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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.

With the federal budget for the upcoming fiscal year announced, it is crucial to review the transparency of the system by which the budget is made. Budget formulation and public finance management systems in Nepal have undergone significant changes in recent years, especially after the implementation of federalism in 2015. Participatory budgeting and public accountability are repeated themes in every budget announcement. Political parties boast of presenting citizen-centric budgets that promise to improve governance quality and address corruption. While the Ministry of Finance has made attempts to deliver on these claims, gaps still remain.

In a survey conducted by the International Budget Partnership (IBP) in 2023, Nepal was ranked 58th out of 125 countries for budget transparency, displaying moderate performance in public access to credible budget information. While this performance is relatively better compared to other South Asia countries, it falls short of standard international benchmarks. During six rounds of IBP surveys between 2010 and 2023, Nepal’s budget transparency score averaged 42, consistently remaining below the ‘sufficient score’ of 61. 

Untimely and limited disclosure of key budget documents, combined with the absence of a citizens’ budget, and limited public participation in budget formulation, are key bottlenecks that keep the country’s budget transparency low. 

Political interference in the budget-making process is another factor that impedes transparency. Rent-seeking behaviour and political lobbying to alter tax rates in favour of interest groups are not uncommon in Nepal. In 2022, the then-finance minister, Janardan Sharma, had to temporarily resign following allegations that he had employed two unauthorized persons to tweak tax rates the day before the 2022-23 budget was presented. In 2023, allegations emerged that information about tax increases on electric vehicles was leaked to car dealers, who then rushed to bring the cars into Nepal before the budget was presented. In both instances, the finance ministers were given a clean chit. Such instances significantly dent the country’s image on budget transparency internationally. 

In addition to the above factors, a major driver of Nepal’s poor budget transparency is low public accountability. Citizens possess limited knowledge of the budget-making process and public financial management (PFM) systems, resulting in low budget literacy levels in the country. 

This knowledge gap is driven by the complexity of our PFM system and the scarcity of resources for citizens to learn about Nepal’s budget management. 

The World Bank’s Third Public Expenditure and Financial Accountability Assessment assigns Nepal a ‘C’ rating regarding access to fiscal information, highlighting large gaps in the availability of critical public finance data. Implementing federalism has further layered PFM processes, increasing the already wide public fiscal knowledge gap. And during this time, there have been limited initiatives by the government to educate taxpayers about how public money is being raised and spent.

The above discussion does not mean that a complex fiscal system is an unwanted system. Complexity can ensure accountability, improve public participation and establish best practices for fiscal management. However, it should be complemented by enhancing public knowledge of how fiscal systems work in the country. Taxpayers should get to know how their tax money is being spent and how effectively the government is utilizing the funds to deliver welfare outcomes. As sub-national governments now bear significant expenditure responsibilities, public fiscal education has become particularly important. It can empower the masses to hold their electorates accountable and enable them to demand services that sub-national governments are constitutionally mandated to provide. 

Research from the World Bank suggests that there is a systematic relationship between budget literacy and budget transparency. Budget literacy initiatives can effectively close the budget transparency feedback loop by enhancing the citizens’ capacity to analyze their government’s fiscal data and scrutinize budgets. Research also confirms that participatory budgeting is strongly associated with a reduction in extreme poverty and an increase in access to basic services. 

While several initiatives exist that can enhance budget literacy, there are a few practical ones that are feasible in Nepal’s context. Two important interventions stand out: one, publishing a citizen’s budget that presents and summarizes key budget information in a less technical, easy-to-understand format (a practice many countries undertake); two, introducing budget literacy components in education curricula to build an understanding of public finance management among students and youth. The IBP has consistently urged Nepal to adopt these interventions, particularly the publication of a citizens’ budget, as a crucial step toward improving budget literacy.

Other potential interventions include creating interactive online platforms that act as a single-source-of-truth for public finance data, conducting awareness programs at the community level, and undertaking extensive consultations with civil society for budget formulation. These interventions have the potential to significantly enhance Nepal’s fiscal transparency and bring its scores in line with international standards.

Public accountability starts with education. We need to proactively learn about the country’s fiscal system and empower ourselves to constructively criticize the government in cases of failures and inefficiencies. Key government stakeholders—the Ministry of Finance, the Office of the Auditor General, Public Expenditure and Financial Accountability Secretariat, and others, need to build the enabling frameworks. Think tanks and development agencies need to enhance their role in reporting on Nepal’s public finance management and help bridge the knowledge gap. Generating public interest in this critical but often overlooked field is important as we enter the new fiscal year, and all stakeholders must play their part to this end.

