Rebuilding Nepal: From Upheaval to Opportunity

The Gen Z-led protests of September 8–9 reshaped Nepal’s political landscape, paving the way for an interim government and setting the stage for parliamentary elections in March 2026. In just two days, the country witnessed an upheaval of historic scale which shook its political, social and economic foundations. However, the post-protest political scene remains fluid. The interim government is struggling to gain the confidence of legacy parties that have dominated the past three decades, while new political forces led by Gen Z activists are still taking shape. Amid this uncertainty, the business community is watching with growing unease.

Perhaps the most profound consequence of the protests has been the disruption of the country's crony-capitalist order. Those who prospered purely through political patronage have been reset. For too long, parts of the private sector leveraged their proximity to power to promote narrow interests, cementing a cycle of influence and favoritism. The key question now is whether that cycle can finally be broken. Crony capitalism thrived on collusion among bureaucrats, politicians, and business elites to shape policies for mutual gain. The hope is that the interim government will guide the country to elections and lay the groundwork for a new administration committed to dismantling this old order and fostering genuine competition so that entrepreneurship can thrive on a truly level playing field.

Nepal’s economy was faltering even before the protests. The pandemic-induced downturn, soaring interest rates caused by liquidity shortages, and sluggish market demand had strained businesses nationwide. Structural weaknesses, compounded by global shocks like the Russia–Ukraine war, further intensified the challenges. The unrest delivered another economic blow. Government institutions, private enterprises, and the tourism sector all felt the aftershocks as investor confidence plunged.

Now, the country faces a clear challenge: to channel widespread frustration into a framework for reform by transforming political change into economic and institutional renewal. This moment demands more than infrastructure projects or policy tweaks; it calls for rebuilding trust, restoring predictability, and ensuring meaningful citizen participation.

With nearly 40% of its population under 30, Nepal’s greatest untapped resource is its youth. The protests revealed both frustration and a rising sense of agency among young Nepalis—a reminder that the nation’s future will be shaped by those no longer willing to wait.

While the Sushila Karki-led interim government’s primary mandate is to ensure stability and hold elections, economists and business leaders argue that it can still initiate key reforms. The presence of three ministers—Rameshore Khanal, Kulman Ghising, and Anil Kumar Sinha—each with deep expertise in their fields, offers a unique opportunity to push forward reform agendas.

Niranjan Shrestha, executive director of Laxmi Group, says major reforms in Nepal have historically followed crises. “Every political movement since 1990 brought some degree of reform,” he said. “Each revolution made things somewhat better, but momentum has slowed since the 2000s.”

Governance: Leadership Over Management

Encouragingly, the interim government appears willing to engage with the private sector. Soon after assuming office, Minister for Finance Rameshore Khanal visited businesses damaged during the protests.

Despite lingering friction—over electricity cuts to industries with unpaid dues and canceled contracts angering contractors—the government held a three-and-a-half-hour dialogue with business representatives on October 31. During the meeting, business leaders raised concerns about insecurity, power outages, investor anxiety, delays in implementing investment-friendly policies, and government inaction on grievances from affected industries. They warned that these issues were eroding investor confidence and risking capital flight and urged the government's policy and administrative machinery to take swift and decisive action.

Addressing these concerns requires more than ad hoc measures—it demands a shift in governance culture. Nepal’s institutional deficit runs deep. While systems exist, leadership, accountability, and predictability are often missing. Customs, tax, immigration, and even municipal offices continue to operate under rent-seeking norms, while political capture ensures that policies and contracts favor a select few. This unpredictability  discourages long-term investment and weakens public trust.

“In the last decade, political uncertainty and systemic hurdles have cost Chaudhary Group and its partners over $5 billion in potential investments,” wrote Nirvana Chaudhary, managing director of the Chaudhary Group, on X after the October 31 meeting. “Nepal’s future depends on stability, transparency, and policies that build investor confidence. The private sector stands ready to play its part, but we need a predictable environment and partnership from the government to realize our shared vision for progress.”

