The year started off uneventfully, but ended in tumult and uncertainty about the future. But there were tensions simmering under the surface.
In February, Nepal made it to the Financial Action Task Force <a href="https://nepalitimes.com/news/black-white-and-grey">(FATF) grey list</a> for failing to address money-laundering. The closure of the USAID <a href="https://nepalitimes.com/here-now/usnoaid">halted most health, climate and nutrition projects</a>. In the midst of it all, India and Pakistan went to war in May and although there was no nuclear fullout, it resulted in Trump and Modi falling out bigly.&nbsp;
On 28 March, <a href="https://nepalitimes.com/news/republicans-and-royalists-on-nepal-s-streets">a pro-monarchy rally in Kathmandu</a> led by loan defaulter Durga Prasai had been dispersed by riot police. Two people, including a tv reporter, were killed when his supporters resorted to arson and looting – a dress rehearsal for what was to come later in the year.&nbsp;
The monsoon brought its usual woes—this time <a href="https://nepalitimes.com/news/rasuwa-flood-likely-a-glof">a trans-boundary glacial overflow flood on the Bhote Kosi</a> that swept away the main trade route with China, and reminded us about climate risk.&nbsp;
In <a href="https://nepalitimes.com/opinion/comment/when-xi-meets-modi-and-oli">August Kathmandu’s chatterati were busy speculating </a>on whether Prime Minister K P Oli would get an official invitation to visit New Delhi. When that offer did not come, he made a controversial trip to attend the Victory Day Parade in Beijing on 3 September marking the 80th anniversary of Japan’s defeat in World War II.&nbsp;
He was in the illustrious company of Vladimir Putin, Xi Jinping and Kim Jong Un – and back in Kathmandu six days later he was out of a job. Oli had to be rescued by an Army helicopter just before protesters set fire to his official residence.&nbsp;
Throughout the year, the UML-NC coalition had been working on a <a href="https://nepalitimes.com/news/big-beautiful-bills">series of bills to limit freedom of speech </a>with an amendment to the Print and Publication Act, the Social Media Bill, the Counter-intelligence Bill and a move to replace Social Welfare Council. The spark that lit the fuse was the ban on 26 social media platforms on 5 September.&nbsp;
Inspired by recent youth-led anti-corruption protests in Indonesia, Nepal’s GenZ decided to rally. Nepal’s socio-political landscape was tinder-dry, and outrage over the killings added fuel to the conflagration.&nbsp;
When the GenZ called for a rally against corruption and poor governance on 8 September, no one (least the youthful protesters) could have imagined that it would spiral out of control like it did. Nineteen <a href="https://nepalitimes.com/news/nepal-s-8-september-massacre">demonstrators were massacred on 8 Septembe</a>r by APF gunmen using assault rifles.
The bloodshed was broadcast live and unfiltered on social media. The next day, with the youth still reeling from shock, anyone and everyone with a grievance <a href="https://nepalitimes.com/news/kathmandu-burns-despite-pm-resignation">went on a rampage of arson and looting</a>, targeting homes, government offices, schools and businesses. By the time the Nepal Army declared a curfew at 10PM on 9 September, much had been reduced to ashes.
The <a href="https://nepalitimes.com/news/madam-prime-minister-of-nepal">GenZ voted Sushila Karki in as prime minister</a>, but an outspoken faction is not happy with her. Adding to the distraction are UML and NC leaders who still cannot believe they have been toppled, and want to revive the House. Oli has been re-elected chair of the UML, and is not giving up and has convinced former NC coalition partner Sher Bahadur Deuba not to chicken out either.&nbsp;
But both parties have no choice but to go for elections, even though <a href="https://nepalitimes.com/news/establishmentarianism">they have not reformed their parties </a>to address the public outrage against their decades of misrule.
Prospects of elections in March were looking iffy until President Ram Chandra Paudel this week convened a meeting of the UML, NC and NCP for their first meeting with Karki. The RSP is talking to Kathmandu Mayor Balen Shah, and suddenly polls look possible. Whatever the outcome, 2026 will change the trajectory of Nepali politics with the dominance of the established parties challenged by new alternative forces.&nbsp;
But whether this will bring a new political culture of transparency, democracy and accountability, or degenerate into populism and despotism we will begin to see in 2026.

Sonia Awale

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REWIND 2025

Double-taxation, profit repatriation and capital gains tax have always been a headache for foreign investors in dealing with rent-seeking that Nepal is infamous for.
When Dolma Impact Fund, the only international venture capital company in the country, applied last year for exemption from capital gains tax citing Nepal’s Double Taxation Avoidance Agreement (DTAA) with Mauritius, bureaucrats at the Finance Ministry gave it the runaround.&nbsp;
But the interim government’s Finance Minister Rameshore Khanal, himself a respected former bureaucrat, is someone who knows that international treaties take precedence over national law.&nbsp;
On 30 October he gave Dolma a strategic capital gains tax break, convinced that Nepal needed to restore investor confidence especially after videos of the arson, vandalism and looting of the Hilton and Hyatt hotels and businesses on 9 September went all over the world.&nbsp;
Dolma’s stakeholders include other investment funds in the UK, US, Japan, Netherlands, Finland, Austria, Sweden as well as the World Bank. Nepal needs investment for future large infrastructure projects, and to tap those funds it has to &nbsp;streamline its bureaucracy, increase transparency and adhere to international obligations.
The argument is that making it easier for Foreign Direct Investment (FDI) is a much more efficient way to spur the economy and create jobs than the government raising revenue mainly through taxation, since the chances of that money being leaked through corruption or wastage in Nepal is high.&nbsp;
After news of Finance Minister Khanal’s decision on 3 October exploded in the media, Prime Minister Sushila Karki inquired about it. Chief Secretary of the GoN Eaknarayan Aryal clarified that the decision was not in the minutes of the Cabinet.
TAXING TWICE
Critics like economist Pushkar Bajracharya argue that it is important for Nepal to have a consistent taxation policy for FDI, and apply it uniformly so it does not deter investors. The Dolma decision could encourage other offshore investors to demand similar treatment, hurting Nepal’s tax base.
“Besides, the evidence just isn’t strong that tax cuts lead to higher investment, or more jobs,” Bajracharya adds.
Nepal has double-taxation avoidance treaties with 11 countries, and there are reports of moves to end the DTAA with Mauritius signed in 1999. But just like with the Ncell’s capital gains row and the controversy over the US-funded Millennium Challenge Corporation (MCC) there has also been nationalist flag-waving in Nepal.&nbsp;
“We were raising a fund that could have brought $1 billion in for energy, and we had to stop it due to the reputational damage to Nepal by not upholding an international treaty,” Tim Gocher, CEO of Dolma, told Nepali Times on the phone from London.
Dolma claims that Nepal’s DTAA with Mauritius means profit arising from sale of shares should be taxed only in the resident state and not in Nepal, and also cited the Treaty Act 1990 which states that treaties signed by Nepal supersede domestic law in case they contradict each other.
Gocher said it makes sense for his fund to be based in Mauritius: “When you have investors from all over the world, you have to choose a domicile, and Mauritius is probably the most popular for development finance institutions due to strong governance, anti-money laundering laws and treaties with developing countries like Nepal.”&nbsp;
Nepali officials, however, see Dolma as a conduit company sourcing funds from outside Mauritius or Nepal and label it as possible ‘treaty shopping’. A similar case involving the sale of Ncell ownership went to the Supreme Court and all the way to the International Tribunal at The Hague, and both ruled against exemption to DTAA.
Officials argue that approving an exemption for Dolma would contradict that precedent. The Attorney General’s office cited Section 73 of the Income Tax Act of 2002 which states that to avoid double taxation, more than half of the company has to be owned by individuals residents of both Nepal and a foreign country.
Bureaucrats also seem to be wary about being hauled over the coals at the Commission for the Investigation of the Abuse of Authority (CIAA) if they agree to Dolma’s demands, even though there is a legal argument that the Nepal treat act stipulates that in case of disagreement international obligations take precedence over domestic laws..&nbsp;
“It was when the new government decided to uphold the treaty that the whole hoo-hah started,” said Gocher. “It is crystal clear, and the way international treaties are dealt with all over the world.”
Chief Secretary Acharya, who is retiring next week, seems to want to avoid being haunted by any whiff of controversy before he leaves, but also faces intense lobbying by the international community for Dolma’s exemption.&nbsp;
Dolma currently invests in companies such as Chirayu National Hospital, CloudFactory Holdings Limited, Foodmandu, FuseMachines, Rhododendron Biotech, Setikhola Hydropower, and Solar Farm Nepal.&nbsp;
Dolma has asked to be exempt from being taxed twice: in Nepal, where it invests, and in Mauritius, where it is based, and points to a law that says international treaties override domestic law in the case of a contradiction. Government officials point to the Ncell precedent saying it will be illegal. But the government is not giving in, due to the Ncell precedent and to prevent others in future asking for similar exemptions.&nbsp;
<a href="https://www.youtube.com/watch?v=uNdMuD_4yGw&amp;t=5s" target="_blank">Watch interview</a> on Nepali Times Studio with Tim Gocher.

