At a time when Nepal’s economy teeters on the brink—its domestic demand sluggish, revenues weak, and confidence in public institutions waning—the government can ill afford to dither on reforms. The report by the High-Level Economic Reforms Advisory Commission, led by former Finance Secretary Rameshwar Khanal offers a number of pragmatic measures to stabilize and revitalize the national economy. The commission has urged the government to refrain from actions that disrupt economic activity, emphasizing that imprisoning businesspeople damages industries and the broader economy. The commission further highlights that the ongoing economic crisis is driven by weak aggregate demand, which has reduced purchasing power and investment, alongside supply-side challenges. To address this, the commission recommended improving both demand-side and supply-side policies. It criticized the government for not implementing earlier recommendations made by the Public Expenditure Review Commission and the High-Level Tax System Reform Committee. It is high time the government acted with due urgency and political will to implement the recommendations made by the commission headed by a former bureaucrat who has a nuanced understanding of the country’s national economy.
After making a thorough review of the current economic challenges that the country is facing, the commission has made several recommendations to salvage the economy from the impending crisis. While the economy has already experienced a slowdown of the aggregate demand and supply-side constraints, this scenario is likely to be further exacerbated due to the ongoing trade war launched by the new US administration. In this context, the government should take the recommendations made by the commission to adopt a more open economic policy to take advantage of global opportunities, limit current expenditures to available revenue, ensure revenue savings and prioritize development projects that can be completed within five years positively. Projects that cannot meet this timeline should be discontinued, and redundant economic offices abolished. Additionally, the commission’s outright rejection of the proposal to open a new stock exchange is a rational step in protecting market integrity. A fragmented capital market at this point would dilute already-thin resources and regulatory capacity. Instead, the recommendation to restructure the existing Nepal Stock Exchange by strengthening its capital base and inviting greater private sector participation deserves serious attention. The capital market in Nepal has long suffered from inefficiencies, weak governance and limited trust. Strengthening the Nepal Stock Exchange and reforming the Securities Board of Nepal (SEBON) are critical steps toward restoring investor confidence and unlocking much-needed investment.
Salvaging economy from impending crisis
Equally important are the commission’s suggestions to open the secondary market to Non-Resident Nepalis, introduce margin lending through securities businesses, and simplify the share issuance process through mechanisms like book building and premium pricing. These steps could deepen the capital market, broaden participation, and help manufacturing companies raise funds for productivity-enhancing investments—key for reviving domestic demand. On fiscal reforms, the commission’s recommendation to raise the retirement age of civil servants from 58 to 60 and the eligibility age for senior citizens' allowances from 68 to 70 must not be viewed through a narrow political lens. These changes are necessary for managing ballooning social security liabilities. Likewise, tying all social security benefits to national identity cards and maintaining a unified database will help curb duplication and leakages. It is also sensible to recommend refraining from increasing allowances for five years and capping total social security expenditure at 4 percent of GDP and 15 percent of the federal budget. These recommendations, if implemented with due urgency, could prove to be a lifeline for an economy losing momentum. As reforms delayed are opportunities lost, the onus lies on the Finance Minister Bishnu Paudel and the entire government to implement these recommendations to provide prospective investors and businesspeople the much-needed clarity, coherence and confidence. This will be a step in the right direction to salvage the economy from an impending crisis.
