Nepal – Stability Projections and Trends – March 2018
Government & Governance
Nepal has entered a new era which heralds political stability if nurtured judiciously. A government led by Left Alliance having a strong majority in parliament is expected to bring stability at the federal level. Parliamentary composition is CPN-UML 121 Seats, the CPN (Maoist Center) 53 seats, Nepali Congress 63 seats, Rastriya Janata Party Nepal (RJPN) and Federal Socialist Forum Nepal (FSFN) 17 and 16 Seats respectively. Left Alliance is short of a two-thirds majority by 8 places with 183 being the cut off. The seven provincial governments also have strong majority support in the assemblies, six of which are under the Left Alliance. The 753 local governments are generally divided with the opposition Nepali Congress (NC) also having a majority in a large number. Thus stability of governments at all levels is a positive.
Challenges. (1) Nepal transformation of governance into three tiers is likely to pose governance challenges due to capacities in terms of resources – budgetary and civil services. As the World Bank has observed, “Significant adjustments need to be made to the government structure. They include amending over 400 existing acts, restructuring the civil service at all levels, devolving fiscal management, and determining the division of funds, functions, and functionaries between various levels of government”. Thus structural transformation process will have to be observed. Support by the regional and international community in governance could prove beneficial; however concerns of nationalism may restrict the same by the government. (2) Judicial Council relieved Chief Justice (CJ) Gopal Prasad Parajuli as he crossed the retirement age based on his citizenship and academic certificates has caused some turbulence. Political parties have had a turbulent relationship with the judiciary which may cause concerns ahead.
In a seven-point pact signed by eight leaders including UML Chairman KP Oli and CPN (Maoist Center) Chairman Pushpa Kamal Dahal, the two sides have agreed to form Communist Party of Nepal, a leftist party with Marxist-Leninist ideology as its guiding principle. UML and Maoist Center will have 60 percent and 40 percent stakes respectively in the steering committee, the central committee and other lower bodies of the new party. With regard to ideology, the new party would adhere to Marxist and Leninist principles.
Challenges. Four critical issues are likely to impact the political stability – the first is ideological – merging of the CPN UML and the CPN Maoist Centre with a common left but a variant Marxist-Leninst and Maoist ideology respectively. Constitution amendment demanded by the Madhes block will remain a challenge. The commitment of the ruling alliance to assuage minority sentiment remains important and was tested with the adverse comments on the European Union Election Monitoring Committees remarks on the Khas Arya issue. A smooth merger and acceptance of demands of the Madhes with Constitutional amendments should denote a positive trajectory. Thirdly issue of transitional justice, the Truth and Reconciliation Commission and the Commission of Investigation on Enforced Disappeared Persons may create differences within the political class as well as the rights groups and victims of violence during the insurgency of the 1990’s. Finally concern over authoritarian style of Prime Minister K P Sharma Oli have also emerged voiced by alliance partner Prachanda
As per the World Bank as well as the Asian Development Bank, Nepal strives to graduate to middle-income country status and to achieve the Sustainable Development Goals by 2030 which has also been underlined by the Prime Minister in his policy statements to the foreign diplomats soon after taking over office in end March 2018. 2017 saw a broad-based recovery. Current account narrowed significantly from 6.2 percent of GDP in FY2016 to a deficit of -0.4 percent of GDP in FY2017. Annual revenue growth has been robust. Public spending, particularly capital spending, picked up. It reached a record high of almost 8 percent of GDP despite significant under-spending of the planned budget. The era of positive fiscal balance ended with the fiscal deficit reaching 3.3 percent of GDP. The poverty rate at the $1.90 a day line was 15 percent in 2010 and is projected to be 10.8 percent by end 2017.
Challenges. (1) Nepal continues to recover from the devastating earthquakes of 2015, which pushed about 3% of the population below the poverty line. The heavy monsoon rains sweeping across South Asia in 2017 affected 1.1 million Nepalis. (2) Growth is expected to be below potential in FY2018 in light of the worst flood in decades. Slow recovery of exports, increase in lending rates, continued decline in departures of migrant workers going abroad and a fluid political environment continue to pose challenges. (3) As per the White Paper published by the Oli government in March the state coffers are empty which would place further stress on the fiscal situation. Extensive international institutional support and balanced loans and grants on bilateral basis without falling into the debt trap of other South Asian countries as Sri Lanka is called for.
The Oli government in the policy statement on foreign affairs has denoted Panchasheel and cordial and friendly relations with immediate neighbours, India and China along with mutual trust as the guiding principle.
Challenge. Avoiding the trap of India China regional competition will be essential for which Prime Minister Oli believes that mutual trust will be the answer.
While Nepal does not face major challenges security governance will have to adjust to the new state structure with empowerment of the local and provincial tiers. As per Article 268 of the constitution, Nepal will have three layers of law enforcement at the federal, provincial and municipal level each under respective governments. Maoist Center leader Ram Bahadur Thapa is the new Home Minister.
Challenge. The two main challenges before him include restructuring existing police apparatus to a federal structure and ensuring effective coordination between the centre and the provincial governments. As per the new constitution the Armed Police Force (APF) and Nepal Investigation Department (NID) will be controlled by the federal government while the Nepal Police will be controlled by the Provincial governments. How this will manifest remains to be seen.
[UPDATED 08 March 2018. Indicative measures based on open source information for the purpose of debate on security]
 Projections are based on trends mapping from open sources.
 Resources for Economy, World Bank Report accessed at https://www.worldbank.org/en/country/nepal/overview on 07 April 2018.