Nepal’s journey toward democracy has been complex, marked by historic milestones and persistent setbacks. When the country officially transitioned from an absolute monarchy to a federal democratic republic in 2008, it was seen as the dawn of a new era. This transformation followed a decade-long war and mass protests demanding rights, representation and justice. The establishment of a republic raised hopes for peace, equity and development. However, more than 15 years later, those expectations remain largely unmet—especially in the economic realm, where the dividends of democracy have yet to materialize for many.
Formal democracy, informal disappointments
While Nepal has established the formal structures of a democratic state—elections, political parties, a constitution and federalism—the practice of democracy often falls short. Citizens' frustration is not with democracy itself, but with its dysfunctional implementation. Accountability, opportunity and responsive leadership remain elusive, and nowhere is this more evident than in economic governance.
The promise of a democratic system is that it enables inclusive growth and public investment through transparent, accountable institutions. Yet in Nepal, economic policy has been reactive rather than visionary. Budget execution is chronically low, capital expenditure is underutilized and key sectors such as agriculture, tourism, hydropower and technology remain underdeveloped. A democratic structure without strategic economic vision risks becoming hollow.
An economic liability
One of the most visible weaknesses of Nepal’s democratic system is its chronic political instability. Since the restoration of multiparty democracy in 1990, no prime minister has completed a full term. Coalition collapses and intra-party power struggles have led to frequent changes in government—more than two dozen in three decades.
This instability severely undermines economic planning. Policies change with each administration, discouraging long-term investments. Infrastructure projects stall, public procurement is delayed and institutional continuity suffers. For instance, Nepal’s five-year development plans often remain under-implemented because ministers and bureaucrats change faster than the plans can be executed. The opportunity cost—lost employment, unbuilt infrastructure and delayed reforms—is immense.
Graft and resource mismanagement
Corruption has further weakened Nepal’s ability to transform political representation into economic outcomes. Widespread misuse of public funds, irregular procurement practices and nepotism in public appointments drain resources from essential services and development projects. Despite the presence of anti-corruption agencies like the Commission for the Investigation of Abuse of Authority (CIAA), few high-profile cases result in meaningful penalties.
This weak enforcement discourages both foreign and domestic investment. According to Transparency International, Nepal remains among the lower third of countries in corruption perception rankings, signaling high-risk to investors. Corruption also distorts public spending, prioritizing politically profitable projects over socially beneficial ones. For instance, road and hydropower contracts are often awarded not for impact, but for kickbacks.
Weak public services, unequal development
Despite multiple elections and over a decade of democratic governance, basic public services remain inadequate. In rural districts, schools lack trained teachers and health posts often “operate” without doctors or medicines. Poor infrastructure—broken roads, erratic electricity and limited internet access—continues to hold back economic activity outside Kathmandu and a few urban centers.
This neglect perpetuates regional inequality. While the capital and some provinces have seen improved infrastructure and services, far-western and mid-western regions remain underserved. Federalism was supposed to correct this imbalance by devolving power and budgetary authority, but execution has been weak and inconsistent. In practice, local governments often lack the fiscal autonomy and administrative capacity to deliver.
The migration trap
Nepal’s economy is heavily dependent on remittances, which account for roughly 20–25 percent of GDP. Millions of young Nepalis work abroad—primarily in the Gulf, Malaysia and India—due to the lack of domestic employment. While remittances provide a lifeline for many families and boost foreign currency reserves, this dependence masks structural weaknesses in the economy.
Migration has become a coping strategy rather than a choice. The labor force is being exported while industries at home remain stagnant. Youth unemployment remains high, and Nepal risks a demographic dividend turning into a demographic liability. Moreover, skilled and semi-skilled workers leave, causing a brain drain that weakens sectors such as education, healthcare, and technology.
Instead of creating decent jobs at home through investment in agriculture modernization, industrial policy, or tech-based entrepreneurship, successive governments have leaned on remittances as a substitute for real economic reform. This is unsustainable in the long term.
Entrenched leadership, excluded innovation
A key barrier to economic transformation is the lack of fresh and dynamic political leadership. The same cadre of leaders who steered Nepal through the post-conflict period still dominates the political landscape, often recycling positions across parties. Their economic vision remains limited, with little appetite for bold reforms.
This stagnation discourages younger and more innovative actors from entering politics. Women, youth, and marginalized communities remain underrepresented in leadership roles despite formal quotas. Meanwhile, emerging civic movements and independent candidates calling for clean politics and economic innovation are gaining traction but remain peripheral in power structures.
Federalism sans fiscal clarity
The shift to federalism was intended to make governance more responsive and tailored to local needs. Economically, it should have allowed provinces and municipalities to better manage resources, set local development priorities and attract investment. In reality, intergovernmental coordination has been poor, and fiscal devolution remains shallow.
Revenue-sharing mechanisms are opaque, and local bodies often depend on conditional grants from the federal government. This hinders their ability to plan and execute economic projects independently. Overlapping mandates between tiers of government further complicate service delivery, undermining both efficiency and accountability.
A work in progress
Despite these challenges, Nepal’s democratic journey is not a failure but a work in progress. There are significant achievements to build on: regular elections, a free press and an active civil society. What is needed now is a shift from procedural democracy to performance democracy—one that translates political freedom into economic opportunity.
To do this, political leaders must embrace transparency and reform, starting with anti-corruption enforcement and electoral finance regulation. Economic policy must be future-oriented: investing in infrastructure, promoting local industries, expanding vocational training and diversifying exports. Innovation, not emigration, should be the engine of Nepal’s economy.
Fiscal federalism must be clarified to empower local governments to plan and deliver. Civic education should be strengthened to build economic literacy and citizen engagement, especially among the youth. Above all, leadership must open up to new voices who can combine democratic values with entrepreneurial thinking.
Conclusion
Nepal’s democratic experiment has brought political inclusion and civic freedoms, but it has yet to deliver widespread economic transformation. The gap between promise and performance is wide—but not irreversible. With political will, institutional reforms and a strategic economic vision, Nepal can build a democracy that doesn’t just represent its people, but also empowers them economically.
