

Another concern about external finance is that ODA has declined over the years. Therefore, there

is a possibility of raising more finance from the ODA grants by increasing aid utilization

capacity. This suggests that Nepal has additional opportunities to qualify for larger volumes of

this source of concessional funding. However, that requires a higher capacity in project

development and effective and timely execution. Nepal is now a destination of Other Official

Flows (OOF) from non-OECD countries, such as China and India. In total, the OOF has added

another 6 to 10 percent above the ODA contributions during the last decade (MoF, 2017). A

major share of such funding has been directed towards education, health and public infrastructure

projects.

The GoN has gradually reduced its reliance on domestic and external borrowing to cover public

expenditure. The current debt levels are moderate. The proportion of debt servicing to total

revenue (excluding grants) has reduced, although such a trend may see a reverse in the coming

years. This gives increased space for debt financing on concessional terms without a significant

risk of reaching unmanageable debt service levels. Access to additional debt financing can be

acquired from concessional sources, such as multilateral development banks and Development

Finance Institutions (DFIs).

Access to domestic credit is equally important for financing new investments and allows people

to purchase assets. During the review period, domestic credit in Nepal has grown significantly,

and is contributing around 80 percent of the gross fixed capital formation. Remittances have

been the major sources of augmenting the national saving capacity and are helping to maintain

financial stability in the banking system. This could be a source of augmenting private capital

inflows to finance infrastructure development projects. It is to be noted that the repatriation of

profits from FDI ventures is also growing every year, which may pose a challenge of private

flows in the country.

There is also some scope to mobilize financial resources through alternative channels of

investments, including hedge funds, mutual funds and venture capital funds. While the local

venture capital industry in Nepal is still in its infancy, there are some prospects for the future.

Venture capital is directed at several sectors, including information technology, education, health

care, agriculture and tourism, among others. Despite strong commitments to supporting start-ups

in Nepal, venture capital funds lack viable start-ups in which to invest. The start-ups lack initial

funding for putting together a viable business plan and entering a pilot phase to test the business

model and market for their products and services to scale up to a viable commercial entity.

9. Progress towards Graduation

To achieve the overarching IPoA goal for graduation, Nepal has made continuous efforts in close

cooperation with the private sector, civil society organizations, UN system entities and

development partners to achieve the above objectives within the set time frame.

Figure 4: Annual GDP Growth Rates for the Period 2011-2018

Source: CBS (2019a).

Nepal has been eligible for graduation in two consecutive triennial reviews in 2015 and 2018. It

met two of the three criteria: the HAI and EVI. It is, however, lagging behind in GNI per capita.

At the time of the 2015 review, Nepal's GNI per capita was USD659, well below the graduation

threshold of USD1,242. In 2018, it has raised the GNI per capita to USD745 – still much lower

than the threshold of USD1,230. However, the HAI score was well above the graduation

thresholds of 66.0 and EVI was below 32, within the threshold for graduation.

Table 7: Nepal's Progress Status for LDC Graduation Criteria

Criteria

Thresholds

2009

2012

2015

2018

GNI-Per Capita

(USD as per WB Atlas Method)

Inclusion Threshold

905

992

1035

1025

Graduation Threshold

1086

1190

1242

1230

Nepal's Position

380

420

659

745

Human Asset Index (HAI)

Inclusion Threshold

Graduation Threshold

Nepal's Position

58.3

59.8

68.7

71.2

Economic Vulnerability Index (EVI)

Inclusion Threshold

Graduation Threshold

Nepal's Position

33.6

27.8

26.8

28.4

Source: UN-CDP (2018).

Nepal has made notable progress towards LDC graduation. However, progress was disrupted by

the devastating earthquakes that struck the country in April and May 2015. Overall economic

growth of Nepal fell by half in 2015 and was 0.6 percent in 2016. The recovery effort is still

underway and will take more years still. Therefore, a case was made to defer the decision on

Nepal's graduation to the next review in 2021. Nepal was on the borderline of the graduation

thresholds in 2014 and updated indicators reflecting the full destructive impact of the

earthquakes may place the country below the thresholds in 2018. Nepal is committed to a

graduation strategy for smooth and sustainable transition out of LDC status.

