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Category: Research Commentaries

Research Commentaries

Issues with Higher Education Sector in Nepal



The education sector in Nepal is very heterogeneous with visible differences among the existing institutions. Notably, public and private educational institutions vary widely in terms of education financing, infrastructure, quality, admission, retention and graduation rates. Nepal’s education system is very peculiar especially when available data are compared to other countries with the enrollment rates being lower than half of the global average. It can be easily discerned that higher education in Nepal is fragile and inconsistent within and beyond the system. The data discussed below suggests that enrollment rates diminish with increasing educational level. This article discusses some barriers to enroll into the educational system and some barriers to graduate in Nepal.


Higher education in Nepal is limited to a very few umbrella institutions with the majority of students still enrolled in colleges affiliated to Tribhuvan University. Although all universities in Nepal are public, three of the largest universities after TU, Kathmandu University, Purbanchal University and Pokhara University have autonomy highly comparable to private universities. Hence, these universities have to depend on tuition fees as their primary source of funding. Most of the educational grants from the government are provided to TU through the University Grants Commission. Around 3.5 percent of the total educational budget is allocated for higher education and that amount when distributed for more than a third of enrolled students is inadequate.


According to the World Bank, Government of Nepal’s spending on education as a percentage of the GDP and total budget, both are higher than the world and South Asian average. That could have been the key to increased enrollment rates in primary and secondary schools in recent years. Net enrollment in elementary schools has reached 97 percent in the last two decades and that in secondary schools is 60 percent. But the enrollment rate in higher education in 2019/20 was just 14.9 percent which is less than half of the global average (WENR) and 12 percent less than that of other developing countries like India and Vietnam. This trend suggests that enrollment rates diminish with increasing educational level.

Despite plans to increase domestic funding for education, the process of allocation and distribution of funds is ambiguous with the transition to federalism. Educational loans are available through commercial banks but the complexity of the process with high interest rates has made those schemes unpopular. Hence, students are highly constrained with access to educational financing. Thus, low federal aid and those constraints along with increasing tuition fees have made it harder for students to finance their education.

The heterogeneity within educational institutions in terms of budget translates to variation in quality of education. Publicly funded institutions are compelled to use inferior technology compared to private institutions who serve a limited population, mostly those in Nepal’s urban areas. The University Grants Commission claims that lack of standard norms and mapping of Higher Educational Institutions has made the sustainability of educational programs and resource mobilization difficult. Also, the highly centralized economy has led to the establishment of majority institutions in limited cities. For a student graduating high school from a remote district, there is a need to move to a bigger city which is an additional financial burden. So, a large population is compelled to enroll into public colleges which teach limited coursework. All these factors impose a barrier to enter the higher educational system.

Among those who enroll into higher education, graduation rate is low. Tribhuvan University, with more than 75 percent of students within the country, had a pass rate of 26.6 percent in 2015/16 and 26.1 percent in 2019/20. The National Educational Policy 2019/20 has identified irregularity in educational policy, irrelevancy of coursework in the labor market and uncompetitive and hackneyed nature of degree programs as the main challenges in higher education. The enrollment rate in the management sector is 46.37 percent with that in the STEM field being 8.38 percent. On the contrary, the STEM field is the most popular among Nepali students going abroad for higher education. This implies that either the standard of STEM education in Nepal is low or a STEM degree has less chance of landing a job after graduation in the related areas. The government plans to formulate policies where students graduating from subjects of national demand will be required to serve under government supervision for at least a year. This could be beneficial for recent graduates searching for entry level jobs. On the other hand, local governments will have educated youths working for them. Moving higher in the educational spectrum, less than one percent of total students in higher education are in post-graduate degrees focused on academia like PhD, MPhil or PGD.  Although the UGC claims that the target of publishing 85 publications in international journals was exceeded in the 2019/20 academic year, there is very limited research done in applied sciences with most publications being theoretical.

Another major problem within higher education in Nepal is internal inefficiency. This includes poor management, delayed admission and exam results and ineffective communication. Many students are forced to wait elongated periods for exam results. Even the simplest of administrative processes are tortuous. The inclusion of politics especially in public institutions has caused frequent disturbances in colleges often leading to violence. While youth involvement in collegiate government is important and could be beneficial in terms of equity and inclusion of all parties in college, educational institutions should never be a place to ignite political ideologies. The internal inefficiency along with negative external influence has exacerbated the structure of higher educational institutions in Nepal.


While there is a long way to go in terms of cutting off the barriers to enter and exit higher education in Nepal, there is some rainbow within the clouds. The share of female students in higher education has increased with 52.04 percent making the Gender Parity Index 1.9. Historically, female population has been deprived of education with all higher educational institutions being male dominated but this is a notable improvement. It is disappointing to see that National Education Policy 2019/20 lacks plans to accommodate people of LGBTQ community in education although recent movements through civil societies have apprised the government to promote diversity and inclusion within the educational sector. Resource wise, educational budget has decreased but the Ministry of Education recognizes the need to increase the allocation to 20 percent of the national budget in order to upgrade from under-developed to developing country by 2022. The National Education Policy 2019/20 plans to focus on technical education and training, collaborate with national and international institutions for research and development and increase emphasis on tourism, sports, entrepreneurship and ayurvedic and herbal education, and spirituality. The government and the Department of Education is often claimed to follow a circuitous route for a lot of reasons, most stated above, their recent publications regarding plans and policies have recognized the deficiencies within themselves, which is a good place to start.


Edusanjal. (6 December 2021). Education in Nepal [infographics]. Edusanjal. Retrieved 6 September 2022, from https://edusanjal.com/blog/education-in-infograph/  

Education in Nepal. WENR. (30 March 2022). Retrieved 6 September 2022, from https://wenr.wes.org/2018/04/education-in-nepal  

Government of Nepal (2021). ANNUAL REPORT 2019/20. University Grants Commission

Government of Nepal (2021). Education Sector Analysis, 2021. Ministry of Education, Science and Technology

Government of Nepal (2021). National Education Policy, 2076. Ministry of Education, Science and Technology

Paudel, A., Chen, J., Shimauchi, S., Woo, W. T., Rai, S., Sen, R., Wardana, W., Chaudhary, M., Hurley, P., Kishan, A., Tiberghien, Y., Laksmana, E., Gupta, S., Horta, L., Dhungel, N., editors, E. A. F., & *, N. (14 May 2020). Rhetoric and reality in Nepal’s education system. East Asia Forum. Retrieved 6 September 2022, from https://www.eastasiaforum.org/2020/05/15/rhetoric-and-reality-in-nepals-education-system/

Research Commentaries

US interest rate hikes trample on developing countries

– NISCHAL Dhungel, Non-Resident Fellow

The commentary originally appeared on the East Asia Forum, a forum based at the Crawford School of Public Policy at the Australian National University, on 18 August 2022. Read the original article here.

The International Monetary Fund’s recent World Economic Outlook report paints a bleak economic future. It has downgraded global growth predictions from 6.1 per cent in 2021 to 3.2 per cent in 2022. While the global economy is still recovering from the COVID-19 pandemic, central banks in advanced economies are hiking interest rates — a policy change that will have a significant global impact.

The depressing growth predictions are a consequence of tighter monetary policy and the increasing threat of social and economic risks, particularly for emerging and developing nations. Food and fuel prices have skyrocketed due to the Russia–Ukraine war and supply chain bottlenecks. The Russia–Ukraine conflict has made it challenging to balance fighting inflation, supporting the global economic recovery, helping the vulnerable and restoring fiscal buffers.

The US Federal Reserve (Fed) stepped up its fight against inflation after consumer prices increased 8.6 per cent in the United States. On 15 June 2022, the Fed voted to raise the target range for the federal funds rate to 0.75–1 per cent. It plans to implement additional hikes for the rest of 2022. But efforts to reduce inflation by increasing interest rates in the United States could harm the rest of the world.

As interest rates rise in the United States, those who invest in emerging markets to receive higher rates of return may invest in the more appealing US market. This will result in massive capital inflows to the United States and increased outflows from the developing world. Without proportionally tighter domestic monetary policies, the ensuing rise in borrowing costs will deplete foreign reserves, appreciate the US dollar and result in balance sheet losses for nations with US dollar-denominated net obligations.

Rising US interest rates have the greatest impact on economies with higher macroeconomic vulnerabilities. Between 2019 and 2021, the COVID-19 pandemic caused a sharp rise in public debt in developing economies — on average increasing from 54 per cent to 65 per cent of GDP.

Thirty-eight emerging economies are now in danger of a debt crisis or are currently experiencing one. At least 25 developing economies spend over 20 per cent of government income on servicing foreign public debt. This is why interest rate hikes in advanced economies could tighten external financial conditions for emerging markets and developing countries.

There is a worrying comparability between today’s economy and the economy of the 1970s and early 1980s which was rife with high inflation, slow growth and rising borrowing costs. In the 1970s, oil exporters benefitting from increasing energy prices used their surpluses to increase funding for debt markets in emerging market economies. Fed rate hikes in the early 1980s reduced inflation in the United States but drove up global interest rates, causing many emerging economies to default on their debts.

The debt crisis that followed the Volcker shock was distressing for developing nations. The Fed interest rate hike had a devastating effect on Latin America. The region experienced plummeting GDP and ballooning unemployment and poverty. The subsequent decade was lost to gradual and uneven economic recovery. The consequences of the Latin American debt crisis were similarly experienced in Africa’s heavily indebted nations. The Fed did not pay enough attention to how its choices would affect the rest of the world.

Though today’s economic situation has similar origins to that of the 1970s and 1980s, there are some significant distinctions. Today, oil producers acutely feel the world’s reducing dependence on oil. Real oil price increases are smaller than they have been historically. Policy tightening in response to the economic downturn has also begun sooner than it did in the 1970s and 1980s, especially in certain emerging markets and developing nations. Unlike the 1970s and the 1980s, there has not been as much time for recycled petrodollars to fuel imbalances in developing and emerging market economies.

Despite these encouraging developments, new risks have emerged. Due to increased exposure to sizeable bilateral creditors and the recent COVID-19 pandemic, public debt has risen and stunted the growth potential of many countries.

