By NEPSE TRADING
Finance Minister Khanal Prioritizes Implementation of Economic Reform Commission’s Report
Newly appointed Finance Minister Rameshwor Prasad Khanal has taken office with a strong commitment to implement the recommendations of the High-Level Economic Reform Suggestion Commission, a body he himself chaired earlier this year. The Commission had submitted its report on March 29, 2025, outlining critical measures to address Nepal’s fragile economy, which continues to face weak demand, declining investment, and governance challenges.
The Commission identified deep-rooted problems such as dependency on imports, weak productivity, ineffective public spending, an undisciplined financial sector, and structural labor market issues. It recommended urgent policy interventions to revive domestic demand, strengthen private sector confidence, and address financial instability—particularly in the cooperative sector, real estate market, and credit distribution.
The report highlighted that consumption growth had slowed, private investment was declining, cooperative savings were trapped, and government payments were delayed, creating a cycle of weak demand and shrinking economic activity.
Minister Khanal announced that his top priorities would be good governance, fiscal discipline, and revitalization of the private sector. He directed his ministry to identify and cut “petty and politically-influenced projects” from the current budget, ensuring resources are channeled towards productive areas.
Governance: The report stresses transparent policy-making, result-oriented programs, cost-benefit-based budgeting, and minimizing unnecessary regulatory intervention.
Private Sector Revival: The Commission emphasized creating an investment-friendly environment, labor law flexibility, and effective public-private partnerships (PPP). Small and medium enterprises (SMEs) were recommended for formalization with access to finance, technology transfer, and market guarantees.
Public Finance: To address chronic underutilization of capital expenditure, the report suggested prioritization of projects, contract reform based on cost and time, and adoption of digital tracking systems.
Labor Market: Recommendations included reducing dependency on foreign employment, fostering technology-driven jobs, and aligning education with market needs. Skill development and certification reforms were also proposed.
One of the most pressing concerns is the cooperative sector crisis, where millions of depositors face uncertainty. The Commission suggested immediate government intervention of NPR 5–10 billion to protect small savers (up to NPR 500,000), with recovery later through cooperative asset sales.
It also proposed stronger financial regulation, restructuring of problem loans, and formal credit expansion to rural areas. Measures like credit scoring systems, debt recovery laws, and monetary policies targeting productive lending were recommended.
The Commission took a bold stance on state-owned enterprises (SOEs). It recommended liquidating loss-making institutions such as Janakpur Cigarette Factory, Butwal Yarn Factory, and several others. Hetauda Cement and Udayapur Cement were advised for restructuring with partial privatization, while Nepal Airlines was recommended for restructuring with strategic international partners.
Public enterprises, according to the Commission, should be turned into public limited companies, enabling share sales and bond issuance to mobilize capital. Political interference in management should end, with merit-based leadership appointments.
The report emphasized strengthening fiscal federalism by clearly assigning responsibilities across federal, provincial, and local levels. It recommended revising revenue-sharing formulas, improving intergovernmental coordination, and enhancing local governments’ implementation capacity.
The government has already drafted an Economic Reform Action Plan 2082, which includes repealing outdated laws such as the Black Market and Social Offenses Act 1975 and Birta Abolition Act 1959. In total, 14 outdated acts are expected to be scrapped within two years to streamline the legal framework.
Minister Khanal’s approach signals a return to reform-driven governance, prioritizing fiscal discipline and private-sector revival over populist spending. His insistence on cutting fragmented projects indicates a move to end the culture of politically motivated budgeting.
The Commission’s focus on good governance, cooperative crisis management, and restructuring of SOEs shows an intent to tackle structural weaknesses rather than short-term fixes. However, implementation remains uncertain under an interim government, where political stability and consensus are fragile.
If pursued seriously, these reforms could:
Restore confidence in the private sector, encouraging domestic and foreign investment.
Prevent a systemic financial crisis by stabilizing cooperatives and restructuring loans.
Improve fiscal efficiency by ending wasteful spending and ensuring timely capital expenditure.
Modernize public enterprises through privatization and professional management.
Yet, the challenges are significant. Political resistance, bureaucratic inertia, and short-term populist pressures may slow implementation. Still, Khanal’s emphasis on “starting reforms from governance” reflects recognition that without transparency and discipline, economic revival will remain elusive.
Minister Khanal has inherited a fragile economy but also a clear roadmap through the Reform Commission’s report. His tenure will be judged by how effectively he translates these recommendations into action, balancing immediate crisis management with long-term structural transformation.
