Nepal's growth slows as LDC graduation threatens EU market access, experts warn

KATHMANDU: Nepal’s economic growth is being slowed by stagnant incomes and heavy reliance on remittances, experts warned, as the country prepares to graduate from Least Developed Country (LDC) status — a move that could alter its access to key international markets such as the European Union (EU).

The warning came at the “EU‑Nepal Trade and Investment Diagnostics” event organised by Samriddhi Foundation in Kathmandu on Thursday, which brought together stakeholders, experts and representatives from government, the private sector and small and medium enterprises to discuss trade, investment and LDC graduation.

Ashesh Shrestha of Samriddhi Foundation opened the event and led a panel discussion featuring CA Narayan Bajaj, president of the European Economic Chamber Nepal; Paras Kharel, executive director of SAWTEE; and Rajan Sharma, trade and logistics expert. Kuber Chalise, consulting editor at Nepalkhabar, moderated the session.

Shrestha said that while Nepal has made notable social progress, including higher literacy rates and longer life expectancy, its trade and foreign investment performance lags behind regional peers. He warned that most trade and investment remain concentrated with neighbours India and China, leaving the economy vulnerable.

Speaking at the event, Minister for Industry, Commerce and Supplies Anil Kumar Sinha stressed the need to strengthen trade and investment ties with the EU to secure Nepal’s economic future. He urged greater collaboration between Nepali investors and European entrepreneurs, saying fully tapping trade potential is a pressing requirement.

“It is a commendable step, bringing stakeholders together to discuss such a crucial topic for the economy of Nepal,” Minister Sinha said. “This gathering will further strengthen the long‑standing relationship between Nepal and the European Union. We must encourage the private sector to drive economic development and ensure Nepal’s prosperity.”

The EU is emerging as Nepal’s third‑largest trading partner, accounting for about 4% of total trade and 7% of exports, the organisers noted. However, panellists warned that deeper integration with the EU faces obstacles including high logistics costs, complex regulations and rising business expenses.

A preliminary analysis presented at the event cautioned that graduation from LDC status would mean Nepal loses preferential access under the EU’s Everything But Arms (EBA) programme. “Without timely reforms, exporters could face higher tariffs and stricter rules, particularly in key sectors,” the analysis said.

Analysts urged Nepal to explore options such as the EU’s GSP+ scheme while improving market efficiency, simplifying regulations and reducing business costs to remain competitive during the post‑LDC transition and to support long‑term trade and investment growth.

Panel members supported promoting Nepal to developing‑country status, a decision that has been postponed since 2015. Bajaj said Nepal should concentrate on areas of strategic advantage, noting EU support for pashmina and coffee exports, and warned that the main challenges are stability, consistency and implementation at the policy level.

Kharel raised concerns about the carpet and garnet industries, where more than 80% of exports are carried by air — a factor that could affect EU trade. “We have not yet reached our export potential. We have not been able to reach our true potential yet,” he said.