Updated January 6, 2021
Nepal
Overview
disproportionate impacts of climate change despite being a
The Federal Democratic Republic of Nepal faces many
low carbon-emitting country … it is incumbent on the
challenges as it seeks to develop its economy while
international community to ensure that justice is done.”
consolidating its relatively new democracy. Nepal’s status
as a poor, relatively small, landlocked state situated
Figure 1. Nepal in Brief
between China and India largely defines the context of its
foreign policy. U.S. policy objectives with 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 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.
After 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 2015. Local, provincial, and national
elections were held in 2017 and 2018. Nepal now has a
U.S. Relations and Assistance
bicameral legislature with 275 Members in the House of
The United States and Nepal established diplomatic ties in
Representatives and 59 Members in the National Assembly,
1948, and relations between the two countries are generally
the body’s upper house. Though the process of
friendly. U.S. policy toward Nepal seeks to “assist Nepal’s
democratization has not been smooth, Nepal’s government
development as a peaceful, prosperous, and democratic
has brought former insurgents into the political system,
nation that contributes positively to regional stability.” The
conducted peaceful elections, and broadly taken steps
U.S. Department of Defense Indo-Pacific Strategy Report
toward establishing a functioning democracy.
states, “Within South Asia, we are … pursuing emerging
partnerships with Sri Lanka, the Maldives, Bangladesh, and
Ethnic, religious, and caste identities are important for
Nepal.” Co-chair of the ruling Nepal Communist Party and
many in Nepal, where 81% are Hindu and 9% Buddhist.
former leader of the Maoist insurgency, Pushpa Kamal
Nepali is the official language, though many regional and
Dahal, reportedly stated, “If the Indo-Pacific strategy is to
indigenous languages are also spoken. The three main
target China, we cannot accept it.” Dahal has also urged
geographic areas of the country include the low-lying and
that Nepal’s projects under China’s Belt and Road Initiative
agriculturally productive Terai region, which borders India,
should not be delayed.
an intermediate central hill zone, and more mountainous
parts of the country. Never colonized, Nepal was largely
Nepal has significant need for economic development and
isolated until the early 1950s, and its difficult physical
foreign assistance. The United States has provided over
environment presents challenges for development. In 2015,
$1.6 billion in assistance to Nepal since 1951. U.S.-Nepal
a 7.8 magnitude earthquake, by some estimates, killed some
cooperative efforts include the Peace Corps. U.S. assistance
9,000 people, injured another 22,000, and destroyed
programs focus on agriculture and food security;
755,000 homes. The Kathmandu government was criticized
democracy, human rights and governance; education;
for its arguably slow response to the crisis.
environment and global climate change; gender equality
and social inclusion; global health; and working in crisis
Nepal is particularly vulnerable to rising risks brought on
and conflict. The Millennium Challenge Corporation’s
by climate change. Rising temperatures, shifting rainfall,
Compact with Nepal, signed in 2017, includes $500 million
and drought are having an impact on the two-thirds of
to “spur economic growth and reduce poverty in Nepal.”
Nepalis engaged in agriculture. In 2018, President Bhandari
The Compact’s $398 million electricity transmission
stated that “We have been bearing the brunt of
component “will expand and strengthen the high voltage
https://crsreports.congress.gov

