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Nepali youths want to carve out a distinct identity of the country—other than that of the land of brave warriors—particularly in the field of information and communications technology (ICT).

Is the government ready to create a supportive environment for the realization of this mission?

This unanswered question sits uncomfortably among young dreamers, innovators and inventors at a time when a body of research has shown that the coming decades will be the age of Asia.
According to a report from the McKinsey Global Institute (2019), Asia, home to more than half of the world’s middle-class population, already accounts for over 50 percent of global GDP growth while the Asian Development Bank (ADB, 2023) forecasts that Asia-Pacific's sustained growth, driven by trade, technology and urbanization, will continue to reshape global power balances.
Located between two global economic powerhouses—China and India—Nepal has “great prospects” for economic collaboration and development lying ahead.  

Though it sounds a bit cliched, the government and other stakeholders should have an unwavering focus on ways to reap “benefits” from the two large markets.

Today’s youths dream of transforming Nepal, a member of the grouping of low-income countries, into a middle-income country (at least in a few years). Make no mistake: they are dreaming with eyes wide open, with a sense of eagerness and mission, and they are working quite hard to fulfill it.

Sprouting start-ups, firms and product/service enhancement facilities, especially in the field of ICT, are a living proof of their commitment to the mission. 
At a time when, according to reports, around 2,000 youths are leaving the country daily, growing businesses like these offer a glimmer of hope.

This begs a key question: Is the government really ready to accept, encourage, promote and develop this bubble of hope?

Action speaks louder than words, doesn’t it?

Thus far this year, the parliament has passed some important bills to promote youth enterprises such as the Bill to Amend Some Nepal Acts Related to Good Governance Promotion and Public Service Delivery (Amendment), 2024; Cooperatives Bill, 2024; Economic Procedure and Financial Responsibility (First Amendment) Bill, 2024; Privatization (First Amendment) Bill 2024 and Improvement of the Economic and Business Environment and Investment Promotion Bill, 2024, bringing cheers from the private sector and other stakeholders.

The recently-published fiscal policy of the government appears to be a small step in the right direction and let’s hope that the monetary policy will also power the start-ups and help give the gig economy a boost through measures like favorable interest rates.
Still, the roadblocks remain on this path with several studies and research papers highlighting the ambiguities and hurdles in policies, bills and articles related to business operations in Nepal.

What is the way out, then?  
Instead of bulky policies and controlling bills, relevant government authorities can create simple, easy and supervisory bills to remove these obstructions. 
And how about introducing start-up friendly policies, which can create a favorable business environment by opening the door for many opportunities within the country.
Michael Porter rightly says: Innovation is the central issue in economic prosperity.

It is a given that invention and innovation are the only tools that can leapfrog the economy.

Looking back into the global growth and development trajectory, one finds that every developed country has almost the same story: They all began with invention and innovation in commodities, and achieved a competitive advantage in the international market. South Korea, Singapore, India, Bangladesh and Sweden are doing extremely well on this front, especially over the decade. Make no mistake: these two i-terms—invention and innovation—aren’t accidental things. Rather, they are the result of consistent efforts of many minds and hands.
There’s no reason why Nepali youths cannot achieve this feat and take the country to a new era—with a little help from all stakeholders, the government in particular. 

Nepal Rastra Bank has started preparations for the formulation of monetary policy for the fiscal year 2025-26. The newly-formed Monetary Policy Committee has an uphill task of focusing on global practices, the context of Nepal and the path that it should take in the coming days against the backdrop of permanent pegging of Nepali currency with Indian currency and the absence of good governance in the country.

What is a monetary policy? 

Before delving further, let’s begin with a key question: what is monetary policy?

Monetary policy is related to monetary or currency matters such as cash reserve ratio, statutory liquidity ratio, open market operations, repurchase obligations. It affects the money supply in the economy. 

Who drafts the monetary policy? The central bank of a country—the Nepal Rastra Bank in the case of our country. 

When talking about this policy, another related policy also comes to mind and that’s fiscal policy. This policy is used to monitor and influence the economy of a nation.

Fiscal policy is the “sister strategy” of monetary policy through which the central bank influences the money supply of the nation. Formulated by the Ministry of Finance, it deals with fiscal matters such as government revenue (tax policies, non-tax matters like disinvestment, debt collection, service charges, etc) and expenditure matters—grants, salaries, pensions, money spent on creating capital assets like roads, bridges and the like).

