Updated May 30, 2018
Nepal
Overview
Nepal in Brief
Among the drivers of U.S. interest in the Federal
Democratic Republic of Nepal are the country’s still-
Population: 29.4 million; 2017 est.
unfolding democratization process, humanitarian concerns,
Area: Slightly larger than New York state
its geopolitical setting as a landlocked state between India
Capital: Kathmandu
and China, and the issue of Tibetans living in or transiting
through Nepal. The United States and Nepal established
Head of State: President Bidhya Devi Bhandari
diplomatic ties in 1948 and relations between the two
Head of Government: Prime Minister Khadga Prasad Oli
countries are friendly. U.S. policy objectives with respect to
Ethnic Groups: 125 caste/ethnic groups reported in 2011
Nepal include supporting democratic institutions and
Religions: Hindu 81.3%, Buddhist 9%, Muslim 4.4%, Christian
economic liberalization, providing disaster assistance,
1.4%; 2011 est.
promoting peace and stability in South Asia, alleviating
poverty, and promoting economic development.
GDP: 7.5% growth, $2,700 per capita GDP in PPP; 2017 est.
Unemployment: 3.3%; 2017 est.
Background
Population Below the Poverty Line: 25.2%; 2011 est.
Nepal is a poor country of an estimated 29 million people
Labor Force: Agriculture 69%, industry 12%, services 19%;
that has undergone significant political transformation since
2015 est.
2006, when a 10-year armed struggle by Maoist insurgents,
which claimed at least 13,000 lives, officially ended. Rising
Exports: clothing, pulses, carpets, textiles, jute, juice
democratic sentiment curbed the king’s powers in 2006.
Destination of Exports: India 57%, U.S. 12.3%, Turkey 5.7%;
Following the Maoists’ successful entry into the political
2016/17 est.
process and their electoral success in 2008, Nepal declared
Sources: CIA, Economist Intelligence Unit
itself a republic and the Constituent Assembly (CA) was
directed to write a new constitution. A new CA elected in
2013 ended years of political deadlock by agreeing to a new
U.S. Assistance, Relations, and
constitution in September 2015 and local, provincial, and
Cooperation
national elections were held in 2017 and 2018. Though the
Nepal has significant need for economic development and
process of democratization begun in 2006 has not been
foreign assistance. The United States has provided over
smooth, Nepal’s government brought former insurgents into
$1.6 billion in assistance to Nepal since 1951. Congress
the political system, conducted peaceful elections, and, in a
appropriated up to $121.5 million in FY2018 assistance for
broad sense, has taken large steps toward establishing a
Nepal, including for earthquake recovery and
functioning democracy.
reconstruction programs. Not less than $6 million of this is
earmarked for programs related to promoting and
Religious identity has long been important for Nepal’s
preserving Tibetan culture in India and Nepal. U.S.-Nepal
inhabitants, where 81% of the population is Hindu and 9%
cooperative efforts include the Peace Corps. More than
is Buddhist. Nepali is the official language, though there are
4,200 Peace Corps volunteers served in Nepal between
many regional and indigenous languages spoken in Nepal.
1962 and 2004, when the program was suspended due to
The main geographic division in the country is between the
civil war. The program was restarted in 2012.
low-lying and agriculturally productive Terai region, which
borders India, and the more mountainous parts of the
The Millennium Challenge Corporation’s (MCC) Compact
country. Never colonized, Nepal was largely isolated until
with Nepal was signed in September 2017 and includes a
the early 1950s.
$500 million compact to “spur economic growth and reduce
poverty in Nepal.” The compact is designed to “improve the
A 7.8 magnitude earthquake struck the central and western
availability of electricity and increase road maintenance to
regions of Nepal in April 2015. It was estimated that more
advance connectivity, drive growth, and lay a strong
than 4,300 people were killed and over 8,000 injured as a
foundation for new investments.” The $398 million
result. An estimated 2 million people in 11 districts were
electricity transmission project part of the compact “will
severely affected. Human Rights Watch has criticized the
expand and strengthen the high voltage electricity
Nepal government’s slow response to the crisis. In April
transmission network to support new investments in
2018, Secretary of Homeland Security Kirstjen Nielsen
generation. The project includes construction of
announced the conclusion of Temporary Protected Status
approximately 300 kilometers of high-voltage power lines.”
(TPS) for Nepal. TPS for Nepal, which had been granted
following earthquakes there, is scheduled to expire in 2019.
The Trade and Investment Framework Agreement (TIFA)
Between Nepal and the United States entered into force on
April 15, 2011. Agreement objectives include the expansion
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Nepal
of trade, investment and technical cooperation, and
adoption of a constitution that did not, from India’s
strengthening economic relations between the two
perspective, adequately take into account the Madhese of
countries. Currently, an estimated 12.3% of Nepal’s exports
the Terai, who have close ties to India. Prime Minister Oli
go to the United States. Nepal was the United States’ 172nd