The review methodology may be derailed from its original assumptions over successive three-

year periods. Meanwhile, the criteria does not fully cover all forms of vulnerability that

landlocked countries like Nepal face. Thus, Nepal is concerned about the fit of the statistical

criteria to the country-specific context. While all LDCs have common characteristics, each is

also unique. Nepal cannot be an exception although it has its unique features. This was well

noted by UNCTAD's Vulnerability Profile, which states that “the intrinsic economic

vulnerability of Nepal is significantly underplayed because of the inadequacy to the case of

Nepal of half of the components of the Economic Vulnerability Index. Nepal is economically

much more vulnerable than it appears to be on the methodological and statistical grounds the

United Nations presently leans on” (UNCTAD, 2017). Thus, the decision on graduation should

not be grounded only in statistical benchmarks. Countries that went through the graduation

process had all met the income criteria. Nepal is the first to attempt graduation from below the

income threshold. This is a special challenge, because per capita income has stagnated due to its

recurring nature of economic vulnerability and external shocks. A significant push is required to

meet the more distant threshold of income level. Nepal has underlined the importance of both

smooth and sustainable graduation. Failure to generate sufficient momentum risks a backward

slide after graduation. Human assets are necessary, but not sufficient, for sustainable

development. There is a need for a growth environment to drive the structural transformation and

economic diversification necessary for successful graduation to a middle-income economy.

Shedding preferential trade and aid mechanisms entail costs that need to be minimized through

dialogue with trading and development partners, industry and civil society. Successful dialogue

may also yield potential benefits of graduation. LDC graduation is not an end in itself, but a

milestone towards the SDG agenda as part of Nepal’s long-term development vision. Nepal is an

early advocate, as affirmed in its Voluntary National Review, of implementation of the 2030

Agenda where possible impacts of graduation were also presented.

Eradicating poverty and promoting shared prosperity needs honest and coordinated

implementation by the federal, provincial and local governments. Macroeconomic policy reforms

are necessary to achieve a high level of economic growth and balanced distribution of income

and benefits to poor and marginalized people through policy instruments. However, the

government is fully committed and making efforts to create an enabling environment to

accelerate the pace of inclusive growth and sustainable development to realize the graduation

target in partnership with the private sector, cooperative sector, non-governmental sectors and

development partners.

IV. Coherence and linkages with the 2030 Agenda and other

Global Processes

Nepal has been working on maintaining coherence and linkages of the IPoA with the 2030

Agenda to achieve the goals and targets. As we know, the universal and transformative 2030

Agenda for Sustainable Development was adopted by member countries at a high-level UN

Summit in 2015, its implementation encompasses many goals and targets of IPoA, such as

eradicating poverty, fighting hunger, tackling climate change, and accelerating economic growth

and job creation, among others. The Constitution of Nepal guarantees inclusive socio-economic

and political development; building of an egalitarian and pluralistic society; elimination of all

forms discrimination based on class, caste, geography, language, religion and gender; and

ensuring economic equality, prosperity and social justice. This is the guiding document to all

policy, plans, programmes and projects, which reflects well the aspirations of the Agenda 2030

too. Most of the sectoral plans, priorities and targets are aligned with the SDGs while some are in

the process of alignment.

Nepal was among the first countries to produce a preliminary SDGs Report in 2015, even before

the formal adoption of the 2030 Agenda. In collaboration with key development stakeholders,

Nepal set the country-specific SDG-related targets to be achieved before 2030. Accordingly,

Nepal has mainstreamed the 2030 Agenda into its national plans and policies, including the

Fourteenth Plan, the national budget, and sectoral plans. To ensure the systematic tracking of

progress made in IPoA and SDGs, the indicators and targets have been synchronized in the

results framework of periodic plans.

