The Idea of Economic Reforms

On May 19, 2025, the Council of Ministers approved an action plan to implement the recommendations made by the High-Level Economic Reforms Commission. This decision came just five weeks after the Commission submitted its final report. Historically, the government has rarely created a time-bound action plan to follow up on the recommendations from various commissions or similar bodies. This indicates the current government’s commitment to pursuing reforms even in challenging circumstances.

Many people had speculated that the report would be ignored, as has often been the case in the past. However, contrary to this belief, the Ministry of Finance made the report public within minutes of submission. Additionally, the Council of Ministers also formed a three-member Secretary-level task force within a week to develop a time-bound action plan. How did this come about?

The COVID-19 pandemic severely affected many economies, but Nepal’s recovery was notably rapid, almost achieving a V-shaped rebound. The GDP growth rate for the Fiscal Year 2021/22 AD (2077/78 BS) rose to 4.84% after contracting by 2.37% in the previous year. Unfortunately, this momentum did not last. Starting in FY 2022/23 AD (2078/79 BS), significant issues began emerging in the external sector. Both the government and the monetary authority took drastic steps, some of which were unjustified, to restore normalcy in the external sector. Although these actions improved the foreign exchange reserves, the resulting tight credit and import restrictions created a negative effect on the aggregate demand. As a result, the economy entered a prolonged low-growth phase lasting for over a year.

In this context, the business community began advocating for major economic reforms. As the economic slowdown impacted government revenues, the government responded to the demands of the private sectors. In the FY 2024/25 AD (2080/81 BS) budget, the finance minister announced the formation of a high-level economic reforms advisory commission. Although the coalition government collapsed and a new government was formed, the new finance minister remained eager to receive proposals for critical economic reforms.

On October 2, 2024, I received a call from the Finance Minister’s secretariat, which was then immediately transferred to the Minister as soon as I answered. Upon greeting the minister, he requested a meeting to discuss the terms of reference and the formation of the high-level economic reforms commission. Since the next day was a holiday, I proposed a meeting on the 4^th. During our meeting, the minister presented me with a 10-page document outlining the terms of reference for the proposed commission. He wanted me to review it and provide feedback. I asked for a few days to assess the implications of past reforms, the underlying constraints of the economy, and expectations regarding reforms. However, before I could come up with a revised Terms of Reference, I received a call from the minister on the morning of the 7^th indicating the cabinet’s decision on the formation of the commission. He read me the names of members and informed me that I would be chairing the commission. I sensed the urgency in his voice.

The Commission’s work began two weeks after the cabinet’s decision due to the Dashain holidays. We held several meetings with the minister to clarify the government’s expectations from the commission and its willingness to embrace reforms. This was crucial because several important recommendations from previous commissions regarding public financial management reforms, tax reforms and cooperative sector reforms had not been implemented, leading to a general perception that the government merely formed the commission without taking action. The finance minister assured us that the government was committed to reforms.

All the members of the commission, including the representatives from the private sector, had extensive experience and expertise in Nepal’s economy and business environment, making it easier for us to reach a consensus on the causes of the economic slowdown and approaches to harness growth opportunities in sectors where Nepal had competitive advantages. Our initial priority was to examine the reasons behind the ongoing economic decline and identify measures that could instill some optimism in the market. While analytical work was vital, it was equally important to consult with the business community across various sectors and geographical regions, as well as with federal and subnational government officials.

To manage this effectively, we divided responsibilities among members to examine specific themes while contributing to the overall report writing. Field visits were planned to cover all ecological regions and focus group meetings were conducted with various community members.

Given the government’s urgency, the commission produced and submitted an interim report that recommended measures to boost aggregate demand and improve the investment climate. Some of these recommendations were implemented by the government almost immediately.

The final report was submitted prior to the six-month deadline. It includes not only recommendations for demand-side policy but also structural reforms on the supply side. The report emphasizes the importance of building a system founded on trust. It argues that excessive “control” stifles innovation and makes businesses more risk averse. Furthermore, too much control can lead to rent-seeking and corruption, ultimately increasing the cost of doing business. The report urges the government to reconsider some long-held beliefs regarding exchange rate stability.

This article was originally published as part of NEFport 61 titled ‘Reforms 2.0: Unpacking the High-Level Economic Reforms Commission.’ Click here to read the full report to get comprehensive insights on the formation, objectives, and proposed actions of the Commission established by the Government of Nepal in October 2024.