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Nepal presented its annual budget on May 29, 2026, under the leadership of Prime Minister Balendra Shah. It has drawn a significant degree of national and international attention, as it comes from a newly formed stable government with a strong parliamentary majority and high public expectations following the Gen Z movement, which demanded reform, transparency, good governance, and expanded economic opportunities. Presenting budget at Parliament, Finance Minister Swarnim Wagle said the country is at a very important economic turning point. He noted that there is immense potential in clean energy production and new technologies, while the youth demographic represents a major source of national capital and strength. The budget has identified agriculture, tourism, industry, information technology, and human capital as drivers of economic
prosperity for the coming decade, and has initiated a new phase of structural reforms.

Through this budget, a foundation has been laid to establish good governance in public administration, restore private sector confidence, make public service delivery more technology-friendly and accountable, and launch a new economic framework based on production, innovation, and entrepreneurship, the budget speech states. Finance Minister Wagle has announced that the tax system has been made simpler, fairer, and more result-oriented.

Public expenditure has been made more economical and results-oriented. As a result of these reform and transformation programs, the budget speech has set a target of achieving 7 percent economic growth, which economists have described as ambitious. While macroeconomic stability has improved—supported by strong foreign exchange reserves, easing inflation, and robust remittance inflows—economic growth remains modest at around 3.85 percent. Private investment is low, and the economy continues to rely heavily on consumption and external income rather than domestic production.

Minister Swarnim Wagle said the budget aims to address these structural weaknesses through reform agendas. Its key priorities include improving the investment climate, expanding digital infrastructure, promoting artificial intelligence and innovation, reforming the energy sector, and strengthening governance and public institutions.

The budget places strong emphasis on making the state more facilitative rather than acting like a control mechanism, promoting accountability, restoring private sector confidence, and modernizing public service delivery through the use of robust technology. It also seeks to build a more production-driven economy by prioritizing energy, agriculture, forestry, industry, tourism, information technology, and human capital development.

Fiscal reforms focus on simplifying and making the tax system more equitable and growth-oriented, while ensuring public expenditure is efficient and results-oriented. Overall, the budget outlines a transition from economic stability management to structural transformation, aiming to create a more competitive, inclusive, and innovation-driven economy. The government has said it will create 1.5 million jobs in five years, meaning 300,000 jobs annually.

Job creation is one of the major expectations of the youth population. The budget has faced criticism that it addresses the concerns of the middle class while failing to provide sufficient incentives for the poor. For the past few months, Wagle had been saying that, to boost the economy, the issues of the middle class should be addressed.

Investment climate

A central pillar of the budget is the effort to reshape Nepal’s investment climate. Major countries such as India, China, and the United States, along with the international community, have urged the government to create a favorable investment environment. Government has proposed wide-ranging legal and institutional reforms designed to reduce bureaucratic barriers and improve investor confidence. It plans to amend or repeal outdated laws, including provisions in company law, to clarify governance standards, conflict-of-interest rules, and disclosure requirements.

Government aims to simplify and accelerate business processes. In parallel, it plans to conclude agreements on foreign investment protection and double taxation avoidance with partner countries, a move aimed at reducing risks for international investors. Many countries interested in investing in Nepal have raised concerns about double taxation.

One of the most ambitious administrative reforms is the proposed “Investment Express” system, which seeks to integrate company registration, tax compliance, visa processing, and financial services into a unified digital platform. The objective is to reduce fragmented approvals and create a more predictable investment environment. The government also plans to eliminate redundant approvals for already sanctioned investment projects and simplify processes related to share transfers, taxation, liquidation, and profit repatriation. Collectively, these reforms signal a strong push toward deregulation and digital governance in investment administration.

Digital economy and AI

Budget introduces a significant shift toward positioning Nepal within the global digital economy, particularly through artificial intelligence. A key proposal is the establishment of the country’s first Sovereign AI Computing Center in Kathmandu, designed to provide high-performance computing resources for startups, researchers, and entrepreneurs. Countries like China and USA have shown interests to collaborate with Nepal in the areas of AI. The strategy is based on converting Nepal’s hydropower surplus into digital value by powering energy-intensive computing infrastructure. Government also plans to offer fellowships to internationally recognized Nepali AI researchers to encourage them to return and contribute to domestic capacity building. In addition, there is a renewed focus on strengthening foundational academic disciplines such as mathematics, which are essential for advanced technological development. This digital agenda aims to diversify Nepal’s economic base beyond traditional sectors and position the country as a potential niche player in AI-enabled services and computing infrastructure.

 
Energy sector

Energy remains one of the most strategically important sectors in the budget speech. Government plans to expand electricity generation capacity and improve regional energy trade. A significant portion of new hydropower and solar projects is expected to be integrated into the national grid, increasing total installed capacity substantially. Beyond domestic supply, the policy direction is increasingly outward-looking, focusing on electricity export potential. The budget proposes allowing private sector participation in international electricity trading, including enabling private entities to build transmission infrastructure and participate in cross-border energy markets through wheeling charge mechanisms—long- standing demands of Nepal’s private sector. The aim is to open Nepal’s hydropower sector to broader commercial participation beyond generation alone. The government also plans to encourage reservoir-based hydropower projects by allowing developers to sell a portion of shares early, provided investment commitments are directed toward such projects. During the upcoming fiscal year, 670 megawatts of hydropower and 370 megawatts of solar energy, totaling 1,040 megawatts, will be added to the national transmission system. As a result, total installed capacity will reach 5,535 megawatts.

Governance and institutional reform

​​​​​​​The budget emphasizes governance reform and institutional modernization. A key priority is addressing corruption and improving administrative transparency through legal and procedural changes. The government plans to introduce conflict-of-interest laws to promote accountability in public decision-making. It also plans to integrate systems related to asset recovery and proceeds of crime into a unified platform to improve enforcement efficiency. In addition, the budget proposes exploring state funding for political parties based on electoral performance, accompanied by mandatory auditing by the Auditor General. This aims to reduce reliance on opaque funding sources and strengthen democratic accountability.

Political parties and transparency

​​​​​​​Budget proposes a framework for providing government funding to nationally recognized political parties based on votes received in the most recent general election. This issue has long been debated but has seen little progress. However, this proposal has also faced criticism, with some describing it as problematic or undesirable.

Foreign policy

​​​​​​​The budget aims to strengthen balanced foreign relations based on mutual benefit, national self-respect, and sovereign interests, while mobilizing Nepal’s soft power to support economic prosperity. It seeks to enhance Nepal’s international presence through economic diplomacy, cultural identity, technology, and tourism. The budget also emphasizes strengthening Nepal’s role in the United Nations and other multilateral forums. It promotes regional connectivity and cooperation and highlights Nepal’s soft power assets, including Lumbini, Mount Everest, the Himalayas, yoga, meditation, cultural diversity, and peacekeeping contributions. The government also plans to strengthen diplomatic missions abroad and expand economic diplomacy to boost exports, trade, investment, and tourism.

