Good Laws, Bad Execution

For years, Nepal has marketed itself globally as a "virgin land" for investment—rich in untapped hydropower, buoyed by growing tourism, and poised for a digital services boom. At international investment summits, the country is presented as "open for business," backed by new laws and an eagerness to attract foreign capital.

However, Nepal’s business and investment climate is moving in the opposite direction. According to the World Bank’s latest Business Ready (B-READY) 2025 assessment, the country has slipped across most indicators compared to the previous year. While the government has become adept at drafting sophisticated laws, it is failing on the fundamentals of governance: physical security, reliable service delivery, and policy predictability.

The B-READY 2025 report reads like a diagnostic autopsy of Nepal’s business climate. It reveals a 
classic Nepali paradox where the country’s Regulatory Framework score actually improved to 61.46, but its Public Services score plummeted to 42.04 from 49.29, well below the global average of 53.97. Operational Efficiency also declined sharply. Nepal scored 72.21 in B-READY 2024, ranking 11th among the 50 assessed economies. In 2025, the score fell to 56.15, below the global average of 60.03. In short, the laws are improving, but the institutions and people meant to 
implement them are failing. B-READY, the World Bank’s successor to the Doing Business index,
is being rolled out over three years with broader coverage and refined methodology. Although Nepal  recorded modest gains in the quality of its regulatory framework, that progress was outweighed by weaker public services and a sharp fall in operational efficiency—an implementation gap that continues to frustrate private-sector activity.

The B-READY framework evaluates the business environment across the life cycle of a firm—entry, operation, and exit—using three pillars scored on a 0-100 scale. Regulatory Framework measures the strength of rules; Public Services assesses government institutions; and Operational Efficiency evaluates how easily firms can comply in practice. Shabda Gyawali, Investment Director at Dolma Impact Fund, says this gap is the primary engine of investor frustration. "While the state often introduces new Acts to signal its commitment to economic modernization, these reforms frequently stall at the legislative level,” Gyawali said. “The necessary secondary legislation—the regulations and specific  guidelines—often takes years to materialize or never arrives at all."

The result is regulatory paralysis. Investors may see laws enabling venture capital or flexible 
exit mechanisms but without implementing rules from relevant ministries, the provisions remain 
toothless. Business decisions are then subject to shifting interpretations rather than stable,
enforceable rules.

Fragile Property Rights and the Rule of Law A functioning market economy depends on the sanctity of private property. In Nepal, that foundation has weakened in recent years. Recent periods of social unrest, including the Gen Z protests, exposed the state’s inability to protect private assets. When shops are looted, hydropower equipment is vandalized, and foreign-owned properties are attacked without swift state intervention, the risk premium for investing in Nepal skyrockets. "For investors, the physical safety of their equipment, offices, and infrastructure is the bare minimum requirement,” Gyawali said. “When the government fails to provide this, the risk premium for doing business in Nepal becomes prohibitively high."

Economist Keshav Acharya says, “When international headlines show global hotel brands in ashes and local supermarkets looted, the government’s sophisticated investment becomes worthless.

The single-window illusion Trust is the currency of investment, and in Nepal, it has been steadily 
aroused by broken  promises. The long-promised "one-window policy" illustrates this credibility 
gap. “First envisioned in 1992 to streamline foreign investment approvals, it took nearly three 
decades to inch toward implementation. Even today, it remains largely symbolic,” said Acharya. "Investors may enter through one door, but they still have to navigate a labyrinth of uncoordinated authorities behind the scenes." Poor coordination among the government agencies creates bureaucratic silos where approvals from one agency are delayed or disregarded by another. For
investors, this translates into months of idle capital and eroding project viability. A prime 
example of this lack of trust is the Huaxin Cement project. Although eventually operational, it 
became a symbol of political betrayal when factions within the then-ruling party disputed a 50-year 
land lease. The matter was dragged into a parliamentary committee, forcing investors into a 
prolonged and costly legal battle to secure commitments they had already been promised.

Policy by Surprise Investment depends on predictability. Nepal, however, has perfected what 
investors describe as “policy by surprise.” Although the country has permanent laws such as the Income Tax Act and the Excise Act, these are routinely overridden by annual Finance Bills. This creates a hierarchy of instability. Investors who build 10-year financial models find those laws practically irrelevant because the annual budget introduces a temporary tax that becomes a permanent burden. "By using yearly budgets to overhaul tax rates and slabs, the state destroys any chance of long-term financial forecasting,” Acharya explained. “A business model that is profitable in June can be unviable by July simply because of a haphazard change in the Finance Bill."
This annual tinkering turns the market into a gamble. One of the most talked-about examples of policy inconsistency is the taxation on Electric Vehicles. In 2020, duties were increased, only to be rolled back the next year, and then adjusted again in 2024 based on kilowatt capacity. For an automobile dealer who invested heavily in infrastructure, a sudden 10% duty hike in a single budget cycle can wipe out their entire projected margin.

Bureaucratic Churn and the No-Exit Nightmare The World Bank attributes Nepal’s sharp  decline in Operational Efficiency partly to frequent bureaucratic transfers. In Nepal, it is common for a  high-level official to be transferred every six months. Gyawali describes this as a "musical chairs" approach to governance where the culture of frequent transfers prevents any meaningful institutional memory from taking root. When a bureaucrat is moved just as they have mastered their role, the learning curve is reset, and projects lose momentum. For an investor, this means they must constantly re-educate new officials on the nuances of their specific projects, leading to a total lack of administrative accountability.

One of the most alarming figures in the B-READY 2025 report is Nepal’s 0.00 score in the Operational Efficiency of Business Insolvency.  This is a terrifying statistic for any investor. It means that while Nepal might have a door to enter, it has no exit. Effective insolvency systems allow capital to be redeployed from failing firms. In Nepal, such mechanisms are essentially non-existent. "This 'no-exit' reality is a nightmare. If you cannot close a failing business, you will never take the risk of starting a new one," said Acharya.

The Existential Threat of the Implementation Gap Even if an investor survives the bureaucracy, the 
tax changes, and the security threats, they eventually hit the insurmountable wall of land 
acquisition. In Nepal, acquiring land is a multi-year battle characterized by outdated laws and 
intense social resistance. The current Land Acquisition Act fails to reconcile market value with 
the emotional and social significance of land, while the absence of a transparent, time-bound 
land-pooling mechanism leaves projects vulnerable to local disputes. Nepal’s main problem is not a shortage of laws, but a lack of institutional coordination and political will. To restore trust, the government must move beyond paper reforms and function as a service provider, not merely a regulator.

“The era of international summits filled with rhetoric is over. Unless the government can guarantee 
physical security, tax stability, and the practical efficiency of its "one-window" systems, Nepal 
will continue to slide down global rankings,” Acharya said. “The implementation gap is no longer 
just a bureaucratic hurdle, it is an existential threat to the country’s economic future.”

(This report was originally published in February 2026 issue of New Business Age Magazine.)