Considering Nepal’s geopolitical sensitivity and geostrategic prominence, the US and emerging global powers and neighboring states India and China have been trying to expand their influence here. They have prioritized Nepal for a long time to expand their strategic, economic, diplomatic, and cultural influence. Against this backdrop, domestic political uncertainties have resulted in policy inconsistencies, impairing Nepal’s position in the international sphere.

Timeline of Major Events

A Shift in Foreign Policy with Change in Government

Domestic political frictions have an impact on every country’s foreign policy. A nation should have unanimity among political parties on foreign policy so that Nepal’s critical national interests are not jeopardized even if the government changes. However, Nepal’s foreign policy is usually driven by the interest of the political leaders to remain in power.

The former Prime Minister Khadga Prasad Oli’s foreign policy was tough to crack. It is observed in the past that Nepal’s communist leaders resorted to anti-Indian sentiments to fortify their domestic position, as Nationalism is a popular political card in Nepal. Oli used this card from the beginning of his tenure and tilted towards northern neighbors to reduce Nepal’s reliance on India. However, during his term, Oli could not strengthen relations with China. Oli’s foreign policy oscillated from China to India. While he claimed that India was trying to oust him from power, subsequently, he met India’s Research and Analysis Wing (RAW) chief Samant Kumar Goel. Following Goel’s visit, Oli stated that the “misunderstanding with New Delhi has been resolved.”

After months of political turmoil, the Supreme Court-appointed Sher Bahadur Deuba as the new Prime Minister. With the change in leadership, there seems to be a shift in Nepal’s geopolitical scenario. In a press conference, New Foreign Affairs stated that the country’s foreign policy is not unique to any one political party and builds national consensus amongst all the parties on issues relating to foreign relations. However, the proclivities of the new government towards India can be felt.

A Shift in Nepal-China Relation

Nepal’s political instability has remained a source of tremendous concern for China. This is clear from Chinese envoy Hou Yanqi’s persistent efforts to reconcile two factions of the NCP and prevent the party from splitting. Chinese ambassador met President Bidhya Devi Bhandari, Pushpa Kamal Dahal, Madhav Kumar Nepal, and other party officials on December 20.

After repeated failed attempts of reuniting the two factions, a four-member Chinese delegation led by Guo Yenzhou, a vice-minister of the Communist Party of China’s International Department, arrived in Nepal. The delegation held meetings separately with several leaders, including KP Oli, Madhav Kumar Nepal, Puspa Kamal Dahal, Jhalanath Khanal, and Baburam Bhattarai. The team strived to conciliate the fallouts between Oli and Dahal, conveying that China wants political stability in Nepal. The Chinese endeavor in Nepal makes China no longer a non-interfering neighbor. China recently appeared as a major player in the domestic politics of Nepal. However, China was unsuccessful in keeping Nepal’s communist party intact, which was seen as a significant geopolitical loss for China.

Chinese concerns regarding Nepal’s domestic political regime and the ruling party’s apparent affinity towards India are amply visible. The Chinese newspaper Global Times, which follows party lines, claimed that Nepal’s new Prime Minister is ‘pro-Indian.’ Further, Chinese infrastructural projects have halted due to the COVID-19 pandemic. Similarly, the standard operating procedure for enforcing the Transit and Transportation Agreement with China has yet been formulated.

China also formed a quad to enhance its influence in south-east Asia. Nepal is a member of the quad. China strives to improve border connections and then open trade and transit infrastructure to increase its strategic influence in Nepal. As a landlocked country with various developmental limitations, it is preferable to gain benefits and use them positively to achieve national interests. Nepal must design a comprehensive plan to reap benefits considering national interest. However, joining a development opportunity and joining a strategic alliance is not the same thing. For Nepal, patterning with strategic allies and being a part of a regional power bloc is a serious consideration, where a misjudgment could cost heavily.

Further, Deuba led government revived the border dispute in Humla. The government formed a team to study the Northern border. The team produced a report stating the border encroachment in Sino- Nepal Border. However, China refutes all the border dispute claims made by Nepal. Moreover, Chinese concern stems from the country’s growing propensity towards India and the continual US pressure to ratify MCC. According to the intelligence report by Nepal’s security authorities, Chinese intelligence has been actively generating anti-MCC sentiments in Nepal. According to the report, China aims to sever Nepal’s relations with other nations, particularly the United States. China’s influence may have decreased at the governmental level and diluted after the split of the Communist party. However, its influence is intact in other state machinery. Chinese envoy reached KP Oli’s residence to congratulate him on being elected as UML chairperson. Yanqi is the first foreign envoy to congratulate Oli.

Warming up Ties with India

Nepal’s relationship had hit rock-bottom amid the territorial dispute when Nepal amended its constitution to incorporate the territories of Kalapani, Lipulek, and Limpiyadhura on its map and national emblem. However, both countries understand that it is essential to maintain a good relationship with their neighbors. Nepal’s former minister, Pradeep Gyawali, participated in the Sixth Meeting of the Nepal-India Joint Commission on January 15 to refurbish the loosened tied between India and Nepal. They discussed several issues such as trade, connectivity, infrastructural projects, and covid-19 vaccines. However, India was reluctant to discuss the ongoing border dispute. Further, Foreign Minister was also refused a meeting with Indian Prime Minister Narendra Modi. The relationship with India at the beginning of the year was not free-flowing.

Diplomatic sensitivities flared up again after a Nepali national went missing on July 30 after India’s Sashastra Seema Bal detached the improvised cable crossing. The government initially seemed reluctant to address the issue even after submitting the probe report. After many criticisms, the government finally sent a diplomatic note. However, no positive development has been seen on the issue. It is observed that India tends to undermine Nepal’s concerns and only deals with issues that furthers its interest.

