International Relations and Foreign Affairs

News Brief

Nepal and India will meet in Lucknow from August 12 to 14 for bilateral boundary talks. The Survey Officials' Committee from both sides will discuss the technical border management issues. The discussion will focus on repairing damaged and replacing missing pillars, clearing no-man's land and upgrading GPS mapping. Major territorial disputes over Kalapani and Susta are excluded from these technical talks.

Prime Minister Balen Shah decided not to attend the UN General Assembly. Foreign Minister Shishir Khanal will lead Nepal's delegation at both international events instead.. PM Shah's aides stated that he plans no foreign travel during his first year in office. Diplomatic observers noted that missing high-level forums could limit Nepal's global diplomatic outreach.

A 44-year-old Nepali migrant worker, Som Kumar Tamang from Tehrathum district, was killed in northern Kuwait on July 30. Tamang, who had worked as a driver since 2022, died after an Iranian strike hit a building belonging to a Chinese company. His death marks the second Nepali fatality linked to escalating regional conflicts across West Asia. Nepal’s Ministry of Foreign Affairs condemned the strike against civilians.

Randhir Jaiswal, spokesperson for India’s Ministry of External Affairs, confirmed that an invitation has been extended to Nepal’s PM Balen Shah for an official visit. However, the dates of the visit haven’t been confirmed by the two sides. Nepali prime ministers in the past have traditionally visited India as their first official visit.

News Analysis
Institutional Discipline in Nepal’s Foreign Policy

The foreign policy actions recently taken by Nepal under Prime Minister Balendra Shah show a worrying tendency towards handling affairs on an ad hoc basis rather than adopting a well-structured approach to statecraft. Since global geopolitics and regional security call for consistent institutional leadership, the government's use of informal channels and its tendency to delay action could impact the country's diplomatic position.

A good example of this trend is Prime Minister Shah's choice to avoid taking part in major international events, such as the United Nations General Assembly (UNGA) and the Non-Aligned Movement (NAM) summit, and instead handing over leadership to Foreign Minister Shisir Khanal. Although it is acceptable to delegate such responsibilities, deliberately withdrawing from top-level multilateral meetings during a leader's first term means missing out on important chances for direct, one-on-one interaction with other leaders. At the same time, the government has made use of informal backchannels; this has been shown by an apparent private trip to New Delhi of the Prime Minister's principal adviser to meet India's National Security Advisor.

The lack of procedural formality is even more severe due to long-lasting administrative sluggishness concerning the appointment of diplomatic representatives. For nearly two months, nearly 20 important residential ambassadorial missions, among them key capitals like New Delhi, Beijing, Washington, and London, have had no ambassadors appointed. The situation of running vital diplomatic missions without proper ambassadorial leadership weakens Nepal's ability to negotiate economic partnerships, protect its labor diaspora, and carry out effective bilateral diplomacy.

In a parliamentary system with a prime minister, foreign policy cannot depend on sporadic actions, administrative delays, or on relying upon personal advisers who work outside the official institutional procedures. Genuine statecraft is based on institutional credibility and on predictable engagement; in order to cope with the complicated regional situations and to defend its national interests, the government must give up ad hoc approaches and reestablish a well-disciplined diplomatic system.

Domestic Politics and Federalism

News Brief

Communal violence has spread like wildfire across Madhesh. What began with a dispute between members of the Hindu and Muslim communities in Dewanganj Rural Municipality of Sunsari has since spread to parts of Saptari, Siraha, Dhanusha, and Parsa. Amid growing concerns, an all-party meeting convened by RSP President Rabi Lamichhane at Singha Durbar issued a seven-point joint statement urging the government to conduct a fair investigation, ensure justice and relief for victims, while also calling on citizens to exercise restraint, reject provocations and misinformation, and resolve grievances through peaceful dialogue.

Prime Minister Balendra Shah chaired the 43rd National Security Council meeting to review overall law and order. The council discussed recent unrest in Sunsari, noting that joint efforts successfully de-escalated tensions.  Similarly, in a televised address to the nation, Prime Minister Balendra Shah appealed for calm and harmony, assuring the public that the government would carry out a transparent investigation into the violence, hold those responsible accountable, and take all necessary measures to restore peace and prevent further escalation.