The SDG goals have been mapped into the five strategic areas of development planning process,

such as infrastructure development, economic prosperity, social development, governance and

crosscutting issues. Under these clusters, several programmes are being implemented closely

aligned with the 17 goals and targets. The annual programmes have been fully aligned with the

SDGs since 2016 with the SDGS coding has been assigned to each programme in terms of the

SDG country indicators. Some of them have started yielding promising results (NPC, 2017). The

budget allocation in the annual programmes has also given high priority to the SDGs.

Nepal acknowledges that the SDGs require a high level of political commitment and adequate

economic resources. To coordinate SDGs implementation across all sectors, the government has

constituted the SDGs Steering Committee under the chairmanship of the Prime Minister. The

SDGs Implementation and Coordination Committee is constituted under the Vice-Chairman of

the NPC to coordinate SDG implementation at the national and regional levels. Thematic SDG

working groups have been convened by Members of the NPC with secretaries of the relevant

ministries as co-conveners and other concerned agencies as members of the respective groups.

The preliminary SDG report prepared in 2015 was upgraded to a Baseline Report in 2017. A

Needs Assessment, Costing and Financing Strategy for SDGs was developed in 2018 (Table 8).

Table 8: Investment Requirements to Meet SDG Targets

(Annual averages, Rs. Billion at constant price of 2015, unless otherwise specified)

Sectors

Period

2016-19

2020-22

2023-25

2026-30

2016-30

Total SDG investment need

1,055

1,559

2,046

3,070

2,025

Total SDG investment need

(in USD at Constant Price of 2015)

10.25

15.14

19.87

29.82

19.68

Total SDG investment need (% of GDP)

43.8

48.8

49.7

47.8

Private investment requirement

259

443

736

1,303

739

Private resource available (In FDI)

224

333

418

488

373

Private finance gap

110

318

815

366

Public investment requirement

702

979

1,134

1,505

1,111

Public resource available (including ODA)

521

698

905

1,300

893

Public finance gap

181

281

229

205

218

Source: NPC (2018).

As SDGs are interlinked, indivisible and ambitious, their implementation is a major challenge for

a poor country like Nepal that has limited resources, capacity and technology. The main

challenges in SDG implementation include mainstreaming the SDGs into provincial and local

planning and budgeting systems. Weak database and the unavailability of disaggregated data by

sex, age, social groups, disability status, geography, income level and sub-national level are

major challenges to monitoring progress. Financing for job creation and inclusive economic

growth, tackling nutrition and natural disaster, technical know-how for innovation, financing for

innovation, and strengthening governance at all levels are further challenges to eradicating

poverty and promoting prosperity in Nepal. The government has taken initiatives to address these

problems. It has updated national targets and indicators with baseline information, started SDG

costing, established SDG implementation and process monitoring mechanisms, and has begun to

strengthen database systems.

V. Towards the next LDC Agenda

Since the adoption of the IPoA in 2011, many LDCs have made notable progress in economic,

social and human development. In this regard, we welcome the efforts made by the United

Nations and other development partners.

Despite the notable progress made in economic, social and human development, the IPoA is not

going to meet the goal set to enable half the LDCs to be eligible for graduation by 2020. A

majority of LDC populations still live in poverty. It is thus a matter of deep concern to the

international community that only a few countries are going to be graduating from the LDC

category by the end of this decade. From this perspective, Nepal is hopeful that the upcoming

UN Conference on the LDCs will be able to address the following concerns of LDCs related to

trade and development, tackling the inherent challenges of low productive capacity, and

maximizing the ability of LDCs to exploit the opportunities brought about by the process of

globalization.