The invention of the printing press by German inventor Johannes Gutenberg in the mid-15th century revolutionized the mass distribution of knowledge and information, significantly transforming the practice of politics. More than five centuries later, we are witnessing a similar technological upheaval with the explosive rise of generative artificial intelligence (AI), which is reshaping every sphere of society, including politics and democracy, at an even greater and more profound scale. While the Gutenberg press enabled the spread of knowledge, generative AI can not only disseminate information but also produce vast volumes of text, video, audio and images without human input. 

However, unlike previous communication technologies of the past 500 years, AI is a double-edged sword for democracy. Used responsibly, it can strengthen democratic systems. Misused, it could seriously undermine them. The impact of AI on democracy is complex and multifaceted. When harnessed properly, AI can enhance civic engagement, voter education, governance, election transparency and integrity. Democratic governments can use AI to solicit public input on policy matters or gather feedback during decision-making processes. Around the world, AI is transforming election campaigns and automating electoral procedures. In Nepal, the government could use AI-enabled platforms to gather public feedback on its proposed AI policies and regulations. AI can also serve as a tool to combat fake news, disinformation and misinformation which undermine democratic institutions and erode public trust. Moreover, AI has the potential to reduce election costs for both the state and political parties, minimizing the influence of money and muscle in shaping voting behavior.

At the same time,  AI also presents serious threats to democracy. Deep fakes, AI-generated content that convincingly mimics real people and events, are already blurring the lines between truth and fake.  In Nepal, a flood of AI-generated misinformation is spreading across social media, targeting politicians and political parties, and eroding public trust in the political system. Unfortunately, there has been little research or public debate on this issue, even as malicious actors continue to exploit these tools to manipulate opinion.

There is no concrete data yet on the extent of misinformation and disinformation in Nepal’s 2017 and 2022 elections. However, it is clear that these issues will significantly affect future polls. Candidates with greater financial and technological resources are likely to benefit disproportionately. This will widen the gap between the powerful and the under-resourced.

In the recent 2024 and 2025 elections in countries like India, the US, Germany and across South Asia, AI-generated false content was widely circulated to influence voters. While high levels of digital literacy in some of these democracies may have mitigated the impact, countries like Nepal, with lower digital literacy, remain highly vulnerable to such tactics. Additionally, Nepal faces the risk of Foreign Information Manipulation and Interference (FIMI), as observed in recent elections in India, the US and Taiwan, due to its geopolitical factors and the preference of big powers over one party over other to advance their strategic interests. Some signs of FIMI were observed during the debate over the Millennium Challenge Corporation (MCC) between 2019 and 2022. However, this remains to be independently verified.

Due to low digital literacy, many in Nepal are unable to recognize AI-generated fake content which shapes public opinion and even influences top politicians. For instance, senior leader Bam Dev Gautam once called on Prime Minister KP Sharma Oli to resign based on a fake video. In such a context, AI is more likely to exacerbate democratic vulnerabilities unless strong regulation is put in place. 

Deliberations are underway across the world about AI governance and regulation. While the European Union, Germany and the United Kingdom have made some progress, even their approaches are struggling to keep pace with the rapid evolution of AI. In 2024, the United Nations emphasized the need for a global AI regulatory body. A UN report noted that if AI-related risks grow more severe and concentrated, the world may need a stronger international institution with monitoring, enforcement and accountability powers.

Nepal is still in the early stages of AI governance. Even though AI adoption in sectors like health, education and governance is increasing, the unchecked use of AI for spreading misinformation has been a concerning issue for the country. Although the government has drafted the National Artificial Intelligence Policy, 2025, public awareness has remained low. Feedback from stakeholders has also been mixed. The policy envisions establishing a National AI Council, AI Regulatory Body and an AI Excellence Center.  However, there has been delay in preparing legal and institutional frameworks to set up these institutions. Moreover, the draft policy misses some crucial aspects of AI regulation.

Globally, companies like Microsoft, Amazon and Google dominate the market for cloud computing resources used to train and deploy AI models. In Nepal, AI systems are likely to be controlled either by government agencies or by corporate entities close to power. In this context, time has come to discuss the idea of publicly-owned AI, developed and managed for the collective good. We must also begin discussions on creating a democratic, robust and transparent institution to govern AI in the national interest.