Vishad Raj Onta

Double trouble with taxes

In the very first page of the first chapter of Nepal 2043: The Road to Prosperity are two maps. The first places Nepal right at the epicentre of Asia, and in the second the Kathmandu is at exactly the midpoint between Mumbai and Beijing. With his trademark optimism, author Sujeev Shakya says Nepal is not land-locked but land-linked to three billion people in China and India. We just need those two economic engines to pull us in the same direction. ‘With China and India becoming the two largest economies in the world in the next two decades … Nepal is the most valuable piece of real estate in the world,’ Shakya writes. For one thing, Nepal does not look beyond India and China for tourism — with the right policies it can attract millions of tourists just from those two countries. Nepal is set to graduate from a low- to a middle-income country by 2026 and to a high-income country in 2043 — hence the name of the book. The year 2043 in the Bikram Sambat calendar is also 2100 — a new Nepali century. The book delves into the past, present and future of Nepal and analyses enablers including hydropower, a fundamental transformation of which will drive the 2043 goal. The commoditisation of electricity will be the biggest transformation. Nepal can deploy ‘Cyber Gurkhas’ to attract foreign investors with the management of data centres with climate friendly renewable energy. Access to technology such as precision agriculture, a data-driven approach to farming to improve food production, reduce environmental impact and enhance profitability could be Nepal’s strategy into 2043 and beyond. ‘Earlier, we needed ploughs and strong hands in agriculture. Now, you need a computer and strong fingers,” Shakya writes, citing a neighbour’s son who inspects his crops from drone cameras. A farmer in an Ilam teashop tells the author he asks AI questions in Nepali, and it answers promptly. The biggest enabler of all is Nepal’s young demography with 62% of the population in the active 15-60 age bracket, while 28% are younger than 14. Nepal’s dependency ratio has dropped to the lowest in history with 100 Nepalis having to support 62 dependents. But this demographic dividend window is closing. Nepal’s total fertility rate declined from 2.62% in 1981 to 0.92% in 2021 — below replacement level. We have less than 30 years left to make the best use of the youth, many of whom are currently studying and working abroad. Nepal’s biggest resource, therefore, is its diaspora spread across the world who send home $20 billion a year. Migration is not just a necessity but an aspiration for many Nepalis, and they are an important source of contacts, investment and soft power. This young and educated group has taken advantage of connectivity and digitisation in all arenas of national life. TikTok and Instagram have become e-commerce platforms, or mobile app-riven digital services. Nepal’s software companies exported over $1 billion worth of IT products last year. Next we need a change in the bureaucratic mindset to eliminate paper and manual processes, which would also contribute to reducing corruption. Shakya comes up with many revelations: 81% of Nepalis live in houses they own, much higher than most other South Asian countries which means higher disposable income. Nepal has the highest tax-to-GDP ratio in South Asia. The banking sector is twice the size of Bangladesh despite Nepal having just one-fifth of its population. In 2021, 12.62% of the population had demat accounts in Nepal, while India had only 5.32%. For every five male investors, there are four women in Nepal while it is 10:1 in India. With such figures and prospects, how come Nepal just went through a violent uprising that took the shortest time to topple a democratically-elected government in modern history? One early chapter of 2043 is actually dedicated to how Nepalis have always thrived on chaos. When people faced up to 20 hours of power cuts a day, people worked around the load-shedding schedule, woke up at ungodly hours to cook and stock up on inverters. They did not put up a fight, or even protest. ''Generally, Nepalis are used to taking things lying down, and perhaps this also needs to change,' says Shakya, writing that line before last month’s uprising. ‘On the one hand, some of these issues speak volumes about the average Nepali’s patience and perhaps optimism that things will change in the long run. On the other hand, one is also forced to wonder how much longer they will be able to put up with unfavourable conditions if things don’t change.’ It does seem Nepali had enough with corruption, governance failure and political apathy to the concerns of ordinary people. The final chapter lists the non-negotiables to realise the 2043 Nepal Roadmap: democratic values and freedom of speech, a capitalist welfare state and socio-political transformation to tackle corruption and impunity. The book notes, ‘Countries transitioning to democratic rule experienced a 20% increase in GDP over a 25 year period compared to what they would have achieved under authoritarian regimes. After the end of the Shah rule in 2006, Nepal’s GDP rose from US$10 billion to US$44 billion by 2024.’ The government’s Vision 2030 document projects Nepal’s GDP at US$100 billion, and the Vision 2043 estimates that it will be a US$423 billion economy with a per capita of US$12,100. However, it will need more than optimism and practical action to make these projections real. China and India loom large throughout the book with examples of small city states like Singapore which have taken advantage of their strategic location. Despite the tension between India and China, the two will have to collaborate given the inherent advantages. China has replaced the United States as India’s biggest trading partner. Sujeev Shakya is a great admirer of former Singaporean diplomat and author Kishore Mahbubani, and he has written a blurb for the book. He quotes Mahbubani saying that for the past 2,000 years, apart from the last two hundred, Asian countries have dominated the world, and it is quite natural that the world’s economic centre is returning to Asia. And Nepal is strategically placed to make the most of it because of its location between two of the world’s fastest growing economies. We just have to get our politics right, and have a strategy for equitable growth in the new Nepali century.  <figure><img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20251016091052_78b2d1495d59cd492a17693e0e770b65230c7cb749393ac6643f4676b73832ef.jpg" data-media-id="editor_0" data-image-id="20251016091052_78b2d1495d59cd492a17693e0e770b65230c7cb749393ac6643f4676b73832ef" data-rendition-name="original" width="1136" height="702" loading="lazy" alt="Sujeev Shakya book details NT"></figure>