Tax incentives

​​​​​​​The budget outlines total expenditure of Rs. 2,124.34 billion, with nearly 60 percent allocated to recurrent spending, about 20 percent to capital investment, and the remainder to financial management. The information technology sector receives significant support, including a 50 percent tax exemption on export earnings and full tax relief on sweat equity. These measures aim to encourage startup growth and digital entrepreneurship. Additional incentives include tax exemptions for cinema halls outside major urban areas and support measures for foreign development banks operating in Nepal under specific conditions. The government identifies agriculture, tourism, industry, information technology, and human capital as key drivers of long-term transformation. However, the effectiveness of these priorities will depend on translating incentives into real investment and production growth.

Tax on health, education and electricity bills

​​​​​​​The government’s decision to impose taxes on health and education has drawn criticism. It has introduced an education equity fee on all fees collected by private boarding schools. Similarly, a 3 percent tax has been imposed on private hospitals. Taxes have also been introduced on consumers using more than 50 units of electricity.

Debate over budget size

The size of the budget exceeds the ceiling suggested by National Planning Commission, which was Rs. 1.89 trillion. The current budget stands at Rs. 2.12 trillion for the fiscal year 2026–27. The budget is 8.15 percent larger than the current fiscal year’s allocation. Former finance ministers and economists have stated that implementation may be difficult due to its size. Of the total allocation, Rs. 1.27 trillion (59.8 percent) has been earmarked for recurrent expenditure, Rs. 431.1 billion (20.3 percent) for capital expenditure, and Rs. 422.64 billion (19.9 percent) for financial management. Former finance ministers have raised questions about the government’s capacity to secure the necessary resources for implementing the budget.

Cautious optimism of the private sector

​​​​​​​The private sector has expressed optimism about the budget but says resource management remains a key challenge. Business leaders welcome  revisions in customs duties, an increase in the income tax threshold for the middle class, the operation of closed industries under a public–private partnership (PPP) model, and innovation-focused youth programs. They note that past coalition governments often failed to implement policies effectively. However, with a strong government holding a near two-thirds majority, they expect better execution and economic recovery. Anjan Kumar Shrestha, President of the Federation of Nepalese Chambers of Commerce and Industry, said the increase in excise duties and  customs adjustments are positive steps. He added that high tax rates have long increased costs and hindered business operations. Previously, there had been a demand to raise the income tax threshold to NPR 1.2 million, but the budget has set it at NPR 1 million. Overall, the budget addresses key  private sector concerns, including tax reforms, legal improvements, and easier foreign currency repatriation. It also emphasizes digital  infrastructure and industrial solutions. In its initial assessment, the budget appears positive and is expected to boost investor confidence. 

How is Nepal’s economy faring?

The Economic Survey accompanying the budget presents a restrained outlook. Growth is projected at 3.85 percent, reflecting weak agricultural output, slow credit expansion, and subdued private investment. Despite high liquidity in the banking system, lending to the private sector remains limited. However, the external sector is strong, supported by record remittance inflows, which have strengthened foreign exchange reserves and stabilized the balance of payments. Inflation remains low, and social indicators continue to improve. Poverty has declined, life expectancy has increased, literacy has risen, and electricity access is nearly universal. However, structural weaknesses persist. The economy remains heavily dependent on imports, with exports forming a small share of total trade. Public debt is rising, and fiscal deficits remain a concern. Job creation remains weak due to insufficient investment. Nepal’s GDP is estimated at Rs. 6,609 billion. The economy is consumption-driven, with over 90 percent of GDP linked to consumption.

The service sector contributes 61.81 percent of GDP, agriculture 24 percent, and non-agriculture 76 percent. Agricultural growth is expected to slow to 1.58 percent, while non-agricultural growth is projected at 4.54 percent. Per capita GDP is estimated at $1,513, and per capita national income at $1,535. Significant regional disparities remain, with Bagmati Province at $2,644 and Madhesh Province at $934. Remittances rose 37.7 percent to Rs. 1,449 billion, helping maintain a current account surplus. Foreign exchange reserves reached Rs. 3,413 billion, sufficient for 18.5 months of imports. The trade deficit widened by 11.2 percent to Rs. 1,098 billion, while exports accounted for only 12.9 percent of total trade.

Inflation averaged 2.13 percent. Bank deposits increased by 6.64 percent, but private sector credit grew only 4.4 percent. Non-performing loans rose to 5.42 percent. Federal expenditure increased by 10.4 percent, while revenue rose only 3.2 percent, resulting in a fiscal deficit of Rs. 58.01 billion. Social indicators show progress: absolute poverty fell to 20.27 percent, multidimensional poverty to 17.4 percent, life expectancy reached 71.3 years, and youth literacy reached 94.2 percent. Electricity access reached 99.1 percent, and installed capacity reached 4,105 MW, with 3,798 MW from hydropower. Nepal exported 2,918 gigawatt-hours of electricity.

Conclusion

​​​​​​​The budget is best understood as a reform-heavy economic roadmap set against slow and uneven growth. It is ambitious in scope, particularly in investment liberalization, digital transformation, artificial intelligence infrastructure, and energy reform. At the same time, it reflects the realities of a consumption-driven, remittance-supported economy with deep structural constraints. While macroeconomic stability provides space for reform, the main challenge lies in execution, institutional efficiency, and attracting sustained private investment. Ultimately, the budget represents a transition in intent rather than a guaranteed transformation in outcomes. It sets out a long-term vision for a more productive, technology-driven,
and investment-friendly Nepal, but its success will depend on how effectively these policies move from paper to practice in the coming years.

After their humiliating defeat in the March 5 elections, many expected the Nepali Congress (NC) and the CPN-UML to engage in serious self-reflection and work toward unifying their respective parties. Instead, internal divisions within both parties have intensified, further weakening their position in national politics.

Within the UML, calls are growing for party chairman KP Sharma Oli to step down. Meanwhile, the Nepali Congress appears to be on the verge of a split, as the rival faction led by Purna Bahadur Khadka has yet to fully accept Gagan Kumar Thapa’s leadership.

The UML is now attempting to revive itself, potentially by handing over leadership to former president Bidya Devi Bhandari. Bhandari enjoys a relatively clean public image, but questions remain about whether she possesses the political strength and charisma needed to lead the party. Her renewed party membership appears to be part of a broader effort to rescue a shrinking and increasingly divided UML.

