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In my previous column, I discussed how chronic political instability is affecting the conduct of our foreign policy. Here, I delve into how foreign powers, big and small alike, influence Nepal’s foreign policy. We often criticize our politicians for their lack of maturity and consistency. In most foreign policy discourses, I often hear this question: Who will believe us (read our politicians)? It is a reality that our politicians are neither serious nor have they realized their weaknesses. But it would be unjust to solely blame our politicians without considering other aspects like how foreign powers are behaving with us. Nepal’s key priorities are economic prosperity and social development. For a long time, we have been mobilizing our foreign policy to achieve these goals.

From Prithivi Narayan Shah to the current set of leaders, all have realized that Nepal is situated between India and China, understanding the difficulties of being caught between two global powerhouses. For a long time, our Rana rulers tried to live in isolation out of fear that opening up could threaten their regime. Nevertheless, they still endeavored to serve both their personal interests and national interests. After the 1950s, Nepal began diversifying its economic, security, development and trade policies or looking beyond its immediate neighbors. Let’s consider the current situation. We are conducting our foreign policy in accordance with the 2015 constitution.

Article 51 of the constitution states: “Safeguarding the freedom, sovereignty, territorial integrity, nationality, independence, and dignity of Nepal, the rights of the Nepalis, border security, economic well-being, and prosperity shall be the basic elements of the national interests of Nepal.” Nepal places economic diplomacy at the forefront of its engagement with the wider international community. We need money and technology to accelerate social development and economic prosperity. Lately, we have been vocal about our reluctance to take on significant loans, preferring grants for infrastructure development. Our stated position is that we will not align with any strategic or military blocs.

Nepal takes a neutral position in regional and international conflicts, consistently advocating for their resolution through peaceful means, with some exceptions resulting from adventurous policies of our politicians. Nepal believes in non-interference in each other’s internal affairs, non-aggression, and the peaceful settlement of disputes. For instance, Nepal opposed the Russian attack on Ukraine while maintaining a neutral stance on other issues. Many argue that this stance contradicts Nepal’s non-alignment policy, but it aligns with our stated policy. If one sovereign country attacks another, Nepal cannot remain neutral and opposes such actions but avoids taking sides.

Our message is clear: we do not wish to be embroiled in big power rivalries, and we urge major powers not to involve us in their geopolitical games. Currently, amid the Middle East crisis, we maintain the same policy. If not a zone of peace, we aspire to become a zone of investment. We have a straightforward message for major powers: we understand and protect your security and other legitimate concerns, but only a prosperous and strong Nepal can effectively address those issues, so invest in our country. Of course, challenges such as corruption and bureaucratic red tape exist, but the investment climate in Nepal is comparatively favorable, and we have big markets like India and China in close proximity. Despite getting huge support from major countries in Nepal’s social and economic development, the country is starting to feel the heat of geopolitical tensions. As these tensions escalate, there is a fear among our politicians that major powers may pull Nepal into their orbit through economic assistance. As major powers roll out strategic initiatives one after another, there are concerns that Nepal may become ensnared in a geopolitical ambush. Not only politicians, but senior bureaucrats also find themselves in awkward positions as they consolidate all bilateral issues under one strategic basket. And, there is a lack of understanding among politicians and bureaucrats about these issues, and there have been no efforts to educate them.

By closely monitoring negotiations between our leaders and major powers, we can see that our leaders are facing pressure. Whenever they engage in talks with their counterparts, they struggle to avoid committing to strategic projects outright. Since they cannot outright reject them out of fear for their regime’s stability, they attempt to reassure that Nepal could consider such initiatives after thorough study and consensus at home. Due to such apprehensions, our politicians are even hesitant to accept pure development projects without strings attached. Similarly, diplomats in Kathmandu bypass the due process in dealing with Nepal. Instead of going through the Ministry of Foreign Affairs, foreign countries tend to approach political leaders and certain ministries directly seeking their consent. For example, the Ministry of Foreign Affairs may be unaware of a host of initiatives proposed by major powers. If there is institutional memory, foreign countries cannot complain about policy inconsistency or lack of ownership across governments. If all proposals go through the Ministry of Foreign Affairs, which remains unaffected by changes in government, it ensures policy continuity to some extent.

