ROUNDTABLE DISCUSSION AGENCY AND CONSTRAINTS:
SMALL STATES IN THE NEW WORLD ORDER
Perspectives from Nepal
Proceedings Report
June 03, 2025
Table of Contents
Introduction
On June 3, 2025, the National University of Singapore Institute of South Asian Studies (NUS-ISAS), Nepal Economic Forum (NEF), and its vertical Himalayan Future Forum (HFF) hosted a closed-door roundtable discussion on the topic ‘Agency and Constraints: Small States in the New World Order: Perspectives from Nepal’. The roundtable discussion, which followed Chatham House rules, brought together experts from diverse sectors, ranging from academia and think tanks to the diplomatic and private sectors, to explore pressing global issues.
Speakers reflected on the changing world order, the evolving nature of multilateralism and international rulemaking, and the diplomatic agency of small states like Nepal. The discussion also attempted to address Nepal’s structural constraints and vulnerabilities in a globalized context, highlighting challenges related to migration, labor, and the pursuit of national interests. The range of perspectives explored in the roundtable offered a rich foundation for reimagining the role of small states within the shifting global landscape.
The New World Order
The roundtable commenced with a discussion on the state of the current global order. There was a clear and unanimous consensus among participants that the world is experiencing a period of fragmentation and uncertainty, rather than operating under a cohesive or unified system. This was widely viewed as indicative of an ongoing transition toward a yet to be a defined global framework. Participants highlighted recent major geopolitical events, from the Russia–Ukraine war and the Gaza crisis to trade tensions between China and the US and Iran’s nuclear ambitions, raising the point that traditional institutions and norms are under strain.
This turbulence creates opportunities and challenges for a country like Nepal. While the next few decades will pose risks such as an increased exposure to climate shocks and a decline in concessional financing for Nepal, the government can leverage its emerging role in climate justice to demonstrate leadership.
Nepal’s Constraints and Vulnerabilities in the New World Order
Participants outlined that Nepal faces four main interlinked challenges: its landlocked geography, a predominantly reactive (non-aligned) foreign policy, over-reliance on unskilled labor migration, and fragmented domestic politics. Its landlocked status imposes policy limitations, such as higher transport costs, dependency on neighbors’ infrastructure, and reduced bargaining power in regional negotiations. The group argued that this geographic
constraint is further worsened by a foreign-policy posture that often reacts to external pressures rather than proactively setting an agenda, leaving Nepal on the back foot in diplomatic engagements.
Over-dependence on remittance-earning labor without sufficient upskilling has created economic vulnerability. Additionally, internal political fragmentation, marked by shifting coalition governments and weak coordination between federal, provincial, and local levels, undermines policy continuity.
Nepal faces significant challenges from increasing climate-induced disasters, but these also provide opportunities for the country to assert its leadership in global climate diplomacy. By framing climate issues as existential threats, Nepal can leverage its moral standing to advocate for solutions, especially for mountain and landlocked nations. Furthermore despite structural vulnerabilities, Nepal has meaningful agency when it mobilizes its capacities. This agency allows it to make deliberate choices and influence outcomes. By strengthening institutions and forming coalitions on climate and labor, Nepal can align outcomes with its national interests.
These constraints leave Nepal exposed to geopolitical spillovers, illustrated by the halting of the Upper Arun hydropower project amid regional tensions between India and China. Participants stressed the urgency of codifying a coherent foreign-policy framework through legislation or a dedicated policy council to ensure a unified national voice. They advocated establishing a permanent coordination secretariat within the Ministry of Foreign Affairs to align all branches of government and institutionalize long-term strategy beyond electoral cycles. By strengthening these institutional architectures and fostering a culture of policy predictability, Nepal can transform its vulnerabilities into strategic flexibilities that support sustained engagement in an increasingly competitive global environment.
Nepal as a Small State
The concept of a "small state" is relative, shaped not just by geography but also by factors such as vulnerability, dependence, and limited choices within an unequal global framework. For Nepal, its strategic position between two major powers presents both opportunities and challenges. This location opens doors for grants, investments, energy diplomacy, and tourism, but also necessitates careful navigation in a fragmented global landscape.
Despite these structural limitations, small states like Nepal possess the potential to exercise their agency through collective, institutional, and individual means. When one avenue of agency falls short, the others can step in to fill the gap. However, this requires a unified approach and clear strategies that have often been lacking in Nepal's political landscape. Issues such as political instability, weak institutional capacity, dependency on aid, and a lack of a long-term foreign policy vision have undermined Nepal's ability to assert its interests on the international stage. With global power dynamics shifting and multilateral frameworks weakening, Nepal has yet to fully adapt to a more bilateral or regional focus.
