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The article outlines the key issues related to international relations, domestic politics and the economic situation of Nepal in 2019. In the first section, particular emphasis is given to Xi Jinping’s visit in October 2019. A separate paragraph is dedicated to the non-signature of the extradition treaty between China and Nepal and the issue of Tibetans in the Himalayan country. Furthermore, the Indo-Nepalese crisis relating to the territory of Kalapani is outlined. In terms of domestic politics, the paper addresses the issue of internal balances of power in the Communist Party of Nepal, resulting from the fusion of Marxist-Leninists and Maoists in 2018. In addition, the analysis focuses on the birth of a new political party, the Samajbadi Party-Nepal, from the union of the Madhesi FSFN party with the Naya Shakti Party. This new party therefore stands as the second subject, together with the Rastriya Janata Party-Nepal, within a unification process aimed at forming a great unitary force in support of the Madhesi demands. Finally, Nepal’s economic scenario is outlined. From the data provided, the known critical issues of the Himalayan country are reiterated, in particular the heavy trade deficit. The numbers of the first eight months of the fiscal year 2018/2019 show a strong growth in imports from China, without, however, a similar growth in Nepalese exports to the north. Quite the contrary, there is a clear drop. The volume is certainly revealing considering the recent role of Nepal within the Belt and Road Initiative (BRI).

1. Introduction

This article seeks to define the political and economic framework of Nepal in 2019. In terms of foreign affairs, the close relationship of the Nepalese government with the People’s Republic of China became even more evident following the visit of Chinese president Xi Jinping in October and the consequent signing of a long list of documents concerning various political, cultural and economic matters. Among these, however, the extradition treaty coveted by the Chinese and feared by Tibetans, humanitarian organisations and even Washington, was not included. As regards relations with India, an ancient border issue was reopened by the publication of the new official map by the Indian government in November. The crisis further deepens the political divide between Kathmandu and New Delhi.

At the domestic level, internal tensions in the National Communist Party (NCP) were accompanied by Prime Minister KP Sharma Oli’s health concerns. The divisions within the main Nepalese party were partially remedied by an agreement that gives Pushpa Kamal Dahal, the former prime minister and historical Maoist leader, greater powers, while guaranteeing that Oli remain at the helm of the government until the 2023 elections. At the same time, new political developments have involved the two main Madhesi parliamentary forces on the longer and jagged path aimed at unification.

The drafting of this article was mainly based on official reports and press releases published by the government of Nepal or by other domestic, foreign or international institutions. Nepalese newspapers were consulted in order to define the domestic political situation.

2. Foreign policy

2.1. China: Xi Jinping’s visit

The main event regarding Nepalese foreign policy in 2019 was represented by the visit of the Chinese president, Xi Jinping, which took place on 12 and 13 October.1 This was the first visit of a Chinese head of state since Jiang Zemin’s journey in 1996,2 the same year in which the conflict between the monarchist government and the Maoists began. A conflict which, as is well known, then led to the end of the dynasty and the birth of the Republic. In 1996, King Birendra had welcomed Jiang, along with the then prime minister, Sher Bahadur Deuba,3 today the main leader of the Nepali Congress (NC). At the airport, Xi was received by the current Nepalese president, Bidya Devi Bhandari and, after a guard of honour, he was welcomed, inter alia, by the Nepalese vice-president and the prime minister, KP Sharma Oli.4

The visit certainly represented a further step in the path of rapprochement which the two countries have been pursuing for several years. It is a path that moves within China’s strategy of alliances in Asia, but at the same time in the Nepalese attempt to emancipate itself from the historical political and commercial dependence on India. Indeed, despite being formally a tributary of the Qing Empire, Nepal is without doubt within the Indian cultural and economic sphere. This Indo-Nepalese link, which has shaped the Nepalese linguistic and religious identity, has likewise made the country – also for obvious geographical reasons – exposed to the political obstacles that have emerged several times throughout history. These obstacles which then reappeared even more strongly after the birth of the Republic and in particular in the choice of the Marxist-Leninist and Maoist prime ministers, determined an ever greater autonomy in foreign policy and international trade. This is a position which inevitably corresponds with a stronger relationship with Beijing.

