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In recent months, some malicious actors have been plotting to unravel the very fabric of our society, sowing discord and unsettling the social harmony we hold dear.

This dastardly act first reared its head in Dharan in eastern Nepal, only to be thwarted by the efforts of local administration and security forces. The vigilant watch of political parties and civil society also played a pivotal role in quelling the potential flames of communal tension that threatened to spread to other parts of the country. 

Next, a similar dark event emerged in Malangwa, the district headquarters of Siraha, in Madhes province. A protracted curfew was imposed to suppress the brewing unrest. But the situation remains precarious in both Dharan and Siraha.

Now, a fresh wave of unrest has surged in Nepalgunj, a mid-western city, and there are fears that this discord may spread to other corners of the country. The catalyst for this upheaval was a social media post by a young Hindu man, which ignited protests by the Muslim community. They gathered at the District Administration Office and burned tires in the streets. In response to the protest, a local Hindu group took out a rally on Tuesday, which spiraled into a violent clash between the two groups. At least 22 individuals, including five security personnel, were injured. Nepalgunj is still under a curfew.

In the digital realm, the situation mirrors the turmoil in the streets. Social media has become a breeding ground for hate speech and incendiary rhetoric, posing a grave threat to social harmony. Individuals from one community are posting contents intended to vilify another, with even responsible local leaders guilty of propagating such harmful materials. Unfortunately, Nepal lacks a legal and institutional framework to monitor, regulate, and remove such toxic content.

The Press Council Nepal, the regulatory body for the media sector, has asked social media users to refrain from posting materials that could disrupt peace and harmony in our society.

In Nepal, social media platforms like YouTube, Facebook, Twitter, and TikTok serve as the battlegrounds for this digital discord. The Nepal Army was deployed in Nepalgunj to restore order, but some individuals continue to disseminate fake videos and photos, further stoking the fires of hatred. The government must take swift measures to address this issue without infringing upon the freedom of speech and expression.

For the first time in recent memory, signs of distress are surfacing in multiple locations simultaneously. If political parties, government agencies, and civil society fail to respond judiciously, the embers of communal violence may burst into a raging inferno at any moment. The government, which has pledged to uphold peace and harmony, cannot afford to remain indifferent to these developments. Yet, the government has been conspicuously absent. Prime Minister Pushpa Kamal Dahal was on a foreign trip for more than two weeks as the nation was grappling with communal tensions.

While minor cases of communal violence were once sporadic and localized, recent events suggest a more sinister motive at play. It seems that systematic efforts are underway to stoke religious tensions, potentially leading to the dismantling of the 2015 constitution, with shadowy forces lurking behind the scenes. The gravity of the situation cannot be overstated, and it is disconcerting that both the government and political parties seem to underestimate it.

Parliamentarians on Tuesday raised their voices in protest, compelling the government to finally acknowledge the systematic attempts to foment ethnic, religious, and regional tensions. At present, no prominent political party seeks to amend the constitution in any significant way, making it even more challenging to pinpoint the forces behind this campaign to ignite social and religious turmoil.

A senior security official suspects that some religious groups are behind these incidents, and that they are using some influential community and political leaders to push their agenda.

These unsettling developments are unfolding against the backdrop of a deepening economic crisis and a rising cost of living, which could further jeopardize our fragile economy. As the Dashain festival approaches, extended curfews in major cities threaten to cripple local businesses and, in turn, the local economy.

Frustration with the government and major political parties is reaching a boiling point, and opportunistic elements may exploit this discontent. 

Lawmakers, dissatisfied with the government’s response, have demanded more decisive action. Ishwari Devi Neupane, a Nepali Congress lawmaker, has warned against undermining Nepal’s “unity in diversity” and called for serious government intervention. Dhawal SJB Rana, a lawmaker from the Rastriya Prajatantra Party, has underscored the role of social media in sowing discord and urged the government to combat crimes committed through these platforms.

Chairman of CPN (Unified Socialist), Madhav Kumar Nepal, has also warned against attempts to disrupt social harmony, emphasizing Nepal’s history of peaceful coexistence among diverse religious and ethnic groups.

All security agencies, including the Nepal Army, are on high alert, closely monitoring the potential eruption of tensions in other parts of the country. Identity-based federalism and potential communal strife have emerged as significant security challenges. The Ministry of Home Affairs has also said that it is closely watching those actively fomenting trouble, with some arrests already made.

