Nepal urgently needs effective fiscal policies and robust financial governance to address the challenges facing it. Regulatory institutions must prioritise inclusivity and ensure that financial services reach the underserved
The gossip in many Nepalese households, including those of my own spouse and her peers, invariably centre around the affordability of essential groceries, food items, education for the children and health services for families. Discussions about rising costs and dwindling purchasing power dominate not only individual households but also serve as a microcosm of the economic strain experienced nationwide. This pervasive economic stress is echoed by a 41-year-old dairy entrepreneur from Banke, who has grown increasingly frustrated over unpaid dues for milk supplied to a government dairy enterprise. This milk, sourced from over 2,000 farmers, highlights the inefficiency of payment systems and the plight of grassroots producers.
A broader crisis looms over the micro, small and medium enterprises (MSMEs) in Nepal. Over 3,000 respondents reported facing insurmountable barriers in accessing financial services and products critical for upgrading and expanding their businesses. The conduct of commercial banks, especially Class A institutions, has been described as elitist, likened to hardships and unrealistic huddles. Entrepreneurs seeking loans are often forced to cultivate special connections with high-ranking officials from the Ministry of Finance, Nepal Rastra Bank, or political patrons to even secure a meeting with bank representatives. The ordeal of a grain-processing entrepreneur from Bardia with a first-class business degree from a reputed Nepalese college underscores the systemic inefficiencies. Despite having a stellar credit history, satisfactory financial flows and sufficient collaterals, it took him over 18 months to secure financing for a modest loan of a few million rupees from a commercial bank.
Two of Nepal's most promising sectors-tourism and agriculture-are grappling with structural challenges and a lack of strategic direction. Tourism remains stunted due to poor accessibility and infrastructure. Tourist destinations suffer from rampant waste, inadequate walkways, appropriate transportation, logistics and the absence of basic public amenities. Agriculture, a backbone of the economy, is similarly plagued by inadequate extension services, unreliable access to inputs and a lack of market infrastructure. Farmers face significant uncertainty, further exacerbated by the absence of assured markets and robust agri food value chains.
These stories collectively paint a dire picture of Nepal's economic governance, where regulatory institutions suffer from poor leadership, and financial services and products are inaccessible to those who need them most. Commercial banks disproportionately direct their lending towards large business houses or politically connected individuals, sidelining genuine entrepreneurs. According to the Economic Survey of 2081, banking investments in agriculture, wholesale/retail sectors and consumption stood at 8.2%, 20%, and 19.3%, respectively, during FY 2079/80, with total banking investments reaching Rs 5,087.80 billion. This allocation strategy fails to generate sustained employment, increase production or foster industrial growth.
The economic repercussions of these multifaceted challenges are both profound and far-reaching, threatening the very fabric of societal stability. The escalating cost of living has rendered life increasingly untenable for the average citizen. National safety net programmes, designed to shield the most vulnerable, are often misappropriated, leaving those in genuine need without recourse. Labour markets, crippled by inefficiency and stagnation, have all but disintegrated, compelling a mass exodus of economically active youth to foreign shores in search of viable livelihood opportunities.
Meanwhile, federal and subnational government institutions remain largely ineffectual, failing to provide essential public goods and services. Rampant rent-seeking behaviour has become institutionalised, eroding trust in public governance and reinforcing systemic inefficiencies. Fiscal policies intended to stimulate economic growth through public investment have failed to generate meaningful outcomes in terms of production, employment, or income growth for the average citizen. The bureaucracy, plagued by a culture of self-interest, prioritises personal gain-manifested in the relentless pursuit of promotions and financial perks-over the delivery of critical public services. Alarmingly, bureaucrats increasingly function as full-time operatives for political parties, blurring the lines between governance and partisanship.
Higher education, a critical pillar for national development, is in a state of crisis. Universities are grappling with plummeting enrollments, with alarming projections indicating that over 500 colleges are at risk of closure. Rather than addressing these systemic issues, government resources are routinely diverted to serve the vested interests of political parties and their leadership, exacerbating institutional decay. Adding to this dismal scenario, key financial institutions such as the Nepal Rastra Bank and the Ministry of Finance continue to issue overly optimistic economic reports that are conspicuously detached from the grim realities on the ground.
Nepal urgently needs effective fiscal policies, actionable sectoral plans and robust financial governance to address these challenges. Regulatory institutions must prioritise inclusivity and ensure that financial services and products reach underserved, un-reach entrepreneurs and sectors. Addressing these issues is not merely an economic imperative but a necessity to restore public confidence, expectations, generate employment and build a resilient micro inclusive economy. The path forward requires visionary leadership and a commitment to serving the nation's broader interests over narrow political gains.
Neupane is associated with Baya Himalaya, a research, studies and knowledge management institution