While international financial institutions are doing their part to provide debt relief and stop punitive measures like surcharges — additional fees imposed on countries that fail to make debt repayments —  there needs to be swift and systematic action on debt resolution. This must involve collaboration with private creditors and large state creditors like China. Major food and fuel businesses must be prevented from profiteering and speculating.

Special drawing rights (SDRs) — a foreign reserve asset issued by the IMF that can be used for foreign exchange stability in addition to gold or US dollars — must be redistributed to those countries that urgently require them. A new release of special drawing rights with an equivalent value of US$650 billion is necessary for immediate relief. The UN Conference on Trade and Development has advocated an alternative way to facilitate fair and orderly debt crisis resolutions. It would involve a multilateral legal framework for restructuring sovereign debt using both public and private creditors.

Interest rate increases in advanced countries will always impact low-income countries. But that does not negate the need to pursue structural reform in low-income countries. Structural reform is the only way to find short and long-term solutions to debt management.

Research Commentaries

Strengthening Sub-Regional Cooperation via Vehicular Movement


Nepal’s geostrategic location presents a unique opportunity to engage in multiple regional projects. The BBIN MVA initiative will not only ensure trade, transport and transit facilitation across the region, but is also likely to foster regional harmony and integration by cementing strong ties between people across the BBIN countries. Learning, adapting, and actualizing the lessons from past mistakes committed on infrastructure projects is the step in the right direction to get the best out of a grand project like BBIN MVA.

The sub-regional cooperation, Bangladesh Bhutan India and Nepal Motor Vehicle Agreement (BBIN MVA) was inked on June 15, 2015 for the Regulation of Passenger, Personal and Cargo Vehicular Traffic. On February 8, 2020, the four Bangladesh Bhutan India and Nepal (BBIN) countries participated in a high-level delegation meeting in New Delhi. However, the pact’s fourth signatory Bhutan’s participation in this meeting was only in the capacity of an observer as the Bhutanese parliament has already declined ratifying the pact citing that the agreement would pose great threat to its serene environment and culture. With this, Bhutan has made an exit from BBIN, while the three countries (Bangladesh, India and Nepal) inked a trilateral MOU for the seamless movement of cargo. The onus is now on three countries to expedite and finalize the Passengers and Cargo Protocols for the implementation of BBIN MVA.

According to the World Bank, South Asia is one of the least connected regions in the world. Intraregional trade in South Asia is one of the lowest in the world that accounts for around 5 percent of the region’s total trade. Intraregional trade, as a share of regional gross domestic product (GDP), hovers around only one percent in South Asia which reflects low levels of trade within the South Asian region. The World Bank report, A Glass Half Full: The Promise of Regional Trade in South Asia approximates that the trade-off within the region could be worth USD 67 billion rather than its current value of USD 23 billion. Let us take a close look at India’s bilateral trade among BBIN countries. According to official statistics for FY 2017-18, India’s border trade with its neighbors gives some fascinating insights. In FY 2017-18, India’s overall bilateral trade with Nepal was USD 6.82 billion. However, bilateral trade with Nepal heavily skewed in India’s favour, with USD 6.38 billion in exports and USD 437 million in imports. Bangladesh, which is ten times the size of Nepal’s economy and more than five times the population, ranks second in terms of India’s bilateral border trade. Bangladesh imports USD 4.13 billion in goods and services. However, similar to Nepal, its bilateral trade is heavily lopsided in India’s favor, with India exporting USD 3.61 billion to Bangladesh and just USD 517 million in imports. Surprisingly, Bhutan, much smaller than Pakistan, is far ahead of Pakistan in terms of border commerce with its neighbors. India’s entire border trade with Bhutan is 728 million dollars, including 526 million dollars in exports and 202 million dollars in imports. India and Pakistan share a 3,300-kilometer border, and India has designated Pakistan as a most-favored nation for trade and business. Despite this, India’s land-based bilateral trade with the country is less than half a billion dollars. Surprisingly, unlike Nepal and Bangladesh, India’s bilateral trade with Pakistan is not substantially lopsided in its favor. India exports $263 million in goods and services to Pakistan while importing USD 235 million in goods and services, bringing the total bilateral trade to USD 498 million. The bilateral border commerce between India and Pakistan is only 7% of the bilateral border trade between India and Nepal. And it accounts for only 12% of India’s bilateral trade with Bangladesh. Bangladesh is India’s largest export market in the area, followed by Sri Lanka and Nepal, with Myanmar, Sri Lanka, and Bangladesh accounting for most imports by value. All of the nations in the neighbourhood have a trade imbalance with India, with Bangladesh having the largest at USD 7.6 billion and Nepal having the second-largest at USD 6.8 billion (2018). The trade statistics reveals that intraregional trade basically means trade with India, and third-country trade is even minuscule.

In the light of this, BBIN MVA has the potential to turn around this gloomy picture unlocking the sub-regional trade connectivity in the South Asia region. BBIN MVA envisions to boost sub-regional trade connectivity which has been hailed as the harbinger of economic growth and poverty reduction among the BBIN countries. The total population of the BBIN countries figures around 1.56 billion (India alone constitutes around 87%), with a combined GDP worth USD 2.5 trillion.

Snapshot of Road Infrastructure

Road networks mainly dominate Nepal’s transport infrastructure. It comprises approximately 90% movement of freight and passengers. Nepal’s two critical road networks are Strategic Road Network (SRN) and Local Road Network (LRN). The road network under the BBIN MVA project mainly falls under SRN, which includes national highways. One of the primary purposes of SRN is to increase road linkages to border areas with India and China. SRN is considered the backbone for the economic integration of the country and with its neighbours. The primary responsibility for the development and management of the SRN is vested with the Department of Roads (DoR) under the Ministry of Physical Infrastructure and Transport (MIT) guidance. As per Nepal’s constitution, SRN and LRN fall under the jurisdiction of federal government and local government respectively.

Source: Nepal Economic Survey 2019/20

According to the Economic Survey 2019/20, road expansion by the federal government reached 32,879 kilometers in 2018/19. The figure shows the positive trend of road expansion in Nepal.

Source: Nepal Economic Survey 2019/20

The total expansion of the road category is mainly dominated by black topped roads. The economic survey shows that black topped roads have been expanded faster than gravelled and fair-weathered roads.

According to Asian Development Bank (ADB), Nepal has the lowest road density in South Asia, with 47 km of road per 100 square kilometers, and 2.5 km of road per 1,000 people in comparison to 12.2 km of road per 1,000 people in Bhutan, 4.1 km in India, and 5.5 km in Sri Lanka. Similarly, the World Bank study found that the capital expenditure on SRN increased at a Compound Annual Growth Rate (CAGR) of 40%, whereas the maintenance expenditure increased only at a CAGR of 13% between 2014 and 2018. Moreover, as a percentage of total expenditures on SRN, the expenditure on maintenance dropped from 16% in 2014 to 7% in 2018. According to an estimate, annual funding allocation for SRN maintenance for the five years is, on an average, 60 percent short of the requirements. The general trend over the years is that the capital expenditure is neither uniformly efficient nor productive. Hence, the budget allocated for SRN is often not entirely spent. Infrastructure is the ‘hardware,’ and the problem mainly lies in ‘software,’ i.e., management, government coordination, transparency, and accountability. Nepal needs to work on both the hardware and software front to overturn the deteriorated quality of the infrastructure projects. The new road proposed projects served the political interest without doing the necessary groundwork. Nepal should be free from political interest and serve the national interest while implementing projects like BBIN MVA. Various studies showed that quality road infrastructure might be costly initially. However, it is worth investing in such grand projects. A study carried out by Bashu Dev Dhungel on “Infrastructure Development and Economic Growth (1994-2018)” showed a stable relationship between Nepal’s Gross Domestic Product (GDP) and infrastructure variables, such as total length of road and gross capital formation. Developed countries have become advanced because of sound infrastructural development, whereas developing countries are underdeveloped due to insufficient infrastructure development. The well-developed road infrastructure helps integrate the country with global markets and connect the world at a low cost.

Significance of BBIN MVA

Talking of significance, BBIN MVA will break Nepal’s long-pending logjam of international export and import through access to ports in India and Bangladesh and standardization and formalization of trade.  The pact will also help to minimise the Non-Tariff Barriers (NTB), thereby reducing the quantum of informal trade and promoting containerization of cargo movement. What’s more, the BBIB MVA also carries immense economic and developmental significance. BBIN MVA aligns very well with some of the major initiatives taken by the Asian Development Bank (ADB) under the South Asia Sub-Regional Economic Cooperation (SASEC). ADB has proposed 10 regional road networks as South Asian Corridors, out of which 7 have been identified in the BBIN region. A total of eight trade corridors has been selected as part of BBIN MVA; among them, three trade corridors will link Nepal to Bangladesh and India: 1) Dhaka-Panitanki-Kakarvitta-Kathmandu, 2) Kolkata-Birgunj-Kathmandu 3) Kolkata-Gorakhpur-Bhairawa-Kathmandu. The trade corridors can be a catalytic force for integration because it will also have spillover effects on other sectors of the economy such as agriculture, education and tourism of all the three (Bangladesh, India and Nepal) countries. Nepal can also leverage by exporting cleaner hydropower to India and Bangladesh. Nepal-India Regional Trade and Transport Project of World Bank also aligns with BBIN MVA modality which is expected to modernise transport and transit measures between Nepal and India. Nepal and India signed Treaty of Trade and Transit back in 1960 to increase the exchange of goods between two countries, increase collaboration in economic development, and facilitate trade with third countries. The current India-Nepal transit treaty has a variety of flaws, including paperwork requirements, transhipment procedures, sensitive commodities, arbitrary bank guarantees, and weak infrastructure. When assessed in terms of the time it takes to execute transit procedures, all of these flaws have resulted in astronomically high transaction costs (travel by road takes at least 2.7 times) for transit cargo. Following globally accepted best practices, as outlined in the Trade Facilitation Agreement and the Vienna Program of Action, include actions that Nepal and India must be willing to implement. Both programs urge member nations to ratify international transport and transit treaties and international norms in trade and transit processes, which the two countries must investigate in the long term. Such ramifications would allow smooth flow of goods and help accelerate trade between two countries and third countries, i.e., Bhutan or Bangladesh.