The Joint Statement Between Nepal and the People’s Republic of China reads that «[t]he bilateral relationship between Nepal and China has entered a new phase. Both sides decided to, on the basis of the Five Principles of Peaceful Coexistence, Charter of the United Nations and principles of good neighbourliness, elevate Nepal-China Comprehensive Partnership of Cooperation Featuring Ever-lasting Friendship to Strategic Partnership of Cooperation Featuring Ever-lasting Friendship for Development and Prosperity».5 The Belt and Road Initiative, which Nepal formally joined in 2017,6 was defined «as an important opportunity to deepen mutually-beneficial cooperation in all fields in a comprehensive manner, jointly pursue common prosperity and dedicate themselves to maintaining peace, stability and development in the region». As many as 20 documents were signed between the two sides.7 Among them there is no extradition treaty, but there is a treaty «on Mutual Legal Assistance in Criminal Matters».

These 20 documents outline a level of cooperation that far exceeds the commercial and infrastructural space. They include agreements on the opening of a Confucius Institute at Tribhuvan University (the main university in the country), on new twinning between Nepalese and Chinese cities (including a twinning between Kathmandu and Nanjing), cooperation on health, environmental and legal, as well as security, border control, and agriculture. An Exchange of Note provides for the opening of a Nepalese consulate general in Chengdu,8 the capital of Sichuan, a Chinese province with a substantial Tibetan presence.9

In addition to institutional meetings, Xi Jinping also met with former prime minister Deuba10 and the leaders of the Nepal Communist Party.11 The latter included the NCP co-chair Dahal.12

2.1.1. The extradition treaty and the issue of Tibetans in Nepal

According to the October Joint Statement between Nepal and the People’s Republic of China, the Nepalese government «reiterated its firm commitment to One China policy, acknowledging that Taiwan is an inalienable part of the Chinese territory and Tibet affairs are China’s internal affairs, and the determination on not allowing any anti-China activities on its soil».13 As already mentioned, among the 20 instruments signed by Nepal and China, there was also a treaty «on Mutual Legal Assistance in Criminal Matters».14 At the same time, in the aforementioned Joint Statement, precisely underlining the signing of this treaty, explicit reference is made to the «hope for an early conclusion of the Treaty on Extradition».15 In fact, a Joint Statement of June 2019 had already foreseen the signing of the two treaties «in order to strengthen cooperation on the administration of border areas and fight against illegal border crossing and transnational crimes»,16 but during the October visit, the Chinese obtained the Nepalese signature only on one of the two. The more delicate one on extradition was postponed. An extradition treaty is indeed viewed with great concern by support groups for Tibetan communities in exile.17 Furthermore, the simple idea of an extradition treaty inevitably evokes the extradition bill of Hong Kong and its protests.

On 8 November 2019, the two co-chairs of the Tom Lantos Human Rights Commission of the US Congress sent a letter, also signed by six other members of Congress and addressed to the Nepalese ambassador to the United States, «to encourage» the Nepalese government «to fully protect the human rights of Tibetans under Nepalese jurisdiction».18 The letter was extremely critical of the likelihood of an extradition treaty and cited the case of six Tibetans who arrived in Nepal on foot in early September, arrested by the Nepalese police and then returned to the authorities of the People’s Republic of China after several hours. The Congressmen stressed the similarity of this event with the case of the 18 Tibetan refugees sent back to China in 2003. At the time, it was recalled in the text, «a trade bill regarding the Nepalese garment industry was withdrawn in the Senate». Mention was also made of the preventive arrests and the closure of monasteries in the days preceding Xi’s arrival.

It must be said that the precariousness of Tibetans in Nepal does not begin with the new government, nor the Republican period. The members’ letter underlined the difference in treatment reserved for Tibetans who arrived in Nepal after 1989. Since then, Tibetans are no longer registered as refugees by the Nepalese authorities, although an unofficial agreement between the Nepalese government and the UNHCR guarantees the passage of exiles to India.19 Undoubtedly, however, the rapprochement between Nepal and China puts the status of Tibetans in the country in an even more difficult position. Nonetheless, it is clear that on the Tibetan issue, Nepal cannot risk a crisis with the United States.