Retrofitting Nepal for future shocks

Nepal is now a remittance-driven economy and <a href="https://nepalitimes.com/opinion/comment/nepal-is-not-a-country-of-villages-anymore">rural areas</a> are emptying due to <a href="https://nepalitimes.com/opinion/the-road-out-of-nepal">outmigration</a>, yet 62% of Nepal’s population still relies on farming and it contributes to a fourth of the country’s GDP.&nbsp; Successive governments have spent Rs107 billion in the past five years on agricultural subsidies, and banks have extended flexible loans worth Rs367 billion to farmers and <a href="https://nepalitimes.com/here-now/nepal-makes-farming-viable-again">agro-businesses </a>in the last decade. By 2024, loans from private financial institutions had grown eight-fold in ten years. &nbsp; All this was designed to increase farm productivity, stimulate the economy, create jobs in agriculture and reduce imports. Some of that has happened, but not commensurate with the money spent.&nbsp; Investment in the agricultural sector has increased by an average of 23.4% every year in the past ten years, but the average annual growth in farm production since 2015 is only 2.77%. In fact, agricultural productivity has actually dropped, and food imports (mainly from India) have soared.&nbsp; <div class="embed-block"><iframe title="Grants for farmers (in billion Rupees)" aria-label="Column Chart" id="datawrapper-chart-LX2LG" src="https://datawrapper.dwcdn.net/LX2LG/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="438" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r=0;r<e.length;r++)if(e[r].contentWindow===a.source){var i=a.data["datawrapper-height"][t]+"px";e[r].style.height=i}}}))}(); </script></div> The question then is: where did all that money go? Evidence points to the budget being leaked along the way with little of it reaching the intended beneficiary farmers. &nbsp; Nepal Rastra Bank data shows that commercial loans to commercial farms, tea estates, livestock farms and fisheries accounted for 4.5% of all loans, which in 2014 alone totaled Rs50.99 billion. The government had made it mandatory for banks and financial institutions to provide 15% of its loans to farmers and agro-businesses by 2027. &nbsp; By 2024, agricultural loans accounted for 8% of the total loans provided by commercial banks – of this 22% went to farming, 37% to livestock and 39% to agro-businesses. In recent years, concessional loans are also provided to farmers in which the government provides a 5% interest subsidy. For instance, if a bank issues an agricultural loan at 9% interest, the government will pay 5% of it. By mid-November last year, Rs100 billion worth of such subsidised loans had been approved.&nbsp; <div class="embed-block"><iframe title=" Nepal’s agricultural loans (in billion Rupees)" aria-label="Interactive area chart" id="datawrapper-chart-OSP0N" src="https://datawrapper.dwcdn.net/OSP0N/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="405" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r=0;r<e.length;r++)if(e[r].contentWindow===a.source){var i=a.data["datawrapper-height"][t]+"px";e[r].style.height=i}}}))}(); </script></div> The government has also provided outright grants to increase agricultural production. The Ministry of Agriculture and Livestock Development released data last week showing that grants worth Rs107 billion had been distributed in the last five years. &nbsp; Given such generous outlays, there should have been an improvement in food production by now. Yet Nepal produced a little over 9.5 million tons of cereal crops in the fiscal year 2014, and ten years later it had risen only slightly to 10.9 million tons.&nbsp; The improvements are restricted to pulses, fruits, and vegetables. In the last decade, the production of cash crops increased by 8.8%, other fruits by 4.6%, and vegetables by 2.5% annually. &nbsp; Meanwhile, <a href="https://nepalitimes.com/news/nepal-less-and-less-able-to-feed-itself">Nepal’s agricultural imports doubled</a> over the same period, from Rs130 billion in 2014 to almost Rs257 billion last year. The country imported about Rs46 billion worth of food, Rs28 billion worth of vegetables and Rs23 billion worth of fruits just last year.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20250203090228_3c209bcad42b940e6222511d435b1995c34aca4afb76afb5559218758416bc22.jpg" data-media-id="editor_6" data-image-id="20250203090228_3c209bcad42b940e6222511d435b1995c34aca4afb76afb5559218758416bc22" data-rendition-name="original" width="937" height="625" loading="lazy" alt="Farm subsidies: money down the drain NT"> </figure>  Some of the support for the government’s agriculture programs has come from international donors, including the Project for Agriculture Commercialisation and Trade (PACT), Nepal Agriculture and Food Security Project (AFSP), Nepal Livestock Sector Innovation Project, High Mountain Agribusiness and Livelihood Improvement Project, and the Rural Enterprise and Economic Development (REED) Project.&nbsp; Despite this, agricultural production has not increased, and the quality of life of farmers has deteriorated to the point where many are abandoning agriculture altogether. Funds meant to uplift farmers are wasted on administrative work, consultant fees, training seminars and other purchases.&nbsp; Read also: <a href="https://nepalitimes.com/here-now/helping-farmers-who-help-themselves">Helping farmers who help themselves</a>, Benjamin Zimmerman The Agricultural Commercialisation and Trade Project for Nepal was launched in 2018, for which the World Bank provided a Rs2.06 billion grant and Rs2.92 billion loan. The Bank's own investigation showed that of the grants, a large proportion was pocketed by middlemen along the way. Another Rs810 million went to consultants for teaching farmers about agro-businesses, Rs680million to pay the salary and allowances for staff, Rs460 million was spent on buying vehicles and equipment, and Rs110 million for training seminars. Project officials also spent Rs40.8 million on foreign junkets. &nbsp; <div class="embed-block"><iframe title="Cereal crop production (in million metric tons) " aria-label="Column Chart" id="datawrapper-chart-Mlblc" src="https://datawrapper.dwcdn.net/Mlblc/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="389" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r=0;r<e.length;r++)if(e[r].contentWindow===a.source){var i=a.data["datawrapper-height"][t]+"px";e[r].style.height=i}}}))}(); </script></div> An audit report showed that 40% of the total funding was spent on administrative work. The Bank even sent a letter in 2020 to Yubaraj Khatiwada, who was finance minister then, alleging corruption and requesting action. Nothing was done about it. The Improved Seed for Farmers Program, a Rs3.28 billion project for six districts in western Nepal supported by the International Fund for Agricultural Development (IFAD) and other institutions, also had anomalies. An audit report records purchase of 178 motorcycles, 20 four-wheelers, more than 200 laptops and tablets, 49 desktop computers, as well as dozens of photocopy machines, printers, and cameras totalling more than Rs322.1 million.&nbsp; Another Rs203 million was spent on consulting services, Rs505.3 million on training seminars, and Rs597.1 million on salary and allowances for staff. &nbsp; “This is clear evidence of <a href="https://nepalitimes.com/news/aid-rarely-aids-agriculture-in-nepal">agro-washing</a>, agriculture is simply a front for other business dealings,” alleges Biswash Gauchan of the Institute for Integrated Development Studies (IIDS).&nbsp; <div class="embed-block"><iframe title="Nepal’s agricultural imports (in billion Rupees)" aria-label="Interactive line chart" id="datawrapper-chart-0FwSO" src="https://datawrapper.dwcdn.net/0FwSO/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="428" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r=0;r<e.length;r++)if(e[r].contentWindow===a.source){var i=a.data["datawrapper-height"][t]+"px";e[r].style.height=i}}}))}(); </script></div> An Auditor General’s report a few months ago cited examples of misuse of agricultural loans, and recommended that the government recover the low-interest government-administered agricultural subsidy with penalties. A similar study on agricultural loans by the Central Bank last year found that 14% of concessional loans given out by banks and financial institutions were being misused. In response, the Finance Ministry stopped administering Interest Subsidy Loans last year. Studies by other government agencies concluded that investment in agriculture in Nepal has been ineffective. Even a Ministry of Agriculture task force concluded six years ago that government farmer grants had ‘poured money down the drain’. The report found that the benefits went not to farmers and agro-businesses that needed help, but almost exclusively to those in collusion with higher-ups in charge of the grants. The funds, concluded the study, went towards the purchase of vehicles, luxury goods and other facilities rather than contributing to the agricultural sector.&nbsp; <div class="embed-block"><iframe title="Nepal’s annual economic growth and agricultural growth rate (in %)" aria-label="Interactive line chart" id="datawrapper-chart-hzgjW" src="https://datawrapper.dwcdn.net/hzgjW/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="495" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r=0;r<e.length;r++)if(e[r].contentWindow===a.source){var i=a.data["datawrapper-height"][t]+"px";e[r].style.height=i}}}))}(); </script></div> Former NRB executive director Nar Bahadur Thapa says the reason agricultural loans appear to be increasing while agricultural production has not risen is because the loans have been ostensibly taken for agriculture but poured into real estate speculation.&nbsp; “It is not enough just to pour money into the agriculture sector, government and financial schemes will only yield results when we create appropriate infrastructure and markets and facilitate trade,” says Hari Bahadur KC, chair of the committee set up by the Ministry of Agriculture to evaluate government subsidies. It is clear that the problem lies in dysfunction in the government’s delivery mechanism and corruption right up the line. The investment will not lead to increased productivity until the grants, loans, and subsidies stop lining the pockets of the wealthy and connected.&nbsp; “It is an open secret that the grants are being misused, but no one wants to own up to this fact and take moral responsibility,” says Uddhav Adhikari, former president of the National Farmers Group Federation (NGNF). “We need to strengthen monitoring to <a href="https://nepalitimes.com/news/save-farms-empower-farmers-nepal-citizens-appeal">ensure that subsidies are provided to small-scale agro-businesses and farmers</a>, and that they are utilised properly.” &nbsp; Read also: <a href="https://nepalitimes.com/here-now/back-to-the-land-in-the-cities">Back to the land in the cities</a>