Status of road infrastructure in the BBIN sub-region is not of the highest standard. Infrastructure in India is relatively better, however, cannot be matched by the infrastructure in Bangladesh and Nepal. Some of the major infrastructure challenges are narrow roads near custom points, excessive documentation in trading processes, poor internet connectivity which affects proper functioning of Electronic Data Interchanges (EDI) and lack of adequate cold storage, warehouse and sanitation facilities at border points.

The transport associations in Bangladesh and Nepal hold strong reservations against the two-way movement of cargo. In Nepal, the transport syndicate has been involved in anti-competitive activities like halting shipments, hiking freight charges and imposing rotations. These associations are against BBIN MVA because foreign trucks plying in their respective countries would erode their local business due to direct transportation of cargo of trucks from one country to the other. There is no doubt BBIN MVA initiative will increase the flow of trade in the region but it might fail to address the livelihood concerns of the people residing at the cross-border points.

Way Forward

As BBIN MVA is solely designed from the lens of sub-regional trade connectivity, the whole responsibility should have been under the purview of the Ministry of Industry, Commerce and Supplies instead of the Ministry of Physical Infrastructure and Transport of Nepal. At this point, it is critical for Nepal to frame a transit policy because the transit issues have not been fully covered in Nepal’s trade policy. Apart from that, social safeguard policies are required for transporters, truckers and laborers working in the border points. The bureaucratic hassles that come with multiple documentation requirements should be reduced to the highest extent possible. Inland Container Depots (ICDs) should be set up nearby the border posts and they should be selected as customs clearance points. Inland Container Depots (ICDs) should be built at strategic areas and designated as customs clearing sites to minimize loading and unloading at the roadside near border checkpoints. Appropriate infrastructures such as quarantine offices with needed testing capabilities, uninterrupted internet access, wide roads, parking facilities with bathrooms, warehouses, and cold storage enable off-border cargo clearance would help ICD function smoothly. As mentioned in the provision of BBIN MVA, electronic cargo tracking system (ECTS) would help identify Nepali cargoes transiting via India. Real time tracking system will help to spot the delay in the cargo movement.

The Greater Mekong Sub-region (GMS) and BBIN MVA operates under similar model. GMS does not have a secretariat and a formal institutional structure; it is project-based and is mainly driven by initiatives from Asian Development Bank. GMS has over 25 years of history and is considered as a successful development story. Therefore, BBIN MVA can emulate the GMS by utilizing its economic corridors and focusing on priority sectors to achieve tremendous development gains for the sub region and its people.

Nepal’s geostrategic location presents unique opportunity to engage in multiple regional projects. SAARC has opportunities for Nepal to make best use of its geo-strategic positioning, but it itself is indolent at the moment due to political hitch between the two big SAARC countries India and Pakistan. However, country like Nepal need not rebuff as there is no dearth of other sub-regional initiatives such as Bangladesh Bhutan India Nepal Motor Vehicle Agreement (BBIN MVA) in the South Asian region. Therefore, this initiative will not only ensure trade, transport and transit facilitation across the region, but is also likely to foster regional harmony and integration by cementing strong ties between people across the BBIN countries. 

Last but not the least, regional cooperation can take greater heights only if political problems are kept aside. Without political consensus, it is not possible to create a win-win situation for BBIN member countries. In that light, it is important to understand the culture and political dynamics at the local level and address livelihood concerns of local communities to make the BBIN MVA actually happen.

Research Commentaries

NRC0021 – Cross-border Infrastructure to Address Recurring South Asian Floods

Nirnaya Bhatta


With the South Asian Association for Regional Cooperation (SAARC) effectively sidelined politically, a number of mechanisms under its purview that were mandated to address cross-border disasters have also taken a hit. Against such a backdrop, this Research Commentary (RC) brings in focus the recurring flooding that seriously disrupt livelihood in South Asia and has claimed the lives of 2000 people on an average in the past 2 decades every year. This RC underlines that there is no way around cross-border infrastructure, or at least a transnational system of regulations on the rivers, with an emphasis on digital infrastructure that allows for information sharing between concerned government. It provides suggestions on what could be done at both the regional and national level and concludes that meaningful action can be made through cross-border digital infrastructure that keeps at the centre a three-layered mapping-approach (described in detail below).


Rivers have nurtured all major civilizations, but they have also brought immense misery to dwellers living along them during floods. Today, millions of farmers along the Ganges basin keenly welcome the monsoons for irrigation every year. But recurring flooding is an inherent feature of this part of the South Asian landscape, which has claimed 2000 people on an average in the past 2 decades every year.

The magnitude of this recurring disaster is informed by both the number of people it affects and the intensity of the damage it brings (paralyzing an entire region). Even though it is anticipated almost every monsoon, governments have failed to address it in any meaningful manner, giving this crisis the distinction of a typical wicked problem.

The Policy Problem- A recurring flood and lack of cross-border mechanism

In August 2017, South Asia witnessed the worst floods in decades, affecting nearly 45 million people. A reported 16 million in urgent need of basic life support were children. This RC documents a cross-border natural disaster that escalated into a humanitarian crisis largely due to the failure of the respective governments to collaborate and respond effectively. Although, it should be acknowledged that, while the floods are usually anticipated, its magnitude is usually unknown.

Source: Office for the Coordination of Humanitarian Affairs (OCHA). As of September 01, 2017 (People affected- in millions)

On September 2, Red Cross announced it was the worst flood facing South Asia in 4 decades, with 1/3rd of Bangladesh submerged. The river and its numerous tributaries that flows from the Himalayas downstream into India and Bangladesh (that has an average elevation of 85 meters above sea level) are forces to reckon with. Further, with destruction of millions of hectares of agricultural lands, while it severely affected food security locally, it also had the potential to disrupt global rice supply chain.

The costs on society

In southern Nepal, northern India, and Bangladesh, the floods inundated thousands of villages, natural habitats, hospitals, and schools. As one of the densest and impoverished regions in the world, people were rendered acutely vulnerable immediately. Evidence suggests that recurring natural disasters perpetuate chronic poverty . Take for instance, the head-count ratio of poverty are consistently found to be higher in flood-prone areas in Bangladesh. The floods pose a serious challenge to development efforts, as they have to operate at the face of immense uncertainty. Sure, the world is increasingly uncertain to natural disasters, but the worst crises such as these occur when governments are inefficient to respond, largely due to absence of necessary infrastructure in place.

Addressing the Crisis

While there is little scope to preventing the floods itself from occurring, the focus of policy can certainly aim to decrease vulnerability of affected population. To be fair, trans-boundary issues are inherently complex, especially when the policy agenda pertains to bringing together massive infrastructural undertaking. With multiple bureaucracies, interest groups, ambiguities in national responsibilities, contradiction between multiple national and international legal frameworks etc. coherent response to trans-national disasters are challenging. The political-economy of water issues is all the more sensitive because rivers not only accrue multitudes of benefits to nations but are also subjected to concerns of national security- associated with food and state stability itself.

  1. Regional Level:
a. To have policies that have a cross-border infrastructure component to them:

Traditionally, disaster management has been under the purview of national governments (Water, Ecosystems and Energy in South Asia Making Cross-Border Collaboration Work- ICIMOD). Against a backdrop of political distrust in the South Asian neighborhood between countries, governments find it difficult to collaborate on any issue.

To break this practice of governments working in solos, there needs to be a shift in how each government perceives the shared-ecosystem and disasters emerging from them. For instance, when the scope of one country’s policy with regard to managing rivers is sharply limited right where its own national territory ends, the shift is approaching these issues for policies could change.

Along these lines, the idea of desecuritization of the South Asian rivers looks promising. Researchers are oftentimes denied data in the name of national security. For example, in India, data on Indus, Ganges, and Brahmaputra rivers is considered classified information. Working in silos to manage rivers purely along national-territorial lines will only expose one’s own citizens to disasters.

b. Functional apolitical institution for disaster management

The grounds for effective cross-border responses starts well-before the floods occur. Since the South Asian Association for Regional Cooperation (SAARC) is highly dysfunctional, an apolitical institution exclusively dealing with disaster management could be established. This will open up possibilities for seamless cross-border data and risk sharing mechanisms, early warning systems, and harmonized national and regional planning etc. Clarity of responsibilities pertaining to the management of shared eco-systems will only be achieved through such an institution, which can clearly designate governments their share of duties.

  1. National Level

Polices based on localized socio-economic and demographic data

It is often argued that crisis after natural disasters is engendered by poor housing planning and land use codes, and inefficient early-warning systems. To accurately target the affected population, inputs for national policies must be based on localized socio-economic and demographic data. The WB suggests a three-layered mapping-approach that can precisely inform policy so it is capable of mitigate vulnerabilities of the affected effectively. Hazard, exposure, and vulnerability mapping are useful information for policy makers and individuals affected. This underscores the need for an integrated a robust digital infrastructure where information between governments are shared transparently.

Inspired from World Bank’s risk identification framework (World Bank 2012)

Policy implications

Due to the inherent landscape of the South Asian region, floods have a deterministic element to them. The magnitude of effect of climate change on recent torrential monsoon is debatable, but rapid retreat of the Himalayan glaciers (referred to as the ‘water tower of Asia’ that feeds 1.3 billion people) can be attributed to rising global temperatures, which will bring more floods in the Ganges basin. If policy is primarily geared towards finding ingenious ways to mitigate vulnerabilities of the distressed during disasters, populations are known to be resilient in the long run to improve their own life outcomes. There may not be a better way to mitigate vulnerabilities than cross-border collaboration with digital infrastructure at the heart to promote better data and risk sharing mechanisms, early warning systems, and harmonized national and regional planning. When the problem at hand is cross-border in nature, it is only logical that South Asian governments avoid working in silos.


