KATHMANDU: The ongoing saga of appointing a new Governor of Nepal Rastra Bank (NRB) has become emblematic of the larger struggles within Nepal’s political landscape. The delay in selecting the next governor has laid bare the deep political divisions within the country, highlighting how institutional appointments are often clouded by political maneuvering rather than a focus on competence and public welfare. The saga surrounding the NRB Governor’s appointment is not merely an issue of filling a crucial role at the central bank but reflects the broader challenges in Nepal’s governance, where party interests often take precedence over the national good.
In this context, the appointment process has become a battleground between the major political players in the country, most notably Prime Minister KP Sharma Oli and Nepali Congress President Sher Bahadur Deuba. Their struggle to influence this key appointment sheds light on how the country’s economic governance and key institutions are shaped by partisan interests. The agreement between the NC and CPN-UML to endorse Prof. Dr. Bishwo Poudel’s name reflects the complex power dynamics in play.
Governance Paralysis
The delay in appointing a new NRB Governor is a direct consequence of the political gridlock in Nepal. Following the end of Maha Prasad Adhikari’s tenure as NRB Governor in early April, 2025, the position has remained vacant for more than a month. This delay is not a result of an inability to find qualified candidates but a consequence of Nepal’s political paralysis. The major political parties, particularly the CPN-UML and the Nepali Congress (NC), have been unable to come to an agreement on a candidate for the position.
This standoff is an example of how the competing interests between the political parties can paralyze governance. The NRB Governor is not just a figurehead but a key decision-maker, and the inability of political parties to put aside their differences has left the institution without leadership, which affects the country’s monetary policy and economic stability. The country has experienced instances of similar institutional delays in the past, with the judiciary, civil services, and other regulatory bodies also facing prolonged leadership vacancies. These delays in decision-making have had significant economic ramifications, particularly in a country like Nepal, where stability and consistency in leadership are critical to navigating economic uncertainties and challenges.
This political gridlock is exacerbated by the complex and often tense relationship between Nepal’s two major ruling partners, which have been in a constant power struggle. The CPN-UML, led by PM Oli, and the NC, led by Sher Bahadur Deuba, have been at odds on many issues, including the structure and functioning of state institutions. In the case of the NRB Governor’s appointment, the allies of the ruling coalition have been unable to reach a consensus on a candidate that satisfies all factions. In such a situation, institutions like the NRB, which should be above political influence, become the subject of intense political bargaining.
Patronage in Appointments
The appointment of the NRB Governor is not an isolated case of political interference. In Nepal, political patronage in the appointment process is a long-standing trend. The NRB, as the country’s central bank, holds immense power in shaping monetary policy, influencing interest rates, managing inflation, and regulating the banking sector. Given its pivotal role in economic governance, political parties often vie for control over the NRB by placing loyalists in positions of power.
The practice of political patronage has deep roots in Nepal’s political history. During the Panchayat regime (1960-1990), political appointments were often used to reward loyalists and maintain control over key institutions. While Nepal’s democratic transition in the 1990s was supposed to end such practices, political patronage has continued to thrive, particularly in key sectors like the judiciary, civil service, and the central bank. This issue has been further entrenched by the instability of coalition governments, which rely on such patronage to maintain political support.
The appointment of Yubaraj Khatiwada as NRB Governor during the tenure of Prime Minister KP Sharma Oli is a prime example of political interference in the institution. Khatiwada, who was a close ally of the ruling government, implemented policies that were closely aligned with the administration’s fiscal agenda. His tenure set a precedent that reinforced the idea that appointments to the NRB could be made based on political loyalty rather than the merit of the candidates. This practice has led to a situation where the NRB is frequently seen as a tool of the ruling political party, eroding public trust in its autonomy and ability to act in the nation’s best interest.
Such appointments often bring immediate political advantages, but in the long run, they damage the credibility of key institutions like the NRB, as well as undermine public confidence in the governance system as a whole. When institutions are seen as instruments of political control rather than independent bodies working for the public good, it becomes difficult to establish the kind of political and institutional stability needed for economic growth and development.
