Following Donald Trump’s return to the White House for a second term, Indian Prime Minister Narendra Modi visited the United States to advance India’s strategic and economic interests. One of the highlights of the visit was his meeting with Elon Musk, the world’s wealthiest individual and the head of the Department of Government Efficiency (DoGE) under the Trump administration. Weeks later, India approved Musk’s satellite internet venture, Starlink, to operate in the country.

In contrast, Nepal’s approach to economic diplomacy has been far from satisfactory. Despite frequent visits by Nepali prime ministers to India and China with business delegations, Nepal has not adopted a forward-looking stance on economic diplomacy. This lack of initiative risks isolating the country from regional economic developments and missing critical opportunities for growth.

Economic diplomacy is regarded as a crucial tool for boosting tourism, securing foreign assistance and investment, and enhancing trade relationships. While new Nepali ambassadors receive some guidance in economic diplomacy, officials say the concept is often treated as a buzzword in Kathmandu, with Nepali missions abroad struggling to implement it effectively

Given Nepal’s strategic location between economic giants China and India, and increasing US interests in the region, strong economic diplomacy could provide a significant advantage. Inaction, however, carries costs, as seen in delays with the US-funded Millennium Challenge Corporation (MCC) compact. Experts urge Nepal overhaul its approach to economic diplomacy to better harness opportunities for aid, investment and strategic partnerships with like-minded nations.

Budget Constraints

Nepal’s limited budget for economic diplomacy has been a major barrier to unlocking its potential for foreign investment, trade expansion and global partnerships. Despite its strategic location, and rich natural and cultural assets, Nepal has struggled to leverage diplomatic channels effectively.

Nepal's diplomatic network—32 embassies, seven consulates-general and two permanent missions—receives just Rs 160 million annually for economic diplomacy efforts. “The budget is a significant concern,” said Narad Bhardwaj, a former Nepali ambassador to Qatar. “While South Asian peers are actively promoting trade, investment and cultural exchange, Nepali ambassadors are confined to official duties due to insufficient funds for cultural programs or networking events.

Economic diplomacy requires proactive engagement with foreign governments, investors, multilateral institutions and business leaders through investment summits, well-staffed economic wings in embassies, international expos and trade negotiations. However, Nepali embassies often lack the resources and capacity to perform these functions. Most operate with minimal staff and limited outreach, unable to engage meaningfully with the economic sectors of host countries.

Countries like India, Bangladesh and Sri Lanka have prioritized economic diplomacy which has helped them secure major investments and trade deals. “India facilitated a meeting between Prime Minister Modi and Elon Musk to discuss investments in technology and manufacturing. Sri Lanka has signed major energy and port development agreements with India and China. Bangladesh continues to attract textile and infrastructure investments through proactive diplomatic initiatives,” Bhardwaj said.

Nepal, by contrast, has remained largely reactive, with budgetary constraints limiting participation in international forums and promotion of investment opportunities.

Kumar Raj Kharel, joint secretary at the Ministry of Foreign Affairs (MoFA), echoed Bhardwaj. “Nepal’s minimal spending on economic diplomacy has been a major obstacle to attracting foreign investment and strengthening international economic engagement. Economic diplomacy refers to the budget specifically allocated to promote investment, trade and partnerships through diplomatic channels,” he said. “Unfortunately, Nepal’s spending in this area remains minimal—even in countries where the potential for economic collaboration is high.”

For example, in the US, where Nepal has substantial opportunities to attract investment and forge strategic economic ties, the government has allocated mere Rs 4 million for economic diplomacy this fiscal year. This sum (approximately $30,000) is insufficient for basic operations, let alone hosting business events or cultural exchanges to build investor trust.

“With such limited funds, organizing networking events or strategic cultural exchanges that could help build trust and generate interest among foreign investors or diaspora communities is nearly impossible,” Bhardwaj said. “Nepali embassies are forced to limit their activities to routine diplomatic functions, lacking the flexibility and resources to conduct targeted campaigns or host economic forums.”

He added that missions from countries like India, Sri Lanka and China regularly host dinner receptions and similar events to engage with key stakeholders. “Through these gatherings, they build strong relationships that eventually lead to investment opportunities and open doors for broader collaboration across sectors,” Bhardwaj added.

Diplomacy Without Direction

Nepal has formal diplomatic relations with 182 countries and is a member of several regional and international organizations, including the United Nations, World Bank, International Monetary Fund, World Trade Organization, SAARC, the Belt and Road Initiative (BRI) and BIMSTEC. However, Nepal’s handling of major geopolitical issues in recent years reflects a serious diplomatic shortfall, according to a former advisor to the prime minister.

“During the MCC debate, China openly expressed objections, while in the case of the BRI, both India and the US raised strong concerns. Instead of navigating these complexities with a balanced and strategic approach, Nepal’s response was disorganized—almost a diplomatic joke,” the former advisor said on condition of anonymity. “These matters were managed entirely by the Ministry of Foreign Affairs in Kathmandu, while Nepali ambassadors posted in key capitals appeared to play little or no role.”

At times when nuanced diplomacy was crucial, Nepali missions abroad remained notably silent. “This lack of engagement is especially concerning given Nepal’s current economic challenges. Foreign investment is declining, and the country is in urgent need of external economic support and strategic partnerships,” the former adviser said. “This should have been a moment for ambassadors to step up—engage key stakeholders, clarify Nepal’s position and work to rebuild confidence. Instead, Nepal continues to rely solely on the Ministry of Foreign Affairs, neglecting the broader diplomatic apparatus that could be actively mobilized.”

