Nepal’s Policy Landscape in 2024: A Year of Transformation and Challenges

Nepal’s policy landscape in 2024 was marked by transformative initiatives across economic, social, and political spheres, showcasing the nation’s commitment to growth and development. From ambitious economic targets and groundbreaking human rights plans to political realignments and digital regulations, Nepal charted a course towards prosperity while grappling with challenges in implementation and resource mobilization, setting the stage for a pivotal period in the country’s journey towards sustainable progress and international cooperation.

As Nepal navigated through 2024, the country witnessed significant policy developments across various sectors, shaping its economic, social, and political landscape. From economic reforms to human rights initiatives, Nepal’s policymakers worked to address long-standing issues and position the nation for future growth. Let’s explore the key policy developments that defined Nepal’s journey in 2024.

Economic Policy: Steering towards growth and stability

The Nepalese government unveiled an ambitious budget for the fiscal year 2024/25, totaling NPR 1.86 trillion, a 6.2% increase from the previous year. This budget aimed to achieve a 6% economic growth rate, a significant jump from the 3.9% recorded in the previous year.[1] This optimistic target reflected the government’s commitment to accelerating economic development and improving living standards for its citizens.

The Nepal Rastra Bank (NRB) played a crucial role in managing the country’s monetary policy. In a significant move, the NRB reduced the cash rate from 8.5% to 6.5% in mid-2023, a policy that continued to influence the economy in 2024.[2] This easing of monetary policy was aimed at stimulating private investment and boosting economic activity.

The central bank’s efforts bore fruit as average headline inflation moderated to 5.4% in FY24, down from 7.7% in FY23, and below the NRB’s target of 6.5%.[3] This decline was primarily driven by a significant drop in non-food and services inflation, which fell from 8.6% in FY23 to 4.6% in FY24. Lower housing and utility prices, along with reduced transportation costs due to cheaper fuel, contributed to this easing.

In a bid to attract more foreign investment, the government announced plans to remove the minimum threshold on foreign investment in information and technology sectors. This policy change, coupled with approval for the reinvestment of profits in Nepal, was designed to boost private investment and stimulate economic growth.

On the revenue front, the government introduced the Inland Revenue Mobilization Strategy, 2024, outlining a medium-term revenue mobilization plan from FY 2024/25 to 2028/29.[4] Key objectives include increasing revenue mobilization from internal sources, promoting voluntary taxpayer compliance, enhancing risk management capacity of tax and customs administration, and automating tax and customs systems. The strategy aims to raise the revenue-GDP ratio from 18.9% in FY 2022/23 to 23.5% by the end of FY 2028/29.

Human Rights Promotion: Progressive yet continued journey

In a groundbreaking move, Nepal launched its National Action Plan on Business and Human Rights in January 2024.[5] This five-year plan, set to conclude in 2028, made Nepal the second country in South Asia and the 41st globally to adopt such a strategic framework. The plan aims to promote responsible business practices while safeguarding the rights of citizens and the environment. The action plan covers six key areas: labor rights, migrant workers’ rights, consumer protection, environment and indigenous people’s rights, women’s and children’s rights, and non-discrimination, gender, and social inclusion. This initiative sends a strong message to investors that Nepal is committed to responsible business practices, potentially making it a more attractive destination for foreign investment.

The government reaffirmed its commitment to advancing the transitional justice process, including providing reparations to victims of the 1996-2006 internal armed conflict. However, proposed legislation fell short of meeting Nepal’s international legal obligations, highlighting the ongoing challenges in this area. Human rights organizations and victims’ groups have called for amendments to align the bill with international human rights standards and Nepal’s Supreme Court rulings.[6] They emphasize the need for a comprehensive approach that includes truth, justice, reparations, memorialization, and guarantees of non-recurrence.[7] Despite these shortcomings, the bill represents a step forward in Nepal’s long-stalled transitional justice process.

Amendments to the citizenship law allowed thousands to receive official documentation previously denied. While this was a step forward, the amendments did not address provisions that discriminate against women in passing citizenship to their children, leaving room for further improvements. These remaining discriminatory provisions contradict Nepal’s constitutional guarantees of gender equality and its international commitments and thus there is still a need for further reforms to ensure full gender equality in citizenship rights.[8]

Political Landscape: Towards consensus

The political scene in Nepal saw significant changes in 2024. A new coalition government formed, bringing together two major parties.[9] This development was seen as a potential end to the period of tumultuous coalitions dominated by smaller parties, promising more stability in Nepal’s political arena.