Earlier, Bhandari’s party membership had been revoked after she challenged Oli’s leadership. At the time, some of Oli’s supporters defended the decision by arguing that it was necessary to preserve the dignity and neutrality of the office of the president. Now, however, her membership has been reinstated without any convincing explanation.

It is possible that Bhandari has agreed to eventually take over the party leadership from Oli. Although Oli initially appeared determined to continue leading the UML even after the electoral defeat, he now faces unprecedented pressure to step aside. His deteriorating health has also limited his political activity. In recent weeks, apart from occasional social media posts, he has largely remained silent in public, signaling growing problems within the party.

Yet any leadership transition will not be straightforward. Oli was elected through the party’s general convention, giving him organizational legitimacy. Under such circumstances, he may continue formally as party leader while gradually creating more space for Bhandari to assume greater responsibility.

Following Oli’s arrest over last September’s killings of GenZ demonstrators, Ram Bahadur Thapa has been acting as the leader of both the party and its parliamentary wing. However, many within the UML are uneasy about Thapa’s confrontational approach toward key state institutions. Thapa, popularly known as Badal, has increasingly used rhetoric reminiscent of the hardline Maoist politics he represented between 2008 and 2013.

Traditionally, the UML maintained relatively strong relations with state institutions, including the Nepal Army and the bureaucracy. But Thapa’s recent accusations against these institutions have damaged those ties. Senior UML leaders have since attempted to contain the political fallout.

For now, Bhandari appears more capable of unifying the party than fully reviving it. Most senior leaders after Oli seem willing to accept her leadership. Moreover, several smaller communist parties struggling for political relevance could potentially rally behind her. As a result, the old slogan of left unity may once again return to Nepali politics in the coming weeks.

The March elections signaled a broader generational shift in Nepali politics. At over 60 years of age, Bhandari may struggle to attract younger voters, many of whom have become deeply disillusioned with communist parties. Yet Nepali politics remains unpredictable. After all, communist parties also appeared weakened before making a dramatic comeback in the 2017 elections.

For this reason, it would be premature to write off the UML and other communist forces altogether, even though the party is currently facing a historic crisis. The UML still retains a strong grassroots organizational network across the country. In the coming years, the party may attempt to rebrand itself by moving away from a rigid communist identity and instead projecting itself as a broader socialist force.

The situation inside the Nepali Congress is equally fragile. The rival faction led by Purna Bahadur Khadka is reportedly preparing to register a new political party. Leaders close to the faction say that if party president Gagan Kumar Thapa fails to address their concerns, a formal split may become inevitable.

Several senior leaders aligned with Khadka are unwilling to accept Thapa’s leadership and increasingly favor a separation. At the same time, many leaders close to Thapa have also adopted a hardline position on party unity. They argue that even if the party formally remains united, the chronic factionalism that has long plagued the NC will continue to weaken it from within. 

Over the past decade, the Nepali economy has faced multiple major shocks, including the devastating 2015 earthquakes, the COVID-19 pandemic, and political unrests such as last September’s Gen Z movement, all of which disrupted growth momentum and exposed structural vulnerabilities.

Despite notable strides in poverty alleviation and the achievement of relative macroeconomic stability, the structural foundations of Nepal’s economy remain precarious. The current landscape is characterized by a high degree of vulnerability, driven by an over-reliance on remittance inflows, a low-productivity subsistence agricultural sector, and a stagnant export base. These systemic imbalances have acted as a persistent bottleneck to achieving broad-based, inclusive, and sustainable development.

At the same time, Nepal is preparing for graduation from Least Developed Country (LDC) status in November. While this transition represents a landmark achievement in the country’s development trajectory, it introduces a complex set of challenges. The impending loss of preferential trade treatments and international support measures necessitates a radical shift toward enhancing domestic competitiveness and building post-graduation resilience.

Below is a detailed analysis of the White Paper issued by the Ministry of Finance earlier this week, highlighting the strategic imperatives for this transition. 

External Sector Pressures and Global Risks

Nepal’s external stability is becoming increasingly entangled with global geopolitical shifts, most notably the escalating tensions within the Middle East. This region serves as the primary pillar of Nepal’s foreign exchange reserves, hosting approximately 1.75 million Nepali workers who contribute nearly 37.4% of total remittance inflows. Recent disruptions, including a two-month suspension of labor migration and the return of thousands of workers, have exposed the fragility of this dependency. Such instability poses a triple threat to the national economy by endangering steady remittance flows, straining foreign exchange reserves, and depressing household consumption. These pressures are already manifesting through inflated import costs, shortages of essential agricultural inputs like fertilizer, and heightened transportation costs that stifle both trade and the tourism sector.

Beyond regional conflicts, Nepal’s inclusion on the Financial Action Task Force (FATF) grey list has emerged as a significant hurdle for international financial governance and national credibility. The perception of weak enforcement in anti-money laundering and countering the financing of terrorism (AML/CFT) frameworks directly threatens foreign investment, cross-border banking relationships, and trade financing. While the government has initiated reforms across 16 strategic areas identified by the FATF, the progress remains uneven due to institutional fragmentation and limited enforcement capacity. Under the new government led by Prime Minister Balendra Shah, there has been a visible intensification of money laundering investigations and high-profile arrests. While these actions signal a firm commitment to international compliance, they have also sparked concerns that an overly aggressive or unpredictable regulatory environment might inadvertently dampen the domestic investment climate.

Structural Transformation of the Economy

Nepal is undergoing a structural shift characterized by premature de-industrialization and a growing dominance of the service sector. Agriculture employs about 62% of the population, its contribution to GDP stands at a disproportionately low 25.2%, growing at around 3% annually. Low mechanization, fragmented landholdings, and weak commercialization continue to limit productivity.

Manufacturing remains underdeveloped, contributing only 5.4% of GDP with sluggish growth of 2.9%. Dependence on imported raw materials, low technological adoption, and weak investment have prevented industrial expansion. The service sector has expanded rapidly, but largely driven by remittance-fueled consumption rather than productivity-led transformation. This has led to an unbalanced and consumption-oriented economic structure.

Over the past decade, the manufacturing sector’s contribution to total GDP has averaged only 5.4%. During this period, while the overall economy expanded at an average rate of 4.2%, the manufacturing sector grew by just 2.9% on average.

A combination of factors, including insufficient investment, heavy dependence on imported raw materials, limited adoption of innovation and advanced technology, and high production costs, has weakened the country’s competitiveness, resulting in a stagnant industrial base.

Although the service sector has expanded, it has not generated sufficient decent employment opportunities. Its growth has been concentrated mainly in trade, real estate, public administration, and traditional financial services. The development of high value-added IT-based services, knowledge-based industries, and other innovative sectors remains limited. To build a competitive economy with skilled employment, Nepal needs to expand modern service industries such as artificial intelligence, robotics, data centers, and digital technologies.

