Cautious optimism for Nepal’s future

Author: Sujeev Shakya, Nepal Economic Forum

A real political and economic turnaround could be just around the corner for Nepal in 2015.

The election to the Constituent Assembly on 19 November 2013 — which went off peacefully and with great voter turnout — saw Nepalis reject the myopia-infested politics of the Maoists who had come above ground after waging ten years of insurgency against the state. Their leaders got caught up in the same games of power, money and greed that have afflicted others in their fraternity. The Nepali Congress, along with coalition partner Communist Party of Nepal (United Marxist Leninist), formed a coalition in February 2014 and have survived the year despite sporadic spats in private and public.

A young Nepalese Gurung boy holds a flag of Nepal and walks in a parade to mark their New Year, known as ‘Tamu Loshar’ in Katmandu, Nepal, 30 December 2014. (Photo: AAP).

Change in India also led to change in Nepal. The thumping victory of Indian Prime Minister Narendra Modi and his desire to engage with the neighbourhood has benefited Nepal tremendously. His official visit to Nepal in August 2014 — the first bilateral visit by an Indian prime minister for 17 years — ensured that all official channels in the bilateral relationship stayed open. Modi pushed his economic agenda, expedited the signing of energy agreements and made credit lines available for Nepal to be used to build infrastructure. There is renewed Indian interest in Nepal and it has more to do with economics than political meddling.

The new coalition government in Nepal brought back Dr Ram Sharan Mahat as Finance Minister. In his first stint as finance minister in the 1990s, Mahat was responsible for unleashing Nepal’s first wave of reforms. Despite serious opposition from his Communist Party coalition partners, he has been able to drive home a reform agenda to stoke economic growth as well as a new-look National Planning Commission and a professionally-minded Board of Investment.

In 2014, Kathmandu was spared the kinds of strikes that have seen the city closed down in previous years. Kathmandu was only shut down for four days: two during Modi’s visit and two when the city was hosting the South Asian Association for Regional Cooperation Summit.

Questions of ethnicity and representation were less markedly dominant in 2014, with foreign donors who had been accused of stoking ethnic tensions largely backing down. But these issues may, to some extent, resurface with ethnicity and federalism likely to be central to discussions of the constitution. The Constituent Assembly, which had promised to deliver a new constitution for deliberation by January 2015, will miss its deadline again. Contentious issues on how to draw state boundaries will not have been resolved.

Even if the constitution is delivered later in the year, there will be disgruntled groups who will oppose a new constitution. Right-wing Hindu nationalists will oppose a secular Nepal and secular Nepalis will surely oppose anything that will bring about restrictions on religious conversion. Parties and especially NGOs that have survived by pushing a form of federalism that is based on ethnicity will oppose a constitution that does not guarantee it. Conversely, there are groups that oppose Nepal being divided into provinces based on ethnicity. The drafters of the constitution are trying to do the impossible: create a constitution that will please all sides. But in doing so it is more likely that they will please no one.

While the political issues surrounding the constitution will take centre stage, work on economic development will continue. The government will have to decide how to deploy its fiscal surplus and how to deal with excessive liquidity in the nation’s financial system caused by large remittance inflows. Interest from financial institutions in investing in Nepal has grown, and 2015 will likely see many new projects take off. And with the new Indian government looking increasingly confident, Nepal’s foreign relations and economic integration will begin to mature.

If 2014 has been a year of surprising calm and progress for Nepal, 2015 could well be a game changer.

Sujeev Shakya is Chair of the Nepal Economic Forum and author of Unleashing Nepal.

This article is part of an EAF special feature series on 2014 in review and the year ahead.

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