Updated March 24, 2022
Nepal
Overview
hazards such as drought, heatwave, river flooding, and
The Federal Democratic Republic of Nepal faces many
glacial lake outburst flooding are all projected to intensify.”
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 state situated
between China and India largely defines the context of its
foreign policy. U.S. assistance to Nepal includes a recently
ratified Millennium Challenge Corporation (MCC)
Compact. The United States partners with Nepal to help
build a democratic and resilient nation in South Asia.
Background
Nepal is a country of approximately 29 million people that
has undergone 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’ electoral success in 2008, Nepal declared
itself a republic, and a Constituent Assembly (CA) was
directed to write a new constitution. A subsequent CA

elected in 2013 ended years of political deadlock by

Recent studies indicate that two-thirds of glacier ice in the
agreeing to a new constitution in 2015. Local, provincial,
Himalayas will be lost by 2100 if climate targets are not
and national elections were held in 2017 and 2018. Nepal
met. Rising temperatures, shifting rainfall, and drought are
now has a bicameral legislature with 275 Members in the
having an impact on Nepalis engaged in agriculture.
House of Representatives and 59 Members in the National
Assembly, the body’s upper house
Agriculture accounts for 30% of Nepal’s GDP and employs
. The Prime Minister
approximately 80% of the population. Some reports also
serves as the head of government, and the indirectly-elected
project that climate change will lead to the geographic
President serves a largely ceremonial role. Though the
spread of disease in Nepal. In 2018, President Bidhya Devi
process of democratization has not been smooth, Nepal’s
Bhandari stated that “We have been bearing the brunt of
government has brought former insurgents into the political
disproportionate impacts of climate change despite being a
system, conducted peaceful elections, and broadly taken
low carbon-emitting country.”
steps toward establishing a functioning democracy.
U.S. Relations and Assistance
Ethnic, religious, and caste identities are important for
The United States and Nepal established diplomatic ties in
many in Nepal, where 81% of citizens are Hindu and 9%
1948, and relations between the two countries are generally
are Buddhist. Nepali is the official language, though many
friendly. U.S. policy toward Nepal seeks to assist Nepal’s
regional and indigenous languages are also spoken. The
development as a peaceful, prosperous, and democratic
three main geographic areas of the country include the low-
nation that contributes positively to regional stability. Nepal
lying and agriculturally productive Terai region, which
has significant need for economic development and foreign
borders India, an intermediate central hill zone, and more
assistance. The United States has provided over $1.6 billion
mountainous parts of the country. Never colonized, Nepal
in assistance to Nepal since 1951. According to the State
was largely isolated until the early 1950s, and its difficult
Department Congressional Budget Justification
physical environment presents challenges for development.
Supplementary Tables, actual assistance for Nepal in
In 2015, a 7.8 magnitude earthquake near Kathmandu killed
FY2020 was approximately $128 million. U.S. assistance
nearly 9,000 people.
programs focus on agriculture and food security;
Climate Change
democracy, human rights and governance; education;
environment and global climate change; gender equality
Nepal is particularly vulnerable to rising risks brought on
and social inclusion; global health; and working in crisis
by climate change. According to the 2021 World Bank
and conflict. The MCC Compact with Nepal, signed in
Climate Risk Country Profile, “warming in Nepal is
2017, includes $500 million to “spur economic growth and
projected to be higher than the global average [and] climate
reduce poverty in Nepal.” The Compact’s $398 million
change is already having significant impacts. Natural
electricity transmission component “will expand and
strengthen the high voltage electricity transmission network
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Nepal
to support new investments in generation.” The Compact
ICP was built with Indian assistance. Tensions between
was ratified by Nepal’s parliament in February 2022. A
India and Nepal rose in 2020 after Nepal issued a map
bilateral Trade and Investment Framework Agreement
including the Lipulekh, Kalapani, and Limpiyadhura
entered into force in 2011.
regions as its territory, which is not acceptable to New
Delhi. Efforts were made in 2021 to reset bilateral relations
Recent Political Developments
but tensions mounted again in January 2022 after reports
Leader of the Nepali Congress Party Sher Bahadur Deuba
that India plans to build a road to Lipulekh Pass.
was sworn in as prime minister in July 2021. This is the
fifth time that Deuba has served as prime minister. Deuba
China has made significant inroads in developing ties with
heads a political alliance with support from several other
Nepal since India’s 2015 blockade. China and Nepal held
political parties. His coalition is viewed by observers as
their first-ever joint military exercises in April 2017, and
fragile due to the divergent views of coalition partners.