Total investment has declined significantly in recent years. It stood at 39.5% of GDP in fiscal year 2017/18 but fell to 28.1% by fiscal year 2024/25. Weak government capital expenditure and declining private sector investment have further dampened the overall investment climate.

Over the past decade, private sector investment averaged 19.6% of GDP. However, since the COVID-19 pandemic, this share has gradually declined, reaching 14.7% in fiscal year 2024/25. This slowdown in investment is constraining sustainable, inclusive, and high economic growth, as well as job creation. Addressing this will require improvements in the business environment, stronger government capacity to execute capital spending, and measures to boost aggregate demand.

Revenue Mobilization

In recent years, revenue mobilization has shown signs of slowing. In the five fiscal years preceding the most COVID-19-affected year (2019/20), revenue grew at an average annual rate of 14.9%. In the subsequent five years, this growth rate has declined to 8.7%.

Similarly, the ratio of federal revenue to GDP fell from 21.5% in fiscal year 2020/21 to 19.3% in 2024/25. Over the past decade, revenue mobilization has grown at an average annual rate of 12.3%. Revenue collection reached Rs 780 billion so far in the current fiscal year, marking a 4.4% increase compared to the same period last year. 

Revenue collection has consistently fallen short of targets. Over the past decade, actual collections have averaged only 87.6% of budgeted estimates. By mid-February, revenue collection stood at 82.6% of the target for that period and just 50.5% of the annual target.

Improving revenue performance will require stronger efforts to curb tax evasion, broaden the tax base, simplify tax administration, and accelerate digitalization. A significant share of revenue remains tied to imports and consumption. About 45% of tax revenue is derived from goods imports, while the domestic production and service sectors contribute relatively little. This leaves revenue vulnerable to external shocks.

In 2024/25, income tax accounted for 25.2% of total revenue, value-added tax (VAT) 29%, customs duties 19.6%%, and excise duties 14.8%. Non-tax revenue has contributed only around 11%, partly due to outdated rates and inefficiencies in collection.

Key Indicators

Nepal’s growth averaged 4.2% over the past decade, ranging from -2.4% to 9%. For fiscal year 2025/26, growth is projected at around 3.5%, although the Asian Development Bank has estimated a lower 2.7%, citing political uncertainty and external shocks. Inflation is expected to remain moderate at 3.7% in 2025/26 but may rise to 4.5% in 2026/27 due to demand pressures and global price volatility. Growth is expected to recover to around 5% in 2026/2027, supported by hydropower expansion, tourism revival, and improved domestic demand.

Labor migration has grown at an average annual rate of 28.6%, with over 839,000 labor approvals issued in 2024/25 alone. While remittances have stabilized the economy and reduced poverty, they have also created structural risks such as labor shortages, low domestic productivity, and dependency on external labor markets. Youth unemployment stands at 22.7%, while overall unemployment is 12.6%. Many workers remain in low-paid, informal, and insecure employment, highlighting the urgent need for domestic job creation.

Public debt has risen sharply from 22.5% of GDP in 2015 to 43.8% in 2024/2025, reaching Rs 2,674 billion. While still within manageable limits, there are concerns regarding debt productivity and allocation efficiency. Foreign aid dependency has declined to 14.6% of the budget, but the shift from grants to loans has increased repayment pressures. This has raised long-term fiscal risks for the country.

Nepal’s trade deficit averages 29.7% of GDP. Export accounts for less than 15% of total imports, while the country’s foreign trade is heavily dependent on India (59.5%) and China (18%).

While exports have increased significantly in nominal terms, nearly 40% of the country’s exports consists of re-exported edible oils, indicating weak domestic value addition and limited export competitiveness.

Although poverty has declined from 25.16% in 2010/11 to 20.27% in 2022/23, regional disparities are significant. Rural poverty (24.66%) remains higher than urban poverty (18.34%), and in some areas, multidimensional poverty exceeds 70%. Nepal’s Gini coefficient of 0.30 indicates moderate inequality, but regional and structural disparities persist. Human Development Index (HDI) stands at 0.622, ranking 145th globally, reflecting slow progress in health, education, and income.

Private sector credit increased from 55.2% of GDP in 2015/16 to 91.6% in 2024/25, higher than most South Asian economies. However, credit growth has slowed in recent years due to weak demand, political uncertainty, and low investment confidence. While deposits have grown steadily to Rs 7.746 trillion, supported by remittance inflows, credit growth remains weaker. This has resulted in excess liquidity in the banking system. Interest rates have also declined sharply, reducing returns for savers and reflecting weak economic demand.

Nepal received only $1.13 billion in foreign direct investment (FDI) over the past decade—just 0.2% of South Asia’s total. By 2025, total FDI stock stood at Rs 340 billion, with only Rs 10.84 billion inflow in the first eight months of the current fiscal year. This reflects weak investor confidence and highlights the need for improved governance, policy stability, and investment facilitation.

Nepal welcomed 1.158 million tourists with an average stay of 16.34 days in 2025. Hotel infrastructure has expanded significantly, with over 1,600 hotels and 222 star-rated hotels, offering more than 64,000 beds. However, weak air connectivity, inefficient airport operations, and limited transport infrastructure restrict full sector potential. Improving connectivity, digital tourism marketing, and diaspora engagement (NRNs) is essential to position Nepal as a global tourism hub.

Banking sector liquidity remains high due to weak credit demand. Excess liquidity reached Rs 904 billion by March 2025, reflecting imbalance between deposits and lending. Interest rates have declined sharply, with lending rates falling to 7.06% and deposit rates to 3.45%.

Budget size 

Resources have not been mobilized as planned, even as budget allocations have remained overly ambitious. Over the past decade, the average annual federal budget has amounted to 33.7% of GDP, while actual expenditure has averaged 26.8%\. 

The budget-to-GDP peaked at 39.4% in 2019/20, while it declined to 30.5% in fiscal year 2024/25. During this period, the budget’s average annual growth rate was 12.3%, but after the COVID-19 pandemic, this growth slowed to 4.1%.

Execution has also remained weak. Actual government spending amounted to 86% of the allocated budget in 2015/16, but fell to a low of 71.2% in 2020/21. This figure stood at 81.3% in 2024/25. 

Over the past decade, capital expenditure has accounted for only 19% of total federal spending, while utilization has averaged 64.1% of total allocation. Capital spending is low, to begin with, and even then, a large share of allocated funds goes unused. This has undermined Nepal’s long-term development goals. Therefore, it is necessary to efficiently allocate financial resources to high-return projects and address implementation bottlenecks to increase capital expenditure.

