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A perennial problem for Nepal is its trade deficit, which has steadily inched up year after year. Now comes a welcome break. In the first four months of this fiscal, the deficit shrunk by nearly 9 percent (to Rs 414 billion) compared with the corresponding period last year (from Rs 452 billion). Nepal exported more (up 24 percent) and imported less (down 7 percent) in the same period. After years of struggle with hefty deficits, this seems unadulterated good news. But it is not. The new trade numbers are as slippery as the palm oil that has helped Nepal increase its export volume.

Oil from palm tree, which is not found in Nepal, accounted for nearly a quarter of the exports in the review period. Nepali traders import crude palm oil from Indonesia and Malaysia, two of its biggest producers, and sell the refined version in India. After India levied an additional 40 percent duty on the import of palm oil from the big producers, palm oil refined in Nepal costs less in India than the refined oil imported from these producers. Nepal’s refined palm oil export, and the export growth it sustains, will collapse the moment India revises its trade policy.

The lower deficit also owes to less import, which again is not all good news. Nepal may be importing less building materials like cement and steel as economic activities in the country have slowed down. Also, lower imports will hit the government hard as it relies on import duties for up to 40 percent of its revenues. That said, Nepal has also made some improvements in its business climate, for instance, in electricity generation, which has reduced diesel import; political stability has helped push GDP growth to a decent 7 percent.

The problem is that the country is once again relying on a single product (refined palm oil), and a product it does not produce itself, to maintain a healthy trade balance. The drivers of sustainable economic growth are still out of whack. Big infrastructure projects are stuck, and the national pride projects have been delayed. And it will take more than steady power supply and political stability to revive Nepal’s struggling industries. For one, successfully negotiating the removal of the non-tariff barriers to Nepali products in India and China would translate into billions more in export earnings for Nepal.

It was a bitter pill to swallow for Upendra Yadav, the health minister and chairman of the Samajbadi Party Nepal. In his absence, his health portfolio was changed to law (he retains the title of deputy prime minister). Being removed from the lucrative health ministry, a traditional cash cow for ruling parties, was a severe blow no doubt. Yadav put an interesting twist to his portfolio change, arguing that, as the head of the law ministry, he was now in the perfect place to change the constitution. He is not. But nor is he in a position to leave the government.

He only has to look at Baburam Bhattarai, his party colleague. In Yadav’s reckoning, Bhattarai made a big mistake by abandoning his mother Maoist party and trying to forge his own political career out of nothing. In the 2017 elections, Bhattarai’s Naya Shakti party, running short of money and muscle, the two tried and tested means to electoral victory in Nepal, sputtered to a humiliating defeat. As there is little prospect of a new movement in Madhes, Yadav reckons there is not much to be gained by quitting the government now. He also fears that if his party quits, the RJPN, the other important Madhesi actor, could quickly replace it in the Oli cabinet.

This shows the extent of the depletion of the Madhesi cause that Yadav so vociferously championed in 2007, when he emerged as the single biggest leader of Tarai-Madhes. The massive electoral victory of the left alliance in 2017 forestalled any immediate possibility of constitution amendment. Now the Madhes is relatively calm. Even if it revolts tomorrow, the Samajbadi Party is by no means sure to benefit. Better stay in the government and wait for another year or two, and then quit—right on the eve of the next round of elections.

The RJPN, meanwhile, is hobbled by its own dilemmas. The six-member presidium is divided about the way forward: whether to ally with Yadav, join the Oli government, or to prepare for another movement in Madhes. In comparison, the Samajbadi Party appears like a model of unity. Upendra Yadav is far too astute a politician to give up the clear advantage over his arch-rivals for Madhesi votes. This kind of vote-bank politics will not appeal to many Madhesis. But that is beside the point in Yadav’s current existential battle for survival.