Our stance remains that, due to our geopolitical location and other factors, we cannot align with major powers. Whether termed neutral, non-aligned or otherwise, our bottom line is clear: we seek engagement solely on economic terms. If major powers engage with Nepal in this manner, frequent changes in government may not pose significant difficulties. Therefore, support and invest in Nepal, so that we can safeguard the security and other legitimate interests of our friends. If major powers attempt to turn Nepal into a battleground for their conflicts, it will be detrimental not only to the Nepali people but also to the major powers. We understand that our neighboring countries, both near and distant, desire to see a stable and prosperous Nepal, as it serves their interests. My request to all: we aspire to grow with you as a sovereign and peaceful country. As I mentioned in my previous opinion piece, major countries should not favor one party over another or play them against each other. Instead, they should adopt a Nepal-centric policy with the economy at the forefront. Moreover, major parties should collaborate to formulate a common position on the issues mentioned above. We want to declare Nepal as a Zone of Investment.

As by-elections draw closer in Ilam-2 for House of Representatives (HoR) and in Bhajang-2 for Sudurpaschim Provincial Assembly, major parties have expedited their election campaigns and top leaders are preparing to reach the constituencies to back their candidates.

This will be the second by-elections since the 2022 national elections in which the Nepali Congress emerged as the largest party while the CPN-UML and CPN (Maoist Center) polled in second and third respectively. However, the most talked about outcome of the election was the emergence of the newly formed Rastriya Swatantra Party (RSP) as the fourth largest party.

In the first by-election held in Tanahu and Chitwan in 2023, RSP candidates Swarnim Wagle and Rabi Lamichhane both registered thumping victories against the candidates fielded by major parties. So winning the Ilam-2 by-election—and winning it with a big margin—has  become a prestige issue for major parties. And it is not just prestige that is on the line for them. If the RSP candidate were to win in Ilam-2, it could very well mean game over for the big parties. 

The RSP is already popular among a large section of young urban Nepalis. If the party wins the Ilam-2 constituency, some Nepali Congress (NC) leaders say it could disrupt the voting pattern in the rest of the country in future elections. In other words, there is a high likelihood of RSP emerging as a major—if not the largest—political entity in Nepal come the next general election of 2027.

To stop the RSP, the two ruling parties UML and Maoist have forged an electoral alliance in Ilam-2. They have fielded the UML candidate, Suhang Nembang, son of late UML Vice-chairman Subas Chandra Nembang. Another ruling coalition partner, CPN (Unified Socialist), has refused to support Nembang and has come up with its own candidates. The main opposition, NC, has also fielded its own candidate in the fray.  

Cross-party leaders who just returned from Ilam predict that it is going to be a tight electoral race. 

 “There are intra-party rifts within both NC and UML, and as the voting day nears, it remains to be seen how these intra-party rifts will be managed,” says Nain Singh Mahar, a NC leader who recently visited Ilam. 

A large chunk of UML cadres are unhappy with the candidate selection in Ilam-2, stating that those who had been working for the party for a long time were sidelined. They argue that Suhang may very well be the son of a senior party leader who contested and won many elections from Ilam-2, but he doesn’t know anything about the constituency he represents. 

The Ilam-2 constituency became vacant following the death of UML Vice-chair Subas Chandra Nembang, in September last year. A total of 19 candidates—12 from different political parties and seven independents—are contesting in the by-election. 

The main contest is expected to be among UML’s Suhang Nembang, NC’s Dambar Bahadur Khadka, RSP’s Milan Limbu, and independent candidate Dakendra Singh Limbu Thegim.

Suhang has the support of the UML, Maoist Center and the Nepal Communist Party led by Netra Bikram Chand (Biplav). He has been appealing to the voters to write down their needs, problems, and aspirations on paper, assuring that he and his party will fulfill them.

Meanwhile NC’s Khadka, who was edged by Subash Chandra Nembang with just 114 votes in the last general election, hopes to win this time. But in 2022, he had received votes from various coalition partners, including the Maoist Center. 

This time the Maoist party is supporting UML’s Suhang. UML and Maoist Center have signed a five-point agreement at the Koshi Province level to secure Suhang's victory. As per the agreement, the by-polls will be a stepping stone for cooperation among left forces to create a foundation for party unification in the future.

However, local UML leaders fear that all Maoist votes may not be transferred to Suhang. Also, there are fears that RSP candidate Milan Limbu, who was earlier with the Maoist Center, will get substantial Maoist votes. 

Some Maoist leaders say about a third of the party’s vote could go to RSP’s Limbu. Although traditional parties have been the major players in Ilam-2, Limbu expects a miraculous vote shift in his favor this time. RSP had received 4,686 proportional representation votes and 1,380 direct votes in 2022.

