Africa

The country faces a challenging transition, but it can progress if the people work together.

By Krishna Srinivasan and Sarwat Jahan
WASHINGTON DC, Jan 22 2026 (IPS)

Nepal has a unique opportunity for transformation. The recent youth-led protests underscored aspirations for greater transparency, governance and a more equal distribution of economic opportunities and resources. This yearning resonated in Nepal and beyond.

Now, Nepal must find a balance in setting prudent political, economic and financial policies to steer a difficult transition in an orderly manner. Adding to the complex domestic situation is the lingering uncertainty in the global economy. The transition process in this challenging environment should ensure an inclusive future for Nepal’s people.

Economic challenges

History shows that more equal societies tend to be associated with greater economic stability and more sustained growth. This will be a helpful guiding strategy as Nepal charts its own path to change. Indeed, a solid strategy needs to be founded on two key pillars: economic stability and inclusive growth.

In 2022, stability was among the top priorities when the country’s leaders approached the IMF for support. The collapse of tourism in the wake of the Covid-19 pandemic took a heavy toll on Nepal’s economy, including on its job market.

The IMF’s financing package assisted the authorities’ Covid-19 response in mitigating the pandemic’s impact on economic activity, protecting vulnerable groups and laying the groundwork for sustained growth. The program also supported reforms to foster durable growth and reduce poverty over the medium term, including by implementing cross-cutting institutional reforms to improve governance and reduce corruption vulnerability.

In October, Nepal completed the sixth of seven program reviews, showing tangible improvement in the economy. Indeed, Nepal has been seeing the green shoots of recovery with real GDP growth rising from a mere 2 percent in FY 2023, to 3.7 percent in FY 2024, to an estimated 4.3 percent in FY 2025—more than double the pace in just a few years.

In FY 2026, we still expect the country’s economic recovery to continue, though at a more moderate pace amid a complex domestic environment and global uncertainty.

Nepal has also been very successful in rebuilding policy buffers. Foreign exchange reserves have risen to nearly $20 billion, enough to cover almost a full year of imports. Fiscal discipline has helped stabilise public debt. Inflation remains well below the Nepal Rastra Bank’s target.

This hard-won economic stability should be safeguarded. At the same time, the economy hasn’t fully recovered. Domestic demand remains subdued, investor confidence is waning, and more efforts are needed to protect vulnerable people.

Nepal has achieved significant milestones on structural reforms, in part with support from the IMF capacity development. On the fiscal front, frameworks for increasing government revenue and fiscal transparency have improved with the publication of the domestic revenue mobilization strategy, fiscal risk statement and the tax expenditure report. The National Planning Commission has issued revised guidelines for the National Project Bank, which will strengthen capital project selection and execution.

Likewise, in the financial sector, bank supervision has improved through the Supervisory Information System. The Nepal Rastra Bank has also recently launched a loan portfolio review of 10 large commercial banks, which is expected to provide deep insights into the health of the banking sector.

Measures have been taken to improve governance and transparency, including by improving the anti-money laundering framework, though further efforts are needed to enhance implementation.

As part of the program, four priority nonfinancial public enterprises had their financial statements audited. Work is underway to amend the Nepal Rastra Bank Act to strengthen its autonomy and governance.

Yet, unresolved structural issues and emerging headwinds are testing these gains. Policymakers must ensure that the fruits of macroeconomic stability and growth are broadly shared. Continued reforms will help. In the near term, this implies accelerating budget execution and improving project readiness—particularly in areas such as hydropower and trade-related infrastructure—and reducing logistics frictions, which will crowd-in private investment.

This will also lay the foundation for a more diversified, higher value-added growth model that creates more domestic jobs.

Unlocking private sector growth to deliver more jobs and better livelihoods is critical. This can only be accomplished when the basic building blocks of private enterprise are in place: Strong institutions, free and fair markets and a stable macroeconomic environment.

Over the medium term, strengthening governance and anti-corruption institutions, improving the investment climate, enhancing financial oversight, trade integration and expanding targeted social protection will be key to unlocking inclusive and sustainable growth.

Reason for hope

Let us conclude by expressing our deep sympathy for the profound loss during the recent social unrest. We are deeply saddened by the loss, but also heartened by the resilience of the Nepali people striving for a better future.

While global economic prospects remain dim amid uncertainty, Nepal gives reason for hope—a nation reimagined with greater equality and good governance. The country faces a challenging transition, but it can make the most progress if the people work together. For policymakers, this implies steering the economy on the course of continued reforms that safeguard macroeconomic and financial stability while laying strong foundations for durable and inclusive growth, coupled with good governance.

This is a unique moment in the country’s long history, and a time to set a new standard for the future. The IMF is ready to support Nepal in its journey.

Krishna Srinivasan is the head of the Asia and Pacific Department at the IMF. Sarwat Jahan is the mission chief for Nepal and a deputy division chief in the Asia and Pacific Department.

