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Nepal’s constitution offers a flawed concept of democracy. The current constitutional crisis is, in part, an exhibition of those flaws.

In this five-part series, I explore the elements that make our constitution inherently frail and call on civilians to build a truly apolitical (or non-political) movement to save the constitution.

Part IV: Discrediting parliament 

The gavel has fallen. The Supreme Court has spoken. In a decision that will reverberate through the ages, it instructed the President to reinstate Parliament and appoint Sher Bahadur Deuba as the prime minister.

UML and CPN (Maoists Centre) had jointly won a commanding majority in parliament. They were expected to govern smoothly for the full term as a unified party. Instead, they have now had an acrimonious divorce. The UML itself looks headed for a vertical split.

All this instability, political bickering, and grandstanding have come in the middle of a global pandemic that has scorched Nepal just as much. Nepalis have always accepted a base level of political instability given the incessant squabbling for power. Even by that standard, the recent turmoil has been extraordinary.

The Supreme Court ruling will be weighed and debated for a long time. But outside, to the people of Nepal, the impact of the recent political chaos had already left a lasting imprint, long before the court’s decision.

The political chaos—its proceedings in particular—has helped discredit Nepal’s parliamentary system in public opinion, undermining our faith in the system. It would be hard to find a person in Nepal, other than those affiliated to political parties, who now believes that either the judiciary, the executive or the legislature—the entire government of Nepal—can really yield lasting political stability for the country’s progress and development.

The system may not have been at fault. The absence of leadership, the narrow self-interest of politicians, the transactional nature of political relationships, and the lack of diversity in ideology among political parties may all haven been responsible. But none of that really matters.

The view from the street is simple. We blame politicians and political parties, but in one form or another, we end up concluding that this system is hopeless. What we need, we say wistfully, is stronger leadership. That wistfulness often borders on a melancholic longing for the monarchy, or worse, an outright desire for a benevolent dictator.

That is exactly where our constitution begins to fray. Around the world, a constitution’s strength comes from its legitimacy. The majority must believe that the constitution is still the best instrument for delivering results most beneficial to the country. That belief grants the constitution its legitimacy.

A constitution fundamentally lacking in legitimacy becomes no more than a treatise. It could be backed by military power, which makes it a soft military dictatorship. It could even contain elections, which would make it no more than an election-only democracy. Without legitimacy, the constitution lacks its core strength and will remain inherently unstable. One little spark could ignite a revolution and force the constitution to be rewritten.    

This is the current state of Nepal’s constitution. It already lacks legitimacy. As public disenchantment grows with our political system—the failures of our parliament, the courts, the president, and the military—that legitimacy is further eroded.

This erosion of legitimacy of Nepal’s political system is not accidental. It isn’t instigated from abroad. The Chinese or the Indians, who are often held responsible for all our political failings, are not instigating this from their capitals.

There is a systematic and intentional campaign to discredit Nepal’s parliamentary democracy. The easiest way to accomplish this is by pitting one political leader against another. It is hard to establish, for example, what the recent political crisis was about, except that key leaders within UML and Maoist Center were unhappy with each other. As there was no ideological tussle, to the public the political squabbling and resulting chaos is only about control of power. This view leads to public disenchantment, disillusionment, and erosion of legitimacy.

Whether the discrediting campaign is being directed by someone or has now snowballed to take a course of its own is hard to tell. As citizens, our concern could focus on the erosion of legitimacy—our wistful longing for a better system of governance. This is where we must fight back.

Nepal urgently, desperately needs a citizen’s movement to save our constitution. 

[email protected]; Views are personal

Nepal’s constitution offers a flawed concept of democracy. The current constitutional crisis is, in part, an exhibition of those flaws.

In this five-part series, I explore the elements that make our constitution inherently frail and call on civilians to build a truly apolitical (or non-political) movement to save it.

Part III: The tyranny of the minority

Constitutions of most democracies, worried about the tyranny of the majority, placed safeguards against overreach by the executive branch of the government. They did this, for example, by making the executive accountable to the legislature. In parliamentary systems, this meant the legislature could sack the prime minister through a vote of no-confidence any time.   

