Political Change Without Economic Transformation Pushes Nepal Into a Fragile Phase

Despite decades of political transformation, Nepal continues to struggle with the same economic vulnerabilities that have persisted since the political change of 2007 BS. While governance systems have repeatedly shifted over the past 75 years, tangible improvements in economic conditions have remained elusive. This prolonged gap between political change and economic delivery has steadily weakened investor confidence, directly affecting production, consumption, and overall economic momentum.

Economists warn that a prolonged decline in private sector confidence poses a systemic risk. Reduced production and subdued consumption, if sustained, eventually ripple through the entire economy. Without a confident and active private sector, economic recovery remains fragile, regardless of policy intent or political rhetoric.

Nepal’s economy has now reached what analysts describe as a “complex turning point.” The World Bank, in its post–Gen Z movement assessment, has sharply downgraded Nepal’s growth outlook. It now projects economic growth of only 2.1 percent in the current fiscal year (2082/83) and 4.7 percent in the following year (2083/84), a significant revision from earlier forecasts of over 5 percent. This downward revision reflects the lingering economic disruption caused by prolonged unrest and weakened business activity.

The slowdown indicates that the economy has not yet recovered from the shock. Economic activities remain subdued, and concerns are growing that stagnation may persist longer than expected. While banks are flush with liquidity, the absence of a conducive investment environment has prevented capital from flowing into productive sectors. Excess liquidity, economists argue, is not a sign of strength but a symptom of stalled development and frozen economic activity.

Nepal was only beginning to regain economic rhythm after the COVID-19 disruption when renewed political agitation once again placed the economy at risk. The Gen Z–led movement, which emerged in protest against corruption, poor governance, and growing individualism in politics, initially raised hopes for reform. However, as protests escalated beyond their original intent, violent incidents and damage to physical infrastructure followed, dealing a fresh blow to an already fragile economy.

Damage to infrastructure and disruptions to supply chains have had direct economic consequences. Production delays, logistics constraints, and rising uncertainty have discouraged investment decisions. Analysts note that rebuilding confidence after such disruptions often takes far longer than restoring physical assets.

Economic experts emphasize that recovery will not come through speeches or short-term populist measures. What is needed instead are practical, coordinated reforms supported jointly by the government, private sector, and citizens. Marginalizing the private sector, they argue, weakens the very foundation of economic recovery.

The economy’s current trajectory also reflects deeper structural issues. Nepal’s policy framework remains heavily focused on revenue collection rather than production growth. While taxation is essential, overreliance on revenue-driven policy has discouraged entrepreneurship and industrial expansion. Long-term economic strengthening, analysts say, requires a shift toward production-oriented policies that prioritize output, employment, and competitiveness.

Political instability continues to be a major obstacle. Over the past two decades, frequent changes in government have led to repeated policy reversals, creating uncertainty for investors. Laws and regulations are amended frequently, but implementation remains weak. The repeated amendment of the Public Procurement Act—more than a dozen times in 20 years—has become a symbol of policy inconsistency and administrative inefficiency.

The private sector argues that while Nepal’s economic policies and budgets are not fundamentally flawed, the absence of effective implementation and economic understanding within institutions has undermined their impact. Projects are announced but not completed, and nationally significant projects remain unfinished even decades after their launch, further eroding investor trust.

Data underscores the importance of the private sector. Private enterprises now contribute approximately 81 percent of Nepal’s gross domestic product, while the public sector accounts for just 19 percent. Employment generation, revenue collection, trade, and industrial activity are all dominated by private actors. Despite this, businesses continue to face regulatory suspicion, administrative pressure, and policy unpredictability.

Industry leaders argue that governments have historically viewed the private sector as a revenue source rather than a development partner. Excessive regulatory hurdles, overlapping approvals across federal, provincial, and local levels, and delays in decision-making have increased costs and discouraged expansion. Instead of facilitation, businesses often encounter administrative resistance.

Economists stress that a strong economy cannot be built on imports alone. Nepal must expand domestic production, improve export capacity, and modernize its service sector. Competitive energy pricing, improved transport infrastructure, and regulatory simplification are critical to reducing production costs and restoring industrial competitiveness.

The paradox of high banking liquidity and low investment remains particularly concerning. Without investment-ready projects and predictable policy, capital remains idle. Fear of policy shifts, rising interest rates, and regulatory unpredictability has reduced capital mobility, further slowing economic activity.

Attracting both domestic and foreign investment requires policy stability and legal certainty. Investors need assurance that rules will not change arbitrarily. Experts argue that protecting domestic investors is the first step toward attracting foreign capital, as no foreign investor enters an environment where local capital feels unsafe.

Labor migration presents another long-term risk. Each year, hundreds of thousands of young Nepalis leave the country due to limited domestic opportunities. While remittances provide short-term relief, the loss of skilled labor undermines long-term productivity. Strengthening domestic industries, supporting startups, and ensuring affordable financing are seen as essential to reversing this trend.

Federalism has added another layer of complexity. While economic authority is now shared across three levels of government, weak coordination has led to duplicated regulations and administrative delays. The absence of a functional “single-window” system continues to burden businesses with time-consuming approval processes.

Experts emphasize that economic recovery is a shared responsibility. While the government must ensure stability and facilitation, the private sector must also uphold transparency, competitiveness, and social responsibility. Sustainable growth, they argue, depends on rebuilding trust between the state and businesses.

Ultimately, analysts conclude that Nepal’s economic strengthening rests on three pillars: political stability, mutual trust between the government and private sector, and long-term cooperation. Without stability, reform is impossible; without trust, investment will not grow; and without collaboration, policies will fail in execution. Until these foundations are secured, economic transformation will remain an unfulfilled promise despite repeated political change.