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Nepal country brief

Political overview

Nepal is undergoing a political transition following its 10 year civil conflict which resulted in thousands of people being killed and disappeared. In a country of 28 million people comprising more than 100 ethnic groups, the conflict revealed that the Nepali state had been associated with exclusionary political, social and economic institutions that did not reflect the country's diversity. This led to a rise in identity politics with an increasing demand for greater accommodation of diverse social, cultural, and ethnic identities and regional autonomy. One of the major milestones of the peace process was the dissolution of the former Maoist army, with the majority of cadres receiving "retirement" payments and a small number being integrated into the national army.

The Head of State of the Federal Democratic Republic of Nepal is President Ram Baran Yadav who assumed office in July 2008. Mr Kil Raj Regmi, the Chief Justice, was sworn in as Chairman of the Interim Election Council of Ministers on 14 March 2013 replacing Maoist Prime Minister Baburam Bhattarai. A Constituent Assembly elected in 2008 to write a new, federal constitution was dissolved in May 2012 after failing to fulfill its mandate. The issue of federal restructuring proved the most difficult one on which to forge agreement. Chairman Regmi and his 11 member Council of Ministers comprised of former Government officials have a mandate to hold elections for a new Constituent Assembly, which could take place in November-December 2013.

Poor law and order is a growing concern in some parts of the country. Enforced strikes (bandhs) are frequently called by political parties which close down the country for extended periods. Strikes are often violently enforced and cause disruption to law and order and the economy, causing further hardship.

Economic overview

Nepal's economic growth has been adversely affected by political uncertainty. The focus on political transition and attainment of peace has meant that inadequate attention has been given to economic and other reforms that could improve the investment climate, stimulate growth and create more private sector jobs. Economic growth and increased private investment is dependent upon a political settlement that promotes greater law and order. The failure of the Constituent Assembly and the resulting constitutional crisis has undermined the economy and investor confidence.

According to the Asian Development Bank, in 2011-12 GDP grew by 4.6 per cent, up from 3.8 per cent a year earlier.  Good weather allowed a bountiful harvest and robust increases in tourist arrivals and migrant worker remittances underpinned the economy.  Inflation moderated to 8.3% from near double digits in the previous year.  Revenue collection grew robustly, but there was under-spending on capital projects, reflecting limited implementation capability due to the impact of political instability.

GDP growth is expected to have slowed to 3.5 per cent in the 2012-13 fiscal year due to an unfavourable late 2012 and fertiliser shortages undermining agriculture, and the inability to approve a full budget for 2012-13 creating fiscal drag.  Remittance inflows and tourist arrivals sustained expansion in services, but growth in industry remained constrained by persistent power outages, sporadic fuel shortages, and long-standing structural bottlenecks and policy distortions.  The forecast inflation was raised to 8.5 per cent.

Food prices in Nepal have also risen rapidly, affecting the poor, especially in food insecure areas. An estimated 3.5 million people are currently food insecure.

Bilateral relationship

Australia and Nepal celebrated 50 years of diplomatic relations in 2010, though Australia's relationship with Nepal predates the establishment in 1960 of diplomatic links. Over the years, the Australian Government and private sector have contributed to the economic and social development of Nepal through activities and assistance in the fields of health, education, hydroelectricity, sustainable forestry management, civil aviation, and livestock and grain management.

Australia’s relations with Nepal have been built on development assistance and people-to-people links through tourism and education. There are around 26,000 people of Nepalese ancestry in Australia, according to the 2011 census. Approximately 18,000 Australian tourists visited Nepal in 2012. The number of private Nepalese students studying in Australia has been increasing, and the Australian Government funds a scholarship program for Nepal and has promoted an alumni association. There are also active Nepal-Australia Friendship societies in both countries.

The collaboration between the Tilganga Institute of Ophthalmology in Kathmandu and the Fred Hollows Foundation, which has been at the forefront of developing safe and cheap procedures for cataract surgery in the region, is an enduring partnership. The Fred Hollows Foundation celebrated its 20th anniversary in 2012.

Bilateral economic and trade relationship

Australia’s trade with Nepal is small, but there is potential for growth in hydropower, tourism and infrastructure development. Two-way merchandise trade in 2012 totaled $25 million, with exports to Nepal valued at $20 million. Principal exports to Nepal are refined petroleum and vegetables. Australian exports of food and beverages, especially wine, are also doing well. Our main imports are floor coverings and clothing. The conclusion of Nepal’s political transition should boost its economic prospects.

There is potential for the development of commercial links through the involvement of Australian companies in development project work, funded through international financial institutions such as the World Bank and the Asian Development Bank. Other areas in which there are increasing private commercial opportunities following deregulation include civil aviation and telecommunications.

Development assistance

Australia's development cooperation program with Nepal began in the 1960s. Australia provided $33.5 million in 2012-13 in total development assistance to Nepal, focusing on health, education, water, sanitation and hygiene, strengthening governance and creating jobs.

More information on Australia's development assistance to Nepal

Updated January 2014