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  10. Muthayya, Sumithra, and Jonathan Sugimoto. 2014. “An overview of global rice production, supply, trade, and consumption.” ANNALS OF THE NEW YORK ACADEMY OF SCIENCES.
  11. Raj, Suhasini, and Jeffrey Gettleman. 2017. They Thought the Monsoons Were Calm. Then Came the Deadly Floods. Accessed from https://www.nytimes.com/2017/09/07/world/asia/bihar-india-monsoon-floods.html
  12. Surie, M.D. 2014. Desecuritizing Transboundary Water in South Asia. 17 September . Accessed from https://asiafoundation.org/2014/09/17/desecuritizing-transboundary-water-in-south-asia/
  13. UNICEF. 2017. 16 million children affected by massive flooding in South Asia, with millions more at risk. 02 September . Accessed from https://www.unicef.org/infobycountry/media_100719.html
  14. World Bank. 2012. Disaster Risk Management in South Asia: A Regional Overview. The World Bank, South Asia Region Disaster Risk Management and Climate Change Unit. Accessed from http://documents.worldbank.org/curated/en/648281468170977802/Disaster-risk-management-in-South-Asia-regional-overview
Guest ContributorResearch Commentaries

NRC0020 – Will Liberal Internationalism Survive the New US?

Ramesh Kumar Raj


The world is beset with the multifaceted challenges from the rise of authoritarianism, populism, and protectionism. All of these have largely affected the spirit of liberal internationalism which has served well for more than seven decades. The threat lies primarily from its propagator and ultimate protector US and its allies because of their protectionist approach and unpromising view towards the promotion of the current liberal world order. This raises the issue of whether the open and rule-based liberal order will survive the current onslaught from the US?

What is Liberal Internationalism?

With the end of World War I, the era of power politics dominated by realist assumptions of statism, self-help, and survival turned to a more idealist notion of peace and cooperation, as espoused in Woodrow Wilson’s fourteen points’s speech. He gave the practicality to the idealist notion of Kantian democratic peace through liberal institutionalism and internationalism. Though the League of Nations failed, the updated notion of institutionalization and liberal order was established under the US leadership post-WWII. The United States and its partners built a multifaceted international order- organized around economic openness, multilateral institutions, security cooperation, and democratic solidarity. Since then, these economies – mostly Europeans and Japan – participated, benefitted and promoted the liberal democratic, and rule-based world order. They also successfully defended and promoted liberal values against communism exemplified by victory over Socialist Camp during the Cold War and democratization of Eastern Europe, East Asia, and Latin America.

Crisis of Liberal Internationalism

The end of the Cold War and the victory of the democratic and liberal system led some to argue that history has ended and many to remark that the golden age liberal institutionalism and rule-based order were due. However, with globalization and interdependence, the complex and interlinked issues have emerged as a threat to the current world order.

The threats to the current world order lies from political, economic, security dimension to propaganda, cyber crime and media trails.

Figure: Top Risks Expected to Rise in 2019 (Source: Global Risk index)

The 14th edition of the Global Risks Report, prepared by the World Economic Forum, examines the global risk perception against the backdrop of worrying geopolitical and geo-economic tensions, which if left unresolved will hinder the global ability to tackle collective challenges. While assessing the report; the risks related to political and economic confrontations, populism and natives agendas, erosion of multilateral trading rules, agreements and human security has high range and these global risks are a threat to the spirit of Liberal Internationalism.

Trump’s Foreign Policy sabotaging Liberal Internationalism

While the global threats to liberal internationalism continues to rise, the propagator and promoter seems to have turned its back. The 45th US President, Donald Trump, in his Inauguration Speech in 2017 argued reducing U.S. trade deficits, rebalancing burden-sharing within major alliances and becoming more concerned for national Interest. This argument signifies Trump’s lack of interest in the protection of the regime of liberal world order which has been at the heart of US foreign policy for about seventy years. Trump Presidency witnessed more sabotaging of liberal internationalism by withdrawing US from key regional and global treaties and avoiding the American leadership in the making of a more liberal world-order. The protectionist Trump’s Administration has withdrawn from Trans-Pacific-Partnership (TPP), Paris Accord, Iran Nuclear Agreement, and UNHCR, cut off contribution for (NATO), Started a trade war with China, revised NAFTA to United States-Mexico-Canada Agreement (USMCA) claiming unfair to US trade which proves US unpromising way to liberal internationalism.

Not only the US but also its Partners

In recent years, not only the US but also its key allies in Europe have witnessed growing sentiments that pose threat to global liberal-order. For example, the United Kingdom’s decision to leave the European Union (EU) was a backlash against globalism and immigration. The uncertainties of Europe and world politics remarked by populist, nationalist, fundamentalist and xenophobic strands have proliferated and backlashing liberal internationalism. Also the rise of radical right-wing parties since the 2000s is strongly linked to a rise in Euro-scepticism. Similarly, the issues and problems associated with the international migration and the rise of right-wing nationalist and populist parties within Europe have been hostile to democratic and liberal values, not only for economies in EU but also for economies around the globe. Migration has become voters’ number one concern across the bloc and the issue has swayed elections, including elections in France, Germany, Austria, Italy and Hungary. This has led Europe to follow the trend of US protectionist and populist approach in domestic and cross-border politics.

Will Liberal Internationalism Survive?

For the past few decades, there has been a series of serious debates on the reorganization of the world order and emergence of the post-Western world order but the latter idea still remains obscure. Therefore, a serious query remains unanswered whether the current world order, which is based on free, open and rule-based governance, would continue to govern the 21st century world.

Some label the current crisis as a temporary setback that can be changed with new political leadership. Sometimes failing of leadership models might be seen as a result of a leader’s inadequate knowledge and awareness on local and world economy. That means, there can be some pitfalls of leadership which affect national and global economies and we can not put these blames on respective countries’ entire political system. Therefore, it lies possibility of US future leadership to lead, protect and promote US crafted liberal international idea globally rather limiting its scope within territory.

But most of the argument is also based on the crisis of American hegemonic leadership. They claim that “liberal international order has been tied to American power-its economy, alliance, leadership, and values”. Perhaps it is a phase of ‘transition’, whereby the old US-led political foundation of the liberal order will give way to a new configuration of global power based on a new governance model. Today, the American hegemony challenged by China is not only limited to economic and military issues but also those countries’ growing significant roles in global affairs. President XI’s vision for making China superpower by 2050 and his BRI and “Community of shared future for mankind” approaches can be taken as China’s version of internationalism. Beside China, “the rise of the rest (other rising powers)” has also challenged unilateral dominance of the west, led by the US. It seems the US-led views and ideas towards world politics (promotion and practice of more democratic values), economy (capitalist economy), social leadership (individual freedom and Human Rights), and governance (International Law) no longer remain fascinating for many of the global economies and as a consequence there is a growing search for alternative models of leadership, most notably Chinese and East Asian development models.


  1. Dunne, T., & McDonald, M. (2012). The politics of liberal internationalism. International Politics, 50(1), 1-17. Retrieved from doi: 10.1057/ip.2012.25
  2. Edmund, F. (2019). Liberalism: The Life of an Idea by Edmund Fawcett review – what is a liberal?. Retrieved from https://www.theguardian.com/books/2016/jan/29/liberalism-life-of-idea-edmund-fawcett-review
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  4. Ikenberry, G. (2016). American leadership may be in crisis, but the world order is not. Retrieved from https://www.washingtonpost.com/news/in-theory/wp/2016/01/27/american-leadership-is-in-crisis-but-the-world-order-is-not/
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  6. Peters, M. (2015). Challenges to the ‘World Order’ of Liberal Internationalism: What Can We Learn?. Educational Philosophy And Theory, 48(9), 863-871. Retrieved from doi: 10.1080/00131857.2015.1057033
  7. Trump’s Foreign Policy Moments. (2019). Retrieved from https://www.cfr.org/timeline/trumps-foreign-policy-moments
  8. Wolfgang, I. (2019). The World According to Kissinger. Retrieved from https://www.foreignaffairs.com/reviews/2015-03-01/world-according-kissinger
  9. Wyman, O. (2019). Global Risks 2019. Retrieved from https://www.oliverwyman.com/our-expertise/insights/2019/jan/globalrisks2019.html
Research Commentaries

NRC0019 – Improving Conditions for Local Tourists to Better VNY2020 Plans

Sanjay Pokharel


For long, the tourism sector has remained as one of the key components of Nepal’s national economy. With less than two months left before the formal beginning of “Visit Nepal 2020” (VNY2020), key stakeholders within the Government of Nepal and the private sector have been working to make this initiative a success. In this regard, I highlight why it would be wise for these stakeholders to also focus on improving travel options and services for domestic tourists as well while working on those options for the international visitors. I believe, the experiences of local tourists will have significant impacts on travel decisions of the guests from outside Nepal.


Strategically positioned between two of the world’s largest economies – China and India, Nepal has immensely pacing its growth in tourism sector right after opening its door to the world in the 1950s. After the successful campaign to promote tourism in Nepal through “Visit Nepal 1998” and “Nepal Tourism Year 2011”, the government of Nepal has already announced year another ambitious tourism plan – Visit Nepal 2020 (VNY2020). As tourism sector accounts for 7.5 percent of Nepal’s GDP and is forecasted to reach 8.3 percent of GDP in 2027, the country has enough reasons to employ plans and policies to further boost this sector. Also, tourism in general has positive impacts across regions, especially in terms of generating employment, improving socio-economic conditions of local communities, and production and sales of higher local goods and services.

As per the VNY2020 plans, the Government of Nepal targets to bring in 2 million foreign guests into the country. With a catchy slogan of “Lifetime Experience”, Nepal not only plans to bring in more tourists into the country but also plans to establish the country as one of the first choices among global travel enthusiasts. To achieve these targets, the concerned public and private stakeholders have been working to improve existing destinations while also exploring few more new destinations. Nepal believes, with these, the tourists will have more options to travel to and experience Nepal’s most unique experimental and lifetime travel routes.