1. The fifth UN Conference on the LDCs is going to adopt the next agenda for LDCs at a

time when many countries recently graduated from LDC status will be recognizing that

the existing patterns of global political and economic governance make it increasingly

difficult for them to effectively participate in the process of globalization and make their

graduation sustainable. To cope with such a situation, policy cushions may be ensured

particularly for the provision of a need-based extended gestation period for smooth

transition, and a clause for augmented support for countries that have special needs even

after graduation. This will ensure that their voices are heard in the global governance and

help raise confidence that they are not alone in seeking to achieve what they deserve; and,

when necessary they get support from the UN system and development partners.

2. The socio-economic progress achieved by LDCs as a group since the adoption of the

IPOA remains weak. Consequently, LDCs remain vulnerable to shocks, whether

economic, political or environmental. Such vulnerability may reverse the hard-won socio-

economic gains that have been years in the making. Nepal is a prime example of such

adverse effects, particularly from the earthquakes of 2015 followed by border disruption

in the southern part of the country. Thus, special support measures for land-locked and

small island developing countries should be strengthened.

3. The major IPoA goals were structural transformation of LDCs, helping them achieve a

minimum target of 7 percent annual growth, and enabling half of all LDCs to be eligible

for graduation from LDC status. This may seem daunting, given weak productive

capacities and a lack of structural transformation in their economies. The next agenda

should focus on channelling development cooperation to areas of structural

transformation and enhancing the productive capacities of LDCs.

4. To be guided by the overarching goal of the CDP, national policies of some LDCs or

recently graduated countries may need reforms to acquire benefits from specialized

international support measures (like GSP-plus and EBA of EU). Therefore, during the

next decade, the LDC agenda should focus on enabling LDCs to synchronize their

national policy and legislation in line with specific objectives set by CDP with the aim of

enabling them to graduate and help achieve a sustainable transition by the end of the next

decade. There might need country specific support measures on trade, investment and

foreign aid mobilization for smooth and sustainable graduation.

5. Guided by the spirit of solidarity among LDCs and consistent with their capabilities, the

UN system, including the Bretton Woods institutions, other multilateral institutions and

regional development banks within their respective mandates, should increase support for

the effective implementation of the Programme of Action in mutually-agreed areas of

cooperation.

6. Changes in the sectoral composition of GDP (structural transformation) have been much

slower in many LDCs than in other developing countries. In particular, the share of

manufacturing, which has been the driving force of economic development in many

middle-income countries, was found to be stagnant. Thus, the private sector, civil society

and foundations will be encouraged to contribute to the implementation of the next

Programme of Action for LDCs in their respective areas of competence in line with

LDC's national priorities.

7. The improved economic performance in some LDCs had a limited impact on

employment creation and poverty reduction. In many LDCs, structural transformation

was very limited, and their vulnerability to external shocks has not been reduced

significantly.

8. Many LDCs are still net food importers, which has increased their vulnerability to rapid

declines in export earnings and capital flows. Multiple, interrelated global crises and

challenges, such as increased food insecurity, volatile energy and commodity prices, and

the global financial and economic crisis, partly reversed development gains that LDCs

achieved over time. Thus, special support measures may be devised to build productive

capacity and resilience to shocks.

9. While LDCs have made considerable efforts to mobilize domestic resources for their

development, most still face a huge financing gap, and ODA continued to be the largest

source of external financing for the development of LDCs. Data show that development

partners have not given as much as attention as required to uplift the productive

capacities of LDCs and help them exit the poverty trap. ODA flows have not been

channelled in proportion to the vulnerability and the size of populations in LDC

countries. This should be the prime concern for the next LDC agenda for the decade

2021-30. This is vital to creating sustainable development in LDCs and meeting the

SDGs by 2030.

10. Underdevelopment and poverty in LDCs are not problems of LDCs alone, but also global

threats. Strategic partnerships among developed countries, LDCs and development

partners is required. The next agenda for LDCs should take the opportunity to call upon

all national and international development partners to join hands in a grand coalition of

coordinated efforts to accelerate growth, create productive jobs for all, transfer skills and

technology, help create human capital and achieve the SDGs by 2030.