Economic diplomacy is not the sole responsibility of the foreign ministry, experts say. Other ministries—such as Finance; Industry, Commerce and Supplies; and Culture, Tourism, and Civil Aviation—also play critical roles in shaping Nepal’s international economic agenda. “Yet these ministries often seem disconnected or unaware of how to support diplomatic efforts. In the lack of coordination between these institutions and embassies abroad, Nepal’s foreign policy has remained reactive, fragmented and ineffective,” said the former advisor.

To prevent further diplomatic setbacks, Nepal must empower its ambassadors, foster inter-ministerial coordination and ensure that all stakeholders understand their roles in advancing economic diplomacy. “Without a collective and informed approach, Nepal risks falling further behind in an increasingly competitive and geopolitically sensitive global environment,” added Bhardwaj.

No Continuity, No Credibility

One of the biggest obstacles to Nepal’s economic diplomacy is persistent political instability, which has undermined the country’s ability to attract and retain foreign investment. Frequent changes in government often lead to the recall of ambassadors appointed by previous administrations, forcing diplomatic missions to start over. As a result, the efforts, networks and strategic plans of outgoing ambassadors are frequently lost.

“The incoming diplomats, many of whom are unfamiliar with the intricacies of diplomacy, have to begin from scratch. This disrupts continuity and delays progress in international engagement,” said Bhardwaj.

A major flaw in Nepal’s diplomatic system is the appointment of ambassadors based on political favoritism rather than merit or experience. In many cases, individuals with little or no background in international relations, investment or diplomacy are sent to represent Nepal abroad. This not only damages Nepal’s credibility but also severely limits its ability to negotiate effectively, promote trade and attract investments, experts in international relations say. “Professional diplomats with institutional memory and long-term vision are often overlooked in favor of politically connected individuals,” one expert said.

Bhardwaj said instability in Nepal is not limited to politics—it extends to infrastructure and investment policy as well. “Nepal lacks reliable infrastructure. Although there have been some efforts to improve it, foreign investors remain hesitant, he said. “Policy inconsistencies, complex bureaucratic procedures, difficulties in capital repatriation and the absence of a one-window system are major deterrents. Investors value predictability and ease of doing business—both of which are currently lacking in Nepal.”

The former ambassador recalled an exchange during his tenure as ambassador to Qatar: “The Qatari ambassador to Nepal once told me, ‘I like Nepal and would love to explore Kathmandu in my own vehicle, but due to the poor road conditions, I’m unable to travel with my family.’”

According to Bhardwaj, Nepal is missing out on numerous opportunities due to its failure to address basic necessities for investment, such as connectivity and resolving policy hurdles, among other issues. Moreover, foreign businesses and investors are well-informed. Through their own networks and country assessments, they are fully aware of Nepal’s challenges. “Glossy brochures or promotional events organized by embassies won’t be enough to overcome the deeper structural and policy concerns,” Bhardwaj explained. “Unless Nepal achieves political and policy stability, ensures merit-based diplomatic appointments, and implements serious reforms to simplify investment procedures, economic diplomacy will produce limited results.”

He added that attracting foreign investment is not just about outreach—it’s about building trust, offering consistency, and delivering on promises. “Without that foundation, no amount of diplomatic effort will lead to significant or sustainable change,” he added.

Many Nepali ambassadors lack the skills and confidence necessary to negotiate effectively or communicate clearly with the international community. “They often find themselves on the defensive during meetings, unable to assert Nepal’s interests or foster meaningful dialogue,” said a foreign ministry official, speaking on condition of anonymity. “Large international investors frequently do not prioritize Nepali ambassadors, recognizing their limited influence and lack of preparedness. Without these soft-power tools, they miss critical opportunities to build trust, form partnerships and promote Nepal's economic agenda on the global stage.”

MoFA Plans Strategic Overhaul

The foreign ministry currently has a single unit dedicated to economic diplomacy. However, with a growing recognition of its importance for national development, the government is planning to upgrade this unit into a full-fledged division, with an expanded budget and broader mandate. “This move aims to strengthen Nepal’s global economic outreach and improve coordination to attract foreign investment and promote trade,” said Kharel.

As part of this reform, the ministry plans to develop country-specific strategies, acknowledging that each nation requires a tailored approach based on its economic profile, investment interests and diplomatic relations with Nepal. These customized plans will enable Nepal to engage more effectively with target countries and make its diplomatic missions more goal-oriented.

According to the ministry, Nepal’s economic diplomacy priorities include trade and power cooperation with India, trade and investment with China, power trade with Bangladesh, attracting tech investment from the United States, and exploring tourism opportunities with ASEAN countries. Additionally, the Ministry is exploring ways to engage the Nepali diaspora abroad more actively. The government believes the diaspora can play a crucial role in promoting Nepal’s economic interests—whether through investment, facilitating trade or serving as informal ambassadors who connect Nepal with global opportunities.

Bhardwaj hailed plans to establish a separate division, but added that its success hinges on appointing capable ambassadors who align with the government’s vision. “Ambassadors must be empowered with sufficient budget and resources to effectively promote Nepal’s interests abroad and translate diplomatic efforts into tangible economic outcomes,” he added.

(This news report was originally published in  May 2025  issue of New Business Age Magazine.)