The NC-UML coalition’s push for constitutional amendments represents a significant moment in Nepal’s political evolution. While the alliance claims to aim for political stability and addressing constitutional weaknesses, critics view it with skepticism.[10] The success and impact of any amendments will depend on the coalition’s ability to build broader consensus, navigate complex political dynamics, and balance diverse interests within Nepal’s multi-ethnic, multi-cultural society.[11] As the process unfolds, it will be crucial to ensure that any changes strengthen, rather than undermine, the democratic foundations and inclusive nature of Nepal’s constitution

Digital and Media Policy: Balancing regulation and freedom

The government approved a new bill to regulate social media platforms. The bill outlined comprehensive regulations for online platforms, including content moderation, mandatory registration, and administrative oversight. It outlines user norms, prohibits harmful content, and imposes significant fines for non-compliance.[12] The government justifies these measures as necessary for controlling misinformation, protecting national interests, and addressing online harassment. On the other hand, critics expressed concerns about potential infringements on freedom of expression.[13]

Labor and Migration Policy: Protecting workers’ rights

Nepal launched the Nepal Forum on Migration and Development (NFMD) to enhance labor migration governance. The government aimed to extend Bilateral Labor Migration Agreements (BLMAs) from 12 to 16 countries, as outlined in the 16th Periodic Plan (2024/25-2028/29). This initiative was designed to better protect the rights of Nepali workers abroad and maximize the benefits of remittances, which accounted for 22% of GDP in 2024.

Development Policy Spheres: Setting the direction

Nepal’s 16th Five-Year Periodic Plan, set to be implemented from fiscal year 2081/82 (2024/25), aims to drive economic growth and development with a focus on “Good Governance, Social Justice and Prosperity”. The National Planning Commission estimates the total investment required at approximately Rs 11.1 trillion.[14] The plan sets ambitious targets, including achieving an economic growth rate of 7.3 percent, increasing per capita income to $2,413, and reducing absolute poverty to 12 percent by the end of the plan period. Integrated in the 16^th Plan, Nepal aims to graduate from its Least Developed Country (LDC) status in November 2026. To ensure a smooth transition, Nepal has developed the LDC Graduation Smooth Transition Strategy (STS), which aligns with the national vision of achieving Good Governance, Social Justice and Prosperity. The strategy comprises six strategic pillars: macroeconomic stability, trade and investment, economic transformation, productive capacity, climate change and disaster risk management, and social inclusion.[15]

In 2024, Nepal reviewed its half-way progress of realization of Sustainable Development Goals (SDGs). Nepal has made notable progress towards achieving the SDGs since their adoption in 2015, but challenges remain in several key areas. The country has shown significant improvement in poverty reduction, economic growth, gender equality, and infrastructure development. However, issues persist in food security and nutrition, income inequality, climate action, and environmental sustainability. Nepal’s progress has been impacted by various factors, including the COVID-19 pandemic, which has caused disruptions in key sectors such as transportation, tourism, and remittances.[16]

Nepal has also endorsed the United Nations Pact for the Future, adopted at the Summit of the Future in September 2024. This global initiative aligns with Nepal’s ongoing commitment to sustainable development and international cooperation. The Pact offers opportunities for increased international support, access to capacity building, and engagement in global governance reforms. However, implementing its ambitious commitments will require Nepal to overcome significant hurdles, including mobilizing substantial financial resources and building institutional capacity.[17]

Looking Ahead: Challenges and opportunities

As Nepal moves forward, several challenges and opportunities lie ahead.