Accelerating Reform

The High-Level Economic Reform Advisory Commission, led by Khanal, had earlier submitted a 447-page report identifying Nepal’s economic weaknesses, their causes, and both immediate and long-term remedies. The previous government under KP Oli appeared ready to move forward, but lost momentum amid political wrangling. A critical reform window was missed.

Now, Khanal is in a position to implement many of those recommendations himself. The report underscores that sectoral reforms cannot succeed without strengthening public institutions. It rightly identifies the root causes: archaic laws that stifle enterprise, a bureaucratic merry-go-round, and populist fiscal policies that undermine productivity. Its recommendations—from repealing 15 outdated acts to attracting foreign investment through Global Depository Receipts (GDRs)—are both bold and pragmatic.

Three proposed reforms stand out as potential game changers. First, liberalizing outward FDI to enable Nepali firms to expand regionally. Second, enforcing fiscal discipline, especially curbing the expansion of unsustainable social programs. Third, reviewing the rupee’s decades-old currency peg, which has eroded export competitiveness.

In early October, the finance ministry took a landmark step by abolishing the controversial customs reference-value database at Biratnagar Customs, replacing it with a digital valuation system. On November 1, the new Customs Valuation Database System was launched at Birgunj Customs, automating valuation and clearance processes to make customs operations more transparent and reliable.

The new system digitally stores price details of cleared goods and analyzes transportation, insurance, and other associated costs to determine the true transaction value. “This initiative aims to create a value-chain database to curb fake billing and invoice manipulation,” said Shyam Dahal, a member of the high-level tax reform committee led by  Bidyadhar Mallik.

Customs evasion has been rampant since 2022, largely due to political protection for offenders. The Mallik Committee has recommended holding officials accountable for illegal imports. If goods pass through customs unlawfully, customs officials should be held responsible; and if they enter through open borders, security forces stationed there must answer for the breach.

Dahal said that full automation of customs procedures is a must. “While automation has improved considerably, the Letter of Credit process still requires manual signatures. This final step must go online to ensure seamless integration,” he added.

In another positive move, the finance  ministry recently regained oversight of key regulatory bodies, including the Department of Money Laundering Investigation and the Revenue Investigation Department—reversing a 2017 decision by the KP Sharma Oli-led government that had diluted its authority.

Advocate Semanta Dahal believes reform-oriented leadership now occupies key institutions. “ At the Nepal Rastra Bank, there are likely to be reforms that can be implemented even without changing the law. Many reforms can also be achieved through ministerial direction,” he said.

Business leaders say Nepal needs not just stability but policy predictability. Businesses must be able to trust that policies will remain consistent for at least five to six years. Of late, the annual budget, according to business leaders, has become a kind of 'trauma' for them, with tax revisions benefiting some industries while hurting others.

“A policy, after all, is a promise,” said Shrestha. “The government must be honest and consistent in keeping that promise. Businesses operate on trust, and that trust allows them to plan, invest, and grow. The government’s job is to nurture that trust and create a predictable environment for progress.”

Transforming Political Parties

One positive outcome of the Gen-Z protests has been the growing debate within legacy political parties over the need for generational leadership change. The three major forces—the Nepali Congress (NC), CPN-UML, and CPN (Maoist Center)—are now preparing for their general conventions, where second-tier leaders are expected to contest for top positions.

How these transitions unfold will shape Nepal’s political landscape for years.

If younger leaders emerge, it could mark not just a change of faces but a reimagining of how politics is practiced. However, expecting generational change alone to deliver prosperity would be naive. The deeper rot lies in how Nepal’s politics is financed.

Political funding remains one of the biggest enablers of corruption in Nepal. With traditional sources—membership fees, activists’ contributions, and voluntary donations—insufficient, parties have long relied on opaque and often unethical methods to sustain themselves. Profiteering from public contracts, monetizing bureaucratic appointments, and forging murky alliances with business interests have long been normalized under the guise of “pragmatism".

This corrosive financing model has made reform indispensable. The high-level commission rightly argued that dependence on private donations breeds policy capture and systemic corruption. Its proposed remedy—state funding for political parties—may sound radical but offers a pragmatic solution. The commission recommended government grants to nationally recognized parties based on transparent, performance-linked criteria, either through a new Political Finance Act or by amending the Political Parties Act, 2017 and House of Representatives Election Act, 2017.