The VNY2020 is Nepal’s mission to show the world country’s, often undervalued, tourism industry and thus attract more of the high-value tourists by creating the best possible tourism experience. To make the year-long campaign a success, Nepal’s Ministry of Culture, Tourism and Civil Aviation (MoCTCA) has been partnering with Nepal Tourism Board (NTB) and other key public and private stakeholders, most notably Nepal’s Ministry of Foreign Affairs (MoFA), local airlines companies, tour and travel operators and hoteliers. To move forward, an implementation sub-committee chaired by the MoCTCA Secretary has been formed and tasked with partnering with all stakeholders to make required preparations for the campaign.

Recent Trends in Nepal’s Tourism Sector

In 2018, Nepal hosted 1.17 million international visitors. China, India, the United Kingdom, the United Kingdom and Sri Lanka were the top five countries of origin for tourists that year. While the numbers of international guests was encouraging, the local tourists accounted for almost half of the total tourists in 2017.

Of the total visitors, more than two-thirds of them arrived for vacation, entertainment or travel. Overall, the entertainment, mountaineering/trekking, religious, and other trips comprised of 60 percent, 16 percent, 14.4 percent and 9.6 percent respectively. In the meantime, considering the recent boom in the quantity of local travelers traveling in Nepal and outside, it gives a clear message to the tourism industry and international market alike that Nepali travelers too could be an important part of the local and global tourism markets.

Preparing for VNY2020

Synergy of efforts along with the private sector, diplomatic missions, Nepali diaspora, the media and other stakeholders can be seen to support the overarching objective of VNY2020. In regards toVNY2020 prospects of domestic tourism in recent years have also been the key areas of interest for tourism stakeholders leading to its steady growth which in turn, is bound to fuel the tourism environment in Nepal. In the span of five years, domestic tourism has increased by almost five-fold with Nepalis have also developed a desire to travel around the country which signifies the booming of the sector. Apart from traditional leisure destinations, numerous new destinations have drawn domestic adventurers lately which not only promotes domestic movements but also attracts and opens ways for international tourists.

With the Visit Nepal 2020 in sight, the Government of Nepal has allocated a budget of Rs 2.68 billion for FY 2019/20 and 11 special strategies have been identified to develop and promote the tourism industry in the National Tourism Strategy 2016-2025. And, these allocations and strategies encourage/invite domestic and foreign investment, promoting public-private partnership, improving infrastructure, reforming government policies which pace the growth of tourism industry and numbers of domestic and international tourists. The crucial part is to accomplish the broader objectives of VNY2020 campaign and other tourism strategies where tourism stakeholders needs to immediately consider the five low hanging interventions proposed by our NIPoRe researcher – Mr. Nirnaya Bhatta. Those interventions that are related to infrastructure, security, better service and experience, payment mode and transportation doesn’t only ensure safe travel for international tourists but also promotes domestic tourism.

In the meantime, the Chinese President Xi Jinping’s State Visit to Nepal in October this year has added a new vigor in the diplomatic relation between Nepal and China. Additionally,, following the visit, the numbers of Chinese tourists here increased. Post State Visit; 15,037 Chinese tourists visited Nepal which is 11.5 percent more than the number of Chinese visitors coming to Nepal in the same period last year. This clearly shows that meaningful diplomatic practices too can help Nepal to work towards achieving major VNY2020 targets.

Stakeholders like Nepal Tourism Board (NTB), Nepal Mountaineering Association (NMA), Hotel Association of Nepal (HAN), Federation of Handicraft Association of Nepal, Nepal Association of Tour and Travel Agents and Nepali diaspora are on stage promoting Nepali tourism before formal beginning of VNY2020. These stakeholders have been trying to do global promotion of VNY2020 related plans and activities.

Though using diplomatic relations and collaborations within and across the stakeholders can definitely bring larger outputs, and, while promoting works outside Nepal for related activities, these stakeholders also need to cleverly think of targeting existing major countries of origin of foreign travelers to Nepal and also reaching out to new countries if they wish to establish Nepal as one of the top travel destinations in the world.

As the larger numbers of international travelers is definitely a good idea to boost Nepal’s struggling tourism sector, but still the larger question remains – “Are these stakeholders considering the aspects of domestic tourists”. If stakeholders are strategic enough, they can lure Nepal’s increasing middle-class to spend more time on exploring Nepal’s diverse tourism destinations.

Also, merely a surge in numbers does not add up to significant results unless Nepal can encourage tourists to stay for longer period and expand their daily expenditures. And to do so, these stakeholders also need to have ample diversified tourism packages. A bigger question may arise in this regard, i.e., “How to increase the tourists length of stay and expenditure?” The answer lies within the National Tourism Strategy 2016-2025 that focuses on tourism infrastructures. And, history has shown that without proper coordination and collaboration between tourism stakeholders it’s very difficult to accomplish these goals. For the domestic and international tourists alike what matters is their overall travel experience and that experience, in my view, is what Nepali tourism industry needs to sell which comes when all the stakeholders come together.

Concluding Remarks

Despite having countless travel destinations within the country, in recent years, more and more Nepalis are flocking for destinations outside for recreation and holidays. In my view, though we should not try to (and even if we wish, we won’t be able to) discourage Nepalis from traveling abroad, improving local tourism industry could encourage more Nepalis to stay back and travel across different parts of the country. This act will not only help locals to explore their country but also contribute towards local, regional and national economy.

As the official tagline for VNY2020 is “Lifetime Experiences” and with less than two months left before commencement of the campaign, we seriously need to further evaluate where we are and where our stakeholders are in regards to the campaign. The important aspects in this regard could be – Are we considering domestic tourism as an important aspect in the campaign? If so, what are our strategies that promotes domestic tourism? Thus, if infrastructures, services and experiences improve for domestic tourists, it will inadvertently improve for international tourists, which demonstrates that promoting domestic tourism and expanding the structural and functional priorities for domestic tourism will trigger bigger positive impact on international tourists.


  1. Bhatta, N. (October, 2019). Visit Nepal 2020 – Have We Managed to Get Our Priorities Straight?. Nepal Institute for Policy Research (NIPoRe). Retrived from https://nipore.org/nrc0016-visit-nepal-2020-have-we-managed-to-get-our-priorities-straight/
  2. Mahat, J.J. (October, 2019). President Xi Jinping’s State Visits – SAARC Vs ASEAN. Nepal Institute for Policy Research (NIPoRe). Retrieved from https://nipore.org/ndv0004-president-xi-jinpings-state-visits-saarc-vs-asean/
  3. Ministry of Finance, Government of Nepal. (2019). Budget Speech of Fiscal Year 2019/20. Retrieved from https://mof.gov.np/uploads/document/file/budget_speech_website_20190619052055.pdf
  4. Prasain, S. (May 26, 2019). Nepal tourism generated Rs240b and supported 1m jobs last year: Report. The Kathmandu Post. Retrieved from https://kathmandupost.com/money/2019/05/26/nepal-tourism-generated-rs240b-and-supported-1m-jobs-last-year-report
  5. Prasain, S. (July 29, 2016). Nepal tourism sets goal to boost arrivals fivefold. The Kathmandu Post. Retrieved from https://kathmandupost.com/money/2016/07/29/nepal-tourism-sets-goal-to-boost-arrivals-fivefold
  6. The Himalayan Times. (August 30, 2018). Outbound Nepali travellers spent almost Rs 80bn. Retrieved from https://thehimalayantimes.com/business/outbound-nepali-travellers-spent-almost-rs-80bn/
  7. The Himalayan Times. (August 18, 2019). Lack of Proper Systemisation, Infrastructure and Management are Hindrances for the Growth of Internal Tourists in Nepal. Retrieved from https://thehimalayantimes.com/business/perspectives/developing-domestic-tourism/
  8. The Himalayan Times. (November 12, 2019). Chinese Tourists’ Arrival Up. Retrieved from https://thehimalayantimes.com/nepal/chinese-tourists-arrival-up/
  9. The Kathmandu Post. (June 30, 2016). Middle Class Swells to 22pc of population. Retrieved from https://kathmandupost.com/money/2016/06/30/middle-class-swells-to-22pc-of-population
  10. Stynes, D.J. (1997). Economic Impacts of Tourism. Tourism Research Laboratory, University of Illinois at Urbana-Champaign. Retrieved from https://msu.edu/course/prr/840/econimpact/pdf/ecimpvol1.pdf
Research Commentaries

NRC0018 – Credit Reporting for Improved Business Environment in Nepal

Prashanta Pradhan


Nepal ranked 94 in the recently published World Bank’s Doing Business Report with an increase in score from 59.7 to 63.2 in just a year. Improvements were reported in scores on dealing with construction permits, trading across borders and enforcing contracts but the highest increase was reported in getting credit with substantial improvement by 25 basis points from 50 to 75. Within various indicators on getting credit, the highest improvement was seen on credit bureau coverage of adults from mere 2.7% in 2018 to 7.3% this year covering 1,301,061 individuals and firms.

Credit Bureau and Credit Reporting System

Credit reporting systems consist of institutions, individuals, infrastructures and procedures that facilitate the flow of information enabling decisions related to provision on loans. Credit reporting systems aim to address information asymmetries that exist for evaluating whether to extend credit to debtors or not. Credit Bureau is an actor in the credit reporting system whose primary function is to improve the quality and availability of data for creditors to make better informed lending decisions. There are three other main actors – Data Subjects (individuals and businesses whose data are collected), Data Providers (financial institutions and utilities that provide information and data subjects) and Data Users (banks, central banks, and employers who use credit information provided by credit bureau).

The Credit Information Bureau of Nepal was established in 1989. The shareholders of the bureau are central bank along with commercial banks and financial institutions. Nepal Rastra Bank Act 2002 states that NRB will establish or cause to establish one credit information centre for the primary purposes of obtaining information on the flow of credit from commercial banks and financial institutions as well as information on debtors not paying loans on time or misusing the loans.