Farm subsidies: money down the drain

From high school, Nepali students memorise that Nepal is an ‘agricultural country’, and that 80% of the population is engaged in farming.
While it is true that most Nepalis are still dependent on agriculture, the country’s economy is shifting to services. Seven in every ten families also depend on remittances for household income.&nbsp;
Agriculture now contributes less than 25% to Nepal’s economy, and this is down from 81% three decades ago. The number of Nepalis engaged in the service sector used to be only 16% at that time, and today it has gone up to 29%.&nbsp;
Nepal’s economy has been transformed in recent decades during which new professions, businesses and enterprises have flourished. The finance, information technology (IT), hospitality, trade and other sectors have expanded.&nbsp;
Meanwhile, the role of agriculture in Nepal’s economy has diminished.&nbsp;
The strength of a country's economy is measured by the total value of goods and services produced annually, its GDP. Economies are divided into three sectors of activity: agriculture and forestry, manufacturing and construction and the service sector, which includes IT, finance, insurance, real estate and tourism.
Economies move through a cycle of expansion from the primary to the secondary to the tertiary sectors. Many developed countries are considered to have advanced because of the industrial sector.&nbsp;
However, Nepal’s industrial sector has not grown in comparison to other nations. Indeed, while the industrial sector contributed 8% to the economy 50 years ago, it reached a peak of 21% some decades later, but at present has declined to 12.5%.
<div class="embed-block"><iframe src='https://flo.uri.sh/visualisation/18533507/embed' title='Interactive or visual content' class='flourish-embed-iframe' frameborder='0' scrolling='no' style='width:100%;height:600px;' sandbox='allow-same-origin allow-forms allow-scripts allow-downloads allow-popups allow-popups-to-escape-sandbox allow-top-navigation-by-user-activation'></iframe><div style='width:100%!;margin-top:4px!important;text-align:right!important;'><a class='flourish-credit' href='https://public.flourish.studio/visualisation/18533507/?utm_source=embed&utm_campaign=visualisation/18533507' target='_top' style='text-decoration:none!important'><img alt='Made with Flourish' src='https://public.flourish.studio/resources/made_with_flourish.svg' style='width:105px!important;height:16px!important;border:none!important;margin:0!important;'> </a></div></div>
Industry is supposed to enhance production and in the process create jobs. But Nepal’s weak industrial development is one of the factors that drove 690,000 Nepalis to go abroad last year.&nbsp;
The lack of industrial growth has meant that Nepal depends largely on the third service sector stage, which makes up almost two-thirds of the nation’s economy.
Nepal’s economic change has been brought about by a lack of meaningful growth in the agricultural and industrial sectors, as well as improvements in Nepal’s service sector.
“But this is only structural change, not a structural transformation needed for radical improvements to the economy,” says economist Dilli Raj Khanal. “For there to be such a transformation, we need to up our productivity in all sectors: agriculture, industry or service.”
The service sector also has inherent risks. While a small number of people involved in the service sector can increase production and add value to the economy, it may not create many jobs.
Moreover, because the service sector mostly involves educated, tech-savvy and business-minded people, its benefits are mostly limited to their circles, increasing socio-economic inequality.&nbsp;
“The service sector yields more products despite fewer people being engaged in it, meanwhile agricultural production is declining &nbsp;despite the involvement of a significant section of the population,” says Khanal. “We must thus find ways to increase both production and income in the agricultural sector.”
In the last three decades, the agricultural sector in Nepal has only grown at the rate of 2.9% annually, while the growth rate of the service sector during the same period has been 6.3%. So while the service sector is expanding, there has been no comparative increase in agricultural production, which in turn means that the income of Nepali farmers has not increased either. That further widens the gap between rich and poor.
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A 1% growth in the agricultural sector plays an equal role in reducing poverty as a 6% growth in the service sector. Says economist Biswo Poudel, professor at Kathmandu University: &nbsp;“Farmers directly benefit from agricultural reform, but an economy boosted by the service sector does not reach those communities.”
The average annual per capita income of Nepalis is $1,434 compared to $824 ten years ago. Despite this, the benefits have not been equally spread across communities. Those involved in the service industry, which has contributed to economic growth, have reaped the rewards. Farmers have just not enjoyed similar profits.&nbsp;
“As it is, there is little possibility for expansion in the agricultural sector because we can neither increase the arable land nor productivity,” notes Hem Raj Regmi at the National Statistics Office.
It is not that newer ventures have not been launched in the last decade. For instance, while the banking and insurance sector contributed less than 3% to Nepal’s economy 20 years ago, it now makes up 7% of the economy.
Similarly, the share of the administrative sector has gone from 2% to 10% in the last 2 decades. But the share of the manufacturing and industry in the economy has fallen below 5% as compared to 9% two decades ago.&nbsp;
Economist Poudel argues that increased agricultural production can lead to further economic growth in Nepal, provided there is an expansion of irrigation and transfer of agricultural technology.
There are almost 2.27 million hectares of irrigable land in Nepal, out of which 800,000 hectares do not have irrigation. Moreover, only one-third of the over 1.4 million hectares of land that have such facilities remain irrigated year-round. The rest are rain-fed fields.
“The greatest challenge Nepal faces is to create jobs in the agriculture sector as well as ensure a decent income,” says Regmi of the National Statistics Office.

Nepal economy shifts away from farming

For Prime Minister Pushpa Kamal Dahal the past week has been eventful in more ways than one. His Home Minister Rabi Lamichhane’s troubles is shaking the coalition, and there are rumours of the NC and the UML in talks. By-elections in Ilam and Bajhang are set to become a referendum on legacy parties.&nbsp;
In the midst of all this, there was the overnight state visit of the emir of Qatar which was so epic the government declared a national holiday. Qatar and Nepal signed a commerce agreement, and to sweeten the deal the emir was gifted two elephants.&nbsp;
The Qatari visit set the stage for the third Nepal Investment Summit on 28-29 April that will showcase 150 projects for potential investors, including schemes for hydropower, transport, tourism, and agriculture.
Previous investment summits in 2017 and 2019 pledged $13.5 billion and $17 billion respectively, of which not much ever materialised. This time, the investment climate is worse because of political instability, too few laws, and too much red tape. &nbsp;
“The state of Nepal’s economy, combined with bureaucratic hurdles and the challenges faced by foreign investors in land and resource acquisition, has made attracting FDI difficult,” says Pushkar Bajracharya, formerly of &nbsp;the National Planning Commission.&nbsp;
Read also: <a href="https://nepalitimes.com/opinion/comment/nepal-looks-at-alternative-investments">Nepal looks at alternative investments</a>, Siddhant Raj Pandey
The same woes from the last two investment summits persist. Nepal has had three coalition governments in the last two years, banks are flush with cash because no one is borrowing, &nbsp;and there is a mass exodus of skilled Nepalis.&nbsp;
“Lack of political stability results in policy instability,” explains economist Posh Raj Pandey. “This is why Nepal’s FDI has not lived up to commitments. Potential investors have decided that internal risk factors outweigh any business opportunities.”&nbsp;
Everyone went to sleep after the last investment summit, and there was little preparation for this hurriedly planned one. Nepal’s private sector has long urged the government to amend laws to improve the investment climate. The government did amend nine out of dozens of laws, but through ordinance on Tuesday. &nbsp;
“What kind of message are we sending to internationals when we amend laws through ordinance rather than Parliament?" asks Pandey. “Amendment will not inspire confidence unless they are put into practice, which we historically have not done.”
Read also: <a href="https://nepalitimes.com/editorial/invest-in-investment">Invest in investment</a>, Nepali Times
While some experts think ordinances speed things up, they admit most legal changes brought to address Nepal's investment environment have been ad hoc and limited to paper.
Forget foreign investors, even domestic businesses face obstacles and corruption. Nepal’s internet service providers (ISPs) and the Nepal Telecommunication Authority are on the warpath.&nbsp;
ISPs have been unable to pay Indian firms that provide &nbsp;bandwidth after the government refused to provide them with INR, citing unpaid royalties and taxes.
Such stonewalling is present in just about every sector, dissuading investors in IT, banking and the service industry. Most investors are in natural resource extraction, which has little value added.&nbsp;
Read also: <a href="https://nepalitimes.com/editorial/invest-in-investment">Invest in investment</a>, Nepali Times
This time the government is &nbsp;giving investors a shopping list that includes 18 hydropower projects and 19 transport schemes.&nbsp;
“While hydropower may create short-term jobs, efficiency-seeking investment in the manufacturing, agricultural, and other sectors will create more long-term opportunities for Nepalis, and will be in our best interest,” says Pandey. &nbsp;&nbsp;
Although the summit will have attendees from over 50 countries, most potential investors are from India and China.
“Current investment summits seem to be guided by India and China’s vested interest in Nepal rather than the market and economic possibilities here,” notes Bajracharya. However, Nepal can leverage its proximity to hitch its wagons to these two giant locomotives.&nbsp;
Adds Bajracharya “Our long-term prospects look good, because India and China are set to overtake the US as the world's biggest economies over the next few years, which will attract investors from elsewhere. Our immediate goal must be to first create a conducive investment climate. After that, investments will come.” &nbsp;
Read also: <a href="https://nepalitimes.com/opinion/killing-investment-in-nepal-in-10-easy-steps">Killing investment in Nepal in 10 easy steps</a>, Dibesh Karmacharya

Shristi Karki

Why invest in Nepal?