As regards relations with Washington in 2019, the Nepalese government also faced the question of the political implications of an important American funding concerning Sino-Nepalese relations. 20 Indeed, the government of Nepal is seeking clarification with the United States with respect to the US$ 500 million of the Millennium Challenge Corporation’s Nepal Compact.21 The Compact was signed in September 2017.22 The concern of some senior representatives of the NCP is that this funding could be granted to an anti-Chinese function and within the Indo-Pacific Strategy,23 an alliance conceived by the Japanese prime minister, Shinzō Abe, and led by the United States as a response to the Chinese BRI.24 In December 2018, the foreign minister, Pradeep Kumar Gyawali, declared Nepal’s unwillingness to join the alliance.25

2.2. The Kalapani crisis

While border issues with the People’s Republic of China were resolved by a 1961 agreement,26 the borders with India have often been a source of tension between the two countries.27 The border between India and Nepal is defined by the Treaty of Sugauli signed in December 1815 following the Anglo-Nepalese War.28 While maintaining its independence, it meant that Nepal was forced to cede a huge part of its territory.

Following the redefinition of the status of Jammu, Kashmir and Ladakh, the Survey of India published a new official map of the entire country on 2 November 2019.29 The map has become an opportunity to publicly reopen the issue of territorial dispute regarding Kalapani,30 an area of 35 sq km on the border between the two countries, specifically between the Nepalese state of Karnali and the Indian state of Uttarakhand. According to article III of the Treaty of Sugauli, «[t]he Rajah of Nepaul hereby cedes to the Honourable the East-India Company, in perpetuity, all the under-mentioned territories; namely, First, The whole of the lowlands between the rivers Kali and Rapti». A few days after publication, however, the map was replaced again by another (corresponding to the 9th edition).31 Indeed, the first map indicated the Kali river, while the new one, although tracing the course of the river, did not identify its name.32

Between the end of December 2019 and the beginning of January 2020, it was denounced by both chambers of the Nepalese parliament,33 while the Indian ministry of External Affairs reiterated the correctness of the map.34

It should also be borne in mind that the Indo-Nepalese dispute over Kalapani territory has been a topic of serious discussion in Nepalese domestic politics ever since the late 1990s.35 It is clearly of some concern as Kalapani is also a neighboring area with Tibet. The discussions that have been going on since 199836 have obviously not yet found a solution in this regard.

3. Domestic policy

Tension has defined relations between Marxist-Leninists and Maoists for many years. In recent months, some of those critical issues have been reproduced, albeit in a muffled form, within the organisational framework of the new communist party established in 2018. As will be seen in the next pages, this has had repercussions not only internally, but also on those choices relating to the political alliances of the party.

3.1. The tensions of the NCP

The domestic political season of 2019 was characterised by internal tensions in the NCP.37 The party was the result of the merger of the Communist Party of Nepal (Unified Marxist-Leninist) and the Communist Party of Nepal (Maoist Center) in May 2018,38 following a previous electoral agreement.39 With the merger of the two political groups, the new party had 213 MPs out of the 344 of the two chambers, approaching two-thirds of the parliamentary seats.40 On 1 June 2018, the NCP formed an alliance with the Federal Socialist Forum-Nepal (FSFN), one of the two main Madhesi parties, with the entry into the cabinet of two new ministers.41 The coalition thus came to control two-thirds of parliament.42

In May 2018, it was decided to assign 55% of the members of the party organs to members from the CPN-UML and 45% to members from the CPN-MC, with the party leadership being entrusted to Oli and Pushpa Kamal Dahal.43 In relative terms, these internal balances would clearly favour former CPN-MC members: the Maoists had obtained less than half the votes and seats of the Marxist-Leninists in the 2017 elections.44 To better balance the internal situation of the NCP, the elderly Marxist-Leninist leader, Oli, had been appointed prime minister and continued to lead the government.45 According to sources close to Dahal, however, there had been a «gentlemen’s understanding», an informal agreement to take turns leading the government after two and a half years.46 Oli denied the existence of this agreement,47 which evidently would have further unbalanced the power relations with respect to the real electoral and parliamentary weight in favour of the Maoist component. By mid-August 2019, Oli had explicitly guaranteed to the Nepalese parliament his term of office until the elections scheduled for 2023.48

