The newly elected government in Nepal called its first parliamentary session on 2 April. The MPs elected in March represent the most significant realignment in Nepal’s post-1990 democratic history with the Rashtriya Swatantra Party (RSP), which was founded in 2022, winning a landslide victory. As we all know, the elections were a result of the youth-led rebellion aka Gen Z rebellion which resulted in unprecedented amounts of corruption, nepotism, lack of employment opportunities among the youth resulting in migration and distance between the elite and the masses. And the last nail in the coffin was government regulation banning 26 social media sites.
As the new Parliament convenes, it is important to consider the delicate geopolitical developments as well as the enormous economic, political and social challenges facing the country. Structural challenges are associated with modest growth, fiscal stress and a wide trade deficit. Youth unemployment, at 20.6%, is the highest in South and Southeast Asia, according to World Bank data. About 1500 young Nepalese leave the country for foreign employment. Interim government cuts national budget by 14%, accepting consolidated fund deficit ₹130 billion more projecting ₹275 billion unspent allocation. A sign of relief was Nepal Rastra Bank’s mid-term monetary policy review, which showed low inflation at 1.7% and foreign exchange reserves covering 18 months of imports, well above the seven-month target.
Furthermore, corruption remains a continuing concern. Nepal scored 34 points in the 2025 Corruption Perceptions Index (CPI) and ranked 109th globally, the same as last year. Furthermore, the political and bureaucratic landscape was marked by red tape and nepotism which the new government must address. In foreign policy, the new government needs to strike a balance between the two powers, China and India. Even the ongoing Gulf crisis since early March 2026, which was triggered by the US-Israeli military action on Iran, has raised concerns in Nepal as an estimated 1.9 million Nepalese are employed in the Gulf countries.
As a result, RSP has committed to addressing all of these challenges, along with the concerns raised by the Gen Z protests. Prime Minister (PM) Balendra Shah rose to prominence for his work as the former mayor of Kathmandu between 2022 and 2026. They removed illegal structures, improved waste management and challenged vested interests in urban governance. After being sworn in as Prime Minister he is committed to fulfilling the promises made in the election manifesto – to name a few, becoming a $100 billion economy within five years, GDP growth of about 8% annually, anti-corruption investigations of pre-1990 public officials, meritocracy in civil services, a single-window service delivery system, direct election of the Prime Minister, and a national knowledge bank to link expatriate expertise with domestic development priorities.
Within hours of taking oath, the Shah cabinet took several decisions that indicated it was serious about fulfilling its mandate. First and foremost, the Cabinet implemented the Gauri Bahadur Karki Commission report, which investigated the September 2025 Gen Z crackdown. The report recommended a criminal investigation against him, the then police chief and several senior security officials. Based on the findings, former Prime Minister KP Sharma Oli and former Home Minister Ramesh Lekhak were arrested on March 28 under sections 181 and 182 of the National Penal Code related to criminal negligence in use of deadly force during protests. Also, a high level inquiry committee will be formed within a week.
The key pledge of the RSP was to launch an investigation into the assets of all elected officials since 1990 and to nationalize illegally acquired assets. For this, the Cabinet approved the formation of an Assets Investigation Committee to investigate the assets of political leaders and senior government employees in the first phase from 2006-07 and in the second phase will cover the period from 1991 to 2004-05. One of the most important decisions was the framework for delivery-based governance to ensure that each ministry prepares an action plan with ten key deliverables within a week, and achieves them within the time frame to ensure accountability. Further, the reconstitution of the National Vigilance Center is to be done within 30 days. Furthermore, bureaucratic procedures were simplified, and a clear statement was issued warning civil servants against political bias, reiterating that their duty must be to commit to public service.
Another fundamental grievance during the Gen Z protests was youth unemployment and the new government has emphasized on reducing outward labor migration through domestic job opportunities, diaspora engagement and expansion of the IT sector under its 100 Priority Agenda. Additionally, the RSP prioritizes private sector-led development, improved investment climate and energy exports. There are commitments to technology-driven agricultural productivity and export sector development.
Nepal’s strategic position demands balanced relations with India, China and the West. Both Indian and Chinese leaders have welcomed the incoming government. Nepal-India relations witnessed positive momentum at the institutional level in early 2026, even though some underlying tensions remained. The most significant development was the signing of the Mutual Legal Assistance Treaty on Criminal Matters on 18 February. Both sides had been working on it for years, and the signing under the interim government signaled continuity in bilateral engagement. The new government is expected to address stalled hydropower projects, India’s High Impact Community Development Projects (HICDP) program as well as border management issues. Additionally, Balen Shah’s decision to remove the BRI-linked Nepal-China Friendship Industrial Park in Jhapa from his election manifesto attracted the attention of Indian observers, as the park is close to the strategically sensitive Siliguri Corridor. The stance of the incoming RSP government on India-sensitive BRI projects will be an early indicator of its foreign policy orientation.
On the other hand, Nepal–China relations progressed within the framework of diplomatic engagement, with the incoming RSP government inheriting important commitments from the Oli era. New Chinese Ambassador Zhang Maoming met interim government PM Karki and separately discussed bilateral cooperation with Foreign Secretary Rai. The expansion of the second section of the Ring Road got Cabinet approval for tax exemption on construction equipment and materials, giving the go-ahead to a major Chinese-aided infrastructure project in Kathmandu. The government also approved E10 ethanol blending, although this is a domestic energy policy. The Dudhkoshi 670MW hydropower project represents another area of ​​alignment between Nepal’s development finance needs and China’s regional infrastructure agenda.
Ultimately, given the crisis in the Gulf region and the US-Israel attacks on Iran, Nepal’s response was diplomatic and measured. The Foreign Ministry called for restraint, adherence to the UN Charter and a diplomatic solution. It is expected that the RSP-led government will inherit this strategic ambiguity as it has 1.9 million migrant workers in the region and hence, overall, stability-focused diplomacy is important to avoid flows. In response, Nepal launched an emergency response team under the Foreign Secretary, suspended new Gulf labor permits, and worked to evacuate stranded citizens.
The government in Nepal, dominated by youth representatives, marks a dramatic change, challenging the elite party dynasties that dominate Nepali politics. The central challenge for the RSP-led government in the coming months will be to translate electoral momentum into sustained governance. There is a need to focus on a sustainable shift towards performance-based politics, where promises made should be complemented with institutional and governance reforms. And very appropriately, steps have been taken in that direction. Furthermore, there is a need to address the economic vulnerabilities that the country is facing, especially in terms of youth unemployment and migration of youth for job opportunities.
At the international level, the incoming government inherits a delicate balancing act between India and China. The Gulf crisis has exposed Nepal’s structural dependence on labor remittances, which accounts for about 25–28% of GDP, and will require active diplomacy. The Gen Z mandate demands economic transformation, but transformation in a country with Nepal’s infrastructure deficit, weak state capacity and complex federal architecture will require patience, coherence and political will, which previous governments have repeatedly failed to maintain and the incoming government promises to deliver.
This article is written by Chhavi Vashishtha, Associate Fellow, Chintan Research Foundation, New Delhi.
