1:34
If we weren't all already feeling old enough, it has now been 9 months since the youth-led uprising in Nepal that gained attention around the world for seemingly all of the right reasons. The demonstrations, while spectacular, were aimed at a noble cause of holding openly corrupt leaders to account and reversing the slow erosion of freedoms they had been subjected to. Now, one of the reasons this got so much attention over any other given demonstration of political instability is that in the immediate aftermath, they seemed to be extremely successful in getting what they wanted. The prime minister stepped down and interim leader was appointed with the intention of holding free and
fair elections, and throughout all of this, the military chose the side of the people by standing aside instead of following orders to crack down on these protesters. As far as uprisings go, this really was a best-case scenario, and even beyond the nation's borders, it clearly resonated with a lot of people, particularly young people who feel disenfranchised by incumbent powers tailoring the system to suit their needs, even if it may not be to the same degree as what was going on in Nepal. But, all of the noble causes, patriotic decisions, and supportive tweets in the world won't help them with the hard part, which is the less exciting process of rebuilding a country that comes after the revolution. This is
not just rebuilding the literal damage done during the uprising, which to such a small economy is not insignificant, but also rebuilding the institutions, the systems, and trust that make that economy function, all of which were just as upset. Unemployment is extremely high, job creation is extremely low, investor confidence is nonexistent, and this is all in a country that wasn't exactly that prosperous to begin with. Rebuilding the country while fighting corruption, delivering jobs, and avoiding further conflict is a borderline impossible task, especially when most groups would rather just sit on the side and see how things play out.
Now, I know that this sounds a bit cynical towards a change-up that almost everybody wants to see succeed, but it's for that reason that these boring economic factors need to be considered. Almost every country in modern history that has overthrown one despotic ruler has tragically just made room for another to take their place, and economics is often a big part of that cycle. If people can't find a job or feed their families, then even the most noble ambitions can be quickly forgotten in favor of a strong man that offers stability and the confidence that the trains will run on time and there will be food on the table. Whether they actually deliver that or not is another discussion entirely. But there is one
other reason why Nepal deserves some more attention. It actually seems to be working. Given their position, they are doing right everything that can be done right and avoiding a lot of the common pitfalls of other nations going through the same change. And to see that, as always, we can focus on the economic factors that are for better or worse going to determine this country's future. So, what did the economy of Nepal look like before the uprising? How did this shake-up impact that economy? And finally, is there a path towards the widespread prosperity that the people were fighting for in the first place? For some of our upcoming videos, I wanted to go deeper than simply reading about them online. So, I hopped on a
plane and headed to Vietnam and South Korea. The stories that I found were far more interesting than I anticipated and I can't wait to share these videos with you. But while I was there, I needed to keep working and delivering documents to my team to keep us on track. That's why I use Saley. Saley is an eSIM app that allows you to stay connected in over 200 destinations. It's set up is simple. All you have to do is download their app and pick the plan that's right for you. Gone are the days of trying to find a local SIM card at the airport. But not only do they give you data coverage, they also offer in-depth security features that keep your data safe no matter where you are. They even
go as far as blocking in-browser ads to enhance your experience and limit wasted data. Get an exclusive 15% discount on Saley data plans using the code economics at checkout. Download the Saley app or go to saley.com/economics. At the heart of Nepal's revolution was its youth and they had much to be upset about. For one, their economic prospects were dim. But as a generation, they aren't unique. Nepal has a long history of economic hardship. Some of it is the result of simple geography, some is result of political instability, but nonetheless, it has remained on the United Nations list of least developed countries since its implementation in 1971. Though it is scheduled to graduate to a
developing country in 2026, an accomplishment and a new challenge all at once, particularly in the current context, but more on that later. Nepal entered 2025 as one of the poorest nations in Asia and quite frankly, the world, excluding Africa. With a GDP per capita of roughly $1,500, the average citizen of Nepal lives on little more than $4 per day. More 20% of the country's 29 million inhabitants live in poverty, and unemployment remains stuck at around 10% after reaching as high as 13% in 2020 and 2021. But, that only tells half the story. Youth unemployment in the country continues to climb and sits around 21% near all-time highs excluding the pandemic. In this context, we can begin to understand why Gen Z took to the