By contrast, Nepal’s constitution worried about the tyranny of the minority and curbed the powers of the legislature to destabilize the executive. Scarred by past instability, the new constitution placed safeguards to protect the stability of the executive.

The constitutional clause that prevents a vote of no-confidence for up to two years after an election is an example of that intent to protect the executive’s stability. Such clauses limit the accountability that legislature can exercise over the executive.

These safeguards, though intended for stability, make Nepal a flawed parliamentary democracy. By sacrificing accountability of the executive, its drafters incorporated an undemocratic thought.

The mistake that the drafters made, and one we often echo, is in believing that political stability comes from having a stable executive. For example, many of us believe we are most likely to get a stable prime minister (or executive) if a political party were to gain a majority in parliament. Thus, we are disappointed that even with a two-third majority in parliament the current communist government is unlikely to serve out its full term.

Nepal’s diversity, its electoral system, federalism, and the nature of its political parties make it near impossible for a single party to get a majority in the federal parliament. But unlike the drafters of our constitution, we shouldn’t be afraid of such fragmented legislatures. We shouldn’t be afraid of legislators being self-interested and politically motivated. We shouldn’t be afraid of the fact that legislators will pull each other down, engage in horse-trading or transact their votes for their narrow self-interest. At this stage of our young democracy, we should be prepared for such behavior.

Instead of trying to curtail such self-interested behavior through clauses that undermine parliamentary processes, the constitution should have focused on addressing how to make governance possible even with such self-interested parliamentary behavior. It is entirely possible—many countries offer excellent examples of how that could be done.

One way would be to understand what motivates legislators in Nepal. Our constitution has a very low opinion of legislators—imagining that they will always act in narrow self-interest. (Ironic, perhaps, that a parliamentary system would distrust its legislators so fundamentally, which makes you wonder if those who drafted the constitution really believed in parliamentary democracy in the first place!)

Our constitution fails to dig deep and ask why legislators will act in such narrow self-interest. The answer: political power is supreme in Nepal’s constitution—it determines everything. Political power determines everything from who will win a government contract to who will get appointed to constitutional bodies. In such a context, a better way to seek political stability would have been to reduce the allure of political authority, for example by explicitly limiting what it can achieve.

Nepal’s greatest tragedy following its new constitution was that a single party—the Nepal Communist Party—had near a two-third majority. Many were excited that this would lead to an era of stable government. As it turns out, it hasn’t been stable, and in hindsight, apparently it wasn’t even a single party in the first place.

The lesson from the current political crisis is to stop believing that good governance requires a single party’s majority in parliament and continuity in the executive. Nepal’s democracy will be better off with a parliament lacking a single-party majority. Legislators should jostle, argue, negotiate, and change prime ministers every month if they so wish. This acrimonious, cantankerous base could yield the most stable democracy if the business of governance could carry on without the need for political authority.             

[email protected]; Views are personal.

Nepal’s constitution offers a flawed concept of democracy. The current constitutional crisis is, in part, an exhibition of those flaws.

In this five-part series, I explore the elements that make our constitution inherently frail and call on civilians to build a truly apolitical (or non-political) movement to save the constitution. This constitution may be flawed but it is our only and last hope.

Part II: A constitution or a truce              

From the oldest codified constitution in the world, of the United States of America, to the youngest, of Nepal, have all resulted from dramatic political changes that marked the end of an era and the start of another.

Nepal’s constitution was the end result of a brutal civil war, marking the end of the monarchy and opened a new era of a democratic republic. It ended the country’s identity as a monolithic Hindu state and acknowledged its religious, cultural, and ethnic diversity.

At the same time, however, the constitution failed to depoliticize the end of the brutal civil war. The drafters made the tragic mistake of mingling the political and peace process and gave the parliament authority over the peace process.    

In the 15 years since the signing of the comprehensive peace accord (CPA) that ended the civil war, there has been little meaningful progress on transitional justice, a vital component of the peace process. Although not specifically mentioned in the CPA, transitional justice was intended to be a holistic approach based on four key principles of truth, reparation, justice, and institutional reforms.

