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The Financial Action Task Force (FATF) has retained Nepal on its Jurisdiction under Increased Monitoring list, commonly known as the gray list, citing persistent strategic deficiencies in the country’s anti-money laundering (AML) and counter ­terrorist financing (CFT) regime.

Issuing a statement after its plenary session last Friday, the global watchdog said while Nepal made a high-level commitment to strengthen its AML/CFT framework earlier this year, the progress has not been sufficient to warrant removal from the gray list. It said Nepal should continue to work on implementing its action plan to address its strategic deficiencies.

After the plenary, the FATF has said that Nepal most improve its understanding of money-laundering and terrorist-financing risks remains limited; enhance supervision of higher-risk sectors such as banks, cooperatives, casinos, real-estate and dealers in precious metals and stones; and demonstrate the identification and sanctioning of materially significant illegal hundi providers without affecting financial inclusion.

Additionally, Nepal has been told to increase capacity and co-ordination of competent authorities to conduct money laundering investigations; demonstrate an increase in such investigations and prosecutions; demonstrating measures to identify, trace, restrain, seize, and, where applicable, confiscate proceeds and instrumentalities of crime in line with the risk profile; and address technical compliance deficiencies in its targeted financial sanctions regime for terrorism financing and proliferation financing.

Nepal had previously exited the gray list back in 2014 after a roadmap of reforms was implemented. Earlier in February, the government had signaled strong political commitment to bolster its AML/CFT systems. Despite some legislative progress, implementation has remained uneven and structural reform has lagged. In particular, Nepal's regulatory oversight of non-financial businesses, beneficial-ownership transparency and enforcement action remain deficient.

About three years ago, the Asia Pacific Group on Money Laundering (APG) conducted a Mutual Evaluation Report on Nepal’s system for preventing money laundering and terrorist financing, and submitted its findings to the Financial Action Task Force (FATF).

The APG’s annual plenary meeting, held in Vancouver, Canada, from 9-14 July 2023, endorsed Nepal’s mutual evaluation report. Based on that assessment, the FATF in Oct 2023 placed Nepal under a one-year observation period. During the assessment, it  identified 40 areas for improvement.

Nepal was expected to implement the FATF’s recommendations and demonstrate progress sufficient to avoid being placed on the gray list during this period. However, the country failed to make significant improvements within the one-year timeframe, leading to its eventual placement on the gray list.

Although being on the FATF’s gray list does not automatically impose sanctions, it acts as a red flag to the international financial community. Banks, foreign investors and correspondent-banks tend to apply heightened due diligence when dealing with entities in gray-listed jurisdictions. 

Building trust through strong anti-money laundering and countering the financing of terrorism frameworks will be critical for Nepal as it seeks to maintain international financial credibility and attract foreign capital.

The Nepal government has been providing a large amount of economic concessions annually through tax exemptions. The Ministry of Finance has stated that approximately Rs 2.5trn are provided in tax exemptions per year.

Tax exemptions are given in various ways. These include exemptions provided by the relevant laws, the Income Tax Act, the Value Added Tax Schedule, and the annual Economic Act. In particular, there is a practice of providing tax exemptions on value added tax and customs duties in grant or loan agreements under bilateral or multilateral foreign aid.

As mentioned in the 62nd Annual Report of the Auditor General, 2025, Section 18 of the Economic Act, 2023 provides for the Government of Nepal to reduce, increase, or partially or completely exempt from revenue the rates of fees, charges, duties, or taxes imposed by the prevailing law. Similarly, Section 14 and Section 15 of Schedule 1 of the Economic Act, 2023 provide for full or partial exemption of customs duties. According to the Customs Department's data system, it appears that Rs 79.87bn was exempted from customs revenue in 2023/24.

According to the details received from the Ministry of Finance, customs duty and value added tax of Rs 4.87bn were exempted from importing goods under the SAFTA facility. In addition, as per Section 18 (2) of the Finance Act, 2023, the Ministry of Finance has granted revenue exemption of Rs 20bn on import value of Rs 34bn to various ministries, departments, local levels, and corporations, including Rs 6bn, in the last four years. Similarly, as per Section 18 (3), it appears that revenue exemption of Rs 7bn has been granted on goods and goods worth Rs 43bn, subject to the terms of the project development agreement, for projects implemented with foreign loans or grants.

Pointing out that the Ministry of Finance has not kept updated records of the items and amounts exempted from revenue on materials and equipment imported into the facility, the Accountant General has suggested, “The exemption should be granted only if the master list is approved by the relevant project before inviting bids and whether the goods and goods imported into the facility were used in the same project or not. There should also be monitoring and since the scope of revenue exemptions is increasing, its impact should be analyzed and the integrated data of revenue exemptions should be presented to the parliament to promote transparency.”

In addition to the exemptions, the Ministry of Finance and its subordinate bodies have yet to recover Rs 435.22bn in revenue and principal and interest on loans that exceed the limit. Out of this, the revenue arrears are Rs 254.4bn, of which Rs 123.80bn (48.73 percent) have been filed for judicial review by taxpayers, so a large portion of the arrears are under consideration by judicial bodies. The government has been saying that the principal and interest on loans and investments made by public corporations, committees, boards, cooperatives and local levels that exceed the limit is Rs 181.18bn. The Accountant General has been saying that the amounts that exceed the limit, principal and amount, and revenue arrears should be recovered through legal procedures. Stakeholders say that due to non-payment of revenue, apart from the exemptions given by the government, the country is also facing an uncomfortable situation due to additional budget expansion in the education and health sectors.