streets. And despite occasional spurts of somewhat decent GDP growth, overall, the country cannot seem to gain sustainable economic traction. If nothing else, they have been consistently inconsistent. In 2025, GDP grew at 4.5%, but new projections estimate that it may once again slow to just 2.1% in 2026. Whilst cities like Kathmandu are modernizing and adopting smart city initiatives focused on tech and clean energy, and advances in the electrical grid have moved the nation away from mandatory downtimes, life in Nepal, for the most part, remains a daily challenge. For the majority of the country, simple infrastructure that most of us take for granted, like access to consistent running water, a functioning sewer
system, and safe roads, remain woefully underdeveloped. In fact, less than 20% of roads in Nepal are paved and considered all-weather. The vast majority outside of major cities and national highways are simple dirt paths carved into the countryside. In South Asia, that means rural regions in the country become effectively cut off for months at a time during monsoon season. Now, it's important to acknowledge that even the most functional government in the world would be hard-pressed to convert Nepal into a thriving economy, never mind one that has changed 32 times in 36 years. If you're doing the math,
that's an average government lifespan of about 14 months in a system with 5-year terms. But back to the point, geographically, Nepal is a landlocked nation that sits squarely on some of the harshest terrain in the world, the Himalayas. Home to eight of the world's 10 tallest peaks, including Everest, Nepal's landscape is far from conducive to construction, travel, or trade. The reality is 77% of the population lives in rural areas, many of which are extremely remote and difficult to reach. As such, a large portion of the population simply lives a subsistence lifestyle, little self-contained economic ecosystems where families primarily grow crops to feed themselves and make goods to use themselves. Interestingly enough, this
creates a bit of a blind spot when trying to measure the economic output of a developing nation like Nepal. By definition, GDP is the total monetary value of all final goods and services produced within a country's borders during a specific period, typically a year or quarter. The problem with developing countries though is that GDP is calculated by adding up the monetary value of final goods and services sold, and that value is typically captured by market transactions. So, when a family produces food for eating in their terrace farm or builds a house using materials they source themselves from the local forest, well, technically they are producing finished products with value, but those products aren't counted in GDP. Whereas
if they brought those same vegetables to market for sale or were paid to build the house, it would be. Important to keep in mind when looking at a nation like Nepal strictly through the lens of economic data. While technically speaking, individuals live on less than $5 per day, there is a lot to be said for self-sufficiency among households and communities that is not captured in the data. That isn't to discount the reality of life on the ground. By any measure, subsistence living is hard work, and more than 70% of the country relies on some form of subsistence farming to get by. And because of the terrain, trade is difficult. Getting any surplus products to market is often not
really feasible, domestically and to a large extent internationally. Nepal is completely landlocked between the world's two most populous nations, China to the northeast and India to the southwest. But, the Himalayas make accessing China extremely difficult and effectively redirect the vast majority of the nation's trade south into India, where more than 70% of exports reach their final market. And the small percentage of products that do reach North America and Europe must travel south to India's ports, making it all the more cumbersome and expensive, particularly when considering that the majority of it is simply cheap garments. India is by and large Nepal's primary trading and is for all intents
and purposes firmly in the driver's seat in the relationship. This became woefully obvious in 2015 during India's alleged blockade of Nepal. While the two countries share deep historical ties, the cultural diversity of the region and instability of Nepalese politics at times lends itself to conflicting interests. Whatever the official or unofficial underlying reason, in late 2015 exports from India to Nepal essentially froze. And when you rely on a single trading partner for all of your oil and gas, plus other pretty important things like medication, and that partner is suddenly no longer in the mood to share, well, you're pretty much up the proverbial creek without a paddle. And the pain on the ground was real.