11. Once they have graduated, LDCs will lose preferential treatment and concessional market

access to the developed and developing countries. This will have a huge impact on

graduating LDCs due to erosion of export competitiveness and will hamper their

sustainable graduation path. This will also hamper the global agenda of shared prosperity.

Thus, certain special concessionary support measures should be devised to compensate

the loss in trade.

12. LDCs are already facing financial constraints, including through illicit financial flows

from LDCs to developed countries. In partnership with developed countries and

development partners, a strong mechanism can be established to check the illicit financial

flows from the LDCs to the rest of the world. The next agenda on LDCs should take this

issue into account.

13. Commitments made by developed countries in favour of LDCs are seldom realized. This

issue persists for a long time and is evident since the category was established in 1971.

The next development agenda should address this issue.

14. Disaster risk adds further vulnerability to LDCs. While the Economic Vulnerability Index

gives consideration to the impacts of natural disasters, it doesn't adequately capture the

disaster risk in itself. Therefore, there is a need to consider the impact of disasters and

disaster risk in the process of graduation. The LDCs should also attempt to address this

issue.

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of Statistics, GoN.

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of Statistics, GoN.

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DOH. (2017). Nepal Demographic and Health Survey 2016. Kathmandu: Department of Health,

GoN.

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General Office, GoN.

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GoN.

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Commission, GoN.

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National Planning Commission, GoN.

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National Planning Commission, GoN.

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Commission, GoN.

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FY 2017/18). Kathmandu: Nepal Rastra Bank.

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Retrieved on 28 October 2019 from https://www.tepc.gov.np/.

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Potential Implications and Issues for Consideration. Bangkok: UN ESCAP.

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Fourth United Nations Conference on the Least Developed Countries. Istanbul: United

Nations.

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March 2018). New York: United Nations Committee for Development Policy.

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and Development.

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beyond: Making the most of the process. Geneva: United Nations.

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Resource Mobilization. Kathmandu: United Nation's Children Fund, Country Office

Nepal.

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Capital Gap. Washington DC: The World Bank.

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World Bank.

Statistical Annexes

Annex 1: Progress in the Indicators of Productive Capacities

Indicators

2011

2012

2013

2014

2015

2016

2017

2018

1.1 Infrastructure (Road Network in KM, 000)

Total

23.2

24.4

25.3

26.4

27.5

28.3

29.1

30.1

Black-topped

9.9

10.2

10.7

11.2

11.8

12.2

12.8

13.7

Gravelled

5.7

5.8

5.9

6.1

6.3

6.5

6.8

7.2

Muddy

7.6

8.4

8.7

9.2

9.4

9.7

9.5

9.2

Infra. Quality

Index

2.45

2.67

2.90

2.87

2.93

2.74

2.58

2.87

1.2 Science, Technology and Innovation

Technology

Readiness

2.50

2.65

2.63

2.55

2.61

2.62

2.56

2.77

Availability of

latest

technology

3.94

4.24

4.26

4.04

4.02

3.73

3.54

3.77

Availability of

scientists &

engineers

3.01

3.08

3.23

3.39

3.46

3.48

3.54

3.58

Innovative

Capacity

2.25

2.29

2.42

2.89

3.12

3.27

3.34

3.42

1.3 Energy

Energy

Consumption

Total (000,

TOE*)

1015

8820

10037

11232.9

11727.

11767. 7

12866.0

13483.9

% of Clean

Energy

0.7

1.2

1.7

2.6

2.5

2.3

Electricity

Production

(MW)

706

746

829.2

855.9

972.5

1074.1

1044.6

Peak Demand

(MW)

946

1094

1201

1291

1385

1444

1508

Transmission

Line (KM)

1987

2849

3006

3483

3538

1.4 Tele-Communication

Telephone

Density (%)

63.8

80.5

92.7

106.1

118.8

135.4

133.8

Internet-

Density (%)