The government has been giving tax exemptions to target groups as an incentive. According to Pandey, spokesperson for the Ministry of Finance, the main reason for giving tax exemptions is the provision given by the law and the constitution. “The purpose of this is to encourage any industry or business. In addition, incentives are also provided to certain classes and groups. Some exemptions are provided for tricycles and motorcycles used by people with disabilities,” he said. “This system of giving tax exemptions is not to benefit any specific person but is based on the law. Schedules have been placed in the Value Added Tax Act. Which classify taxable, non-taxable and zero-taxable transactions.”

Former Revenue Secretary of the Ministry of Finance, Ram Sharan Pudasaini, suggests that the annual tax exemptions have been misused to some extent and that it has increased inequality, suggesting that tax refunds and budget grants should be used instead. “The government is providing annual tax exemptions worth nearly two and a half trillion rupees through laws and various economic acts. This amount of tax exemption is excessive and there is no control and monitoring over it, which may have led to increased misuse,” he said.

Pudasaini also raised questions about the effectiveness of the tax exemptions currently being given. He commented that there is no analysis, audit or monitoring of whether the justification and purpose of the tax exemptions have been fulfilled and whether the benefits have reached the target group or not. Pudasaini noted that the current technology of granting tax exemptions by decision of the Ministry of Finance or the Council of Ministers is not right and suggests that tax exemptions should be given only in a very limited, targeted, short-term manner and especially in connection with investment and job creation. 

The government currently does not have an account of the amount of exemptions given by the schedule of the Value Added Tax Act on daily consumer goods, such as pulses, rice and green vegetables.

Stakeholders have been saying that the state is losing a large amount of revenue annually through tax exemptions. External donor agencies such as the World Bank and the International Monetary Fund (IMF) have also shown concerns regarding the large amount of tax exemptions. 

An IMF study has suggested reconsidering the system of tax exemptions given in Nepal on a large scale, says Tanka Prasad Pandey, spokesperson for the Ministry of Finance. 

“There are many such long lists of tax exemptions. In the past, there was no exact calculation of how much the government was giving such exemptions. However, the IMF has studied this issue and mentioned detailed details in its report. The study suggests reconsidering the system of tax exemptions given in Nepal on a large scale,” he said.

The Government of the Federal Republic of Germany has pledged an assistance of 39,000 Euros to support communities impacted by the devastating floods of October 2025 in Ilam, Nepal. 

Ambassador Udo Volz, on behalf of the Government of the Federal Republic of Germany, signed the grant agreement with Country Director Shakeb Nabi of Deutsche Welthungerhilfe for an Emergency Relief Support Project in Ilam, reads a statement issued by the Embassy of Germany.

The project will assist disaster-affected communities in Ilam district, ensuring lifesaving assistance and enhancing resilience against future disasters. 

The project will support households in highly affected areas in Ilam District, with a focus on marginalized groups, women and children. That includes the provision of food as well as essential items such as mattresses, tarpaulins, warm clothes, dignity kits and blankets, according to the statement.

The local implementation partner is Rural Reconstruction Nepal. 

The project is slated to be completed by December 2025.

Germany remains committed to supporting the people of Nepal, also in difficult times. During the floods in September 2024, Germany provided 100, 000 Euros for disaster response, dedicated to relief efforts in Sarlahi and Rautahat Districts, implemented by One Heart Worldwide.

With the end of monsoon season, colder air has started to move into the country. Migratory birds have arrived in Nepal along with this cold weather.

More than 100 species of birds migrate to Nepal every year. Most of them are waterfowl and ducks. Other birds like eagles, hawks and vultures also arrive in Nepal searching for favorable weather.

So far, more than 900 species of birds have been recorded in Nepal.

Many species of birds’ rest in Nepal before going to other countries, while small crane species, locally known as Karyangkurung, do not rest in Nepal but fly directly to India.

Birds that come to Nepal during the winter season prefer to stay in large rivers and lakes like Koshi, Karnali, Narayani, Rapti, Fewa Lake, Jagadispur Lake, Ghodaghodi Lake, and Barju Lake.

Here are the photographs of some migratory birds taken in various lakes and rivers in different places of Nepal.

A joint Nepal-India Chhath ghat has been constructed along the Bigahi River located on the border of Mahottari and Dhanusha.

An attractive ghat, about two kilometres long, has been constructed on the bank of the Bigahi River, for convenience of the devotees observing the Chhath festival on October 27.

Matihani Municipality Mayor Hari Prasad Mandal said that the Chhath ghat has been constructed for the residents of Wards 6, 7, and 8 of Matihani Municipality in Nepal, Tulasiyahi of Mukhiyapatti Musaharnia Rural Municipality–3 in Dhanusha, and for the locals in Madhawapur and Rampur areas in India.

He stated that although they live in separate countries, citizens of Nepal and India have been constructing a common Chhath ghat as they practice shared religion, culture, festivals, marital traditions and joys and sorrows.

"The no-man's land has separated our two countries, but our costumes, language, culture and festivals are the same. There is a culture of celebrating cultural festivals together, and this ghat is an example of that," said Mayor Mandal.

Citizens from Matihani and Tulasiyahi in Nepal and Madhawapur and Rampur in India have come together to decorate this shared ghat between Nepal and India.

Jit Narayan Majhi, the Chairman of Matihani, Ward 7, said that more than two thousand devotees from both countries are expected to perform the Chhath Arghya rituals at this ghat and over ten thousand devotees will be present to observe the festival. 

During this festival, devoted to the worship of the Sun god and the goddess Shashti Devi (commonly called Chhathi Devi), the fasting devotees will offer 'arghya' to the setting sun on the evening of Kartik Shukla Shashthi which falls on October 27 and to the rising sun on the morning of Saptami on October 28, after bathing at this very ghat.