Families were cut off from electricity for more than a third of the day, schools were forced to close, and hospitals lacked basic life-saving medications. Shortages of simple things like cooking fuels forced families to cut down trees for firewood to cook. The basic functioning of the Nepalese economy practically ground to a halt because of a pause in trade with one of its two neighboring countries. Fortunately, the issue was ultimately resolved, but the economic impact was significant. The disruption caused Nepal's GDP growth to plummet from 4% in 2014 to a mere 0.4% in 2016. With the downsides of dependency made apparent, Nepal looked north to its,
well, only other option in China. In 2016, the two nations signed a transit agreement granting Nepal access to Chinese ports for international trade, opening the door to a much needed alternative to India's long-standing monopoly. But, there remained one major problem, access. While permission to use Chinese ports was a great first step, getting goods to them was another issue entirely. At the time, Nepal shared but a handful of border crossings with China, with only one or two actually being feasible for bilateral trade. By contrast, there are over 20 authorized border crossings with India, and they don't pass through the Himalayan mountains. The two nations do have dreams of a cross-Himalayan railway, but
as of yet, no actual progress has been made. In fact, little infrastructure progress has been made at all to make access to Chinese ports easier, at least on the Nepalese side. The Chinese, per usual, were eager to help by providing debt funding for projects that included a much lauded at the time international airport in Pokhara. And in 2024, the partner nations took a step further by signing an agreement to formalize China's Belt and Road Initiative in the country, with goals that include the joint development of a trans-Himalayan multi-dimensional connectivity network through the construction of cross-mountain roads, bridges, tunnels, and railways. Sounds complicated, and many remain skeptical of its actual
implementation, but nonetheless, they are trying. All of this is to say, exporting products from Nepal is extremely difficult. The country is quite literally stuck between a rock and a hard place. What they are exporting though, is their workforce. Remember earlier when we discussed the country's 21% youth unemployment rate? Well, in Nepal, when you can't find a job, you go abroad. Over the past decade, an average of 350,000 Nepalis have emigrated annually in search of work. In 2023, that number was a staggering 494,000, or more than 1,400 individuals leaving a day. We aren't just talking about a few youth heading abroad. Over 7% of the entire population is working overseas, primarily in India, Malaysia, and the
Gulf countries because they can't find work at home. And while their labor can't be put to use at home, their work remains meaningful, and shockingly so. It is very normal for families in Nepal to have a child abroad sending money back home to support the family. This inflow of foreign remittances actually accounts for over 26% of Nepal's entire GDP. These foreign salaries quite literally drive a quarter of the country's economic growth. Now we can begin to grasp why a generation took to the streets demanding change. Daily life in Nepal is hard work. Jobs are far and few between and overall economic prospects are perpetually dim.
Well, it's worse than that. Nepal is also a country renowned for its corruption. According to Transparency International, Nepal has a corruption index that hovers somewhere in the high 20s to low 30s on a scale where 100 is the least corrupt. Suffice to say, that's not good. 84% of the population feels strongly that their government is corrupt and it's easy to see why. In 2023, a fake Bhutanese refugee scandal in which nearly 2 million US dollars was collected in bribes from individuals with the promise of sending them to the US implicated many high-ranking government officials, including the former deputy prime minister and former home minister. And remember that much-lauded international
airport in Pokhara? Well, while it has yielded little to no meaningful international flight traffic, it did result in corruption charges against 55 individuals, including a variety of Nepali ministers for inflating costs by nearly 75 million US dollars. These are just a few examples of cases that made international headlines. There is a long history of corruption in public offices that has included bribery, misallocation of funds, and most notably, extreme personal enrichment at the expense of ordinary citizens in a country where poverty is rampant. The thing about Nepal is it's one of Asia's most connected countries. More than 56% of the residents are connected to the internet and of much greater note in
this story is that more than 50% of the total population is plugged into social media and the vast majority of them are the youth. Unfortunately for Nepal's corrupt officials, that group of Instagram-obsessed citizens included their own children. The hardworking and unemployed youth alike were given a front-row seat to the lavish lifestyles of Nepal's popularly named hashtag nepo kids. Children of the elite political old guard that shamelessly posted selfies of their lavish lifestyles and their high-end luxury clothing online, garnering millions of followers. Those followers included Nepal's average young adult at home and abroad that wasted no time making hashtags like nepo babies,
