Kathmandu – When Nepal Finance Minister Swarnim Wagle unveiled Nepal’s first budget under the Balendra Shah-led government, one commitment stood out beyond the usual promises of growth and investment, Nepal would work towards an early exit from the Financial Action Task Force (FATF) grey list.
Months later, that goal looks significantly more difficult.
In its latest review, FATF retained Nepal on its list of jurisdictions under increased monitoring, concluding that while the country has made some progress, critical weaknesses remain in its ability to prevent money laundering and financial crime.
The decision is more than a technical setback. It raises a larger question on why is Nepal struggling with many of the same issues that landed it on the grey list in the first place?
Over the past two years, Nepal has amended anti-money laundering laws, expanded investigative powers and increased reporting of suspicious financial transactions.
Authorities have repeatedly highlighted these reforms as evidence of progress but FATF’s latest assessment points to a different problem.
The watchdog is no longer asking Nepal to simply adopt laws, it wants proof that those laws are being enforced and that distinction is crucial.
According to FATF, Nepal still needs to demonstrate stronger supervision of banks, cooperatives, casinos and the real estate sector.
It must show tangible action against illegal money transfer systems such as hundi networks, increase money laundering investigations and prosecutions and improve its ability to trace and confiscate criminal assets.
In other words, Nepal’s challenge has shifted from legislation to implementation.
In May, a delegation from the Asia/Pacific Group on Money Laundering visited Kathmandu and held meetings with senior government officials, regulators, security agencies and lawmakers.
Officials were reminded that progress remained insufficient in several areas and were warned that continued shortcomings could eventually expose Nepal to the risk of tougher international scrutiny.
The concerns reportedly ranged from weak enforcement and poor inter-agency coordination to inadequate regulation of high-risk sectors including real estate transactions, banking offences and informal financial channels.
For a country seeking greater foreign investment and deeper integration into the global economy, those concerns strike at the heart of institutional credibility.
Unlike larger economies that can absorb additional compliance burdens, countries like Nepal are more vulnerable to the consequences of grey listing.
Banks face increased scrutiny from international partners.
Cross-border transactions become more expensive and time-consuming and investors become more cautious.
For an economy dependent on remittances, foreign aid and external investment, higher compliance costs can gradually erode competitiveness and confidence.
International development partners are also likely to pay close attention to Nepal’s progress as they assess future financing and lending arrangements.
The FATF decision also creates a political challenge for the Balendra Shah government
To be clear, the shortcomings identified by FATF did not emerge under the Balendra Shah government alone.
Most are longstanding institutional problems that have accumulated over years but the responsibility for fixing them now rests with the current government.
That is what makes the budget commitment significant.
By publicly prioritising Nepal’s removal from the grey list, the government effectively turned FATF compliance into a measurable benchmark of its reform agenda.
The challenge now is proving that Nepal can move beyond policy announcements and regulatory amendments to deliver results that international assessors can verify.