How exactly the transitional justice process would proceed was never made clear. Victims wanted room for prosecution. Maoists and political parties were pushing for blanket amnesty. How was the process to balance these two competing demands? As attention shifted to the integration of the Maoist militia and constitution-writing following the CPA’s signing, it became increasingly clear that the ultimate political authority would lie with those who could direct the process.  

Rather than divorcing itself entirely from transitional justice, the constitution allowed political parties power to determine how the peace process would unfold. It granted parliament the authority to make laws governing the process, which the constituent assembly—also the parliament at the time—did to disastrous consequences.  

Political influence over transitional peace stalled progress. In 2015, the Supreme Court ruled against parts of the Transitional Justice Act passed by parliament, finding that it allowed for amnesty even in cases of serious human rights abuses. The government’s appeal for a review of the Supreme Court’s decision was rejected five years later in April 2020, and only after hearings were postponed some two dozen times.

Key appointments in the Truth and Reconciliation Commission (TRC) and the Commission for Investigation on Enforced Disappearance Persons (CIEDP) have been subject to intense political negotiations between and within parties. Today, transitional justice remains mired in controversy and challenges. Approximately 2,500 complaints of disappearance and 63,000 cases of rights violations from the civil war era are pending at the TRC and the CIEDP.

A resolution of transitional justice remains unlikely, and the process itself has emerged as a political bargaining tool. Whoever holds political power and influence over parliament holds the key to the evolution of the process.   

Nepal’s current constitutional crisis isn’t merely about who will hold this or that office, or whether the President or Prime Minister can dissolve parliament. At its core is a deeper struggle about who will direct transitional justice. That process holds the key to the fate of many political and military leaders, not just the Maoists. And in that source of power lies the inherent instability of Nepal’s constitution.    

When the drafters had the opportunity to delink the constitution from transitional justice, they failed to do so. But why didn’t they? Probably because the biggest human rights abusers from the civil war were also the ones drafting the constitution.     

This is where Nepal needs a new peaceful apolitical civilian uprising, one that delinks political power and transitional justice. Civilians cannot convict, but they hold immense power to deliver truth, reconciliation, and to transform our current constitution into a genuine platform for governance and development.      

[email protected]

Nepal’s constitution offers a flawed concept of democracy. The current constitutional crisis is, in part, an exhibition of those flaws.

In this five-part series, I explore the elements that make our constitution inherently frail, and call on civilians to build a truly apolitical (or non-political) movement to save it. This constitution may be flawed but it is our only and last hope.

Part I: Stable governance             

Our constitution makes the incorrect assumption that stable governance requires stable political authority. (A regime that retains the same prime minister, or key political leadership, over a long period would be an example of such stable authority.)

Clause 100(4) states that a “motion of no confidence shall not be tabled [against the prime minister] until the first two years after the appointment of the prime minister and until another one year after the date of failure of the motion of no confidence.”

Ask yourself: why should the prime minister’s immunity against a motion of no-confidence be limited to two years, or to a year after the failure of a previous no-confidence motion? Why should it not extend to five years instead? Because five years would make the prime minister and, by extension, the entire executive branch of the government, immune from sanction by the parliament for a long time. But if five years is too long for such immunity why should two years or even a year be acceptable?

The idea that the prime minister is immune from parliamentary sanction even for a moment—let alone a year or two—is contrary to the premise of a democratic parliamentary system in the first place. The prime minister must always, repeat always, be within the sanction of the parliament. And if that means frequent changes of the prime minister because parliamentarians are always conniving and plotting, then so be it.  

The motivation for the clause perhaps stems from the desire to avoid past experiences, where infighting within and among political parties led to frequent government changes.

The drafters of Nepal’s constitution appear to have retained this dim view of parliamentarians as self-interested politicians who wouldn’t hesitate to bring spurious no-confidence motions to satisfy their own political ambitions even if that meant inviting political instability. They perhaps saw the clause limiting when a no-confidence motion could be tabled as a way to limit self-interested, politically motivated behavior. But it is this approach, the reliance on rules, rather than principles, that makes our constitution inherently unstable.

