active · Livelihoods

Government and stakeholders have strengthened capacity to create a more enabling business environment and enhance enterprise productivity while facilitating the transition to formality

Nepal will graduate from least developed country (LDC) in 2026, and will likely to face a number of challenges in the short term, including increased competition from other developing countries, a loss of preferential market access, and a decline in aid flows . Considering the multiple crisis that Nepal has suffered over the last decade, such as the 2015 earthquake and the COVID-19 pandemic, the low productivity growth of the private sector, premature deindustrialization, and high levels of informality, with 62.2 per cent of employment concentrated in the informal sector, while 84.6 per cent of all workers are in informal employment, with about 50 per cent of all enterprises being informal. In this context, supporting Nepal to increase the productivity and competitiveness of its economy, particularly in those sectors more at risk from the LDC graduation (such as textiles and garment), while formalizing employment and enterprises is essential for Nepal to maintain its development trajectory and enjoy the opportunities of the graduation process. Supporting the creation of a better enabling environment for business is essential, in particular to support MSMEs to enhance their productivity and working conditions, and to formalize is seen as the key strategy to support sustainable and inclusive growth. To this end, the ILO is supporting the Government of Nepal, through the tripartite Formalization Committee, to implement the National Action Plan for Formalization, which includes the development of an integrated and comprehensive National Formalization Strategy, while supporting specific actions to promote the formalisation of SMEs in an enabling and sustainable environment. In parallel, the ILO is working with Government, Employers’ and Workers’ Organizations, including sectoral institutions (such as the Garment Association of Nepal), to support MSMEs directly to prepare for the LDC graduation.