Manoeuvring within ruling coalition accelerated ahead of general elections expected in winter 2022; protesters rallied in capital Kathmandu against fuel price hikes amid growing economic strains. Buoyed by strong showing in local elections in May, ruling coalition member Communist Party of Nepal (Maoist Centre) Chairman Pushpa Kamal Dahal 1 June threatened to reconsider alliance with Nepali Congress; observers saw Dahal’s remarks as aiming to secure power-sharing arrangement, including potential sharing of prime minister post with current PM and Nepali Congress chair Sher Bahadur Deuba in next govt. Dahal piled pressure on PM Deuba to not immediately approve reshuffling of ministerial portfolios that had been designated to Communist Party of Nepal (Unified Socialist) after party 5 June recalled its four cabinet representatives; new ministers were eventually sworn in 26 June following weeks of discord that roiled Unified Socialist party. Meanwhile, signs of discontent over economic situation emerged. Protesters 21-23 June took to streets in Kathmandu – including outside federal parliament – against fuel price hikes as some threw stones and damaged police vehicle, prompting govt to announce decrease in prices 25 June; devaluing Nepali rupee contributed to foreign debt liability rising by over $155mn in third quarter of current fiscal year. Central bank 27 June announced it only had enough foreign exchange reserves to sustain imports for little over six months.

Ruling alliance secured first place in local elections, which saw reports of localised clashes and opposition's claims of rigged vote. Local elections 13 May proceeded without any major incidents. National Human Rights Commission 13 May, however, noted that clashes between party cadres had disrupted voting in several districts. Local reports indicated police fire killed one in Katari, Udayapur district and another sustained bullet wounds after police opened fire in Bhimsen Thapa Rural municipality 13 May. Further clashes between police and party members also reportedly took place next day. Ruling Nepali Congress won 325 mayoral and 292 deputy mayoral posts across 753 total units contested in local elections. Opposition Communist Party of Nepal (Unified Marxist Leninist, UML) came distant second among individual parties, winning 202 mayor and 234 deputy mayor posts; UML’s tally was much lower compared to last local polls in 2017 when it secured 294 mayoral and 331 deputy mayoral seats. Ruling alliance member Communist Party of Nepal (Maoist Centre) won 121 mayoral and 127 deputy mayoral seats, while two other coalition members — the Communist Party of Nepal (Unified Socialist) and Janata Samajbadi Party — won 50 mayoral seats combined. UML 15 May accused ruling coalition of rigging elections, claiming governing parties manipulated vote; Election Commission officials same day dismissed claims as unsubstantiated.

Political parties remained fixated on local elections slated for mid-May amid signs of looming economic crisis. Five-party ruling alliance 20 April reached deal dividing up mayoral and deputy mayoral candidacies for 17 key local election races planned for 13 May; several local leaders of ruling Nepali Congress criticised move, claiming PM Sher Bahadur Deuba had made decision unilaterally without consulting party’s wider membership. Meanwhile, fears grew of potential economic crisis due to increase in inflation, decrease in remittances, and growing balance of payment deficit, all of which have created multiple pressures on Nepal’s import-reliant economy. Central Bank 12 April reported that inflation was over 7 per cent (highest levels in nearly five years), balance of payment deficit was over $2bn, and foreign exchange reserves were sufficient for fewer than seven months. Finance Minister Janardan Sharma 8 April suspended Central Bank governor for supposed incompetence and leaking of sensitive information in move widely perceived as politically-motivated given governor was appointed by previous KP Oli-led govt; Sharma 11 April also dismissed concerns of potential crisis as misinformation.

Ruling parties opted to continue alliance into upcoming local elections in bid to undermine prospects of opposition Communist Party of Nepal (Unified Marxist Leninist). Nepali Congress 29 March decided to contest local polls in May jointly with three other parties comprising ruling alliance, despite calls by some senior Nepali Congress leaders to compete independently; PM Sher Bahadur Deuba described decision as necessitated by current political balance of power and amid concerns of resurgence of opposition Unified Marxist Leninist party, which won 45% of seats during last local elections in 2017. Geopolitical engagement intensified following parliament’s Feb ratification of U.S. Millennium Challenge Corporation grant; Chinese FM Wang Yi 25-27 March visited capital Kathmandu and signed several agreements boosting economic, technical cooperation and infrastructure development. At UN, govt 2 and 24 March voted in favour of two U.S.-led General Assembly resolutions condemning Russia’s invasion of Ukraine.

Disagreement among parties over long-delayed U.S. development grant triggered fresh political tensions, threatening to split ruling alliance, while parliament impeached chief justice. Millennium Challenge Corporation (MCC), U.S. foreign aid agency, 3 Feb notified govt that $500mn infrastructure grant agreed in 2017 would have to be ratified by Nepal’s parliament by 28 Feb or risk being cancelled; implementation of MCC projects — mostly installing electricity transmission lines and upgrading highways — have been delayed for years due to allegations that some provisions in grant undermined Nepal’s sovereignty. Announcement of 28 Feb deadline accelerated political manoeuvring among parties, as ruling coalition member Communist Party of Nepal (Maoist Centre) 16 Feb opposed deal’s ratification absent broader consensus and threatened to quit coalition if compact was tabled in parliament. Ruling Nepali Congress, however, 20 Feb tabled MCC compact in parliament. Following 24 Feb discussions between PM Sher Bahadur Deuba and opposition Unified Marxist-Leninist party leader and former PM KP Oli on potentially forming new alliance that would ensure passage of grant through lower house, Maoists agreed to ratify deal to salvage ruling coalition paving way for parliament 27 Feb to approve compact. Meanwhile, Chief Justice Cholendra Rana was suspended 13 Feb after 98 MPs registered impeachment motion against him over corruption allegations.