Non-Performing Loans and SMEs’ Access to Finance

  • According to Nepal’s Central Bank, between FY 2016/17 and FY 2017/18, the volume of Non-Performing Loans (NPL) of commercial banks increased by 8.14% reaching Rs 29.85 billion. The increase was seen in both public and private banks by 7.93% and 8.27% respectively.
  • IMF has reported that 70% of total lending is concentrated on real estate sector which may be difficult to avoid due to less developed and less diversified banking system. Moreover, bank’s loans books indicate half of loans as overdraft and working capital loans which rollover continuously with the quality of loans difficult to gauge.
  • As per Nepal Rastra Bank’s 2019 study findings, only 16% of SMEs in Nepal are taking credit from banks and financial institutions as initial capital compared to 33% from family assets and 26% from savings. On average, 50% of SMEs have taken credit from banks and financial institutions. On average it takes 38 days for SME to access credit.

Information Asymmetry and Business Environment

Access to finance plays a significant role in improving business environment and economic growth in an economy. However, information asymmetry hinders access to growth in many developing economies, especially for SMEs that contribute a large share of employment. In Nepal, SMEs on average employ 1.7 million people and contribute to 22% of GDP. In developing economies, enforcement of contracts and functioning of legal systems are relatively weak. Hence, the role of information gathering and sharing are important to enhance creditors’ protection. Taking past behavior of borrowers as a reliable predictor of future behavior, crediting reporting systems minimize risks creditors have to bear with borrowers.

On the one hand, credit reporting system support regulators in supervision and monitoring credit risk whereas on the other hand, financial institutions can enhance access credit to small firms, reduce interest rates and improve borrower discipline. NRB study has indicated collecting information about SMEs and speedier credit approval are among the top ways to enhance access to SME financing. A World Bank study done across 63 countries covering more than 75,000 firms indicated that after the introduction of credit bureau, there were greater possibilities for firms to access finance, lower interest rates, lengthen maturity and increase the share of working capital financed by banks.

Today, credit bureaus operate in many countries around the world and there is growing emphasis on strengthening them. Some of the drivers of growth of credit bureaus are growth in retail credit, reform stemming from financial crisis, the rise of digital technologies all of which increase need as well as opportunities to expand access to credit information services.

Alternative Sources of Data to Serve Underserved Segments

While traditional sources of data like commercial banks and financial institutions enable data users to access data and associated analytics on existing borrowers. However, this does not cover new borrowers. Hence, there is also growing need for tapping alternative sources of data, for example, from utilities operators on payment history, telecom companies etc. The ability of a system to tap into these alternative sources of data shall greatly contribute to enhancing access to finance and reducing credit risk of lenders. In general payment data, social media data and behavioural data are considered to be useful to contribute to credit scoring.


Nepal Rastra Bank’s Monetary Policy 2019 as well as the International Monetary Fund’s Country Report 2019 refer to the need for improving credit reporting in Nepal. It is crucial for credit reporting agencies to embrace advanced digital technologies and big data analytics to collect and analyse credit and payment data collected from various sources. Moreover, in order to strengthen the financial sustainability of credit bureaus and enhance value creation in the economy, value added services from credit data analytics also needs to be developed which could be relevant for many industries and businesses other than banks and regulators, for example, retail services with high reliance on digital payments, employers who would like to understand credit behavior of their potential applicants or existing applicants. However, regulatory frameworks and data protection procedures should be strongly put in place too.


  1. IMF. (February, 2019). IMF Country Report No. 19/61. Retrieved from https://www.imf.org/en/Publications/CR/Issues/2019/02/15/Nepal-Selected-Issues-46623
  2. Peria, M. S. M, and Singh, S. (August, 2014). The Impact of Credit Information Sharing Reforms on Firm Financing. World Bank Policy Research Working Paper 7013. Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/20348/WPS7013.pdf
  3. Nepal Rastra Bank. (2019). Bank Supervision Report. Retrieved from https://www.nrb.org.np/bsd/reports/Annual_Reports–Annual_Bank_Supervision_Report_2018-new.pdf
  4. Nepal Rastra Bank. (2002). Nepal Rastra Bank ActNepal Rastra Bank Act, 2058 (2002). Retrieved from https://www.nrb.org.np/lgd/acts_ordinances/Nepal%20Rastra%20Bank%20Act,%202002%20(English)2074.12.21.pdf
  5. Nepal Rastra Bank (2019) SMEs Financing in Nepal. Retrieved from https://www.nrb.org.np/red/publications/study_reports/Study_Reports–नेपालमा_साना_तथा_मझौला_उद्यममा_वित्तीय_साधन_परिचालन_2076-new.pdf
  6. World Bank Group. (2019). Doing Business 2020 – Comparing Business Regulation in 190 Economies. Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf
Research Commentaries

NRC0017 – Xi, Modi and Nepal’s ‘balance’

Santosh Sharma Poudel


President of the People’s Republic of China Xi Jinping visited Nepal on 12-13 October for his first state visit, 23 years after President Jiang Zemin’s state visit to the Himalayan nation in December 1996. The much-anticipated visit by the Chinese President went smoothly but created a ripple in Nepal and immediate neighborhood. Nepal shares a 1400km long border. President Xi’s visit shows the growing presence and significance of Nepal in the international arena. It is also a return to normalcy in Sino-Nepal relations. As of October 2019, President Xi has visited each member of SAARC’s original seven (minus Bhutan with whom China has no official relations) member countries.

Strategic timing?

The visit by a Chinese President to Nepal was long overdue. The last Chinese President to visit Nepal was Jiang Zemin in December 1996. Both Nepal and China have gone through drastic domestic changes and the region has transformed, thanks primarily to the rise of China (and India). To briefly summarize the domestic changes in Nepal, Nepal has gone through the 10-year Maoist insurgency, successfully entered into the electoral democracy in collaboration with mainstream parties, became a republic (from a constitutional monarchy), had two constituent assembly elections (the latter of which produced the Constitution of Nepal, 2015), and elected a first majority Communist government in 2017.

During the same time, China has been through the phase of ‘peaceful development’ under Hu Jintao and ‘national rejuvenation’ under President Xi. China has been able to lift up the GDP per capita from USD 981 to almost USD9000 according to World Bank. China embarked on a major effort to root out corruption and removed the two-term limit for the President. China is also striving to achieve two centenary goals (moderately well-off nation by 2021 and strong, democratic, harmonious, civilized and modern socialist country by 2049). Globally, China is a force to be reckoned with, especially after 2008. China has emerged as a global power, and taking initiatives and responsibilities commensurate with its power. President Xi’s Belt and Road Initiative (BRI) and Asian Infrastructure Investment Bank (AIIB) are prime examples. The former transverses more than half of the globe.

After 1996 only Chinese Prime Ministers Zhu Rongji and Wen Jiabao visited Nepal in 2001 and 2012 respectively. Meanwhile, King Gyanendra (2002 and 2005), then incumbent Prime Ministers Pushpa Kamal Dahal (2008), Madhav Kumar Nepal (2009), Sushil Koirala (2014), Khadga Prasad Oli (2016) and Bidhya Devi Bhandari (2019) have visited China during the same period. President Xi’s visit restores the normalcy in the diplomatic exchange between Nepal and China.

In saying that, the timing of the visit is no coincidence. After the promulgation of the Constitution (2015) and the national and local elections (2017), Nepal has entered a peaceful and stable phase. It also helps that Nepal has a democratically elected majority Communist government, the Nepal Communist Party [named so after the merger between CPN (UML) and CPN (Maoist Center) after the latest elections].

At regional level, the competition between China and India for influence in South Asian states has increased in recent decades. China’s active engagement with small coastal and island states in South Asia which India dub as ‘string of pearls’ has raised concerns in New Delhi. Additionally, Beijing’s active promotion of Belt and Road initiative (India has not joined yet) had challenged India’s ‘sphere of influence’. This has thrusted Nepal to the forefront of regional geo-politics. At the same time, it is too simplistic to label India and China as rivals, and President Xi also stated that India and China are partners. The increased trade links between India and China has necessitated further connectivity. In that context, the idea of the role of Nepal as transit state has come to the fore. This has pushed Nepal to the forefront of geo-economics as well.

Globally, the competition between China and the US for regional influence has propelled Nepal in the forefront of global geopolitics. The introduction of the Indo-Pacific Strategy by the US, which is perceived by Beijing as an attempt to contain China, has increased strategic significance for/of Nepal. Therefore, serious issues of national, regional and global enduring significance were at stake and Xi’s visit.

Significance of the visit

The visit by the Chinese President is symbolically very important. President Xi’s visit was able to elevate Nepal-China relations. The relations between Nepal and China was upgraded to ‘Strategic Partnership’ of Cooperation Featuring Ever-Lasting Friendship for Development and Prosperity from ‘friendly relations’ or ‘time-tested friendly relations’. This means China sees Nepal as a long-term and stable partner focused on the larger picture of China-Nepal relations. This also comes with the expectation that there will be more foreign policy stability in Nepala. This is also emblematically important in Asian context where ‘status’ is taken very seriously, therefore, the labels used to define relations between states are important by themselves.

The talks and agreement during Xi’s visit mostly focused on BRI, Trans-Himalayan network and connectivity. The current visit and agreement have provided decisive guidance in that context. It was agreed to conduct feasibility studies for cross-Himalayan railways and China committed to extend cooperation on Kathmandu-Pokhara-Lumbini railways. China would also support the speeding up of upgrading and restoring the existing road networks. This will have immediate impact on connectivity. The number of agreements pertaining to infrastructure (mostly transportation) indicates the importance of connectivity to both Nepal and China.

President Xi’s visit is also significant domestically. Nepal has a democratically elected communist party in power. Globally, it’s a rarity and anachronistic. On top of that, the Nepal Communist Party (NCP)(named so after the merger) ran on a nationalist rhetoric in the aftermath of Indian blockade. Hence, the visit of President Xi enhances the legitimacy of the current government and provides for a ‘balanced’ relations vis-à-vis China and India. Beijing should be eagerly following the political fate of NCP in Nepal as China experiments with elections at local levels. While Nepal bears no direct resemblance to China’s political structure, the success (or failure) of the Communist party in Nepal could have a bearing on the democratization debate in China.