In the run-up to the third Nepal Investment Summit this weekend, there have been seminars, conferences and workshops where the discourse has revolved around the economy and the investment climate.
The consensus that Nepal needs foreign direct investments (FDI) to grow was repeated, and the familiar litany of reasons about why it has not been able to was discussed.&nbsp;
Policy advocates and regulators have understood that the lack of urgency is compounded by procedural inconsistencies, on top of the already deficient investment environment in the country.
It is a welcome change from what used to be flippantly accepting matters as given. There now seems to be a sense of urgency, with procedural inconsistencies and lack of harmonisation between various Acts and regulations openly discussed.&nbsp;
Government stakeholders also appear more willing to learn and attempt to be part of the solution. Whatever policy changes have been introduced in the past have been piecemeal and address the few rather than the entire industry. This left dual regulatory approaches aimed at similar players.&nbsp;
Read also: <a href="https://nepalitimes.com/opinion/killing-investment-in-nepal-in-10-easy-steps">Killing investment in Nepal in 10 easy steps</a>, Dibesh Karmacharya
This time, unlike in the past two Summits, the government seems to be committed to amending 9 Acts, a positive step towards showing commitment to change. However, the deadline to do so during the winter session of Parliament is over. The option mooted has been to have it passed through ordinance, a lesser appealing step; albeit, a positive one moving forward.&nbsp;
To attract FDI in a competitive global market means that Nepal has to demonstrate that it is serious about bringing in investments with a more consultative and collaborative approach with investors. A departure from procedural to a result-oriented focus is needed.&nbsp;
To put issues in perspective, Nepal needs US$20 billion in investments to meet the UN’s Sustainable Development Goals (SDG) targets by 2030. If net-zero decarbonisation targets are to be met by 2045, another US$7 billion will be required annually.&nbsp;
Looking at our investment history and poor government capital expenditure, the gap is long and wide. In fiscal year 2022-23 Nepal booked a lamentable ~$59 million in FDI (equity). Nepal is in fact the lowest market in South Asia for FDI with 0.3% of the regional average.&nbsp;
What is it that we can do to fill the gap?&nbsp;
First, we need to move away from the notion that Nepal only needs large investments. This has proven to be a mistake, and time series data have proven that smaller investments, in aggregate, make a larger impact on economies.&nbsp;
Read also: <a href="https://nepalitimes.com/news/poor-cash-rich-nepal">Poor cash-rich Nepal</a>, Sonia Awale
We talk about an ‘enabling environment’ but without the right tools. We place restrictions on interest on debt ceiling (SOFR +5.5), without risk premium adjustments, we do not have an active secondary market for bond trading, nor do we have a yield curve, an integral part of the bond market, which is inhibiting us from tapping into the trillion dollar green bond market.&nbsp;
In order to attract green financing, Nepal needs to develop its bond market. Sovereign risk rating has been mooted and was expected to be operationalised before the Investment Summit.&nbsp;
However, to be rated in an adverse economic environment could further deteriorate investment potential due to a lesser-than-expected rating.&nbsp;
Hedging is another instrument that needs further research on. A commercial bank last year showcased the first risk-hedging mechanism for an investment of $8 million. This can be the beginning to expand on its modality. &nbsp;
Subordinated debt instruments have been introduced, but on a special nod basis, this now needs to be institutionalised as it is the most applicable form of investment after equity in a market that has volatile forex reserves.&nbsp;
Read also: <a href="https://nepalitimes.com/editorial/invest-in-investment">Invest in investment</a>, Nepali Times
Viability Gap Funding has been introduced by multilateral development agencies implemented in solar installations. It is a tool to incentivise the private sector to invest in projects that are not financially lucrative initially, but have potential for profitability in the long run. This needs to be scaled up and replicated in sectors like infrastructure, where returns may not be immediate.
Moving forward, to attract FDI, Nepal needs to tap into the funds that are available for the growth of small and medium enterprises (SMEs) and climate change. Alternative investments such as Private Equity Venture Capital (PEVC) have been around in a structured manner in Nepal for nearly a decade now.
These funds have blended finance components and have attracted climate funding as well. PEVC is a new asset class and can address the issues of penetrating into SME financing by incorporating environment, social and governance issues into their investment process.&nbsp;
SMEs are the backbone of any economy, PEVC comes with the ability not only to scale up the enterprise with risk capital, but with the ability to bring technical knowhow to enhance not only the enterprise but also the entrepreneur.&nbsp;
Read also: <a href="https://nepalitimes.com/opinion/success-in-nepal-means-not-having-to-work">Success in Nepal means not having to work</a>, Anil Chitrakar
A differentiator from all other forms of financing available till date in Nepal. Blended finance is a way of de-risking investments, especially in frontier markets. Business Oxygen (BO2) is an example of blended finance with subordinated debt investments of IFC (World Bank Group) taking the lead and Climate Investment Funds along with FCDO as co-investors.&nbsp;
On a larger scale, the 216MW Upper Trisuli 1 is another example of blended finance with IFC, a Korean consortium and local investments. So far, we see that development finance Institutions have been taking the lead in Nepal as their risk appetite is greater than commercial investors and they are eager to help develop the financial markets.&nbsp;
In order to be sustainable, we need to step on this and attract commercial capital from all over the world. To do this there has to be political will to make that pivot.&nbsp;
Instead of being a means to an end, the two previous Investment Summits turned out to be intermittent and cosmetic, providing hardly any results. The third one’s success will depend on how the event will be implemented as a platform for continuous marketing for the country and facilitation for investors in future.&nbsp;
Nepal has outdone many countries in its macro-economic indicators, with sound forex reserves and a stellar history of debt payments to its creditors. This story needs to be propagated along with the drive for change to attract potential investors.
Read also: <a href="https://nepalitimes.com/opinion/comment/alternative-investments-to-attract-fdi">Alternative investments to attract FDI</a>, Siddhant Raj Pandey

Siddhant Raj Pandey

Nepal looks at alternative investments

Nepal is not poor, it is just poorly governed. At no time has this been more true than today.
<a href="https://nepalitimes.com/business/remittances-up-and-up">A spurt in remittances</a> and a slowdown in imports has meant that Nepal’s foreign exchange reserves have hit an all-time high of $14 billion. Just in the past seven months, diaspora dollars totalled $6.35 billion – a 21.6% increase over the same period last year. The trade deficit has declined, and the balance of payments situation is improving.
So why are we not celebrating? The problem is that while the macroeconomy is on a firm footing, the same statistics also point to a deep malaise within. Imports are down because purchasing power has declined, and banks are not lending, this means government revenue has also fallen drastically. Most remittance money is spent on household expenditure, much of it again to pay for imports.&nbsp;
All this means <a href="https://nepalitimes.com/opinion/killing-investment-in-nepal-in-10-easy-steps">investment</a> fell by 11% in 2023 after growing by nearly 4% the year before. Tighter financing conditions post-Covid and global factors following the Ukraine war have impacted both public and private investment.&nbsp;
“Nepal’s economy grew at 1.9% fiscal year 2023. Is that too low? Yes, very low. Are we in an economic crisis? No. But we are stuck in a situation where aggregate demand is low. Nepal is in a crisis of low economic growth,” says economist Sameer Khatiwada.
Indeed, banks have money to lend and borrowing rates have gone down, but there is no demand from the private sector because a large chunk of the middle class has<a href="https://nepalitimes.com/editorial/brain-drain-into-brain-gain"> left the country</a>.
And that is the irony: Nepalis are migrating abroad in droves, but fewer consumers back home means less economic activity, which in turn pushes more people out. Nearly a million young Nepalis left for jobs and study overseas last year. More than 400,000 left on work permits in the first seven months of this fiscal year. Some 3,000 leave every day.
The economy could pick up in 2024 and 2025, with increased demand, increased <a href="https://nepalitimes.com/news/blueprint-for-nepal-india-electricity-trade">hydropower</a> output, and rising tourist arrivals. But sustaining growth year-on-year relying solely on remittance and hydropower is not possible.&nbsp;
Remittances were the main reason for poverty reduction, raising living standards, improving access to health, nutrition and education. Nepal is set to graduate from LDC status by 2025.
Nepal’s economy is suffering a form of ‘Dutch Disease’ where high income from one source paradoxically keeps other sectors of the economy down. Remittance growth has increased savings, but there is nowhere to invest it except to speculate on the real estate bubble, which has burst.&nbsp;
Economist Khatiwada says we have to go beyond the symptoms to the disease: “Nepal is caught in a trap of low productive capacity, lack of competitiveness, lack of foreign investment and lack of business dynamism.”
So, what is the way out? Experts recommend more competition in the private sector and promoting industrialisation by leveraging areas where Nepal has a comparative advantage like the service sector, <a href="https://nepalitimes.com/news/it-is-it">information technology</a> and exports of high-value niche products.&nbsp;
“We were complaining when our foreign exchange reserves were low, and now we are complaining when reserves hit the roof. Our biggest problem is that we are sitting on all that money instead of investing it,” says Sujeev Shakya of the Nepal Economic Forum.&nbsp;
He adds: “We have to allow Nepali companies to invest outside, and reap the low-hanging fruits like energy and ICT. Nepal exported $900 million worth of software last year.”&nbsp;
If there was some hope the change in the coalition government last week would bring solutions, those have fizzled. Finance Minister Barsaman Pun is Prime Minister Dahal’s left-hand man and Dahal’s disagreement with former coalition partner Sher Bahadur Deuba of the Nepali Congress to sack its finance minister Prakash Sharan Mahat was one reason behind the Maoists switching to the UML.
Finance Minister Pun is already under a cloud for <a href="https://nepalitimes.com/editorial/skeletons-in-the-cabinet-k5x6py1v">his alleged involvement with a gold smuggling ring</a>, and he has reportedly been brought in with the express purpose of passing a budget that would be favourable to cronies. There are indications he will raise taxes on certain brands of electric vehicles, ostensibly to increase government revenue.&nbsp;
With the new government’s priorities so centred on personal and partisan gain, there is little time to solve the other crisis: underspending of the development budget. There is money for infrastructure and service delivery, we just cannot seem to spend it. Only 25% of the annual development budget has been spent in the past seven months of this fiscal year.
Delays in infrastructure and connectivity have further undermined economic growth and job creation.&nbsp;
Underspending is directly related to corruption. Public procurement is lubricated by kickbacks, and delays are caused by rival cronies with <a href="https://nepalitimes.com/editorial/need-and-greed">political patronage</a>. The focus is on low-cost bidder and not on the technical quality of bids. Contractors abandon half-finished projects by bribing officials.&nbsp;
In short, Nepal’s crisis of low economic activity is directly related to governance failure and lack of accountability of high elected officials. The new coalition has a chance to set things right at the third Nepal Investment Summit on 28-29 April in Kathmandu. But experts do not pin much hope on it. &nbsp;
“No matter how many laws and regulations we revise to make doing business easier in Nepal, unless we have better infrastructure we will not be able to attract foreign investors to Nepal. Second, soft infrastructure such as skills and quality of the workforce is also a critical ‘pull’ factor,” says Khatiwada.&nbsp;
Shakya takes a broader view: “It all really comes down to our mindset. We think of Nepal as a small, poor country but it is a potential $100 billion economy. We must have that imagination, must take risks, reform how we do business, break away from commission-oriented, rent-seeking approach.”