To achieve stable governance, our constitution relies on pre-established rules for governing behavior, for instance in getting parliamentarians to act in a certain way. Unfortunately, rules can always be gamed. There will also be a strategy that may be within the rules but contrary to the underlying principles from which those rules were developed.

Principles are the underlying philosophy of the system. Rules are merely the instruments through which those principles are to be achieved. Principles endure, though they may be interpreted differently over time. But rules must continually change and adapt to stay ahead of players who will always be devising strategies to game the system. A constitution that relies primarily on rules to keep the system stable is immediately irrelevant.  

The current constitutional crisis around the decisions of the prime minister, council of ministers and the president results from this problematic emphasis on rules. The Supreme Court is now being asked to interpret whether the prime minister, council of ministers and president followed constitutional rules in dissolving the parliament and calling fresh elections.

The court’s previous ruling reinstating parliament was similarly a judgment about the violation of rules, not a statement about whether the actions were in keeping with the principles of parliamentary democracy as described in the constitution.  

To save our constitution, we must return to the core principles of a parliamentary democracy as enshrined in the constitution without worrying too much about the rules for how the parliament functions. That’s for parliamentarians to sort out, so long as the core principles are honored.

One way to do this is by changing our assumption on stability. Stable governance is the result of ‘institutional stability’ not ‘political stability’. Institutional stability would allow governance to continue no matter who the prime minister is or how many times parliamentarians vote for or against the prime minister.

Only a truly non-partisan a-political civilian movement can bring about this shift to institutional stability and help reinforce our crumbling, frail constitution.

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Dear Madam President:
How do you sleep at night?

How do you rest your head back on the pillow, turn off the bedside lamp, close your eyes and drift off to sleep when there is so much grief and despair around? Your palace is no more than a few hundred meters from Kathmandu’s main hospital. Don’t the cries of patients, relatives wailing and people pleading drift in to wake you from your slumber?

Please pardon my impertinence, Madam President. Of late, you remind me of the French Queen, Marie Antoinette, who upon being told that starving French peasants had no bread, famously remarked, “let them eat cake.”

This is not the image I wish to hold. We discarded our kings and queens a long time ago. We are now a young democratic republic, having emerged from a long and brutal civil conflict. Help me shake off this image of you as Queen Antionette. Instead, please help me build a positive image of you, and your political peers, that radiates a feeling of hope, reassurance, humanity, and empathy.

I know that many are questioning the constitutional legality of your recent moves. Over a dozen cases have now been filed in the Supreme Court challenging your latest decision to dissolve Parliament and call elections ‘unconstitutional’. I don’t worry about these decisions or their constitutional implications. Even in the most mature democracies, political leaders are always up to some tricks to extend their influence. Constitutions are always being tested. Nepal is a far younger democracy—the rules haven’t yet been fully established. It should be no surprise that this kind of political instability should plague us more often.

What horrifies me is the blatant disregard for the public pain from across all the political parties. We have been in a lockdown and highly restricted environment for over a year. Many lives have been lost. Livelihoods have perished. We are more vulnerable than before. Yet, the political fighting has intensified in this crisis. Why is it that political parties are not able to set aside their differences, if only for a short time, to focus on the pandemic and the immediate crisis?         

What motivates you, Madam President? You have had an illustrious political career with a long history of struggle from the time you were a teenager. You were part of Nepal’s communist movement. You and your party colleagues spent their whole life fighting for freedom from oppression. Your Prime Minister, for instance, spent 14 years in prison. Your sacrifices, and those of your colleagues, are not to be taken lightly, and reflect a lifetime of commitment. So why is it that now that lifetime of commitment appears as no more than a ruse for a getting to power? Why is it that you and other political leaders once in power all become Queen Marie Antoinette?

What is your message of hope, Madam President? You are more than a President. You are also a mother, a daughter, a sister, an aunt, a friend. You are an inspiration to many young people, particularly the girls and women of Nepal. What will you tell us about how you can sleep, Madam President? What will you tell us about why you’ve become Queen Marie Antionette?