Meanwhile, recurrent expenditure continues to dominated government spending. Over the past decade, recurrent expenditure has made up an average 66.8% of total federal spending. Capital expenditure accounted for 19%, while financial management expenditure stood at 14.2%. In 2024/25, recurrent expenditure accounted for 63.2 percent, capital expenditure fell to 14.8%, and financial management spending rose to 22%. 

It is necessary to restructure government institutions, clearly define responsibilities among the three levels of government, and reduce unnecessary institutions and staff positions in the federal structure in order to contain recurrent expenditure. 

Opportunities for Transformation

Despite persistent structural challenges, Nepal has significant long-term growth opportunities driven by hydropower exports and industrialization; tourism expansion through promotion of cultural and ecotourism; digital economy, IT services and AI; and young labor force. 

The government has set an ambitious goal of achieving middle-income status within the next five to seven years, targeting GDP of $100 billion and per capita income above $3,000.

While external risks such as geopolitical instability and financial compliance challenges are immediate concerns, the country’s deeper challenges remain weak industrialization, a widening trade deficit, and heavy dependence on remittances.

That said, Nepal also possesses strong foundations for transformation—hydropower potential, tourism assets, and a young workforce. The key challenge lies in shifting from a remittance-dependent, consumption-driven economy to a productive, investment-led, and innovation-based growth model. The coming years will determine whether Nepal can successfully transition toward a more productive, investment-led, and innovation-driven economy.

Nepal’s political landscape has entered an unusual and potentially transformative phase with the rise of Balendra Shah. Popularly known as Balen, the 36-year-old leader assumed office on March 27, 2026, following a sweeping electoral victory that delivered his party, the Rastriya Swatantra Party (RSP), a near two-thirds majority in the 275-member House of Representatives (HoR), the lower house of federal parliament.

This outcome alone would have been remarkable in any context, but in Nepal—where coalition instability has been the norm since the restoration of democracy in 1990—it represents a profound political rupture. The March 5 parliamentary election was shaped by extraordinary circumstances. The protests of September 8–9, which led to the fall of the government led by KP Sharma Oli and the dissolution of Parliament, created a volatile yetdecisive moment. The deaths of 19 students during those protests became a rallying point for public anger and a symbol of state failure.

The election that followed was not merely a contest for power; it was a referendum on an entire political order. Established parties such as Nepali Congress (NC), Communist Party of Nepal (Unified Marxist–Leninist), and Maoistswere voted out, marking the first time since 1990 that they were collectively excluded from power. Their strength declined significantly, putting pressure on long-time leaders to step down. 

This shift was also generational. Out of the 275-member HoR, more than 100 members are below 40. The average age of lawmakers has dropped to 44 from the earlier 54. The cabinet is also dominated by younger faces: out of 15 ministers, 9 are below 40. The rise of Shah reflects the aspirations of a younger electorate—often described as the Gen Z movement—which demands accountability, efficiency, digital freedom, and a break from entrenched political practices.

More importantly, the election results have created a rare sense of optimism about political stability. For decades, Nepal has struggled with short-lived governments and policy inconsistency. The expectation now is that a strong majority government could complete its full five-year tenure—something no administration has achieved in over three decades.

Against this backdrop, the first month of Balen Shah’s government has been closely scrutinized. Early signs suggest a leadership that is energetic and assertive, but still grappling with the complexities of governance. In some areas, the new prime minister has broken from past traditions.

One key signal is that he is not operating under the influence of anyone, including his own party. Although he is a senior leader of the RSP, he appears intent on running an apolitical government, perhaps influenced by his experience as an independent mayor of Kathmandu. Similarly, he has been avoiding public programs and focusing on administrative work in Singha Durbar. Consultations between PM Shah and Party Chairman Rabi Lamichhane on government issues remain a matter of guesswork. PM Balen has not shown interest to attend party meetings. 

PM Shah is communicating more through actions than rhetoric. However, he is under scrutiny for not speaking in Parliament or engaging with the media. Except on a few issues, opposition parties have not taken a hard position on government decisions, and as Prime Minister he has not reached out to opposition parties, except the interaction with lawmakers form all political parties. 

One of the government’s immediate priorities was to ensure accountability for the killings during the September protests. Acting on a report by former justice Gauri Bahadur Karki, the administration initiated action against key figures from the previous government, including Ramesh Lekhak. The arrests of Oli and Lekhak sent a powerful message that even the most influential leaders could be held accountable. For many citizens—especially the families of the victims—this was a long-overdue step toward justice.

However, the manner in which these arrests were carried out has sparked debate. Critics, including legal experts and opposition parties, have questioned whether due process was followed. A month later, the government attorney has yet to file formal charges, reportedly due to insufficient evidence. This delay underscores a critical challenge: while political will is essential for accountability, it cannot substitute for institutional capacity and legal rigor. If the government is to build a credible rule-of-law framework, it must ensure that its actions are not only decisive but also procedurally sound.

On the governance front, the administration has moved quickly to outline its agenda. The first cabinet meeting introduced a 100-point plan to be implemented within 100 days, with a strong emphasis on anti-corruption and administrative reform. This ambitious roadmap is designed to demonstrate urgency and commitment, and there have already been some tangible steps in this direction.

The formation of a high-level commission to investigate the assets of public officials addresses a long-standing public perception that corruption is deeply embedded within the state apparatus. Similarly, law enforcement agencies have launched investigations into businessmen and intermediaries accused of financial misconduct. Prime Minister Shah has also taken action within his own cabinet, dismissing two ministers over allegations of financial misconduct and conflicts of interest.

The resignation of Home Minister Sudan Gurung amid allegations of undisclosed business ties, and the controversy surrounding Labor Minister Deepak Kumar Sah, further highlight the government’s willingness to confront ethical lapses within its ranks. These moves have strengthened the perception that the administration is serious about integrity. 

There have also been modest improvements in public service delivery. Reports suggest that government offices are functioning more efficiently, with shorter waiting times and fewer bureaucratic obstacles. While these changes may seem incremental, they are significant in a context where inefficiency has long been normalized. The challenge will be to sustain and institutionalize these improvements rather than relying on short-term administrative pressure.

The new government has also taken measures to depoliticize state institutions such as universities and civil service, which has drawn mixed reactions. Some have said that it is a positive move, as state institutions over the past four decades were highly politicized, while others argue that the government’s decision to dismantle student unions and trade unions goes against the constitution.

The economic dimension presents a more complex picture. The private sector initially welcomed the emergence of a stable government, viewing it as an opportunity for policy consistency and economic reform. The administration’s emphasis on governance as the foundation for prosperity has resonated with business leaders, and some measures to improve the business environment have been well received.