Poor cash-rich Nepal

This tipper truck (above) was washed down by a flash flood on the Sabha Khola on 19 June as the first monsoon squalls lashed eastern Nepal. It showed increasing risk to infrastructure projects from climate-induced extreme weather, especially on rivers with cascade hydropower projects.
But the spectacle of a truck lying half-submerged on its side was also emblematic of the sorry state of the Nepali state. The fake refugee scandal exposed corruption in high places and how it has hollowed out the country from within (Editorial). Impunity is so rife that a ruling party absolves its vanguard students for maiming university officials. Murderers go scot-free to keep the ruling coalition intact.
A populist mayor oversteps his brief to reclaim Nepal’s pre-1816 boundaries and concurrently declares war on Bollywood for a non-existent dialogue so as to distract public attention from failures to address more pressing everyday issues faced by citizens. He then weaponises social media to silence critics. Ultra-nationalism is the last resort of scoundrels.
Read also: <a href="https://www.nepalitimes.com/news/till-debt-do-us-part">Till debt do us part</a>, Ramesh Kumar
The truck is also symbolic of the shambolic state of the economy. Commentators cried wolf earlier this year warning that Nepal was going the way of Sri Lanka despite evidence to the contrary. In fact, Nepal’s macroeconomic state is now quite robust with foreign exchange reserves enough to pay for 11 months of imports, and remittance inflows hitting record levels. 
Reserves increased because of last year’s import curbs. But solving one crisis created a bigger one: reducing imports also brought down tax revenue. Without that revenue, the government has much less money for capital investment and most of the available cash is spent on recurrent expenditure.
Finance Minister Prakash Sharan Mahat’s budget is problematic at many levels, and even the NC’s coalition partners have sworn not to pass it because of perceived favouritism to some districts. He slashed the import tax on certain types of LPG cylinders to appease two gas companies, and raised taxes on electric public transport and cheaper battery vehicles. 
Read also: <a href="https://www.nepalitimes.com/here-now/nepal-s-tax-system-widens-rich-poor-gap">Nepal’s tax system widens rich-poor gap</a>, Ramesh Kumar
Prime Minister Pushpa Kamal Dahal in Delhi signed a deal for two new oil pipelines to import petroleum from India. The commitments Nepal’s rulers have made at climate conferences is just greenwash. 
But perhaps the most egregious item in the budget is a provision to retroactively tax FPOs and other profits from mergers, stock and property transactions. Banks and businesses are up in arms and have met the prime minister, finance minister and other officials saying it will kill foreign investment at a time when the economy is already a wreck.
“This does not happen anywhere else in the world,” said one banker who was in a delegation to meet officials, but did not want to be named. “The government is so desperate for revenue so it has money to splurge on wasteful things that it is taxing everything left, right and centre.”
Read also: <a href="https://www.nepalitimes.com/editorial/institutionalised-inequality">Institutionalised inequality</a>, Editorial
Finance Minister Mahat has refused to budge, saying the budget is written in stone, and reportedly told businesses which had gone to see him that they could always go to the courts to challenge it. 
With cooperatives folding, banks in crisis, and the government cash-strapped, one would have thought that Prime Minister Dahal’s government would be busy addressing the economic crisis. But by visiting shrines, his message seems to be: “Only Pashupatinath can protect us now.”
Read also: <a href="https://www.nepalitimes.com/here-now/state-sponsored-economic-crisis-ikcxxmnp">State-sponsored economic crisis</a>, Ramesh Kumar

Kunda Dixit

State of the state

A lot of the discussion on the new budget has hinged on taxes. But the fact that it allocated more money for debt servicing than for capital expenditure is a much more stark indication of the state of the economy.&nbsp;
The government earmarked Rs331 billion to pay back domestic and external loans and interests, higher than Rs320 billion set aside for capital expenditure. In essence, this means there will be less money for health, education, or infrastructure.&nbsp;
In fact, the government plans to borrow Rs240 billion in internal loans, but will be spending over Rs275.79 billion paying off old debt.
With falling tax revenue unable to cover expenses, more than a quarter of the budget is now borrowed from outside and within the country. Public debt as a proportion of GDP before the earthquake was 22%, now it has exceeded 42%.&nbsp;
Read also: <a href="https://www.nepalitimes.com/here-now/nepal-s-tax-system-widens-rich-poor-gap">Nepal’s tax system widens rich-poor gap</a>, Ramesh Kumar
“We are falling into a domestic debt trap, we have reached a point where we are having to borrow more money to pay our debt,” warned former finance minister Yubaraj Khatiwada. “Alternatively, the government’s capacity to spend on development is now weaker.”
According to the Public Debt Management Office, Nepal’s total public debt has exceeded Rs2.15 trillion. Of this, domestic debt is Rs1.08 trillion and the other half is foreign loans. In 2015, domestic debt as a proportion of GDP was 8.1% and foreign debt was 14.2%. By the end of December 2022, this ratio increased to 19.9% and 22.7% respectively.&nbsp;
Government housing grants post 2015 earthquakes, implementation of financial mechanisms within the federal system including building of new infrastructure, and the Covid-19 pandemic have been blamed for the increase in public debt. Wanton expenditure by successive ruling parties has also played a hand.&nbsp;
“The expenditure will increase now that the internal bonds taken by the government have matured and the repayment period has started,” says Finance Ministry spokesperson Dhaniram Sharma. During the pandemic, the government had requested donors to postpone loan repayment period by a few years. We have now passed that grace period.&nbsp;
Read also: <a href="https://www.nepalitimes.com/editorial/institutionalised-inequality">Institutionalised inequality</a>, Editorial
On the other hand, the government has started to raise more domestic debt through development bonds since 2018/19. This will lead to an increase in the amount earmarked for interest and capital repayment, further diverting resources from development. &nbsp;
In the financial year 2022/23, the government allotted Rs.609 billion for development and Rs.188 billion for the payment of interest on loans. This fiscal year, the development budget has shrunk by 23%, while debt repayment increased by a whopping 76%.&nbsp;
“Because all of this is costing the government more money, it is raising the debt of the market. Now what this does is create a situation where only a few in the private sector can manage to get loans,” says Khatiwada.
Foreign loans from donor countries, agencies and multilateral organisations are concessional in nature, meaning they have an affordable interest rate of less than 1%. Many of these loans have a repayment period of up to 40 years. For example, the government has taken a loan of about Rs16 billion from the Japanese government to build the Nagdhunga tunnel. The interest rate of such a loan taken for 40 years is only 0.01%
Read also: <a href="https://www.nepalitimes.com/?p=21822&amp;preview=true" target="_blank">Some are more equal than others</a>, Anil Chitrakar
However, internal borrowing is expensive. As soon as the interest rate of loans of banks and financial institutions increases, the government also has to borrow more expensively. According to the Public Debt Management Office, the average interest rate on bonds is 10.30%, up from 5.75% in 2017, primarily due to the lack of investable funds in the financial system.
“Internal debt is an invisible tax imposed on the common man. As the internal debt increases, the government starts looking for ways to generate income to pay it. As a result, taxes are added to goods and services used by citizens,” says former secretary at the Finance Ministry Rameshore Khanal.
But in addition to paying off instalments of the old loans, the Finance Ministry is also under pressure to increase salaries, social security allowances and other expenditure obligations. As such, the government has started imposing higher tax rates to increase its income. Nepal is already one of the countries with the highest tax rates in South Asia. Revenue makes up 22% of Nepal’s GDP.&nbsp;
More than half of the country’s annual budget is being spent on salaries, administrative expenses, social security, subsidies, etc., so the government relies on debt to raise resources for development. Large budget and distribution-oriented programs in turn have further increased the internal debt. Experts say loans should be taken only for priority areas and for productive sectors that can repay the amount.&nbsp;
Says economist Pushkar Bajracharya: “Otherwise, taking out loans and spending them indiscriminately will only further burden the future generation of our people.” &nbsp;
Read also: <a href="https://www.nepalitimes.com/here-now/state-sponsored-economic-crisis-ikcxxmnp">State-sponsored economic crisis</a>, Ramesh Kumar