The funny thing about Queen Marie Antionette is that there is no convincing evidence she ever said, “let them eat cake.” But that line became a rallying cry of the French revolution. Queen Antionette had many vices—she spent lavishly to the point of causing a financial crisis and opposed any sort of social reforms. But for all her greater vices, it was the disregard for the pain and suffering of her citizens, so aptly captured in the phrase “let them eat cake,” that stirred and sparked the French revolution.

Madam President, what is your responsibility to the pain and suffering that Nepalis feel? Maybe there is nothing you can do. The constitution limits you to a symbolic head of state, bound to the advice of the council of ministers. You could impose a medical emergency, as many believe you will do next. But I’m not thinking about all that. I am not interested in the implications of what you will decide—the political winners and losers you will create.

I write to ask you a simpler question: What good is our constitution if it cannot get the government to focus on the greatest crisis of our times?

[email protected]

It is hard not to despair. The sick in Nepal are now waiting in their cars, on the roads, in parking lots, waiting for even a basic level of care. Inside, medical facilities are filled beyond maximum capacity. Medical professionals stretched beyond limit. Infections are soaring. The death toll is mounting. Bodies have piled up in riverbanks awaiting cremation. Grief and loss are everywhere.

As the crisis cuts deeper and the despair broadens, where do we look for hope? Our traditional sources of hope—political, economic, religious, cultural—have failed to provide meaningful reassurance against the despair that engulfs us at a ferocious speed. Where are our sources of hope?

In an interview with CNN earlier this week, Prime Minister KP Oli made an appeal for international assistance. He offered no account of what his government was doing, reading instead through the list of customary statistics—infections, positivity rate, recoveries, fatalities. When the anchor asked if large political, religious, and cultural gatherings had been a mistake, the prime minister responded vaguely, pointing instead to political instability. He did not explain that he was as much a part of the political instability.

Political instability has distracted Nepal from the fight against the disease. Like vultures hovering menacingly over a man gasping for his last breath, Nepal’s political leadership has spent more time squabbling and maneuvering than directing a meaningful response to the crisis.

Political instability has always been deeply entrenched in our system of governance. Political leadership has rarely been a source of hope. So, it wasn’t entirely surprising that they failed yet again. But the most telling was how everything around it collapsed. No other government institution rose to force political decision-makers to focus on the crisis: not the civil service, judiciary, president, army, provincial governments, or local governments. It is like our constitution offered no safeguards: not a single institution could get the government to focus on the crisis.

A system that is so entirely beholden to the political leadership, lacking the will or capacity to respond even in an unprecedented emergency, can offer no source of hope. Nepal’s constitution is dead.

Earlier this week, several media reports published details about how demands for commissions had delayed Nepal’s purchase of vaccines. Nepal’s effort to vaccinate its people is now in disarray. The story on commissions implicates leading business houses and personalities.

Many of the media reports appeared more interested in implicating than in telling the story. The demands for commissions appeared strikingly callous, almost inhumane. Our first impulse should have been to say it couldn’t possibly be true. Surely, even the greediest of traders would flinch at such inhumanity. Instead, the stories ripped through our conscience and were immediately absorbed as reality. There was no reason to doubt it, for it resonated deeply with our long-held perception about lack of ethics and hunger for profits within Nepali businesses. Businesses offer no source of hope.

In these troubled times, perhaps religion and culture could have been our sources of hope. Instead, religious and cultural leaders pushed ahead in the opposite direction. They allowed, and often encouraged, large crowds to congregate and mass celebrations to continue. Many religious and social groups have now banded together to offer medical aid to those in need, but they do so largely on the strength and generosity of the volunteers that run those aid camps and not on the institutional strength of the religious groups or cultural societies.

As traditional political, economic, religious, and cultural sources of hope fail, we are now discovering strength in the many individual stories of courage, compassion, and perseverance. They are becoming our sources of hope.

