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Prime Minister KP Sharma Oli faces a complex situation of challenges and opportunities as he begins his fourth stint as the Prime Minister. His ability to become Prime Minister with the support of one of those forces is his political victory. Oli’s most significant advantage in his fourth term lies in parliamentary politics as he enjoys a near two-thirds majority in the lower house. This offers him an opportunity to break the political deadlock that has hampered Nepal's progress and to address pressing national issues.

He also has formidable challenges to tackle. Foremost among these is the need to revitalize an economy battered by global headwinds and domestic instability. Oli must come up with programs and policies that stimulate growth, boost investor confidence, attract investment and create jobs, while also managing inflation and fiscal pressures. Another critical task is completing the transitional justice process. For this, he will need to work closely with the main opposition CPN (Maoist Center)—one of the parties to the decade-long insurgency. Oli needs to demonstrate statesmanship by ensuring a fair and comprehensive approach that addresses the concerns of conflict victims while also bringing perpetrators to book.

Oli also faces a daunting task of balancing relations with Nepal’s giant neighbors, India and China. His relationship with India soured in the latter stage of his second term. He needs to make every possible effort to improve ties with the southern neighbor, which also happens to be the country’s largest trading partner. Oli must take a consistent and balanced approach that safeguards Nepal’s interests while maintaining cordial ties with both powers. This extends to managing relations with other international partners, including the United States.

Oli must work to foster cordial relations with other political parties. While his collaboration with NC gives him numerical strength, he needs to foster cooperation and mend ties with other parties who are wary of him, given his past attempts at dissolving parliament. He also needs to build trust with state institutions. The septuagenarian can steer the country toward stability and progress by learning from past mistakes, embracing a collaborative approach and focusing on national priorities.

This year’s monsoon season has once again exposed the glaring shortcomings in the government’s disaster preparedness and response mechanisms. With more than 80 lives lost, hundreds injured and thousands displaced across the country in just the first month of monsoon rains, it is clear that the authorities have failed to learn from past experiences and implement effective measures to mitigate the impact of annual floods, landslides and other disasters.

Police say 161 houses are submerged in floods, 138 houses are damaged, 54 animal sheds are destroyed, 41 bridges have collapsed, and 2,764 families are displaced due to various disaster incidents. The fact that such extensive damage occurs year after year reflects the government's inability to address this recurring issue. According to the National Disaster Risk Reduction Management Authority, 92 people died due to monsoon-related disasters last year. Likewise, 30 went missing and 168 sustained injuries in different incidents. A total of 459 landslide incidents, along with 142 cases of flooding, 168 instances of heavy rainfall and 113 reports of lightning in 2023.

Experts have raised questions about the rainfall forecasting capabilities of our authorities. Although there is now a system to send alerts to people whenever water levels in major rivers rise, there is no such mechanism for other disaster events. Infrastructure development in Nepal has also been shortsighted. The collapse of 41 bridges and damage to roads not only highlight a lack of resilient infrastructure but severely hamper rescue and relief efforts, isolating affected communities when they need help the most. This points to a systemic failure in planning and executing infrastructure projects that can withstand the country’s challenging topography and climate.

Moreover, the government’s disaster response appears reactive rather than proactive. The focus seems to be on search and rescue operations after disasters strike, rather than on preventive measures and community preparedness. While the efforts of rescue teams are commendable, a more proactive approach could save more lives and reduce the scale of devastation. As Nepal faces the increasing challenges of climate change, the need for effective disaster management is more pronounced than ever. The government must act now to prevent future tragedies and protect its citizens from the devastating impacts of natural disasters.

The frequent change of governments has been an usual phenomenon in Nepal. The country has not been able to see political stability even after promulgating the new constitution and holding two periodic elections. Although Pushpa Kamal Dahal has been at the helm of government since the November 2022 elections, despite his party finishing a distant third in the parliamentary polls, he has reshuffled cabinet 18 times by changing his coalition partners. In this scenario, the recent agreement between the two largest parties in the House of Representatives, Nepali Congress (NC) and CPN-UML, to form a coalition government offers some hope for a more stable future. 

The 2015 constitution, which has been hailed by Nepali leaders as among the best in the world, has contributed to political instability. No single party has been able to secure a clear majority, leading to a series of fragile coalition governments. The agreement between the two major parties to form a consensus government by bringing other parties on board, however, signals a shift toward more stable governance. This agreement, which covers issues ranging from constitution amendments to the formation of a lasting government at both center and provinces, has raised optimism among Nepalis who have long yearned for political stability and economic progress.

The new government has some pressing issues to deal with. The two parties have pledged to form a committee to amend the constitution. The amendments should address all the issues that are hindering implementation of federalism. The coalition must work toward amending the constitution to address existing barriers and create a more effective governance structure. Completing the peace process through appropriate transitional laws is crucial for national reconciliation and stability. It has been one of the major contentious issues for the three major parties in parliament. Likewise, improving administrative efficiency and public services should be a top priority to restore public trust in the government. Once the political situation becomes stable, it is expected to spur economic activities and create jobs, which is essential to address the growing discontent among the people, particularly the youth.

The new coalition must rise above personal and party interests. This union of two largest parties in the country is not only crucial for domestic progress but also to present a strong front against increasing external influences that threaten Nepal's sovereignty. The success of this coalition could be the turning point that the country has long awaited, paving the way for sustainable development and renewed hope for the people.

Nepal Rastra Bank (NRB) is preparing its Monetary Policy for the fiscal year 2024-25. Since various sectors of the economy are experiencing stagnation for a long time, stakeholders are making calls for a policy that can reinvigorate the economy. The fiscal policy introduced by the government through the budget is traditional in nature. Since this budget cannot find a way out of the crisis, the monetary policy needs to be able to reenergize the economy.

While expectations are high for a more flexible approach, particularly in areas like construction, share market and real estate, Governor Maha Prasad Adhikari’s recent statements suggest that the central bank will take a cautious stance. Speaking at interactions on upcoming policy a few days ago, Governor Adhikari said borrowers are still looking for a solution to their debt obligations through the monetary policy.

The economy’s sluggishness is evident in the banking sector’s excess liquidity. More than Rs 600bn of investable funds is sitting idle in banks due to a lack of demand for credit. The central bank needs to bring policies to create demand for loans so that this investable fund is used to increase productions and create jobs. The central bank is faced with a dual challenge. While it is facing pressure to relax policies in sectors like real estate and the stock market to spur economic activity, there are valid concerns about excessive lending to unproductive sectors. The central bank must find a middle ground that encourages growth without compromising financial stability.

However, we must not forget that problems in the banking sector indicate issues in the overall economy. Therefore, problems in the banking sector should be taken seriously. Banks are currently struggling to recover principal and interest on loans. They may be making billions in profits, but their return on equity is declining over the past few years. Financial statements of commercial banks for the third quarter show more than 10 commercial banks have negative distributable profits. It remains to be seen how the central bank will address all these issues in the upcoming monetary policy.