the next month signed a Memorandum of Understanding
Intra-party and intra-coalition feuds and rivalry have been a
(MoU) on China’s Belt and Road Initiative. Beijing has
chronic source of political instability in Nepal. As such,
pledged to invest $8.3 billion in Nepali road and
forging a consensus within the government on a range of
hydropower projects and has reportedly begun building a
issues, including foreign policy, may be difficult. Securing
railway from Lhasa to Kathmandu. The Communist Party
and administering COVID-19 vaccines, balancing relations
of Nepal and the Communist Party of China signed an MoU
between India and China, and reviving Nepal’s economy,
establishing fraternal relations in 2019. China and Nepal
which has been hit hard by COVID-19, are challenges
signed numerous agreements during President Xi Jinping’s
facing Prime Minister Deuba. The next general election is
visit to Nepal in 2019. In February 2022 media reported
expected in late 2022.
that China was encroaching on Nepal’s border in the Humla
District.
Nepal’s Relations with India and China
Nepal’s ties with India historically have been closer than its
Human Rights, Trafficking, and Migrant
ties with China, largely due to geography and shared
Workers
religious and cultural traditions. Under former Prime
The State Department’s 2020 Country Report on Human
Minister Oli, Nepal expanded ties with China as it sought to
Rights Practices: Nepal found reports of “unlawful or
reduce its overreliance on India. Ties with India may
arbitrary killings, including extrajudicial killings by the
improve with the change of leadership from Oli to Prime
government; torture and cases of cruel, inhuman or
Minister Deuba. India and China continue to seek more
degrading treatment by the government; arbitrary detention;
diplomatic and economic engagement with Nepal to protect
serious restrictions on free expression, [and] … restrictions
their perceived interests and to deepen ties. While the
on freedom of movement for refugees, notably resident
Himalayan mountains along Nepal’s northern border have
Tibetans; and significant acts of corruption.” The
historically limited interactions with China, the 500-mile
Department’s Trafficking in Persons 2021 report found that
southern plains border with India is relatively open.
Nepal, a “Tier 2” country, “does not fully meet the
minimum standards for the elimination of trafficking but is
India and Nepal have had a tradition of close coordination
making significant efforts to do so.” Thousands of women
on issues of defense and foreign affairs, based on the 1950
and girls are reportedly trafficked to India each year. Nepal
India-Nepal Treaty of Peace and Friendship. Nepal depends
also has the world’s third-highest rate of child marriage,
on India as its primary source of imports and as its main
with an estimated 37% of girls marrying before age 18.
export market, and for sea access through the Indian port of
Remittances account for 24% of GDP in 2020. Many of
Kolkata. An estimated 32,000 Nepalese Gurkha troops
those working abroad labor under harsh conditions and
serve in the Indian Army. Nepal-India relations cooled after
some are subject to abuse and exploitation.
India unofficially blockaded Nepal in 2015 in response to
Nepal’s adoption of a constitution that India asserted did
Congressional Interest
not adequately protect the interests of ethnic Madhese, who
Congressional interest in Nepal has included supporting
have close ties to India. Former Prime Minister Oli
democratic institutions, promoting regional stability and
criticized New Delhi’s decision to become involved in
security, alleviating poverty, promoting human rights,
Nepal’s domestic debate and its imposition of the blockade,
sustainable economic growth, and the interests of Tibetan
and signed a trade and transit agreement with China in 2016
refugees, as well as helping build resilience to deal with
in an effort to end India’s monopoly over trade with Nepal.
climate change and natural disasters. A Congressional
As a result, Oli was seen by many as tilting towards China.
Caucus on Nepal was formed in 2011. The Consolidated
Appropriations Act, 2022 (P.L. 117-103) states that “not
Indian Prime Minister Narendra Modi has sought to mend
less than $8,000,000 shall be made available for programs
ties and restore India’s influence with Nepal. During a 2018
to promote and preserve Tibetan culture and language in the
visit to Kathmandu, Modi spoke of “initiatives in
refugee and diaspora Tibetan communities, development,
agriculture, inland waterways and railways [that would]
and the resilience of Tibetan communities and the Central
increase mutual connectivity … of both the countries.”
Tibetan Administration in India and Nepal, and to assist in
Modi reiterated his commitment to “work with Nepal to
the education and development of the next generation of
further strengthen the traditionally close and multifaceted
Tibetan leaders from such communities.”
partnership” during Oli’s 2019 Delhi visit. Modi and Oli
inaugurated an Integrated Check Post (ICP) at Jogbani-
Bruce Vaughn, Specialist in Asian Affairs
Biratnagar to facilitate bilateral trade in January 2020. The
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Nepal


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https://crsreports.congress.gov | IF10216 · VERSION 12 · UPDATED

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