Power Play
To understand the significance of the NRB Governor’s role, it is essential to recognize the central bank’s impact on the economy. The NRB is responsible for controlling inflation, managing interest rates, and regulating the money supply. These decisions have far-reaching effects on the overall economic health of Nepal, including the stability of the banking system, the value of the Nepali rupee, and the confidence of domestic and foreign investors.
When political parties place loyalists in the NRB, they are essentially ensuring that the central bank’s policies will align with their political agenda. This can be beneficial in the short term but also carries significant risks. Politically motivated appointments can undermine the independence of the NRB, which is supposed to function as an impartial institution that makes decisions based on economic principles rather than political considerations.
For Nepal, a country that is still struggling to establish a stable financial system, undermining the NRB’s independence poses serious risks. Political interference in the central bank can lead to economic instability, weak fiscal policies, and diminished investor confidence—problems that Nepal can ill afford in its current economic climate. Economic policies should be designed to tackle structural issues such as inflation, trade imbalances, and the unproductive use of resources. Political interference in the NRB’s operations often detracts from these long-term economic goals, focusing instead on short-term political gains.
In addition, the NRB plays a crucial role in maintaining Nepal’s foreign exchange reserves and regulating the banking sector. A politically appointed governor may prioritize government interests over sound economic principles, which can have serious consequences for the country’s financial system. For example, excessive government borrowing or mismanagement of the exchange rate could lead to inflationary pressures and currency depreciation, which would undermine the economic stability of Nepal and hurt the purchasing power of ordinary citizens.
Political Deal-Making
The appointment of Prof. Dr. Bishwo Poudel as the new NRB Governor has not yet been finalized, but an understanding between the Nepali Congress (NC) and the Communist Party of Nepal (Unified Marxist-Leninist) [CPN-UML] has been reached to nominate him for the role. While Dr. Poudel is widely regarded as a competent economist, his selection has come about not through a transparent process but as a result of political bargaining between the two major parties. The understanding between the NC and CPN-UML reflects the larger power dynamics at play in Nepal’s politics, where political compromises often shape key institutional decisions.
The decision to nominate Dr. Poudel is not just about selecting a qualified candidate but also about securing political advantages for both parties. The NC, which has a strong foothold in the financial sector, and the CPN-UML, which has historically held a significant influence over key government positions, have been in negotiation for months over the appointment. In this instance, the parties have sought to reach a compromise that would allow both to claim a degree of control over the central bank, a move that reflects the ongoing rivalry between the two major political forces.
Dr. Poudel’s name was agreed upon following several unsuccessful efforts to identify a mutually acceptable candidate for both parties. The failure to come to a consensus sooner highlights the challenges that Nepal’s political system faces in achieving meaningful reforms. Political bargaining and compromises often result in decisions that may not be in the best interest of the nation, as they prioritize party interests over the welfare of the public. In the case of the NRB, this means that the independence of the central bank could be compromised by the political maneuvering behind Dr. Poudel’s nomination.
Coalition Politics
The NRB Governor appointment is a microcosm of the broader dynamics within Nepal’s ruling coalition. Despite being part of the current ruling coalition, the relationship between the Nepali Congress (NC) and the Communist Party of Nepal (Unified Marxist-Leninist) [CPN-UML] remains tense, as both parties continue to vie for political dominance. This power struggle is reflected in their competition to control key institutions, including the NRB.
The struggle between these two major ruling parties is a central feature of Nepalese politics, and the NRB Governor appointment has become yet another battleground. Behind the scenes, backroom deals and power-sharing arrangements have shaped the outcome of this appointment. These political dynamics have far-reaching implications for Nepal’s governance, affecting not only the NRB but also other state institutions that are vital for the functioning of the country.
The coalition government in Nepal is inherently fragile, and the competition between the NC and UML often leads to political gridlock. In a coalition government, each party seeks to place loyalists in key positions to maintain political leverage and ensure the continued support of their constituencies. This has created an environment where key appointments, including those in the NRB, become more about political calculation than about selecting the most qualified candidate for the job.
The Economic Consequences
The delay in appointing a new NRB Governor has had serious economic consequences. Without a leader at the helm of the NRB, key decisions related to interest rates, currency management, and monetary policy have been stalled. The NRB is a key player in managing Nepal’s inflation rate, stabilizing the currency, and maintaining the broader economic framework. As a result of the leadership vacuum, these critical policy areas have been left in limbo, leading to uncertainty in Nepal’s financial markets.
