Today, Balendra Shah takes the oath as the 42nd Prime Minister of Nepal. Shah enters Singha Durbar amid towering public expectations and daunting structural challenges. His party, the Rastriya Swatantra Party, emerged from the March 5 election with a near-two-thirds majority in the House of Representatives. From corruption to jobs, from bureaucratic gridlock to foreign policy tightropes, his premiership will be defined not by rhetoric, but by action. This marks the first time in Nepal's recent history that a new generation of leaders has reached the helm of power.
Corruption on trial
There is a widespread public perception that corruption has reached unprecedented levels over the past decades. Scandals involving public procurement, infrastructure projects, and state enterprises have long dominated headlines, public discourse, and popular anger. During the campaign, voters expected swift and decisive action on major corruption cases. However, many corruption networks span political parties, business interests, and the bureaucracy. Dismantling them will invite fierce opposition from multiple quarters. Anti-graft bodies are slow and politicized, and without structural reform, addressing corruption in any meaningful way will be extremely difficult.
Service delivery
Nepalis are frustrated. Slow service delivery—be it in citizenship processing, construction permits, tax administration, or infrastructure rollout—has become a symbol of state dysfunction. The prolonged delay in printing driving licenses is a case in point; many people have waited over three years without receiving theirs. Passport delays tell a similar story. Both Shah and his party have promised rapid transformation in government services, but the bureaucratic machinery he inherits is rigid, hierarchical, politicized, and deeply resistant to change. Past prime ministers have struggled to push through such reforms.
Job creation
Unemployment was among the top issues driving voters in the March election. Nepal’s youth unemployment rate of 20.6 percent is the highest in South and Southeast Asia. Shah’s critics argue that job creation cannot happen overnight and requires structural reform, private investment, and time. Yet the electorate wants immediate results. The RSP’s election manifesto has promised 1.2m jobs annually.
According to data from Nepal Rastra Bank, the national GDP at current prices has reached Rs 6,107.2bn, but the composition of this figure reveals a troubling reality. The service sector dominates at 62.01 percent, while agriculture and industry contribute a mere 25.16 percent and 12.82 percent, respectively, according to Kathmandu-based economist Laxman Neupane. This heavy reliance on services has failed to generate sufficient high-quality employment or meaningful value-added growth, placing immense pressure on the incoming RSP government to pivot toward aggressive industrial expansion, he adds.
A business-friendly Nepal
Nepal’s economic potential is considerable—spanning hydropower, tourism, agriculture, and, more recently, information technology services. Realizing that potential requires systemic reform. Red tape remains a major obstacle, with business registration, licensing, land acquisition, and import-export approvals requiring multiple clearances across agencies.
Foreign assistance has declined in recent years, and major donor countries are increasingly signaling a shift toward facilitating private investment rather than direct aid. Every major power sees opportunity in Nepal, but all are calling for legislative reform, digitalization of services, and stronger investor protections. Foreign investors will be closely watching how Nepal balances openness with regulatory certainty. Failure to attract industrial investment means Nepali youth will have little choice but to continue relying on foreign labor markets, says US-based analyst Sushil Thapa. At the same time, instability in the Middle East and ongoing international conflicts are making those markets increasingly risky and uncertain, he adds.
Economic challenges
Nepal’s economy presents a mix of apparent stability and deep structural fragility. Macroeconomic indicators, including low inflation and strong foreign exchange reserves of around Rs 3,200bn, paint a broadly positive picture. Yet domestic demand remains weak, banks face rising non-performing loans, and investor confidence is low. The economy is heavily dependent on remittances, which account for nearly 24 percent of GDP, while manufacturing and industry are shrinking and youth migration continues to rise. The RSP government faces the task of translating electoral enthusiasm into tangible economic growth.
Its ambitious goals include doubling GDP to $100bn within five years, raising per capita income to $3,000, and creating 1.2m jobs annually. Key challenges include reforming import duties, broadening the tax base, attracting foreign investment without incurring debt traps, and managing potential labor crises stemming from Gulf instability. While genuine prospects for reform and growth exist, political constraints and high public expectations make the path forward complex.
Managing multiple social groups
The Shah government faces a complex and delicate challenge in responding to the demands of multiple societal groups, each with distinct and pressing concerns. Cooperative victims, who have suffered financial losses due to mismanaged or failed cooperatives, seek justice and compensation, requiring careful legal and administrative handling. Informal lenders may press for regulatory leniency, creating a difficult balance between formal financial governance and existing lending practices.
Teachers and other professional groups are likely to demand fair wages, better benefits, and improved working conditions, reflecting broader concerns about public sector reform and labor rights. Various other community and interest groups will also mobilize, making the public sphere a forum for multiple, often competing demands. Navigating all of this will require not only policy acumen but also strong negotiation skills, empathy, and the ability to prioritize solutions that uphold social harmony while addressing legitimate grievances.
Managing major powers
Relations with India, China, and the United States will remain one of the defining foreign policy challenges for Shah. All three countries are waiting to hear his strategic blueprint before making their next moves. They view RSP as a genuinely new political force and want to understand Balen’s approach before offering commitments.
China has emerged as a key player in Nepal’s foreign policy calculus. Beijing has signaled patience alongside clear expectations. It is willing to engage broadly with the new administration in areas such as artificial intelligence, rural digitization, infrastructure development through concessional loans, and cooperation in health, education, and agriculture. At the same time, China has sent an unmistakable message about its security and strategic interests in Nepal. Shah’s choices will determine whether Nepal can leverage China’s willingness to invest without compromising its sovereignty or regional equilibrium.
India presents a more nuanced challenge. While it remains Nepal’s most vital economic partner, New Delhi is closely watching how the new government handles longstanding bilateral disputes. Economic cooperation will likely remain central, but Nepal must tread carefully to avoid straining this critical relationship. The United States, meanwhile, offers opportunities primarily in business and security cooperation. With USAID assistance having significantly declined, American private investors are looking for a favorable investment climate. Shah’s administration will need to demonstrate political stability, regulatory clarity, and transparency to attract such investment while aligning with broader US interests in the region.
Intra-party unity
Nepal’s political history since the 1950s is filled with prime ministers brought down not by external adversaries, but by fractures within their own parties. The collapse of KP Sharma Oli’s government in 2020, driven by intra-party conflict, stands as a cautionary tale for Shah. Despite a strong electoral mandate, the RSP remains a young party with limited institutional experience. Aligning its members around a unified agenda will require patience, sustained consultation, and strategic delegation. The working relationship between Balen Shah and RSP Chair Rabi Lamichhane is something many observers are watching closely.
Cross-party dialogue
Cross-party cooperation will be equally important. While the RSP commands a strong mandate in the House of Representatives, it holds no seats in the National Assembly. Major legislation will therefore need to be negotiated with other parties, particularly the Nepali Congress and CPN-UML, to ensure passage. Outside Kathmandu, provincial and local governments remain dominated by traditional parties. Shah’s adversarial stance toward those parties could ultimately prove a liability for his own agenda.
Building a capable team
When Shah served as Mayor of Kathmandu Metropolitan City, he built a small, focused team to manage different areas of work. The role of Prime Minister demands something broader and more sophisticated. Unlike the mayoralty, the premiership requires a different level of institutional coordination and strategic thinking, says New Delhi-based researcher Aditi Paul. Managing sensitive matters of security and trade with neighboring countries calls for diplomatic finesse. Shah will need to rely on experienced advisors and assemble a capable team equipped to handle Nepal’s complex regional dynamics, she adds.