IPS UN Bureau

 

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Flagship report calls for fundamental reset of global water agenda as irreversible damage pushes many basins beyond recovery.

By UN University’s Institute for Water, Environment and Health
UNITED NATIONS, Jan 21 2026 (IPS)

The world is already in the state of “water bankruptcy”. In many basins and aquifers, long-term overuse and degradation mean that past hydrological and ecological baselines cannot realistically be restored.

While not every basin or country is water-bankrupt, enough critical systems around the world have crossed these thresholds, and are interconnected through trade, migration, climate feedbacks, and geopolitical dependencies, that the global risk landscape is now fundamentally altered.

The familiar language of “water stress” and “water crisis” is no longer adequate. Stress describes high pressure that is still reversible. Crisis describes acute, time-bound shocks. Water bankruptcy must be recognized as a distinct post-crisis state, where accumulated damage and overshoot have undermined the system’s capacity to recover.

A group of women fetching water from a dam in Taha, Northern Region of Ghana. Credit: Evans Ahorsu. Source: UN University’s Institute for Water, Environment and Health

Water bankruptcy management must address insolvency and irreversibility. Unlike financial bankruptcy management, which deals only with insolvency, managing water bankruptcy is concerned with rebalancing demand and supply under conditions where returning to baseline conditions is no longer possible.

Anthropogenic drought is central to the world’s new water reality. Drought and water shortage are increasingly driven by human activities, over-allocation, groundwater depletion, land and soil degradation, deforestation, pollution, and climate change, rather than natural variability alone. Water bankruptcy is the outcome of long-term anthropogenic drought, not just bad luck with hydrological anomalies.

Water bankruptcy is about both quantity and quality. Declining stocks, polluted rivers, and degrading aquifers, and salinized soils mean that the truly usable fraction of available water is shrinking, even where total volumes may appear stable.

Managing water bankruptcy requires a shift from crisis management to bankruptcy management. The priority is no longer to “get back to normal”, but to prevent further irreversible damage, rebalance rights and claims within degraded carrying capacities, transform water-intensive sectors and development models, and support just transitions for those most affected.

Governance institutions must protect both water and its underlying natural capital. The existing institutions focus on protecting water as a good or service disregarding the natural capital that makes water available in the first place. Efforts to protect a product are ineffective when the processes that produce it are disrupted.

Recognizing water bankruptcy calls for developing legal and governance institutions that can effectively protect not only water but also the hydrological cycle and natural capital that make its production possible.

Water bankruptcy is a justice and security issue. The costs of overshoot and irreversibility fall disproportionately on smallholder farmers, rural and Indigenous communities, informal urban residents, women, youth, and downstream users, while benefits have often accrued to more powerful actors. How societies manage water bankruptcy will shape social cohesion, political stability, and peace.

Water bankruptcy management combines mitigation with adaptation. While water crisis management paradigms seek to return the system to normal conditions through mitigation efforts only, water bankruptcy management focuses on restoring what is possible and preventing further damages through mitigation combined with adaptation to new normals and constraints.

Water can serve as a bridge in a fragmented world. Water can align national priorities with international priorities and improve cooperation between and within nations. Roughly 70% of global freshwater withdrawals are used for agriculture, much of it by farmers in the Global South. Elevating water in global policy debates can help rebuild trust between South and North but also within nations, between rural and urban, left and right constituencies.

Water must be recognized as an upstream sector. Most national and international policy agendas treat water as a downstream impact sector where investments are focused on mitigating the imposed problems and externalities. The world must recognize water as an upstream opportunity sector where investments have long-term benefits for peace, stability, security, equity, economy, health, and the environment.

Water is an effective medium to fulfill the global environmental agenda. Investments in addressing water bankruptcy deliver major co-benefits for the global efforts to address its environmental problems while addressing the national security concerns of the UN member states.

Elevating water in the global policy agenda can renew international cooperation, increase the efficiency of environmental investments, and reaccelerate the halted progress of the three Rio Conventions to address climate change, biodiversity loss, and desertification.

A new global water agenda is urgently needed. Existing agendas and conventional water policies, focused mainly on WASH, incremental efficiency gains and generic IWRM guidelines, are not sufficient for the world’s current water reality. A fresh water agenda must be developed that takes Global Water Bankruptcy as a starting point and uses the 2026 and 2028 UN Water Conferences, the conclusion of the Water Action Decade in 2028, and the 2030 SDG 6 timeline as milestones for resetting how the world understands and governs water.

Global Water Bankruptcy: Living Beyond Our Hydrological Means in the Post-Crisis Era | UN University Institute for Water, Environment and Health (UNU-INWEH) (20 January) (press release)

Support Paper
Madani K. (2026) Water Bankruptcy: The Formal Definition, Water Resources Management, 40 (78) doi: 10.1007/s11269-025-04484-0)

IPS UN Bureau

 

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