Independent candidate Dakendra Singh Limbu Thegim also hopes to pull off a surprise electoral victory from Ilam-2, with the support of 41 identity-based groups. He has been reaching out to voters with the agenda of strengthening federalism, identity, equal rights, peace, and sustainable development. 

Thegim has the support of Janata Samajbadi Party as well as identity-based parties like the Rastriya Janamukti Party, Sanghiya Loktantrik Rastriya Manch, Nepal Samajbadi Party, Nagarik Unmukti Party, and Kirat Yakthung Chumlung, Kirat Rai Yayokha, and social organizations, including the Kirat religious guru Atmananda Lingden.

Apart from these four candidates, Jit Bahadur Rai of CPN (Unified Socialist), Lakshmi Gurung of Rastriya Prajatantra Party, Prem Kumar Thamsuhang of the Janmat Party, Shyam Bahadur Darji of the Nepal Workers and Peasants Party, Min Bahadur Limbu of Mongol National Organization, Dhanraj Rana Magar of the National Republic Nepal, Jayant Bikram Shah of the Rastriya Mukti Andolan Nepal, and Ganesh Bahadur Chauhan from the Rastriya Prajatantra Party, among others, are in the fray. 

Independent candidates Dak Prasad Gautam, Manoj Niroula, Arjun Kumar Shahi, Dipesh Bohra, Yogendra Gurung, and Raj Basyal are also contesting the election. The constituency comprises all of Chulachuli, Mangsebung and Phakphokthum rural municipalities, as well as parts of Ilam (excluding 10 wards), Deumai, and Mai municipalities. There are 115,342 voters in the constituency

Is it possible for Nepal’s major communist parties to unite and establish a robust, unified communist entity? Leaders from the prominent leftist parties—CPN (Maoist Center), CPN-UML, and CPN (Unified Socialist)—acknowledge the allure of such a union, yet express doubts about its realization. They attribute this uncertainty mainly to the intricacies of power-sharing dynamics and the personal egos of senior figures.

In Nepal’s modern political history, a powerful communist party Nepal Communist Party (NCP) was formed in 2018 after the unification between CPN-UML and CPN (Maoist Center). However, the harmony among its top leaders—KP Sharma Oli, Pushpa Kamal Dahal, and Madhav Kumar Nepal—proved short-lived. The root cause of their discord lay in a struggle for control over both the party and the government. Despite initial attempts at reconciliation, subsequent alliances faltered, leading to renewed efforts on March 4 to pursue the vision of a unified communist front. While Dahal remains vocal about his commitment to this cause, UML adopts a cautious stance, refraining from labeling it as a communist alliance outright.

UML leaders suspect Dahal's motives, viewing his push for unity as a tactic to prolong his tenure and retain power under the guise of communist solidarity. Dahal, however, has clarified his intentions, stating that his aim was to unite leftist parties, not to secure the prime ministership. Following the formation of a new coalition, Dahal and Oli made concerted efforts to persuade CPN (Unified Socialist) leader Nepal to join, possibly even offering him the premiership after Dahal. However, tensions surfaced when Nepal's faction aligned with the Nepali Congress, causing a rift among the leaders to form the government in Sudurpaschim province. The fact that the three communist parties failed to field a common candidate for the upcoming by-election in Ilam-2 also suggests the lack of trust between them.   

On Monday, Oli clearly said that the unity among the communist parties could be detrimental to both the current government and the country. While he acknowledged the importance of unity, the UML chair was critical of the parties that claim to be leftist and align with the Nepali Congress. He was hinting at the CPN (Unified Socialist)-Nepali Congress alliance in Sudurpaschim. Oli cautioned against harboring the illusion of political strength through unification with such entities.

The notion of communist unity holds appeal mainly for second-rung leaders and they are actively seeking to realize it. They seem hopeful despite the apparent reluctance shown by the senior leaders. 

Leaders who have made communist unity their agenda say it will take some time for the parties to come together. According to one Maoist leader, unification between communist parties is inevitable.  

“To face up with the new political forces, there is no alternative for the communist parties to come together,” he says.

But Nepal’s communist parties have historically been plagued by factionalism and division. Theirs is a history of polarization and intragroup conflicts. As the murmurs grow regarding the unification among major communist parties, so too do whispers of an alliance between Congress and UML. Only time will tell if the leftist forces can set aside their differences and march as one towards a shared future.