The country exported 1,015 megawatts of electricity on Monday, the day of Laxmi Puja of the Tihar festival. 

According to the Nepal Electricity Authority (NEA), the total demand for power reached 1,650 megawatts on Monday evening.

The NEA stated that the highest demand for power in the evening of Laxmi Puja was 1,602 megawatts last year. This year's demand was 48 megawatts more compared to last year. 

Currently, Nepal is exporting its surplus energy to the Indian and Bangladeshi markets.

Nepal clinched the ICC Men's T20 World Cup Asia and East Asia-Pacific Qualifier title. 

The national team remained undefeated throughout the tournament and clinched the title with a commanding 124-run victory against Samoa in the final match held today at the Oman Cricket Academy Turf-1 in Al Amarat.

Batting first after losing the toss, Nepal posted a massive total of 211 runs at the loss of four wickets in the allotted 20 overs.

Chasing the target of 212 runs, Samoa managed to score just 87 runs at the loss of seven wickets in their 20 overs.

Aasif Sheikh led the scoring for Nepal with 69 off 41 balls, hitting seven fours and four sixes. Dipendra Singh Airee also impressed with 53 runs off 33 balls, including two fours and four sixes. Lokesh Bam added 39, captain Rohit Paudel remained not out with 21, and Kushal Bhurtel contributed 17 runs. For Samoa, Daniel Brugess, Saumani Tiai, Darius Visser, and Noah Mead claimed one wicket each.

In Nepal’s bowling effort, Lalit Rajbanshi took three wickets, while Karan KC, Sandeep Lamichhane, and Rohit Paudel took one each. Samoa's top scorer was Sean Solia with 40 runs.

Before the final, Nepal had an impressive run in the tournament. In the group stage, they defeated Kuwait and Japan. During the Super Six round, Nepal defeated the UAE by one run, beat Qatar by five runs, and overcame Oman by 38 runs.

With this win, Nepal, along with the UAE and Oman, have qualified for the ICC Men’s T20 World Cup, which will be jointly hosted by India and Sri Lanka from February 9 to March 8, 2026.

Nepal are playing against Samoa today for the title of ICC Men's T20 World Cup Asia and East Asia-Pacific Qualifier in Oman.

The match will be held at 4:15 pm Nepal time in Al Amerat Cricket Ground of Oman.

This is the last match Nepal are playing in the ongoing tournament. Nepal are on the top spot of the score table with eight points.

Nepal will clinch the title of ICC Men's T20 World Cup Asia and East Asia Pacific tournament if they defeat Samoa today. Samoa have already been out of the World Cup qualifier.

Nepal have already qualified for the T20 World Cup to be organized in India and Sri Lanka from February 7 to March 8, 2026.

Nepal had entered the Super Six by defeating Japan and Qatar in Group-phase matches and won all matches in Super Six so far.

Rohit Paudel (Captain), Dipendra Singh Airee (Vice-Captain), Kushal Bhurtel, Lokesh Bam, Kushal Malla, Ashif Sheikh, Adil Ansari, Karan KC, Nandan Yadav, Sandeep Lamichhane, Sandip Jora, Arif Sheikh, Lalit Narayan Rajbanshi, Gulshan Jha and Sompal Kami are in the Nepali team for today's match against Samoa.

UAE are in second place with six points and Oman in third place with six points.  UAE and Oman have also qualified for T20 World Cup, 2026.

Finance Minister Rameshwar Prasad Khanal has called on the international community to explore Nepal, highlighting the country's abundant natural and cultural heritage.

Minister Khanal conveyed this message during a discussion on 'Sustainable Tourism: For Employment, Livelihood, and Economic Growth,' hosted by the World Bank Group on Thursday.

He emphasized that tourists are greeted with exceptional hospitality and top-notch services.

The event saw participation from representatives of various nations.

The recent wave of youth-led activism in Nepal—the GenZ revolt—has rightly torn open the rotten underbelly of political corruption, nepotism and dynastic power. It has been a blistering attack on Singhadurbar, the symbolic heart of governmental misrule.

Yet, if this revolt stops at the political gates, it will fail to uproot the deeper, more insidious culture of unaccountability that suffocates this country. The next frontier lies not only beyond Parliament but across the entire landscape of privileged power—inside the polished offices of NGOs and INGOs, the judiciary, the armed forces, the bureaucracy, the corporations, and, most critically, the compromised media establishment. The revolution must now move from a critique of politicians to a critique of all elites.

A compromised watchdog

A free and independent press is often called the fourth pillar of democracy. But in Nepal, that pillar has been hollowed out—eaten away by political alignment, corporate control and donor dependency. When a watchdog becomes dependent on the hand that feeds it, it no longer barks; it guards the master’s house.

Many so-called “independent” outlets are owned by business families or political investors whose real interest lies not in journalism but in influence. Editorial lines are quietly auctioned off to whoever offers the most—in advertising, contracts or access. Government and corporate advertising now function as veiled bribes, buying silence or favorable coverage. Investigative journalism—the heartbeat of democratic accountability—has been replaced by a toxic blend of propaganda, sensationalism, and self-censorship.

The NGO elite

Corruption does not stop at Singhadurbar or in media newsrooms; it extends deep into the NGO and INGO world that claims to represent the “voice of civil society.” For far too long, the development sector has worn the halo of moral superiority while operating as a parallel elite structure—opaque, unaccountable and self-perpetuating.

Founders of major NGOs often treat their organizations as personal estates, remaining chairpersons or executive directors for decades, drawing high salaries, controlling grants and filling boards with loyalists who block reform. Just as politicians are not meant to rule for life, civil society and NGO leaders must also retire from their high-paid, benefit-laden positions after a few years. Activism is not a career ladder or a lifetime pension; it is a public service.