Till debt do us part

Violations of Nepal’s airspace during WWII

One of the few Newa towns situated outside Kathmandu Valley, Panauti still evokes the feeling of a place frozen in time.&nbsp; Largely untouched by haphazard urbanisation, this town 32km east of Kathmandu used to be a kingdom revered for the sacred confluence of the Punyamati and Rosi rivers.&nbsp; The Bramhayani temple is the site of a 12 yearly Makar Mela which is attended by devotees from as far away as India.&nbsp; Panauti’s crumbling monuments were restored in the 1990s by the French government. Temples, resting places, traditional homes were rebuilt and locals trained to revive their craft. Panauti and France marked 50 years of cooperation in September.&nbsp; However, the priceless murals on the temple walls are fading and need urgent restitution. Now, these crumbling wall paintings are meticulously documented in the Wall Paintings of Panauti and Their Context.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260106090116_31f6acf06ef879037fec8274b85153eab4468566abf71616490679bf8468b85d.jpg" data-media-id="editor_0" data-image-id="20260106090116_31f6acf06ef879037fec8274b85153eab4468566abf71616490679bf8468b85d" data-rendition-name="original" width="1596" height="1074" loading="lazy" alt="Panauti murals"> </figure>  In his foreword, French researcher Gérard Toffin writes about some of the earliest wall paintings from the Malla period in Kathmandu, including a 17th century mural depicting the procession of Rato Machhindranath which has since been restored.&nbsp; Several other pieces still exist but in a pitiful state, defaced by scratches. ‘They were painted on a plaster coating made of soil, husks, or limestone, which were applied to the bricks making up the walls,’ Toffin notes.&nbsp; The book delves into the cult of Asta Matrika among Newa of all castes and classes, the first of which is Bramhayani. These all-pervading deities are linked to Shaktism which focuses on the importance of the female principle and together, combine the forces of life, sex and fertility with that of death and eros. The deities are painted on the wall, carved on the stone or moulded into metallic statues.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260106090120_836efd2b0a569d8ec0fb2c6651a29b8f2dd8f8f75b72e27bb86b0bfc0ad8461f.jpg" data-media-id="editor_1" data-image-id="20260106090120_836efd2b0a569d8ec0fb2c6651a29b8f2dd8f8f75b72e27bb86b0bfc0ad8461f" data-rendition-name="original" width="1074" height="1434" loading="lazy" alt="Panauti murals"> </figure>  Riddhi Baba Pradhan, former director general of the Department of Archaeology who oversaw the restoration of Panauti 30 years ago, writes that a colourful wall painting depicting Buddha's past life at the Chabahil Chaitya built or restored during the reign of Lichhavi king Vrisdev in the 3rd century might be the earliest mural in Nepal. As for Panauti, a fragment from a 400-year-old scroll which illustrates a scene of Triveni Ghat with Dalinchok Hill in the background is likely the oldest. But that relic is currently at the Virginia Museum of Fine Arts in the United States.&nbsp; Pradhan recalls first encountering wall paintings inside Bramhayani temple which were deteriorated by smoke, leaky roof, dust, vermilion, sprinkles of animal blood and lack of maintenance. The team led by chemist Bhimvar Singh Thapa treated the wall paintings and some of the details were recovered including the paintings of Astamatrika and Asta Bhairav on the east, west and southern walls.&nbsp; PAINTINGS ARE NOT VISIBLE The murals were painted during the reign of the last Malla King of Bhaktapur Ranjit Malla and Queen Viswalaxmi Devi 300 years ago. But 40 years after the restoration, Pradhan notes that the murals are again in poor condition: ‘The paintings are not visible, the plaster is severely damaged and the surface has peeled off … electrical wires hang haphazardly inside the temple.’ The second lot of murals at Ghat Sattal are thought to have been commissioned during the late Malla period or the beginning of the Shah dynasty. Exterior walls depict incarnations of Lord Vishnu as well as Sesh Narayan, Ganesh, a scene of Samundra Manthan, of angels Maya, Moha, Ganga. Their attributes, dresses, ornaments, facial expressions, body postures are all skilfully represented but in a deteriorated condition.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260106090116_88d06703ae23a271905d81f35056d41df92cbbc4b9966fac3f34821659e585a8.jpg" data-media-id="editor_2" data-image-id="20260106090116_88d06703ae23a271905d81f35056d41df92cbbc4b9966fac3f34821659e585a8" data-rendition-name="original" width="588" height="862" loading="lazy" alt="Panauti murals "> </figure>  The wall paintings of Bramhayani Dyochhen are 90% degraded even though they were restored and repaired 40 years ago by the Panauti Integrated Project. Compared to other artefacts, wall paintings are more delicate to external factors, and if not preserved an important part of Nepal’s heritage will be lost.&nbsp; Furthermore, most of the wall paintings in Nepal are temperas, and not frescos. Tempera is painted with water-soluble mineral or vegetable pigments fixed with glue on the cow dung clay plaster on the brick walls. While Nepal’s focus has been on the repatriation of stolen artefacts from abroad, religious and cultural objects within the country like the Panauti murals need urgent attention.&nbsp; This slim publication by Panauti Municipality is an important call to begin the work before it is too late.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260101120124_d0efa1e57b2710a206beb37c7e934ac34e694afc278985934eac2fc52124a92c.jpg" data-media-id="editor_3" data-image-id="20260101120124_d0efa1e57b2710a206beb37c7e934ac34e694afc278985934eac2fc52124a92c" data-rendition-name="original" width="1136" height="702" loading="lazy" alt="Wall Paintings of Panauti"> </figure>