There is no shortage of discussion in Kathmandu on the changing geopolitical landscape and the challenges Nepal currently faces in its external relations. Although serious research and publications are lacking, Kathmandu-based think tanks somehow manage to secure financial resources to organize programs at upscale hotels. Lately, there has been a boom in the number of foreign strategic and geopolitical experts visiting Kathmandu on the invitation of universities, think tanks and media houses, among others. These international and regional experts often visit Kathmandu to attend seminars and talk programs on geopolitics and foreign policy.

Although political leaders also participate in such programs as keynote speakers, only a few have the appetite and enthusiasm to listen to expert opinions. The main arguments of foreign policy watchers in Kathmandu can be summarized in the following points: there should be a national consensus among parties, at least on foreign policy issues; Nepal should strike a balance between India and China while maintaining cordial ties with the US; and Nepal should prioritize economic issues over strategic ones when dealing with major powers. While examining the election manifestos of major political parties, it seems all parties have the same position on foreign relations, as they all emphasize an independent foreign policy; balanced and cordial relationships with both neighbors; adherence to non-alignment and Panchsheel; and engagement with major powers on economic terms, among others. 

However, there are differences in the tone, tenor, and conduct of foreign policy between the Nepali Congress (NC) and major communist parties, particularly CPN-UML and CPN (Maoist Center), which have been in power for the past three decades. To illustrate these differences, let's consider some recent examples. Nepal voted in favor of a UN resolution condemning Russia's invasion of Ukraine in 2022, but communist parties opposed it, stating that it goes against Nepal's policy of non-alignment. While some former foreign ministers from left parties said it was okay, dominant communist leaders saw it as a tilt toward the West. Many communist leaders support Putin's justification of the attack, which is why Russia is engaging with communist leaders, not NC leaders. When it comes to China, communist parties, mainly CPN (Maoist Center), are a step ahead and more vocal than NC in upholding the one-China policy. Prime Minister Pushpa Kamal Dahal, during his China visit last year, made a commitment on the one-China principle (previously policy) and said Nepal stands against Taiwan independence. He often repeats the same statements in Kathmandu. We do not hear such statements from NC leaders. 

Earlier, in 2018, the then Nepal Communist Party-led government supported Hong Kong's new security laws. Another issue is the reported border encroachment by China in Humla district. NC formed both government-level and party-level panels to investigate this matter, but communist government and party leaders often reiterate that there is no border encroachment by China at all. 

The Belt and Road Initiative (BRI) is another case in point. Though the basic framework of BRI was signed by NC's foreign minister Prakash Sharan Mahat in 2017, the party is less interested in its implementation. Some leaders are openly opposing it. NC leaders may disagree, but it is clear the party is not as enthusiastic about BRI as communist parties. With India, communist parties are more vocal about some disputed issues such as the 1950 Peace and Friendship Treaty, the Eminent Persons' Group (EPG) report and border disputes. These issues have also been mentioned in the Common Minimum Program (CMP) of the present coalition government. However, the NC is not as vocal about those agendas. Instead, some NC leaders have started saying that there is no need to amend the 1950 treaty, and the party has not taken ownership of the EPG report. 

Regarding the US, fringe communist parties often criticize the US as an imperialist power. While mainstream communist parties do not directly subscribe to these views, there are differences between NC and communist parties on democracy and US policies. Communist parties are skeptical about America’s Indo-Pacific Strategy. They all were against the Millennium Challenge Corporation (MCC) program in Nepal initially. While NC openly supported, lobbied, and was even ready to break the alliance with Maoists to get the MCC endorsed by Parliament, left parties either opposed it or sat on the fence. Whether one agrees or disagrees, there is now more cordiality between China and Nepal's communist parties. China is engaging with NC at least at the government level. Over the past few years, it is a bitter reality that there is a lack of trust between NC and China, and between India and communist parties. The relationship between NC and China is not so cordial, mainly after 2015-2016, though Chinese leaders and scholars often remind NC about the role played by BP Koirala in laying the basic foundation between the two countries.

Additionally, political parties have highly politicized issues relating to major countries. This has been further exacerbated by coalition governments and political instability. It is futile to expect any substantial progress when parties with different views and political ideologies form a coalition government. There is a tendency among parties not to take ownership of agreements or understandings signed by governments led by other parties. $Due to the sudden changes of foreign ministers, if not the government itself, foreign powers are finding it very difficult to deal with Nepal. All this has eroded trust in the political parties and successive governments. There is no common vision or guiding document on how Nepal wants to engage with major powers in the changing geopolitical situation. 

