Nepal in 2024: Political Instability, Geopolitical Contest, and Economic Growth

The year 2024 was marred by political instability in Nepal, which has remained constant in Kathmandu’s politics in the past seven decades. However, the dawn of democracy in 2008 generated hopes towards a stable political environment, but that has not happened. As Nepal evolves into a democratic form of government, the democracy is held hostage to the Westminster model, where coalitions and political equations define much of the stability of the government. On the foreign policy front, Nepal had an engaging year with its two neighbours, India and China, and at the end of 2024, Prime Minister KP Oli’s visit to China saw a heated media narrative on whether the Himalayan country was falling into Beijing’s trap and moving away from India. Apart from making efforts to balance ties with its two neighbours, Nepal’s foreign policy actively pursued partnerships with the United States, Russia and the Gulf countries on multiple fronts. Nepal’s foreign policy was also tested in safely bringing its citizens who had been lured into risky jobs abroad, including as frontline soldiers in the Russian Army.

Political Developments

KP Sharma Oli returned to the office of the Prime Minister in July 2024, marking an end to the months-long coalition government of Prime Minister Pushpa Kamal Dahal alias Prachanda. Despite winning 32 seats in the 2022 Parliamentary Elections and ranking third, the latter had been striking deals with different coalition partners to form the government and sustain his premiership for eighteen months. What was more striking about Prachanda’s years in office was that he could bargain for the top post even when his CPN-MC was the junior partner in all the coalitions and that he could strike a deal with the Sher Bahadur Deuba-led-Nepali Congress or KP Sharma Oli-led-Communist Party of Nepal-UML (CPN-UML). However, clouds of uncertainty always loomed over Prime Minister Prachanda’s authority, considering he did not have enough numbers in the parliament.

What was less surprising was KP Oli’s signature style of politics—confronting rivals head-on and speaking his mind. As he intensified his public criticism of Prime Minister Pushpa Kamal Dahal (Prachanda) and his administration (December 2022–July 2024), Oli accused him of failing to ensure stability, misgoverning the country, and shielding Rashtriya Swatantra Party (RSP) chief Rabi Lamichhane, who faced allegations of cooperative fund misappropriation. Oli and Lamichhane maintained a smooth political equation during the 2022 parliamentary elections, which ultimately facilitated the formation of a coalition government in December 2022, bringing together CPN-MC, CPN-UML, and RSP. However, their alliance appeared to weaken over time, mainly due to power-sharing disagreements within the coalition. This friction not only strained their political relationship but also diminished the likelihood of them joining forces again in the future. However, Rabi Lamichhane, who held the Deputy Prime Minister and Home Minister’s position, was arrested [3] in October 2024 on charges of cooperative fraud and organised crime. This move was seen as politically motivated, and Rabi criticised the Prime Minister, accusing [3] Oli of political vendetta.

With changes in national politics, especially the change of leadership and the formation of a new government under a new coalition of CPN-UML and Nepali Congress, political equations at the regional level also changed. The provinces like Koshi and Madhesh saw direct implications of changes in the coalition at the national level, reflecting the power intensifying between the CPN-UML, Nepali Congress, and CPN-Maoist Centre, with no single party securing a dominant position, leading to fragile governments dependent on coalition compromises. In several provinces, Chief Ministers faced no-confidence votes, underscoring provincial politics' volatility. As a result of these developments, strong calls for constitutional amendments to streamline federalism and strengthen provincial governance gained traction, adding to the larger ongoing debate on constitutionalism and federalism in Nepal.

