CWA # 2058

The World This Quarter 

Nepal (Jan-Mar 2026)

Political Upheaval, Generational Change and Economic Uncertainty

Emerging from the Gen Z protests of September 2025, the country entered the new year under an interim government led by a former chief justice, focused on restoring stability and holding elections

Nishchal N Pandey  & Mahesh Raj Bhatta 5 April 2026

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The first quarter of 2026 has been a turning point for Nepal. Emerging from the Gen Z protests of September 2025, the country entered the new year under an interim government led by a former chief justice, focused on restoring stability and holding elections. By March, Nepal had undergone a major political shift and a strong push for youth-driven change. At the same time, the country struggled with mounting economic pressures, especially due to twin developments: domestic political instability and the war in the Gulf. 

1. From Protest to Political Change
The impact of the 2025 Gen Z protests remained strong throughout early 2026. What started as public frustration over corruption, unemployment, and restrictions on digital and social media platforms quickly turned into a nationwide demand for deeper political reform. These protests significantly weakened the credibility of traditional political parties. There was a strong anti-incumbency wave against the Nepali Congress, the CPN (UML), and the Maoists, who had been jockeying for power since 1990.  

What stands out at this moment is how quickly the energy from the streets moved into formal politics. Unlike in the past, these protests were not absorbed by existing parties. Instead, they led to the rise of new political actors and placed greater emphasis on good governance, accountability, transparency and responsiveness. By early 2026, it was clear that generational change was no longer avoidable.

2. Interim Government and Political Stabilization
After the 2025 political crisis, an interim government led by Sushila Karki took charge. Its main role was to stabilize the country, restore law and order and prepare for peaceful elections. In the first quarter of 2026, this government played an important role in preventing further political instability and ensuring a credible transition. The administration largely focused on maintaining public order, addressing concerns about the handling of the protests and organizing free and fair elections. Despite limited time and authority, it managed to rebuild some public trust, although private-sector confidence has been on the wane and tourism has taken a blow. Conducting peaceful elections nationwide on time, after such a turbulent period, was a significant achievement for the interim government, especially as the CPN (UML) under KP Oli was initially averse to elections, and a writ petition was filed in court to reinstate the old House.

3. The March 2026 Elections and the Rise of RSP
The general elections held on 5 March 2026 marked a clear break from Nepal’s political past. For many, these elections were a direct response to decades of frustration with traditional political parties that had failed to meet public expectations. A key feature of the elections was the strong participation of young voters, including many first-time voters. This had a major influence on the results. Established parties – the NC, CPN (UML) and the Maoists faced heavy losses, reflecting a clear demand for new leadership. More than just a change in government, these elections reshaped Nepal’s political system. They signalled a move away from long-standing political dominance toward a more open and competitive environment.

One of the most striking outcomes of the elections was the rise of the relatively new Rashtriya Swatantra Party (RSP), emerging as a dominant force in parliament. The party secured 182 out of 275 seats in the House of Representatives- 125 through direct (FPTP) elections and 57 through proportional representation, giving it a near two-thirds majority in parliament. With strong support from young voters, Diaspora Nepalese and those frustrated with the political status quo, the party emerged as a leading force. Its success reflects a shift in how people are voting. The RSP’s focus on digital campaigning, anti-corruption agenda, better governance and moving away from old leaders connected well with urban and digitally engaged voters. However, its rapid rise also brings challenges. While the party has been successful in channelling public frustration into electoral victory, it may face the difficult task of turning that momentum into effective governance. How it manages this transition will be crucial for its future.

4. New Government and Leadership Transition
Following the elections, a new government was formed under the leadership of RSP’s senior leader, Balendra Shah, marking a significant generational change in Nepal’s leadership. As one of the youngest leaders to assume the position, his rise reflects a broader shift in political culture.

The new government has presented itself as reform-oriented, focusing on transparency, efficiency and accountability. Early steps, including efforts to investigate past corruption cases, which the public knew were the misdeeds of the NC, UML, and the Maoists, have reinforced its commitment to addressing public demands for justice. However, expectations are very high. The government will need to balance its reform ambitions with the practical governance constraints. Delivering real change in a short time will be a major test for the new leadership.

5. Economic Pressures and the Gulf Crisis
While politics dominated attention, Nepal’s economic situation remained stagnant. Still recovering from COVID-19 and the economic impact of the 2025 protests, which disrupted sectors like tourism, trade, and small businesses, the new Balen Shah government has a renowned economist, Dr Swornim Wagle, as the Finance Minister, who has the experience and knowledge to steer the economy on a path to recovery. External challenges, such as the war in the Gulf, are beginning to affect Nepal, as they have other countries. Since a large part of Nepal’s economy depends on remittances from migrant workers in Gulf countries, any slowdown there directly impacts incomes back home. Reduced job opportunities and uncertainty in those markets could lead to lower remittance inflows, affecting both households and the country’s foreign exchange reserves. Rising oil prices, gas shortages, and supply chain disruptions will trigger inflation, increasing fuel import costs and commodity prices, and threatening agriculture through fertiliser shortages. On the other hand, risks to worker safety and security in the Gulf could force a repatriation of Nepali citizens, leading to job losses and an employment crisis. The government has already arranged Nepal Airlines flights from the Gulf for those who wish to return. 

To Conclude: Nepal in the first quarter (Jan-Mar 2026)
The key challenge ahead for the new government could be turning a strong public mandate into stable, effective governance. The new political leadership definitely has a historic public support. Not hasty decisions, but rather prudence and selecting the right people for the right positions will deliver durable results. 

In addition, strengthening institutions, boosting the morale of the security forces and forging amicable relations with Nepal’s two neighbours will be crucial. There is also the risk that high expectations could turn into disappointment if progress is slow or the government begins to back away from its own decisions. Moving from protest to governance is not easy. It requires not just new leaders but also new ways of making decisions, selecting qualified, young people for important posts and regularly engaging with citizens. The opposition does not have the arithmetic to topple the RSP government; their only recourse will be to hope the RSP government makes mistakes and then capitalize on those errors. 

About the authors

Dr Nishchal N Pandey and Mahesh Raj Bhatta are Director and Fellow, respectively, of the Centre for South Asian Studies (CSAS), Kathmandu.