Public Investment Under Strain as ‘GenZ Uprising’ Adds Massive Reconstruction Burden

Nepal’s public investment system, already weakened by chronically low capital spending and poor implementation, has entered a deeper crisis following the destruction of major state properties during the ‘GenZ uprising’ of Bhadra 23 and 24. What was once a structural challenge has now escalated into a fiscal emergency.

The country’s fiscal space—already narrowing due to sluggish revenue growth—now faces additional pressure as the government must rebuild public infrastructure damaged during the protests. Initial assessments suggest that assets worth more than Rs 100 billion may have been destroyed, and reconstruction costs are expected to be nearly double the current valuation due to inflation and new safety requirements.

For a nation where capital expenditure has long been inadequate, the scale of the damage has exposed a widening gap between required infrastructure investment and the state’s ability to finance and execute it.

Chronic Underinvestment and Weak Spending Capacity

Nepal’s capital spending has remained consistently low for decades. In fiscal year 2080/81, the combined capital expenditure of all three tiers of government amounted to just 8.16 percent of GDP. The federal government’s own capital spending in 2081/82 stood at a mere 3.65 percent of GDP, one of the lowest in the region.

Over the past 50 years, Nepal's average public investment has hovered around 4.98 percent of GDP—far short of the World Bank’s recommendation of 10 to 15 percent for countries aspiring sustainable growth. This persistent gap has translated into infrastructure shortages and a slowdown in economic transformation.

Even the modest allocations made in the budget often remain unspent. Over the last five fiscal years, the federal government has utilized just about 62 percent of its allocated capital budget on average. Such performance has raised serious concerns over project readiness, procurement delays and institutional capacity.

Long-Standing Structural Problems Surface Again

The recent uprising did not create new problems; it merely magnified existing weaknesses. One of Nepal’s most persistent issues is the tendency to insert hundreds of small, scattered projects into the budget without proper planning or cost–benefit analysis. Many of these projects neither address strategic priorities nor deliver measurable outcomes.

Political interference further complicates matters. Large, parallel infrastructure—such as multiple east–west highways built within short distances—reflects poor prioritization and a lack of strategic vision. Provinces and local bodies too have engaged in similar patterns, often constructing roads and bridges without assessing long-term utility or maintenance requirements.

Because of these tendencies, essential projects often face resource shortages while lower-priority ones continue to receive political backing. This imbalance has weakened public investment outcomes across all levels of government.

Weak Execution and Contractor Dominance

Project implementation remains one of the weakest links in Nepal’s public investment cycle. Despite having procurement laws, the bidding process frequently suffers from cartel formation and unhealthy competition. Contractors often submit unrealistically low bids to secure contracts, only to delay work later.

In recent years, political patronage has further diluted accountability. Contractors bypass project chiefs and directly influence ministers, weakening institutional authority. Frequent transfers of project heads have disrupted continuity, and quality control has deteriorated.

In many cases, even after taking advance payments, contractors fail to deliver expected results. As a consequence, project timelines extend, costs escalate and the intended benefits fail to reach the public on time.

Poor Monitoring and Limited Accountability

Monitoring and evaluation—crucial components of effective public investment—remain largely neglected. Except in donor-funded projects, Nepal rarely undertakes rigorous outcome or impact assessments. Even when evaluation reports are prepared, they often gather dust, neither informing future planning nor prompting corrective action.

This weak accountability system has encouraged a “culture of completion certificates,” where projects are declared complete despite quality concerns. Without reliable evaluation, Nepal continues to repeat the same planning and implementation weaknesses year after year.

Governance Breakdown in Infrastructure Development

Governance in the infrastructure sector has eroded significantly. Project leadership often depends on loyalty rather than competence. Regulatory bodies focus more on blanket punitive measures than targeted oversight, discouraging decision-making among officials who fear legal scrutiny.

These governance failures have undermined Nepal’s public investment returns for years. Despite heavy spending, the capital stock as a share of GDP has fallen from 74 percent two decades ago to just 50 percent today—a sign that the country is not getting adequate value from its investments.

The GenZ Uprising Amplifies Fiscal Pressures

The destruction during the uprising has added an extraordinary burden on public finances. Damage to Singha Durbar, the Parliament complex, the Supreme Court and other key administrative buildings has created large, unexpected reconstruction liabilities.

Unlike recent uprisings in Sri Lanka or protests in the United States—where demonstrators refrained from large-scale destruction of state property—Nepal’s protests have historically resulted in vandalism and arson. This pattern heightens national security concerns and erodes investor confidence.

The long-term economic implications are equally serious. The country will need to mobilize significant resources at a time when revenue growth remains sluggish and debt servicing costs are increasing.

Despite Weaknesses, Past Investments Have Delivered Results

Nepal’s public investments have not been without achievements. The country has built more than 3,800 MW of electricity generation capacity, laid over 1,400 km of transmission lines, constructed around 36,000 km of roads and developed a network of international and domestic airports.

Similarly, irrigation facilities now cover about 1.5 million hectares, and more than 97 percent of the population has access to drinking water. These achievements demonstrate that public investment can yield significant results if planned and executed well.

However, poor maintenance and inefficient spending have eroded gains and limited the long-term value of these investments.

Reform and Reconstruction: The Way Forward

Given the scale of recent destruction and long-standing structural issues, experts argue that Nepal must undertake serious reforms to strengthen public investment management.

First, reconstruction of damaged infrastructure should be prioritized for the next two fiscal years. To finance this, the government may need to expand revenue measures, establish a reconstruction fund, issue reconstruction bonds and improve prioritization to ensure resources are used where they are most needed.

Second, Nepal requires a National Public Investment Policy to clearly define which level of government handles which type of project. Strategic fit analysis and cost–benefit assessments must be mandatory for medium and large projects.

Third, the government must raise total capital expenditure to at least 12–15 percent of GDP to achieve its economic growth targets. This requires strengthening project preparation, enforcing fiscal discipline and improving procurement systems.

Fourth, maintenance budgeting must become a core component of capital planning to prevent premature deterioration of public assets.

Finally, governance reforms—including merit-based appointments, stronger monitoring mechanisms, full implementation of the e-GP procurement system and reduced political interference—are essential to restore efficiency and public trust.

The GenZ uprising has placed Nepal at a crossroads. Beyond the physical destruction, it has exposed deep institutional weaknesses in the country’s public investment system. Unless Nepal undertakes decisive reforms—focusing on planning, execution, governance and accountability—the fiscal burden will grow heavier, infrastructure gaps will widen and economic growth will continue to underperform.

Rebuilding damaged infrastructure is urgent, but rebuilding public investment governance is even more critical for Nepal’s long-term development.