The newly elected central office bearers and central committee members of the Rastriya Swatantra Party (RSP) officially took their oaths of office following the party’s first general convention.

The Bagmati Provincial Government, led by a coalition of the Nepali Congress (NC) and the CPN-UML, collapsed after the CPN-UML withdrew its support. Concurrently, the CPN-UML and the Nepal Communist Party (NCP) have reached a fresh power-sharing agreement to cooperate with the provincial governments.

The national constitutional amendment process hit a major deadlock after representatives from four political parties walked out of the Constitution Review Taskforce. This underscores deep-seated disagreements over the scope of constitutional changes, particularly regarding the electoral system and the restructuring of the state. With the task force currently stalled, political analysts warn that the lack of consensus among the top leadership is likely to lead to a prolonged legislative stalemate.

The Special Court of Nepal has acquitted the former Managing Director of Nepal Telecom and 17 others in a corruption case related to the company’s billing system upgrade. The case, filed by the Commission for the Investigation of Abuse of Authority (CIAA), had sought Rs. 330 million in damages. The court ruled that the CIAA failed to establish that the accused had acted with malicious intent to cause unlawful financial loss or secure personal gain, and consequently cleared all defendants of the charges.

News Analysis

Strengthening Nepal’s Internal Security Strategy

The communal violence that began in Sunsari and rapidly spread across parts of Saptari, Siraha, Dhanusha, and Parsa has highlighted the serious shortcomings of Nepal’s security response strategy. While the immediate trigger was a dispute during a religious procession, the subsequent escalation demonstrates how quickly localized tensions can evolve into a broader law-and-order crisis when fuelled by rumours, inflammatory rhetoric, and retaliatory mobilization. What is more concerning is that Nepal has witnessed similar episodes of communal tension in recent years in Nepalgunj, Birgunj, Janakpur, and Rautahat. A recurring pattern has emerged in which the celebration of a religious festival or procession by one community is disrupted or contested by another, often over procession routes, loudspeakers, flags, or perceived provocations, before escalating into violence.

The authorities responded by imposing curfews, deploying additional security personnel, reshuffling key security officials, and forming an investigation committee to examine the Sunsari incident. Meetings of the National Security Council and an all-party meeting were also convened as the violence spread to other districts. However, the political response was noticeably slower. The Prime Minister addressed the nation four days after the violence first erupted, while the Home Minister visited the affected districts three days later amid growing public concern over the delayed response. The episode underscored the importance of timely political leadership, coordinated crisis communication, and decisive engagement during rapidly evolving internal security situations.

Going forward, Nepal’s internal security strategy must move beyond crisis management towards prevention and early intervention. This requires strengthening local intelligence gathering, institutionalizing early-warning mechanisms to identify potential communal flashpoints around religious festivals, and improving coordination between federal, provincial, and local authorities. It is also important to strengthen engagement with religious leaders, community representatives, and civil society to build trust, counter misinformation, and resolve local disputes before they escalate. As social media continues to accelerate the spread of rumours and inflammatory content, the state’s ability to anticipate and de-escalate communal tensions will be just as important as its capacity to restore order once violence has already occurred.

Political Economy and Development

News Brief

The Asian Development Bank has approved a $50 million policy-based loan to Nepal. The loan aims to help Nepal modernize its customs administration, boost trade, and support job creation. The programme is intended to modernize customs through digitalization, risk-based inspection, and streamlined procedures.

The priority lending policy adopted by Nepal Rastra Bank has raised concerns about rising non-performing loans in banks and financial institutions. Commercial banks are required to allocate at least 10 percent of their total lending to agriculture, 20 percent to tourism, energy, information technology, and export businesses that use local raw materials. Over the past two years, the agriculture and MSME sectors have witnessed a severe decline in loan performance. Up to mid-April, agriculture and fisheries alone account for 23.5 percent of total non-performing loans.