No wonder, Nepal has not been successful in reaping the benefits from the economic rise of India and China. What is worrying is, there is no sign of improvement in the near future. There will not be political stability for at least next four years because parties have already agreed to lead the government by turns. Even after the 2027 elections, political stability remains elusive, as the possibility of a single party getting a majority is slim. If parties are responsible, they should deal with this issue seriously. Parties should refrain from taking sides or positions on big-power rivalry and should not politicize development issues; instead, they should focus only on economic engagement. However, there is slim hope with the current set of leaders whose only aim and ambition seems to be grabbing power by appeasing external power centers. The current polarization in the political landscape must be stopped without delay.

During the constitution drafting process from 2008 to 2015, the electoral system emerged as a key contentious issue among major political parties and stakeholders. Various electoral systems practiced in different countries were proposed. Ultimately they compromised on a mixed electoral system combining first past the post (FPTP) and proportional representation voting system. The aim was to address demands for inclusion and proportional representation across society. Since the promulgation of the new constitution in 2015, which solidified this mixed model, two elections for the three-tier government have been held, with parties preparing for the next elections in 2027, pending any unforeseen circumstances.

Ever since the country adopted a new constitution in 2015, no single party has secured a majority to govern the country independently. Although there was a single-party majority following the merger of CPN (Maoist Center) and CPN-UML, it was not a result of the election. With no possibility of single-party majority, parties have turned to coalition governments, resulting in frequent and unpredictable changes. Many, both within and outside active politics, attribute this political instability to the current electoral system, suggesting that Nepal cannot achieve stability unless changes are made.

Senior Nepali Congress leader Shekhar Koirala has been a vocal advocate for changing the electoral system, proposing that the House of Representatives (lower house), consisting of 275 members, be elected solely through the FPTP model to ensure a single-party majority and political stability. However, his own party, NC, has not officially discussed changing the electoral system. Koirala argues that the root cause of the current political crisis lies in the electoral system itself.

Despite Koirala’s proposal, cross-party political leaders and experts argue that changing the electoral system, which is closely linked to inclusion, a fundamental aspect of the constitution, is nearly impossible. The proportional representation system has ensured the representation of marginalized communities in the legislative process, although political parties have been criticized for appointing their family members. Santosh Pariyar, chief whip of Rastriya Swatantra Party, vehemently opposes changing the current electoral system, considering it a violation of the constitution and a threat to the rights of marginalized communities.

Deepak Bhatta, a CPN-UML leader, contends that once a system is adopted, it should be allowed to function for at least 15-20 years before considering changes. He criticizes the shifting political agendas of leaders and emphasizes the need for stability in governance. However, past experiences have shown that even single-party majority governments have failed to complete their terms due to intra-party disputes, casting doubt on the correlation between electoral systems and political stability.

While major political parties such as Nepali Congress, CPN-UML, and CPN (Maoist Center) have yet to officially discuss constitutional amendments, there are various viewpoints within each party. The issue of electoral system change must be carefully considered, as it requires consensus among major political parties, including those representing Madhes. Until political parties address systemic issues and work towards genuine consensus, achieving political stability will remain a distant goal, with electoral system changes alone unlikely to suffice.

Over a month has passed since Prime Minister Pushpa Kamal Dahal dissolved his alliance with the Nepali Congress (NC) to form a new coalition with the CPN-UML and other parties, including the Rastriya Swatantra Party (RSP).

Dahal’s rationale for the shift in political alliance was his belief that the Congress ministers hindered his work, necessitating a fresh start for the government. However, there’s been little improvement in Dahal’s approach. He continues to repeat past mistakes, such as frequently transferring government secretaries and prioritizing ceremonial functions over office duties.

Meanwhile, the NC, as the main opposition, has been vocal about addressing pressing issues such as investigating Home Minister Rabi Lamichhane for his alleged involvement in the misappropriation of financial cooperative deposits. 

The Dahal government has also failed to address other key issues such as amending more than one dozen laws targeting the upcoming investment summit, improving the country’s economy and stopping mass exodus of youths to foreign countries.

Despite the UML showing considerable support for the Dahal government, internal dissatisfaction is growing regarding its performance. The UML leadership, led by KP Sharma Oli, has refrained from criticizing the government publicly but is privately concerned.

