THE FUNDAMENTAL principle of the economic cycle dictates that no nation can sustain economic growth perpetually. Economic theory postulates that economies naturally expand and contract in response to prevailing favourable and unfavourable conditions. However, less- developed or developing nations frequently confront multiple crisis situations within very short timeframes. Trapped in a vicious cycle of underdevelopment due to complex political and
economic factors, these countries often fail to align their goals effectively, further exacerbated by a pervasive lack of policy clarity. Consequently, they remain entrenched in underdevelopment.
Historically, Nepal has suffered recurring economic setbacks at short intervals, stemming from political instability, actions by influential neighbours, or other specific causes. In the seven decades following the advent of democracy in 1950, Nepalis have witnessed
six constitutions, an indicator of political shifts, though its economic toll remains largely unaddressed. The democratic order established in 1950 proved short-lived when the King imposed the Panchayat system in 1960, which was ultimately overthrown by the 1990 popular movement. Just five years later, the Maoist insurgency commenced, spanning a decade. Amid the turmoil of this conflict, a royal takeover prompted mainstream political parties and the Maoists
to unite, abolish the monarchy, and establish a republic. Following six years of political transition, the Constitution of the Federal Democratic Republic of Nepal was promulgated in 2015.
In the wake of these political transformations, political leaders asserted that having achieved a political revolution, the nation must now focus on an economic revolution. However, little concrete thought has been devoted to defining this economic revolution, identifying necessary policy reforms, or designing required economic packages. As a result, Nepal remains susceptible to renewed political unrest that stalls economic progress. The recent Gen Z movement can similarly be interpreted as a manifestation of growing public frustration over this stagnant economic trajectory.
From an economic perspective, few have reflected on the adverse effects of the numerous strikes enforced by political parties. These parties have gained momentum and grown under the banner of political protest. Furthermore, the prevalence of radical political philosophies and methods has led to the migration of half of the country’s workforce abroad, where they contribute to the development of foreign nations rather than Nepal. Consequently, Nepal has become increasingly dependent as its domestic production shrinks. It is hardly an exaggeration to claim that Nepal is a country that can grind to a halt or reopen at a moment’s notice. Nepal’s political parties remain largely engrossed in mobilising resources for political manoeuvres rather than dedicating effort to uplift ing individual economic prosperity.
Similarly, geopolitical friction that erupts periodically due
to political factors generates extensive debate, yet rigorous economic analysis of these events remains scarce. Little attention is paid to the economic losses caused by border blockades, rising global prices, shift ing geopolitical dynamics, and supply chain disruptions. Moreover, strategies for economic recovery following geopolitical tensions are notably absent. Likewise, excessive red tape, nepotism, favouritism, unprincipled competition, authoritarian tendencies, and the typical structural challenges of developing nations act as persistent impediments to the smooth functioning of the economy, forcing Nepal into frequent economic distress.
onward, the overarching objective shift ed toward graduating from the status of a Least Developed Country.
NEPAL SETS DEVELOPMENT GOALS, BUT STRUGGLES TO SUSTAIN PROGRESS.
It is better to refine the goal in this way but we did not think about how we progressed in the past and how we can continue to do so at present. We set new goals but forgot about the old ones. On top of that, there is a mismatch between budget allocation and development plans. Moreover, the necessary institutional and legal basis required for a proper development policy has not been laid, which has weakened the implementation phase of such planning and policies. In a developing country like Nepal, it is evident that the resources are limited. On top of that, due to lack of properly targeted development policies, effective institutionalisation required for such policies is not present. As a result, the country has not been able to utilise its limited resources in a productive manner. Nepal’s development policy objectives are loft y but economic progress seems to be slow which has hampered further development in the country.
A nation’s progress depends on how effectively it can sustain favourable conditions to drive economic growth, and how swiftly it addresses adverse factors to revive a declining economy. Nepal’s precarious political environment prevents the economy from sustaining upward momentum for long periods, while recovery from downturns remains painfully slow, a cycle that has left the country chronically underdeveloped.
The sluggish Panchayat-era economy initiated several policy adjustments during its final years, which were subsequently broadened following the political changes of 1990 alongside the adoption of economic liberalisation. This policy shiftspurred economic growth between 1991 and 1995. Aft er a period of decline triggered by the Maoist insurgency, the economy experienced a resurgence from 2016 to 2018 following the promulgation of the 2015 Federal Republican Constitution.
Following the political transformation of 1950, Nepal pursued development policies that prioritised industrialisation in the First Plan, institutional reform in the Second, an agricultural revolution in the Third, and a renewed emphasis on industrialisation in the Fourth. The Fift h Plan introduced flexible planning, followed by a focus on basic services and necessities in the Sixth and Seventh Plans, economic liberalisation in the Eighth, and poverty alleviation in the Ninth. Poverty reduction and related priorities were further refined from the 10th to the 13th Plans, while from the 14th Plan
However, the economic momentum generated by liberalisation could not be sustained over the long term.
While the downturn was largely attributed to the Maoist conflict, a factor true to a degree, policy shortcomings prevented decisive action to revive the economy. As a result, a vast portion of the workforce either migrated abroad or joined the insurgent movement. Even after the Maoists entered mainstream politics, the economy attempted a recovery but failed to maintain a stable growth trajectory. Operating without a coherent policy framework, the country proved unable to mobilise its limited resources effectively for economic revival, driving continued labour migration. It took over two decades for the economy to regain strong growth between 2016 and 2018. Nevertheless, growth decelerated once again leading into the outbreak of the COVID-19 pandemic in 2019, from which the economy has yet to fully recover.
Reflecting this historic pace, the economy, sluggish during the Panchayat era, required three decades to gain significant momentum, and over 20 years to replicate that growth in the 2016-2018 period. Like many developing nations, Nepal takes an exceptionally long time to recover from economic downturns. Moreover, during brief periods of expansion, political parties routinely claim credit as proof of their political resolve, while neglecting the timely structural reforms needed to sustain progress. Furthermore, as agriculture’s share of total output has declined, the industrial sector has failed to fill the void. Instead, expansion has occurred almost exclusively in the service sector, exacerbating external dependency.
The economic cycle in developing countries like Nepal remains structurally weak, leaving them perpetually vulnerable to recurring crises. Least developed nations suffer disproportionately from geopolitical friction and global recessions, as downturns curtail foreign aid, often viewed as their primary cushion against shocks. Recent World Bank projections indicate that Nepal’s current economic growth lags behind that of its South Asian neighbours, while persistent political uncertainty further complicates the path toward a stable, progressive economic cycle.
Bajracharya is an author and academician. He has been pursuing PhD on Impact of Trade Policy of Developed Countries in LDCs from AIT Bangkok. He can be reached at rojanbajracharya@gmail.com.