nepo kids, and youth against corruption go viral. In an effort to tamp down on growing dissent in early September 2025, the government banned 26 major social media platforms in the country. But, instead of backing down, Gen Z's anger and protests moved from social media and into the streets. In a span of less than a week, peaceful protests turned to chaos as the government tried to meet the angry youth with deadly force. Tragically, at least 77 people died and over 130 government offices and official residences were fully destroyed with around another 2 and 1/2 thousand damaged. Ultimately, the protesters prevailed in their cause and the prime
minister resigned on September 9th, 2025, to be replaced with the support of the youth by an interim prime minister, former Chief Justice Karki, notably the country's first female prime minister, who immediately began their tenure of rebuilding by visiting injured protesters. Now, even when the outcome is worthy from the perspective of a cold-hearted economist, it is important to acknowledge that this instability had real, meaningful costs. Most importantly, in lives lost, but also in the infrastructure that was destroyed and the government buildings that were burnt down. Rebuilding and repairing both physical structures and a functioning government requires real resources. In a country already struggling to get by, these costs might
absolutely turn out to be worth the price in the long term, but it's naive to ignore them in the short term. In total, it's estimated that the protest will cost Nepal's economy more than 586 million US dollars, or nearly 1.4% of GDP. Of that, nearly 244 million dollars is directly required to rebuild and repair physical infrastructure that was damaged and destroyed. That's a material cost for a country that runs a budget deficit to get by in a good year. And what's more is that every dollar spent on rebuilding is a dollar not invested in new and improved infrastructure that not only has downstream economic effects, but also is sorely needed. To make matters worse, political instability makes government
borrowing more costly, making any rebuilding effort fueled by debt, well, more expensive and makes foreign investors think twice about working in the country. While the outcome of the protest seems to have solidified, revolutionary uprisings are not exactly conducive to attracting outside investment precisely when it's needed most. And contrary to common sense, the new administration's crackdown on corruption in the country may actually be creating unexpected obstacles for that investment. Above all, businesses seek predictability. And whether ethically right or wrong, sometimes an entrenched system of corruption actually provides that predictability, creating a seemingly stable environment where investments flow, albeit with
bribes baked into the costs. Whether just or not, the Pokhara airport is just one of many easy examples to point to. Now, with those well-established routines of the old guard gone, uncertainty remains in its place. As they say, sometimes it's better to deal with the devil you know than the devil you don't. As such, foreign investments reached a low point following the protests, and while they are technically increasing, it's primarily in commitments, not actual inflows of money as investors wait to see how things shake out on the ground. Unfortunately, tourists are showing some of that same hesitancy. While the industry has remained pretty resilient in the face of such upheaval, tourism following the protests has plateaued and remains well
below pre-pandemic norms. And luxury hotels were not spared in the protests either. In fact, many were severely damaged, putting further pressure on an already struggling, yet extremely important sector of the country's economy. And all of this is happening in the shadow of a looming deadline. Remember that graduation from the least developed country designation we mentioned earlier? Well, here is where it comes into play, and not really in a good way. While graduating is a moment of national pride for the country and an affirmation of its hard-earned growth, it's also a good old-fashioned rug pull that just may be the actual most inopportune time. The UN's least developed country designation brings with it preferential foreign aid and
grants and near-free loans, and preferential tariff-free access to many international markets. Already, in acknowledgement of its rising per capita income, the World Bank has doubled annual interest on its loans to Nepal and shaved 10 years off of the maturity date. A solid congratulations on becoming a little too rich to qualify for help gift. Plus, with the expiration of preferential trade treatment, Nepal's mega manufacturing sector will have to face off against its neighbors in the international markets. And unfortunately for Nepal, India and China happen to be two of the most well-established cheap manufacturing hubs of the world. Paired with higher production costs because of their near complete reliance on imported