What will UML do if the Dahal government cannot deliver on his promises and goes on to become even more unpopular? The UML leaders do not have a definite answer to it. One glue that is likely to keep the Maoist-UML together is the dream of reviving the left unity. While Prime Minister Dahal says the Maoist and UML could ultimately form a left unity, UML leaders do not seem so optimistic. They view the coalition primarily as a ruling alliance, not a true leftist collaboration.

However, second-rung leaders from the Maoists and UML say that in the face of emergence of new political parties and growing public frustration, formation of left unity is imperative for the survival of both parties. Furthermore, they say the NC’s commitment to the 2015 constitution, particularly on secularism, is wavering and that left parties should come together to protect those achievements.  

“This was also one of the reasons that led Prime Minister Dahal to break alliance because the Nepali Congress was planning to make a proposal of referendum to decide on secularism,” said on Maoist leader. He added though the parties are under pressure to reconsider secularism, at least the Maoists and UML are unlikely to agree on it.

While these agenda are likely to keep the two parties together, it is still a difficult task because there are many differences among the communist parties. The first one is obviously a power-sharing among the key leaders of communist parties such as Maoist, UML and CPN (Unified Socialist). As per the informal agreement, Prime Minister Dahal will hand over the government leadership to Oli; and it is uncertain whether CPN-UML (Unified Socialist) Chairman Madhav Kumar Nepal will lead the government.

Amid all this, the potential for collaboration between NC and UML is gaining traction. Prominent NC figures, including Dr Shekhar Koirala, Gagan Thapa, and Bishwa Prakash Sharma, have signaled openness to cooperation with the UML to address public concerns and foster political stability. 

Even Sher Bahadur Deuba, NC’s president, has expressed willingness to engage with the UML, reflecting a growing consensus within the NC on the necessity of cooperation. His regret over past decisions reflects a growing consensus within the NC that cooperation with the UML is essential for addressing the public’s disenchantment and fostering a more stable political environment. 

NC leader Koirala, who leads the anti-establishment faction of NC, is at the forefront of leaders advocating for NC-UML cooperation. Of late, he has increased the frequency of meetings with UML leaders. Talking to reporters at Biratnagar Airport last week, he said that the NC and UML need to unite to bring stability and development to the country.

He said the new UML-Maoist Center coalition can neither deliver economic development nor provide political stability. “The new constitution could only be drafted when the NC and UML came together. There is no alternative to these two parties uniting for the country’s development,” he said. “It has become clear that there won’t be stability in provincial governments. If we want to bring stability and development to the country, NC and UML must come together.” 

The UML, too, appears receptive to collaboration. Oli, during the previous presidential election, hinted at the possibility of political shifts, indicating a willingness to adapt. 

If there is an agreement, UML Chairman Oli is likely to lead the government in the first phase and hand over the power to NC President Deuba to hold the elections in 2027. 

Interestingly, PM Dahal and Oli have differences over the nature of the new alliance. While Dahal insists that the long-term plan is to achieve left unity through this coalition, Oli is not willing to accept this alliance as a coalition yet. 

“What we have created is essentially a power equation. We all have different plans and election manifesto,” Oli said, addressing the Kaski District Convention of UML in Pokhara a few days ago. It clearly shows that both Oli and Dahal do not have a concrete plan for a long-term cooperation.

Over the past few years, Nepal has found itself in the midst of a tug-of-war among three major global powers: India, China, and the US. Each of these countries are vying for influence in Nepal’s economic, military, ideological and technological spheres.

Let’s begin with the US. The Biden administration in the US has made advancing democracy one of its key global priorities. In South Asia, Nepal appears to be in the high priority of the US democracy projects. The US has been inviting Nepal’s prime minister to its annual democracy summit. Both communist and non-communist prime ministers have attended the summit. The US is making efforts to counterbalance the influence of the Chinese Communist Party in Nepal and uphold democratic values in the region. In the meantime, the US is equally concerned about the influence of India’s Bharatiya Janata Party (BJP) which is pushing for the restoration of Hindu state in Nepal. A US document says: “The Nepali political class’s penchant for balancing relations with its large neighbors India and the People’s Republic of China (PRC) renders security cooperation, including with the United States, prone to political interference.” 

