Over the past 35 years, Nepal’s electoral landscape has produced four spectacular parliamentary mandates—won either by a single party or a unified alliance—including the most recent, a near two-thirds majority government led by Prime Minister Balendra Shah. Yet each of the three preceding majorities ultimately failed to complete its full five-year term, while coalition powers proved even more short-lived. Although intra-party disputes are the visible triggers for these government collapses, the root cause is subtle and systemic. In a country marked by both geographic and geopolitical vulnerabilities, a largely extractive political bureaucracy, and an economy that has persistently struggled to channel capital into productive capacity, the governing equilibrium remains fragile. Under such rigidity, even a dominant political power can quickly break down amid minor shocks, whether internal or external.

In April 2021, a government ban on synthetic fertilisers and agrochemicals severely harmed Sri Lanka’s agricultural market and food production, while exacerbating its foreign-exchange crisis, caused by pro-elite tax cuts, high debt-servicing costs and falling tourism revenue. With its ‘import-dependent for export’-type manufacturing model, which depends heavily on imported energy and intermediate goods, the country’s foreign reserves quickly dropped, and imports plummeted. The ripple effects brought Sri Lanka’s entire economic market, both domestic and international, to a standstill. The lack of a grip on markets and the consequent public frustration took no time to overthrow the Rajapaksa regime, despite its powerful two-thirds governing majority. The failure was not a shortage of capital or economic resources, but a persistent institutional inability to convert borrowing and financial inflows into productive capacity.

An abundance of money itself does not bring prosperity. Let’s imagine the economy as a big farm. If a large amount of money (received as remittances, for example) is spent repeatedly buying and selling the same plot of land at ever-increasing prices, money or assets change hands but grow no food; this is unproductive capital. Instead, money spent on a modern tractor, storage facilities, an upgraded irrigation system, or enhancing farmers’ technical skills represents productive capital.

Markets and powerholders

Markets are at the heart of economic prosperity. They allow people to take advantage of specialisation and division of labour, while enabling nations to expand trade based on comparative advantage. Since political markets seldom become efficient owing to the vagaries of representation, a nation’s long-run development and transformation require greater efficiency of economic markets.

Fundamentally, the size, flow and efficiency of investment capital are jointly determined by the interplay between government and markets. The better the state machinery facilitating the workings of the market, the greater the efficiency of resource allocation, including physical capital, human capital and natural resources. These two dynamic forces are inherently inseparable; consequently, a misstep in one inevitably damages the other. That’s why arrogance about a political majority amid structurally paralysed markets is a dangerous illusion for those in power.

Sovereign trade inequality

In a landlocked country like Nepal, where an ambulance essentially fuels up at the neighbour’s gas station, there is no such thing as ‘sovereign equality’ in market exchange. All countries are equal under the political framework of the Montevideo Convention of 1933, but not under the modern economic framework of the global village: cross-border trade relationships, transformative IT, financial innovation and digitalisation. A developing country’s trade and monetary policy independence is profoundly compromised when it pursues sustained gains on these fronts.

The economic giants, India and China, are not only neighbours, but also Nepal’s largest trading partners. Unfortunately, Nepal’s trade deficit with them is enormous; a recent report puts it at roughly $10 billion, or 77 percent of its overall trade deficit. If these figures raise serious concerns for policymakers, they must realise that borders are not simply geographical twists and turns; they hold extraordinary economic significance. Of course, borders matter, and neighbours matter. However, seeking diplomatic breakthroughs between neighbours matters even more.

Inward-looking impulse

Through persistent encroachment on domestic markets, Nepal’s ruling elites have stifled the cross-border integration necessary for harmonious bilateral trade with the country’s immediate neighbours. This intervention represents a systemic manifestation of political egoism, rather than a coherent economic strategy. The Panchayat regime’s import-substitution (IS) model kept the economy from harnessing the benefits of cross-border linkages at a time when globalisation was shaping the markets of developing nations.

The IS model was inherently inward-looking. It restricted cross-border transfers of cutting-edge technology, destroyed the spirit of innovation, discouraged entrepreneurs, and underestimated the rise of venture capital. Nepal’s isolation from broader regional and global value chains eroded the competitive edge needed for industrial productivity, leaving its manufacturing base in a state of persistent, structural decline. The aggressive liberalisation policies enacted during the democratic era merely exacerbated these structural vulnerabilities. By hiding behind the banner of sovereign equality, the Balendra Shah administration ignores the cross-border bilateral partnerships urgently needed to mobilise both internal and peripheral resources to revive manufacturing. Neighbourhood isolation and cross-border friction neither bring political stability nor generate economic gains.

Besides, the government’s credibility, or lack thereof, undeniably influences the incentives faced by private sector participants—either domestic or foreign. Consider an economic agenda set by the current administration: double the per capita income within five years. Based on the successful experiences of China and South Korea, doubling a country’s per capita income within five years requires an average annual real GDP growth rate of 14 percent or more, not 7 percent as targeted by the administration. While the target rate is already ambitious, this is an exceptionally large inconsistency. Furthermore, all other things being equal, the government also needs to proportionately double the allocation of capital expenditure from the customary 17 percent to 34 percent of the national budget, let alone the economy’s persistently meagre capacity to absorb it.

While taking to the streets for parliamentary democracy in 1990, many Nepalis sacrificed their lives with a simple hope of seeing a good future for their children. By joining the fight with radical Maoists during the long insurgency, people embraced new aspirations for change and dignity. When both sides of the political spectrum blatantly turned their backs on the people, the broader public rose in retaliation.

That was what triggered the September 2025 Gen Z protests. It was a powerful reminder to the rulers that people are the ultimate source of power and that they deserve a large share of the bounty. Ultimately, the electoral shift from one party to another between elections in the nation’s political market merely reflects the deeper cycle of hope and frustration in the economic sphere—a lesson today’s sitting politicians cannot afford to ignore.