Arnaud Cauchois, the Philippines-based Asian Development Bank’s country director for Nepal, has nearly three decades of professional experience, including 20 years with ADB. A French national, he joined Nepal’s operation in July 2021 and oversees the implementation of ADB’s country partnership strategy, which focuses on long-term development, private-sector-led growth, improved access to devolved services, and environmental sustainability. In an email interview with the Post’s Sangam Prasain following the Gen Z revolt, Cauchois says the youth-driven push for reform offers important momentum for the country’s overall growth. Excerpts:

How have the recent Gen Z-led protests and the government’s response affected investor sentiment? Are development partners concerned that prolonged unrest and political distrust could weaken the investment climate and delay reforms?

The growing engagement of Nepal’s youth in shaping the country’s future is a positive sign. These voices matter for inclusive development and stronger governance. The loss of lives and the damage to public and private property were deeply tragic. Several businesses—including domestic and international brands—suffered significant losses, which is an adverse shock to the economy and may have affected investor confidence.

At the same time, Nepal’s economy has shown remarkable resilience over the past decade, navigating political transitions, natural disasters, and government instability.

A recent reaffirmation of Nepal’s sovereign credit rating (BB–) by Fitch Ratings underscores this resilience.

Investors prefer political stability and policy certainty, both of which are essential for a predictable business environment. Nepal faced structural challenges even before the protests—gaps in infrastructure, regulatory hurdles, and governance issues continue to constrain private investment, including foreign direct investment (FDI).

The economy had started to gain momentum after the pandemic. To sustain that trajectory, Nepal must take necessary measures to end the transition and refocus on investor concerns. In this regard, the reform-oriented momentum sparked by youth activism is encouraging.

What concrete steps should the government take to improve the business climate and attract greater FDI?

Nepal has consistently received less than 1 percent of its GDP in FDI, which is low for its development stage. Global competition for investment is intense, and investors demand clarity on taxation, repatriation of profits, land acquisition, and visa facilitation for expatriate staff. A predictable, transparent, and investor-friendly environment is essential if Nepal wants high-quality investment.

Building trust between the public and private sectors is fundamental. Nepal must uphold its international treaties with utmost sincerity. Foreign investors expect international best practices to guide treaty and law interpretation; the perception of unilateral interpretation must be avoided.

Existing investors’ experiences matter greatly—word of mouth often outweighs what is written in laws. Currently, a multi-layered, multi-agency compliance environment makes procedures burdensome and sends the wrong signal. Nepal must implement an effective one-door policy for all investor-related regulatory requirements.

Tax policy is another critical area. For long-term benefits, the government should establish a dedicated tax policy and assessment unit to evaluate the impact of tax measures rigorously. Such a unit would strengthen objectivity, transparency, and predictability in tax policy formulation.

Nepal’s capital spending continues to lag. What structural barriers hold it back?

The persistent capital expenditure bunching in the last quarter of the fiscal year undermines investment quality, often requiring repeated maintenance. This reflects deeper institutional constraints: frequent leadership changes, limited administrative capacity, procurement gaps, and weak implementation of environmental and social safeguards.

Other challenges include coordination issues across levels of government, weak contract enforcement, and shortages of skilled personnel for complex infrastructure projects. ADB assesses that strengthening governance systems, planning capacity, and institutions is essential to improve capital budget execution.

Nepal relies heavily on concessional loans for infrastructure. With slowing revenue growth and rising debt-servicing costs, does ADB see a medium-term risk of debt distress?

Nepal remains at low risk of debt distress, and ADB does not see an immediate medium-term concern given the country’s track record of prudent macroeconomic policy. ADB and other multilateral lenders provide highly concessional financing—low interest rates and long repayment periods—which keeps debt service manageable.

The real challenge is ensuring that borrowed resources are translated into productive investments. With most loans being long-term and concessional, Nepal must prioritise strong project implementation to maximise development impact, generate jobs, and improve public services.

Many ADB-supported transport, energy, and urban projects face chronic delays. How does ADB evaluate project management capacity, and what reforms are urgently needed?

Nepal faces systemic implementation challenges: high staff turnover, institutional gaps, difficulty hiring qualified contractors, delays in land acquisition and resettlement, forest clearance bottlenecks, and slow decision-making. ADB is working closely with the government to address these issues.

With the World Bank, ADB is supporting technical assistance programmes targeting structural and institutional bottlenecks. These include legal, operational, and digital solutions; strengthening the Public Procurement Monitoring Office; modernising procurement laws; updating bidding documents; and enhancing the e-GP system. Select projects will soon pilot merit-based bid evaluations prioritising quality over the lowest price.