Eighteen long months after the formal unification of the CPN-UML and the CPN (Maoist Center), the gentleman’s agreement between KP Oli and Pushpa Kamal Dahal is finally being implemented. The new understanding is that Oli will serve out the remaining of his five-year term as prime minister, and Dahal will oversee the party. Meanwhile, Oli has taken this opportunity to reshuffle his cabinet: ‘under-performing’ six ministers and three state ministers have been removed and replaced. The portfolios of some other ministers have been changed. The prime minister says these changes will soon be reflected in governance and service delivery.

It’s possible. The long-running power-sharing dispute between Oli and Dahal was a big hindrance to the NCP’s functioning and, by extension, the working of the two-third federal government. As big an obstacle were ministers who either served vested interests or didn’t do much. So, at least on paper, the power-sharing breakthrough and cabinet reshuffle could work to the advantage of both the party and the country. But they also might not. The new Oli-Dahal understanding, brokered by President Bidya Bhandari, could again unravel given Dahal’s fickle nature. And some of the new inductees into the cabinet are hardly beacons of rectitude.

Yet the prime minister has been canny this time. Those from the Madhav Nepal camp in the party, who had long been miffed at Oli’s ‘unilateral ways’, have also been included in the new cabinet, and a new truce seems to be developing between Oli and Nepal. With the party and the government more united, the prime minister should now be in a better position to push his agenda.

PM Oli will hopefully set clear targets for his cabinet colleagues and promote meritocracy. Also, with the burden of running the party lifted from his shoulders, he should train his focus on good governance and service delivery. In that case, with the main opposition still mired in internal disputes, the NCP will also be in good stead going into the next round of elections in 2022. No less than Oli’s legacy is on the line in what could be the last leg of his political career. There is thus every incentive for the prime minister to roll up his sleeves and take charge.

Even though—or perhaps because—the two are not contiguous neighbors, Nepal and Bangladesh have always had cordial relations. Nepalis fondly recall the establishment of SAARC in 1985 under the initiative of Bangladeshi President Zihaur Rahman and King Birendra. Nepal and Bangladesh share the same vision for South Asia: a more integrated region that can better tackle common problems like poverty, disease, illiteracy, and big-power rivalry. 

It’s a pity that the two countries with just 27 km separating them don’t trade and engage more with each other. According to the World Bank, in 2017 Bangladesh was Nepal’s ninth biggest trade partner, accounting for 1.3 percent of its trade. Nepal in fact trades more with Turkey (6.4 percent of its trade) and Italy (1.6 percent). This again highlights a shocking lack of connectivity in South Asia, which remains among the least integrated regions in the world. Bangladesh and Nepal, two of the fastest growing economies in South Asia, have every incentive to engage more with each other. 

The Nepal visit of Bangladeshi President Mohammad Abdul Hamid is thus timely. True, he is only a ceremonial president. Yet he is also a towering figure in Bangladeshi politics whose words carry weight. During his Nepal visit, no concrete agreements were signed. It made sense, too, as it was a ‘confidence-building’ trip. We can expect more substantive agreements between the two countries in the days ahead, capitalizing on Hamid’s commitment to improve his country’s land, water and air connectivity with Nepal. 

Bangladesh is keen to invest in hydropower in Nepal and buy the electricity thus produced. If Nepal can supply, it could import up to 9,000 MW to power its booming economy and replace its dirty coal and diesel-powered plants. Hamid also expressed an interest in linking the two countries’ river systems to boost water trade. As importantly for Nepal, Bangladesh is the gateway to the lucrative Southeast Asian markets. But for there to be any significant headway in Nepal-Bangla ties, the consent and goodwill of India, which controls the intervening territory, is indispensable. 

Nepal-India ties have been rocked by the Kalapani dispute. But in the long run India, Bangladesh, Nepal and every other country in the region have no option but to cooperate to tackle common cross-border challenges like poverty, climate change and terrorism. Just as well. The more the countries talk and trade, the less they are likely to fight.