KATHMANDU (Reuters) - Nepal is set to finalise its new constitution by a May 27 deadline, political parties said on Tuesday, in a breakthrough that could help end instability dogging the volatile Himalayan republic dependent on aid and tourism.
But some analysts suggested that key issues, like the boundaries between newly-created states, would remain unsolved and could be a source of further upheaval.
Tucked between China and India, Nepal has remained gripped by political turmoil since the end of a conflict with Maoists in 2006 and the abolition of the monarchy two years later.
A constituent assembly dominated by the Maoists has missed several deadlines to prepare the majority-Hindu nation's first republican, federal constitution owing to differences between political parties over the creation of states and their names.
"We have reached a consensus on creating 11 states and their names will be decided by provincial assemblies to be elected later," said Ram Chandra Paudel, a leader of the Nepali Congress party, after a meeting with the Maoists and other parties.
"This means we will prepare the constitution in time. The constitution will take care of the aspirations of all nationalities."
Nepal, slightly larger than Greece in land area, has more than 100 ethnic groups and several are pressing for individual states to be named after them in the new constitution.
Some parties have so far refused to name the states along ethnic lines on grounds that it would raise tension.
The debate has already triggered violence - five people were killed in a blast this month in the southern town of Janakpur during a protest calling for a separate state.
Some analysts said the parties had only agreed on the number of states, leaving the tough job of determining boundaries to a federal panel to be set up later.
"It seems the problem has only been handed over to the future actors and is in no way resolved," said Yubaraj Ghimire, a political analyst.
Ghimire said an agreement to share power between the president and the prime minister in the new constitution could also create a power tussle.
Prolonged instability in Nepal, which sits on the sources of rivers that supply fresh water to millions in South Asia, could have regional implications as energy-hungry China and India jostle for influence.
Unsettled politics has sapped business confidence and disillusioned citizens enduring long daily power cuts, shortage of drinking water and fuel and growing lawlessness.
Tourism, which is recovering from the 10-year-old conflict and accounts for nearly four percent of gross domestic product, could also take a hit if political unrest persisted.
The economy grew 3.5 percent last year - the lowest for four years - and tens of thousands of frustrated young Nepalis leave the country every year to seek menial work in Korea, Malaysia and the Middle East.
Reporting by Gopal Sharma; Editing by Ron Popeski