Such reform demands political will, not lip service. If the interim government is serious about dismantling the money nexus that hollowed out governance, this is the time to act. Leadership renewal without financial reform would only perpetuate dysfunction under new faces. “The solution must start with political party reform,” said Shrestha. “Since parties run the state, they must first become accountable, transparent, and ideologically grounded. Only then can reforms in education, healthcare, and service delivery take root. Political parties must think beyond elections and focus on reforming governance itself.”

Another crucial step, according to Pokharel, is redrawing and consolidating electoral constituencies. “Why does Kathmandu need ten constituencies when Delhi—with over 30 million people—has only seven?” he asked.  Nepal currently has 37,965 elected representatives across all levels—an enormous number for a small country. “We simply don’t need that many political positions,” Pokharel added. “Reducing them would help curb corruption by lowering dependence on public funds.”

Together with around 200,000 security personnel, 150,000 civil servants, and thousands of teachers, these representatives draw salaries from an already strained state budget. With public debt estimated between $20–27 billion and Rs 400 billion spent annually on debt servicing, the burden is unsustainable.

Youth and the Digital Economy Nepal’s most underutilized resource is its youth. With nearly 40% of the population under 30, the country holds a demographic dividend that could power transformation—if governance, policy, and opportunity align. The recent protests reflected not only frustration but also a growing sense of agency among young citizens. 

“The Gen Z movement is not about one issue—it’s a reaction to decades of unfulfilled reform and institutional decay,” said Dipendra Chaulagain of Samriddhi Foundation. Many young Nepalis still view migration abroad as safer than investing energy and resources in a system mired in digital capability for Nepal’s own transformation.

Financially, the investment required is modest. An allocation of Rs 8–10 billion over four to five years is not excessive for the state. To put that in perspective, tourism generates about $500 million annually, while even a moderate IT initiative could yield over $1 billion in revenue. With focused, sustained investment, the IT sector can become a transformative driver of growth and better governance—helping Nepal build a more transparent, efficient, and future-ready state. inefficiency and corruption. Yet those same frustrations are now fueling innovation and civic engagement at home.

Despite the country's vast digital potential, entrepreneurs face steep structural barriers like licensing delays, unpredictable taxation, and excessive bureaucracy that stifle startups. “The finance ministry must move beyond a revenue-collection mindset,” said Chaulagain. “It appears more focused on short-term targets instead of driving growth and reform.”

Startups need a predictable regulatory environment, clear operational rules, and targeted tax incentives. Simplified digital taxation, seed funding, and mentorship programs can turn innovative ideas into scalable ventures. Nepal’s IT sector already generates $515 million in annual exports—a figure that could expand significantly with sustained policy support.

“Nepali youth already have the capability to manage digital services,” said Manoj Ghimire, co-founder and CEO of Rara Labs. “An investment of Rs 8–10 billion over four to five years is modest for the state but could deliver transformative results.”

To unlock this potential, reforms must be ecosystem-wide—encouraging banks to lend to small industries, modernizing regulations, and rewarding innovation. “Without holistic reform anchored in political accountability, bureaucratic modernization, and entrepreneurial empowerment, our economy will continue to stagnate despite its demographic advantage,” Chaulagain warned.

Tax incentives, incubation hubs, and public-private mentorship programs could accelerate growth in high-value sectors like IT, fintech, renewable energy, and agritech.

Digital as the New Infrastructure

Infrastructure today extends beyond roads and bridges—it includes digital networks, data platforms, and interoperable systems. According to Sanjib Subba, founder of Kathmandu Fintek, Nepal must prioritize investment in Digital Public Infrastructure (DPI)—a secure, connected framework linking national IDs, banking, tax registration, and civic services. “Only by connecting data can we build a true digital economy,” Subba said. “Even geographically remote areas would be better connected and included in development.”

For Nepal, digital infrastructure is not just a convenience—it is a strategic lever for inclusion. A robust DPI can power e-governance, digital payments, and fintech innovation, allowing entrepreneurs to launch and scale businesses without bureaucratic bottlenecks. Although Nepali engineers are already building such systems abroad—in Tanzania, Bangladesh, and beyond, domestic opportunities remain limited by policy inertia and weak digital foundations.

