The economic undercurrents in Nepal’s rage against the machine | Number Theory

On Tuesday afternoon, Nepalese Prime Minister KP Oli tendered his resignation even as violent protests continued. What exactly is happening in Nepal?

Nepal is in chaos after two days of 'Gen Z protests'. The protests are supposedly against a (now withdrawn) government order banning social media websites, although some believe that was just the trigger and that the real reason is anger against widespread corruption. After trying to browbeat the protestors – at least 22 have been killed – it is the government which has lost. On Tuesday afternoon, Nepalese Prime Minister KP Oli tendered his resignation even as violent protests continued. What exactly is happening in Nepal? Its society, politics and economy have been in ferment and crisis for a long time now. Here are four charts which flag the basic contours of this crisis which snowballed into an avalanche in the matter of days.

Demonstrators celebrate after successfully storming the Singha Durbar office complex, that houses the Prime Minister's office and other ministries, during a protest against Monday's killing of 19 people after anti-corruption protests that were triggered by a social media ban, which was later lifted, during a curfew in Kathmandu, Nepal,(REUTERS)

Political stability has eluded Nepal for many decades now

Nepal first switched from a monarchy to a representative democracy in 1951 and the Nepalese Congress had multiple stints in power with intermittent coup d’états by the monarchy. The real power struggle, however, was beyond the sanitized spaces of parliamentary democracy, led by the Maoists who started their fight in mid 1990s and managed to unleash a revolutionary uprising in 2006 overwhelming both the monarchy and the mainstream parties. While the Maoists emerged as the largest group in the constituent assembly elections held in 2008, they failed to consolidate their grip on power or deliver a smooth constitutional transition. No election since 2008 has led to a single party majority in Nepal and the outgoing prime minister’s party had just 78 seats in Nepal’s 285-member parliament . The upshot is that everybody thinks they can take a shot at capturing power in Nepal, but nobody knows what to do with power once they have it.

Party-wise performance in Nepal elections recently.

But the country has managed to reduce poverty on the basis of remittances

For a country which has had such a turbulent political past, Nepal’s track record in reducing poverty is extremely counter-intuitive and impressive. According to World Bank data, Nepal’s poverty – defined by the US$ 2.15 per day threshold – fell from 55% in 1995 to just 0.4% by 2023. Even the poverty headcount ratio measured at US$ 6.85 per day, fell from 90% to below 50 % during this period. The driving force behind this extremely impressive reduction in poverty in Nepal is to be found in Nepalese people going out of the country. Almost 7% and 10% of Nepal’s population and working age population respectively worked outside the country in 2023. Almost one in four of Nepal’s households has an absentee member. Personal remittances account for more than 30% of Nepal’s GDP. While this kind of a remittance-heavy economy has serious economic implications – more on this later – it also underlines how foolish the regime was in banning social media which must have been a cost-effective way for citizens to connect with their family members abroad. But the electoral results explain this behaviour: no political party can today connect with enough Nepalis.

Poverty and remittances.

The domestic economy, however, continues to be moribund

No matter what indicator one takes, Nepal’s economy is anything but impressive. The World Bank uses a three-period classification for analysing the performance of the Nepalese economy: conflict period (1996-2006), post-conflict (2007-14) and repeated shocks (2015-23). These three periods capture the phase of Maoist uprising, efforts to build a consensus after the Maoists joined the mainstream and the chaotic period on account of both natural (earthquake, pandemic) and man-made factors (political instability) which has followed the post-conflict phase.

In all of these periods, the World Bank says, Nepal’s economy has performed worse than two cohorts of comparable countries: structural and aspirational. “Structural peer countries are selected based on economic characteristics that very closely resemble those of Nepal, i.e., lower-middle income (LMIC) status, geography, high level of hydropower potential, high dependence on a single trading partner, strong international remittance inflows, and high vulnerability to climate change. Structural peer countries include Bangladesh, Bolivia, and Kyrgyz Republic. Aspirational peer countries include Cambodia, Lao People’s Democratic Republic (PDR), and Moldova, and are selected based on the same criteria but have achieved higher income levels than Nepal and its structural peers”.

Nepal’s economic growth compared with similar countries.

Remittances have also hurt the Nepalese economy while helping it at the same time. High foreign currency inflows have led to an overvaluation of the currency, generating headwinds for exports. Migrants who come back home find it difficult to reintegrate themselves in the domestic economy. All this when combined with the ongoing political chaos has converted Nepal’s political economy landscape into a minefield waiting to explode. What is happening right now is a result of these structural fault lines and not just a protest which has suddenly gone viral like things do on social media.

Nishant Ranjan contributed to data work for this story.