BIJAY DAMASE

KATHMANDU: With the formation of a new government in collaboration between the Nepali Congress and the CPN (UML), UML Chairman KP Sharma Oli was appointed as prime minister on Sunday. President Ram Chandra Paudel appointed Oli as Prime Minister on Sunday (July 14) according to Article 76 (2) of the Constitution. As the newly appointed Prime Minister prepares to take oath on Monday (today), the private sector is optimistic about the new government.

The stock market has reflected this optimism. On Sunday, the NEPSE index increased by 52.97 points. "The stock market has already welcomed the new government," Hemraj Dhakal, Vice President of the Federation of Nepalese Chamber of Commerce and Industries (FNCCI), told New Business Age. He added, "The private sector expects political stability."

FNCCI Vice President Dhakal expressed hope that the coalition of the two major political parties would revitalize the economy. He believes the new government will have the ability to make decisive economic reforms due to the collaboration of major parties. Historically, no government in Nepal has lasted five years since the political change of 1990. The KP Oli-led government formed after the 2017 election did not last five years due to internal strife within the then Nepal Communist Party, despite having an overwhelming majority. The private sector has long complained about the lack of a predictable investment environment due to frequent government changes and shifting policies.

A 2014 study report by the Millennium Challenge Corporation, an American international aid organization, highlighted political instability as a major obstacle to Nepal's economic development. The report also cited the lack of electricity, high transportation costs, and strict labor laws as significant challenges. While there have been improvements in electricity supply and labor laws, political instability and high transportation costs remain major obstacles. With the new government formed through a coalition of two major parties, industrialists and businessmen hope for better political stability and a more favorable investment environment.

Rajesh Agrawal, President of the Confederation of Nepalese Industries (CNI), stated that the formation of the new government will increase confidence in the market. He noted that the power equation between the two political parties is well-suited to providing a solid direction for the economy and strengthening it. He highlighted several economic challenges, including a slowdown in economic activities, a shrinking real estate market, industrial businesses operating at only 30 to 40 percent capacity, high bank interest rates, and a stagnant capital market. Businessmen have had to bear the instability caused by frequent government changes every 4-6 months, he said, adding, "The new power equation has made us optimistic about political stability and a stable government."

Agrawal suggested that the government take immediate steps to stabilize the economy for the next three years and make tough decisions to keep it running.

When the government failed to pay construction workers, it not only affected them but also impacted the suppliers and manufacturers of construction materials. The government is one of the main buyers of industrial products. Industrialists have also reported that industries have not been able to operate at maximum capacity due to weak market demand. Despite large remittance inflows, there has not been a corresponding increase in market demand, affecting production.

According to the National Statistics Office, the economy is projected to grow by 3.87 percent in the current fiscal year. The office estimates that the manufacturing industry and construction sector will shrink while the wholesale and retail trade sector will grow moderately.

Agrawal emphasized the need for policy reforms to make the economy sustainable. Although the Pushpa Kamal Dahal-led government announced a new reform program in the budget for the next fiscal year, there is uncertainty about whether the new government will adopt the budget. The budget for the current year 2080/81 was introduced by former Finance Minister Dr. Prakash Sharan Mahat, and the budget for the upcoming year 2081/82 was presented by Finance Minister Barshman Pun.

Kamlesh Agrawal, President of the Nepal Chamber of Commerce, stated that he is always hopeful when a new government comes into power, but that hope often turns into disappointment. However, he is more optimistic about the government formed by the two major parties in parliament.

"If the two big parties form a government together, it will bring stability," he told New Business Age. He believes that frequent government changes disrupt previous policies and disturb the investment environment.