Nepal Foreign Policy and Foreign Trade

Estimated GDP: US $ 29 billion (2018)

Per capita income (purchasing power parity): 1034 US $ (2018)

Human Development Rank (HDI): Rank 147 (of 189) (2018)

Proportion of poverty (less than $ 2 per day): 34.0%

Distribution of income (Gini coefficient): 32.8 (2015)

Economic Transformation Index (BTI): Rank 96 (of 137) (2020)

Economic situation

With a per capita income of US $ 1,034, Nepal is one of the poorest countries in the world. The unstable political situation, the lack of trained workers and the weak infrastructure are hampering the economic development of Nepal. The persistently high inflation is reducing the purchasing power of the population. In the Index of Economic Freedom 2020, Nepal ranks 139th out of 180 countries.

With the peace process initiated in 2006, the general conditions for the Nepalese economy improved, but the investment climate is suffering from overregulation by law. The deficit budget and rising debt servicing continue to give cause for concern. Overall economic growth has ranged between 2% and 4% in the last few years and was therefore too low to substantially reduce poverty. Economic reform agenda and the fight against poverty are major challenges for the young republic.

The unstable political situation is hampering important public sector investments and has a negative impact on the business climate. The world economic crisis hit the country in the 2009/10 financial year. In addition, agriculture suffered from poor weather conditions. The development of Nepal is being slowed down by the increasing number of natural disasters such as floods and landslides. The 7.9 magnitude earthquake on April 25, 2015 severely damaged the infrastructure in the Kathmandu Valley and other affected parts of the country.

In addition to the consequences of the devastating earthquake, the blockades of important trade routes brought the economy to a standstill. The parties and political groups with the most varied of orientations repeatedly call for strikes. These have a negative effect on all sectors of the economy – from large-scale industry to small and medium-sized companies. Bureaucracy and inadequate infrastructure affect the investment climate and thus economic development.

According to politicsezine, there are more than 260,000 known corona virus infections in Nepal. The economic development of Nepal has been hard hit by the corona crisis.

A strict curfew largely paralyzed public life in Nepal for four months. Numerous people got into financial hardship. The state is losing two important sources of income: remittances from Nepalese migrant workers, which are estimated to account for between 26 and 30% of GDP, and income from the tourism sector.

Nepal Expansion of the connection road to Tibet

Foreign policy

The principles of the UN Charter, the non-alignment policy, and the value of world peace are the main determinants of Nepal’s foreign policy, despite the many different interests of the country’s political parties.

Nepal is a member of the United Nations, the Group of 77, Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), the Colombo Plan for Cooperative Economic and Social Development in Asia and the Pacific and the Non-Aligned Movement.

The country’s location, between India and China, requires Nepal to pursue a policy of good neighborliness and a balance of interests with the two great powers. India, as the “big brother” of Nepal, claims a kind of special role compared to Nepal for historical and cultural reasons. Nepal’s economic dependence on its southern neighbor is very high: India is Nepal’s largest trading partner. India is also heavily involved in Nepal in terms of development and energy policy: major loan and investment agreements have been concluded between the countries, including on the use of hydropower.

After the popular uprising in Tibet, Nepal took in around 2000 Tibetan refugees every year. Today around 30,000 Tibetan refugees live in Nepal, around a third of them illegally. China, whose economic ties to Nepal to expand, exerts pressure on Nepal from reinforced against Tibetan refugees in the country to take action.

Even after the establishment of the SAARC (South Asian Community for Regional Cooperation) in 1985, the expansion of economic relations with other countries turned out to be difficult for Nepal.

Relations with Bhutan are strained because of the conflict over refugees from southern Bhutan (Lhotsampas) of Nepalese origin who are staying in Nepal.

The most important bilateral relations for Nepal exist with the USA, the European Union, Great Britain, the People’s Republic of China, India, Russia, Japan, Germany, among others.

The Federal Republic supports the peace and democratization process in Nepal. Other important components of the relationship between the two countries are development cooperation, bilateral trade and cooperation in the fields of culture and science.

Foreign trade and financial transfers

Foreign trade

Nepal has been a member of the World Trade Organization (WTO) since 2004. The external economic situation in Nepal is characterized by a rising trade deficit (around 9.3 billion USD in 2017).

Nepal’s most important trading partners for imports are India, the United Arab Emirates and the People’s Republic of China (mainly petroleum products, electrical appliances, machine and machine parts, vehicles and vehicle parts, chemical products and foodstuffs are imported) as well as India and the USA for exports. Important export goods are above all carpets and clothing, jute products, wool and leather goods. However, the share of exports in GDP has fallen continuously in recent years from 20% (2001) to around 10% (2017).

Financial transfers from migrant workers

Several million Nepali work today in India, the Gulf States and Southeast Asia. Along with tourism, your transfers are the country’s most important source of foreign currency. The global economic crisis of 2009 affected the villages of Nepal, as migrant workers had to return.

In the early 1990’s, only a few thousand migrant workers had left Nepal each year. After the civil war began in 1996, the number rose to over a hundred thousand. However, when the conflict ended in 2006, the flow of jobseekers did not decline. The political instability and the severe economic crisis continues to drive masses of young Nepalese to abroad.

According to the Department of Foreign Employment, 354,082 workers left the country in the 2017/18 financial year. These official figures do not include all those Nepalese who work in India. Because of the open borders, migration to the neighboring country is not documented. It is estimated that 4 to 5 million Nepalese work abroad today. Around half of them are likely to be in India, the rest mainly in Malaysia, Qatar, Saudi Arabia, the United Arab Emirates and Kuwait.

About the author