Additionally, the absence of a permanent Governor has created a lack of investor confidence. International investors are hesitant to commit to long-term projects in Nepal when there is such uncertainty surrounding the stability of the financial system. Moreover, the delay in appointing a new Governor has left the NRB without the ability to effectively regulate the banking sector, which is vital for the health of Nepal’s financial institutions.
Breaches of Legal Framework
The legal framework for the appointment of the NRB Governor is clearly outlined in the Nepal Rastra Bank Act 2058 (2002). Section 15 of the Act mandates that the governor should be appointed based on the recommendations of a selection committee comprising representatives from various sectors, including former NRB governors and economic experts.
Moreover, the Act specifically requires that the name of the new governor must be finalized and made public at least one month before the current governor’s term ends. This provision is intended to ensure a smooth transition and maintain stability within Nepal’s central banking system.
Despite this clear legal requirement, the delay in appointing a successor after Maha Prasad Adhikari’s term ended on April 7 has raised serious questions about adherence to procedural norms. The failure to meet the stipulated deadline is not just a technical lapse; it represents a significant breach of legal obligations that undermines confidence in the appointment process. Additionally, the prolonged vacancy has exposed the central bank to political maneuvering, with major political parties attempting to leverage the appointment for their own interests.
The role of the finance minister and other political stakeholders becomes crucial in this context. Their responsibility is to ensure that the appointment process remains transparent and free from political interference. However, the ongoing deadlock and lack of timely decision-making suggest that political considerations have overshadowed legal compliance, casting doubt on the credibility of Nepal’s governance system and its respect for institutional integrity.
FATF and Its Scrutiny
Nepal’s struggle with compliance to international standards, particularly those set by the Financial Action Task Force (FATF), adds another critical dimension to the NRB governor’s appointment. In February 2025, Nepal was placed back on the FATF grey list for the second time, highlighting deficiencies in its anti-money laundering (AML) and counter-terrorism financing (CFT) measures. This grey-listing has significant implications for Nepal’s financial transactions with the global community, increasing scrutiny and reducing investor confidence.
The Nepal Rastra Bank (NRB) plays a pivotal role in ensuring that Nepal adheres to FATF standards, implementing regulatory measures that prevent financial crimes and promote transparency. Any delay in appointing a capable and independent governor threatens to undermine these efforts, making it even harder for Nepal to meet FATF requirements. Furthermore, political bargaining and the pursuit of partisan interests in selecting the new governor cast doubt on the central bank’s commitment to financial integrity and international obligations.
A politically influenced central bank weakens Nepal’s position on the global stage, diminishing its credibility and complicating its path to exit the FATF grey list. The prolonged delay not only hampers immediate regulatory enforcement but also signals instability and lack of political will to prioritize economic governance. If Nepal is to restore its international standing and regain the trust of international financial institutions, an independent and transparent appointment of the NRB governor is imperative.
Economic Fallout
The delay in appointing a new NRB Governor has already started to affect Nepal’s economy. The absence of clear leadership has created a vacuum in policy-making, leaving the country without a coherent monetary policy to tackle pressing economic issues. Nepal’s foreign exchange reserves are depleting, inflation is on the rise, and the trade deficit continues to widen. These challenges require decisive action, but the NRB’s lack of leadership has left the institution unable to address these concerns effectively.
One of the key issues facing Nepal’s economy is the depreciation of the Nepali rupee. The currency has been weakening against major global currencies, driven by a combination of factors, including Nepal’s growing import dependency and the slow pace of export growth. The NRB’s inability to implement measures to stabilize the rupee has exacerbated inflation and contributed to rising living costs for ordinary citizens.
Furthermore, the NRB is also facing significant challenges in controlling inflation. Prices of essential goods, including food and fuel, have surged, placing considerable strain on Nepalese households. Without the appointment of a capable governor, the NRB has been unable to make timely interventions to address these economic pressures.
Institutional Independence
The ongoing political deadlock surrounding the NRB Governor’s appointment highlights the need for significant institutional reforms. Nepal must move beyond political patronage and create mechanisms that ensure appointments to critical institutions are based on merit, rather than political affiliation. One potential solution is to establish an independent commission tasked with selecting candidates for positions like the NRB Governor, ensuring that they are chosen based on their qualifications and experience.
