Updated March 27, 2020
Nepal
Overview
rainfall, and drought are having on the two-thirds of Nepalis
The Federal Democratic Republic of Nepal faces many
involved in agriculture.
challenges as it seeks to develop its economy while
consolidating its relatively new democracy. Nepal’s status
Figure 1. Nepal in Brief
as a poor, relatively small, landlocked buffer state between
China and India largely defines the context of its foreign
policy. U.S. policy objectives with respect to Nepal include
supporting democratic institutions, promoting regional
stability and security, alleviating poverty, promoting human
rights and sustainable economic growth, and helping build
resilience to deal with climate change and natural disasters.
Background
Nepal is a poor country of an estimated 30 million people
that has undergone a significant political transformation
since 2006, when a 10-year armed struggle by Maoist
insurgents ended after claiming at least 13,000 lives. In
2006, the king ended direct monarchical rule and reinstated
the country’s parliament in response to weeks of protests.
Following the Maoists joining the political process and their
electoral success in 2008, Nepal declared itself a republic
and the Constituent Assembly (CA) was directed to write a
new constitution. A subsequent CA elected in 2013 ended

years of political deadlock by agreeing to a new
Source: CIA World Factbook, Economist Intel igence Unit, Media.
constitution in September 2015. Local, provincial, and
national elections were held in 2017 and 2018. Nepal now
U.S. Relations and Assistance
has a bicameral legislature with 275 Members in the House
The United States and Nepal established diplomatic ties in
of Representatives and 59 Members in the National
1948, and relations between the two countries are generally
Assembly, the body’s upper house. Though the process of
friendly. U.S. policy towards Nepal seeks to “assist Nepal’s
democratization begun in 2006 has not been smooth,
development as a peaceful, prosperous, and democratic
Nepal’s government has brought former insurgents into the
nation that contributes positively to regional stability.”
political system, conducted peaceful elections, and, in a
There appears to be a lack of clarity with regard to Nepal’s
broad sense, has taken large steps toward establishing a
approach to the United States’ Indo-Pacific strategy. Co-
functioning democracy. Ethnic, religious, and caste
chair of the ruling Nepal Communist Party and former
identities are important for many in Nepal, where 81% are
leader of the Maoist insurgency, Pushpa Kamal Dahal
Hindu and 9% Buddhist. Nepali is the official language,
(a.k.a. Prachanda), reportedly stated, “If the Indo-Pacific
though many regional and indigenous languages are also
strategy is to target China, we cannot accept it.” Prachanda
spoken. The three main geographic divisions of the country
has also urged that Nepal’s projects under China’s Belt and
include the low-lying and agriculturally productive Terai
Road Initiative should not be delayed. Nepal’s Foreign
region, which borders India, an intermediate central hill
Minister Pradeep Kumar Gyawali has reportedly refuted
zone, and more mountainous parts of the country.
assertions that Nepal is part of the U.S. Indo-Pacific
initiative. The U.S. Department of Defense Indo-Pacific
Never colonized, Nepal was largely isolated until the early
Strategy Report states, “Within South Asia, we are …
1950s, and its difficult physical environment presents
pursuing emerging partnerships with Sri Lanka, the
challenges for its development. In 2015, a 7.8 magnitude
Maldives, Bangladesh, and Nepal.”
earthquake, by some estimates, killed 9,000 people, injured
22,000, and destroyed 755,000 homes. The Kathmandu
Nepal has significant need for economic development and
government was criticized for its arguably slow response to
foreign assistance. The United States has provided over
the crisis. Temporary Protected Status (TPS) for Nepal,
$1.6 billion in assistance to Nepal since 1951. U.S.-Nepal
which had been granted following earthquakes there, was
cooperative efforts include the Peace Corps. U.S. assistance
scheduled to expire in June 2019. The June expiration date
programs focus on agriculture and food security;
was suspended until further notice in May 2019. Nepal is
democracy, human rights and governance; education;
particularly vulnerable to rising risks brought on by climate
environment and global climate change; gender equality
change, due to the impact that rising temperatures, shifting
and social inclusion; global health; and working in crisis
and conflict. The Millennium Challenge Corporation’s
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Nepal
Compact with Nepal, signed in September 2017, includes
domestic constitutional debate and its imposition of the
$500 million to “spur economic growth and reduce poverty
blockade. Oli signed a trade and transit agreement with
in Nepal.” The compact’s $398 million electricity
China in 2016 in an effort to end India’s monopoly over
transmission component “will expand and strengthen the
trade with Nepal. As a result, Oli was seen as tilting
high voltage electricity transmission network to support
towards China. Indian Prime Minister Narendra Modi has
new investments in generation.” The compact has raised
sought to mend ties and restore India’s influence with
sovereignty concerns among some in Nepal who view it as
Nepal. During a May 2018 visit to Kathmandu, Modi spoke
inconsistent with the Nepali constitution’s commitment to
of “initiatives in agriculture, inland waterways and railways