raw materials, it is anticipated that new found competition could decrease Nepal's total exports by as much as 4.3% upon graduation. And with it, the International Labor Organization estimates the potential job losses could exceed 130,000, primarily concentrated in the manufacturing industry, creating downward pressure on an important domestic sector the country is already struggling to develop. In total, graduating from an LDC could end up costing Nepal over 1 billion US dollars in real GDP over the next 5 years. So, just when the effects of 20% poverty, 21% youth unemployment, and dim prospects of any change finally push people to demand change, well, a whole new set of challenges arises that make
addressing those underlying problems all that much harder. The problem is, for a new government elected to implement meaningful economic change, expectations by the people may be too high. The average person doesn't understand or care about the costs of becoming a developing country or the costs of government debt. What they care about is earning enough to feed their family. However, those economic costs are real and they create real challenges for policy makers in developing a domestic economy that can support families on the ground. But, if despite their best efforts things don't improve, the new government may find itself in the same hot seat as the old one. Now, before we assume Nepal is doomed to the same cycle of instability,
there are real reasons to be hopeful. First and foremost, Nepal's military showed enormous restraint in relinquishing their control just days after deploying to the capital to quell the protests. And the interim prime minister's term did in fact remain temporary. What's more important though is what her tenure accomplished. Karki was the nation's first female chief justice and brought with her a reputation for integrity as she stepped into her role as interim prime minister. Her ability to be a constant amidst chaos is truly a feat worth acknowledging. In one of her first official acts, she established a commission to investigate the deadly violence of the protests. But what's more, she provided the leadership
necessary to maintain basic government function during a transitional and precipitous moment for the nation. Under Karki, the country carried on. The fabric of Nepal's society and economy remained intact. And while I've managed to squeeze all of the country's civil services, electric grid operators, and essential workers into a single sentence, the continued operation of this very fabric, despite the toppling of government, is exactly what prevents a nation in the middle of a difficult transition from becoming a failed state. Most importantly, though, interim Prime Minister Karki fulfilled her responsibility to hold elections. And just this March, Nepal successfully ran
a free, fair, and peaceful election, and a new, overwhelmingly young government was elected. And their mandate is clear. Led by ex-rapper and a key figure in the Gen Z protest, Prime Minister Shah ran on a platform of anti-corruption and reform. Hope that once seemed all but gone has returned for the people of Nepal. They are eager to participate in a new chapter for the country. On a macroeconomic level, Nepal is also poised to take advantage of its greatest geographical advantage. Hydroelectric power fueled by the vast flowing rivers of the Himalayas. The same mountains that seem to cause so many problems actually provide an opportunity to also solve them. In the past few years, Nepal
has finally begun to tap into this vast natural resource, signing landmark long-term deals with India and Bangladesh to export over 10,000 megawatts of electricity. As of 2024, the nation's electricity capacity crossed 3,100 megawatts, 95% of which is hydropower, and it is steadily increasing, supported by domestic and international investment. With a total estimated potential of 83,000 megawatts, 40,000 of which are currently economically viable, there is a very long runway for growth. Nepal has a real opportunity to shift from a nation reliant on importing expensive fuels to one that exports clean renewable energy, and it couldn't come at a better time. As the world sits on edge over supply chain disruptions in the Middle East,
Nepal finds itself sitting on a strategic opportunity to redefine its economy around energy. So, while nobody can predict the future, least of all economists, there are many reasons to be optimistic. Despite harsh geography, difficult living conditions, and a history of political instability, Nepal has remained remarkably resilient. While the September protests resulted in tragic loss and real economic costs, they seem to have succeeded in breaking Nepal's cycle of consistently inconsistent governance. By forcing a change and embracing the values of democracy, the youth have cleared a path for a new version of Nepal, one centered on accountability and hope. The people of Nepal fought for a chance to change
their future. Now, for better or worse, they have the opportunity to do it. Now, I wanted to tell you about the Economics Explained newsletter. If you're watching this video and thinking, "There must be more stories like this one," we started a newsletter for that. Once a week, we send one economic story covering things that quietly shape how the world works, but rarely get explained properly. Things like prediction markets, the $58 trillion water problem we're heading towards, or why economic data is almost always wrong. The newsletter is completely free, and you can sign up through the link in the description or the QR code on screen now.
Thanks for watching, mate. Bye.