Despite claims that it does not export its communist ideology, China has been promoting its political model in other countries. Under the guise of showcasing its achievements, China has been exporting its ideology to South Asian countries. Chinese leaders are urging their Nepali counterparts, particularly those aligned with the communist ideology, to embrace the Chinese model. Every year, China invites a large number of Nepali communist leaders to its cities to showcase its development model. Of late, Nepali leaders have started saying that Nepal can replicate the same model which reflects a growing acceptance of the Chinese  model within the country.

Though India and the US are on similar pages on a range of issues, the two powers have divergent views about the democratic values in South Asia. India, on its part, is sending conflicting signals on the ideological front. While the Indian government seems committed to uphold democracy, secularism and inclusive constitution in Nepal, the ruling BJP harbors reservations about Nepal’s 2015 constitution, which, it perceives, is imbued with Western values. The BJP’s parent organization, the Rashtriya Swayamsevak Sangh, is reaching out across the political parties and the general people with Hindu-centric agendas. The BJP believes it can reduce Western influence on Nepal, dismantle secularism and restore Hindus state through such activities. Such activities are already polarizing Nepal’s political fabric.

In addition to ideological battles, Nepal is grappling with strategic challenges posed by major powers. China’s Belt and Road Initiative (BRI) and its insistence on the One China policy dominate all its engagements with Nepal. Likewise, China’s Global Security Initiatives (GSI) and Global Civilizational Initiatives (GCI) and Global Development initiative (GDI) are getting more prominence over economic issues. Nepal has consistently expressed its commitment to One China policy for over 50 years now. Still, China does not seem convinced and seeks reaffirmation on One China policy every time.

A press statement issued after Prime Minister Pushpa Kamal Dahal's visit to China last September also reiterated Nepal's firm stance against Taiwan Independence. His new Foreign Minister Narayan Kaji Shrestha echoed the same sentiment during his visit to China last month. Although China keeps emphasizing on the Belt and Road Initiative (BRI) in various meetings, tangible progress on infrastructure development under the BRI umbrella has not materialized yet. Government officials, politicians, and foreign policy analysts say that Nepal needs to capitalize on China's economic growth. However, this aspiration has yet to materialize due to the significant focus that both countries are placing on strategic concerns.

While Chinese investment in Nepal is on the rise and cooperation between the two nations has expanded in recent years, substantial investment projects that could catalyze economic growth remain elusive. Instead, Nepal’s attention is primarily directed towards ensuring that its territory is not used for anti-China activities. Regarding Chinese investment in Nepal, there have been occasional complaints from the Chinese side regarding obstacles faced by its investors.

Nepal engaged in a four-year debate on whether to accept the $500m support from the Millennium Challenge Corporation (MCC) of the US government. The MCC projects are finally into implementation. However, the project is not gaining the desired pace. Many attribute the slow progress to the government’s lackluster commitment to these projects. This tepid response was partly influenced by China’s strong opposition to the projects which labeled it as part of the Indo-Pacific Strategy (IPS). Nepali politicians, bureaucrats and experts continue to struggle in comprehending the US policy towards Nepal in the context of the IPS. Following discussions on the IPS, attention in Nepal shifted on the State Partnership Program (SPP) of the US government.

Under domestic pressure, the government led by Sher Bahadur Deuba of the Nepali Congress wrote a letter to the US government stating that Nepal won’t be a part of the SPP. Of late, there has been a notable increase in interest from US investors looking to invest in Nepal. However, Nepal has yet to effectively address this interest despite a substantial increase in US assistance through USAID.

All this shows that Nepal has already fallen into the geopolitical trap. Nepal is not seeing much investments in priority sectors as major powers are prioritizing their security and strategic interests. Though Nepal is pushing for more economic collaborations, strategic issues are dominating the bilateral negotiations and public discourse. Nepal’s current key priorities are economic recovery, minimizing the impacts of climate change and creating jobs but due to the geopolitical tensions these issues are getting a backseat in the engagement with major powers.

Nepal has struggled to take a clear stance on initiatives like the IPS, BRI, and other strategic endeavors. While managing these challenges should be the top priority of the government, the country is marred by internal political instability. Geopolitics is gradually creating rifts within Nepali society. Nepal needs to make concerted efforts to mitigate internal divisions and chart a path forward that safeguards Nepal’s interests amidst global power struggles.

The recent change in the governing coalition has cast a shadow over the upcoming investment summit scheduled for April 29-30 in Kathmandu. Former finance minister Prakash Sharan, who was leading the summit preparations, has been replaced by Barsha Man Pun. Before the coalition shift, Sharan had been actively engaging with various international stakeholders to organize the summit. Now, the responsibility falls on Finance Minister Pun to ensure its success.