This visit also served as an opportunity for China to criticize Nepal (indirectly) on its dismal implementation of previously signed accords. President Xi reminded that China made plans and implemented them which led to success. It was not a subtle reminder to Nepal that agreements alone will not lead to progress without implementation. Hopefully, the message got across to Nepal’s political elites.

Zero-sum game?

Many analysts in Nepal, and more so in India, see Nepal’s deepening relations, especially in context to connectivity, with China and Xi’s visit as a counter-balance to Indian influence. Some extremists even view it as Chinese attempt at encircling India. However, nothing could be further from the truth. The connectivity of Nepal with China is both complementary to Nepal’s connectivity with India and India’s connectivity with China. At the same time, the agreements signed with India after Prime Minister Narendra Modi came to power and the ones signed during President Xi’s visit is not competitive in essence. If anything, it’s the opposite.

The joint statement between Nepal and India during Modi’s visit to Nepal in 2014 underlined the need to further explore ways to enhance sub-regional cooperation, particularly in areas of trade, transit, connectivity and hydropower. Indian and Nepalese Prime Minister directed the finalization and signing of Rail Service Agreement, Letter of Exchanges on Trade and Transit, and ratification of BITTA among others. Even based on these agreements, it is very clear that both China and India are both looking for connectivity, investment in infrastructure, and ease in the investment regime for foreign investors in Nepal.

Even from Nepalese perspective, for any expensive connectivity network (especially the railways) through the Himalayas to be viable, it inadvertently has to extend beyond Nepal’s Southern borders to India. The trade between Nepal and China (especially exports from Nepal to China) cannot sustain such an expensive connectivity by itself. Therefore, Nepal needs to facilitate trade between India and China, which is close to USD 90 billion, and link Chinese West to Uttar Pradesh and Bihar, the two most populous Indian states which have no direct link to sea port. While India has not joined BRI (but is part of other corridors such as BCIM), India too would be one of the major beneficiaries of connectivity. To borrow Chinese parlance, it’s a win-win cooperation with mutual benefits to all three nations.

Moving forward

President Xi’s visit to Nepal is significant by itself for reasons stated above. While it has implications for Nepal-India relations, it would be foolhardy to see it completely in the context of China and India rivalry. Even Beijing and New Delhi do not see themselves as ‘rivals’. In such a case, it’s prudent for Nepal to move past thinking of China as a card to play against India or vice-versa. Nepal’s relationship with India and China has its own significance, dimensions and merits. The zero-sum mentality will only hold back Nepal’s development and limit the perimeter of Nepalese foreign policy. Instead, we are better for engaging them both in a mutually beneficial relationship. The agreements and statements from President Xi’s visit and PM Modi’s first visit to Nepal are testaments that win-win cooperation is possible.


a* This interpretation is based on Prime Minister Wen Jiabao’s explanation of Strategic partnership during his trip to Europein 2004. He described strategic partnership as:

By ‘strategic’, it means that the cooperation should be long-term and stable, bearing on the larger picture of China-EU relations. It transcends the differences in ideology and social system and is not subjected to the impacts of individual events that occur from time to time. By ‘partnership’, it means that the cooperation should be equal-footed, mutually beneficial and win-win. The two sides should base themselves on mutual respect and mutual trust, endeavour to expand converging interests and seek common ground on the major issues while shelving differences on the minor ones.


  1. China Daily. (September, 2019). Xi stresses striving for national rejuvenation. Retrieved from https://www.chinadaily.com.cn/a/201909/12/WS5d7a2e49a310cf3e3556b4df.html
  2. Feng, Z. and Huang, J. (2014). China’s Strategic Partnership Diplomacy. European Strategic Partnership Observatory. Retrieved from https://www.files.ethz.ch/isn/181324/China%E2%80%99s%20strategic%20partnership%20diplomacy_%20engaging%20with%20a%20changing%20world%20.pdf
  3. Ministry of Foreign Affairs, Government of Nepal. (October, 2019). Joint Statement between Nepal and PRC. Retrieved from https://mofa.gov.np/joint-statement-between-nepal-and-the-peoples-republic-of-china-2/
  4. Nepal Institute for Policy Research (NIPoRe). (Oct 2019). NDV004 – President Xi Jinping’s state visits – SAARC vs. ASEAN. Retrieved from https://nipore.org/ndv0004-president-xi-jinpings-state-visits-saarc-vs-asean/
  5. Nepal’s Embassy in China. (July, 2013). Joint statement between Nepal and PRC. Retrieved from http://np.china-embassy.org/eng/ChinaNepal/t1057401.htm
  6. PRC White Paper on peaceful development. (2011). Retrieved from http://ph.china-embassy.org/eng/zt/peace/t895028.htm
  7. State Council of the People’s Republic of China. (2019). China and the World in the new era. Retrieved from http://english.www.gov.cn/archive/whitepaper/201909/27/content_WS5d8d80f9c6d0bcf8c4c142ef.html
  8. World Bank. (2019). GDP per capita (current US$). Retrieved from https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&idim=country:CHN:IND:RUS&hl=en&dl=en
  9. Xinhua Net. (October, 2019). Xi’s article on Nepalese newspapers. Retrieved from http://news.xinhuanet.com/english/china/2014-07/15/c_133485834.htm [Nepali version of the article is available at: https://ekantipur.com/opinion/2019/10/11/1570759989337122.html]
Research Commentaries

NRC0016 – Visit Nepal 2020 – Have we managed to get our priorities straight?

Nirnaya Bhatta


Understandably, there is a national fixation on undertaking grand infrastructural projects, also reflected in the Joint Statement between Nepal and China released during the Chinese President Xi Jinping’s state visit, in various sectors including those in the tourism sector. Although, basic infrastructure such as street lights, tourist hotlines, decentralized tourist help centres, reliable payment systems, wi-fi access in tourist areas, better safety arrangements for locals and tourists, should not be discounted in making Visit Nepal 2020 (VN2020) a success or a disappointment. Since time of essence to get things right before the year-long campaign commences in less than two months now, this commentary recommends 5 immediate interventions that would improve tourist’s overall experience in Nepal.

The third edition of a year-long tourism campaign

Visit Nepal 2020 (VN2020) is preceded by ‘Visit Nepal 1998 – A World of its Own’ and Nepal Tourism Year 2011. In 2018, 1,173,072 tourists visited Nepal and the daily average spending per tourist was USD 54. VN2020 aims to bring in 2 million tourists and increase the average spending per tourist per day to over USD 75.

Grand plans call for grand implementation too

The two following consideration could come handy to guide implementation. First, making sincere efforts to reduce ambiguity related with national plans among entities within the state apparatus. Sure, there is no well-defined path to neither planning nor implementation and governance is usually based on ballpark assumptions. During President Xi’s visit the entire state apparatus worked together to make it a success, and that it would be unfair to acknowledge these efforts. Similarly, given that numerous institutions- government entities and beyond- would be required to be mobilized for successful implementation, a top-down approach should be expected to do poorly.

A simple exercise for logical planning. Stakeholders that are responsible to plan and implement will benefit with the following simple exercise. They can ask themselves, “what are the basic things I would need while visiting a foreign country?” This question could be asked keeping in mind the journey that starts at the international airport through the entire trip.

Tourism infrastructure

What does tourism infrastructure really entail? It includes a “large number of services, necessary to meet the needs of tourists and increase satisfaction during their stay at the destination”. The relation between national infrastructure and tourism development has been clearly established. It is only logical that an improvement in national infrastructure increases the capacity of a country to cater to complex suite of needs that tourists expect to be taken care of.

To further understand what comprises tourism infrastructure, it is useful to refer to the numerous indicators that make up the World Economic Forum’s Travel and Tourism Competitiveness Index (TTCI). The TTCI is a global index that benchmarks the “competitiveness of 140 economies and measures the set of factors and policies that enable the sustainable development of the Travel & Tourism (T&T) sector”. The reason why major stakeholders planning and implementing the VN2020 should refer to the index as it would help them identify specific indicators from a vast range that need to be improved, given that the government has limited attention and resources.

Figure 1- Source (The Travel & Tourism Competitiveness Report 2019)

Policy considerations – 5 immediate interventions for Visit Nepal 2020

Since time of essence to get things right before the year-long campaign commences, this commentary focuses on 5 immediate interventions aimed at improving the tourist experience in Nepal. These interventions give high benefit-cost value. Meaning, they accrue large benefits when compared to the costs incurred. While the budget for F.Y. 2019/20 allocates NPR 22.68 billion and the National Tourism Strategy 2016-2025 identifies 11 special strategies to develop the tourism industry; it is crucial to immediately consider these five interventions.

  1. Ensuring a pleasant airport experience:

Lately, there have been noticeable progress with facilities at the international as well as domestic terminals at Tribhuvan International Airport in Kathmandu. Although, much is yet to be done given that the traffic at the airport is expected to increase. Apart from ensuring that a tourist’s VN2020 experience start with bitter events right after landing at the airport by unnecessary hassle at the immigration desk, mismanaged carriers, luggage claim mechanism, fraudulent transportation, unavailability of money exchange booths (given that it is rare that Nepali currency can be exchanged anywhere else!). It would also be practical to help tourists better understand what the country can offer by providing them with maps, and crucial directions, beyond the airport authorities have limited control over how things unfold.

  1. Improved security infrastructure for tourists:

Safety is a primary concern that travelers consider while determining their travel destinations. These considerations become more salient when families travel together. The least that the campaign can aim at doing is to make our guests feel secure. The concerned state authorities could run television campaigns on how tourists, and thus the tourism industry, help Nepal’s sagging economy and that it is the responsibility of each Nepali to be as hospitable as they can.

  1. Tourist hotlines and assistance centres:

Lately, one will find excellent response from traffic police call centres at 103. Similarly, the government should introduce a 24-hour dedicated tourism hotline. Further, assistance centres can be established in most tourist areas. This information could be announced at the airport itself and advertised all over the international airport areas.

  1. Transportation:

Car rental services in Nepal is still very immature, even compared with other South Asian countries. Cab drivers charge utterly arbitrary rates, especially if the customer is a foreigner. It is often said that locals don’t get a fair share of pay for service provided. This may be true, but there needs to be a fair arrangement where neither locals nor tourists feel exploited.

