Kathmandu, October 13
A parliamentary committee has approved amendments to the Nepal Rastra Bank Act that could significantly weaken the central bank’s autonomy, with provisions allowing the government to issue directives to the bank, making the implementation of government economic policies one of its objectives, and reducing the tenure of its governor and other top officials.
The amendments were approved by the House of Representatives’ Finance Committee on September 16, despite concerns raised by opposition lawmakers that the proposed changes could increase political interference in the central bank.
The changes have also revived questions about the respective roles of the government and Parliament in lawmaking, particularly when proposed legislation involves the interests of the executive.
Although the government had initially proposed amendments to the Nepal Rastra Bank Act, 2002, that included provisions intended to strengthen the central bank’s autonomy, the Finance Committee introduced significant changes during clause-by-clause deliberations.
Under the committee-approved bill, the government would be able to direct Nepal Rastra Bank on matters relating to currency, banking and finance. The central bank would also be required to support the implementation of the government’s economic policies as one of its stated objectives.
The bill further proposes reducing the tenure of the governor, deputy governors and board directors from five years to three years, with the government able to extend their terms by up to two years based on performance.
Critics say the combined effect of these provisions could make the central bank more vulnerable to government influence, undermining its ability to make independent monetary policy decisions.
How the government and Parliament shape legislation
The controversy surrounding the Nepal Rastra Bank Act amendment is not an isolated case. Previous legislative attempts involving civil servants and the Commission for the Investigation of Abuse of Authority (CIAA) illustrate how both the government and parliamentary committees can shape, stall or alter legislation according to their political and institutional interests.
A civil service bill registered in the House of Representatives on February 10, 2019, was passed by the State Affairs and Good Governance Committee on June 29, 2020. The committee’s report, however, included a dissenting position from the then minister for federal affairs and general administration, Lal Babu Pandit, as well as seven points of dissent from the Nepali Congress, the main opposition party at the time.
The report was presented to the House only on April 5, 2021. The government eventually withdrew the bill on October 8, 2021.
The government registered a new version on March 4, 2024, and referred it to the parliamentary committee for clause-by-clause deliberations on May 28 that year. The committee approved its report on May 15, 2025.
However, the process was mired in controversy after provisions relating to a cooling-off period for civil servants were altered in the committee report. An investigation committee subsequently concluded that irregularities had occurred.
The cooling-off period, intended to prevent senior civil servants from immediately taking up politically connected appointments after leaving government service, had faced lobbying against it from the chief secretary and secretaries, according to the account of the legislative process.
The bill was passed by the House and sent to the National Assembly, but became inactive after the House was dissolved on September 12, 2025.
The current government registered the bill for a third time on October 1.
A similar pattern emerged with the third amendment bill to the CIAA Act, registered in Parliament on January 20, 2020.
The government had proposed expanding the definition of public institutions to include banks, medical colleges, their affiliated hospitals and other similar organisations, bringing them within the CIAA’s jurisdiction.
The anti-corruption commission had also argued before the parliamentary committee that corruption in the corporate sector should fall within its jurisdiction.
However, during clause-by-clause discussions, lawmakers reached a consensus to remove references to banks, medical colleges and affiliated hospitals. Political parties outside the government also opposed extending the commission’s authority into the private sector.
After the government failed to secure support for the proposed expansion, it held the bill. The legislation subsequently became inactive following the dissolution of the House in September 2025, as the parliamentary process had not been completed.
These examples demonstrate that lawmaking is shaped not only by Parliament but also by the government, which can determine which provisions advance, which are removed and which bills are allowed to proceed.
Committee changes go beyond the government’s proposal
The Finance Committee’s amendments to the Nepal Rastra Bank Act have raised similar concerns about the government’s role in shaping legislation.
The government’s original bill did not propose changing the five-year tenure of the governor, deputy governors and board directors. However, Rastriya Swatantra Party (RSP) lawmaker Sunil Khadka registered an amendment proposing that their tenure be reduced to four years.
The Finance Committee went further, deciding to reduce the tenure to three years while allowing the government to extend it by two years based on performance.
RSP lawmaker and Finance Committee chair Krishna Hari Budhathoki also proposed changes to Section 4 of the bill, which deals with the objectives of Nepal Rastra Bank.
The original provision established price stability as a key objective and required the bank to maintain banking, financial and external sector stability without adversely affecting price stability.
It also stated that the bank would support the implementation of the government’s economic policies, provided doing so did not adversely affect those objectives.
The committee, however, approved a revised provision that explicitly lists three objectives for the central bank: maintaining price stability, maintaining the stability of the banking and financial sectors and the external sector, and supporting the implementation of the government’s economic policies.
The distinction is significant. Under the original formulation, supporting government policy was subordinate to the central bank’s primary objectives. Under the committee-approved version, it becomes an independent objective alongside price stability and financial stability.
The change has prompted concerns that the central bank could face greater pressure to align monetary policy with the government’s fiscal and economic priorities, even when the two approaches conflict.
Government’s power to direct the central bank retained
Another major change concerns the government’s authority to issue directives to Nepal Rastra Bank.
The government’s bill proposed repealing Section 106(c) of the existing Nepal Rastra Bank Act, which allows the government to issue directives to the bank on matters relating to currency, banking and finance.
UML lawmaker Guru Prasad Baral registered an amendment seeking to remove the provision in the bill that proposed repealing the existing section, effectively seeking to retain the government’s power to issue directives.