The government is relying on significant foreign investment to recover from the current economic crisis. However, with less than a month until the summit, preparations seem to be moving slowly. Despite pledges to amend numerous laws and regulations to create a more investment-friendly environment, officials report that progress in this regard has been sluggish.

Officials at the Office of the Investment Board Nepal (OIBN) note that the change in the ruling alliance has hampered preparations for the summit. While Finance Minister Pun has urged officials to expedite preparations, the process of amending laws has not gained momentum, partly due to the federal parliament being preoccupied with political issues. 

In addition to summit preparations, the Ministry of Finance is busy with drafting principles and priorities for the fiscal year 2024/25 budget and a new five-year plan. This leaves Finance Minister Pun with limited time to focus on the investment summit.

Several committees have been formed by the government to prepare for the summit, each with specific responsibilities. The finance minister leads the Steering Committee, while the chief secretary heads the Implementation Committee, the industry secretary leads the Technical Committee, and the CEO of OIBN leads the secretariat. 

The Steering Committee initially decided to amend 10 laws and two regulations to signal to investors that the investment environment in Nepal has improved. However, priorities seem to have shifted following the sudden change in power dynamics.

A task force, chaired by the Office of the Prime Minister Secretary Ek Narayan Aryal, has been established to propose amendments to laws and regulations related to foreign investment. Its recommendations include amendments to various acts and regulations, including the Industrial Enterprise Act-2020, Foreign Investment and Technology Transfer Act-2019, Special Economic Zone Act-2016, Forests Act-2019, and National Parks and Wildlife Protection Act-1973, to improve the investment climate in Nepal.

Additionally, the task force has also suggested amendments to the Lands Act-1964, Land Acquisition Act-1977, Environment Protection Act-2019, Electronic Transactions Act-2008, Civil Aviation Act-1959, Foreign Investment and Technology Transfer Regulations-2021, and Forest Regulations-2023.

In addition to the amendments to laws, officials say the process of selecting projects for the summit has also been affected. While the implementation and technical committees have evaluated approximately 130 projects, final selections have yet to be made.

Notable projects evaluated by the committees include the Rs 104bn China-Nepal Friendship Industrial Park, the Rs 85.83bn Upper Marsyangdi-2 Hydropower Project, and the $21.02bn 40 MW solar project in Kohalpur and Banganga. Several other projects like industrial zones, special economic zones, hydropower projects, solar and wind energy projects, and reservoir projects have also been submitted for consideration to the Investment Summit Secretariat.Besides, provincial governments and the private sector have also submitted projects for inclusion in the summit. 

In the 2019 Investment Summit, the government had showcased 77 projects, including 27 from the private sector, covering sectors such as energy, infrastructure, agriculture, education, and health. Although investors expressed interest in over three dozen projects, investment agreements were signed for only 15 projects.

International investors have expressed concerns about Nepal's bureaucratic hurdles and various restrictions, hindering their willingness to invest.

For instance, American private investors are keen to invest in Nepal’s tourism, medical, and other sectors. But they are unsure about the investment environment in Nepal. Prospective investors in China and India too have concerns about funding projects in Nepal. Their concerns range from a bad investment environment to unstable politics to problems related to labor issues and exit plans. 

This will be the third summit in recent history, following those held in 2017 and 2019, with the government aiming to showcase Nepal as an emerging destination for global investors, particularly in green energy, tourism, agribusiness, and the IT sector.

Minister Pun emphasizes the government's commitment to ensuring the protection and security of investments, as well as providing efficient facilitation throughout the business cycle.

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Proposed areas for international investors 

• Agro processing 
• Education 
• Health 
• Energy 
• ICT 
• Manufacturing 
• Mines and minerals 
• Tourism 
• Transport 
• Urban development 

Why is Nepal a preferred destination for investment?

• 57 percent population is between 15-59 
• Low-cost of Labor 
• Nepal is a member of SAARC 
• BIPPA agreement with five countries 
• DTAA agreement with 11 countries 
• Treaty of Trade and Transit with India
• Treaty of Transit and Transport with China 
• 100 percent ownership to foreigners 
• Repatriation holiday 
• Competitive corporate tax system 
• Private-sector friendly laws
• Market access to two Asian giant India and China 
• Easy visa service