At the same time, concerns have begun to emerge. The arrest of prominent businessmen as part of anti-corruption investigations has raised fears about the investment climate which is already worse. Business leaders have warned that such actions, if perceived as arbitrary or excessive, could discourage investment and even lead to capital flight. Finance Minister Swarnim Wagle has sought to reassure the private sector, emphasizing that enforcement actions will be limited and necessary, particularly in the context of efforts to remove Nepal from the Financial Action Task Force (FATF) grey list.

This tension reflects a broader dilemma: how to enforce accountability without undermining economic confidence. A credible reform agenda must strike a balance between strict enforcement and predictability. Investors need assurance that rules will be applied fairly and consistently—not selectively or unpredictably. Nepal’s economy is forecast to grow by 2.7 percent in the fiscal year 2026, down from 4.6 percent in the previous year, according to the Asian Development Bank.

In foreign policy, the government has adopted a cautious and pragmatic approach. It has signaled continuity rather than major changes, with a focus on economic diplomacy and balanced relations with neighboring countries. The idea of transforming Nepal into a “vibrant bridge” between regional powers has generated debate, particularly among analysts who question this conceptual framing.

Engagements with international actors have been relatively low-key. The visit of U.S. Assistant Secretary Paul Kapur and reported interactions with Chinese officials indicate ongoing diplomatic activity, but the government has not yet fully articulated a distinct foreign policy identity. Prime Minister Shah’s decision not to hold individual meetings with foreign ambassadors—at least so far—marks a departure from past practices and may reflect either a deliberate shift or a lack of diplomatic prioritization. 

Foreign Minister Shisir Khanal met his Indian Counterpart S. Jaishankar at the Indian Ocean Conference, and both sides have indicated that preparations are underway for Prime Minister Shah’s visit to India.

The international community has responded overwhelmingly, with major countries and development partners showing strong interests in supporting the priority areas outlined by the new government.  While response vary among partners, India and several Western countries have shown strong interests in working with the new government, particularly given its youth-led leadership and internationally educated team. China’s response has been more measured in comparison, reflecting broader strategic consideration. 

Domestically, the government has also initiated discussions on constitutional reform. A panel led by political advisor Ashim Shah has been tasked with exploring possible amendments. While there is broad agreement among political parties on the need for constitutional change, progress has been slow due to limited engagement from opposition groups.

The reluctance of parties like the NC and CPN-UML to participate actively suggests that political polarization remains a significant obstacle. Despite its strong parliamentary majority, the government cannot unilaterally drive constitutional reform without broader consensus. This highlights an important reality: a strong mandate simplifies governance but does not eliminate the need for negotiation and inclusion.

One of the defining characteristics of the current administration is its generational shift. With most cabinet members under 40, this is the youngest government in Nepal’s recent history. The decision to reduce the number of ministries from 24 to fewer than 17 further reflects an effort to streamline governance and enhance efficiency. While these changes are promising, they also come with risks. Younger leaders may bring fresh perspectives, but they may also lack the experience needed to navigate complex institutional and political dynamics.

After one month, it is clear that Balen Shah’s government is active, ambitious, and reform-oriented. It has taken bold steps to signal a break from the past and to address long-standing issues of corruption and inefficiency. However, it is still too early to conclude that it has become truly efficient. Efficiency in governance is not measured solely by speed or decisiveness; it requires consistency, institutional strength, and adherence to due process. The government’s early actions have generated both optimism and concern—hope for change, but also questions about execution.

The coming months will be crucial. If the administration can translate its initial momentum into sustainable reforms, it could mark the beginning of a new era in Nepali politics. If not, it risks becoming another chapter in the country’s long history of unfulfilled promises. For now, the verdict remains open: Nepal’s strong government is moving toward efficiency, but it has not yet fully arrived.

From April 19 to 22, US Assistant Secretary for South and Central Asian Affairs Paul Kapur visited Nepal. Although it was a routine visit, it carried significance for two main reasons. First, it was his first visit to Nepal after assuming office at the State Department last year. Second, the visit came on the heels of the Rastriya Swatantra Party’s stunning victory in Nepal’s landmark March 5 elections and the appointment of Balendra Shah as prime minister on March 27.

The visit provided an opportunity for Kapur to outline the new priorities of the Donald Trump administration and to understand the priorities of Nepal’s new government. For Nepal, it was a chance to communicate its priorities to the United States, a major development partner since the 1950s. Since Trump’s second inauguration, there has been no substantial high-level engagement between the two countries. It was only after nine months that Kapur was appointed to oversee the region. Meanwhile, Nepal was preoccupied with internal issues such as the GenZ protests and the March 5 vote. That is why Kapur’s Nepal visit got delayed.

Kapur’s meetings this week with political leaders, business representatives and members of the cultural community indicate both continuity and change in the Trump administration’s Nepal policy.

During his stay in Kathmandu, he met RSP Chairperson Rabi Lamichhane, Foreign Minister Shishir Khanal and Finance Minister Swarnim Wagle. He also held discussions with members of the business community and representatives of the Tibetan community in Nepal.

 Unlike previous assistant secretaries, who typically met opposition leaders, former prime ministers, civil society representatives, and media figures, Kapur’s engagements in Kathmandu were relatively limited.

Now, turning to the key issues discussed with Nepali officials: as the Trump administration has dismantled USAID—which previously supported Nepal’s health, education, agriculture, and energy sectors—Kapur emphasized deepening and expanding commercial ties during his meetings with government ministers and business leaders. This signals that the US is shifting away from aid (except in a few areas) and focusing more on investment.

 The dismantlement of USAID created a stress on Nepal’s health, education and agriculture sector. The Trump administration has been prioritizing trade over aid and investment assistance which puts Washington in a stronger position to counter China.

In his meeting with Finance Minister Wagle, Kapur stressed improving the business climate to attract US companies. He noted that more American private firms would invest in Nepal if a more investment-friendly environment were created. Even during the Joe Biden administration, both sides had discussed increasing American investment in Nepal. The Trump administration has also continued projects under the Millennium Challenge Corporation, which the US views not as aid but as investment.

Speaking before the House Committee in February, Kapur said that carefully targeted investment can provide South Asian countries with high-quality, transparent and non-coercive support for critical infrastructure such as ports, telecommunications networks, and energy systems—helping them avoid the risks of “debt-trap diplomacy,” a veiled reference to China.

He made similar remarks during a recent meeting with Bangladesh’s finance minister in Washington, emphasizing expanded trade and investment, improved market access, energy cooperation and opportunities in infrastructure development.

Collaboration in digital infrastructure is another major US priority in Nepal. In discussions with business representatives, Kapur highlighted opportunities in Nepal’s ICT sector, including strengthening digital infrastructure, promoting artificial intelligence adoption, enhancing cybersecurity and sharing US technological expertise. Interestingly, the Chinese ambassador to Nepal recently made similar proposals in talks with Finance Minister Wagle.

