On September 8, more than 19 young Nepalis were killed during confrontations with security forces at the gates of the parliament in Kathmandu. What began as spontaneous protests triggered by a social media ban—but rooted in deep frustration over corruption and poor governance—spiraled into a nationwide crisis that ultimately claimed 72 lives, dissolved parliament, and produced an extra-constitutional caretaker government. Ahead of next year’s planned elections, the country faces a moment of profound uncertainty. The caretaker government, operating with limited legitimacy, has to manage a slowing economy, rising public resentment, and a fragile social order.
Persistent underdevelopment—despite decades of policy ambition—lies at the heart of Nepal’s political upheaval. Even before September, public disillusionment with governance failures and the lack of economic progress was already running deep. The pro-monarchy protests in March were also fueled by economic discontent and frustration with poor political leadership. To read these events as isolated outbursts over discrete, contemporary developments would miss their deeper significance. The Gen-Z movement reflects the culmination of decades of economic stagnation, weakened institutions, and a generation’s exhausted patience with leaders who promise prosperity but deliver patronage. Breaking this cycle requires significant institutional reform—backed by implementation and accountability mechanisms—that engages the private sector, civil society, and Nepali youth in generating sustained growth and inclusive development.
Enduring Economic Deficits
Nepal’s economic progress has been repeatedly derailed both by governance issues and major crises. The 2015 Constitution aimed to bring stability after a decade-long conflict, but its long drafting (2006-2015) and frequent government turnover weakened its impact. Unforeseen external shocks like the 2015 earthquake, the Indian border blockade following the promulgation of the constitution, and the COVID-19 pandemic, have also repeatedly interrupted progress toward sustained growth.
Nepal’s 15th and 16th economic plans (2019-2029) outline ambitious goals: inclusive growth, industrialization, regional integration, innovation, and governance reform. However, weak institutions, politicized bureaucracy, fragmented authority, and patronage-based governance undermine implementation, contributing to lackluster performance on infrastructure development, unsteady investment, limited economic opportunity, and increasing inequality.
Infrastructure and Investment
Infrastructure remains central to Nepal’s economic strategy, with the 16th Five-Year Plan prioritizing quality infrastructure and intensive interconnectivity as key drivers of growth. The plan sets ambitious targets, including 28,500 MW hydropower capacity by 2035, integrated transport networks, and modern urbanization supported by digital connectivity. The National Planning Commission estimates a total implementation cost of NPR 11.1 trillion (USD $77.83 billion), requiring a major scale-up in capital investment.
However, chronic implementation failures undermine these ambitions. Each year, the government struggles to use its budget: even with higher allocations, poor public investment management causes delays, cost overruns, and underutilization. The first eleven months of 2025 saw just 40 percent of the allocated NPR 352.35 billion (USD $2.48 billion) spent, leaving 60 percent for the final month. By year-end, execution landed at 63.2 percent, below the thirteen-year average of 67.8 percent, highlighting the ongoing challenge of translating budget allocations into development results. The average life cycle for the construction of infrastructure projects in Nepal is eleven years, and delays and cost overruns plague public service delivery. The World Bank in 2019 found that Nepal’s Incremental Capital Output Ratio—the investment needed to produce one unit of economic output—was the highest among comparable countries, indicating low returns. As a result, remittances, not productive investment, drove 4.2 percent annual GDP growth over the past three decades.
Financing and Private Capital
Political interference, cronyism, and weak enforcement have undermined Nepal’s regulatory and financial institutions, discouraging private capital. High-profile appointments show how political and business interests circumvent regulations to control authorities. Cooperatives and real estate remain opaque channels for illicit wealth, and Financial Action Task Force assessments have highlighted Nepal’s weak anti-money laundering laws, leading to its 2025 “grey-listing.” While legal frameworks exist, the lack of transparency, enforcement, and accountability erodes investor confidence, distorts domestic capital allocation, and raises foreign investment costs, threatening the country’s development prospects. Thus, although the 16th plan expects two-thirds of total financing to come from the private sector, investment fell by 9.6 percent in 2022-23, recovering only marginally in the two subsequent years. In addition, as foreign aid shifts from grants to concessional loans, state performance faces greater pressure. Flagship reforms—FITTA, the Industrial Enterprises Act, and the PPP framework—have clarified investment policy architecture, but implementation and regulatory capacity remain limited.