Nepal’s NGO ecosystem has become a closed circuit of privilege where the same names circulate across boards, consultancies and “capacity-building” projects. Development work is too often reduced to a marketplace of donor contracts, where accountability is measured by paperwork rather than people’s progress. Audit reports verify numbers, not ethics; receipts, not results. If audits were enough, there would be no corruption anywhere in the world.

Donors also bear responsibility. They must not fund the same NGOs and INGOs for decades, especially those whose operating costs and salaries absorb the bulk of development budgets. Instead, international and domestic funding should support smaller NGOs and local civil society groups, empowering genuine grassroots initiatives rather than perpetuating elite monopolies.

Radical transparency

The moral strength of the GenZ movement lies in its uncompromising demand for radical transparency. That demand must extend to every sphere of power—political, bureaucratic, corporate, media, and NGO. Every institution that receives public, corporate or donor funds must be open to citizen scrutiny.

NGOs and INGOs must publicly disclose their total donor funds, salary scales, consultant fees, and operational expenses. Media houses must declare their true ownership and major advertisers, especially those linked to political or corporate entities. Judges, generals, chief editors and NGO directors—anyone wielding public influence—must be required to disclose their assets. Transparency is not a political weapon; it is the foundation of public trust.

The solution: CWGG

To make accountability a living reality, Nepal needs a Citizen Watchdog and Good Governance (CWGG) body—an independent, non-political civic mechanism that bridges people and power. This body would enforce accountability by receiving and tracking complaints of corruption, mismanagement, and nepotism across all sectors. It would verify impact through youth-led, community-based monitoring before forwarding substantiated cases to the appropriate legal authorities. And it would empower citizens by serving as a civic advisory hub—providing reliable, unbiased information about essential public processes: how to seek justice in domestic violence cases, apply for a driving license, follow legal procedures for foreign employment, take loans from banks or cooperatives, file lawsuits, access free legal aid, register to vote, or start a small business, etc.

In short, the CWGG would replace confusion and exploitation with clarity and empowerment—helping ordinary people make informed decisions and reclaim agency over their lives. Nepal’s fight against corruption is no longer a two-front war between the people and politicians. It is a multi-front moral revolution. The same scrutiny that brought Singhadurbar to its knees must now reach the air-conditioned boardrooms of NGOs, the glass offices of corporate media and the donor-funded corridors of “development.”

Universal ethics

GenZ is the only generation bold enough to confront all these elites and rebuild Nepal on the foundation of radical honesty and collective accountability. The revolution has only begun. The next 'obstacle to democracy' is not just inside Singhadurbar—it is also sitting comfortably in the name of “development,” “governance,” and even “press freedom.”

Nepal’s external sector has shown remarkable resilience, buoyed by improvements in the current account, balance of payments, remittance inflows and foreign exchange reserves over the first two months of the current fiscal year. However, the domestic economy remains sluggish, weighed down by weak internal demand, low credit growth and tepid fiscal performance.

According to the latest macroeconomic update from Nepal Rastra Bank (NRB), the country’s gross foreign exchange reserves surged by 7.6 percent over the first two months of the current fiscal year, reaching Rs 2,881.35bn. In US dollar terms, reserves stood at $20.41bn.

Foreign exchange reserves held by banks and financial institutions (excluding NRB) rose by 13.7 percent, reaching Rs 298.97bn, compared to Rs 263.04bn at mid-July. The share of Indian currency in the total reserves currently stands at 22.5 percent. The reserves of the banking sector are sufficient to cover 19.7 months of merchandise imports and 16 months of both goods and services imports, according to the report.

Balance of payments remained in surplus by Rs 153.68bn as of mid-September, up from a surplus of Rs. 101.77bn in the same period last year. Similarly, the current account recorded a surplus of Rs 130.69bn, more than double last year’s Rs 54.41bn.

Remittance inflows, a key driver of external stability, jumped by 33.1 percent in Nepali rupee terms and 27.6 percent in US dollar terms. In the two-month period, total remittances reached Rs 352.0bn, with Rs 174.67bn received in the second month (during mid-August to mid-September) of the fiscal year alone. Merchandise exports rose sharply by 88.6 percent, while imports increased by a moderate 16.2 percent. Despite the rise in imports, strong remittance and reserve growth have helped maintain external balance.

Inflation, based on the Consumer Price Index (CPI), stood at 1.87 percent year-on-year, reflecting subdued domestic demand and tight liquidity conditions. On the fiscal front, the government’s total expenditure reached Rs 180.17bn, while revenue mobilization amounted to Rs 157.53bn. A visible gap between government's revenue and spending early in the fiscal year does not bode well for the economy.  Private sector credit expanded slightly by 0.9 percent. On an annual basis, deposits grew by 12.5 percent and credit by 7.8 percent.

Interest rates have remained low so far in the current fiscal year with the weighted average interbank rate among banks at 2.75 percent, treasury bill rate at 2.13 percent, average deposit rate of commercial banks at 3.96 percent and the average lending rate at 7.66 percent. While Nepal’s external indicators signal a stable macroeconomic footing, economists warn that sluggish domestic activity and weak credit expansion could hinder sustained economic recovery in the coming months.

Nepal defeated Oman by 38 runs in the match held under Super Six of the ICC Men's T20 World Cup Asia & EAP Qualifier on Wednesday.

Chasing the target of 152 runs, Oman managed to score 113 runs in the stipulated 20 overs at the loss of nine wickets at Al Amerat, Oman.

Nepal posted 151 runs at the loss of nine wickets, with 69 runs off 51 balls by opener Kushal Burtel, who top scored followed by his opening partner, Aasif Sheikh who scored 24 runs in 20 overs.

