Looking Back at 2025: Private Sector Confidence Weakened

Despite a series of policy and legal reforms aimed at reviving the sluggish economy and improving the investment climate, political instability undermined investor confidence in 2025, according to stakeholders.

At the beginning of the year, the government introduced several ordinances to amend existing laws related to improving the economic and business environment and boosting investment. These included amendments to Some Nepal Laws on Good Governance and Public Service Delivery, the Privatisation Act 2050 (renamed as the Public Enterprises–Government Investment Management Ordinance), the Economic Procedures and Financial Accountability Act 2076, and land-related legislation.

At the same time, a high-level Economic Reform Recommendation Commission led by former secretary and current Finance Minister Rameshore Khanal submitted a range of reform proposals. The government also unveiled an action plan to implement those recommendations. Measures aimed at easing the investment environment and allowing Nepalis to invest abroad initially generated optimism within the private sector.

However, despite policy and legal reforms, widespread corruption and unemployment fuelled growing public frustration with traditional political parties and governments. This sentiment surfaced dramatically during the Gen-Z movement in early September, which followed a violent crackdown on protests against the KP Sharma Oli government’s social media restrictions. The unrest escalated into a nationwide movement that ultimately led to the fall of the Oli government, despite its two-thirds parliamentary majority.

Widespread Damage Fuels Investor Fear

During the movement, extensive damage was inflicted on both public and private property, heightening anxiety within the private sector. Government buildings, including those at Singha Durbar, the Supreme Court and the Office of the President, were attacked. Private properties—including nearly two dozen outlets of Bhatbhateni Super Store, Hilton Kathmandu, and warehouses and vehicle showrooms belonging to the Chaudhary Group—were also vandalised.

According to a committee formed to assess damages and prepare a reconstruction plan, the Gen-Z movement caused destruction across 262 local units in 54 districts. The committee estimated total physical damage at Rs 84.45 billion, affecting 2,168 institutions. Of this, damage to buildings was valued at Rs 39.31 billion, while 12,659 vehicles were damaged, causing losses of about Rs 12.93 billion.

Losses in the government and public sector were estimated at Rs 44.93 billion, while private sector losses amounted to Rs 33.54 billion.

“The fear created by attacks on private homes and business establishments has not subsided,” said Chandra Prasad Dhakal, President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). “The government must take security issues seriously.”

Private sector organisations repeatedly urged the government to ensure law and order. Business leaders said concerns deepened after the government reached an agreement with the Gen-Z group to release detainees lacking evidence of involvement in the September 9 vandalism. They also complained that earlier complaints filed by the private sector had not resulted in arrests.

“If those who attack public and private property are not punished, it encourages impunity,” said Birendra Raj Pandey, President of the Confederation of Nepalese Industries. “This directly affects the investment climate.”

Reconstruction and Economic Impact

The government has declared 2026 as the Year of Reconstruction. A reconstruction plan submitted by the damage assessment committee estimated that Rs 36.30 billion would be required for rebuilding. Joint Secretary at the Finance Ministry, Tank Prasad Pandey, said reconstruction efforts have already begun and that sufficient resources are available through the reconstruction fund.

International institutions have warned that the damage caused by the movement—and its impact on private sector morale—could have lasting consequences for Nepal’s economy.

Additional Blow to a Slowing Economy

Political instability, delayed monsoon rains, and floods and landslides have further weakened economic growth, according to the Asian Development Bank (ADB). The ADB projects economic growth of 3 percent in the current fiscal year, down from 4.6 percent the previous year.

In its Nepal: Macroeconomic Update released in early December, the ADB said political instability would weigh on growth across most sectors, with the manufacturing sector among the hardest hit. Manufacturing growth is projected to slow to 1.7 percent in FY 2025/26, down from 3.8 percent the previous year.

“When uncertainty disrupts the investment climate, both domestic and foreign investors tend to delay capital investment,” the report noted.

The World Bank, citing political instability, projected in November that Nepal’s economy would grow by only 2.1 percent.

Nepal Placed on FATF Grey List

Adding to investor concerns, the Financial Action Task Force (FATF) placed Nepal on its grey list, citing weaknesses in legal reforms and implementation related to anti-money laundering and counter-terrorism financing.

Countries in the grey list often face difficulties in attracting international investment, and even when capital flows in, financing costs tend to be higher.

The government has introduced an action plan to exit the grey list within two years and has begun taking steps toward implementation.

Hope for 2026

Despite the turmoil, Nepal regained its ‘BB-minus’ sovereign credit rating from Fitch Ratings, marking the second time the agency has assigned the rating and indicating relatively stable creditworthiness.

Meanwhile, parliamentary elections have been announced for March 5. Economist Keshav Acharya said political stability following the elections could have a positive impact on the economy.

“The Gen-Z movement emerged because misgovernance crossed a limit,” he said. “The next government must deliver good governance in line with the aspirations of the younger generation.”