Nepal’s Graduation from Least Developed Country to Developing Country by 2026 : Challenges for Handicraft Sector MSMEs

Nepal is now in the process of graduating from Least Developed Country (LDC) to Developing Country (DC), as Nepal reportedly met the thresholds for Human Assets Index (HAI), and Economic and Environmental Vulnerability Index (EVI), the two of the three criteria for graduation, although its performance on the GNI per capita has still fallen short of the required threshold. With the preparatory period of five years, Nepal will have its graduation effective in 2026, it has become imperative to take stock of the potential impact of the LDC graduation on micro, small and medium enterprises (MSMEs) operating the handicraft industry. Analysing the status of the handicraft-sector MSMEs in the COVID-induced era, this paper assesses the potential challenges of Nepal’s LDC graduation to the handicraft MSMEs, as well as its effect on the informal labour force engaged in this sector, so that the handicraft sector MSMEs’ capacity-building needs and institutional support requirements can be identified. It also proposes 13 pathways for capacity building and institutional developments to address the concerns of the handicraft sector MSMEs and make their business resilient and sustainable. It also emphasises on setting up adequate groundwork and preparations required for graduation, through continuous partnership with private sector and other stakeholders. Else, it prescribes planning— if needed— to push Nepal’s graduation deadline farther than 2026