Seize the Moment

Nepal is at a defining moment. The Khanal commission’s reform blueprint is the most comprehensive economic revival strategy in decades. But history has shown even the boldest ideas can gather dust without political courage. Amid slowing growth, mass youth migration and deep-rooted systemic inefficiencies, the report of the High-level Economic Reform Advisory Commission offers both an opportunity and a test. The question at the moment is: Will our leaders finally break the cycle of inertia?

The diagnosis is stark. Once buoyed by remittances and real estate, Nepal’s economy is now limping along at 2.9% growth—far below the 6–7% range needed to escape the lower-middle-income trap. The Commission has rightly identified the root causes: outdated laws, a bloated and inefficient bureaucracy, and fiscal policies that prioritize populism over productivity. Its prescriptions, from repealing 15 outdated acts to attracting foreign investment through Global Depository Receipts (GDRs), are bold yet pragmatic. Three reforms, in particular, stand out as potential game-changers. First, liberalizing outward foreign direct investment (FDI) could enable Nepali businesses to emerge as regional contenders. The 1964 ban on such investments has remained as a relic of economic isolationism to date. Second, a push for fiscal discipline, especially curbing the unsustainable expansion of social security programs, challenges the entrenched culture of political patronage. Third, the call to revisit Nepal’s longstanding currency peg recognizes how an overvalued rupee has been eroding our export competitiveness.

The report, however, is not without its flaws; it lacks a clear, prioritized roadmap. This increases the risk of piecemeal or symbolic implementation. Likewise, it has sidestepped some difficult fiscal questions: How to fund the cooperative sector cleanup? How will falling petroleum revenues be offset? Most critically, it has not proposed any accountability mechanisms to protect reform from political dilution or delay.

Economic liberalization of the 1990s succeeded because of firm political will. In contrast, the expenditure reform recommendations made in 2018 were quietly shelved. Today’s fractured political environment, marked by fragile coalitions and vested interests, makes bold reforms even more elusive. The cost of delay will be big: the youth continue to flee in droves and climate shocks are increasingly threatening Nepal’s agrarian backbone. Nepal risks squandering yet another decade if immediate actions are not taken.

The government must take needful legislative action by repealing obstructive laws like the Black-Marketing Act and passing the Foreign Investment Regulation Act before the upcoming budget. Likewise, it needs to establish an independent reform secretariat, insulated from the bureaucratic churn, to implement the recommendations made by the commission. Similarly, the government should seek quarterly progress reports and tie development aid to measurable milestones to ensure public accountability.

The commission has done its job. Now, responsibility lies with Prime Minister KP Sharma Oli’s government and the opposition parties to rise above narrow political interests. The upcoming budget will be a test of the government’s intent. If this report, like so many before it, is put on the backburner, the message will be unmistakable: stagnation has once again triumphed over transformation. Nepal cannot afford another missed opportunity. The time for excuses is over. Act now.

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