The statement came a few days after Oli’s return from Singapore where the prime minister had undergone medical checks.49 In fact, Oli’s health was the other thread that went to intertwine with the internal dynamics of the NCP. A few days after said declaration to parliament, Oli in fact returned to Singapore where he underwent a plasmapheresis treatment.50 However, the treatment did not achieve the desired results.51

At the time that Oli was undergoing treatment, the two NCP co-chairs had meanwhile reached a new internal agreement.52 As defined by the two leaders, Oli should remain in office as prime minister, with the promise that he be supported as head of government until 2023.53 Dahal instead gained more power within the party, assuming the role of executive chairman.54 Coinciding with the new deal, Oli also changed his cabinet extensively.55 The president of the Republic mediated between the two leaders in this period of uncertainty.56

The internal problems of the NCP continued with the failure to choose a new speaker for the House of Representatives, following the resignation and arrest of Krishna Bahadur Mahara in October, accused of rape.57 In late December 2019, the party had still not reached agreement on a name.58

3.2. The birth of the Samajwadi Party – Nepal and the long attempt to unify Madhesi parties

At the beginning of May 2019, the Federal Socialist Forum-Nepal (FSFN) joined the Naya Shakti Party thus forming the Samajbadi Party – Nepal (SPN).59 The FSFN had been led by Upendra Yadav, and the Naya Shakti Party by Baburam Bhattarai, a former prime minister.60 In October 2017, the latter joined the Left Alliance of Maoists and Marxist-Leninists,61 but then he left the agreement and gained his seat in parliament thanks to the support of the NC.62 As mentioned earlier, the FSFN, one of the two Madhesi parties, had instead joined the government majority in June 2018 with the entry of Upendra Yadav into the cabinet as deputy prime minister and minister for Health and Population, together with Mohammad Istiyak Rai, as head of the ministry of Urban Development.63 The other Madhesi party, the Rastriya Janata Party-Nepal (RJPN), did not join the cabinet, despite having already declared its support for the government in March 2018.64 With the FSFN-NCP agreement, also based on the promise of an amendment to the Constitution in favour of the Madhesi population,65 the coalition thus came to control two-thirds of parliament, that is, a qualified majority that would allow it to modify the Constitution (art. 274, section 8).66 During 2019, however, the Constitution was not changed. With the new party, Yadav chairs the central committee and Bhattarai the federal council.67

The agreement of May 2019 did not directly involve the RJPN.68At the end of 2017, the RJPN and the FSFN announced the possibility of unification, after the two parties had won state elections in State no. 2.69 The alliance between the NCP and the FSFN created some discontent, fearing a local FSFN-NCP agreement in State no. 2.70 Furthermore, in March 2019 the RJPN withdrew its parliamentary support for the Oli government.71 In any case, in November 2019, the new SPN party and the RJPN drafted an agreement for unification.72 According to Keshav Jha, general secretary of the RJPN, unification would take place following Upendra Yadav’s resignation from his government post.73 On 25 November, Upendra Yadav was confirmed deputy prime minister and appointed minister of Law, Justice and Parliamentary Affairs by Oli during the changes of the ministers that followed the aforementioned redefinition of the internal balance in the government and the NCP.74 Surendra Yadav, who had been state minister, was excluded by the new cabinet.75 The new assignment, which arrived a few days after the approach aimed at unification between RJPN and SPN, was defined by Oli without consulting the SPN.76 On 24 December 2019, however, the SPN left the government.77

