Nepal PM Resigns After Deadly Gen Z Protests Force Nationwide Curfew and Military Talks

Nepal's Gen Z Revolution Reshapes Political Landscape as Markets Weigh Stability Against Reform

Army-brokered talks advance amid curfews while investors eye hydropower trade continuity and constitutional pathways forward

KATHMANDU, Nepal — Nepal remains paralyzed under a nationwide curfew on September 11, 2025, as the military conducts talks with Generation Z protest representatives to select an interim leader following days of deadly unrest that toppled the government. Former Chief Justice Sushila Karki has emerged as the leading candidate for the interim position, according to multiple reports from protest groups and army officials.

The crisis erupted after Prime Minister K.P. Sharma Oli's government banned 26 social media platforms, triggering widespread demonstrations that quickly evolved into broader anti-corruption protests. The unrest forced Oli's resignation earlier this week, along with two cabinet members, as protesters attacked and set fire to government buildings including the Singha Durbar complex, the Supreme Court, and political party offices across Kathmandu.

Health ministry tallies through Thursday report approximately 30 deaths and more than 1,000 injuries since the clashes escalated. The army has imposed curfews, conducted vehicle checks, and made dozens of arrests while seizing weapons in efforts to stabilize the capital. Despite intermittent relaxations of curfew hours in Kathmandu, authorities have reimposed restrictions following renewed arson incidents.

The protest movement, predominantly led by young Nepalis, has expanded far beyond the initial social media ban to encompass systemic grievances over corruption, nepotism, and economic hardship. Demonstrators are demanding the dissolution of parliament and installation of a non-party interim leader, reflecting widespread frustration with elite privilege and limited economic opportunities that have driven mass emigration among working-age citizens.

Nepal faces a significant youth bulge alongside economic pressures, which are major drivers of extensive labor migration. This outward movement of workers has led to a substantial remittance economy, making funds sent home by migrants crucial to the nation's finances.

Kathmandu's Tribhuvan International Airport has reopened after a 24-hour closure, though heavy passenger flows continue as residents attempt to leave amid the uncertainty. The timing coincides with Nepal's crucial autumn trekking season, raising immediate concerns about economic disruption in a nation where remittances from overseas workers comprise approximately 27% of gross domestic product.

Remittances as a percentage of GDP for Nepal, highlighting the country's economic dependence on its overseas workforce.

Year	Remittances as a Percentage of GDP	Source
2024	33.06%	World Bank via Trading Economics
2023	26.89%	TheGlobalEconomy.com
2022	22.56%	TheGlobalEconomy.com

As army talks with protest representatives resume Thursday to finalize the interim arrangement, the selection process has exposed fundamental tensions between constitutional procedure and popular demands for systemic change.

Constitutional Arithmetic Meets Street Legitimacy

This institutional standoff presents complex legal challenges that investors and international observers are monitoring closely. Nepal's 2015 constitution channels executive authority through Article 76, requiring parliamentary arithmetic for prime ministerial appointments. However, protest representatives are demanding a non-party interim leader, creating potential friction between legal procedure and street legitimacy.

Article 76 of Nepal's Constitution outlines the process for the appointment of the Prime Minister. It details how the President appoints a Prime Minister, typically the leader of the political party with a majority in the House of Representatives or a person capable of forming a coalition government.

"The institutional bottleneck is real," noted a Kathmandu-based political analyst who requested anonymity. "Article 76 doesn't codify an 'interim' pathway, so any transition arrangement needs explicit legal choreography to avoid judicial challenges later."

The protest movement's demand for dissolution of parliament and a clean break from party politics reflects deeper frustration with entrenched patronage systems. Youth unemployment and the reality that remittances comprise approximately 27% of GDP underscore the domestic opportunity gap driving emigration among working-age Nepalis.

Markets Navigate Political Uncertainty

Despite the political turbulence, key economic fundamentals remain insulated from immediate disruption. The Nepalese rupee's peg to the Indian rupee, combined with foreign exchange reserves of approximately $19.5 billion providing 12-13 months of import cover, limits currency volatility risks.

