Nepal’s economy fails to keep up with political transformation: Experts

Despite decades of sweeping political transformations, Nepal has struggled to achieve a corresponding economic transformation. Experts attribute this failure to weak institutions, policy instability, and poor implementation of reforms, underscoring the need for structural changes.

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But one thing that has not changed sufficiently is the institutional structure through which the economy and the state are governed.

At a dialogue forum in Kathmandu, policymakers and business leaders emphasized that while Nepal has seen changes in its political system, governments, and constitution, the institutional framework governing the economy and the state has lagged behind. Finance Minister Swarnim Wagle stated that Nepal has weakened its institutions, made policies unstable, and distorted the incentive structure, making access, protection, and influence more valuable than production, innovation, and competition.

Wagle described Nepal's greatest failure as political-economic, not merely economic. He explained that expensive elections, opaque political fundraising, and cadre-based party structures have transformed politics from public service into an investment. This has led to the institutionalization of policy corruption, state capture, and crony capitalism, where opportunities are secured through political access and connections rather than entrepreneurship and innovation.

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We weakened our institutions. We made policies unstable. We distorted the incentive structure.

Former finance secretary and minister Rameshore Khanal addressed Nepal's debt situation, noting it remains manageable despite increased borrowing. He pointed out that debt servicing accounts for only about 1.3 percent of government revenue, a low figure compared to other South Asian countries. Khanal clarified that Nepal is not on the verge of bankruptcy due to an inability to repay debt, but the economic corridor is narrow, with limited room for maneuver.

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Our greatest failure is not merely economic; it is political-economic.

Khanal also noted that a significant portion of Nepal's external debt comprises concessional loans from multilateral lenders like the World Bank, with costlier loans from countries like China and India forming a smaller share. While the current situation is not alarming, he warned that a continued focus on access and protection over production and competition benefits only a limited group, exacerbating social dissatisfaction.

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Every year, the government spends only about 1.3 percent of its revenue on debt repayment.