3.3. The electoral agreement between RJPN and NCP of December 2019

To further complicate the picture of the formation process of the new Madhesi unitary force, there was the electoral agreement between RJPN and NCP of 18 December 2019.78 As mentioned, the RJPN had withdrawn its parliamentary support to the government in early March 2019.79 The agreement concerns the elections for the National Assembly, the upper house of the Nepalese parliament,80 of 23 January 2020.81 The issue of the alliance – in addition to entering the debate between the SPN and RJPN, as well as in the dynamics internal to the current majority of government – has opened up further difficulties in the NCP itself.82 Oli was in fact accused by several leading figures of the NCP of having managed the electoral alliance without consulting Dahal and the general secretary, Bishnu Poudel, putting in crisis the November agreement which provided, as seen, the assignment of greater power within the NCP for Dahal.83 Just a few days earlier, during the first Standing Committee meeting of 2019, Dahal had presented a document – written by Oli and himself – in which the divisions within the party were openly recognised.84

It is evident, as mentioned above, that these choices of Oli, which go beyond his role as prime minister, have in turn become a source of internal fracture. At the same time, those actions help to clarify the specific weight of the two historical leaders in terms of the analysis of internal power relations.

Still on the often complex relations between Kathmandu and the Terai region, the signing of an agreement between the government and the leader of the Alliance for Independent Madhesh, Chandra Kant Raut, must be reported.85 In signing the agreement on 8 March 2019, the Alliance renounced its secessionist goal and entered the institutional political arena.86 On 18 March, the Alliance took a new name, the Janamat Party.87

4. The economic scenario

After a serious drop in 2016 – the year following the devastating earthquakes which hit the Himalayan country – the Nepalese GDP stood at just over US$ 29 billion in 2018, exceeding approximately US$ 24.47 billion in 2017.88 The International Monetary Fund estimates calculate growth at 7.1% and at 6.3% for the Nepalese GDP in 2019 and 2020 respectively (calculated in October 2019), while for 2018 growth had been 6.7%.89 The Nepalese government has instead estimated 7% growth for fiscal year (FY) 2018/2019 (May 2019).90 Again, according to the Nepalese Central Bureau of Statistics, the agriculture and forestry sector contributed 26.50% to Nepalese GDP in FY 2018/19, against 27.58% in FY 2017/18.91 The «Manufacturing» sector would instead represent just 5.59%.92

The inflation rate for FY 2018/19 was calculated at 4.2% in mid-March 2019, only slightly higher than the figure for the same period of FY 2017/18, when it was 4.0%.93

In terms of foreign trade, one of the recurring and most significant difficulties of the Nepalese economy is highlighted: in the period between mid-August 2018 and mid-March 2019, when exports represented approximately NPR (Nepalese rupees) 61.224 billion, while imports slightly exceeded NPR 949 billion.94 Exports and imports in the first eight months of the previous FY corresponded to NPR 53.424 billion and NPR 766.533 billion respectively.95 Comparing the two figures, the widening of the difference between exports and imports in favour of the latter is underlined: the trade deficit in mid-March 2018 increased by 24.5%, while it rose by 22.9% in the first eight months of the previous FY.96 Considering the entire FY 2017/18, exports amounted to about NPR 81.6 billion, with imports calculated at NPR 1,242.827 billion.97 Ten years earlier, in FY 2007/08, exports were about NPR 59.3 billion and imports NPR 221.938 billion.98 The FY 2007/08 year statistics show a more balanced import/export ratio, highlighting the weakness of the current Nepalese foreign trade. This is a trend that clearly exposes Nepal to further conditioning, not only economic, but also on foreign policy. Indeed, despite political divergences, India undoubtedly remains Nepal’s main trading partner, far outperforming all the other trading partners of the Himalayan country.99 In the first eight months of FY 2018/19, exports to the south represented slightly less than two-thirds of the total, exceeding NPR 38 billion.100 In the same period, exports to the People’s Republic of China stopped at just over NPR 1.35 billion.101 The figure indicates a sharp drop compared to exports to the north in the first eight months of FY 2017/18 (NPR 1.856 billion)102. In terms of imports, goods for NPR 612.596 billion arrived from India in the first eight months of FY 2018/19, against products for NPR 139.038 billion from China.103 The period from mid-August 2017 to mid-March 2018 instead recorded imports from India for NPR 502.231 billion and NPR 100.897 billion from China.104 In percentage terms, exports to its Indian neighbour grew by 26.3%, while to the People’s Republic of China there was a drop of 27.6%.105 Indian imports grew by 22.8%, as the share of Chinese goods that arrived on the Nepalese market rose by 37.8%.106 Although Nepal entered the BRI only in 2017, these data may be relevant in the context of a broader understanding of the role of Nepal within the BRI. Statistics show even more relevance when compared with the increase in imports recorded in the first eight months of the previous fiscal year, when there was a more balanced picture between India and China: imports from India had increased by 22.3%, and by 22.2% for those from China.107 Exports to India, on the other hand, had risen by 9.8%, while exports to China by 62%.108