The Koshi province remains particularly vulnerable, with simmering tensions erupting in the name of the province, according to the observation of security agencies. Social harmony and peace have also been disrupted in the Madhes and Lumbini provinces. Reports suggest that fundamentalist elements are active in other parts of the country, adding to the complexity of the situation.

Home Minister Narayan Kaji Shrestha has been in dialogue with representatives of various religious organizations, seeking to uncover the forces behind these attempts to destabilize society.

While unrest in Nepalgunj and other regions is not entirely unprecedented, the current situation differs in its reach and intensity. Security experts say that a long-term solution is essential to address these issues. 

Tikaram Pokhrel, spokesperson for the National Human Rights Commission, has urged all stakeholders to preserve social harmony and unity.

Reflecting upon the intricate challenge of harmonizing theoretical principles with the practical facets agreed upon by political parties and commissions in previous political discussions, the ongoing discourse on transitional justice is deeply engaging. Almost 17 years have elapsed since the signing of the peace agreement, yet transitional justice persists as a sensitive and complex matter. There exists a unanimous consensus that for the peace agreement to be truly meaningful, the process of creating and implementing laws, along with the effective functioning of commissions, is imperative.

Transitional justice is not merely a concern for specific political entities but also a national priority. The key lies in fostering unity and responsibility among political parties, extending beyond legal technicalities. Moreover, strict adherence to the Supreme Court's interpretation and orders throughout the transitional justice process is a crucial aspect of moving forward.

It is important to recognize the prevalence of misleading narratives surrounding transitional justice and advocate for careful discussions to dispel such misconceptions. A special committee comprising experts and members having diverse political backgrounds must be formed and this committee should play a pivotal role in providing recommendations on the bill related to transitional justice. It is necessary to address ambiguities in the bill concerning the violation of human rights and crimes against humanity through simplified definitions.

Key recommendations are the significance of inclusivity when establishing a commission for truth-seeking, reconciliation and the identification of victims of transitional justice. Emphasis should be on the inclusion of individuals with national recognition and subject-specific expertise. Furthermore, tasks related to transitional justice, encompassing truth-seeking, prosecution, reparations and institutional reforms, need prioritizing.

Underscoring the importance of embracing restorative and transformative justice concepts involves active involvement of victims in the dialogue process to gain their trust and effectively address their grievances. The report puts forward a comprehensive approach that includes truth-seeking, prosecutions for crimes committed, reparations for the victims and institutional reforms to prevent future injustices.

There should be no fight against the victims of the war. Urging introspection among all stakeholders, emphasizing the need to expedite the transitional justice process and putting an end to injustice—these must be our priorities. The event, which served as a platform for prominent figures to share their perspectives and suggestions, stands as a crucial step toward forging a path forward in the transitional justice process in Nepal.

In conclusion, the recommendations presented here are grounded in the belief that careful, inclusive and comprehensive approaches are essential for effective progression of transitional justice in Nepal. By prioritizing national unity, dispelling misleading narratives and actively engaging victims in the process, all stakeholders should work collectively toward a society that values accountability, reconciliation and lasting peace. The journey ahead is challenging, but with concerted efforts from political parties, experts and the broader community, the goals of transitional justice can be achieved.

The author is executive director at Nepal Center for Security Governance

CPN-UML Chair KP Sharma has come down heavily on the Pushpa Kamal Dahal-led ruling coalition, likening it to a slow poison for the republic and questioning its commitment to democracy, the Constitution and its conduct of foreign relations. 

Oli launched a multi-pronged attack against the Dahal-led dispensation through his address to the House of Representatives on Tuesday, saying, “This government cannot administer one fatal dose (to democracy and the republican order). Nonetheless, it is acting as a slow poison for democracy and the Constitution. 

He accused the Dahal-led dispensation of suppressing the voices of the people and conspiring to render the Parliament useless by not giving businesses to the House and its committees. 

Oli went on to elaborate the characteristics of the dispensation thus, “While this government does not do what the Constitution has told it to do, it does what the Charter has barred it from doing—without fail”. 

Referring to the recent Cabinet decision to declare Fagun 1—the day the Maoist insurgency was waged 27 years ago (13 Feb 1996)—as a public holiday, the UML chair accused the government of glorifying violence through the move. The decision to celebrate the day has further hurt the sentiments of conflict victims, Oli said, demanding that the next Cabinet meeting withdraw the decision. 

He also protested the government move to grant blanket amnesty to criminals in the name of marking Constitution Day and turning the President into an entity that does the government’s bidding. 