Immigration policy has also become a major priority under Trump’s second term. Kapur raised concerns about illegal immigration and human trafficking in his meeting with Foreign Minister Khanal. Over the past year, the US  has deported hundreds of Nepali nationals residing illegally in the country, and this issue has been discussed in prior engagements in Washington.

Enhanced defense cooperation is another priority for the US, representing continuity with past policy but with greater emphasis under the Trump administration. Although Kapur did not meet security officials during this visit, earlier engagements suggest this focus. For instance, Admiral Samuel J. Paparo, commander of the US Indo-Pacific Command (INDOPACOM), highlighted expanded defense cooperation during his visit to Nepal.

In previous statements, Kapur has emphasized that countries like Nepal, Bangladesh, the Maldives, Sri Lanka and Bhutan hold strategic importance due to their geographic positions but are also vulnerable to external pressure. Defense cooperation with the US, he argued, can help these nations safeguard their borders and waterways. The US continues to promote the State Partnership Program (SPP), although Nepal decided in 2022 not to join it.

Through INDOPACOM, the US has supported Nepal in strengthening disaster response capabilities via joint exercises, technical assistance, and non-combat equipment such as helicopters, vehicles and communication systems. Additional training and logistical support aim to enhance Nepal’s capacity for peacekeeping and humanitarian operations, aligning with broader goals of self-reliance and regional resilience.

Countering Chinese influence in Nepal remains a longstanding US priority, and the Trump administration appears to be placing renewed emphasis on it, even if it was not explicitly stated during this visit. Notably, issues such as democracy, climate change cooperation, human rights, media freedom, and minority rights—often highlighted in previous US engagements—were not prominently raised during this visit.

Paul Kapur, the U.S. Assistant Secretary of State for South and Central Asian Affairs, has completed his two-day official visit to Nepal.

During his stay in Kathmandu, he held meetings with selected political leaders and government ministers to discuss bilateral priorities and cooperation.

Kapur first met Rabi Lamichhane, Chairman of the Rastriya Swatantra Party (RSP). According to a brief statement from the Bureau of South and Central Asian Affairs at the U.S. State Department, the meeting aimed to understand the party’s priorities in government.

The two sides also discussed potential areas for strengthening U.S.–Nepal cooperation. However, Kapur did not meet Prime Minister Balendra Shah during his visit. In the past, senior U.S. officials typically met with both the President and the Prime Minister during their visits.

Details of the discussions have largely not been made public. Kapur’s meeting with Nepal’s Foreign Minister Shisir Khanal focused on enhancing bilateral trade and investment, as well as addressing issues such as illegal immigration and human trafficking. The talks come amid increased deportations of Nepali nationals residing illegally in the United States.

In a separate engagement, Nepal’s Finance Minister Swarnim Waglejoined discussions on improving the country’s business climate and attracting U.S. companies to invest in Nepal. Kapur emphasized that closer economic ties could strengthen Nepal’s transportation, energy, and digital infrastructure, ultimately driving mutual economic growth.

Kapur also interacted with industry leaders, highlighting opportunities to expand U.S. business involvement in Nepal’s ICT sector. Discussions included advancing digital infrastructure, promoting AI adoption, strengthening cybersecurity, and leveraging U.S. technological expertise.

He visited Patan Durbar Square and Boudhnath Stupa, representing the Newari and Tibetan cultures, two of Nepal’s stunning cultural sites. America’s contribution to preserving such sites promotes economic growth and safeguards shared values for future generations, said Kapur. He also met Tibetan community in Kathmandu and asked the government ministers to address their concerns. 

Two weeks have passed since Balendra Shah became a powerful prime minister in Nepal’s recent political history. His rise to power follows the landslide victory of the Rastriya Swatantra Party (RSP) in the March 5 elections. His swearing-in marked a major generational shift in Nepal’s power politics, as the political parties and leaders who had long dominated national politics were sidelined.

The new and strong government under Balen has signaled an assertive and unconventional governing style. Marked by a strong anti-corruption stance and institutional interventions, the administration appears intent on reshaping political norms. However, questions remain about its economic priorities, particularly its limited response to rising energy costs and inflation. Here is a preliminary analysis of Balen’s two weeks in office.

Implementation of probe panel

On the very first day in office, the Balen administration promptly decided to implement the report submitted by a probe panel formed to investigate the violence and killings that occurred on Sept 8–9 last year. The next day, former Prime Minister KP Sharma Oli and former Home Minister Ramesh Lekhak were arrested, sending a strong political message.

The arrests drew criticism on the grounds that due process was not followed, as they were carried out during odd hours and on a holiday. In response, the Communist Party of Nepal (Unified Marxist–Leninist) launched street protests, while the position of the Nepali Congress remained unclear and ambiguous.

Although both leaders were later released by the court, the move underscored the government’s willingness to challenge powerful figures. Despite their release following a Supreme Court order, police have continued investigations against them and plan to file cases in court.

Similarly, the government briefly arrested the then Chief District Officer of Kathmandu, but he was immediately released following pressure from the bureaucracy. The commission has also recommended action against high-profile individuals from the bureaucracy, Nepali Army, and Nepal Police. The government has decided to conduct further studies before taking action against individuals from these agencies.

Improving governance service delivery

Governance reform remains the top priority of the Balen-led administration. Shah has instructed government secretaries to avoid delays and expedite their work. In a strong message, he reportedly told government staff to either perform or step down.

At the same time, he has instructed that government services should not be interrupted even during lunchtime, with appropriate staff management. The administration has also begun dismantling entrenched bureaucratic practices, notably by removing intermediaries from land and transport offices—sectors long criticized for inefficiency and corruption.

On the governance front, the cabinet has moved to streamline the state apparatus by reducing the number of ministries from 24 to 17. The government has also taken proactive steps to deploy bureaucrats at the local level in an effort to improve service delivery. It is closely monitoring key government offices responsible for providing prompt services to citizens.

However, under the current federal structure, the federal prime minister cannot dictate the functioning of provincial and local governments. Some chief ministers and local government leaders have already objected to the instructions of Prime Minister Shah.

Corruption control

The Balen-led government has prioritized tackling money laundering and corruption. As Nepal faces pressure to take tangible steps to be removed from the Financial Action Task Force gray list, the new government has initiated investigations into money laundering cases.

Authorities have arrested a notorious middleman, Deepak Bhatta, on money laundering charges. Similarly, Nepal Police has issued an arrest warrant against former Prime Minister Sher Bahadur Deuba and his family members in connection with such cases. Police have also arrested former minister Deepak Bhatta on similar charges.

The government has emphasized corruption control. The first cabinet meeting decided to establish a commission to investigate the wealth of public officials dating back to the 1990s. In the first phase, the cabinet formed a commission to investigate the properties of public service holders from 2006 to 2026. 

