Khanal in Charge: Steering Nepal’s Economy and Gen Z Aspirations

Life has come full circle for Rameshore Prasad Khanal. Fifteen years ago, the then Finance Secretary exited the Finance Ministry after a dispute with Finance Minister Bharat Mohan Adhikari. On September 15, Khanal returned to the same ministry—this time as Finance Minister.

An economic expert with an impeccable administrative record, Khanal now faces a complex mandate. Tasked with overseeing elections scheduled for March 5, 2026, the Sushil Karki-led interim government must also address youth concerns raised during the Gen Z movement, including good governance, economic development, and employment. As Finance Minister, Khanal’s experience will be critical in navigating these responsibilities.

While assuming office on Monday, Khanal emphasized his commitment to eliminating corruption. He noted that eradicating corruption is not just a priority for the Finance Ministry—it is a national imperative. “We will actively work toward achieving it,” he said.

Khanal previously chaired the high-level Economic Reform Recommendation Commission, which identified political parties and election candidates as key sources of corruption in Nepal, citing their practice of collecting funds from wealthy business houses, contractors, and individuals seeking appointments to influential public institutions to finance election expenses.

“This has forced political leaders to make undesirable compromises in public policies or to conceal corruption. The commission reported that a widespread perception has emerged of powerful, unseen financiers influencing political parties and election campaigns and taking control of key public institutions, eroding public trust in those institutions,” the commission reported.

The commission recommended that the state provide annual grants to nationally recognized political parties based on set criteria, preventing candidates from raising separate funds. Those violating this principle should be barred from contesting elections.

With elections approaching, Khanal is in a position to implement these recommendations. “The main reason for the Gen Z movement was widespread corruption, and there is broad consensus that the new government must act to control it,” said Birendra Raj Pandey, President of the Confederation of Nepalese Industries (CNI). “Considering the aspirations and sacrifices of the new generation, a transparent system for election funding must be established. All contributions should be recorded online. Greater transparency fosters a corruption-free society and encourages entrepreneurship.”

During the Gen Z movement, private properties were attacked alongside government buildings, raising concerns among investors. Pandey noted that attacks on assets such as Hilton Kathmandu, hotels, industries under Bhatbhateni and Chaudhary Group, Ncell, and private homes significantly undermined business confidence. The Hotel Association of Nepal reported preliminary losses of around Rs 25 billion, while FNCCI and the CNI are compiling detailed assessments.

“During past conflicts and labor movements, the private sector had already raised concerns about security,” Pandey said. “Now, vandalism and arson affecting both government and private property make investors—domestic and foreign—question whether business ventures are safe in Nepal.”

Economist Dipendra Chaulagain added that in a situation where the state cannot ensure peace, security, and protection of private property, it is difficult to attract investment. Although business groups remain optimistic, he doubts that significant investment will resume in the next two years. “Providing guarantees of peace and security is the new government’s main challenge,” he said.

Meanwhile, the economy is slowing, and revenue growth has declined. At this critical juncture, the government must allocate funds for reconstructing damaged public infrastructure and providing relief to the private sector. Exact budget requirements are yet to be finalized, and funds must also be arranged for elections. Khanal estimates that cutting unnecessary expenditures and politically influenced allocations could mobilize around Rs 100 billion.

“If good governance is established, even without additional resources, revenue collection could be much higher,” said Ramesh Paudel, Associate Professor of Economics at Tribhuvan University. “Formalizing Nepal’s large informal economy could increase revenue by at least 1.5 times.”

The Khanal commission also suggested several tax reforms, but stakeholders warn that implementation will be challenging given limited resources. Chaulagain noted that unlike during the earthquake, foreign aid may be limited because current damage is self-inflicted through arson. Any aid may also come at higher interest rates, adding to the debt burden.

Nepal’s economy, projected to grow 4.61 percent in the last fiscal year, has yet to regain momentum post-COVID-19. With the new fiscal year underway, experts stress that the government must take decisive steps to revive growth alongside managing elections.

“Persistent issues such as stagnant aggregate demand, missed revenue targets, low capital expenditure, and unclear provincial allocations have hampered growth,” said Paudel. The commission also noted that weak market demand over the past two years has slowed economic progress, recommending reforms in taxes, policy, and legislation.

With the interim government tasked with holding elections within six months, long-term reforms will be challenging. “However, this government carries the mandate of the Gen Z movement. It must start work on good governance and economic growth accordingly,” Paudel added.

Khanal has stated that he is not in favor of a supplementary budget. “We have a responsibility to hold elections within six months, and funds must be arranged accordingly,” he said. “We will manage by cutting unnecessary expenses within the existing budget.”

He has also stressed the importance of ending corruption. Warning employees against taking government work home for personal purposes, he added, “I will be very happy if you never see my house.”

In the changed circumstances, the new government’s priorities have shifted. Since mandatory expenditures such as salaries, allowances, and social security cannot be cut, the development budget is likely to bear the largest reductions, raising concerns about large-scale projects. However, Khanal’s role in accelerating progress and calming public frustration will be crucial, especially in areas where infrastructure projects were left half-finished.

Having closely studied the economy’s problems and proposed reforms, Khanal is now in the driver’s seat. “Now Khanal is in a position to implement the recommendations he himself proposed,” Paudel said. “We expect him to take initiative.”