Medical caregivers and other service providers relentlessly on the frontlines every day, often understaffed and under-resourced. Many volunteer groups across the country that have banded together with whatever resources they can muster, assisting even strangers in need. Within our homes, individuals who are juggling the loss of livelihoods, caring for loved ones, sharing with neighbors, or simply fighting to stay alive. The countless untold individual stories of compassion, courage, and perseverance—these are our new sources of hope.

The message of hope as we rise from this despair is that we must let go of the false symbols of hope that had us trapped and return to the core of our individual compassion, courage and perseverance that has allowed us to overcome.         

[email protected]

Last month, a new chapter opened up in Nepal’s power sector. On March 19, the Indian Energy Exchange (IEX), an electricity trading platform, announced that NTPC Vidyut Vyapar Nigam Limited had secured approval for Nepal’s participation in the exchange.

This announcement caps an important milestone in Nepal’s aspiration to integrate with India’s power trading. This is a big achievement for many in and out of the government who have dedicated themselves to securing Nepal’s access to India’s electricity markets.   

For me, the announcement was a moment of great reckoning. Over the past 15 years, I’ve been a critic of Nepal’s strategy on cross-border power trading, cautioning (however I could) against impetuously jumping into India’s competitive markets. It was only fitting, perhaps that the announcement came exactly on the day I finished reading J. G. Farrell’s “The Siege of Kishnapur,” which ended emphatically with these lines: “…he had come to believe that people, a nation, does not create itself according to its best ideas, but is shaped by other forces, of which it has little knowledge.”

Whatever the basis for that strategic choice on power markets integration, for good or bad, Nepal has chosen. A new era now dawns. We must adapt to the competitive forces of Indian power sector. Time to look ahead.

It is time to drop our opposition to the $500-million aid offered under the Millennium Challenge Corporation (MCC) compact and secure that grant. The promise of the compact funding has accelerated and enabled Nepal’s integration with Indian power markets.

Just a few years ago, Nepal and India were hopelessly at odds on how best to operationalize cross-border electricity trading. Efforts to get an agreement on a cross-border transmission line connecting Butwal (Nepal) with Gorakhpur (India), for example, had stalled. Drawing from experiences of the previous cross-border lines, Nepal proposed to proceed under a government-to-government agreement. India was adamantly opposed.

The promise of aid under the MCC compact unlocked that stalemate. A precondition in the compact required Nepal to secure agreement with India on the Butwal-Gorakhpur line. As the MCC’s pressure built on Nepal, India also dropped its objection to the cross-border line. An agreement was reached, and that line is now on course to be built, without even having to wait for Nepal’s approval of the compact. At the same time, India rapidly accelerated the policy process on cross-border power trading, overcoming a decade of foot-dragging. It framed many of the required rules and policies on cross-border electricity, including the most recent approval that has now allowed Nepal to participate in IEX’s platform.

My previous objection to the MCC grant was on its precondition for a cross-border interconnection. It implicitly pushed Nepal into a strategy of competing against cheap Indian electricity prices without adequate preparedness and safeguards, especially when national consensus on the strategy was still missing.

With the cross-border integration of power markets, my previous objection to the compact is meaningless. Best to go full throttle now: access the grant, build the lines, and be as prepared as possible for the future.

For me, one of the most haunting remarks on Nepal-India electricity trade that will forever be etched in my mind was from the US Ambassador to Nepal, Randy William Berry, who wrote in an op-ed in 2019 about cross-border transmission lines “that will bring Nepal’s power to the consumers who will pay Nepal good money for it. It is a simple fact of geography and economics that means India.”

Many have echoed the ambassador’s sentiments, arguing that Nepal has tremendous opportunity to sell electricity to India and profit from it. Plenty of resources and intellectual capital have gone into shaping that narrative and lobbying for supportive policies. To all those who dedicated themselves to securing Nepal’s integration with Indian power markets, the IEX milestone is a moment to stand up and take the applause.

As important, they must recognize the gravity of what they have accomplished. Failure to build a competitive Nepali power sector that can compete against Indian power prices will be devastating for Nepal, locking it into a permanent dependence on Indian power imports.

