Nepal’s planned exit from Least Developed Country status in November 2026 will end key trade preferences, risking sharp export declines and massive employment losses unless urgent investments boost competitiveness, the International Labour Organization has warned.

Nepal is on track to graduate from Least Developed Country (LDC) status in November 2026, marking a significant milestone after years of development progress. However, the shift will strip away preferential market access that has supported key export sectors for decades. A new employment impact assessment by the International Labour Organization (ILO), launched in collaboration with Nepal’s National Planning Commission, paints a sobering picture of the challenges ahead.

The report, titled Employment Impact Assessment on Nepal’s LDC Graduation, provides an evidence-based analysis of how LDC graduation may affect Nepal’s economy and labour market between 2026 and 2030.

The report projects impacts between 2026 and 2030, a critical grace period during which Nepal must adapt to higher tariffs, stricter compliance rules, and intensified global competition. Without swift policy action, the country risks reversing hard-won gains in manufacturing and employment, particularly in labour-intensive industries that have relied on LDC-specific trade benefits.

Export Losses Projected at 2.5 to 4.3%

According to the ILO assessment, Nepal’s total exports could shrink by between 2.5 per cent and 4.3 per cent once preferential access ends. Apparel and textiles – long the backbone of Nepal’s export economy – face the heaviest pressure from higher tariffs and tougher rules of origin in major markets such as the European Union and the United States. Vegetable goods and cereals will also encounter elevated duties, further squeezing revenues.

Experts quantify the broader economic damage: a nominal GDP loss of $851 million already in 2026, with cumulative real GDP losses approaching $1 billion over the five-year period. These figures underscore how the loss of duty-free access could ripple through supply chains, factories, and rural value chains that depend on export demand.

Up to 132,000 Jobs at Risk, Half Among Women

The most alarming projection is the potential loss of up to 132,000 jobs by 2030 – 67,000 among men and 65,000 among women. Manufacturing as a whole could see 142,000 positions affected, with garments, textiles, and carpets hit hardest. Urban areas will bear a disproportionate burden, and women in these sectors – who already face lower labour-force participation – stand to lose nearly half of the projected manufacturing jobs.

Informal workers, who lack social protection, are especially vulnerable. The report warns that urban women may experience reverse migration to rural areas, shifting into lower-productivity informal employment. This gender dimension makes the transition far from neutral and threatens to widen existing inequalities.

At the same time, Nepal’s labour market is already under strain. Between 400,000 and 500,000 young people enter the workforce each year, many of whom already migrate abroad in search of opportunities. Any contraction in domestic manufacturing could accelerate outward migration and deepen youth unemployment.

ILO Calls for Urgent Investments and Policy Action

The ILO stresses that graduation is not an endpoint but a transition into a more demanding global environment. “Graduation is not an end. It is a transition into a more competitive environment with higher expectations,” said ILO Country Director for Nepal Numan Özcan. “The real test is how Nepal can translate graduation into better jobs, stronger enterprises and greater economic security.”

Dr Prakash Kumar Shrestha, Vice-Chairperson of the National Planning Commission, welcomed the report as timely guidance aligned with Nepal’s 16th plan, which prioritises employment creation. “This report is timely in helping us understand how to mitigate potential impacts, such as possible export losses and how to strengthen domestic employment,” he noted.

The assessment outlines a clear roadmap for mitigation. Key recommendations include:

• Targeted investments in trade facilitation, tourism, and information and communication technology (ICT) to generate new employment and offset GDP losses.
• Productivity gains through skills upgrading, workforce re-skilling, and deeper integration into global value chains.
• Strengthened social protection, job-matching services, and labour-market policies to shield vulnerable workers.
• Pursuit of the European Union’s Generalised Scheme of Preferences Plus (GSP+), which would maintain some market access but requires Nepal to ratify pending ILO conventions on freedom of association, labour inspection, human rights, and environmental standards.
• Tripartite social dialogue involving government, employers, and trade unions to ensure an inclusive and just transition.

Jyotsna Shrestha, Chairperson of the Employers’ Council and Vice-Chair of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), emphasised the private sector’s concerns: over 100,000 manufacturing jobs are at stake, especially for women, amid high logistics costs and infrastructure gaps. She urged swift action to secure alternative trade arrangements and diversify the economy.

A Manageable Challenge with Proactive Steps

The ILO assessment concludes on a note of cautious optimism. A five-year grace period until 2030 provides a window for decisive policy intervention. Structural challenges – high production costs, limited access to capital, and a fragile manufacturing base – are real, but so are the opportunities in tourism, ICT, and services.

Krishna Prasad Sapkota, Joint Secretary at the Ministry of Labour, Employment and Social Security, echoed this view: “If we manage this period well… we can minimise the potential losses.” Trade unions and employers alike called for coordinated efforts to protect existing jobs while creating new, decent-work opportunities.

Nepal’s LDC graduation reflects decades of progress in health, education, and economic growth. Yet the ILO report serves as a stark reminder that the real test lies ahead.

ILO’s Nepal country director Numan Özcan says that with evidence-based planning, increased investment, and inclusive social dialogue, the country can turn a potential setback into a catalyst for sustainable, job-rich development.

However, experts point out that failure to act decisively could see thousands of workers – especially women and youth – pay a heavy price for the nation’s advancement.