Nepal Rastra Bank (NRB) has maintained its cautiously flexible monetary policy stance to help maintain a low-cost economy, boost private-sector confidence and support the government’s 7 percent growth target. With comfortable liquidity in the banking system and robust foreign reserves, the central bank left all key policy rates unchanged.

The Government of Nepal has adopted a policy that rewards consumers who ask for a tax invoice when purchasing goods and services. Under the Taxpayer Incentive Gift Programme Operation Procedure 2026, one consumer will win Rs. 133,034 every day, and two monthly winners will each receive Rs. 1 million.

Turning to the external sector, food is now Nepal’s biggest dependency after fuel. Nepal’s food import bill rebounded to Rs. 434.26 billion in the last fiscal year, driven by consumer demand, purchasing power backed by remittances, and a widening gap between domestic production and consumption. In fiscal year 2009-10, Nepal’s agricultural import bill was just Rs. 44.43 billion, and by fiscal year 2021-22, it had ballooned to Rs. 400 billion.

News Analysis

The Credit Divide: Nepal’s Banks, Businesses, and the Poor

Nepal’s financial sector is facing a strange situation. Banks have a huge amount of money, but many poor and low-income people still struggle to get loans. Commercial banks currently have around Rs 1.56 trillion in excess liquidity, mainly because of strong remittance inflows and weak economic activity. At the same time, many industries are operating at less than half of their capacity, and businesses are not taking new loans because of the slow economy.

Another problem is that this money is not reaching the people who need it most. Although banks have expanded their branches across the country, getting a loan is still difficult for many ordinary Nepalis. Strict collateral requirements, complicated paperwork, and lengthy procedures often prevent low-income people and daily wage workers from accessing formal loans. With few other options, many turn to local moneylenders who charge extremely high interest rates. Some borrowers end up trapped in debt and may even lose their family land to repay their loans.

This problem is also affecting small businesses and entrepreneurship across the country. Registrations for micro, cottage, and small enterprises have fallen by about 75 percent over the past five years. Many entrepreneurs say that limited access to finance, difficulty reaching markets, and favoritism in government support have made it harder to run a business. As a result, nearly half of Nepal’s businesses remain unregistered.

The government and Nepal Rastra Bank have tried to improve access to credit by requiring banks to lend to sectors such as agriculture, small businesses, and low-income groups. However, this policy has not worked as well as expected.

This situation shows a clear gap between Nepal’s banking system and the people it is supposed to serve. Banks have enough money, but strict rules and lending practices prevent that money from reaching those who need it most. To address this problem, Nepal needs simpler loan procedures and affordable credit options designed for poor and rural communities. Providing suitable collateral-free loans, along with proper guidance and support, could help more people access formal finance and use it to improve their livelihoods.

Environment and Climate Change

News Brief

Nepal faces a growing climate crisis as unpredictable monsoon patterns and extreme heat is increasingly hurting workers, straining infrastructure, and putting economic growth at risk. According to a new report from the World Bank, extreme heat is moving beyond the southern Tarai into high-altitude hill towns like Kathmandu, where urban heat island effects elevate temperatures up to 4°C higher than surrounding areas.

In an effort to adapt to growing climate concerns, MetLife Foundation has awarded USD 120,000 to WWF Nepal for a one-year initiative titled JEEWAN. The project is targeted to support roughly 140 low-income households primarily from the indigenous Sonaha and Tharu communities along the Lower Karnali River basin in Bardiya district. In a similar vein, a group of Japanese green technology firms announced plans to invest over NPR 1 billion in Nepal in areas of sustainable agriculture, environmental conservation, water purification, energy efficiency, and eco-friendly waste management.

Panasonic, in collaboration with the United Nations Population Fund (UNFPA), contributed to donate 198 solar lanterns to maternal health facilities in the remote districts of Jajarkot and Rautahat. The donation is part of a Japan-funded project implemented by UNFPA; the initiative has already assessed 20 health facilities, refurbished 10 facilities for climate resilience, and assisted in drafting 9 climate-adaptive municipal plans in Nepal.