Foreign Relations

As a landlocked country between the two giant economies in Asia, Nepal’s foreign policy often gets tagged pro-India and pro-China, depending on who comes to power. While much of Prachanda’s tenure until July 2024 was seen as a positive sign for Delhi, KP Oli has been projected as pro-China as he visited Beijing on his first foreign visit in December 2024. The local and regional media viewed this trip as a “break from the tradition” by a newly appointed Prime Minister who is expected to visit India for the first foreign visit. While much of the media narrative left no stone unturned in writing sensational stories on Oli’s China trip, there came a moment in the Indian media that almost suggested Oli shifting the foreign policy orientation to China. This is where the role of historians and fact checkers had to be put in place to trace that before KP Oli, Prachanda was the first PM appointed after the 2022 elections, and he had already visited India in 2023. Will it be rational to visit only one country for a landlocked country like Nepal, which, on average, sees two Prime Ministers each year? The media needed to answer but failed.

Anyways, the media seems to have given its verdict that Oli would prefer courting China and that ties with India were in question. On the tangible front, Oli’s China visit culminated in a few agreements being signed—development partnership, trade and boundary management were signed. The key development in the bilateral ties was the signing of the framework [4] on the Belt and Road Initiative (BRI), which has remained stalled since an MoU was signed in May 2017. However, no details of the BRI framework were made public, and reports suggest that the two countries have reached a consensus on the financial modalities to move forward. Meanwhile, the clouds of doubt still loom large over trusting the Chinese financial model while it engaged in development partnership with the Himalayan neighbour.

Amidst the media narrative of Nepal heading to China, the inauguration of the first trilateral power transaction—from Nepal to Bangladesh through the Indian grid [5]—was one of the key highlights of the Nepal-India partnership in 2024. This collaboration has been in the pipeline for a few years but was often delayed due to a change of government or political roadblocks. In 2022, during the visit of Prime Minister Sher Bahadur Deuba to Delhi, the two countries released the “India-Nepal Joint Vision Statement on Power Sector Cooperation,” [6] which has not only solidified the bilateral cooperation in the power market but also has potential for trilateral and multilateral collaborations—something that was mentioned during Prime Minister Prachanda’s visit to India in June 2023. Beyond exporting electricity to India, Nepal is now set to export up to 40 MW of electricity to Bangladesh via the Indian grid, marking a significant shift in the Delhi-Kathmandu relationship. This development deepens energy cooperation and diversifies trade, positioning Nepal as an emerging player in the regional power market.

Further on the Nepal-India front, the year 2024 began with Indian Foreign Minister S. Jaishankar's two-day visit to Nepal on 04-05 January [7]. In addition to meeting with his Nepalese counterpart, NP Saud, Jaishankar met Prime Minister Prachanda, former Prime Minister Deuba, CPN-UML Chairman KP Oli, and other important business leaders. Foreign Ministers Jaishankar and Deuba jointly held the 7th meeting of the India-Nepal Joint Commissions—a commission established in 1987 to review the overall bilateral relationship. Following this visit, the Nepalese Foreign Minister NP Saud visited India to participate in the inaugural session of the Raisina Dialogue in February 2024. Also, soon after the change of government in Nepal in July 2024, the newly appointed Foreign Minister, Arju Rana Deuba, visited India in August 2024 [8] and held dialogues with her Indian counterpart.

In addition to engagement with India and China, Prime Minister KP Oli visited the United States to attend the 79th Session of the United Nations General Assembly in New York [9] and held meetings with foreign leaders on the sidelines in New York. In terms of high-level engagements, the Deputy Secretary of the United States, Richard Verma [10], arrived in Nepal on August 16, 2024, soon after the Oli-led government was formed in July. His visit was followed by the visit of Assistant Secretary of the State for the Bureau of South and Central Asian Affairs, Donald Lu [11]. During Lu’s visit, Nepal and the United States reviewed the gamut of the US-Nepal partnership, especially those under the USAID and Millenium Challenge Corporation (MCC). Interestingly, Lu had reportedly raised concerns [12] over the BRI between China and Nepal, hinting that transparency over the deal was crucial without naming China or the BRI. Noteworthy that a section of experts and observers have been raising concerns over China’s financial models that often reflect a ‘debt trap’ strategy, and transparency over more significant deals with Beijing has mostly been in question.