The twin policies deal with inflation (the rate of increase in prices over a given period of time). The main objectives of monetary policy are as follows:

To check inflation or deflation (increase and fall in prices, respectively) or price stability in the country, to safeguard the country’s gold reserves, exchange rate stability, elimination of cyclical fluctuations, achievement of full employment and accelerating economic growth, etc.

Dealing with inflation: A tight monetary policy that reduces money supply in the system—that is one way of dealing with escalating prices.

Dealing with devaluation: This is done by increasing money supply in the system, by adopting an easy money policy and a cheap money policy.

When the economy is devastated by a war or hampered by a recession, a dispute or disruption in the economic horizon is very beneficial. In such situations, a country may adopt a dear/cheap money policy.

There is also a distinct difficulty and confusion when it comes to grasping monetary policy. Some people tend to think that dear money means that its value is high in terms of goods and services i.e prices are low while some others think cheap money means that the value of money is low and prices have increased.

Which money policy is better: It all depends on the economic situation facing a country. Interest rate is an important tool for the implementation of an economic policy. There are times when an economic policy demands that the interest rate in the money market be kept low and sometimes it demands that the interest rate be kept high for fulfilling certain economic objectives.

After this discussion, we are now in a position where we can classify these two policies based on their respective uses. We can say that we can identify the time and reason i.e when and why we use one of these two policies.

A tight money policy is preferred when the balance of payments is heavy against the country or is in danger of remaining unfavorable and when there is reckless or unwise investment from industries/industrialists and when credit creation by the banks exceeds all prudent limits.

Limitations: Monetary policy has to face many difficulties, especially in underdeveloped countries like Nepal. The existence of a large non-monetized sector—one-third of the economy in underdeveloped countries—can seriously limit the scope of use of monetary weapons, but two-thirds of the economy provides a fairly large opportunity for monetary action. Moreover, in such countries, currency occupies a relatively more important place than bank deposits. 

There’s a popular Calvin and Hobbes quote that goes: Never in the history of calm down has anyone calmed down by being told to calm down. For me, no other quote has resonated as much as this one, especially in the past few months when everyone around me has been telling me to calm down or take it easy the minute they see I’m a little worked up. But is there anything such as a stress-free life? Life demands so much from you and it’s not actually all that bad. 

I don’t understand why people see every little stress as something negative and even scary. While chronic stress is definitely not a good thing, I feel daily stresses actually keep you on your toes and stop you from becoming complacent. They make you think, ideate, and come up with effective solutions. It can put your brain in problem solving mode and push you out of your comfort zone. There is something called positive stress (eustress) and studies have shown that it can actually be beneficial for your overall well being. 

And to be honest, there is no avoiding stress. There are different chores or things that go wrong in the house that need your attention. We all know how frustrating it is to get anything done in Nepal. One simple task needs a dozen phone calls. At work, you have deadlines to meet, difficult colleagues to deal with, issues that need ironing out, and bureaucratic hurdles that give you splitting headaches. Anticipation, excitement, and even anger sometimes can cause stress that motivates you to take action and change what you don’t like about your life. 

I’m not talking about chronic stress. I understand that has a lot of negative health impacts but acute stress, those that come and go quickly, isn’t something that needs to be feared and shunned. Most people around me don’t seem to realize that stress is a part of life and you can’t escape it simply by ignoring your problems or ‘letting go’. Talking about your problems or dwelling on them is often seen as marinating in negativity. But for me, discussing issues with my parents or partner or contemplating about them on my own makes me more likely to be able to fix what’s wrong. On the other hand, if I were to simply try to push problems out of my mind (as I’m often told to) I’d inevitably be consumed by them.

I must confess that I’m actually on the verge of losing it if one more person tells me to calm down. When people tell me to let things slide, they are asking me to put up with rude behavior, be okay with not getting things done, or give time for things to settle on their own (which I think is such a cowardly and lazy thing to do). All this, I believe, will make me vulnerable and unable to cope with my problems in the long run as it will hamper my decision-making skills and take me from being an action-oriented to an avoidant person. 

As a society, we have adopted a negative mindset towards stress. The moment you tell someone you are stressed or worried, they tell you to take a deep breath, calm down, or just let it go, sometimes even without asking what’s bothering you. ‘Don’t stress’ is the lamest advice I have ever heard. It’s like telling an anxious person not to be anxious or someone who has the flu or a stomach ache to just pretend they aren’t ill. It’s the most useless advice because it doesn’t work and it also shows you that the other person doesn’t care about you or your problems. Have you watched the same people bending backwards trying to fix things when it’s their or their loved ones’ lives in question?