18.9

26.1

33.2

43.7

52.0

61.1

58.1

Broadband

Internet

subscription

0.3

0.4

0.3

0.4

0.8

1.1

0.8

1.5 Tourism

Available

Airline seats

(Million)

Available

30.8

31.7

34.5

36.2

37.0

38.2

39.8

40.9

Indicators

2011

2012

2013

2014

2015

2016

2017

2018

Hotel Beds

(no, 000)

Tourist Arrival

(no, 000)

30.8

31.7

34.5

36.2

37.0

38.2

39.8

40.9

1.6 Agriculture Productivity (MT/Hector)

Major Cereal

Crops

2.5

2.7

2.6

2.7

2.6

2.8

2.9

Major Cash

Crops

11.5

12.0

12.3

12.1

11.6

7.9

8.2

5.5

Vegetables

4.6

4.4

4.7

4.4

4.2

3.1

3.0

1.9

Fruits and

Spices

7.4

8.2

7.8

7.3

7.6

7.4

7.1

7.3

1.7 Industrial Productivity

Average

Capacity

Utilization (%)

54.0

57.8

59.7

52.7

48.2

57.3

59.7

Industrial

Credit (Rs.

Billion)

194.7

236.6

315.8

395.1

478.4

529.3

637.2

803.4

1.8 Gross Value Addition of Major Sectors to the GDP

Agriculture,

Forestry and

Fishing (%)

33.58

33.53

32.55

32.11

31.42

31.30

30.43

29.33

Manufacturing

(%)

6.55

6.48

6.46

6.47

6.29

5.75

5.83

5.97

*Ton of Oil Equivalent, Source:

MOF (2019);

NRB (2018);

World Economic Forum (2019).

Annex 2: Agriculture, Food Security and Rural Development Indicators

Indicators

2011

2012

2013

2014

2015

2016

2017

2018

2.1 Availability of agriculture Inputs

Fertilizer

(000, MT)

123.6

145.7

177.0

233.0

298.7

258.9

324.0

340.0

Irrigation

(000, ha)

1273

1300

1333

1353

1371

1390

1394

1470

Agriculture

Credit (Rs.

billion)

31.5

50.9

65.8

78.8

90.0

132.8

128.3

2.2 Production of Major Agriculture Products (000, MT)

Cereal

Crops

8614.8

9457.0

8737.1

9562.4

9266.2

8614.3

9741.7

10009.4

Cash Crops

5416.4

5746.4

5877.5

6037.3

5875.4

5765.9

6137.8

4127.9

Vegetables

3203.0

3401.0

3409.7

3472.1

3580.1

3819.8

4163.6

4099.3

Fruits and

Spices

831.6

885.5

1086.8

965.0

992.0

992.5

1025.3

1010.2

Improved

Seeds (MT)

3669

7290

9151

12480

8785.3

4366.4

2856.4

2.3 Livestock Related Products (000, MT)

Meat and

Fish

329.7

342.9

349.5

364.0

370.3

369.2

286.9

424.0

Milk and

items

1556.5

1622.8

1681.1

1700.0

1724.8

1853.9

1911.2

2085.0

Eggs

(Million)

704.1

787.0

838.9

872.9

899.5

1208.7

1352.3

1512.3

2.4 Local/Rural Road Networks (KM, 000)

Total

51.4

53.0

53.3

57.9

58.4

Gravelled

12.3

12.4

12.5

12.8

Blacktoppe

1.7

1.8

1.9

2.3

2.7

Muddy

37.4

38.8

38.9

42.8

42.9

Bridges

Source: MOF (2019); MOF (2018).