Oli also took the government to task on ongoing investigations into corruption cases. The government opened Lalita Niwas scam files with much hullabaloo, now it is finding it hard to close them, Oli claimed, “The (60-kg) gold-smuggling case is also giving the government a hard time.” 

The government’s good governance campaign is actually aimed at shielding smugglers and murderers, he went on. 

This dispensation has appointed those candidates, who failed exams for district judges, as well as those who helped out election candidates from the ruling dispensation as judges, he maintained, adding that it is futile to hope for a better performance from this government. 

The conduct of diplomacy also came under Oli’s crosshairs as the latter blamed PM Dahal for failing to raise Nepal’s concerns during his recent visits to the United Nations, China and India.   

The World Bank has projected that Nepal's economy is poised to achieve a growth rate of 3.9 percent in the fiscal year 2024. This marks a notable improvement compared to the previous fiscal year, FY 2023, when the country’s economic expansion was limited, registering only a 1.9 percent growth rate.

The World Bank’s optimistic report comes amid a deep economic crisis that the country is facing. Releasing its Nepal Development Update-October 2023 on Tuesday, the World Bank has said that Nepal’s economy is expected to rebound to 3.9 percent in FY 2024 owing to the impact of the lifting of import restrictions, a strong rebound in tourism, and the gradual loosening of monetary policy. The economic growth in FY 2025, will be five percent, according to the World Bank.

In its report, the World Bank says that the impact of lifting the final import restriction measures in January 2023 and the gradual loosening of monetary policy are expected to support growth in the industrial and services sectors. “Sub-sectors that suffered the brunt of the import restrictions and monetary policy tightening in FY 2023, including wholesale and retail trade, construction, and manufacturing, are expected to gradually recover over the forecast period,” reads the report.

While wholesale and retail trade are expected to benefit from the lifting of import restrictions and boost service sector growth, the report says, agricultural sector growth is expected to slow in 2024 due to the impact of the lumpy skin disease on livestock and a decline in rice production.

According to the report, strong energy sector growth helped to avoid an industrial contraction, since manufacturing and construction outputs shrank. Hydroelectric generation increased significantly for the second year in row and added close to 500 megawatts of hydroelectric power to the national grid, the report says, Nepal nevertheless remains a net energy importer.

The top financial body further states that slow credit growth and import restrictions contributed to a reduction in private investment on the demand side. Lower capital expenditure and revenue underperformance drove lower public investment. As a result, total investment decreased by more than 10 percent, a sharper reduction than in 2020. Private consumption remained robust, owing to strong remittance inflows.

Inflation is gradually increasing and a new report says that it is likely to go up.  Average consumer price inflation reached a seven-year peak in 2023. Average inflation amounted to 7.8 percent, above the central bank’s seven percent policy ceiling, driven by both food and non-food prices. Key drivers of food prices, which increased by 6.9 percent, included supply side shocks such as India’s wheat and rice export restrictions, and domestic policy changes including the removal of VAT exemptions on multiple basic food items and price support to producers of rice paddies, milk, and wheat, the report says.

Non-food prices rose by 8.5 percent, driven by higher housing and utility prices, and an increase in the consultation fee of medical doctors in May 2023, the report states, the decline in edible oil prices from February 2023 onwards, reflecting global price reductions, had an offsetting effect on prices. The persistence of high inflation impedes policies to stimulate growth. Particularly, Nepal’s vulnerability to external shocks implies a difficult trade-off between policies that boost growth and those that contain inflation, according to the report.

Agricultural output remained resilient and expanded by 2.7 percent. Rice paddy production supported the sectoral growth and increased by 6.9 percent, reflecting a good summer monsoon and improved seed varieties (Figures 1 and 2). However, a lumpy skin disease has affected livestock as of early April 2023, infecting more than 1m and killing close to 50,000. The resulting lower dairy product and meat production could negatively affect agricultural output growth. Updated statistics will be released by the National Statistics Office in April 2024.

Manufacturing and construction shrank by two percent and 2.6 percent, respectively. The decline was partly due to lower production of key construction materials (cement, basic iron, and steel) and vegetable oils in the first half of FY 2023. Higher frequency indicators suggest that the decline continued in the second half of FY 2023. Lower demand resulting from the elevated prices of manufactured goods and construction materials further weighed on industrial output, which increased by a meager 0.6 percent.

