Key notable challenges for the new government

In the early general elections of Nepal, which took place on the 5th of March 2026, the Rastriya Swatantra Party, with its president Rabi Lamichhane and proposed Prime Minister, the former mayor of Kathmandu metropolis Balendra "Balen" Shah, who was also a rapper, won beyond the expectations of all political parties and the people. In the elections for the 275 members of the House of Representatives, the party managed to secure 182 seats, 125 in direct elections and 57 in the proportional electoral side. However, this was not enough to achieve the two-thirds majority, which requires around 184 seats, but it was sufficient to secure a simple majority, which was essential.

This victory comes after the fall of the previous government due to violent protests by youths in September 2025 over issues related to unemployment, economic troubles, and corruption. When Shah assumes the role of prime minister, the new government, expected to take over in late March 2026, will have a strong mandate to pass laws without needing to make compromises and even amend the constitution. However, it will face significant socioeconomic challenges, some of which have persisted for several decades. The high level of public expectation for rapid change, especially among the youth, may create a gap between promises and performance.

Key Socio-Economic Challenges

1. High Youth Unemployment, Brain Drain, and Remittance Dependency

With more than 3 million Nepali workers abroad and 3,300 daily departures, youth unemployment stands at 20%. Though they contribute 25-33% of GDP, their remittances are vulnerable to external shocks (e.g., Middle East conflicts affecting fuel and employment in the Gulf region). This situation leads to a cycle of "brain drain," informal employment (84% of total employment), and household vulnerability. The RSP aims to address this through initiatives like halting forced migration, promoting skill passports, "brain gain" programs, and creating domestic job opportunities. They have committed to generating 1.2 million formal jobs within five years in sectors like IT, tourism, agriculture, and construction. However, experts question the feasibility of these plans given the party's limited budget and past failures.

2. Slow Economic Growth and Ambitious Targets vs. Structural Constraints

The Nepalese economy is slowly recovering, with an estimated GDP growth of around 4.3-4.6% in FY2025-26 according to the IMF. However, it has yet to meet the RSP's manifesto promises of achieving an average annual GDP growth of 7%, increasing per capita income from around $1,447 to over $3,000, and growing the total economy size to around $100 billion in 5-7 years. Low productivity levels in agriculture and industry, along with obstacles like red tape, land issues, and bureaucratic hurdles, hinder private sector investment. The government plans to address these challenges by eliminating obstructive laws, simplifying business processes, and attracting foreign direct investment (FDI) to foster a digital and private sector-led economy. Nevertheless, experts point out major bottlenecks such as the lack of fiscal space, infrastructure, and policy-administrative capacity.

3. Limited Resources, Fiscal Pressures, and Implementation Gaps

The new government faces challenges in resource allocation similar to or worse than previous administrations. Job creation, social security initiatives, education reform, and infrastructure development will be challenging in a sluggish local economy with reduced investor confidence and global uncertainty. The party's lack of experience, having been formed only four years ago with Shah in his third year as mayor, may lead to a lack of cohesion and progress. Failure to deliver on promises could result in a rapid loss of mandate, especially considering the 2025 protests were triggered by unfulfilled promises.

4. Corruption, Governance, and Social Inclusion Issues

Corruption and patronage networks were key factors behind the 2025 protests, which resulted in 77 casualties. The RSP has pledged to investigate corruption, enhance transparency in the judicial system, improve bureaucracy, and combat corrupt practices. However, these efforts may disrupt the existing system. Socially, Nepal faces challenges related to inequality, integrating marginalized groups (Shah could be Nepal's youngest and potentially first Madhesi PM), balancing environmental conservation with development, and meeting the high expectations of the youth. While tourism has shown improvement, it remains vulnerable to past instability and natural disasters.

5. External and Geopolitical Vulnerabilities

The government must navigate the balance between reliance on trade and infrastructure from India, China, and the West. Climate change, natural disasters, and global economic downturns pose threats to agriculture and tourism. Remittance shocks could lead to immediate fiscal challenges.

Why These Challenges Are Particularly Daunting for This Government

While the strong majority provides a historic advantage by breaking the coalition paralysis of previous governments, the RSP's outsider status and ambitious manifesto have raised expectations for tangible results in job creation and governance. The new government faces the daunting task of meeting high expectations set by its anti-establishment campaign with actual economic transformation, transitioning from remittance dependence to economic growth within limited resources and high public expectations, especially regarding job creation. The coming years will reveal whether this new political culture can achieve what traditional parties have struggled to accomplish.

In a nutshell, key notable challenges for the new government include economic recovery, social inequality, healthcare reform, and national security.