News Analysis

Nepal’s climate concerns are heating up

The impact of climate change in Nepal has now exceeded the status of just an environmental crisis to a public health and economic one. A 2026 report by the World Bank identifies Nepal as one of South Asia’s fastest-warming nations, with temperatures rising by 1.26°C above pre-industrial levels, with projected increases up to 2.8°C by the end of the century.

As per the same report, 31 million full-time jobs are lost due to heat-related illnesses in South Asia. Concerningly, rising heat could leave the region's GDP close to 7 percent smaller by 2050, the highest projected loss of any developing region. While the monsoon season has historically exposed flaws in Nepal's land planning and agriculture, the changing climate now threatens the nation's most critical asset: its workforce.

Nepal should proactively promote safety of its workforce by integrating heat resilience mechanisms directly into existing workplaces and public frameworks. The introduction of shade structures, street trees, and restored water bodies in urban areas is now necessary infrastructure development. Moreover, areas at most risk of heatwaves must have access to finance for green and resilient buildings and occupational safety standards. Such an effort must expand beyond the public purse and into the private sector too. The rise in temperatures has led to an equal rise in cooling markets as well– something that the private sector can capitalize on while providing efficient and affordable cooling. Furthermore, foreign partnerships, such as Japan's recent NPR 1 billion green technology investment, could bring innovative solutions to Nepal’s growing list of climate challenges. Ultimately, climate adaptation must be a genuine policy priority for the government, alongside ongoing climate mitigation measures.

Gender, Social Inclusion and Human Rights

News Brief

A dispute between Hindu and Muslim communities during a religious procession in Dewanganj, Sunsari, escalated into clashes, stone-pelting and arson in late July. One person was killed and several injured. Following the Sunsari violence, communal tensions spread to parts of Madhesh, including Siraha, Dhanusha and Birgunj. Authorities imposed curfews, deployed additional security forces and formed an investigation committee amid concerns over communal tensions, misinformation and the use of force.

The government announced plans to establish coordination committees at the federal, provincial and local levels to strengthen the response to gender-based violence. The mechanism aims to improve coordination among government bodies, strengthen prevention efforts and ensure better support and services for survivors of gender-based violence.

Dalit civil society representatives called for stronger provisions protecting Dalit rights during discussions on possible constitutional amendments. Their demands included stronger action against caste discrimination and untouchability, proportional representation, land rights and greater institutional authority for the National Dalit Commission.

Women secured around half of the Rastriya Swatantra Party’s Central Committee, but women leaders said that numerical representation does not necessarily translate into influence. This reveals the barriers women continue to face in reaching senior decision-making positions despite increased representation within political structures.

Amnesty International, Human Rights Watch and the International Commission of Jurists expressed concerns about political pressure on Nepal’s judiciary and proposed changes to judicial appointment procedures. The organisations warned that developments affecting judicial independence could undermine the rule of law and public confidence in Nepal’s justice system.

News Analysis

Social Cohesion Under Pressure: The Role of Hate Speech, Misinformation and State Response

The violence in Sunsari began after a dispute linked to a religious procession escalated into clashes between Hindu and Muslim communities, with stone-pelting, arson and confrontation with security forces eventually resulting in deaths and injuries.

What makes this particularly significant is how quickly a local dispute acquired a wider communal dimension, with misinformation, inflammatory content and hate speech on social media contributing to fear, suspicion and polarisation. In this sense, the incident is not only a question of law and order; it reflects how digital information can amplify existing social divisions and turn local grievances into broader communal tensions. The spread of tensions to other parts of the country, including Siraha and Birgunj, further demonstrates how quickly such narratives can travel beyond the original location through information spaces.

This places greater responsibility on the state, political actors, civil society and social-media users to counter provocative information flow without suppressing legitimate expression, while also ensuring that communities are not collectively blamed for the actions of individuals.

More fundamentally, the episode exposes weaknesses in Nepal's ability to identify communal tensions early and address them before they escalate. Strengthening local conflict-resolution mechanisms, early-warning systems, media literacy, responsible digital communication and accountability for hate speech and violence will therefore be important not only for preventing communal conflict, but also for building a more inclusive and resilient society.