Bowler Aadil Ansari was the third batsman of Nepal to score in double figures, scoring 16 runs off 15 balls, before Gulshan Jha scored a quick fire 18 runs off 10 balls.

For Nepal, Gulshan Jha took three wickets while Nandan Yadav and Sompal kami claimed two wickets each. Sandeep Lamichhane sent one batsman to the pavilion.

For the hosts, Binayak Shumla gathered 32 runs off 19 balls followed by Mohammad Nadim (25).

Earlier, for the hosts, Nadeem Khan took four wickets, giving away only 20 runs in his full quota of four overs. Jiten Kumar Ramanandi and Sufyan Mehmood took two wickets each.

Nepal, which were already qualified for the ICC T20 World Cup, are close to winning the trophy by securing eight points.

Nepal are on the top of the score board while Oman are second in position with six points.

Both Nepal and Oman have already qualified for the ICC T20 World Cup 2026 scheduled to be held in India and Sri Lanka, from February to March in 2026.

Nepal are playing their final match under the Super Six against Samoa on Friday.

The repeated promulgation of constitutions shows that Nepal has been a constitutional laboratory for experimenting with various democratic models. From the Rana oligarchy to absolute kingship, the partyless Hindu monarchy, multiparty democracy and now a federal republican system, the country has transitioned through diverse political frameworks. After decades under the unitary system, Nepal has embraced federalism since 2015. 

These transitions reveal that Nepal has adopted a new constitution almost every decade in a span of 75 years. Recently, some groups have started advocating for a directly-elected executive form of government—the only model yet untested. The recurring failure of political leadership is often mistaken as the failure of constitutions, prompting public frustration and calls for change. However, no constitutional reform can succeed without honest, visionary and committed leadership. 

In the 1940s, public outrage ended the Rana regime. During the 1950s, King Tribhuvan restored monarchical authority, and later King Mahendra imposed a partyless system that faced strong public resistance. In response, King Birendra promulgated the 1990 constitution, recognizing multiparty democracy. Yet, it was later replaced by the interim constitution of 2007, which in turn gave way to the 2015 constitution—the first drafted by people's elected representatives as mandated by the 2006 Comprehensive Peace Accord that formally ended the decade long (1996-2006) Maoist insurgency.

Chronicles of change  

Of Nepal’s seven Constitutions, the Government of Nepal Act, 1948 was the first constitutional document. However, it did not vest sovereignty in the people of Nepal. 

Professor Laxmi Prasad Kharel, in Comparative Law and Nepalese Legal System, observed that the 1948 Act was “doomed to die from its inception”—the Ranas opposed sharing power, and the people rejected it for failing to meet their expectations. 

During the Rana era (1846–1951), state power was monopolized by the Rana family. Jung Bahadur (1817–77) seized power in 1846 and made himself permanent prime minister.

In 1951, an Interim Constitution was introduced but King Tribhuvan failed to fulfil his promise of establishing a constituent assembly. The King retained the power to appoint and dismiss the Prime Minister and Ministers and the cabinet functioned at his pleasure. The interim constitution lasted eight years, during which King Mahendra ascended the throne and imposed a direct rule on 1 Feb 1958, governing nearly two years without any constitution. 

In 1959, King Mahendra promulgated a new constitution where the Cabinet was accountable not only to the parliament but also to the King. He retained sweeping powers, including the power to dissolve the government and lower house and declare emergency under Article 55—making him politically supreme. In 1962, he replaced it with another constitution establishing the party-less Panchayat system, combining monarchical and parliamentary features. It banned political parties and imposed discriminatory citizenship provisions requiring knowledge of Nepali language. 

The 1962 constitution was replaced by the 1990 constitution, adopted after the people’s movement. The 1990 constitution introduced a multi-party democracy system and an independent judiciary. 

Federal dreams  

The 1990 constitution also failed to survive for long. The Interim Constitution of Nepal, 2007 was crafted through a political understanding following the abolition of the constitutional monarchy. It served as a transitional framework until a new constitution could be promulgated through the Constituent Assembly. 

The interim constitution, 2007 was the first Constitution to be written by Members of Parliament. It mandated the Constituent Assembly to enact a formal Constitution institutionalizing republicanism, federalism and secularism. 

During the period of 2007 to 2015, “The first priority today has to be the creation of a truly federal, democratic, republican political system and to ensure its development rising above the party-political lines and transient priorities. This task cannot be accomplished by limiting oneself to a certain political ism or anti-ism,” observes political scientist and professor Krishna Khanal in his book Federalism in Nepal: Management and Implementation.

Prof Bipin Adhikari in his book, Salient Features of the Constitution of Nepal, 2015, observes that inclusivity and diversity are the core focus of the 2015 constitution. However, Nepal’s journey toward inclusion depends, to a great extent, on the quality of democracy and constitutionalism it will achieve on the foundation of its constitution, argues Prof Adhikari in another book, From Exclusion to Inclusion: Crafting a New Legal Regime in Nepal. 

So, how can one discredit the progressive features of the current constitution? We can find hope in every political movement, but in Nepal’s case, the political transformations have, often, failed to deliver. Frequent repeal or enactment of constitutions cannot be considered a yardstick of a healthy democracy. Rather, the actual implementation of the constitution should serve as the foundation for good governance and a truly healthy democracy.   

Let’s build, not blame 

The problems in politics should not be mistaken for problems in the constitution. Merely testing different constitutional models cannot provide a lasting solution. The enactment of a constitution is not a magic stick to transform the state. What Nepal needs now is collective commitment to effectively implement the constitution. 