ADB is also helping digitise forest clearance, initial environmental examination (IEE), and environmental impact assessment (EIA) processes. New contract management tools will track performance and help resolve issues in real time, with pilots slated for 2026. ADB remains committed to improving project readiness and ensuring timely delivery for maximum development impact.

Youth unemployment and outward migration continue to rise. What economic policies or sectoral priorities could generate productive jobs at home?

Nepal’s working-age population has grown faster than the total population since 1992, and this will continue until around 2047—a demographic window of opportunity. But job creation has not kept pace. The 2023 unemployment rate stood at 10.7 percent overall and 20.4 percent for youth.

For Nepal to reach upper-middle-income status within two decades, it must shift from a growth model dependent on remittances and consumption to one driven by productivity and job creation. This requires domestic private investment and FDI, better infrastructure, adoption of new technologies, stronger skills, deeper integration into regional and global value chains, and export growth.

ADB’s Country Partnership Strategy (2025-2029), launched this June, aligns with Nepal’s aspirations for good governance, social justice, and prosperity. It focuses on employment-intensive, inclusive, resilient, and green growth by boosting labour demand through modernising agriculture, improving manufacturing, and enhancing competitiveness; improving labour supply through greater human capital and better municipal services; and integrating climate and disaster considerations while laying the foundation for a green economy.

Nepal’s social-sector spending remains low. Is the country underinvesting in human capital, and how will this affect growth?

Nepal has made gains in access to education and health, but public spending remains below what is required to fully develop human capital. Gaps in equity and quality persist, particularly for disadvantaged groups, and subnational capacity constraints limit progress. More—and smarter—investment is necessary.

ADB is a key partner in the School Education Sector Plan, supporting equity, quality, and governance from basic to secondary education. ADB also helps rebuild and modernise educational infrastructure after disasters and invests in skills and vocational training to prepare youth for future jobs. In health, ADB supports reforms in drug management, health insurance, and procurement systems to improve service delivery. Human capital investment is essential for long-term, inclusive growth and economic resilience, and ADB will continue supporting Nepal through financing, technical assistance, and policy dialogue.

Climate-related disasters are intensifying, yet local governments struggle to plan or finance resilience projects. How is ADB assessing Nepal’s climate-adaptation gap, and what tools could help close it?

Nepal faces escalating climate risks—floods, droughts, landslides, and glacial melt—causing human and economic losses and affecting sectors such as hydropower. ADB is addressing Nepal’s adaptation gap through three strategies.

First, ADB is strengthening risk assessment and planning through the Building Adaptation and Resilience in the Hindu Kush Himalayas (BARHKH) initiative, launched at COP28. This supports Nepal and Bhutan with multi-hazard risk assessment—including landslides, floods, and GLOFs—focused on river basins. This scientific knowledge will help open access to climate finance, strengthen financial frameworks, integrate climate risks into investment decisions, support risk-transfer solutions, and improve early warning systems.

Second, ADB is assisting policy and legal reforms needed to implement Nepal’s GRID strategy and NDCs, embedding climate and disaster risk management into national frameworks.

Third, ADB has approved technical assistance to design the Nepal Green and Resilient Financing Facility (GREFF), intended to unlock global and regional climate finance for adaptation and mitigation, and attract private investment through concessional loans, grants, guarantees, and blended finance. Nepal faces long delays in accessing climate finance, including due to backlogs in the GCF pipeline. GREFF aims to streamline coordination and accelerate access.

Closing the adaptation gap requires stronger policy implementation, deeper private sector engagement, and better coordination. High-quality climate risk assessments and adequate finance are essential. ADB will continue partnering with Nepal to build a climate-resilient future.

Trust in public institutions has weakened. How concerned is ADB that governance issues could undermine development impact, and what safeguards does it expect Nepal to strengthen?

Nepal has shown a strong commitment to governance reforms and achieved notable progress, especially in digitalisation. This shift is crucial for more transparent and efficient public service delivery. Digital systems in financial management, procurement, customs, and citizen services can reduce delays, enhance accountability, and rebuild public trust.

ADB is supporting public financial management reforms through policy-based lending, including digitisation of asset management and revenue administration, and the development of integrated public financial management platforms. Sustained investment in digital infrastructure and capacity building is essential to strengthen governance, improve service quality, and reinforce accountability.