“Persistent underdevelopment—despite decades of policy ambition—lies at the heart of Nepal’s political upheaval.”
Youth Employment and Migration
The dearth of domestic opportunities has driven massive outward migration, with millions of Nepali youth seeking employment abroad, reflecting the economy’s failure to absorb young labor. This exodus represents both push (e.g., economic malaise, low wages, limited job creation) and pull factors (e.g., higher wages, better prospects abroad). In 2023, youth unemployment reached 22.7 percent, among South Asia’s highest; now, 55 percent of Grade 12 graduates study abroad. Massive outmigration has caused a “reverse population” crisis in Nepal. Emigration has reduced Nepal’s population by 0.92 percent annually over the past three years. No country experiencing sustained negative population growth—typical of poor countries with outflows of skilled and wealthy residents—has sustained high economic growth. Instead, such demographic patterns generate enduring dependencies: as of 2023, inward remittances amounted to a staggering 26 percent of Nepali GDP. This dynamic—in which remittances from workers abroad sustain an economy undermined by poor governance at home—deepens young Nepalis’ anger over domestic inequality and corruption.
Rising Inequality
Economic mismanagement is also driving Nepal’s inequality crisis. The wealthiest 10 percent earn more than three times what the poorest 40 percent make, while controlling 26 times more wealth. Regional divides deepen the problem: in Karnali and Madesh provinces, only 4 and 9 percent of households reach the top quintile of the national wealth index; meanwhile, Bagmati claims over 39 percent of the richest category. The government has consistently failed to spend on the very services that could narrow these divides. Health receives just 5 percent of the budget—half the World Health Organization’s recommended minimum—and citizens shoulder 55 to 60 percent of health costs out-of-pocket. Education fares little better, receiving only 10.75 percent of the national budget. Nepalis also link rising inequality to cronyism and systemic corruption, leading to elite capture of public resources. The country’s anti-graft body has looked to address these issues, but is frequently criticized for delays, low conviction rates, and selective enforcement.
Beyond Elections: Governance Challenges
As Nepal approaches the March 2026 elections, the core challenge is not electoral—it is structural. Regional experiences underscore this: Bangladesh’s prolonged political uncertainty has dampened investor confidence despite robust fundamentals; Sri Lanka’s IMF-supported reforms face limits from institutional inertia and entrenched interests. Elections are necessary for legitimacy but insufficient for transformation. Sustainable progress requires strong institutions, credible reforms, and the ability to translate political promises into effective policy.
The real test is whether Nepal can move beyond the sterile debate of old parties versus new faces to confront fundamental questions: how can the state build execution capacity to translate policy into outcomes? How can it break the cycle where short-term political survival consistently trumps long-term planning?
The reforms recommended by the High-Level Economic Reforms Commission, chaired by Finance Minister Rameshore Khanal, hold genuine promise. Implementing these long-sought but often neglected measures—encompassing political accountability, inclusive social policies, productive financial sector reforms, and trade and industrial strategies—offers the best chance to break Nepal’s cycle of fiscal expansion without development, and to foster sustainable economic recovery. However, sound policy alone is insufficient: clear implementation guidelines and strong accountability mechanisms are necessary to translate recommendations into reality.
Effective implementation requires institutional architectures for policy delivery. A “Delivery Unit”—a small team reporting directly to the executive—should track progress on five to seven priority commitments with monthly public reporting. Key economic ministries need professional project management offices with fixed-term staff and performance-linked incentives, not political appointments.
