Violent anti-corruption protests forced Prime Minister K.P. Sharma Oli to resign, the army to patrol Kathmandu, and former Chief Justice Sushila Karki to take office as interim prime minister. The election is scheduled for March 5th, 2026. Expect six months of fragile order marked by curfews, sporadic protests, and activist-led policy volatility. Firms should harden operations against periodic shutdowns, tighten compliance, and plan for a bumpy election cycle in early 2026.
Current Political Situation
Nepal’s political order has unraveled into its worst crisis since the abolition of the monarchy in 2008. The Gen Z protests, coordinated largely through Discord servers, Instagram, and Facebook, began on September 4, 2025, after the government banned 26 apps—widely seen as an attempt to suppress dissent over “nepo kids” content—posts by politicians' children flaunting lavish lifestyles on social media, which inflamed Gen Z anger given Nepal's widespread poverty (per capita GDP ~$1,300) and high youth unemployment (~20%) . The demonstrations quickly evolved into anti-corruption rallies targeting elites across the Communist Party of Nepal (UML), Nepali Congress, and Maoist Centre. Rather than opposing a single party, the Gen Z movement rejects the entire political order, pressing for a new republic grounded in meritocracy, market-driven growth, digital freedom, and accountability.
Timeline of Key Events
- September 4–7: Initial protests in Kathmandu, Pokhara, and Biratnagar focused on the app ban and 20% youth unemployment. The ban was lifted on September 8, but momentum grew nonetheless.
- September 8: Peaceful marches turned violent; protesters stormed government offices. Nineteen killed in clashes in Kathmandu.
- September 9: Protests spread nationwide. Parliament, party offices, and homes of politicians were torched. PM Oli resigned; curfews imposed; army deployed.
- September 10–12: Death toll climbed to 51; over 1,300 injured. Army patrolled cities; 22 escaped prisoners caught at the India-Nepal border. Gen Z leaders demanded an independent interim government under Sushila Karki.
- September 13: Karki appointed interim PM; parliament dissolved; elections scheduled for March 2026. Dalai Lama’s congratulatory message hints at Tibetan exile influence. Protests began drawing in royalists and independent leaders like Kathmandu Mayor Balendra Shah.
The interim government already faces legitimacy questions. Gen Z demands leadership based on competence and integrity, while ethnic tensions (e.g., Madhesi vs. hill groups) simmer. Chronic coalition shifts since 2022 have weakened governance, and Nepal remains on the FATF Grey List, complicating aid flows.
Why this matters for business
Nepal is a small, open, remittance-dependent economy whose logistics, tourism, construction, and retail sectors cluster in the Kathmandu Valley. The recent events exposed four vulnerabilities relevant to operators and investors:
- Continuity risk: Curfews and ad-hoc shutdowns can halt movement of staff and goods with little notice. Even brief closures of Tribhuvan International Airport and the Birgunj–Raxaul land corridor ripple quickly through inventories and cash flow.
- Records and payments: The burning of government complexes and courts damaged archives and delayed case management. Expect slower permitting, title verification, and dispute resolution. State vendors should anticipate longer payment cycles.
- Digital volatility: The government’s abrupt platform ban, then reversal, signals a willingness to weaponise connectivity in crises. Telecom back-offs and throttling remain on the table during flashpoints, complicating payments, customer service, and EHS incident reporting.
- Policy whiplash: A populist anti-graft agenda will push rapid changes in procurement rules, audits, bank loans, and enforcement. Firms with legacy contracts or politically exposed partners face outsized scrutiny.
Geopolitical Dynamics
Nepal’s status as a Himalayan buffer state makes it a flashpoint in India-China-U.S. rivalry. The current unrest has raised accusations of foreign interference and could reshape alignments.
India-Nepal Relations
India views Nepal through its “Neighbourhood First” policy, rooted in the 1950 Treaty of Peace and Friendship, which ensures open borders and visa-free movement. India accounts for 64% of Nepal’s trade ($8.85 billion in 2023). Yet Oli’s pivot toward China, capped by BRI agreements, strained ties. Memories of the 2015 blockade to this landlocked country still fuel anti-India sentiment. The current unrest raises immediate risks: India sealed the Uttarakhand border on September 10, stranding migrants and students. Pro-India figures, such as Nepali Congress leader Sher Bahadur Deuba, saw their homes torched, complicating New Delhi’s ability to engage without appearing heavy-handed. Indian pro-BJP government journalists in the streets of Kathmandu are seen being humiliated by the protestors.
China-Nepal Relations
China has been Nepal’s top source of FDI since 2015, pushing BRI projects in hydropower and infrastructure. Beijing pledged $41 million in aid in 2024 and declared 2025 a “Nepal Visit Year” to boost tourism. Oli’s fall weakens Beijing’s allies, opening space for India. Ongoing trilateral border disputes, including Lipulekh, remain a flashpoint. Beijing’s pragmatism, boosted by the Trump administration’s recent exorbitant tariff on India and in turn a new opening with China, however, suggests it may prioritize stable ties with India over heavy investment in a volatile Kathmandu. Tibetan exile involvement, signaled by the Dalai Lama’s message, adds another sensitive layer for Beijing.