Economic growth: The World Bank projects Nepal’s real GDP growth to accelerate to 5.1% in FY25 and 5.5% in FY26. This growth is expected to be driven by the services sector, particularly tourism, real estate, and trade.
Tourism recovery: The government has set an ambitious target of attracting 1.6 million international visitors in FY25 through various tourism promotion programs. The presence of international five-star hotel chains is expected to support this growth.
Remittances: Large remittances, accounting for 22% of GDP, are expected to continue supporting private consumption. The number of Nepalese receiving permits for foreign employment reached a record high of 771,000 in FY2022-23.
Inflation management: While inflation has moderated, risks remain due to global oil prices and potential food cost increases related to the El Niño phenomenon and India’s export ban on non-basmati white rice. Unfavorable dry weather and a recurrent lack of fertilizer are likely to crimp agricultural output in 2024.
Political stability: The new coalition government has the potential to bring more stability, but maintaining consensus on key policy issues such as constitution amendment will be crucial.
Human rights implementation: The success of human rights related policy processes will depend on addressing challenges in business compact, transitional justice processes, and gender discrimination in citizenship.
Digital regulation: Balancing the need for social media regulation with freedom of expression will be an ongoing challenge. The success of policies aimed at attracting foreign investment, particularly in the IT sector, will be critical for economic growth. Continuing to balance economic development with environmental protection will be essential for long-term sustainability.
Import-based tax: The government’s reliance on import-based taxes for revenue generation is seen as a risky strategy. Nepal’s tax structure is disproportionately tilted towards import-based revenues, which account for nearly 50% of the country’s tax revenues. While import taxes have been a significant revenue source for Nepal, overreliance on this strategy poses substantial risks to the country’s fiscal stability and economic development. A more balanced approach focusing on domestic revenue mobilization and economic diversification is crucial for sustainable growth.
Informal economy: The informal economy remains a significant challenge, with nearly 40% of enterprises unregistered and 42% not maintaining proper books. The informal economy in Nepal is estimated to account for 38.6% of the country’s GDP as of 2020-21.[18] This significant share of economic activity occurring outside formal channels poses challenges for economic planning, tax collection, and overall economic development.
Development ambitions: Implementation of the 16^th Plan, LDG Graduation, accelerating SDGs, and Pact for the Future requires an unprecedented resource. In addition, LDC graduation requires the navigation of the loss of preferential market access and reduced development assistance. On the other hand, SDG realization demands addressing the persistent issues in food security, income inequality, climate action, and environmental sustainability. Furthermore, overcoming hurdles in mobilizing financial resources and building institutional capacity is a must for the successful implementation of the Pact for the Future.

Despite these challenges, Nepal’s policy landscape in 2024 shows a clear commitment to attracting foreign investment, diversifying revenue sources, and leveraging international partnerships for development. The success of these initiatives will depend on effective implementation and the government’s ability to address ongoing structural and governance issues.

Conclusion

Nepal’s policy landscape in 2024 reflects a comprehensive approach to national development and international cooperation. The 16th Five-Year Periodic Plan sets ambitious targets for economic growth and poverty reduction, while the LDC Graduation Smooth Transition Strategy aims to guide the country through its transition from least developed country status. Nepal’s commitment to the Sustainable Development Goals and endorsement of the UN Pact for the Future demonstrate its engagement with global initiatives.

However, challenges persist across various sectors. The country faces hurdles in food security, income inequality, and environmental sustainability. The COVID-19 pandemic has disrupted key economic sectors, potentially impacting Nepal’s development trajectory. Additionally, implementing ambitious commitments requires overcoming significant financial and institutional capacity constraints.

As Nepal moves forward, success will depend on effective policy implementation, addressing structural issues, and balancing economic growth with social inclusion and environmental protection. The country’s ability to leverage international support, enhance domestic resource mobilization, and navigate the complexities of LDC graduation will be crucial in realizing its development vision and achieving sustainable progress in the years to come.

(A translated version of this article in the Nepali language is published in Onlinekhabar on January 10, 2025)

[1] https://kathmandupost.com/national/2024/05/14/president-paudel-presents-government-s-policies-and-programmes

[2] https://www.coface.com/news-economy-and-insights/business-risk-dashboard/country-risk-files/nepal

[3] https://www.worldbank.org/en/country/nepal/overview

[4] https://www.adb.org/news/nepal-economy-gradually-improve-fy2024

[5] https://kathmandupost.com/national/2024/01/25/nepal-launches-milestone-action-plan-on-business-and-human-rights.

[6] https://www.amnesty.org/fr/documents/asa31/6588/2023/en/

[7] https://www.hrw.org/report/2024/03/05/breaking-barriers-justice/nepals-long-struggle-accountability-truth-and

[8] https://nepalitimes.com/here-now/nepals-unequal-citizenship-law

[9] https://southasianvoices.org/pol-f-np-n-nepal-political-instability-12-18-2024/

[10] https://thediplomat.com/2024/10/%E2%80%8B%E2%80%8Bconstitutional-amendment-managing-pandoras-box-for-nepal/

[11] https://www.theannapurnaexpress.com/story/51757/#google_vignette