The accountability deficit represents Nepal’s most fundamental governance failure. The country’s abundant oversight mechanisms—including Auditor General reports, anti-corruption investigations, and parliamentary reviews—fail to generate meaningful consequences. Welcome reforms could include creating legally-binding performance contracts for public officials, mandatory public disclosure of government projects and their progress, and mechanisms that transcend individual government tenures. Another positive step toward political accountability would be the implementation of state-funded election campaigns, a practice successfully adopted by nearly a third of the world, which reduces reliance on corrupt fundraising and fundamentally shifts incentives from patronage and rent-seeking toward effective governance and policy delivery.
Private Sector’s Unfinished Role
However, securing Nepal’s future cannot be the government’s responsibility alone. The private sector, both the backbone of Nepal’s economy and the primary beneficiary of growth, must play a more active role. In Southeast Asia, the business community has supported regulatory reform, workforce development, and infrastructure, with PPPs delivering both social and physical infrastructure and sector-specific training programs aligning skills with market needs. Nepal’s business community has been vocal in criticizing government inefficiency but less visible in proposing or funding alternative solutions.
A more proactive private sector would invest not just in immediate profit opportunities but in the institutional infrastructure that makes sustained growth possible: vocational training programs that create employable workers, industry associations that self-regulate and build trust, and advocacy that pushes for specific, implementable reforms. This requires reciprocal government commitments—encouraging private investment through stable policies, honoring contractual agreements, and establishing genuine public-private partnerships that share both risk and decision-making in major infrastructure projects rather than treating the private sector merely as a revenue source.
“Just two months after the September crisis, the national conversation has predictably centered on who will come to power rather than how power should be exercised.”
Road Ahead: Governance, Growth, and Generational Demands
Uncertainty reigns ahead of next year’s planned elections, and doubts linger over whether Nepal’s democratic institutions can withstand sustained political volatility. Already troubled by questions of legitimacy, the interim government faces public expectations that may exceed its capacity. While the majority of political parties have signaled readiness to proceed to the polls, the CPN-UML—the second largest party, led by former PM Oli—remains the main obstacle, reluctant to endorse early elections and unwilling to acknowledge the legitimacy of the September protests. Security agencies lack confidence in their ability to maintain order and eroded public trust compounds risks. Together, these factors cast doubt on whether Nepal’s democratic framework can support a peaceful transition, or if political maneuvering will prolong instability.
Just two months after the September crisis, the national conversation has predictably centered on who will come to power rather than how power should be exercised. New political parties are emerging, promising disruption and change, but their proliferation may further fragment the vote without necessarily improving governance. This recurring fixation on leadership turnover rather than systemic reform reflects a deep-rooted democratic dilemma: after the political openings of 1990 and 2006, new systems and leaders emerged, yet the underlying culture of patronage, corruption, and zero-sum politics persisted, leaving institutions weak and citizens disillusioned.
The Gen-Z protests reflect a generational demand for accountable government, credible economic reform, and opportunities that allow young people to build futures at home. Nepal should build execution capacity to translate policy into outcomes, restore regulatory predictability to attract investment, and break the cycle in which short-term political survival repeatedly outweighs long-term development. The path forward demands contributions from all sectors: a political class willing to prioritize sustainable development, a bureaucracy capable of transforming vision into action, a private sector that invests beyond rent-seeking opportunities, and a civil society that holds all actors accountable.
Without genuine political commitment to systemic reforms, Nepal risks repeating its familiar cycle: new leaders yet unchanged structures, and a generation that continues to vote with its feet. The country’s path forward demands coordinated action—political, economic, and social—to rebuild public trust, strengthen state capacity, and create the conditions for inclusive, sustained growth that gives Nepal’s youth a reason to stay.
Views expressed are the author’s own and do not necessarily reflect the positions of South Asian Voices, the Stimson Center, or our supporters.
Also Read: Nepal’s Constitutional Interregnum: Legitimacy and the Fragility of Democratic Renewal
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Image 1: Greg Willis via Wikimedia Commons
Image 2: AfzalKhan1981 via Wikimedia Commons
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