---

Nepal
electricity transmission network to support new investments
2015 in response to Nepal’s adoption of a constitution that
in generation.” The Compact has raised sovereignty
India asserted did not adequately protect the interests of
concerns among some in Nepal who view it as inconsistent
ethnic Madhese, who have close ties to India. Prime
with the Nepali constitution’s commitment to
Minister Oli criticized New Delhi’s decision to become
nonalignment. A bilateral Trade and Investment Framework
involved in Nepal’s domestic constitutional debate and its
Agreement entered into force in 2011. Its objectives include
imposition of the blockade, and signed a trade and transit
expansion of trade, investment, and technical cooperation,
agreement with China in 2016 in an effort to end India’s
and strengthening economic relations.
monopoly over trade with Nepal. As a result, Oli was seen
as tilting towards China. Indian Prime Minister Narendra
Recent Political Developments
Modi has more recently sought to mend ties and restore
Prime Minister Khadga Prasad Oli’s (2015-2016 and 2018-
India’s influence with Nepal. During a 2018 visit to
present) decision to call on the president to dissolve
Kathmandu, Modi spoke of “initiatives in agriculture,
parliament on December 20, 2020, exposed a rift within the
inland waterways and railways [that would] increase mutual
ruling Nepal Communist Party. Oli now appears to be
connectivity … of both the countries.” Modi reiterated his
heading a caretaker government until elections can be held,
commitment to “work with Nepal to further strengthen the
though there is debate about the constitutionality of his
traditionally close and multifaceted partnership” during
status. Oli has called for elections to be held in April and
Oli’s May 2019 Delhi visit. Modi and Oli inaugurated an
May of 2021. Oli’s decision has led to protests by those
Integrated Check Post (ICP) at Jogbani-Biratnagar to
who deem the move unconstitutional.
facilitate bilateral trade in January 2020. The ICP was built
with Indian assistance.
Nepal’s democratic development was previously
demonstrated by successful local, provincial, and national
China has made significant inroads in developing ties with
elections in 2017 and 2018. The “Left Alliance” of the
Nepal since India’s 2015 blockade. China and Nepal held
Communist Party of Nepal Unified Marxist Leninist (CPN-
their first-ever joint military exercises in April 2017, and
UML) and the Communist Party of Nepal Maoist Centre
the next month signed a Memorandum of Understanding
(CPN-MC) won parliamentary elections held between
(MoU) on the Belt and Road Initiative. Beijing has pledged
November 2017 and February 2018. The then co-chairs of
to invest $8.3 billion in Nepali road and hydropower
the Nepal Communist Party, Dahal, who was leader of the
projects and has proposed building a railway from Lhasa to
CPN-MC, and Prime Minister Oli of the CPN-UML,
Kathmandu. The CPN and the Communist Party of China
reportedly had a power-sharing agreement under which the
signed an MoU establishing fraternal relations, and held a
two would share leadership of the NCP government’s five-
Symposium on Xi Jinping Thought in Kathmandu in 2019.
year term. Oli reportedly refused to let Dahal take over.
China and Nepal signed numerous agreements, including
one on a trans-Himalayan railway, during President Xi
The new Left Alliance had a majority in both legislative
Jinping’s visit to Nepal in October 2019. In 2020, Oli
chambers until parliament was dissolved and had formed
dismissed opposition allegations that China encroached on
governments in six of the seven provincial assemblies.
Nepal’s border while accusing India of encroaching on its
While observers were optimistic that Nepal was entering a
border in the Lipulekh-Kalapani-Limpiyadhura border area
period of political stability, the current prospect of
in northwest Nepal.
escalating political rivalry once again brings this into
question. Potential agitation by the Madhese ethnic group
Human Rights, Trafficking, and Migrant
of the southern Terai region may also be a potential source
Workers
of instability. China reportedly has been actively mediating
The State Department’s 2019 Country Report on Human
between political factions.
Rights Practices: Nepal found reports of “unlawful or
arbitrary killings, including extrajudicial killings; torture;
Nepal’s Relations with India and China
arbitrary detention [and] … restrictions on freedom of
Nepal’s ties with India historically have been closer than its
movement for refugees, notably resident Tibetans.” The
ties with China, largely due to geography and shared
Department’s Trafficking in Persons 2020 report found that
religious and cultural traditions. Under Prime Minister Oli
Nepal, a “Tier 2” country, “does not fully meet the
Nepal has expanded ties with China as it seeks to reduce its
minimum standards for the elimination of trafficking but is
overreliance on India. Both India and China currently are
making significant efforts to do so.” Over 7,000 women and
seeking more diplomatic and economic engagement with
girls are reportedly trafficked to India each year and forced
Nepal than in past years, to protect their interests and
into prostitution. Nepal also has the world’s third-highest
deepen ties. While the Himalayan mountain range along
rate of child marriage, with an estimated 37% of girls
Nepal’s northern border has historically limited interactions
marrying before age 18 and 10% by age 15. Approximately
with China, the 500-mile southern plains border with India
10% of Nepal’s population works abroad. Many of those
is relatively open. India and Nepal have had a tradition of
working in the Middle East and Southeast Asia labor under
close coordination on issues of defense and foreign affairs,
harsh conditions and some are subject to abuse and
based on the 1950 India-Nepal Treaty of Peace and
exploitation. Remittance inflows to Nepal were estimated to
Friendship. Nepal depends on India as its primary source of
be 28% of Nepal’s GDP in 2018, and reportedly increased
imports and as its main export market, and for sea access
significantly in 2020 despite the Coronavirus Disease 2019
through the port of Kolkata. An estimated 32,000 Nepalese
pandemic.
Gurkha troops serve in the Indian Army. Nepal-India
relations cooled after India unofficially blockaded Nepal in
Bruce Vaughn, Specialist in Asian Affairs
https://crsreports.congress.gov

---

Nepal

IF10216


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10216 · VERSION 11 · UPDATED

---