Nepal is at a pivotal juncture. The recent electoral success of the Rastriya Swatantra Party (RSP) presents a unique and significant opportunity to address the deep-seated issues that have hampered the nation’s economic progress for decades. While discussions around economic improvement often focus on specific sectors like tourism, IT, manufacturing, hydropower, or agriculture, or on particular types of expenditure such as infrastructure, health, and education, the true path to prosperity lies in fundamental, cross-cutting reforms. For the new RSP government, two paramount economic priorities stand out: reversing the pervasive misallocation of public funds and dismantling entrenched syndicates and cartels.
Reversing the Misallocation of Public Funds
The inefficient use of public money in Nepal stems from two primary sources. The first is the pervasive corruption that infiltrates all levels of government. This corruption was a significant catalyst for the Gen Z protests that ultimately led to the current political landscape. Corruption manifests not only as direct financial kickbacks to politicians, senior officials, and political parties but also through the alarming proliferation of “white elephant” projects. Recent years have seen a surge in such ventures, including conspicuous viewing towers in remote hilly regions and ill-conceived airports in inappropriate locations, many of which remain largely unused or significantly underutilized.
The second, more insidious reason for the misallocation of funds is the government’s limited administrative capacity. This deficiency is starkly evident each year in the substantial portion of the development budget that goes unspent. Beyond the sheer volume of unallocated funds, the frenetic spending that occurs in the final months of the fiscal year, typically June and July (often referred to as “asare bikas”), suggests that much of this expenditure is effectively wasted. From the perspective of delivering tangible public goods and services, this concentrated, last-minute spending offers little genuine benefit. Whether driven by corruption or administrative shortcomings, the undeniable outcome is that a significant portion of the government’s budget is severely underutilized.
The economic consequences of an underutilized budget are substantial. Government revenue is generated through taxes on consumers and businesses, which leads to higher prices and reduces the capital available for private investment. Alternatively, governments resort to increased borrowing, which imposes a significant burden, especially when a considerable percentage of the national budget is already dedicated to servicing existing debt. When these funds are not spent effectively, the public sector transforms into a drain on the already scarce resources available to consumers and businesses in Nepal.
Therefore, the primary economic objective for the RSP government must be to ensure that public funds are directed towards broadly sensible and achievable public uses. This principle is more critical than theoretically identifying the “optimal” allocation of resources; if money cannot be effectively spent, it holds no economic value. Enhancing administrative capacity should be the guiding principle for budget allocation. Modest, implementable spending initiatives are far more valuable than ambitious projects that lack a realistic prospect of completion in the foreseeable future. Under these circumstances, there is no justification for a budget that necessitates increased taxation or borrowing in the immediate term.
Addressing the issue of an underspent budget would not only provide a significant short-term boost to the economy but also deliver enduring long-term benefits through well-executed public spending.
Dismantling Syndicates and Cartels
Anti-competitive syndicates, cartels, and exploitative middlemen are deeply entrenched throughout the Nepali economy. It is unsurprising, then, that Nepal consistently ranks in the lowest quintile globally for market competition, according to the World Bank’s Business Ready (B-READY) survey. The prevailing economic system incentivizes rent-seeking activities, often involving the cultivation of political connections, over the genuine provision of goods and services to consumers.
The government must proactively dismantle these syndicates and cartels, particularly those that dominate the transportation, trucking, construction, and agricultural wholesale sectors. These monopolistic structures inflict considerable harm on consumers by artificially inflating prices and exacerbating price volatility. They also negatively impact legitimate businesses in multifaceted ways, including by driving up input costs and depressing the prices received by domestic producers, especially farmers. More broadly, these entrenched interest groups actively foster red tape and erect barriers to entry, stifling competition and hindering entrepreneurship.
Tackling syndicates and cartels represents a natural and opportune cornerstone for a “first 100 days” agenda for the new government. From a political standpoint, the RSP is exceptionally well-positioned to confront these vested interests. Its substantial electoral mandate, coupled with the widespread public disdain for these monopolistic practices, provides the necessary political capital. The government will possess the public support required to navigate the inevitable backlash and short-term disruptions that these interest groups may instigate. As time progresses, anti-incumbency sentiment can grow, and as new elections loom, governments typically become more susceptible to the pressures of short-term economic disruptions. Addressing this critical issue immediately will firmly establish the RSP government as a force for change, disrupting the extractive status quo.
Cautious Transformation
The RSP’s considerable political success has generated very high public expectations. A natural inclination might be to adopt an overly ambitious approach, proposing a multitude of disparate objectives and excessively grand spending plans. This would be a perilous trap, potentially overstretching the government’s limited capacity and perpetuating the very patterns of poor economic governance that have plagued Nepal in the past. The two fundamental priorities outlined above are both feasible and possess the potential to be transformative for Nepal in the long run, while simultaneously yielding significant short-term benefits. Pursuing a strategy of cautious, yet decisive, transformation will lay a robust foundation for expanding the range of effective policymaking options in the future.