Sluggish wholesale and retail trade slowed the pace of services sector growth. Authorities estimate that the services sector expanded by 2.3 percent in this year, the slowest pace since 2020. Growth of the wholesale and retail trade sub-services sector declined 0.5 percent due to high inflation and lower goods imports.

Looser monetary policy and the lifting of import restrictions imply an increase in goods imports over the medium-term, the report states, policies to contain credit growth and lower one-off imports, including of Covid-19 vaccines, are expected to keep imports below its 2022 historic high. Near-record migration of Nepali workers should be reflected in strong medium-term remittance inflows which, however, are not expected to balance the goods and services trade deficit. Consequently, the current account deficit is expected to widen to 3.7 percent of GDP in 2025, and 4.6 percent of GDP in 2025. 

Revenues are expected to increase in line with higher goods imports, given that taxation focuses heavily on trade. The 2024 budget envisions lower federal spending on capital investment and fiscal transfers to subnational governments, yet higher debt servicing costs. Overall, the recovery of revenues is expected to reduce the fiscal deficit to 3.5 percent in 2024 and 3.3 percent in 2025. Together with the rebound in growth, tighter fiscal policy is expected to keep the overall public debt burden contained at around 41 percent of GDP in 2024 and 2025.

In the external sector, the current account deficit narrowed to a six-year low in 2023, driven by lower imports and higher remittances. The current account deficit fell from 12.6 percent of GDP in 2022 to 1.3 percent of GDP this year.  The reduction occurred through lower imports of goods and services, which fell from 42.6 percent of GDP in 2022 to 34.5 percent of GDP in 2023. Exports on the other hand remained stable, and remittances rebounded strongly. Foreign reserves ended 2023 at a comfortable level of 10 months of concurrent import cover, above the policy floor of 7 months of import cover.

Official remittance inflows surged to a five-year high in this year. Remittance inflows climbed from 20.4 percent of GDP in 2022 to 22.7 percent of GDP.  Nepal’s dependence on the export of workers and remittance inflows increased sharply over the past two decades. Goods and services exports have fallen significantly since the early 2000s as a percentage of GDP.

In FY23, total exports amounted to 6.9 percent of GDP, only one-third of what the average South Asian middle-income country exports. Not surprisingly, the 2019 World Economic Forum Global Competitiveness Index ranked Nepal 108th out of 141 countries.30 Net foreign direct investment (FDI) has also underperformed. Remittance inflows on the other hand increased to 22.7 percent of GDP in FY23, are the main source of foreign currency, and the main driver of private consumption and economic growth.

According to the bank, the near-record migration of Nepali workers should be reflected in strong medium-term remittance inflows which, however, are not expected to balance the goods and services trade deficit. “Consequently, the current account deficit is expected to widen to 3.7 percent of GDP in FY 2024, and 4.6 percent of GDP in FY 2025,” reads the report.

However, there are multiple risks to the outlook including an erratic monsoon, which could dampen agricultural growth; a renewed spike in commodity prices or continued food export bans by India which would raise prices; and higher inflation which could keep policy rates elevated, increase domestic debt servicing costs, and drag on growth. 

“Amid challenges, Nepal is leading the way towards operationalizing its green, resilient, and inclusive development vision to shape the country’s long-term economic recovery,” said Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka. “Improved external competitiveness is key to driving this recovery and enabling Nepal to compete in export markets, in terms of both prices and quality. This requires an emphasis on reforms to help increase domestic productivity and reduce the inflation differential with Nepal’s trading partners.”

 Major points

• Nepal’s export performance has continuously declined.
• Real appreciation of exchange rate and productivity deficit negatively affected exports.
• The budgetary process needs further strengthening to better support planning.
• Increasing domestic productivity and containing domestic inflation key to improving external competitiveness.
• Credit growth to the private sector slowed owing to policy measures taken to help correct the external imbalances.
• Fiscal space diminished further with the contraction of revenues.
• Economic activity is expected to gradually gain momentum. 
• The current account deficit is expected to increase moderately.
• A rebound in revenues should reduce the fiscal deficit and contain public debt.
• Prudent policies to stimulate growth and contain downside risks are key.

Recommendations

• Changing the current tax model by shifting taxation away from the border and reducing high import tariffs
• Improving the implementation of fiscal federalism which would facilitate effective investments in infrastructure and services
• Simplifying and streamlining processes to attract more FDI which would create significant knowledge and spillover effects.
• In addition, containing domestic inflation would reduce the inflation differential with trading partners. This would help avoid further real appreciation of the exchange rate.