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Some disagreement between the Ministry of Finance and the Nepal Rastra Bank, the central bank, is not only expected but also desirable. The bank has a high level of autonomy so that it can craft monetary policies and regulations with minimal political meddling. The exercise of this autonomy can often cause friction with the finance ministry, which works with a different set of priorities. Only with the right balance between the functioning of these two entities can the country’s economy hum along. The goal is not to remove the friction but to use it to come up with carefully-weighed monetary and fiscal measures.

 Finance Minister Janardan Sharma, on the other hand, seems to believe that the central bank’s leadership should be beholden to him and seek his guidance every step of the way. He proposed for the removal of Governor Maha Prasad Adhikari—a proposal that Prime Minister Sher Bahadur Deuba promptly endorsed—on the charge that Adhikari refused to heed him on vital matters and leaked sensitive information to the press. Minister Sharma has furnished no good proof to substantiate his claims. Instead, recent media stories suggest his main gripe with Adhikari was that the latter refused to follow through on some of Sharma’s dubious directives.

 This is the first time Nepal’s sitting central bank governor has been removed for insubordination. A horrible precedent has been set at a time the economy is battling strong headwinds and steady hands at the central bank are desperately wanted. Even PM Deuba seems to have acted out of spite: Adhikari had reportedly blocked one of Deuba’s chief financiers from expatriating his money. This kind of reckless governance at such a sensitive time could cause grievous damage to the economy that is already battered by the prolonged pandemic and ever-widening trade deficit.  

 All evidence suggests it is not Adhikari who should be fired but the finance minister who seems to lack even basic understanding of the economy’s functioning or the limits to his powers. PM Deuba has miscalculated. With the public uproar Adhikari’s untimely sacking has caused, he and his party could have to pay for it in the upcoming elections–—and rightly so.

Given the limited expectations from his visit, the three-day India trip of Prime Minister Sher Bahadur Deuba was a bit of a mixed bag. Easily the most notable agreement was the one allowing more export of Nepali electricity to India, and potentially even to Bhutan and Bangladesh under the Bangladesh-Bhutan-India-Nepal (BBIN) framework. Save for that, the trip achieved precious little.

PM Deuba’s delegation made much of the fact that the border row had been raised in bilateral talks with Narendra Modi. But then the end result was the same-old commitment to settle the issue through existing bilateral mechanisms. India’s reluctance to include the border issue in the final joint statement (which never came), also suggests that it is in no mood for concession. Nor was there any mention of the pending EPG report that the Indian prime minister has refused to receive.

On Pancheshwar, too, the same old bromides were repeated. There were also moments of controversy. For instance, the Nepali prime minister chose to visit the headquarters of the ruling Indian party while making no effort to reach out to any of the main opposition parties. While many Nepali Congress leaders tend to frown upon the cozy relations of Nepali communists with their Chinese counterparts, this was also unbecoming of the leader of Nepal’s oldest democratic party.

Despite Deuba’s visit, Nepal-India relations are still passing through difficult times, something that has continued since India’s 2015-16 border blockade. So long as India does not show the willingness to listen to Nepal's concerns—on the border, on the ever-widening trade deficit, on the EPG, and on not favoring hydropower built solely with its investment—it is hard to expect Nepal-India ties to improve much.

India has been increasingly concerned about the possibility of Nepal slipping out of its influence and going into the Chinese camp. That is a remote possibility given the deep and multi-faceted Nepal-India ties, whatever the political persuasions of the ruling parties in Kathmandu. Nevertheless, irrespective of the hardening of China’s Nepal stand in recent times, India’s reluctance to help Nepal overcome its pressing problems will continue to make it look north for help. 

Nepal has only two neighbors and yet struggles mighty hard to balance them. Prime Minister Sher Bahadur Deuba leaves for India shortly after Chinese Foreign Minister Wang Yi’s Kathmandu sojourn. Wang’s visit was not very fruitful: the very basis of Nepal-China cooperation in recent times, the BRI, did not even find a mention in the subsequent foreign ministry statement. With no substantial achievement, the two sides tried to salvage the trip by announcing a slew of what are essentially meaningless agreements.

China is highly suspicious of the Deuba government, which it sees as pro-US. The Chinese also believe that the Americans are increasingly in cahoots with India to curtail China’s influence in South Asia and beyond. So Deuba’s trip south will be closely watched in Beijing. China understands that Nepal cannot afford to have bad relations with India. What it does not want is for Nepal to enter what it labels the ‘US-India nexus’ and thereby compromise Chinese security interests. Nepalis otherwise expect little from Deuba’s trip south.

New Delhi knows that with elections around the corner, Deuba could soon be out of its Nepal picture. Deuba for his part is unsure about what to discuss this time with India. Progress on some connectivity projects are still expected, including joint inauguration of the Kurtha-Jayanagar cross-border railway. But progress on long-pending projects like Pancheswar are unlikely.

Nepali prime ministers have traditionally made New Delhi their first foreign stopover after assuming office. The pandemic had delayed Deuba’s customary visit. Routines are important, especially in the case of India and Nepal that share extensive links. But precisely for the same reason there is also much expectation when the two leaders meet.

India still emphasizes the age-old ‘roti beti’ and civilizational links. But it has been reluctant to cover even the basics to improve ties, for instance by allowing more Nepali products into its markets, something that would enormously help Nepal as it struggles to balance its books. The EPG report has long been pending. Vital bilateral projects remain stalled. Nepal-China ties have suffered during Deuba’s latest tenure. But Nepal-India ties have not fared much better as well. Tragically, maintenance of the status quo will have to be seen as an ‘achievement’ of Deuba’s visit.

Chinese Foreign Minister Wang Yi’s upcoming Nepal visit (March 25-27) is a great opportunity to repair the strained bilateral ties. Nepal-China relations have been through choppy waters of late, hitting rock bottom after the parliamentary endorsement of the MCC compact. China publicly expressed its displeasure with the endorsement. Unconvinced the compact is not part of a larger American encirclement plan, Beijing also seems to believe that the current Deuba government is ‘pro-US’.

It won’t be easy to convince the Chinese that Nepal can prevent the compact’s undue use. Not that we should not try. Beijing had been led to believe that under no circumstance would the compact be endorsed. They would not have been happy with the way the last-minute American pressure seemed to have prevailed over their concerns. But Nepal and China have no option but to mend fences. China is Nepal’s one of only two neighbors and its only direct connection with the outside world besides India. For China, stability of Tibet remains a top priority—and something that will be difficult to ensure without Nepal’s help.

When Wang comes, Nepal is likely to ask for grants to build the nine projects agreed under the BRI. Though grants under the BRI are rare, China could still make a one-time exception to protect its traditional space in Nepal against American encroachment. If Nepal and China are indeed good friends, as each claims, they should understand each other’s compulsions. Moreover, there is not one bilateral issue between them that cannot be resolved through dialogue.

As a show of good faith, the Deuba government must immediately correct its mistake of not appointing an envoy to Beijing, something that has bothered the Chinese. Wang should also give a clear message that China respects sovereign Nepal’s decision, however unpalatable it might have been. It is also vital that during this visit Wang makes an effort to engage leaders from across the political spectrum and not be seen as favoring only those of certain persuasions. Such confidence-building measures will help increase trust on both sides. They will also create a positive momentum.