The other key highlight of Nepal’s foreign policy is the diaspora connect. With a sizeable Nepali diaspora living abroad, especially in West Asia, Nepal made efforts to reach out to respective governments to improve the lives of its diaspora. This included the visit of the Emir of Qatar, Sheikh bin Hamad Al Thani, in April 2024, who was one of the key high dignitaries who travelled to Nepal in 2024. Qatar became one of the key destinations for Nepali workers during the decade-long Maoist insurgency in Nepal, and today, Nepali migrant workers constitute approximately 13 per cent of Qatar’s total population [13]. Qatar has also been interested in investing in Nepal, and during the visit [14], memorandums of understanding [15] in the “security sector, exemption from visas for holders of diplomatic and official passports, avoiding double taxation, football, and chambers of commerce” and wage-related issues were discussed.

While the diaspora has become a key pillar in contributing to the national economy through remittances, their safety and security risk has also increased. Since the early 2000s, Nepal has seen a mushrooming of employment agencies guaranteeing better salaries and often luring them with citizenship opportunities of the host countries. Against this backdrop, in 2024, Nepal encountered a major security risk to its people following a large number of Nepali citizens joining the Russian Army as frontline soldiers. In March 2024, nineteen Nepalese fighting in the Ukraine War were reported to have died [16]. The number of casualties involving Nepalese and the total recruited and still serving in the Russian army are unclear. Still, media reports suggest that it may be thousands plus [17]—in February 2024, CNN reported the numbers to be somewhere close to fifteen hundred [18]. The government officials in Nepal have spoken [16] to officials at the Kremlin and called upon the Russian Ambassador, requesting [19] the release of the Nepalese citizens from the frontline and a safe comeback to Nepal.

Trade and Economy

On the trade front, Nepal imported [20] goods worth US$ 587 million from India and exported [20] goods worth US$ 81.6 million to India by October 2024. India’s exports to Nepal increased by 9.25 per cent from October 2023, with petroleum products contributing to the top exports. The trade deficit between the two countries continues to grow, mainly due to Nepal’s small trade basket. While India tops as Nepal's largest trading partner, the growing power export from Nepal provides a hopeful sign of a trade balance in the future. Meanwhile, China became the second largest exporter to Nepal, just behind India, by exporting goods worth US$ 316 million [21], whereas China imported goods worth US$ 5.38 million [21]. An 85.3 per cent increase [21] was seen from November 2023 in China’s exports to Nepal, with electronic goods taking the top spot. In addition to its trade with neighbouring India and China, Nepal’s overall exports surged by an impressive 66.0% [22] year-on-year by the end of 2024, reflecting a significant boost in the country’s outbound trade. Meanwhile, total imports reached US$910.6 [22] million in November 2024, marking a 14.2% increase compared to the previous year. Despite the strong export growth, Nepal’s trade deficit remained substantial, with the trade balance recording a deficit of US$939.4 [22] million in December 2024.

Apart from a rise in foreign trade, Nepal’s Gross Domestic Product (GDP) grew well. As per the World Bank [23]’s development update on Nepal in October 2024, the country’s GDP growth touched the 3.9 % mark-—up from 2% in 2023. Recovering from the COVID-19 years, Nepal’s tourism industry was driven by a 30.7% surge in tourist arrivals, increased hydropower production, and a 4.3% rise in paddy output. Private consumption, which accounts for over 80% of GDP, grew by 1.1%, supported by record-high remittance inflows, reported the World Bank [23]. However, private investment weakened due to reduced business credit and lower imports of capital goods. A striking development was the first current account surplus in eight years—3.9% of GDP—due to the rising remittances and lower merchandise imports. While the World Bank acknowledge necessary inputs made by the Nepalese migrant workers through remittances, it also observed [23] that “the economic rewards of sending family members abroad with several costs”—mostly health, education and family relations.

To conclude, 2024 was a year of political instability, economic progress and geopolitical uncertainties. However, on the projection front, if Prime Minister Oli can sustain his leadership and manage the political equation with his coalition partners, the possibility of political stability may increase the chances of overall growth and stability on all fronts.

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