(2015-2016 and 2018-present) was critical of the New
largest goods export market in 2016. U.S. goods exports to
Delhi government’s decision to become involved in Nepal’s
Nepal in 2016 were $41 million, representing a 144%
domestic constitutional debate and imposition of the
increase from 2006.
blockade. Oli signed a trade and transit agreement with
China in 2016 in an effort to end India’s monopoly over
Recent Political Developments
trade with Nepal. As a result, Oli was seen as tilting
Nepal’s continuing democratic development was
towards China. Prime Minister Narendra Modi of India
demonstrated by successful local, provincial, and national
(2014-present), despite having been in power when bilateral
elections in 2017 and 2018. The “Left Alliance” of the
relations deteriorated, has recently sought to mend ties and
Communist Party of Nepal United Marxist Leninist (CPN-
restore India’s influence with Nepal. Modi made his third
UML) and the Communist Party of Nepal Maoist Centre
visit to Nepal as India’s leader in May 2018. During the
(CPN-MC) won parliamentary elections held between
visit, Modi spoke of “initiatives in agriculture, inland
November 2017 and February 2018. As a result, the Left
waterways and railways [that would] increase mutual
Alliance now has a majority in both the House of
connectivity of people and businesses of both the
Representatives and the National Assembly. It has also
countries,” and added that a “survey for new railway link
formed governments in six of the seven provincial
between Raxaul and Kathmandu will start soon.” This visit
assemblies. Pushpa Kamal Dahal (also known as
followed Prime Minister Oli’s visit to India in April 2018.
Prachanda), leader of the Maoist insurgency and now the
CPN-MC, and Prime Minister Khadga Prasad Sharma Oli,
China has in recent years made significant inroads in
leader of the CPN-UML, reportedly have a power-sharing
developing ties with Nepal. This appears to have been made
agreement under which Oli is to serve three years as prime
possible by the unofficial 2015 blockade of Nepal by India
minister and Prachanda is to serve for two years. The
and significant Chinese investment in infrastructure in
potential for rivalry between the two could be destabilizing.
Nepal as part of its Belt and Road Initiative. China and
The next elections are due in 2022. Potential agitation by
Nepal also held their first-ever military exercises in April
the Madhese ethnic group of the southern Terai region, who
2017 and China reportedly constructed a $350 million
have sought to amend the constitution to increase their
facility for the Nepal Armed Police Force. Nepal and China
influence in the federal system, may also be another
signed a Memorandum of Understanding on the Belt and
potential source of instability.
Road Initiative in May 2017. Beijing has pledged to invest
$8.3 billion in road and hydropower projects in Nepal and
Nepal’s Relations with India and China
has proposed building an $8 billion railway from Lhasa to
Nepal’s status as a poor, relatively small, landlocked buffer
Kathmandu.
state between China and India largely defines the context of
its foreign policy. Nepal’s ties with India historically have
Human Trafficking
been closer than its ties with China largely due to
According to the State Department’s 2017 Trafficking in
geography and shared Hindu traditions, but Nepal currently
Persons report, Nepal is a source country for men, women,
is expanding its ties with China as it seeks to reduce its
and children who are subjected to forced labor and sex
overreliance on India. Nepal is experiencing more
trafficking. Nepal remained at “Tier 2” in the report, which
diplomatic and economic engagement by both India and
states: “The Government of Nepal does not fully meet the
China than in past years, as the neighbors seek to protect
minimum standards for the elimination of trafficking;
their interests and expand their ties to Nepal.
however, it is making significant efforts to do so. The
government demonstrated increasing efforts compared to
While the Himalayan mountain range along Nepal’s
the previous reporting period.”
northern border has limited interactions with China in some
respects, the 500-mile southern plains border with India is
Migrant Workers
relatively open. India and Nepal have had a tradition of
Many Nepalis go abroad in search of work. Remittances
close coordination in the areas of defense and foreign
accounted for nearly one-third of Nepal’s GDP in 2016.
affairs. The India-Nepal Treaty of Peace and Friendship,
Approximately 640,000 Nepalis reportedly left Nepal in
signed in 1950, has served as a basis of the relationship.
search of work in 2016/17, as compared to approximately
Nepal also depends on India as its primary source of
420,000 who left Nepal in 2015/16. By one estimate,
imports and its main market for exports, and for access to
approximately 10% of Nepal’s population works abroad.
the sea through the port of Kolkata. An estimated 32,000
Nepalese Gurkha troops serve in the Indian Army.
Bruce Vaughn, Specialist in Asian Affairs
Relations between Nepal and India cooled after India
IF10216
unofficially blockaded Nepal in 2015 in response to Nepal’s

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Nepal



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https://crsreports.congress.gov | IF10216 · VERSION 6 · UPDATED

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