Conflicting provisions, if any, can always be amended through due process. Actual transformation can be achieved through constitutional stability, not through frequent changes of constitutions.  Weak governance, a politically influenced administration and public dissatisfaction with political leadership are to blame for the current mess, not the constitution.

Nepal’s interim government is operating amid a deep national crisis. Public trust in the state is weak. Institutions are working at cross purposes. Citizens, especially the youth, are demanding change on the streets, while political factions and external actors closely watch for any weakness to push their own agendas. The government’s mandate is limited but crucial: conduct national elections within six months, of which one month has already passed. This cannot be achieved through short-term political arrangements or by simply reacting to every crisis. The state must fix its weak institutional foundations. Fortunately, the Constitution offers a clear instrument for this task: the National Security Council (NSC). This is one of the government’s most strategic, but most underused, institutions.

Nepal’s instability is not happening in isolation. Youth groups are demanding structural change, while political parties that lost power after the dissolution of the lower chamber of the bicameral parliament (the House of Representatives) see this as a chance to make a comeback. At the same time, supporters of a return to the erstwhile royalist order are becoming more vocal, presenting themselves as an alternative political force. External actors are also watching the situation closely. 

A weak and distracted Nepal suits the strategic interests of some regional and global powers. The longer state institutions remain uncoordinated, the more space internal and external actors will find to influence national affairs. The current situation, latent inter-agency rivalries, uncoordinated responses, and widespread public anger reflect a deep crisis of coordination and command. If this gap remains, it could become very difficult to control later.

The NSC, established under Article 266 of the Constitution, was created precisely for such a situation. It is meant to serve as the strategic brain of national security, bringing together the Prime Minister and the Ministers of Defense, Home, Finance, and Foreign Affairs. However, successive governments have allowed the NSC to remain a ceremonial body, meeting rarely and acting even less. This interim government can change that. Reactivating the NSC requires no new law or constitutional amendment, only political will. The NSC offers a neutral platform to depoliticize security discussions, the authority to bring all security agencies under a common plan, and a legally sound way for an interim government to address security challenges.

Reviving the NSC should not mean only holding closed meetings. It should become a real center for coordination, planning and communication. The government can give it three immediate tasks. First, the NSC should issue a clear public directive explaining which agency does what during a crisis. This simple step will reduce confusion and close the gaps that opportunistic actors currently exploit. Second, intelligence and security agencies must be required to share information and work on the basis of a common threat assessment as fragmented works allow destabilizing elements to take advantage of blind spots. Third, the NSC should hold regular briefings to inform citizens about the security situation and present a common narrative. This is not about revealing sensitive information; it is about preventing rumours, misinformation and disinformation from filling the gap. While the NSC membership is constitutionally fixed, its processes can be more inclusive. It should consult representatives from the private sector, civil society, scholars, technology experts and youth groups as these stakeholders bring perspectives from the ground that government officials often miss.

Given limited time and high risks, the government’s approach must be focused and realistic. In the first phase, the government should activate the NSC by holding a serious, substantive meeting and publicly declaring it as the central coordinating body. This will signal both to the public and to external observers that there is a clear hand on the wheel. It should also launch an independent inquiry by forming a time-bound, judge-led commission to investigate recent protest violence. Showing accountability will strengthen public confidence and deny critics their strongest arguments. Alongside this, the government should establish a crisis communication desk to serve as a single, trusted source for verified information. When rumors spread about “foreign hands” or hidden agendas, citizens should know exactly where to get the truth.

In the second phase, the NSC’s policy directives must be translated into operational orders across all security agencies. In sensitive districts, local security committees made up of officials, police and community leaders should be set up to identify grievances early and prevent external exploitation.

The interim government’s success will not be measured only by whether the streets become quieter for a short period. Its real success will be judged by whether it leaves behind a more coherent, trusted and functional state than it inherited — one that is less vulnerable to internal manipulation and external pressure. The NSC can and should be the central instrument to achieve this. By reactivating the NSC and using it strategically, the government can provide clarity, restore coordination, and close the gaps that currently invite instability.

The author is a self-practicing social analyst. Through her independent study of Nepali society, she provides a unique perspective on societal norms

In addition to highlighting the long-simmering generational resentment in the nation, the GenZ protests in Sept 2025 brought about one of the worst economic shocks in Nepal’s recent history. What started as youth-led protests against political stagnation, unemployment, and corruption swiftly descended into violence, resulting in dozens of fatalities, thousands of injuries, and an enormous financial loss. The actual question now is whether Nepal can withstand these shocks without spiralling into more severe cycles of instability. The protests’ financial toll is already apparent: direct damages totalling billions of rupees, a decline in investor confidence, a contraction in essential industries, and an increase in unemployment. These losses, if ignored, will worsen the very circumstances that pushed young Nepalis onto the streets, raising the possibility of future unrest.

The most apparent and agonizing toll is the human one. Over two thousand people were injured during the protests, and at least seventy-four people were killed nationwide, including protesters and security personnel. Public trust in the state’s ability to maintain law and order was broken and prison breakouts contributed to the growing sense of lawlessness. The less obvious but no less terrible tale of economic devastation, however, is hidden behind these headlines. According to estimates from economists, the collateral damage caused by the protests is approximately Rs 3trn, which is nearly half of the nation’s GDP and equal to the government’s budget for almost one and a half fiscal years. The foundation of Nepal’s economy, the tourism industry, has been especially severely affected. According to tourism officials, the industry lost approximately Rs 25bn during and immediately following the protests, as thousands of cancellations destroyed what was supposed to be a prosperous season. With reported losses exceeding Rs 25bn and damage exceeding Rs 8bn at the Hilton in Kathmandu alone, the hotel industry has been disproportionately affected. These numbers are more than just statistics; they reflect the closure of businesses, unpaid workers, and a decline in Nepal’s reputation as a safe and secure travel destination abroad. When order is restored, the effects won’t go away; damage to a tourism industry's reputation may persist for years, discouraging subsequent tourism and investment in associated infrastructure.

