Background

China launched the Belt and Road Initiative (BRI) in 2013, creating both opportunities and challenges for participating countries.This vast infrastructure project seeks to revive ancient trade routes and reshape global trade, offering nations like Nepal a chance to modernize their economies. However, while significant benefits exist, the risks are equally notable. Nepal, a landlocked country with pressing infrastructure needs, must navigate its relationship with China carefully to benefit without compromising its economic sovereignty or falling into debt traps.

Since joining the BRI in 2017, Nepal aimed to improve infrastructure, trade routes, and connectivity. The initiative promised to address Nepal’s logistical and economic challenges, presenting a potential game-changer. However, as of December 2023, 151 countries had signed a Memorandum of Understanding (MoU) with China, but uncertainties regarding the MoU have led to a member count ranging from 146 to 151, including China. These BRI countries, spread across all continents, encompass 44 in Sub-Saharan Africa, 34 in Europe and Central Asia, 25 in East Asia and the Pacific (including China), 22 in Latin America and the Caribbean, 19 in the Middle East and North Africa, and 6 in Southeast Asia. Notably, the initiative also includes 17 countries of the European Union (EU) and 8 countries of the G20.

Despite these promising developments, Nepal’s optimism has tempered over the years due to funding disagreements and geopolitical complications, particularly regarding its relationship with India. Initially, Nepal proposed a list of 35 projects under the BRI as early as 2018 under the KP Oli administration. However, the Chinese side insisted on reducing this number to nine, reflecting a strategic shift in project selection. As negotiations on funding and implementation modalities stalled, Nepal last year contracted a hydropower project proposed under the BRI to an Indian contractor, with another project awarded to an Indian state-owned enterprise.  

The Double-Edged Sword of the BRI

The BRI offers Nepal a chance to diversify its economic partnerships and reduce heavy reliance on India. As Nepal seeks greater autonomy in foreign policy, the BRI could help achieve this goal. However, significant risks accompany these opportunities. Sri Lanka’s experience with the Hambantota Port, which Sri Lanka leased to China for 99 years after falling into debt, serves as a cautionary tale. Pakistan’s China-Pakistan Economic Corridor (CPEC) also highlights the potential pitfalls of large-scale infrastructure projects, which can lead to mounting debt and governance challenges. Nepal must carefully manage its engagement with China. While the BRI opens doors to new economic opportunities, poor financial management could lead to a loss of control over key assets. Economic diplomacy requires balancing immediate gains with long-term stability. Nepal must ensure that its participation in the BRI strengthens its economy without undermining its political and financial autonomy. 

Lessons from Other BRI Countries

The BRI’s track record across participating countries varies. Indonesia’s high-speed railway project, often cited as a success, has enhanced regional connectivity and growth. In contrast, CPEC in Pakistan has faced rising debt and governance issues. These mixed outcomes offer valuable lessons for Nepal. While the reduction of proposed projects may seem disappointing, it allows Nepal to focus on smaller, more manageable initiatives that minimize financial risks while delivering tangible benefits. 

Countering the Debt Trap Narrative

Critics frequently highlight the debt trap risks associated with the BRI. Nepal addresses this concern by negotiating for grant-based projects rather than loans. By prioritizing financial stability, Nepal aims to avoid the pitfalls experienced by countries like Sri Lanka. Transparency in negotiations and project implementation will ensure that each BRI project serves Nepal’s long-term interests. Nepal also needs to diversify its foreign investments. Engaging with institutions like the World Bank and the Asian Development Bank will provide better financing options and reduce dependency on China. This strategy will give Nepal additional leverage in its dealings with China and help safeguard its economic independence.

Prioritizing Environmental Responsibility

Nepal must consider environmental impact as a critical factor. With its fragile ecosystem, Nepal needs to ensure that BRI projects do not compromise its natural resources. Integrating environmental safeguards into project planning is vital for protecting biodiversity and ensuring long-term sustainability. Neglecting these concerns could lead to ecological degradation, affecting both the environment and the economy. 

A Strategic Path Forward 

To fully benefit from the BRI, Nepal must adopt a strategic approach. This involves managing financial commitments carefully, diversifying international partnerships, and prioritizing environmental sustainability. The government should focus on infrastructure projects that deliver real economic benefits without jeopardizing financial stability or political autonomy. Recent agreements, such as the June 2023 deal with India’s NHPC and Nepal’s Vidhyut Utpadan Company Limited for the Phukot-Karnali Hydropower Project, highlight Nepal’s recognition of the need for multiple development partners. This move demonstrates Nepal’s commitment to long-term stability by engaging with various partners to reduce dependency on any single country.

The BRI presents both opportunities and challenges for Nepal. It can drive economic growth and improve infrastructure but also comes with risks. To navigate the BRI successfully, Nepal must prioritize financial stability, diversify its international partnerships, and ensure environmental sustainability. Economic diplomacy requires managing relationships to benefit the nation as a whole. With careful diplomacy, caution, and strategic foresight, Nepal can leverage the BRI to strengthen its economy while maintaining its independence and sovereignty. By learning from the experiences of other BRI countries and balancing short-term gains with long-term goals, Nepal can ensure its participation in the BRI and contribute positively to its development without compromising its future.