Such a commission could include a mix of economic experts, former central bank officials, and independent members from civil society. The goal would be to depoliticize appointments and restore confidence in the NRB’s ability to function independently. Ensuring the independence of the NRB is essential for the long-term stability of Nepal’s economy.
Moreover, political parties must recognize that their short-term interests should not override the national interest. By allowing institutions like the NRB to operate independently, Nepal can avoid the kind of political interference that has hampered its economic progress in the past.
Rebuilding Trust
To build a stronger and more sustainable economic future, Nepal must prioritize rebuilding trust in its key economic institutions, including the Nepal Rastra Bank (NRB). This trust is essential for fostering a stable and resilient economy that can attract both domestic and foreign investments.
The first crucial step in this process is to ensure that appointments to high-ranking and critical positions within these institutions are made based on merit and expertise, rather than political affiliation or patronage. This approach will help ensure that qualified individuals, who possess the necessary skills and knowledge, are leading economic bodies such as the NRB.
To achieve this, Nepal needs comprehensive institutional reforms that prioritize key values such as competence, transparency, and independence. These reforms should focus on creating a system where decisions are driven by professional qualifications and a commitment to national economic goals, rather than by political expediency or influence. This would not only strengthen the credibility of the NRB but also instill confidence in other important sectors of the economy.
Moreover, political parties must recognize that the overall health of the nation’s economy and the credibility of institutions like the NRB depend on the selection of individuals who are genuinely qualified to carry out their responsibilities without succumbing to political pressures.
Ethical and Moral Considerations
The ethical and moral implications of appointing a new Governor for Nepal Rastra Bank (NRB) are as critical as the political and economic aspects. The NRB Governor is expected to be a person of high integrity, with a neutral background that is free from political influence. This neutrality is essential for the smooth functioning of the central bank, which plays a central role in the country’s monetary policy, financial stability, and economic governance. However, the political parties’ persistent attempts to place their chosen candidates in the NRB Governor’s office raise serious concerns about the erosion of this neutrality.
In an ideal scenario, the NRB Governor should be someone with a deep understanding of economics, finance, and banking, yet without any significant political affiliations or loyalties. The Governor’s decisions must be guided solely by the national interest, not the whims of political parties.
Unfortunately, the current process of appointing the NRB Governor in Nepal is riddled with political patronage, where each party seeks to ensure that their “man” holds the reins of the central bank. This results in the undermining of the core ethical principle of neutrality, which is vital for the credibility of the NRB and the country’s financial systems.
Autonomy and Public Trust
The moral question surrounding the NRB Governor’s appointment revolves around the necessity for public trust in financial institutions. The NRB, like any central bank, must be seen as an impartial body capable of making decisions based on sound economic reasoning rather than political considerations. When politicians impose their preferred candidates, it undermines this trust and reinforces the perception that financial institutions are extensions of the political establishment rather than independent entities focused on the country’s economic welfare.
In this context, political parties must be held accountable for their actions. The tendency to place loyalty over competence in key institutions like the NRB contributes to the erosion of democratic values and the strengthening of patronage systems. The failure to maintain the neutrality of positions such as the NRB Governor erodes the moral foundation upon which democracy stands. If the leadership of key state institutions is tainted with political bias, the very principles of transparency, accountability, and fairness become compromised.
Reforms
The appointment of the NRB Governor is an issue that goes beyond party politics—it is a reflection of Nepal’s ongoing struggle to build strong, independent institutions. Political interference in key appointments like that of the NRB Governor undermines the credibility of state institutions and jeopardizes Nepal’s economic stability. To move forward, it is essential that Nepal’s political parties prioritize the national interest over partisan gains.
Institutional reforms are necessary to break the cycle of political patronage that undermines Nepal’s governance. These reforms should aim to ensure that key appointments are based on merit, transparency, and the ability to serve the public good. Only through such reforms can Nepal hope to build a stable and prosperous future, where institutions like the NRB can function independently and effectively to serve the needs of the nation.
Nepal must work towards strengthening its democratic institutions by promoting transparency in the appointment process and ensuring that public offices
