In Nepal the cycle of dysfunction continues...
- GJC Team
- May 18
- 5 min read
Updated: Jun 3
Nepal’s road to uncertainty: political dysfunction and development failure
Nepal finds itself at a crossroads—struggling to move forward while weighed down by economic fragility, political instability, and deep-rooted corruption. What might appear on the surface as a nation hampered by suspended foreign aid and slow infrastructure progress is in fact a complex crisis touching every corner of public life. While the dream of progress endures, the harsh reality for many Nepalis—particularly in remote areas—is that their hopes are being pushed further out of reach by government inaction and widespread mistrust.
Economic pressures mount as confidence falls
Nepal’s economic woes extend well beyond the temporary freeze of international support. Being placed on the Financial Action Task Force’s “Grey List” has delivered a blow to its financial credibility. With this label comes suspicion from investors, stricter scrutiny from international partners, and a general rise in the cost of doing business. Business owners are witnessing a decline in investment confidence and a growing sense of unease, with funds quietly leaving the country in search of more stable environments.
A key pillar of the nation’s economy—remittances sent home by Nepali workers abroad—is also under threat. With global markets becoming more volatile and financial restrictions tightening, the flow of money from overseas is no longer guaranteed. Nearly a quarter of Nepal’s gross domestic product relies on this single stream of income. Meanwhile, high youth unemployment continues to drive thousands to seek work outside the country, leaving Nepal without many of its young professionals and skilled labourers.
Hydropower had offered a rare opportunity for optimism. Deals with neighbouring countries such as India and Bangladesh hinted at a path to revenue and independence. Yet, political uncertainty and wavering foreign investment have begun to stall even these gains. The recent cancellation of the Millennium Challenge Corporation (MCC) grant, which included crucial funding for road and energy infrastructure, has made the challenge even steeper.
Governance shortcomings deepen the crisis
Though international challenges are part of the problem, Nepal’s leadership has failed to guide the country through these difficulties. Corruption remains endemic at all levels, with recent years witnessing several high-profile scandals involving top leaders. Misuse of funds, foreign aid mismanagement, and bribery allegations have sparked growing protests across the country, with citizens losing patience.
Nepal’s reputation for weak governance has only worsened. Transparency International’s rankings show a deteriorating situation, and efforts to reform have often been more about consolidating power than cleaning up the system. Investigative bodies have been brought under political influence, severely weakening accountability. Public frustration is boiling over, and political division is becoming harder to repair.
This crisis of leadership is also tied to the failure of Nepal’s democracy to deliver genuine change. Since the monarchy ended in 2008, the country has been controlled by a tight circle of senior political figures, cycling through power but delivering little real reform. Their inability—or unwillingness—to break the cycle of dysfunction has left many feeling disillusioned.
A monarch's voice rekindles old loyalties
In this climate of political failure, former King Gyanendra Shah has stepped into the spotlight once more. His call for peace and national unity, issued on Democracy Day, has touched a nerve among a public increasingly fed up with partisan politics. For some, he represents a more stable past; for others, he offers an alternative to a failing system.
While many young people and historically marginalised groups reject any return to absolute rule, the monarch’s comments have triggered serious debate. His growing support signals a widespread dissatisfaction with the country’s current direction. Political parties, once quick to dismiss such voices, are now forced to respond to rising monarchist sentiment—a reflection of broader public discontent.
The timing of his statement—just as reports of widespread corruption and U.S. aid suspension were emerging—added to its impact. Some leaders have brushed it off, but others recognise that calls for the monarchy’s return are a symptom of deeper problems.
Balancing power in a contested region
Nepal’s strategic position between India and China means it must tread carefully in its international dealings. It cannot afford to alienate either side, nor can it ignore pressure from Western partners such as the United States. The MCC agreement was seen by many as a step toward closer ties with the U.S., but it also drew criticism from China, which regards such moves as challenges to its Belt and Road Initiative.
With American funding now on shaky ground, Nepal may lean more heavily on Chinese support—but that route carries the risk of growing debt dependency and further loss of autonomy. India, on the other hand, remains Nepal’s closest trade partner, and the shared border makes their relationship critical. Yet, many Nepalis are wary of Indian influence, particularly when deals seem to favour their southern neighbour.
Some analysts warn that American aid could become a tool of leverage, with Washington expecting Kathmandu to limit its engagement with China. In response, Nepal must focus on rebuilding its domestic foundations, avoiding overreliance on any single global power, and strengthening its tradition of non-alignment.
The people's voice grows louder
While politicians argue and alliances shift, ordinary Nepalis have taken to the streets. Discontent is rising across social classes and age groups. Students, small business owners, and professionals alike are calling for a new direction—one built on fairness, transparency, and effective leadership.
The government’s heavy-handed reaction to public protest has only fuelled more anger. Online restrictions, police crackdowns, and widespread arrests have painted a troubling picture of a government losing touch with its people. Unless real reforms are introduced soon, Nepal risks a slide into even greater instability.
Development derailed by corruption and delay
The roading crisis is just one example of how corruption has infected everyday life. While the opening of roads has brought real benefits—reducing isolation, saving lives, and opening new economic opportunities—the process has often been plagued by dishonest practices. On one hand, new roads could transformed remote communities, yet, such gains are overshadowed by reports of stalled projects and misused resources.
A recent government investigation revealed that the new Pokhara international airport, built by a Chinese state contractor, was riddled with irregularities. Poor construction, unpaid taxes, and inflated costs are just some of the issues linked to corruption and weak oversight. The contractor, China CAMC Engineering Co., is accused of delivering substandard work and prioritising its own profits over Nepal’s needs.
Nepal’s public services are riddled with similar problems. Companies often face demands for bribes just to secure basic utility connections. Getting a construction permit or an investment licence is slow and unpredictable, largely due to bureaucracy and changing rules. Starting a business in Nepal is costlier than in other South Asian countries.
Even the tax and customs systems are mired in inefficiency and exploitation. Officials in these sectors are often known to accept or demand bribes, while businesses must spend excessive time navigating a complicated tax process. Meanwhile, large companies use questionable tactics to avoid paying what they owe.
Public procurement is another high-risk area. Most companies expect to offer gifts or payoffs to win government contracts, and reports of misallocated funds are frequent. Cartels and political favours determine who gets public projects, despite legal requirements for fair bidding. High-profile cases consistently demonstrate how deeply corruption is embedded.
Conclusion
Nepal’s current troubles go far beyond a road crisis. They are the result of broken systems, poor leadership, and a failure to deliver on promises of democracy and development. Without decisive reforms to root out corruption, build trust, and boost economic opportunity, Nepal risks falling even further behind.
The path forward will not be easy, but it is necessary. By investing in stronger institutions, supporting local industries, and restoring public faith in governance, Nepal can begin to rebuild. Roads may connect towns and villages—but only transparency, accountability, and vision can reconnect a nation with its future.
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