Nepal country brief

Political overview

Nepal is undergoing a political transition following its 10 year civil conflict, ending in 2006, which resulted in the death and disappearance of thousands. 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 major milestone of the peace process was the dissolution of the former Maoist army, and integration of Maoist parties into the mainstream political process. Although the conflict has ended, social exclusion and political stability continue to be major issues.  

In 2008, Nepal became a republic, ending 240 years of monarchy. The Head of State of the Federal Democratic Republic of Nepal is President Ram Baran Yadav who assumed office in July 2008. The Nepali Congress Party (NC – the largest Constituent Assembly party) and the Communist Party of Nepal-United Marxist Leninist (CPN-UML) are the main coalition partners elected to Government. Sushil Koirala, President of the NC, was elected Prime Minister of Nepal on 11 February 2014 following Constituent Assembly elections in November 2013. The elections were largely considered free and fair with strong voter turnout. However, governance at the district and local level remains a challenge. Local elections have not been held in more than 15 years. Drafting of a new constitution and federal restructuring continues to be a drawn out and hotly contested process. However, the aftermath of devastating earthquakes in April and May 2015 has seen positive developments and some compromise on finalisation of the constitution and future governance and judicial arrangements for the country.   

Economic overview

Nepal faces multiple constraints to economic growth, including low levels of foreign direct investment and poor infrastructure. Around 28 per cent of Nepal’s GDP relies on remittances from migrant workers. Nepal's economic growth has been adversely affected by political uncertainty and natural disasters. 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. A political settlement that promotes greater  transparency is key to boosting investor confidence, spurring economic growth and realizing the Government of Nepal’s aspiration to transition from Least Developed Country to Developing Country Status by 2022.

The 2015 earthquakes in Nepal set back potential growth with widespread destruction to infrastructure, heritage sites and agricultural land. The Government of Nepal’s Post-Disaster Needs Assessment estimated a repair bill of US6.6 billion – or around a third of the country’s Gross Domestic Product in 2013-14. The private sector is estimated to have sustained 3.3 times the value of damages and losses in comparison to the public sector. While annual economic growth in Nepal was gearing up in recent years, exceeding 5 per cent in 2013-14, GDP growth in 2014-15 is expected to be the lowest in eight years at 3 per cent. Recent political consensus to promulgate a new constitution may provide the necessary foundations for strengthened investor confidence and economic reform.

Bilateral relationship

Australia and Nepal celebrated 50 years of diplomatic relations in 2010, though Australia's relationship with Nepal predates the establishment of diplomatic links in 1960. 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 education, health, hydroelectricity, sustainable forestry management, civil aviation, and livestock and grain management.

Australia’s relations with Nepal continue to strengthen through development cooperation and people-to-people links. There are around 26,000 people of Nepalese ancestry in Australia, according to the 2011 census. Approximately 22,000 Australian tourists visited Nepal in 2014, double the number in 2010. The number of private Nepalese students studying in Australia is increasing rapidly. Nepal is now the seventh largest market for international students with more than 13,800 Nepalese studying in Australia. The Association of Australian Nepal Alumni is very active.  There are also active Nepal-Australia Friendship societies in both countries.

Australia provided more than $28 million to Nepal following the devastating earthquakes in April and May 2015. Australia’s support provided urgently needed water, sanitation, shelter, medical supplies and food as well as longer term recovery activities focused on helping communities revive their businesses and generate much-needed income, assisting children to return to school, rebuilding better and safer schools and supporting community mediation. This support was in addition to Australia’s development program to Nepal, which in 2015-2016 is estimated to be around $26.8 million and focuses on education, livelihoods, public financial management, volunteers, the Australian NGO Cooperation Program, and Australia Awards.

Bilateral economic and trade relationship

Australia’s trade with Nepal is small, but there is potential for growth in hydropower, tourism and infrastructure development. Other areas in which there are increasing private commercial opportunities following deregulation include civil aviation and telecommunications. Two-way merchandise trade in 2014 totaled $23 million, with exports to Nepal valued at $16 million. Principal exports to Nepal are vegetables and refined petroleum. Australian exports of food and beverages, especially wine, are also doing well. Australia’s main imports are floor coverings and clothing.

Last Updated: 24 January 2014