On 1 January 2019, one US dollar was traded at around 111 Nepalese rupees, about 10% more than a year earlier.109 Unlike the previous year, in 2019 the variations were fewer.110 Indeed, on 20 December 2019, one US dollar was traded at around 113 Nepalese rupees.111 In 2018, it must be remembered, the devaluation of the Indian rupee, linked to the Nepalese currency, had also heavily weakened the latter against the dollar.112 For that reason alone, the currency exchange between Kathmandu and New Delhi is one of the most evident manifestations of India’s political and economic predominance.113 The entire macroeconomic framework outlined in this paragraph is testimony to the Nepalese government’s complex foreign policy choices. A Chinese promise is contrasted by the reality of the physical and human geographical space which is the basis for the Indo-Nepalese economic relationship. The data undoubtedly demonstrate India’s stronger position in the Nepalese area and, therefore, the direct link between the two economies.114

5. Conclusions

Xi Jinping’s visit is therefore the clearest proof of the further rapprochement of Nepal with the People’s Republic of China, despite the serious obstacle of the extradition treaty that exposes its government to the attention of human rights organisations and directly involves the influential sensitivities of the US Congress, historically close to the Tibetan cause. The counterpart of Xi Jinping’s visit was the border crisis with India.

Internally, the birth of the SPN and the process of approaching the RJPN expose the unresolved Madhesi question and specifically, the still not approved – despite the promises – change to the Constitution. A change that rests on clarification relating to the internal balance of the majority which, until 24 December 2019, counted on two-thirds of the votes, would have been sufficient for a constitutional change in autonomy, without the need for an intervention by the opposition. The tensions within the NCP had been formally resolved by the November agreement that had provided for greater powers within the party for Dahal in the face of Oli remaining at the helm of government. However, the choice of the electoral alliance with the RJPN, managed exclusively by Oli, was read by many as evidence of the weakness, if not the inconsistency, of that agreement. On the other hand, it is not difficult to imagine that, beyond the party structures and agreements between the communist leaders, relations between the Marxist-Leninists and the Maoists continue to weigh, especially given the weakness of the latter considering the results of the elections in 2017. The question of the prime minister’s health, meanwhile, remains.

From the analysis of the economic data, recurring critical issues of the Nepalese economy emerge, exposed to the limits imposed by geography, but also to the weakness of the industrial sector. These two factors contributed significantly to the weight of imports, particularly from India. As shown, however, exports to India saw a considerable increase. The same cannot be said for exports to the People’s Republic of China which declined considerably, against a significant increase of Chinese imports. Imports which, in percentage terms, far exceeded those from India. This figure is indeed relevant in terms of these early years of the Himalayan country’s membership of the Belt and Road Initiative.

Abbreviations:

BRI = Belt and Road Initiative

CPN-MC = Communist Party of Nepal (Maoist Centre)

CPN-UML = Communist Party of Nepal (Unified Marxist-Leninist)

FY = Fiscal Year

FSFN = Federal Socialist Forum-Nepal

NC = Nepali Congress

NCP = Nepal Communist Party

NPR = Nepalese Rupee

RJPN = Rastriya Janata Party-Nepal

SPN = Samajbadi Party-Nepal

ISSN 2385-2526