To fully harness its demographic dividend, Nepal must also reimagine education. Subjects like AI, coding, data science, and entrepreneurship should become core curriculum components aligned with global economic needs. “We must teach AI, coding and data science to prepare Nepali students for the digital economy,” Subba emphasized. “Nepal still lacks the ecosystem to retain and grow this talent at home.”

Integrating education, digital infrastructure, and entrepreneurship can act as a force multiplier. Imagine an ecosystem where agricultural micro-entrepreneurs can access real-time data on prices, logistics, and payments through digital platforms designed by local engineers. It can create jobs, retain talent, and boost supply chain efficiency.

A well-developed DPI also has direct economic potential. Interconnected systems—national IDs, banking KYC, education records, and health databases—can enable secure transactions, efficient governance, and greater market access. “We need to link agriculture, education, tourism, and energy with the digital economy,” said Subba. “IT services don’t require customs clearance—we should capitalize on that. Nepal already exports $515 million in IT services annually, and the potential is far greater.”

Digital connectivity also democratizes opportunity. Remote professionals can now join global markets without leaving their communities. Mid-Hills, for instance, offer ideal conditions for data centers, reducing energy costs and attracting foreign investment.

Historically, Nepal has exported human capital. DPI, skill development, and supportive ecosystems could reverse that trend. “We invest 18 years educating a person, only to send them abroad,” Subba lamented. “Instead, we should skill them to stay and contribute here.”

The convergence of digital technology, entrepreneurship, and education is Nepal’s next frontier of transformation. If properly harnessed, it could shift the country from dependency and outmigration toward innovation-driven growth and inclusive prosperity.

Digital Governance as a Trust Multiplier

Digital platforms are more than tools—they are instruments of transparency and accountability. From e-governance portals to national ID systems, technology can make public administration more predictable and verifiable.

“We must strengthen the National ID system, develop API-based KYC frameworks, and ensure interoperability and security,” said Subba.

Digital governance also reinforces policy predictability. When citizens and businesses can anticipate procedures and regulations, trust in institutions grows—a prerequisite for both domestic and foreign investment. Predictable systems encourage entrepreneurs to formalize their businesses, improve compliance, and plan long term.

Ultimately, governance reform depends on leadership. Managers maintain systems; leaders drive transformation. Nepal’s challenge is ensuring that key institutions—from the Prime Minister’s Office to core ministries—are led by people of competence, integrity, and vision. By linking technology, trust, and leadership, Nepal can redefine governance for the digital age.

Green Growth, and Local Resilience Nepal’s geography is both a blessing and a challenge. Towering mountains, fertile plains, and mid-hill plateaus offer immense natural resources. However, they also make the country highly vulnerable to climate shocks. Flash floods, landslides, and erratic rainfall repeatedly disrupt lives, agriculture, and commerce. These crises are not anomalies; they are recurring risks that demand a strategic, forward-looking approach.

These Crises have exposed Nepal’s overreliance on imports. Local production can reduce vulnerability and stimulate domestic economic activity. Municipal markets, local cooperatives, and community-led supply chains have already shown that small, targeted interventions can generate outsized impact.

For example, municipalities that prioritize stalls for certified domestic producers create immediate market access for farmers while nudging importers to improve standards. These seemingly small tweaks can empower local producers, stabilize prices, and encourage broader participation in the economy.

“Small farms should be linked with tourism and organic production while establishing agro-processing units. This approach would strengthen the supply chain and encourage the private sector to take calculated risks,” Pokharel said. “Reforms in the agricultural sector are essential — it would not only enhance productivity but also make Nepal’s economy more resilient and self-reliant.”

A key strategy for resilience is the development of anchor industries — large enterprises around which smaller MSMEs can cluster. For instance, Pokhara’s potential as a hub for organic agriculture or Deukhuri Valley’s agro-processing opportunities can generate entire networks of suppliers, logistics providers, and service providers.