Political parties disputed timing of local and general elections, reflecting potential fissures within five-party coalition ahead of polls. Following indecision by Nepali Congress-led govt on timing of local elections, which Election Commission recommended be held by early May, Communist Party of Nepal (Maoist Centre) Chairman and key leader of ruling alliance Pushpa Kamal Dahal 19 Jan argued general elections for lower house of parliament – likely to be held late 2022 – should be held first in spring and local polls delayed until later in 2022. Following widespread criticism of Dahal’s proposal for potentially undermining rule of law, ruling coalition 29 Jan agreed on holding local polls by mid-June and leaving general elections likely for late 2022. Observers argued episode revealed fears among some ruling parties that weak showing in local polls could damage their prospects in general elections, especially amid uncertainty over whether five-party coalition will continue its alliance into new electoral cycle; Nepali Congress leaders have indicated willingness to end coalition ahead of polls. In elections for upper house of parliament held 26 Jan, where 19 of 59 total upper house seats were contested, opposition Unified Marxist-Leninist (UML) lost seven previously held seats while ruling alliance parties won 18 seats; UML remains largest party with 16 seats.

Supreme Court resumed its functions after month-long pause over controversy involving chief justice, while political parties continued preparations for next year’s general elections. Supreme Court 1 Dec resumed hearing cases for first time following 18 justices’ unsuccessful efforts since 25 Oct to pressure Chief Justice Cholendra Shumsher Rana to resign; deal resuming Court’s functions dented Rana’s authority by adopting lottery system to assign cases instead of selecting them at his discretion. Ruling Nepali Congress 10-15 Dec held its general convention; PM Sher Bahadur Deuba 14 Dec re-elected party president in run-off contest after striking last-minute deal with two of other four contestants; Deuba had faced serious threats to his leadership with other candidates previously announcing their intention to oppose him in run-off. Ruling coalition member Communist Party of Nepal (Maoist Centre) 26 Dec began its general convention. Former Deputy PM Kamal Thapa 5 Dec suffered shock defeat, losing leadership of pro-monarchy and anti-secular Rastriya Prajatantra Party; Thapa blamed loss on interference of former King Gyanendra Shah, fuelling concerns about efforts to restore Hindu monarchy deposed in 2008.

Chief justice refused to step down, hampering function of Supreme Court, while political parties began preparations ahead of upcoming general elections. Chief Justice Cholendra Rana continued to defy widespread calls to resign following allegations in Oct of collusion with PM Sher Bahadur Deuba; most of other 19 justices throughout Nov refused to hear cases, except for habeas corpus petitions, in effort to pressure Rana to resign. The Nepal Bar Association (NBA) held protests against Rana throughout month, including sit in at the Supreme Court 23 Nov and march from court to PM’s residence 25 Nov. Clashes with police during protest outside court 11 Nov injured six lawyers, including NBA’s general secretary. Two-third parliamentary majority in favour of impeachment motion against Rana remained unattainable during month. Meanwhile, opposition Unified Marxist-Leninist party became first major party to begin preparing for general elections due in next few months by holding party conference 26-30 Nov, where former PM KP Oli was re-elected party chair; ruling Nepali Congress party scheduled its conference for 10-12 Dec.

Govt formed cabinet after three-month delay, but appointment of Supreme Court judge’s brother-in-law as minister sparked fresh controversy. PM Deuba 8 Oct appointed 18 new ministers, ending months of stalemate; appointment of Supreme Court Chief Justice Cholendra Shumsher Rana’s brother-in-law Gajendra Hamal as industry minister sparked widespread criticism following reports that he was appointed at Rana’s behest. Accusations centred around Deuba granting Rana share of cabinet designations as part of quid pro quo arrangement following 12 July Supreme Court decision which ousted previous KP Oli-led govt from office. Hamal 10 Oct resigned as industry minister, but calls mounted for Rana to step down from Supreme Court position for having undermined judiciary’s independence; 15 of 19 other Supreme Court justices 26 Oct demanded Rana’s resignation and have refused to hear cases at court in late Oct in protest at reported collusion between Rana and Deuba. Rana however refused to step down, 26 Oct challenged parliament to begin impeachment motion against him; Nepal Bar Association 29 Oct announced protests against Rana as Chief Justice.

Dispute among ruling parties continued to hamper appointment of govt ministers, while opposition Unified Marxist-Leninist party sought to block Nepali Congress-led coalition’s legislative priorities. PM Deuba continued to struggle to balance demands of his ruling partners, with only five ministers appointed since Deuba’s appointment in mid-July. Fearing splits inside Janata Samajbadi party (which is part of Deuba’s ruling coalition), Janata Samajbadi leaders throughout Sept conditioned cabinet expansion on repeal of Deuba’s controversial 18 Aug decree; decree had lowered requirement for members to split from one party and form another, notably allowing Madhav Kumar Nepal’s CPN (Unified Socialist) party to separate from PM KP Oli’s Unified Marxist-Leninist party in Aug. In response to writs filed in Aug, Supreme Court 24 Sept refused to annul Deuba’s Aug decree, potentially clearing path for CPN (Unified Socialist) to join ruling coalition. Meanwhile, parliamentary sessions 8 Sept resumed; Unified Marxist-Leninist party during Sept repeatedly obstructed them in protest against House Speaker Agni Sapkota’s role in party’s breakup, leaving over 50 bills pending approval.