According to Dr Richard Shelton, Department of Psychiatry at the University of Alabama, Birmingham, stress is the body’s fight or flight response being activated and it’s meant to be protective, not harmful. The key, he says in an article I read recently, is viewing stressful situations as a challenge rather than a roadblock. 

Nepal’s FY 2082-83 budget outlines a theoretically-backed comprehensive growth strategy aiming for a 4.6 percent GDP expansion through substantial agricultural modernization (Rs 47.84bn), land reforms and fiscal decentralization (Rs 452.83bn). However, despite its ambitious design, the budget’s potential effectiveness is fundamentally undermined by systemic governance and government failures, and deeply rooted political constraints. While it superficially aligns with the 16th five-year plan’s objectives of institutional strengthening and structural transformation, its implementation faces critical obstacles. These include a persistent planning to implementation gap, exacerbated by the Finance Ministry’s heavily-politicized entity of fiscal authority; chronic infrastructure deficits, with irrigation coverage only at 35 percent and 30 percent of rural roads inadequate; and entrenched institutional inefficiencies reflected in low capital expenditure utilization rates (3.36  percent of GDP, Rs 192.03bn) alongside severe agricultural non-performing loans (NPLs) estimated at 20 percent.

The budget regrettably fails to confront the root causes of Nepal’s developmental stagnation particularly the deeply-embedded political patronage networks and pervasive bureaucratic corruption, as reflected in Nepal’s low ranking (108/180) on the Transparency International Corruption Perceptions Index. Instead, it offers primarily rhetorical commitments to address these chronic national challenges and to adopt international best practices. Without instituting genuine depoliticization on economic governance and addressing structural bottlenecks through governance reforms rather than pity administrative adjustments, these budgetary ambitions are likely to again add on another story of Nepal’s long history of unimplemented development plans, perpetuating a cycle of ambitious policy making followed by underwhelming execution. Ultimately, the budget represents a missed opportunity for transformative change, prioritizing political appeasement over the rigorous institutional reforms necessary to break Nepal’s persistent low-growth equilibrium.

The NPL challenge

Nepal’s aspiration to attain middle-income status by 2026 appears increasingly precarious given its deeply rooted structural imbalances not by finance or investments. The economy remains service dominated over production or processing, contributing 62.01 percent of GDP, yet its agricultural sector responsible for 61 percent of employment only accounts for 25.16 percent of GDP, reflecting low productivity and underinvestment. This skewed sectoral composition exacerbates Nepal’s external vulnerabilities, including a heavy reliance on remittances (25.82 percent of GDP, Rs 1051.77bn) and a persistent trade deficit (91.6  percent for a 11-year average) of comparable magnitude. The budget utterly failed to address this magnitude. This severity is neither properly understood by budget formulated groups nor political leaders. 

Furthermore, Nepal’s growth model is fundamentally compromised by severe credit misallocation: a mere 7.7 percent of bank lending reaches on agriculture, which suffers from debilitating infrastructure gaps (35 percent irrigation coverage, 30 percent deficient rural roads) and institutional weaknesses manifesting in chronic non-performing loans (NPLs) estimated at 20 percent within the sector. These structural inefficiencies reinforce a vicious cycle reminiscent of Stiglitz-Weiss credit rationing dynamics, where productive sectors face systematic financial exclusion due to high perceived risks and weak governance, further entrenching underdevelopment. Comparative evidence from Rwanda, Vietnam and Bangladesh offers valuable insights into viable pathways for reform through targeted credit policies and institutional modernization. However, Nepal’s middle-income ambitions will remain elusive without first addressing its foundational governance pathologies and overcoming the political economic constraints that perpetuate these systemic inefficiencies.

Comparative lessons

The remarkable economic transformations of Rwanda, Vietnam and Bangladesh exemplify how resource-constrained developing countries can achieve rapid development by implementing integrated strategies combining depoliticized institutional reforms, strategic infrastructure investment and financial sector modernization.

Rwanda’s post-conflict recovery is particularly instructive. It has sustained average GDP growth rates of approximately seven percent, achieved through targeted infrastructure spending up to eight percent of GDP and successfully reduced NPLs from around 10 percent to three percent. Rwanda’s progress illustrates how coordinated government commitment to institutional credibility, anti-corruption efforts and digital financial oversight can create a virtuous cycle promoting economic growth and stability.