  1. Easier and safe payment mechanisms:

The recent ATM related scandals do expose the vulnerability of Nepal’s banking sector. Often foreigners are found to be afraid to use their international payment cards with local vendors. It would be a shame if such a mere inconvenience deters tourists from actually spending. It is the lack of basic facilities that either make or break a tourist’s experiences in a foreign country.


Nepal evokes an exotic imagination among global tourists that few countries do. Although, even a handful of mishaps can dampen Nepal’s image as an attractive tourist destination. In tourism, the intangible element of image plays an instrumental role.

Right before the official commencement of VN2020, this is the right time for an earnest evaluation of our capacity to cater to 2 million tourists. Further, it is useful to not just fixate on the VN2020, given that tourism competitiveness is a function of an overall infrastructural development in the long term. If services actually improve for the locals, it will inadvertently improve for the tourists too. Installing street lights, improving tourism security and the other aforementioned factors may look lesser grand for the government but will prove to be equally important in making VN2020 a success. The tagline of VN2020 is “Lifetime Experiences”. Why let minor inconveniences occurring due to lack of basic facilities translate to a lifetime bad experience to a tourist.


  1. Calderwood, L. U., & Soshkin, M. (2019). The Travel & Tourism Competitiveness Report 2019 – Travel and Tourism at a Tipping Point. World Economic Forum. Retrieved from https://www.weforum.org/reports/the-travel-tourism-competitiveness-report-2019
  2. Jovanovic, S., & Ilic, I. (2016). Infrastructure As an Important Determinant Of Tourism Development In The Countries Of Southeast Europe. EcoForum. Retrieved from http://www.ecoforumjournal.ro/index.php/eco/article/view/329
  3. Ministry of Finance, Government of Nepal. (May 29, 2019). Budget Speech of Fiscal Year 2019/20. Retrieved from https://mof.gov.np/uploads/document/file/budget_speech_website_20190619052055.pdf
  4. Ministry of Foreign Affairs, Government of Nepal. (Oct 13, 2019). Joint Statement Between Nepal and the People’s Republic of China. Retrieved from https://mofa.gov.np/joint-statement-between-nepal-and-the-peoples-republic-of-china-2/
  5. Prasain, S. (Jul 29, 2016). Nepal tourism sets goal to boost arrivals fivefold. The Kathmandu Post. Retrived from https://kathmandupost.com/money/2016/07/29/nepal-tourism-sets-goal-to-boost-arrivals-fivefold
  6. Pun, S. (March 5, 2019). Nepal Tourism Campaign #VisitNepal2020. The Spotlight Magazine. VOL 12 No.14, March 01, 2019 (Falgun. 17 2075). Retrieved from https://www.spotlightnepal.com/2019/03/05/nepal-tourism-campaign-visitnepal2020/
  7. Visit Nepal Year 2020 Secretariat. (August, 2019). VNY 2020 Update. Retrieved from https://2020.welcomenepal.com/pdf/Tabloid_VNY_Aug2019.pdf
Research Commentaries

NRC0015 – Nepali foreign policy and Zone of Peace: an attempt at neutrality?

Santosh Sharma Poudel


In my last Research Commentary, I summarized that Nepali foreign policy moved from ‘special relations’ with India towards diversification in the 1950s and 1960s. This period coincides with the direct rule of King Birendra. In this commentary, I analyze the country’s foreign policy in the 1970s and 1980s via the proposal of Zone of Peace. This period provides a stark reminder of the practical constraints of Nepal’s foreign policy priorities.

Domestic Political Developments

As seen in the previous two decades, domestic politics has been one of the major factors informing Nepal’s foreign policy, if not determining itself. The 1970s and 1980s were relatively stable periods under the then Panchayat System. The Prime Ministers were rotated heavily, but the power always rested with the King. King Birendra ascended the throne in 1972. During his coronation, which was attended by a large number of diplomatic dignitaries, he proposed Nepal to be made a ‘Zone of Peace’. It was a major initiative from the King, and the analysis of the intention and progress of the proposal reflects the foreign policy of Nepal during the period. There was the matter of ‘referendum’ in 1980, but the result was in favor of ‘reformed Panchayat’, and it did not alter the domestic dynamics much. Towards the end of this period, there was ‘Jana Andolan’ in Nepal, led by the Nepali Congress and communist parties, which overthrew the direct rule of the King, established multi-party democracy, and cosigned the King to a constitutional monarchy.

Zone of Peace (ZOP)

King Birendra’s prepared speech during the Non-Aligned Summit in 1973 stated that Nepal ‘wishes to be declared a Zone of Peace’. However, the official announcement of the ZOP by the King was made on 25th February 1975, during the farewell address delivered to the foreign dignitaries present to celebrate his coronation ceremony. His focus was on peace, peace in the country, the region and the world, and believed that ‘Zone of Peace’ will help institutionalize peace. Major points of the proposal included peace, non-alignment and peaceful coexistence, Nepal would not permit any activities on its soil that are hostile to other states supporting the proposal and expect reciprocity, and Nepal will not enter into any military alliance with any other countries among others. Nepal planned to take the proposal to the UN for endorsement.

There were international and domestic reasons for the proposal. Domestically, it was about maintaining stability, as the democratic opposition to the Panchayat regime came from Nepali exiles in India. It was also an opportunity for King Birendra to stamp his authority in Nepal’s foreign policy. Regionally, few issues were of real concern to Nepal. Nepal had a close eye on the political development in Sikkim. Sikkim, an independent state with ethnic Nepali people, was absorbed into the union territory of India in 1975. That was an urgent issue of concern for Nepal, a country that has inferiority complex vis-à-vis India. Many also had concerns that India could attempt a similar policy towards Nepal. Therefore, Nepal needed to ascertain its survival. Similarly, Nepal did not want to insert itself into the regional and global rivalries (such as India-Pakistan, Sino-India, US-USSR), and would rather expend its limited resources for peace and growth. Notwithstanding the justifications of the ZOP, it marked a significant change in the orientation of foreign policy of Nepal compared to a decade earlier.

Neutrality, not ‘balance’

The foreign policy of Nepal in the 1950s and 1960s was marked by movement along with the ‘special relations with India’ to ‘diversification in economic, trade, aid and global engagement’. In saying that, the relations with India was still the most important. ‘Zone of Peace’ was an attempt at ‘neutrality’ or ‘equidistance’, doing away with ‘special relations with India’. ZOP would do away with the concept of Nepal as ‘buffer state’, the strategic view that India held since the time of Jawaharlal Nehru. An agreement on such a proposal would also limit the role of India in Nepal’s domestic politics. Firstly, it would have limited the activities and some freedom enjoyed by exiled political leaders in India. Secondly, requests were made for the withdrawal of Indian intelligence posts in Nepal.

Two regional incidents also heightened the insecurity in Nepal vis-à-vis India. First, India played an active role in the breaking up of East Pakistan to form an independent Bangladesh in 1971. China, Pakistan’s all-weather friend, could not do much to change the scenario in which India got a decisive victory. The second was the dissolution of the Kingdom of Sikkim into the Indian union territory in 1975. Within a span of five years, the political map of South Asia changed significantly, thanks to India. This was bound to have a profound impact on the psyche of another small nation that shared a deeply unequal power relations with India.

Therefore, according to S.K. Upadhyaya, Nepal’s former Permanent Representative to the UN, ZOP, was the only way to ensure small nation’s (Nepal’s) survival when large powers commit aggression against small powers.

The ZOP was supported by a large number of countries to varying degrees. Major global and regional powers such as China, Pakistan, the US, the USSR, France, and the UK among others supported the proposal (on various dates and to varying degrees). By the mid-1980s, more than 85 countries around the globe had supported the proposal. However, Nepal’s closest neighbor India had major reservations. While the ZOP was not targeted at India, it could not be denied that India was a major target in terms of why the ZOP was proposed and would require to do the most to ensure the proposal was applied if India accepted given the socio-economic, political and geo-strategic linkages. Accepting the ZOP would mean that India’s ‘special’ position vis-à-vis (Nepal) would be diluted. Similarly, Indira Gandhi could not fathom that Nepal-China relations would be equated with Nepal-India relations. Other governments in India and leaders too had various reservations primarily that India has a special security interest in Nepal and ZOP does not address that.

The Fate of ZOP and Lessons for Nepal’s Foreign Policy

Despite the support of more than six dozen countries including the major powers, the ZOP died its natural death after the demise of Panchayat in 1990, thanks to the Indian reservation. The relations between the King and India also suffered which ultimately culminated in India’s blockade over Nepal in 1989 (though this was not the direct cause). This offers key lessons for Nepal’s foreign policy priorities. Firstly, the geo-economic rationale (in this context, the over-dependence on India) is a severe constraint to Nepal’s foreign policy. India does not hesitate to use such a constraint to undo Nepali strategies that do not address its national interests. Secondly, Nepal can count on the support of other neighbors and major powers. However, they are no substitute for the Indian influence and presence in Nepal. If Nepal aims at the successful implementation of any major foreign policy, it has to assure India that its legitimate security interests will be addressed and brought into confidence. Finally, as the saga unfolded, a foreign policy based on neutrality or equidistance failed to materialize at best, and backfired at worst. Nepal needs to engage with each neighbor and other countries, based on Nepal’s and the other partner’s specific interests. Trying to weigh two different neighbors on the same scale is not prudent as both countries have different interests in Nepal and vice-versa.


  1. Poudel, Santosh Sharma. (2019). RC0011 – Nepalese Foreign Policy Practice in the 1950s and 1960s. Nepal Institute for Policy Research (NIPoRe). Kathmandu, Nepal. retrieved from https://nipore.org/nrc0011-nepalese-foreign-policy-practice-in-the-1950s-and-60s-special-relationship-balance-and-diversification/
  2. Upadhyaya, S. K. (1982). Nepal’s Peace Zone Proposal: Many Voices, One concern. Weekly Mirror, Special Issue.
  3. Muni, S.D. (2016). Foreign Policy of Nepal. Adroit Publishers, New Delhi, India.