The entire private sector has also suffered greatly. An estimated 15,000 jobs were directly impacted, and businesses reported losses of about Rs 80bn. These new job losses run the risk of escalating the cycle of economic despair in a nation already beset by pervasive underemployment and a significant reliance on foreign migration for employment. In addition to undermining household incomes, unemployment increases outbound migration and strengthens Nepal's reliance on remittances from abroad. Due to business closures or reductions during the unrest, nearly 10,000 Nepalis reportedly lost their jobs within a short period. This weakens the very demographic advantage Nepal should use for development, exacerbating an already precarious situation where the young, skilled labour force sees greater prospects abroad than at home.

The losses extended beyond small businesses and the tourism sector. Due to increased consumer demand, the automobile industry, which has been one of the most dynamic in recent years, sustained damages totalling about Rs 15bn. Along with interrupted imports and supply chains, the destruction of showrooms and warehouses runs the risk of slowing down a market that was previously growing. Consumer confidence and purchasing power might take some time to recover, even with the reconstruction of physical infrastructure, particularly as inflationary pressures increase and household incomes remain stagnant. This illustrates how instability undermines long-term growth prospects: years of gradual progress in industries that reflect the burgeoning middle-class economy can be reversed by a single wave of violence.

The cumulative effect of these losses has negatively impacted the macroeconomic outlook for Nepal. The economy was expected to grow by 3.5 to 4 percent this fiscal year, but growth forecasts have since been drastically reduced; some economists now predict growth of less than one percent. Others note that if reconstruction is postponed or funded carelessly, Nepal might experience complete contraction. According to one estimate, the protests caused losses of $22.5bn, or nearly half of Nepal’s GDP. As a result, the GenZ protests would rank among the most severe economic shocks to South Asia during a period of peace in recent memory, in addition to being a disruptive episode. This magnitude of loss runs the risk of igniting a fiscal and monetary crisis for a nation still recuperating from the pandemic and having trouble managing its debt.

The state is already feeling the financial strain. The government has been forced to reallocate funds for increased security spending, emergency relief, and compensation for the families of the victims. The fiscal deficit has widened as a result of the collapse of tourism and commerce revenues. Nepal may have to borrow more money as a result of declining revenues and growing debt. However, borrowing now runs the risk of trapping the nation in a debt cycle, particularly if grants and concessional loans from outside partners are not forthcoming. The burden will only get worse if borrowing costs increase, especially if credit rating agencies reduce Nepal’s risk profile in reaction to political and economic unrest. A declining rupee and growing import prices could cause inflationary pressures that further reduce real incomes and exacerbate public annoyance.

A new generation of Nepalis has taken to the streets to vent their frustration because they are better educated, more globally connected, and more conscious of the shortcomings of the government. Disillusionment will increase if their complaints are only addressed through repression and short-term fixes rather than structural changes. That might undermine democratic stability by opening the door for frequent demonstrations or more extreme forms of mobilisation. Nepal runs the risk of becoming caught in a vicious cycle where protests erode the economy further, which in turn leads to more protests. Economic despair and political alienation are a volatile combination.

Consequently, Nepal cannot meet the challenge on its own. Being a landlocked nation sandwiched between two powerful countries, Nepal’s instability will unavoidably impact its neighbours, and it needs outside assistance to recover. India, Nepal’s closest neighbour and biggest trading partner, has a special obligation to provide concessional credit lines for reconstruction and investment in industries that create jobs. Targeted assistance in border areas, primarily through cross-border trade hubs and renewable energy projects, may be able to absorb some of the young people without jobs and lessen the pressures of migration. In order to guarantee the transparent use of reconstruction funds, India can simultaneously offer technical expertise in auditing and public finance.

Beijing must put community-sensitive projects that meet local needs ahead of purely strategic objectives if it hopes to be regarded as a reliable development partner. Coordination with Nepali stakeholders, grants rather than high-interest loans, and transparent funding will be essential. The time demands that multilateral organisations like the World Bank and Asian Development Bank reevaluate their priorities, allocating funds not only to infrastructure but also to rural development, youth employment, and governance reforms. Through direct investments in healthcare and education, development bonds backed by remittances, or emergency compensation funds for impacted families, Western donors and Nepal’s diaspora communities can also make a significant contribution.

Nepal’s recent history has taught us that crises rarely come to an end with a single incident. The monarchy was overthrown by the People's Movement of 2006, but federalism and ethnic grievances remained unresolved. Although it alienated important groups, the 2015 Constitution established a new order. The GenZ protests follow this pattern: if youth grievances are not addressed, today’s instability will only serve as the catalyst for tomorrow’s upheaval. Now, structural reform is required in addition to reconstruction. The bare minimum of stability requires the transparent rebuilding of damaged infrastructure, a youth-focused national employment mission, institutional reforms to fight corruption, and sincere communication with younger generations and civil society.

If these economic wounds are allowed to worsen, there is a risk that they will exacerbate disenchantment, accelerate migration, erode the fiscal system, and create the conditions for further upheavals. Nepal and its neighbours, who would unavoidably be affected, cannot afford such a course. It is now the duty of Nepali leaders and outside partners to take note of the possibility to not only restore what has been destroyed but also to establish the framework for a more resilient, inclusive, and stable order. The GenZ protests might be seen as a sign of long-term decline rather than a turning point towards reform in the absence of such a concerted and systemic response.