To make this a reality, the government must invest in AI capacity-building, including training human resources capable of leading AI governance. To reduce the harms and maximize the benefits of AI in democratic systems, state institutions must act now. In particular, the Election Commission should develop specific policies and infrastructure to safeguard upcoming elections from AI-enabled threats and malign actors seeking to erode democracy.

Earlier, when the market was relatively small and slowly finding its footing, only the basic traits like technical knowledge and a sense of responsibility were sufficient to carry out day-to-day work. Employees were expected to complete assigned tasks, maintain discipline and follow organizational instructions. However, as the market began expanding and competition increased, the expectations from the workforce also evolved. It was no longer enough to simply do the job; individuals were required to bring in strong skills, a positive mindset and the ability to work well in teams. Today, especially in the highly competitive and stress-prone banking sector of Nepal, these attributes, though still essential, are not enough. The need for high energy levels has become absolutely critical.

Banks and financial institutions are facing increasing pressure to perform amidst economic slowdowns, tighter regulatory requirements, digital transformation and rising customer expectations. In such a dynamic and often turbulent environment, employees, especially those at the frontlines, are expected not just to deliver but to do so under immense mental and emotional pressure. Knowledge, attitude and teamwork lay the foundation, but energy is what drives execution. Without sufficient energy, even the most skilled and committed employees can begin to underperform.

Energy, in this context, is not just physical stamina. It includes mental clarity, emotional resilience and the ability to stay motivated over long hours of multitasking and problem-solving. A typical banking employee, especially one dealing directly with customers, is expected to handle a dozen tasks simultaneously resolving complaints, managing internal coordination, maintaining compliance and closing sales all while maintaining a positive customer experience. As the load of responsibilities increases, so does the demand for sustained energy.

As you engage in multiple critical tasks throughout the day, it becomes imperative to actively manage and preserve your own energy levels and just as importantly, to ensure your team members are doing the same. A drop in energy can immediately result in reduced focus, lower morale and a slowdown in performance. This becomes even more dangerous in moments of crisis or during heavy workloads.

Frontline employees are especially vulnerable during turbulent times. Their energy levels can fluctuate based on small interactions like a missed appreciation, an offhand remark, or an unresolved internal conflict. In high-pressure environments, such as during financial year-end closures, system failures, or regulatory inspections, even minor emotional setbacks can have a disproportionate impact. That’s why such team members need to be handled with extra care and empathy. At times, a bit of pampering, offering support, showing appreciation and simply listening—can make a significant difference in helping them bounce back and stay engaged.

Moreover, evaluating performance solely based on outcomes can often be misleading during uncertain or volatile periods. For example, a relationship manager might work rigorously to secure a client deal, follow up diligently and prepare multiple proposals, but the final approval may get delayed due to external factors beyond their control. If we ignore their efforts and focus only on the results, we risk demotivating them and possibly discouraging future initiative. Instead, performance should be assessed through a balance of activity and intent especially when outcomes are subject to market forces and timing.

This makes it even more important for organizations to prioritize energy management as a strategic focus. Leadership needs to shift from merely tracking performance numbers to actively monitoring and sustaining the energy levels of their workforce. This includes good interaction with employees regularly, creating safe spaces for communication, encouraging breaks and celebrating small wins. Importantly, boosting engagement levels through meaningful work, recognition, hearing their voice and involvement in decision-making processes can go a long way in keeping energy levels high.

Organizations that fail to recognize the importance of energy are at serious risk, especially in tough markets like Nepal’s current banking landscape. Burnout, disengagement and high turnover are often the result of energy depletion, not lack of talent. At the same time, companies that cultivate high-energy teams find that performance becomes more consistent, creativity is higher and employees are more resilient when unexpected challenges arise.

While knowledge, attitude and teamwork remain essential ingredients for team success, energy is the invisible fuel that keeps everything moving forward. In the context of Nepal’s banking sector where stakes are high, challenges are constant and employee pressure is intense, energy has become a key performance driver. Leaders must understand that energy is not a byproduct of performance, but a prerequisite. By consciously maintaining and nurturing the energy of their teams, especially in tough times, organizations can ensure not just survival, but sustainable growth and long-term success.