Nepal has been warming up its ties with India. Vijay Chauthaiwale, India’s ruling party’s (BJP) Foreign Affairs Department’s chief, visited KP Oli, Sher Bahadur Deuba, Puspa Kamal Dahal and Mahant Thakur to strengthen connections with Nepali political parties. Further, the new Foreign Minister Narayan Khadka met his India Counterpart S. Jaishankar on UNGA sidelines in New York. Jaishankar expressed his desire to enhance his special ties with Nepal. Further, the Nepali Congress strives to build a party-to-party relationship with BJP. A three-member delegation led by Prakash Saran Mahat visited New Delhi on October 7. They met BJP’s President JP Nadda, National General Secretary Arun Singh, Minister of External Affairs S. Jaishankar, and Vijay Chuathaiwala. The Nepali Congress has been attempting to strengthen ties with India’s ruling party since 2014. The visit was also an attempt to bridge the gap between the Nepali Congress and BJP. The delegation also met Uttar Pradesh’s Adityanath Yogi, where he stressed the importance of Nepal conserving and preserving its culture and religion.

On November 2, Deuba also met his Indian counterpart, Narendra Modi. They discussed resolving all kinds of problems between the two Nations. The meeting is seen as a massive step in repairing relations with the neighbor, who has been at odds for some time.

MCC, a Focal Point for Nepal-US Relations

MCC has been a pressing issue over the past four years. The controversy surrounding MCC and its politicization has obstructed its parliamentary endorsement. The political parties have a divided stance regarding it. The CPN (Maoist Center) and CPN (US) have vehemently opposed the compact’s ratification. While CPN-UML has not disclosed its new stance on MCC.

The US is persistently pressuring the Deuba-led government to ratify MCC immediately. Deuba has always supported ratifying the MCC. Further, the supposed distant relation between the Nepali Congress and China created a feasible atmosphere for the US to press down on MCC ratification. This is evident by the multiple exchanges and visits from high-levels US officials. On July 27, US Secretary of State Antony J Blinken called Prime Minister Deuba to discuss MCC during his visit to Delhi.

Similarly, the vice president of the Department of Compact Operations of MCC, Fatima Z. Sumar visit on September 9. The US tried clarifying all the concerns regarding MCC so that Nepal could decide and expedite the ratification process. Nevertheless, she expounded that the compact cannot be amended. Further, the United States Assistant Secretary of State for South and Central Asian Affairs Donald Lu and his Deputy Assistant Secretary Kelly Keiderling Visited Kathmandu on December 17 and 18, respectively. Lu met Deuba, KP Sharma Oli, and Pushpa Kamal Dahal separately to deliberate upon MCC.

After a strong push from the US and continuous follow-ups, Prime Minister Deuba is trying to forge consensus among his coalition partners. The ruling coalition has formed a three-member committee chaired by Jhalanath Khanal to develop a report on MCC. The alliance will move forward with endorsement based on the committee’s report. The delay in endorsing MCC and lackadaisical approach towards MCC has enfeebled Nepal’s international development credibility. Nonetheless, endorsing MCC would perhaps rile China up, which is doing everything it can to impede parliament ratification of MCC. The government should tread prudently in evaluating the compact, placing Nepal’s national interest at the forefront. Endorsing MCC will help Nepal in Nepal’s economic objectives and strengthen ties with the US. Nevertheless, failing to ratify the compact will impact the relationship with one of its most significant development partners.

Vaccine Diplomacy

Nepal faced a grave vaccine crisis in the initial few months of the year. The Covax initiative, which was meant to assist these countries in gaining equal access to vaccines, has failed to meet its commitment. The President has written to the leader of numerous countries, including India, China, the United Kingdom, Russia, and the United States, requesting vaccine assistance. Nonetheless, Nepal received no response. The lack of response from these states indicates a diplomatic failure and a loss of Nepal’s credibility, which is a critical element of diplomacy.

In June, the US provided 1.5 doses of Johnson & Johnson vaccines to Nepal through the COVAX facility. According to US Ambassador to Nepal, the US Ambassador to Nepal, the US would not indulge in vaccine trade political purposes. The vaccines offered are a gift from the United States, he stated. The deed, while noble, is indicative of an underlying intent, as ‘gifts’ are often questioned in international affairs.

India initially tried accelerating its neighborhood first policy regarding the vaccine. However, it failed to take off as anticipated. Therefore, leveraging on India’s failure, china has been generously supplying Nepal with vaccines, attempting to retighten its loosened hold on Nepal. China has implemented a policy of granting visas exclusively to people who have received a Chinese vaccine.

Development Cooperation Trend

The Chinese foreign aid to Nepal significantly decreased from $150 million in 18/19 to $100 million and remained constant in FY 20/21. The foreign aid trend from India saw a significant increase in FY 19/20. However, FY 20/21 saw a downward trend. Similarly, the foreign aid contribution from the US increased in FY 19/20 but decreased in FY 20/21. Development partners ‘ disbursements have dropped because the worldwide COVID-19 pandemic has thrown the global economy into a recession. Concerning BRI, China’s economy saw a decline due to the pandemic. Nepal may be unable to obtain loans from China to fund BRI projects, and China may also be unable to provide grants to BRI projects in Nepal.

Nepal receives bilateral assistance primarily for infrastructure development and capacity building; if infrastructure aid is reduced, development initiatives will suffer significantly. Reduced capacity-building support will have a massive effect on Nepal’s governance and accountability.