Annex 3: International Trade Performance of Nepal

Indicators

2011

2012

2013

2014

2015

2016

2017

2018

Goods and Services Trade (Ratio to GDP)

Net Exports

-24.0

-23.5

-26.8

-29.2

-29.9

-29.8

-33.4

-37.4

Imports

32.9

33.6

37.5

40.8

41.5

39.3

42.4

46.3

Goods (G)

28.4

29.8

32.3

35.4

35.8

33.6

36.6

40.5

Services (S)

4.5

3.8

5.2

5.3

5.7

5.8

Exports

8.9

10.1

10.7

11.5

11.6

9.5

9.0

8.9

Goods (G)

5.0

5.3

5.1

4.6

3.3

3.1

Services (S)

3.9

4.7

5.6

6.4

7.0

6.1

5.9

External Sector Account (Ratio to GDP)

Current A/C

-0.90

5.00

3.40

4.60

5.10

6.20

-0.40

-8.20

BOP

0.30

8.60

4.10

6.50

6.80

8.40

3.10

0.00

Forex Reserves

19.90

28.80

31.50

33.90

38.70

46.10

40.40

36.40

Import Capacity of Foreign Exchange Reserves (Month)

Goods

8.4

11.6

11.7

11.5

16.5

13.2

10.8

Goods & Services

7.3

10.3

10.1

11.2

14.1

11.4

9.4

Export-Import

Ratio

16.20

16.10

13.80

12.90

11.00

9.10

7.40

6.60

Terms of Trade

71.91

72.10

73.95

76.45

85.09

84.92

80.47

78.62

Source: CBS (2019a); MOF (2019).

Annex 4: Concentration of Exports and Imports Commodities

2011

2015

2018

Top Ten Exports Commodities

Products

Code

Weight

(%)

Products

Code

Weight

(%)

Products

Code

Weight

(%)

Iron and steel

12.89

Coffee, tea,

and spices

10.35

Man-made

staple fibres

11.90

Carpets and

other floor

coverings

8.50

Carpets and

other floor

coverings

9.73

Carpets and

other floor

coverings

11.75

Not knitted

articles of

clothing

7.69

Man-made

staple fibres

7.98

Coffee, tea,

and spices

6.44

Filaments;

strip and like

man-made

textile items

7.39

Not knitted

articles of

apparel and

clothing

7.97

Beverages,

spirits and

vinegar

6.06

Man-made

staple fibres

7.33

Iron and steel

6.32

Not knitted

articles of

clothing

6.06

Coffee, tea,

and spices

6.31

Vegetables,

fruit, nuts or

parts of plants

5.53

Plastics and

articles

thereof

5.67

Other made-

up textile

articles and

worn articles

4.72

Filaments;

strip and like

man-made

textile items

5.35

Other made-

up textile

articles and

worn articles

5.12

Vegetables,

fruit, nuts or

other parts of

plants

3.74

Other made-

up textile

articles and

worn articles

5.15

Iron and steel

4.93

Articles of

iron or steel

2.85

Articles of

iron or steel

3.16

Knitted

articles of

apparel and

clothing

4.82

Edible

vegetables,

roots and

tubers

2.82

Footwear,

gaiters and the

like; parts of

such articles

2.62

Residues from

food

industries;

animal fodder

4.42

Total

64.25

Total

64.18

Total

67.17

Top Ten Import Commodities

Products

Code

Weight

(%)

Products

Code

Weight

(%)

Products

Code

Weight

(%)

