Nepal Forecast August 2025, Muddling Through

Nepa House of Representatives

            Nepal’s political dilemmas centre around the country’s political structure with coalition governments being the order of the day, thus muddling through being the best course ahead.

            International and Regional Relations. Revival of the Millennium Challenge Account by the United States will sustain development projects even as the country will face lesser impact of the tariffs from Washington with only 10% baseline applicable so far. Meanwhile, balancing between India and China is continuing with Nepal welcoming project support by Beijing but unwilling to take on the Belt and Road Initiative projects. A visit by the Prime Minister Mr K P Sharma Oli to India in September may lead to a nominal uptick, yet with only three to four months left in office for Mr Oli the significance will be questionable as tensions are also building up in Nepal following reports that the country is on the verge of signing an extradition treaty with India.

            Political Developments. An  impact of decline in confidence in the CPN UML and Nepali Congress [NC] led coalition government is evident given that it lost majority in the National Assembly with withdrawal of two smaller parties. Thus, passage of any substantial legislation will require extensive negotiations. There is however no threat to the government per se as it has a majority in the House of Representatives. Extensive internal politicking is evident in the CPN UML and the NC which may take up the top leadership to manage. While two smaller socialist groups have united, their impact on the polity in the immediate future will remain limited. Smaller challenges such as monarchy and call for a Hindu nation will be sub vented. Going ahead if the coalition parties do not focus on improving governance and delivery to the people at large there is a scope of the resentment boiling over ahead of the next elections and a domino impact on the provinces. 

            Internal Security & Defence. Climate change impact is evident with multiple disasters in the country thus needing sustained measures for rescue and relief with Nepali Army providing active support to the government. Armament acquisition will continue to remain a concern due to internal differences.

            Economy. While the overall macro-economic numbers have improved under the last one year of the Oli government, these were also the outcome of redirection of exports and increase in remittances. Thus, fundamental issues will continue to rock the economy. The coalition has brought about some stability which may prevail in the years going ahead but  political will would have to be demonstrated for institutional reforms, infrastructure investment, and economic diversification.