Vietnam’s Đổi Mới reforms represent another successful model, driving a sixfold increase in GDP per capita over three decades. Vietnam’s concerted industrialization efforts, supported by infrastructure expansion and prudent fiscal policies, saw a dramatic reduction in NPLs from 15 percent in the 1990s to about two percent today. The Vietnamese experience underscores the importance of bureaucratic streamlining and political commitment to policy consistency in sustaining long-term growth.

Bangladesh, despite geographic and infrastructural constraints, has maintained resilient economic growth averaging 6.6 percent annually. Its development trajectory features innovative financial sector reforms, including widespread microfinance integration, which helped reduce NPLs from eight percent to five percent. The construction of landmark infrastructure projects like the Padma bridge exemplifies Bangladesh’s strategic investments to improve connectivity and boost productivity, which, together with anti-corruption measures, have fortified institutional credibility.

These cases collectively reveal that successful development hinges on creating virtuous cycles that link institutional credibility manifested in robust anti-corruption policies and administrative streamlining—to productivity-enhancing infrastructure (achieving electrification and road coverage rates of 80 to 90 percent) and financial system health through digital monitoring and asset management. Most importantly, curbing political interference is essential for ensuring long-term policy consistency. While these nations now face new challenges in sustaining growth through complex environmental and social dimensions, their experiences offer critical lessons for Nepal’s development strategy.

Lessons for Nepal

Nepal’s fiscal policy for 2025-26 presents an ambitious but potentially constrained reform agenda seeking to address systemic economic challenges through multi-sectoral interventions. However, its effectiveness remains questionable given the country’s deeply embedded structural frailties. Nepal’s banking and financial institutions (BFIs) continue to exhibit fundamentally-flawed lending practices characterized by poor risk assessment, negligent due diligence and inadequate implementation of BASEL risk management frameworks. To address these deficiencies, Nepal Rastra Bank must adopt a more assertive regulatory stance, enforcing stricter supervisory frameworks and institutionalizing risk-based lending standards across the sectors. This would entail a proactive posture including regular stress testing, the establishment and robust use of credit registries, and deployment of digital compliance and monitoring tools, all essential to restoring financial discipline and reducing systemic risk. NRB could implement Likert framework to designate BFIs based on their performance especially NPLs mitigation.

A persistent problem is the systemic conflation of institutional promoters with entrepreneurs, which has fostered perverse incentives that prioritize patronage networks over genuinely creditworthy borrowers. This dynamic artificially inflates non-performing loans across the banking sector, distorting the credit allocation process. Politically-connected insiders continue to receive preferential access to credit, while legitimate entrepreneurs are marginalized. This misallocation has contributed to the dangerous accumulation of non-performing assets, threatening the stability and integrity of the financial sector. Furthermore, the absence of clear governance boundaries between BFIs’ ownership, management and entrepreneurs has institutionalized reckless lending behavior, with credit risk analysis routinely subordinated to personal and political considerations in decision-making processes.

The budget references policy initiatives inspired by international models such as Bangladesh inspired asset management firms for NPL resolution (budget point 323), Rwanda-modeled infrastructure public-private partnerships targeting 5-8 percent of GDP allocation and Vietnam-style bureaucratic streamlining aiming to boost growth via agri-forestry and tourism sectors. However, these theoretically sound measures confront Nepal’s unique implementation barriers, including chronic government instability (14 governments since 2008), a dysfunctional federal system and pervasive governance failures that have historically undermined reform efficacy.

Despite allocating Rs 57.84bn to agriculture, theoretically sound through Lewis and Ricardian frameworks that operational failures persist: 20 percent NPLs, 35 percent irrigation coverage, 30 percent poor rural roads, 20 to 30 percent subsidy leakage and understaffed extension services. This dysfunction leaves the sector underfinanced and development goals unmet. The budget ignores how unresolved NPLs deter private investment, undermining its own targets, with neither MoF nor NRB addressing this chronic flaw. While Rwanda’s digital finance, Bangladesh’s microfinance/rural finance and Vietnam’s rural electrification offer solutions, Nepal’s political economy and weak federal execution hinder  these replications.

Broader reforms aimed at trade deficit reduction, FATF compliance and land digitization face similar risks of being undermined by systemic corruption (CPI rank 108/180), bureaucratic apathy (approval delays extending from 6 to 12 months) and technological underdevelopment (with only 10 percent LiDAR coverage). While the overall policy framework demonstrates adequate technical design informed by international best practices, Nepal’s aspirations for sustained growth will likely remain unrealized without first addressing fundamental governance pathologies and curtailing rampant political influence that advance the very structural constraints these reforms seek to overcome.