U.S. and Other Influences
The U.S. embassy urged shelter-in-place, while some analysts allege Washington covertly supported protests to counter China, drawing parallels with Sri Lanka’s 2022 unrest. EU leaders welcomed Karki’s appointment as a democratic step. Pakistan’s role is peripheral but not irrelevant: ISI-linked groups such as LeT and JeM could exploit porous borders.
| External | Core Interests | Risks from Current Crisis |
|---|---|---|
| India | Security buffer, trade, energy, Gorkha ties | Unrest spillover; inflation; stalled cross-border projects. |
| China | BRI access, Tibet security, counter India | Loss of pro-Beijing allies; debt risks; border flare-ups |
| U.S. | Democracy promotion, counter-BRI, Indo-Pacific strategy | Proxy instability; royalist manipulation; media battles |
| Pakistan | Limited; proxy leverage vs. India | Border threats; refugee exploitation |
Regional Trends
The resignation of Prime Minister Oli roughly a year after Sheikh Hasina's fall from power in Bangladesh, coupled with escalating riots in Indonesia, reflects a deeper regional and generational shift. These events are symptomatic of growing frustrations—particularly among Generation Z—over persistent inequalities, limited economic opportunities, and slow development progress. Across Asia, governments appear increasingly ill-prepared to address the structural challenges posed by youth bulges, social fragmentation, and demands for more inclusive governance. The consequences of neglecting social justice are no longer abstract—they are erupting in the streets.
The political trajectory
Karki’s appointment reflects protesters’ demand for a non-partisan, anti-corruption leader. Her legitimacy depends on forming a capable cabinet, setting a credible election calendar, and ensuring accountability for violence. The army, avoiding overt rule, has become the key referee. Gen Z remains pivotal but divided between moderates and radicals, while royalist and opportunist groups circle. The most likely outcome is a hybrid caretaker phase with the army containing unrest and the interim cabinet advancing anti-graft measures.
Scenarios and corporate exposure (next 6–9 months)
Base case: fragile stabilisation (55%)Nepal is likely to muddle through, echoing its post-2008 transitions: crisis without collapse. Karki’s appointment, shaped by Gen Z consultations on platforms like Discord, signals a compact that could shield the interim cabinet and deliver modest reforms such as customs digitization and police adjustments to placate corruption grievances. Businesses face intermittent border and logistics disruptions along the India–Nepal frontier and slower payments, but viability improves as curfews lift and the army retreats to barracks. International lenders, including the IMF’s $372M facility, may extend conditional support if ethnic tensions remain contained. Upside is capped by coalition infighting and youth demands for accountability, leaving recovery uneven in tourism and remittances (25–33% of GDP). Regionally, India is likely to resume aid to counter Chinese inroads, though risks of spillover from Pakistan-linked militant networks persist.
Downside: relapse into emergency (35%).A relapse is plausible given 72 deaths and 1,300+ injuries, echoing past escalations like the 2015 blockade or 2001 royal massacre. Triggers could be riots over election delays, clashes at disputed sites such as Kalapani, or renewed arson resembling the Sept 9 parliament attack, resulting in extended curfews, blackouts, and army overreach. UML and Nepali Congress contesting Karki’s mandate, plus royalist co-optation of protests, could produce shutdowns, airport closures, and labour flight. Tourism and hospitality—drivers of ~4.5% growth—would be hit hardest. Externally, relapse could stall Chinese BRI projects amid debt concerns, while U.S. “colour revolution” rhetoric risks fueling India-Pakistan proxy tensions along Nepal’s border.
Upside: authoritative caretaker (10%).A compact among the presidency, army, and protest leaders shields the interim cabinet, which moves quickly on customs digitisation, transparent tenders, and police reform. International lenders and donors return with conditional budget support. Operating conditions improve; firms with clean procurement histories gain advantage in new bids.
Operational guidance
- People and premises: Keep curfew-compliant shuttle rosters; pre-position essentials (water, first-aid, backup power) at critical sites. Review fire suppression after multiple arson events.
- Supply chain: Dual-source transport across India-facing crossings; negotiate force-majeure and delay clauses into contracts through Q1 2026.
- Compliance: Conduct a rapid exposure audit to politically exposed persons (PEPs) across vendors and brokers from all major political parties. Document clean-contracting steps; assume audits will be public.
- Communications: Maintain redundant channels (SMS cascades, radio, offline muster points). Prepare customer-facing notices for service delays aligned with curfew windows.
- Insurance: Update political-violence, business-interruption, and cargo policies; photograph and inventory assets given elevated arson risk.
What to watch (30–90 days)
- Cabinet formation and security portfolios. A technocratic interior ministry suggests restraint; a military caretaker or hardline policing minister points to longer tutelage.
- Election instruments. Date confirmation, funding for the election commission, and rules on party financing are the credibility tests.
- Anti-corruption architecture. Announcements on procurement transparency, asset declarations, and high-profile indictments will set the tone for corporate compliance.
- Connectivity policy. Any re-imposition of platform bans or extended throttling during rallies is a red flag for digital operations.
- Border and airport tempo. Sustained normal throughput at Tribhuvan and the Birgunj–Raxaul checkpoint signals stabilisation; rolling closures mean fragility.
Bottom line
Nepal has entered a managed transition in which the army acts as guarantor, a jurist-led interim cabinet seeks legitimacy through anti-corruption moves, and youth leaders hold a veto on the streets and via Discord servers. For companies: lock in supply-chain redundancy, clean up politically exposed counterparties, and plan for periodic slowdowns through the election window. Those who pair operational discipline with impeccable compliance will endure the turbulence and be first in line when procurement normalises.
