Nepal Moves up in Income Group Category Devised by World Bank Group

As per the data released on July 1^st, 2020, Nepal has been moved up from Low-Income Category to Low Middle Income Group for the next one year. As per the Data presented by the World Bank, The Gross National Income (GNI) Per Capita in Nepal has gone up from 960$ to 1090$, a 13.5% increase compared to the previous year. Every year, the World Bank changes the criteria based on the Change in Exchange Rate of US dollars, since all these categories are in Dollar denomination and other different detailed mandates.

                                                                                                                      Amount in Dollars*

It can be considered as a positive economic implication for our country but many challenges follow as the current Covid-19 Crisis can actually bring down the GNI Per Capita of our country in the following year.

With this, Afghanistan is the only country in South Asia to be classified under a Low-income group from the South Asian region. While Sri-Lanka was amongst the two countries from this region to be included in the Upper-middle income group, they were unable to cross the threshold this year and they have been again placed in the low- middle-income groups.

Although Nepal has been moved up in the classification, there isn’t much to cheer about as we were amongst the last country in South Asia to make the jump.

                                                                   **Maldives still in Upper Middle
                                                                   *Sri-Lanka currently in Low Middle

When we compare the classification of the countries in South Asia, we can see that the countries with smaller landmass and population (in some) tend to be placed better but that hasn’t been the case with Nepal and it shows how we still lag behind in the region and how we aren’t being able to fulfill the potential that our country has considered the resources and diversity compared to other South Asian Countries of similar landmasses.

Apart from the Income Group, Nepal has also moved up in the World Bank’s lending category too. World Bank Maintains countries in 4 different categories based on their different policies and procedures. It was a 5 category division before 2009 Ad and after that 17 Year and 15 years, IBRD terms were merged to form a single IBRD terms Category. Nepal has been placed in Category II, which is an effective IDA Eligibility. This doesn’t have much implication in the lending that Nepal receives from World Bank as it will still be through IDA, but it can impact the lending terms that IDA has as the terms and procedures may be different for Nepal’s Previous categorization (Civil Work Preference) and its current category.

World Bank has already more than doubled the lending commitments to Nepal this year compared to the previous financial year. The World Bank also recently approved a 29 million dollars’ fund to Nepal for the COVID-19 Emergency Response and Health Systems Preparedness Project.

The World Bank Funding in Nepal has increased extensively post the 2015 Earthquake and the lending commitment has increased by more than 100% for the current year. Even in the Recent Budget Allocation, 24% of the source of revenue has been planned to be collected through Foreign Grants and Foreign debt. Although the International Debt has been increasing in Nepal, Joint World Bank-IMF Debt Sustainability Analysis, a joint analysis published by World Bank and International Monetary Fund in February 2019 has placed Nepal in the Low-Risk Category in Both External Debt Distress and Overall Risk of Debt Distress. The report has also forecasted a rise in public debt to 35% of GDP in midterm to 48% of GDP in long term due to current and fiscal deficits as the country strives for economic growth with the implementation of Fiscal Federalism.

In 2018, Nepal was eligible to graduate from the Least Developed Countries category in the United Nations as they fulfilled 2 of the three criteria set by the United Nations. The Government of Nepal decided to not graduate as the graduation was based on non-income criteria as the Gross National Income Criterion was not fulfilled. Nepal had fulfilled the criteria based on Human Asset Index and Economic Vulnerability Index but didn’t qualify in the Per Capita GNI.

Graduating from LDC would have impacted the inflow of Foreign Aids and Grants in the country and the Government of Nepal decided against it.

Prashant Ghimire