“One big agri-industry can generate a network of smaller suppliers and processors around it. Policies are crucial for agricultural transformation. We should move beyond the idea that small cooperatives with limited capital can drive large-scale change,” Shrestha said.

Urban centers should not just consume; they should catalyze rural production. Investments in digital infrastructure, e-commerce platforms, and logistics networks can link small producers with high-value markets, such as hotels, schools, and hospitals. This approach simultaneously reduces import dependence, creates rural jobs, and fosters inclusive economic growth.

“If maize production in Kalikot rose from 3.6 to even 6 tons per hectare (India averages around 7), the district could achieve food self-sufficiency,” Pokharel said. "Raising productivity across the country could substitute imports and trigger a rural transformation. Linking small farms with tourism and organic markets—where five-star hotels purchase local organic produce—could create reliable, high-value demand."

The private sector has an essential role in financing green growth. Renewable energy, urban farming, waste-to-energy projects, and eco-friendly construction can

attract both domestic and diaspora investment. These initiatives are not just environmentally responsible — they are economically strategic.

"We must now focus on agriculture. We are importing huge volumes of agricultural products, which is unsustainable. Instead of focusing only on subsidies, the government should work closely with the private sector,” Pokharel suggested. “This approach would strengthen the supply chain and encourage the private sector to take calculated risks.”

Rebuilding Institutions and Trust

Economic transformation cannot happen in isolation from governance reform. Nepal’s institutional fragility— entrenched bureaucracy, political capture, and weak service delivery—has repeatedly stymied growth, frustrated citizens, and undermined private-sector confidence. Rebuilding trust in state institutions is therefore as critical as physical reconstruction or fiscal stimulus.

Our bureaucracy, spread across federal, provincial, and local levels, suffers from politicization, inefficiency, and skill gaps. Many officials prioritize compliance with political directives over citizen service which is eroding trust and economic productivity.

“We also need to restructure the bureaucracy. Corruption is deeply rooted in the system. A massive overhaul of the administrative system itself, not just policies, is necessary,” said Pokharel. “Lateral entry and merit-based recruitment can inject new energy and expertise into governance, making it more efficient and accountable.”

Digitization is a key enabler of good governance. Platforms that minimize human discretion, such as online licensing, automated tax collection, and digital land registration, can curb corruption, expand access, and enhance service quality. Confederation of Nepalese Industries (CNI) President Birendra Raj Pandey emphasized, during the October 31, meeting the need to accelerate digital transformation to make the country’s service delivery system faceless, paperless, and contactless, thereby strengthening governance and transparency.

For governance reform to be meaningful, it must reach citizens directly. Inefficient public service — from registration and licensing to utilities and disaster relief — create daily frustration and reinforce migration as the default escape.

“The problem begins with weak public service delivery. Services meant to be citizen-oriented are marred by inefficiency, political interference, and corruption. Government unpreparedness during crises has exposed institutional fragility, eroding public confidence in the state’s ability to protect and support citizens,” Chaulagain said.

Improving service delivery requires not only digital tools but also accountability mechanisms — clear timelines, performance metrics, citizen feedback loops, and consequences for non-performance.

Business leaders say more than corruption itself, the real issue today is the absence of governance. If the next phase of elections happens on time, there is a strong chance that reforms will follow. Political parties, too, may reform themselves, as they did after 1990.

Rebuilding Trust, Rekindling Hope

With a tenure of just around six months, the interim government’s short window for action demands pragmatic, visible, and measurable reforms. Quick wins in public finance transparency, SME facilitation, green investment incentives, and employment generation can build momentum and restore public trust. Beyond short-term gains, Nepal must anchor long-term reforms in predictability, accountability, and social partnership.

Nepal’s journey from crisis to opportunity will not be linear. Political instability, climate risks, and bureaucratic resistance will persist. However, the ingredients for transformation are already present: a digitally connected youth, resilient SMEs, reform-minded officials, and an entrepreneurial private sector.

The nation’s challenges are formidable, but so are its possibilities. By aligning governance, private enterprise, and citizen engagement around predictable, accountable, and innovative practices, Nepal can convert crises into catalysts for renewal.

The cover story of November 2025 issue of New Business Age Magazine.