Nepal's foreign exchange reserves over the past decade, demonstrating its capacity to cover imports and maintain currency stability.

Date	Foreign Exchange Reserves (USD Billion)	Import Cover (Months, Merchandise & Services)
Mid-June 2025	18.65	14.7
Mid-December 2024	16.76	14.6
January 2025	15.1	12.8

More significantly for investors, Nepal's emerging role as a regional energy hub appears likely to survive political transitions. The India-Nepal power trade agreement targeting 10,000 MW imports over a decade, along with the recent commencement of Nepal's first electricity exports to Bangladesh via India's grid, represents system-critical infrastructure for all three nations.

The Nepal Stock Exchange suspended trading intermittently between September 9-11 under curfew orders. Financial analysts expect reopening with reduced liquidity and elevated risk premiums as institutional investors assess the political trajectory.

"The energy export story transcends domestic politics," observed a Mumbai-based infrastructure analyst. "These cross-border arrangements are anchored by long-term agreements and represent the primary growth lever for Nepal's sovereign profile."

Security Apparatus Balances Order and Legitimacy

The military's role as convener rather than ruler distinguishes the current crisis from classical coup scenarios. Army officials have maintained that civilian leadership remains the objective while acknowledging the need for sustainable order restoration.

Damage assessments reveal the scope of destruction during peak unrest, including fires at Singha Durbar government complex, the Supreme Court, and political residences. However, protest organizers have distanced themselves from arson and looting, alleging opportunistic actors "hijacked" elements of the movement.

International airports have largely resumed operations after temporary closures, though outbound passenger volumes remain elevated as residents seek to depart amid uncertainty. The timing coincides with Nepal's peak autumn trekking season, raising concerns about tourism sector impacts.

Investment Landscape: Separating Signal from Noise

For institutional investors, the crisis presents a case study in political risk versus structural economics. Three scenarios command attention among market participants:

Scenario One (55% probability): A Karki-anchored civilian transition with explicit legal authorization emerges within two weeks. This pathway would likely involve cross-party endorsement and presidential assent, providing constitutional cover while addressing street legitimacy demands.

Scenario Two (25% probability): Strict parliamentary procedure yields a party-affiliated prime minister who pledges reforms but lacks protest movement endorsement. This risks renewed demonstrations and extended uncertainty.

Scenario Three (15% probability): Security-first approach with prolonged curfews and delayed political resolution, potentially impacting the crucial autumn tourism season and broader economic confidence.

The remaining probability accounts for early dissolution and snap elections, though administrative capacity constraints make this less likely in the near term.

Regional Power Dynamics and Infrastructure Continuity

The crisis unfolds against Nepal's evolving geopolitical positioning between India and China. India's strategic interest in hydropower imports and China's Belt and Road Initiative investments create external stakeholder incentives for stability.

The U.S. Millennium Challenge Corporation compact, which resumed funding in late July 2025 after temporary suspension, finances approximately 315 kilometers of 400kV transmission lines essential for regional energy trade. These infrastructure commitments suggest external partners view Nepal's energy potential as insulated from domestic political volatility.

"Grid execution remains the key performance indicator," noted an energy sector specialist. "Even if permitting faces temporary delays under a caretaker arrangement, it's a rounding error against the multi-year capital expenditure trajectory."

Forward-Looking Investment Framework

Analysts suggest several positioning strategies as events unfold. Currency exposure benefits from the rupee peg and substantial reserves, though investors may consider hedging through Indian rupee instruments where feasible.

For equity exposure, utilities and independent power producers with guaranteed off-taker agreements present more defensive characteristics than banking or tourism-dependent names facing earnings downgrades. Regional proxies, particularly India-listed grid companies and power equipment manufacturers, offer cleaner liquidity while maintaining exposure to Nepal's energy transition.

Private infrastructure investment focused on cross-border transmission and hydro projects with signed power purchase agreements appears insulated from political transitions. Projects like SJVN's 900-MW Arun-3 development and the Butwal-Gorakhpur 400kV line represent high-confidence pipeline opportunities.