The author is a PhD Candidate at the School of International Studies, Jawaharlal Nehru University, New Delhi

The GenZ uprising of Sept 8-9 has reignited debate over the relevance of Nepal’s federal governance system. Calls are growing to dismantle the provincial structure and empower local levels further. At the same time, a parallel public sentiment questions whether seeking alternatives to federalism is premature. Political and social representatives emerging after the movement have openly presented divergent perspectives on the issue.

Nepal formally adopted a federal system with the 2015 Constitution, which came into full implementation in 2018. While federalism had been sporadically discussed in earlier debates, the Madhes movement and other ethnic-regional agitations following the 2007 Interim Constitution were pivotal in institutionalizing it. Political parties of that era accepted federalism under pressure to pacify unrest and restore stability. It is therefore indisputable that federalism in Nepal was not a spontaneously embraced principle but a system established through struggle.

Against this backdrop, dissatisfaction with the provincial setup, considered the “soul” of federalism, has emerged as a pressing subject for analysis. Why has public support for provinces eroded so rapidly? This question lies at the heart of the ongoing national debate: Why are the provinces neglected?

An ambiguous role

Nepal’s Constitution clearly delineates powers and responsibilities among the federal, provincial and local levels, including both shared and exclusive authorities. Despite these clear provisions and subsequent functional reports further clarifying them, the federal government has failed to sufficiently empower the provinces.

The Constitution restricts provinces from enacting laws that contradict federal legislation. Yet, because the federal parliament has delayed passing or amending necessary laws, provinces were left in a prolonged legal vacuum. Consequently, they began drafting their own legislation. For instance, the Federal Civil Service Act is still pending, whereas provinces have already enacted their civil and local service laws, creating legal inconsistencies that have reached the Constitutional Bench.

Fiscal federalism has similarly suffered. Major taxes and large infrastructure projects remain under federal control, preventing provinces from achieving financial self-reliance and making them dependent on federal grants. This situation has raised questions about the federal government’s genuine commitment to federalism. Administrative disruptions, particularly in personnel adjustment, have compounded the problem. Forced adjustment often met with resistance undermined the provinces’ ability to implement federalism effectively. The failure to stabilize the administrative backbone weakened the system’s overall efficacy.

Provinces’ weaknesses

In the initial phase, provincial governments appeared relatively agile and committed. Small seven-member cabinets functioned despite limited staff and legal gaps. Over time, some of these challenges got resolved, but then the provinces began replicating the federal government’s problematic practices.

Unnecessary expansion of ministries, oversized cabinets, bloated advisory bodies and costly administrative setups increased recurrent expenditures without producing tangible improvements in citizens’ lives. Provincial legislators frequently engaged in party splits and political maneuvering to secure positions and power—further eroding public trust. Corruption and uncontrolled benefits by political personalities amplified public criticism.

Government change in the Center also affected provincial stability. Governments were formed or dissolved at the federal leadership’s signal, weakening provincial autonomy. As a result, provincial administrations—the intended embodiments of federalism, began operating under external influence, failing to establish themselves as credible institutions in the public eye.

Judiciary’s ineffective role

Scholars have long expected the judiciary to guide provinces to become stronger and more capable through clear constitutional interpretation. Judicial decisions significantly shape federal practices, yet courts have failed to safeguard provincial autonomy adequately.

Most of the cases accusing the federal government of unnecessary interference or lack of facilitation have remained unresolved. Decisions, when issued, lack uniformity. For example, cases filed by the Madhesh Province Government over the Sagarnath forest project or staff adjustments have remained unresolved for seven years. Supreme Court rulings on the Gandaki Province government formation have given rise to significant legal disagreements. Differing court orders on writs filed by transferred civil servants further entrenched uncertainty for provincial governments and employees.

Such inconsistencies have reinforced the perception that centralized thinking dominates the judiciary. The courts’ failure to act as constitutional guardians of provincial stability is a major factor impacting public confidence in the federal system.

Irresponsible media

Mainstream media could have played a pivotal role in consolidating federalism. Instead, driven by TRP (Target Rating Point) competition, sensationalism often eclipsed informed reporting.

Positive provincial initiatives such as investments in social sectors, improvements in human development indicators and tourism promotion have received limited attention. In contrast, stories on cabinet reshuffles, ministerial lifestyles and petty scandals got amplified, fostering negative perceptions of the provincial structure.

While corruption has existed historically, media reports often exaggerated its prevalence only after the formation of provincial governments. Pro-federal voices were relegated to minor columns, while anti-federal perspectives dominated front pages. This biased information flow heightened public dissatisfaction and distrust toward provincial governments.

Influence multiplied

In today’s digital age, social media amplifies public discourse alongside traditional media. Activists and influencers compete for followers and views, often overlooking positive provincial initiatives. Single mistakes are sensationalized, analyzed from multiple angles and sometimes mixed with fabricated claims.

This flood of misinformation and malinformation leaves citizens unable to discern fact from fiction. Provincial governance is inherently the most challenging layer of the federal system for public comprehension. While it takes time to demonstrate necessity and effectiveness, various interest groups have exploited this period to magnify weaknesses and advance their agendas. Misleading campaigns have significantly contributed to public neglect of provinces.

Conclusion

Federalism forms the backbone of Nepal’s constitutional, political, and administrative framework. It was introduced not merely for administrative convenience but to ensure inclusive governance that accommodates Nepal’s diverse social, cultural and regional realities. Today’s imperative is not to dismantle provinces but to reform them—creating lean, efficient and results-oriented provincial structures. Through improved, citizen-centric federal practices, provincial governments can regain public confidence and become foundational pillars in building a tolerant society and a prosperous Nepal.