As the year 2024 ends, it is the time to question, “What next?” With Prime Minister KP Sharma Oli at the helm, the question has become even more interesting.

In the face of increased geopolitical rivalry at the global and regional levels, what kind of foreign policy is Nepal practising, and where will it take the country? What are the prospects for economic development and democratic evolution?

Given the status of political party dynamics, geopolitical tussle and Nepal’s weak diplomatic capacity, Nepal’s prospects of economic development and democratic evolution look bleak at best. Oli’s efforts to emulate China’s growth model and political party discipline will also be undermined by the plurality of political parties and an ingrained kleptocratic system.

Geopolitics

In December, Nepal signed a landmark framework agreement with China on the Belt and Road Initiative after intense negotiations between the Nepali Congress and the CPN-UML on the one hand and between Nepal and China on the other. Nepal was able to revise and trim down China’s proposed “BRI Implementation Plan” according to Nepal’s priorities. However, Nepal’s proposal to develop the Nepal-China Friendship Park in Damak and consent to insert security and global initiatives in the joint communique, despite India’s concern, may have raised red flags.

Nepal’s efforts to exercise strategic autonomy in the face of asymmetric power balance and geopolitical rivalry are undermined by several flaws. First, of course, is the political predilection, which heavily favours China. During several negotiations with China, Nepal’s bureaucracy and political leadership appear soft on China but hard on India.

A series of events since 2008 shows that China has always favoured communist governments and that grants and aid disbursements tend to peak when leftist coalitions are in power.

The second factor is Nepal’s inability to build trusted relations with China and India and ensure national interests. As China’s influence grows in Nepal, India has adopted a two-pronged policy of both engaging Nepal and adopting policy measures to limit the Chinese influence.

There is a real possibility that India will continue to harden the border and create safeguards to limit Chinese access to the Indian market through Nepal. This will likely impact Nepal’s connectivity and trade with India in the future, which in turn will affect Nepal’s economic trajectory and viability of large infrastructure projects.

The third is Nepali elites’ gradual alignment with Chinese interests and distancing from India. It has now become a paradox that while Nepal seeks to enjoy the privileges of the special arrangements ensured by the 1950 treaty with India, it wants to disregard India’s traditional interests in Nepal.

One example is Pokhara Regional International Airport (PRIA). Two years after its inauguration, it has seen only 10 international flights, all of them chartered or relief efforts. The officials of CAAN do not have any reasonable near term strategy to make the airport financially viable or to service debts. The situation is so dire that an ordinary Airbus 319 flight from Pokhara to Kathmandu last week was highlighted with much fanfare by the Nepali media.

Regional power dynamics, particularly with India, have affected the airport’s viability. When the PRIA was being considered, bilateral relations were invoked—the airport was framed as “critical” to Nepal-China relations. During its inauguration, China positioned the airport as part of BRI and the Trans Himalayan Multidimensional Connectivity Network.

Media reports this week widely discussed the worsening relationship between Oli and India. Indian media reported that although Foreign Minister Arzu Rana Deuba was on a private visit to India, she was disappointed not to meet senior leaders. She was hoping to push forward the agenda of Oli’s visit to India. As India appears to ignore him, Oli, meanwhile, is cozying up to Pakistan and attempting to revive SAARC.

Politics

Another significant arena is politics and the direction of Nepal’s democracy.

It is now well accepted that Nepal is in a “low-growth, high migration trap”. With structural and psychological pressures getting worse, political disruption is possible if the current political regime is unable to deliver economic growth and governance reforms.

However, Nepal’s politics shows no signs of reforms or the willingness to address underlying factors that have trapped Nepal in a low-growth, high-migration dynamics.

The three primary sources of power in Nepal’s political parties are the relative position of party leaders in the national kleptocracy, their bonds with China and India, and their relationship with political competitors.

Membership in the entrenched national kleptocracy ensures that party leaders can extract resources from the state and obtain rent even if they do not hold any official public position.

Nepal’s inability to address corruption and money laundering was reflected in the Mutual Evaluation Review of the Asia-Pacific Group (APG) on Money Laundering. Last week, the Nepal Rastra Bank governor, Maha Prasad Adhikari, gave dire news to the Prime Minister that the APG may be losing patience with Nepal.

According to an expedited follow up report, Nepal has made some progress in addressing technical compliance deficiencies. While Nepal has taken some legislative measures, their effectiveness is questionable and several recommendations remain unsatisfactory.

Internally, Nepal’s three major parties have their own problems. While the UML appeared to be on a path to emulate the Communist Party of China, there were signs that the internal power balance of other major parties was transforming, including in the Nepali Congress and the Maoist Centre.

According to a Naya Patrika report, Oli is enamoured by China’s development model and the Communist Party of China. He wants to introduce tough disciplinary measures to “unify” the party and align every member around the top leadership.

Only last week, the party took disciplinary action against three popular figures who dared to question Oli’s authoritarian streak and his hobnobbing with crony capitalists. The action created ripples in the political sphere although UML members kept quiet, indicating that exercising freedom of expression in the party would come at a great cost.

A large chunk of the Nepali electorate is already ideologically aligned with leftist forces. Now, party leaders of the UML will have both threat power and agenda-setting power to control dissent and differences in the party–a fertile environment for leaders with authoritarian streaks.

When he came to power in 2018, Oli took several policy initiatives, though unsuccessful, to enforce his vision on the society, curtailing freedom of expression and constricting the space for civil society. He also centralised regulatory and legal authorities and made selective use of power to weaken his political opponents.

Incidents in the last few months indicate he has not changed. His close ties with China have emboldened him to pursue the Chinese models, both in terms of political power and economic development.

However, unlike China, Nepal has multiple parties, and replicating China’s political model would be difficult, especially when voters have multiple choices.