While the government cannot interfere with the functioning of the Commission for the Investigation of Abuse of Authority, an autonomous constitutional body, it is coordinating with the CIAA to expedite corruption investigations. At the same time, the arrest of some businessmen has created fear in the private sector, and it is feared that it could spoil the investment climate.

Constitutional amendment

The Balen-led administration has placed strong emphasis on constitutional amendment, a key pledge made by the RSP during the election campaign. Balen Shah has formed a committee led by his political advisor, Ashim Shah, to work with political parties to prepare a base document for nationwide deliberations on constitutional amendments.

However, major political parties have not fully cooperated with the government. The Nepali Congress, for instance, has yet to send its representative to the task force. Although constitutional amendment remains a common priority among political parties, there are significant differences regarding its content.

Despite the government’s efforts, progress on constitutional amendment is unlikely in the near future due to the lack of cooperation from traditional political parties. However, the ruling RSP can initiate amendment proposals independently, as it holds a two-thirds majority in Parliament. Support from the Shram Sanskriti Party, led by Harka Sampang, is sufficient to pass amendments. Key issues include the form of governance and the electoral system.

Investigation into Sept 9 violence

Following the Sept 8–9 GenZ movement, a high-level commission led by Gauri Bahadur Karki was formed to investigate the violence. However, the Karki-led panel focused only on the events of Sept 8, drawing criticism from political parties and civil society for its selective approach.

To address this concern, the Balen-led government decided to form a separate commission to investigate the Sept 9 violence. On that day, protests targeted vital state institutions such as Singha Durbar, the Supreme Court, the President’s Office, and various business establishments. However, even after two weeks in office, the government has yet to form this commission.

Rare public speech by PM

After becoming prime minister, Balendra Shah has not delivered a public speech. It was expected that the prime minister would address the nation through television after assuming office, but he did not. Similarly, there is a tradition of the prime minister speaking in Parliament, which he has avoided.

There are reports that the prime minister addressed a function organized by the Nepali Army. He also briefly addressed the international community regarding the foreign policy priorities of the new government. Prime Minister Balen is under scrutiny for bypassing Parliament. In the past, political leaders used to engage with the media and address Parliament regularly. However, the prime minister is consulting with ministers and lawmakers.

Conflict of interest: a key priority

For traditional political parties, conflict of interest was not a priority issue. However, for the Balen-led cabinet, it is a serious concern. Rastriya Swatantra Party Chairperson Rabi Lamichhane has issued a strong warning to ministers and lawmakers not to appoint their family members and relatives to government offices or their secretariats.

Prime Minister Balendra Shah removed Minister for Labor, Employment and Social Security, Deepak Kumar Sah, for misusing his office to appoint family members. The minister was sacked just 13 days into office. In the past, politicians and ministers faced criticism for appointing their relatives to government positions.

Recovering the economy: A herculean task

Economic recovery remains a key challenge for the Balen-led administration. The Asian Development Bank has projected that economic growth will slow significantly to 2.7 percent in fiscal year 2026, amid prolonged political uncertainty following civil unrest in early September and the ongoing conflict in the Middle East.

While a stable government could contribute to economic growth, the Middle East conflict poses risks through higher oil prices, reduced tourist arrivals, and potential disruptions in remittance flows. If the conflict continues, it could also affect fertilizer supplies, thereby impacting agricultural output.

According to the ADB, agricultural growth is projected to slow from 3.3 percent in 2025 to 2.7 percent in 2026, as paddy output is expected to decline by 4.2 percent due to delayed monsoon rains and the Oct 2025 floods. The conflict in the Middle East may also negatively affect the tourism industry, including the spring mountain season.

No major departure in foreign policy

The Balen administration has signaled that there will be no major shift in foreign policy. While addressing the 9th Indian Ocean Conference, Foreign Minister Shisir Khanal stated that Nepal’s foreign policy remains firmly grounded in the UN Charter, the principles of Panchasheel, and non-alignment.

Two weeks after the formation of the government, Prime Minister Balen briefed the diplomatic community in Kathmandu about the administration’s priorities. The government has indicated that it will focus more on internal issues than foreign policy, emphasizing engagement with major powers primarily on economic terms. This approach may help Nepal avoid being drawn into great-power rivalries.

Prime Minister Balendra Shah has received an invitation from Indian Prime Minister Narendra Modi for a bilateral visit. Both sides have tentatively agreed to conduct the high-level visit after the necessary preparations.

In the 275-member House of Representatives (HoR), opposition parties together hold one-third of the seats (93). However, the opposition is highly fragmented and lacks cohesion. As a result, it is unlikely to play an effective role in holding the government accountable.

Moreover, many opposition leaders appear hesitant to take a strong critical stance against the government, reportedly due to fear of legal or corruption-related cases being brought against them. Even leaders of the Rastriya Swatantra Party (RSP), who could have played a more assertive opposition role, are also unlikely to do so effectively, as the party has been criticized for adopting a restrictive internal approach toward its own lawmakers. Consequently, one of Parliament’s key functions—scrutinizing and checking executive power—appears increasingly weakened.

The judiciary, which should serve as an independent check on executive authority, also faces structural and political constraints. First, the dominance of ruling parties in the Constitutional Council and Judicial Council, which are responsible for judicial appointments, raises concerns about institutional independence. Second, the political tensions and protests of September last year have reportedly created an atmosphere of fear, which may discourage bold or independent judicial decision-making.

The media, often referred to as the fourth estate, also plays a crucial role in ensuring accountability. However, the current condition of the media sector is weak. Financial pressures have made many media houses vulnerable, reducing their capacity for independent and critical reporting. In addition, there is growing concern that media organizations may hesitate to challenge the government due to fears of reprisal.

Recent government actions—such as restricting access and reducing revenue channels for private media houses—have further strained the sector. Furthermore, there has been no strong commitment from major political actors, including the RSP, to uphold press freedom, and relations between media institutions and political leadership appear increasingly tense. Civil society, which traditionally acts as an important watchdog, is also largely ineffective at present. Its fragmentation along political lines has significantly weakened its independence and public trust.

In the past, the international community—particularly democratic countries—played an active role in raising concerns over freedom of expression and press freedom, often issuing statements when governments took repressive actions against journalists. However, in recent years, this engagement has noticeably declined. The international community appears to have shifted toward a more cautious or accommodating stance toward governments, even in the face of media restrictions and attacks on journalists. The democratic countries no longer uphold those values in Nepal. Taken together, these developments suggest a worrying trend: Nepal appears to be moving toward a system with a strong executive but increasingly weak and constrained institutions of accountability, with limited effective opposition voices.