nonalignment. A bilateral Trade and Investment Framework
[that would] increase mutual connectivity of people and
Agreement entered into force in 2011. Agreement
businesses of both the countries,” and added that a “survey
objectives include the expansion of trade, investment, and
for new railway link between Raxaul and Kathmandu will
technical cooperation, and strengthening economic relations
start soon.” Modi reiterated his commitment to “work with
between the two countries.
Nepal to further strengthen the traditionally close and
multifaceted partnership between India and Nepal” during
Recent Political Developments
Prime Minister Oli’s May 2019 New Delhi visit. Modi and
Nepal’s continuing democratic development was
Oli jointly inaugurated an Integrated Check Post (ICP) at
demonstrated by successful local, provincial, and national
Jogbani-Biratnagar to facilitate bilateral trade in January
elections in 2017 and 2018. The “Left Alliance” of the
2020. The ICP was built with Indian assistance.
Communist Party of Nepal Unified Marxist Leninist (CPN-
UML) and the Communist Party of Nepal Maoist Centre
China has made significant inroads in developing ties with
(CPN-MC) won parliamentary elections held between
Nepal since India’s unofficial blockade in 2015. China and
November 2017 and February 2018. The new Left Alliance
Nepal held their first-ever joint military exercises in April
now has a majority in both the House of Representatives
2017 and China reportedly constructed a $350 million
and the National Assembly, and has formed governments in
facility for the Nepal Armed Police Force. Nepal and China
six of the seven provincial assemblies. Prachanda of the
signed a Memorandum of Understanding on the Belt and
CPN-MC and Prime Minister Khadga Prasad Oli of the
Road Initiative in May 2017. Beijing has pledged to invest
CPN-UML reportedly have a power-sharing agreement
$8.3 billion in road and hydropower projects in Nepal and
under which Oli is to serve three years as prime minister
has proposed building an $8 billion railway from Lhasa to
and Prachanda is to serve for two years. Oli had a second
Kathmandu. The CPN and the Communist Party of China
kidney transplant in March 2020. While some observers are
signed a Memoranda of Understanding establishing
optimistic that Nepal could be entering a period of political
fraternal relations between the parties, and a Symposium on
stability, the potential for political rivalry remains. The next
Xi Jinping Thought was held in Khatmandhu in September
elections are due in 2022. Potential agitation by the
2019. China and Nepal signed numerous agreements,
Madhese ethnic group of the southern Terai region may be
including one on a trans-Himalayan railway, during
a source of instability.
President Xi Jinping’s visit to Nepal in October 2019.
Nepal’s Relations with India and China
Human Rights, Trafficking, and Migrant
Nepal’s ties with India historically have been closer than its
Workers
ties with China, largely due to geography and shared
The State Department’s 2019 Country Report on Human
religious and cultural traditions, but Nepal is expanding ties
Rights Practices: Nepal found reports of “unlawful or
with China as it seeks to reduce its overreliance on India.
arbitrary killings, including extrajudicial killings; torture;
Both India and China currently are seeking more diplomatic
arbitrary detention by government; [and] … restrictions on
and economic engagement with Nepal than in past years, as
freedom of movement for refugees, notably resident
they seek to protect their interests and deepen ties.
Tibetans; significant acts of corruption; and forced,
compulsory, and child labor.” The State Department’s
While the Himalayan mountain range along Nepal’s
Trafficking in Persons 2019 report found that Nepal, a Tier
northern border has historically limited interactions with
2 country, “does not fully meet the minimum standards for
China, the 500-mile southern plains border with India is
the elimination of trafficking but is making significant
relatively open. India and Nepal have had a tradition of
efforts to do so.” Over 7,000 women and girls are
close coordination in the areas of defense and foreign
reportedly trafficked to India each year and forced into
affairs. The India-Nepal Treaty of Peace and Friendship,
prostitution. Nepal also has the world’s third-highest rate of
signed in 1950, has served as a basis of the relationship.
child marriage, with 37% of girls marrying before age 18
Nepal also depends on India as its primary source of
and 10% by age 15. Approximately 10% of Nepal’s
imports and its main market for exports, and for access to
population works abroad. Many of those working in the
the sea through the port of Kolkata. An estimated 32,000
Middle East and Southeast Asia labor under harsh
Nepalese Gurkha troops serve in the Indian Army.
conditions and some are subject to abuse and exploitation.
Relations between Nepal and India cooled after India
Remittance inflows to Nepal were estimated to be 28% of
unofficially blockaded Nepal in 2015 in response to Nepal’s
Nepal’s GDP in 2018.
adoption of a constitution that India asserted did not
adequately take into account the interests of ethnic
Bruce Vaughn, Specialist in Asian Affairs
Madhese, who have close ties to India. Prime Minister Oli
(2015-2016 and 2018-present) criticized the New Delhi
IF10216
government’s decision to become involved in Nepal’s
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Nepal


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https://crsreports.congress.gov | IF10216 · VERSION 10 · UPDATED

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