Mineral fuels,

mineral oils

and products

20.72

Mineral fuels,

mineral oils

and products

13.33

Mineral fuels,

mineral oils

and products

17.06

Iron and steel

8.35

Iron and steel

8.79

Iron and steel

11.96

Electrical

7.10

Electrical

7.39

Machinery,

9.09

machinery

equipment and

parts thereof

machinery

equipment and

parts thereof

mechanical

appliances,

nuclear

reactors and

parts thereof

Machinery,

mechanical

appliances,

nuclear

reactors and

parts thereof

6.02

Vehicles other

than railway,

and parts and

accessories

thereof

6.20

Vehicles other

than railway

and parts and

accessories

thereof

7.61

Precious or

semi-precious

stones,

precious

metals

5.77

Machinery,

mechanical

appliances,

nuclear

reactors and

parts thereof

6.20

Electrical

machinery

equipment and

parts thereof

5.94

Vehicles other

than railway,

and parts and

accessories

thereof

5.16

Precious or

semi-precious

stones,

precious

metals,

5.15

Precious or

semi-precious

stones,

precious

metals,

4.84

Plastics and

articles

thereof

3.92

Cereals

4.80

Cereals

3.83

Prepared

edible fats

3.58

Pharmaceutica

l products

3.99

Aircraft, and

parts thereof

3.17

Plastering

materials,

lime and

cement

3.01

Plastics and

articles

thereof

3.82

Pharmaceutica

l products

2.66

Pharmaceutica

l products

2.83

Aircraft, and

parts thereof

2.82

Plastics and

articles

thereof

2.61

Total

66.47

Total

62.49

Total

68.76

Source: TEPC (2019).

Annex 5: Private Sector Development Indicators

Indicators

2011

2012

2013

2014

2015

2016

2017

2018

Doing Business Index

57.84

59.27

59.8

60.6

59.85

57.6

59.95

59.63

Logistic Performance Index

2.04

2.59

2.38

2.51

Capacity to Retain Talent

2.4750

2.6981

2.8809

2.7229

2.6745

Capacity to Attract Talent

1.9855

2.2785

2.5045

2.4902

2.4437

Ethical behaviour of firms

2.8745

3.1074

3.2128

3.2221

3.3268

3.3455

3.2499

3.4231

Domestic market

2.9611

3.0095

3.0451

3.0456

3.0922

3.3370

3.2151

3.3954

Ease of access to loans

2.4766

2.4977

2.5118

2.3679

2.2636

4.0000

3.8577

Customer Orientation

4.2950

4.1780

4.1265

3.9553

3.7628

4.0073

4.0301

4.1347

Business Sophistication

3.0442

3.1453

3.2096

3.2545

3.3389

3.3087

3.2550

3.3916

Financial Market

Development

3.6398

3.6656

3.8094

3.7528

3.9039

3.8275

3.9116

3.9122

Control of International

Distribution

3.5060

3.6566

3.3838

3.2232

3.2658

3.1547

3.0246

3.0099

Spending on Research &

Development

2.36

2.43

2.57

2.69

2.61

2.63

2.49

2.61

Industrial Relations

3.0902

3.2512

3.1744

3.0365

3.2338

3.4621

3.5184

3.4712

FDI and technology transfer

3.6624

3.7115

3.7682

3.7318

3.7299

3.5963

3.2308

3.2663

Domestic Credit to Private

sector (% of GDP)

53.2

53.0

57.4

58.6

64.5

75.1

74.7

80.6

Private GFCF to GDP Ratio

15.5

13.8

16.0

16.7

19.7

16.2

23.4

25.4

Share of Private Sector on

GFCF (%)

78.2

77.4

80.3

79.4

81.3

76.4

83.0

81.3

Source:

MOF (2019);

World Bank (2018);

WEF (2019).

Annex 6: Education Attainment Indicators

Indicators

2011

2012

2013

2014

2015

2016

2017

2018

Net Enrolment Rate (Grade 1-5)

94.5

95.1

95.6

96.2

96.6

96.9

97.2

96.5

Net Enrolment Rate (Grade 1-8)

86.6

86.3

87.6

89.4

92.3

92.7

Net Enrolment Rate (Grade 9-

12)

33.2

34.7

37.7

38.9

43.9

46.4

Retention Rate (Till 10)

37.9

45.2

57.1

58.5

Out of School Children Rate

(Age 5-12)

10.6

8.7

7.3

Literacy Rate (Above age 6)

60.9

63.2

65.9

Literacy Rate (15-24 age)

84.7

88.6

Literacy Rate (Above 15)

56.5

Vocational Training (Person)

22130

16552

15107

17328

15879

17493

20066

19689

Source:MOF(2019).

Government of Nepal

National Planning Commission

Singhadurbar, Kathmandu