Tracking Indicators and Risk Factors

Market participants are monitoring several key indicators for political resolution. Publication of explicit interim mandate documentation with defined duration and reform commitments would signal sustainable transition architecture. Conversely, extended Nepal Stock Exchange suspensions or renewed airport disruptions could indicate deteriorating security conditions.

The success of curfew relaxation measures and resumption of normal economic activity will determine whether Nepal can navigate this transition without material disruption to its emerging regional economic integration.

As youth-led movements reshape political expectations across South Asia, Nepal's experience may offer insights into how traditional governance structures adapt to generational demands for accountability and opportunity. For investors, the challenge lies in distinguishing between temporary political volatility and fundamental economic trajectory changes.

The next two weeks will likely determine whether Nepal emerges from this crisis with enhanced legitimacy and reform momentum, or faces extended uncertainty that could undermine its promising energy sector development and regional economic integration prospects.

House Investment Thesis

Dimension	Key Analysis & Investment Implications
Base Case (60%)	Civilian, time-bound interim gov't (likely Sushila Karki) with explicit legal cover and reform calendar. Security normalizes in weeks. Hydropower exports and MCC transmission stay on track.
Downside Case (30%)	Party PM via Article 76 with zero street legitimacy, re-igniting clashes. Rolling curfews extend. Domestic markets reopen in fits and starts.
Tail Risk (10%)	Security-first drift with prolonged curfews/ad-hoc decrees. Significant drag on tourism season. Sporadic border frictions.
Macro Backstop	NPR pegged to INR. FX reserves at ~$19.5B (12-13 months import cover). Remittances ~27% of GDP are sticky. Peg risk is low unless India shocks.
Core Investable Theme	Energy exports to India (10,000 MW target) & Bangladesh. Cross-border architecture is "system critical." Anchor projects (e.g., SJVN's 900-MW Arun-3) advancing. Unlikely to be unwound by any administration.
MCC Compact	U.S. funding resumed (July 2025). Finances key 400kV transmission lines enabling cross-border trade. Execution is the key KPI; short-term delays are a rounding error.
Domestic Markets	NEPSE suspended intermittently; expect lower liquidity & higher risk premia on reopen. Tourism peak season at risk from curfews (airports operational).
Political Constraint	A legitimate non-party interim requires explicit legal choreography (cross-party motion + presidential assent) under Article 76 to avoid judicial challenge.
FX / Rates Positioning	Contained volatility due to peg & reserves. Hedge NPR exposure in INR. Keep duration short until interim legal instrument is published.
Credit Positioning	Sovereign rating (BB-) insulated by strong external liquidity. Prefer DFI/MLA-anchored project & sovereign paper. Avoid local-bid corporates.
Equity Positioning	Avoid: Banking/tourism facing earnings/liquidity risk. Prefer: Utilities/IPPs with offtaker certainty. Best: India-listed proxies (e.g., PGCIL, NTPC, SJVN) for liquidity & governance.
Private Market Positioning	Structural alpha in cross-border power trade. Back transmission EPCs, substations, and hydro with signed PPAs (e.g., Arun-3, Butwal-Gorakhpur line, Bangladesh flows).
Key Risks	1. Legal challenge to an interim without Article 76 cover. 2. Security overshoot damaging tourism/SMEs. 3. Border friction at India crossings kinking supply chains.
Bullish Triggers	Signed interim instrument + reform calendar + curfew rollback within 7-10 days; MCC/India-trade milestones reaffirmed.
Bearish Triggers	Fresh casualty spike; politicized arrests; arson at grid assets; extended NEPSE suspensions; airport disruptions.
30-Day Checklist	Interim text published; curfews lifted; NEPSE reopens; T-bill rates stabilize.
60-Day Checklist	MCC packages mobilized; ROW clearances; Arun-3 advances; Bangladesh power flows continue.
90-Day Checklist	Budget for reform units; donor coordination note; election/confidence vote date set.

Investment decisions should always be made in consultation with qualified financial advisors, and past performance does not guarantee future results.