While Nepal’s coalition government under Prime Minister Pushpa Kamal Dahal of the Communist Party of Nepal (Maoist Center) remained stable in 2023, domestic politics was overshadowed by strains in the country’s economy which suffered a recession for the first time in six decades. Economic woes, corruption, a poor job market and high inflation have caused resentment, leading to sporadic public demonstrations against the government. Murmurs of discontent in the coalition are stirring, but what the country needs is political stability.
Nepal’s foreign policy attaches major importance to its immediate, big and powerful neighbours — India and China — as well as other development partners and multilateral agencies. The United States has also been gradually increasing its influence in Nepal. Prime Minister Dahal visited these three countries in 2023 to signal Nepal’s desire to maintain good relations with these global powers.
Nepali Congress President Sher Bahadur Deuba’s support has enabled Dahal to retain the Prime Ministership and limited the Communist Party of Nepal (Unified Marxist–Leninist) to the opposition. The arrangement is working for both parties, as Dahal reciprocated the favour by supporting the election of Nepali Congress leader Ramchandra Paudel as President in March 2023. The Communist Party of Nepal (Unified Marxist–Leninist) wants the current coalition to collapse, as party Chair KP Sharma Oli wants to oust Dahal and is open to supporting leaders of other major parties as prime minister.
The economic recession has been compounded by corruption, high inflation, low investor and private sector morale and an alarmingly high rate of migration among the youth population. Remittances have played the most important role in keeping the economy afloat, with the World Bank forecasting that Nepal will achieve an economic growth rate of 3.9 per cent.
Over 700,000 young people left Nepal in search of jobs in foreign countries, and more than 100,000 students went abroad for studies in 2023. This paints a grim picture of demographic pitfalls in the years ahead. On a positive note, Nepal welcomed more than one million tourists in 2023.
Nepal’s foreign policy places utmost faith in the principles of Panchsheel (five principles of peaceful coexistence) and non-alignment. Due to geographical proximity, historical and sociocultural linkages, economic ties and people-to-people links, Nepal’s relations with India are deep and extensive. Nepal has enjoyed close and friendly ties with China too.
Dahal paid an official visit to India in June 2023. India agreed to purchase 10,000 megawatts of electricity produced in Nepal’s hydropower projects over the next ten years. But India’s caveat of not purchasing power from hydropower projects in which another country is involved is against the spirit of purchasing energy from a sovereign country and is targeted against Chinese investment.
During Dahal’s visit, there was no progress on Nepal’s request to India to provide additional air routes to the new international airports in Bhairahawa and Pokhara. The stalemate regarding the recruitment of Nepali soldiers for India’s Gorkha regiments under the new Agnipath Scheme continued. Dahal did not bring up controversial issues like the revision of the 1950 Peace and Friendship Treaty, accepting the report of the Eminent Persons Group to revisit bilateral ties and matters related to the disputed territories of Kalapani, Lipulek and Limpiyadhura.
Dahal then visited China in September. Although Nepal has been a signatory to China’s Belt and Road Initiative since 2017, no tangible progress has been made in any project. The feasibility study of a cross-border trans-Himalayan railway link continues. The project cost would be astronomical due to the geological Himalayan barrier. A major highlight of Dahal’s visit was the intent to build a 220 KV cross-border power transmission line. In line with its adherence to the principles of non-alignment and sensitive geopolitical surroundings, Nepal has decided not to be part of China’s Global Security Initiative.
Nepal’s stance on Taiwan changed during Dahal’s visit, as the joint communique mentioned ‘Nepal’s firm commitment to the One-China principle’, instead of the usual ‘One-China policy’, stating that ‘Taiwan is an inalienable part of China’s territory, [and] the Nepali side is against ‘Taiwan independence’.
The United States is one of Nepal’s most important developmental partners. The US$500 million grant through the Millennium Challenge Corporation compact to construct and upgrade power transmission lines and road infrastructure is underway. Foreign Minister Narayan Prakash Saud visited Washington in October and held bilateral talks with US Secretary of State Antony Blinken, focusing on support in preferential trade, information technology and other developmental priorities.
Dahal also visited the United States and addressed the United Nations General Assembly in September, emphasising climate change. In November 2023, Nepal became the largest troop provider in UN peacekeeping missions around the world.
Nepal’s government must seek adequate means to overturn the country’s economic woes to build a conducive environment for domestic and foreign direct investment. Unstable domestic politics will be detrimental to the country’s prosperity. The scope and intensity of corruption is increasing and needs to be dealt with to ensure good governance. When these factors are taken care of, the exodus of Nepali youth will be minimised. If the government fails to gauge the gravity of the situation, politics could become polarised. Nepal should maintain economically beneficial relationships with both its immediate neighbours India and China, as well as the United States, while adhering to the principles of Panchsheel and non-alignment to steer clear of great power rivalry.
Gaurab Shumsher Thapa is an International Relations Analyst and President of the Nepal Forum of International Relations Studies (Nepal FIRST).
This article is part of an EAF special feature series on 2023 in review and the year ahead.