Saving Panauti's murals

In 2025, Nepal’s Ministry of Tourism <a href="https://nepalitimes.com/news/the-everest-industry" target="_blank">added six new 8,000m peaks </a>to those listed on its website. These are subsidiary summits of <a href="https://explorersweb.com/kangchenjungas-challenging-confusing-subpeaks/" target="_blank">Kangchenjunga</a> and <a href="https://explorersweb.com/through-the-unknown-to-the-impossible-lhotse-middle/" target="_blank">Lhotse</a>, which some view as insufficiently independent to be called separate peaks. In 2024, the international mountaineering federation (UIAA) responded to a request by the Nepal Mountaineering Association (NMA) and the government to officially recognise these peaks. While recognising that ‘there is no one definition of a “mountain” or a “peak” or a “top” or “point” in topographic terms’, and encouraging further debate the UIAA’s opinion was that the 8,000m peaks should continue to the ‘Classic 14’, first completed by Reinhold Messner in 1986. The degree of prominence and isolation of <a href="https://www.climbing.com/news/new-8000-meter-mountains-nepal/?scope=initial" target="_blank">the six new peaks </a>varies, with Yalung Kang having the strongest claim to being a separate peak with a prominence of 135m, but they are all separate enough to be included on some peak-bagging lists. The UIAA’s own list of 4,000m summits in the European Alps includes Punta Giordani with a prominence of only 6m. Whatever the case for the six peaks being geographically separate mountains, they represent significant climbing challenges. They are not minor tops that can simply be ‘bagged’ on route to a main summit. In the case of <a href="https://explorersweb.com/through-the-unknown-to-the-impossible-lhotse-middle/" target="_blank">Lhotse Middle and Lhotse Shar</a>, no one has ever managed to traverse between them and Lhotse itself.  <figure><img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260107080144_881321a6e46818beb7bbd4fe6f21589d89d19bf77ae8218474d373ef7ab0c431.png" data-media-id="editor_5" data-image-id="20260107080144_881321a6e46818beb7bbd4fe6f21589d89d19bf77ae8218474d373ef7ab0c431" data-rendition-name="original" width="2888" height="1590" loading="lazy" alt="New 8,000ers"><figcaption>Nepal’s 8 existing 8,000ers: Chomolungma 8,848.86, Kangchenjunga 8,586, Lhotse 8,516, Makalu 8,485, Manaslu 8,163, Dhaulagiri 8,167, Annapurna 8,091, Cho Oyu 8,201. Photo: GOOGLE EARTH PRO</figcaption></figure>   <figure><img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260107080144_27bf905c1a559c46819dc96ca33d22c27fc301d415fc034f26b8acd105c12da7.png" data-media-id="editor_6" data-image-id="20260107080144_27bf905c1a559c46819dc96ca33d22c27fc301d415fc034f26b8acd105c12da7" data-rendition-name="original" width="1750" height="976" loading="lazy" alt="New 8,000ers"><figcaption>Nepal has listed six additional 8,000ers: Yalung Kang (8,505, Yalung Kang West 8,077, Kanchenjunga Central (8,473, Kanchenjunga South 8,476, Lhotse Middle 8,410, and Lhotse Shar 8,400. Photo: KUNDA DIXIT</figcaption></figure>  Several fine routes have already been climbed on these mountains, such as Slovenians Andrej Štremfelj and Marko Prezelj’s alpine style ascent of the South-West Ridge of Kangchenjunga South. The six peaks have not yet achieved universal acceptance, but it is possible that climbing an expanded list of 20 eight-thousanders could become a new mountaineering challenge, just as the 14 classic peaks are today. It is therefore interesting to analyse who is currently closest to achieving this goal, using data from The Himalayan Database and other Internet research. The first conclusion of my analysis is that these six additional peaks have received far less attention than the classic 14 eight-thousanders. One of them, Yalung Kang West, has never been climbed or even attempted: probably because it is a subsidiary peak of <a href="https://explorersweb.com/kangchenjungas-challenging-confusing-subpeaks/" target="_blank">Yalung Kang</a> which is itself a subsidiary peak. The other five peaks have seen a total of 138 ascents. Just 101 people have ever climbed one or more of the additional peaks, which compares with 354 people who climbed Everest on a single day: 23 May 2019. Russian Evgeni Vinogradski is unique in having climbed five of the six new peaks. He has also climbed six of the classic 8,000ers, giving him a total of 11 out of the 20 peaks on the expanded list. Vinogradski is now 80 and is unlikely to increase this total. Several other former Soviet climbers have climbed three of the new peaks, having participated in the 1989 traverse of the four main summits of Kangchenjunga. This includes two legends of Soviet climbing: Kazakh Anatoli Boukreev and Ukrainian Sergey Bershov, each of whom has climbed 13 out of the 20 peaks on the extended list. Boukreev died attempting Annapurna in 1997. Bershov, one of the only men to have ever climbed Lhotse South Face, is now 78 and, although he was in good form when I met him in Chamonix last summer, he is unlikely to further extend his tally. The addition of the new peaks does not take any of these climbers beyond the total of 14 peaks achieved by the 76 climbers who have completed the classic ‘Himalayan Crown’. Of those who have climbed all 14 classic eight-thousanders, only one, <a href="https://nepalitimes.com/here-now/um-hong-gil-s-project-impossible" target="_blank">Korean Um Hong-Gil</a>, has climbed any of the six additional peaks.  <figure><img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20260107080144_5651fc6445f5e5fd838f28e1eac1da45da136b309a4a00db1e4aafa7d4836251.png" data-media-id="editor_9" data-image-id="20260107080144_5651fc6445f5e5fd838f28e1eac1da45da136b309a4a00db1e4aafa7d4836251" data-rendition-name="original" width="2142" height="1310" loading="lazy" alt="New 8,000ers"><figcaption>Only one mountaineer, Korean Um Hong-Gil, has climbed any of the six additional peaks.</figcaption></figure>  Um climbed both Lhotse Shar and Yalung Kang, giving him a total of 16 summits. He required four attempts to climb Lhotse Shar, including one attempt in which he turned back just 100m from the summit following the deaths of two teammates. He finally succeeded in 2007 via a route up the Lhotse South Face. If a race to climb all 20 eight-thousanders were to begin, Um is currently in the lead. <a href="https://www.himalayandatabase.com/" target="_blank">The Himalayan Database</a> also lists two additional mountains in Nepal not included among the peaks announced by the Ministry of Tourism: Annapurna Central and Annapurna East. If these are included, bringing the total to 22 peaks, a few additional climbers deserve mention. Poles Piotr Pustelnik and the great Jerzy Kukuczka have both climbed all 14 classic eight-thousanders as well as Annapurna East, giving them 15 out of 22. Swiss climber Erhard Loretan climbed all 14 as well, and both Annapurna subsidiary summits, giving him a total of 16 out of 22 peaks. Annapurna East has a greater prominence than some of the 6 new peaks proposed by Nepal, but Broad Peak Central in the Karakoram has the greatest prominence of any subsidiary 8000m summit. Kukuczka has also climbed Broad Peak Central, so if the list is extended to 23 peaks, he has 16, equal with Loretan and Um. Then, there is a case for Shishapangma Central in China, which further complicates the task of coming up with a definite extended list. At the moment, these subsidiary summits are not attracting a lot of attention: of the 138 summit climbs on them, only 12 occurred in the last 25 years and none since 2011. Most climbers like to have some wide recognition of a target before investing time and money in trying to achieve it, and this may make it hard to build interest. But as completing the classic 8,000m peaks starts to become a rather frequent occurrence, some may be attracted to the longer list. If this new challenge catches on, as the Ministry of Tourism presumably hopes, how long will it be before someone passes Um Hong-Gil’s total and how long before someone climbs all 20 or 22 or 23 summits? <a href="https://nepalitimes.com/opinion/comment/dispelling-myths-about-climbing" target="_blank">Edward Morgan</a> is a British author and climber based in Switzerland. His first book, Lhotse South Face - The Wall of Legends, has been published in several languages and his second book, Chasing Mallory's Dream is due out in the UK this year.

New 8,000ers may restart peak-grabbing race

The American military action in Venezuela and the abduction of President Nicholas Maduro may redefine Nepal’s geopolitics as it juggles between three world powers, India, China and the United States.&nbsp;
Nepal’s interim government is busy preparing for elections on 5 March, and it was late issuing a statement on the American intervention in Venezuela, but the country may have to re-evaluate how it deals with its immediate neighbours and the global power.
“How does Nepal avoid being the next Ukraine or Venezuela? Small countries shouldn’t go around irritating big neighbours. And when big neighbours really get upset, they usually put up a moral fig leaf justifying their miltary action,” says energy economist Dipak Gyawali. “What we see with Venezuela today is bereft of such moral content, essentially banditry which in today’s day and age is unacceptable. Neither the rising new powers nor much of the Global South will take this lying down.”
International relations experts have said that there is now a new world order in which rules-based diplomacy has been thrown out of the window, and the world has been carved into America leading the western hemisphere, Russia is allowed to do what it wants in Ukraine and Europe, and China’s sphere of influence is now the Indo-Pacific.
Foreign affairs expert Nischal Pandey says there is a lesson for smaller nations like Nepal: “We have to be aware of the sensitivities of the major powers in the vicinity.”
There is also a lesson for smaller resource-rich countries not to give an excuse for intervention with poor governance and political instability due to inequity. In Venezuela’s case it was throttling democracy and not using its immense oil-wealth to uplift its people.
Nevertheless, the Trump administration’s abduction of a sitting president of a foreign government regardless of the dictatorial nature of his regime and Venezuela’s volatile internal politics, is illegal and breaches the international order that has been in place since after World War II and its devastation on humanity.
While Trump’s intervention in Venezuela, and threats against Colombia, Cuba and Greenland have brought international condemnation, here in Nepal it has not been taken as seriously as it should.
Says Amish Mulmi, author of the book All Roads Lead North: Nepal's Turn to China: “Some of the reaction on social media has been that of glee over the fall of a dictatorial Communist government on the other side of the world. However, the government statement about fully respecting the principles of sovereignty and the Charter of the United Nations is a strong statement that makes clear Nepal's position on the matter.”
“The abduction of Maduro is a clear sign of Trump's America ensuring its sphere of influence through might and a warning to toe the line,” Mulmi adds. “It also infringes on the sanctity of borders and the preservation of sovereignty. Trump's actions reek strongly of a bygone era of imperialistic control and resource capture.”
Venezuela has 17% of the world’s reserves of crude oil, even though refining this heavy tar-like oil will be costly, and is possible in only a few places including Texas.
“This has to do with a larger political economy of oil, the unravelling of pax Americana and the post-World war II order. This is USA’s heavy-handed response to remain on the top as well as to partly solve its debt of $39 trillion,” explains Gyawali. “But this is not going to help: China is far ahead, Russia has recovered from its 1990s low point, and manufacturing capital has moved away from America. So controlling only financial capital - and using military power so brazenly - is not going to work.”
The might also be specific lessons for Nepal as a smaller country with vast water resources. While water, unlike oil, is renewable, India’s interest in Nepal’s hydro resources cannot be ignored. Ironically, America’s capture of Venezuelan oil reserves could exacerbate climate breakdown and the melting of Himalayan glaciers, which will put Nepal’s water resources in jeopardy in the coming decades.
The only way to deal with this for Nepal and downstream India will be to build reservoirs on rivers to store monsoon precipitation, and that makes water a strategic commodity for the future.&nbsp;
“If we continue in the current mode of hydropower-biased water resources development ignoring irrigation, flood control, navigation, fisheries, tourism and other benefits, India will get the free benefit of regulated water while we pay the upstream environmental and social costs. History will blame our elected leaders for having undersold our resources,” adds Gyawali, who served as water resource minister in the early 2000s.
As for a larger geopolitical lesson: “We in Nepal are fortunate in having not one threatening hegemon but two superpowers India and China: they don’t agree with each other, but do agree on a peaceful Nepal for their own security. However, our current political leaders are irritating both the neighbours, unlike since the centuries past when our rulers looked solely after Nepal’s core interests and our neighbours knew that.”
American intervention in Venezuela also calls for strengthening of our institutions and diplomatic outreach. Nepal has been a non-aligned state, and for all its history has tried to follow a policy of equidistance between India and China. The difference with Venezuela is that Nepal has to deal with two giant neighbours, and not just one.
Says Mulmi: “It is no more only about balancing great power relations but also about benefiting from them. But that will be increasingly difficult as international law and the principles of sovereignty are encroached upon.”

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