Those that forged the narrative on the benefits of cross-border electricity trading for Nepal cannot now scurry off into shadows and hide behind excuses of this constraint or that bottleneck. Whatever needs to be done must get done. They must also stand up to deliver on their promise.          

Views are personal. [email protected]

A potential public debt crisis is building in Nepal. The risks stem from the government’s increased use of debt without adequate focus on policy reforms or productive investments, which are essential for long-term growth.

There isn’t much that donors can do directly about government’s domestic borrowing. But on external debt, donors, particularly the World Bank and the Asian Development Bank, Nepal’s largest lenders, must do more to hold the government to account on policy reforms, and ensure that debt is correctly deployed to enhance productivity and competitiveness.   

Nepal has had plenty of one-off reasons to borrow in recent years: rebuilding after the devastating earthquake, financing the federal structure, and now the pandemic. All this in addition to its large ongoing needs for infrastructure and investments.

By the first half of the current fiscal, Nepal’s total public debt (domestic and external combined) had increased to Rs 1.5 trillion, approximately a three-fold increase over the past five years. Public debt-to-GDP ratio is projected to be around 43 percent by the end of the fiscal year.

Current projections suggest that debt-to-GDP could climb to about 49 percent by 2025, perhaps even marginally above 50 percent if economic growth turns out lower than expected. But these levels are well below Nepal’s benchmark debt carrying capacity of about 70 percent debt-to-GDP that the International Monetary Fund (IMF) set in April 2020. The IMF concluded that Nepal remained at low risk of debt distress, well below their indicative threshold values, even under stress tests.

Nepal’s robust debt carrying capacity masks a vulnerable darker side.

The growth in public debt has not correspondingly resulted in policy reforms that enhance domestic productivity, competitiveness, and economic growth. Over the first half of the fiscal, for example, approximately 85 percent of development assistance (loans and grants) were allocated to roads, governance, and energy. Across these segments, it is hard to find meaningful reforms.

On roads, for instance, increased expenditures have not translated into kilometres on the ground. Transport costs and connectivity constraints continue to impair trade and commerce. On governance, the nexus between the state and contractors has hardened. Accountability, and transparency have degenerated. A large part of road construction budget goes to local governments, where planning, design, oversight, and fiduciary control nearly absent. Nepal’s marquee road project, the fast track, is being led by the army—really, what more is there to say!

The story about the energy sector is the same. Money has merely amplified the government’s monopoly in the sector. Donors have whitewashed the challenges in the sector, mistaking the government’s unrealistically ambitious plans as signs of opportunities. This is a sector is deep distress, where reform efforts to increase consumption, diversify energy sources, export electricity, enhance energy security, and integrate private sector have stalled.

Without policy reforms that enhance domestic productivity and competitiveness, how will Nepal repay its public debt? Its tax base is already heavily reliant on consumption expenditures, which accounts for approximately 60 percent of all revenues. The tax base growth is slowing down, declining from an annual growth of about 70 percent five years ago to near zero this year. All of this puts additional burden on remittances from Nepalis working abroad that are now the only real income source available to finance debt. The social costs of relying on remittances to repay debt and finance the economy are staggering. 

The government’s access to public debt, particularly external borrowing, without having to deliver on reforms has also magnified the importance of political power. The government is the only game in town. The nature of debt and development funding is, in part, enabling this. Appropriately 85 percent of development assistance (loans and grants) is now channelled through the government’s budget. In just two years, between 2018 and now, the portion of donors’ budgetary support doubled to 30 percent.

Channelling development investments almost entirely through government budgets would be fine if governments were selecting enough productive projects or undertaking meaningful reforms. But they are not. The ability to sustain patronage through projects financed by public debt has intensified political rivalry and marginalized change-makers seeking to build pressure for reforms.       

Even the wealthiest gamblers will eventually go broke if they continue to place senseless bets. Financing debt without adequate policy reforms is a bit like financing the gambler. Nepal’s external lenders must ensure that their loans are meaningfully employed to enhance productivity, competitiveness, and growth.

Views are personal. [email protected]