Since the end of the civil war in 2006, Nepal has maintained the peace, established a new constitution, held successful elections, and overall is on a trajectory towards stability and improvement of standards of living. Nepal was ranked the third most improved country on the 2018 Fragile States Index and fourth most improved for 2019, yet it still ranks as a ‘High Warning’ country and faces a variety of challenges that threatens this improvement in the long term. Limited capacity to provide public services to all citizens, limited resilience to handle future environmental shocks, and persistent inequalities all demonstrate the weak governance that hinders Nepal’s progress. Nepal’s low capacity in turn weakens the legitimacy of the current government, presenting the potential for Nepal to fall into a capacity trap. This report provides the Canadian government with an analysis of the key drivers of fragility in Nepal, and offers policy options to help reduce fragility, strengthen government capacity, and keep Nepal on an improving trajectory.