After lawmakers from the governing side also pressed for the provision to remain, the committee decided to retain Section 106(c).
RSP lawmaker Nitima Bhandari Karki defended the decision, arguing that the existing provision had not created problems and that allowing the government to issue directives could help organise the central bank’s work in support of government policies, plans and programmes.
“The existing provision allowing the government to issue directives on currency, banking and finance has not created any problems. Retaining it is appropriate because directives can help organise the bank’s work in support of government policies, plans and programmes,” she said.
The combined effect of the two changes is particularly significant. Nepal Rastra Bank would be required to support the government’s economic policies as one of its objectives while remaining subject to government directives on currency, banking and finance.
Critics argue that this could effectively reduce the central bank to an extension of the Finance Ministry rather than allowing it to function as an independent monetary authority.
Opposition lawmakers warn of political interference
UML lawmaker and Finance Committee member Pushpa Kandel said the proposal to shorten the governor’s tenure and allow the government to extend it could make the governor more dependent on the executive.
He said he had raised concerns during committee discussions that the arrangement could undermine the central bank’s autonomy by creating an incentive for the governor to remain in favour with the government in order to secure an extension.
Parashuram Tamang, a member of the committee representing the Nepali Communist Party, said he had proposed establishing a monetary policy committee, requiring Nepal Rastra Bank to submit its annual report to Parliament and removing the government’s power to issue directives.
“We argued that Nepal Rastra Bank should remain autonomous,” Tamang said. “The amendments we suggested were not incorporated, and the provisions proposed by the Finance Ministry were not removed. That makes it clear that the finance minister was also working to secure those changes.”
Tamang said the committee had also rejected a proposal to remove the finance secretary from the central bank’s board. He added that he had formally recorded his dissent when the committee approved the bill and intended to raise the issue again during parliamentary deliberations.
Nepali Congress lawmaker Khadga Shahi also said the current government was advancing amendments that would weaken the central bank’s autonomy more than previous governments had attempted.
“If Parliament passes the amendment bill approved by the Finance Committee without changes, government interference in Nepal Rastra Bank will increase,” Shahi said.
He alleged that the provisions on tenure had initially been designed to shorten the governor’s term to two years and that the proposal to change the tenure was motivated, in part, by a desire to remove the incumbent governor sooner.
The final committee-approved version provides for a three-year tenure, with the possibility of a two-year extension.
Government’s role in parliamentary amendments
Former Parliament Secretary-General Som Bahadur Thapa said the legislative process demonstrated that the government and Parliament work together in determining the content of laws.
“The government ensures that provisions it does not want are removed from bills, and provisions it wants are retained in law,” Thapa said.
Although Parliament is constitutionally responsible for making laws, he said it was difficult in practice to pass legislation that went against the government’s interests.
In the case of the Nepal Rastra Bank Act amendment, Thapa said the changes approved by the Finance Committee appeared to reflect the government’s preferences rather than the independent initiative of individual lawmakers alone.
A former senior Finance Ministry official made a similar point, saying that amendments to government-sponsored bills were unlikely to proceed without the government’s agreement.
The official recalled the formulation of the Financial Procedures and Fiscal Responsibility Act, 2019, when a proposal was made to allow local governments to maintain their accounts with development banks as well as other eligible institutions.
Then finance minister Yubaraj Khatiwada had initially been receptive to the proposal. However, after senior ministry officials advised against it, he took a firm position against including the provision in the law.
The episode illustrates how the executive can influence legislation even when a proposal has initially received ministerial support.
What the amendment means for central bank independence
The Nepal Rastra Bank Act amendment also has implications for Nepal’s commitments under its financing arrangements with the International Monetary Fund.
As part of the conditions associated with the IMF’s Extended Credit Facility, Nepal was required to amend the central bank law to strengthen its autonomy.
The proposed changes included removing the finance secretary from the central bank’s board and repealing the provision allowing the government to issue directives to Nepal Rastra Bank.
The government’s original bill incorporated these measures. However, the Finance Committee’s approved report retained the finance secretary on the board and preserved the government’s power to issue directives. It also made support for government economic policy an independent objective of the central bank and reduced the tenure of senior officials, subject to possible government-approved extensions.
The existing law provides five-year terms for the governor, deputy governors and board directors. The governor can be reappointed once, while directors can be reappointed without a specified limit.
The committee-approved bill would fundamentally change this arrangement by reducing the tenure to three years and making extensions dependent on the government’s assessment of performance.
Central bank independence matters because monetary and fiscal policy do not always have the same priorities. A government seeking to stimulate economic activity may favour lower interest rates or easier credit conditions, while the central bank may need tighter monetary policy to contain inflation or protect financial stability.
If the law requires the central bank to implement government economic policy as an equal objective and allows the government to issue binding directives, critics argue, its ability to make independent decisions could be constrained.
Monetary policy cannot be expected to support fiscal policy unconditionally, particularly when the two objectives conflict. Making such support a statutory obligation could limit the central bank’s ability to tighten monetary conditions when economic circumstances require it.
The central question, therefore, is whether the amendments will allow Nepal Rastra Bank to fulfil its mandate independently or make it more directly accountable to the government of the day.
The Finance Committee has approved the bill, but the parliamentary process remains an opportunity for lawmakers to reconsider provisions that could reshape the relationship between the government and the country’s central bank.
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