Nepal has long faced a great many diplomatic challenges, from striking a balance among major powers to securing international assistance — whether grants, loan, or Foreign Direct Investment (FDI) — to meet its domestic development aspirations. But the country will face an even tougher foreign policy environment after COVID-19.
As in the past, Nepal will have to strike a balance in dealing with its two giant neighbors, India and China. At the same time, Nepal must work hard to maintain cordial relations with Western powers, including the United States. There are already some pending issues that will shape Nepal’s diplomacy moving forward. So far, it doesn’t seem that COVID-19 will bring significant changes in Nepal’s bilateral relations with big powers. Major powers such as India, China, the United States, and Germany have announced cash and logistical assistance to help Nepal deal with COVID-19.
Nepal’s relationship with India is unlikely to see any major changes even after the pandemic. After all, the Peace and Friendship Treaty of 1950 has set out a basic framework for bilateral relations so the countries cannot make drastic changes even after COVID-19. Due to the open border, once travel is permitted again there will be smooth movement of migrant workers from one country to another. Those who returned to their home country due to COVID-19 are likely to migrate back once restrictions are lifted. Nepal will continue to be dependent on India when it comes to the supply of daily essentials.
India is likely to continue its already-pledged development assistance to Nepal even after COVID-19, but India is likely to face some resource constraints when it comes to providing additional assistance in the development sector to compete with other powers in Nepal. And once the lockdown is over, long-standing issues such as the territorial dispute over Kalapani and the report of the Nepal-India Eminent Persons’ Group (EPG) will again come into limelight.
Concerning Nepal’s relationship with China, some advances might be delayed due to the impact of COVID-19. For instance, Nepal is in the final stage of selecting projects under the Belt and Road Initiative (BRI), which could be delayed further. Due to the coronavirus, Nepal’s economy has been badly hit so it is unlikely to rush to take loans from China to implement projects under the BRI, for fear of defaulting. China itself will not be in a position to offer grants for development projects as its economy will also be battered by the virus. Nepal and China are discussing several connectivity projects, but the investment modality remains to be settled.
But that does not mean China’s influence in Nepal will decrease; on the contrary, it is likely to increase further. During the pandemic, Nepal has been overly dependent on China to arrange necessary medical logistics. Nepal is purchasing a large amount of medical supplies from China and has also received a large amount of assistance. Nepal is not unique in this; even developed countries are relying on China. Due to the economic crisis, the United States and other Western countries may not be in a position to provide economic assistance at the same level Nepal expects. In this scenario, China is likely to fill the void.
Despite resource constraints, China is likely to pursue aggressive diplomacy even after COVID-19. Traditionally, China has had a reputation for not interfering in Nepal’s internal politics (in contrast to India’s image). But now China is changing tack and increasing its involvement in Nepali politics.
For instance, recent frictions threatened to split the ruling Nepal Communist Party, but the Chinese envoy to Nepal played an active role to keep the party intact. China, which helped united Nepal’s communist parties into a single political vehicle in the first place, wants the Nepal Communist Party to remain united — and in power. Still, overall the outbreak of COVID-19 is unlikely to change Nepali people’s perception of China.
The United States
Nepal’s relations with the United States will depend on the government’s response to the $500 million U.S. grant under the Millennium Challenge Corporation (MCC). Both countries signed the grant in September 2017, but Nepal’s parliament is yet to endorse it due to a divergence within the ruling party. Some senior Nepal Communist Party leaders strongly oppose the deal, arguing that the MCC is part of Washington’s Indo-Pacific Strategy and thus has military components. Prime Minister K.P. Sharma Oli is in favor of endorsing the deal without any delay but has struggled from find support from other leaders within his party. As per the agreement, the MCC grant should be endorsed by Nepal’s parliament by June 2020. Nepal’s government has summoned parliament for the summer season to present its policy program, but it is unclear if and when Oli’s government will table the MCC proposal. A taskforce formed by the Nepal Communist Party has suggested that the government accept the grant only after amending some provisions of the 2017 deal.
If Nepal fails to endorse the MCC grant, it will have a negative impact on current efforts to bring in more FDI from developed countries. Reneging on a years-old deal would signal that there is not a proper investment climate in Nepal.
In the post-COVID-19 era, another major challenge for Nepal will be to seek out new destinations for unemployed youths. After the economic crises in India, Gulf countries, and Malaysia — which combined host millions of Nepali migrant workers — thousands of Nepali workers have already lost their jobs. They are asking the Nepali government to arrange flights to bring them home. As Nepal cannot provide enough jobs for all its unemployed youths, Nepal should explore new destinations where it can send its workers. This is also necessary to rebuild Nepal’s economy, because remittances contribute between 24 and 27 percent of the country’s GDP. Nepal now will have to find out other countries where both skilled and unskilled manpower can get employment.
Similarly, Nepal needs robust economic diplomacy to bring in big economic assistance packages from developed countries. Due to the effects of COVID-19, developed countries may not be in a comfortable position to provide major assistance but Nepal needs to make an effort to draw such support. Similarly, extra measures should be taken to bring more FDI from other countries. Since last year, the government has been taking a series of steps to ease the process of attracting FDI, but still there are legal hassles.
Another challenge before the government is to revive Nepal’s tourism sector as soon as possible. Tourism, which provides employment to half-a-million people, is a vital part of the country’s economy. Once the COVID-19 crisis is over, Nepal needs to assure international tourists that the country is safe. At the same time, it has a responsibility to create necessary infrastructure to keep international tourists safe during their stay in Nepal.