Nepal’s opportunity lies in rethinking its perceived smallness as a strategic asset. By taking the lead on critical issues like climate change, forming alliances with other small states, and capitalizing on sectors such as clean energy and labor mobility, Nepal can redefine its role. To achieve this, the country must enhance its diplomatic capabilities, bolster its research and negotiation institutions, and develop cohesive national strategies that transcend individual or partisan interests. In this way, smallness can transform from a limitation into a foundation for smart and decisive action.
Multilateralism and Rulemaking
Nepal needs to craft its foreign policy strategy in the context of a rapidly changing international system. Participants noted a significant shift in global governance with traditional multilateral forums like the UN General Assembly and G20 appearing to lose influence. In their place, smaller more agile groupings — like partnerships built around digital coalition and climate — are emerging. This shift raises the question of who has the power to set rules, with influential private actors and tech platforms now defining the agenda in some cases.
This conversation led to a deeper exploration of how smaller nations can redefine their roles in a changing landscape, particularly as the private and public sectors intersect. Singapore is a prime example of a country skillfully navigating through these complexities. Participants also drew valuable lessons from Rwanda and its innovative digital diplomacy and regional integration efforts. They stressed the importance of leveraging privatesector collaboration in climate diplomacy and infrastructure financing.
Furthermore, there was a strong emphasis on the need for Nepal to actively engage in governing emerging technologies, especially regarding AI ethics and cross-border data flows. Without this engagement, there is a real risk that Nepal’s interests could be overshadowed. The ongoing tensions between India and Pakistan, coupled with China’s expanding influence in the region, have weakened organizations like SAARC and BIMSTEC which further narrows Nepal’s options.
Given this challenging environment, Nepal must participate in flexible, issueoriented coalitions focused on areas like pandemic preparedness, sustainable finance, climate crises and digital public goods that would allow it to amplify its voice and influence rule-making on the global stage.
Small State Diplomacy
The conversation then discussed strategies that small states can utilize to amplify their influence. Experts urged Nepal to deepen ties with middle powers — such as Europe, Japan, and Australia — and to organize diplomatic efforts around thematic clusters such as renewable energy and disaster resilience. Bhutan’s leadership in developing a carbon-negative economy and Singapore’s diplomacy on the high-seas were presented as case studies demonstrating how agile, issue-focused strategies can create significant impact.
Diversifying outreach to Least Developed Countries in Africa, Central Asia, and other landlocked nations (an area where Nepal has limited engagement) was identified as another route to build solidarity and win-win partnerships. Enhanced digital diplomacy platforms and cross-sectoral policy task forces were proposed as practical tools to bridge gaps between ministries, parliament, and the private sector.
A “layered” foreign-policy framework, combining non-alignment with selective bilateral and plurilateral engagements, was recommended to avoid the pitfalls of a purely reactive posture for Nepal.
Migration and Labor
One specific area where Nepal could step up global diplomatic efforts is in temporary migration and remittances, which are a crucial element of Nepal’s economy. Despite the trend of deglobalization and the disruptions of the COVID-19 pandemic, remittance flows have remained impressively strong. Currently, remittance inflows account for 25 percent of GDP, aided by the diversification of labor destinations from the Gulf to Southeast Asia. However, the threats posed by automation and artificial intelligence represent medium to long-term risks for both manufacturing and servicesector exports that depend heavily on human labor. Participants acknowledged the risks posed by automation and AI, but they also identified emerging opportunities, particularly in the care sector, driven by aging populations in Western countries. Strengthening Nepal’s diplomatic capacity is essential for promoting its workforce and adapting to changing global labor demands.
Two key recommendations emerged from these discussions: first, to enhance pre-departure training programs by incorporating digital literacy and language skills; and second, to introduce remittance-linked development bonds that would direct a portion of outbound migrant workers’ earnings into social-protection schemes. The importance of strengthening diaspora networks was also highlighted. By engaging with migrant associations as partners in national branding and knowledge transfer, Nepal can leverage its global workforce for investment, market access, and technology transfer. Finally, experts stressed the necessity of a circular migration framework that facilitates temporary returns, skill reintegration, and entrepreneurship, ensuring that migration acts as a sustainable engine of national development.
Economic Development and National Interest
Finally, the group examined Nepal’s imminent graduation from Least Developed Country status and the loss of preferential aid and concessional financing. Stabilizing remittances and attracting foreign direct investment were identified as critical priorities. A deliberate shift from ODA-driven development to investment-oriented growth will require strengthening governance, streamlining hydropower and digital infrastructure projects, and fortifying institutional capacity for project appraisal and implementation. Speakers concluded that a multi-layered approach that engages stakeholders at the individual, institutional, and national levels will be essential to ensure Nepal’s interests are advanced effectively. Further, since the 2008 financial crisis, foreign direct investment flows have been volatile, underscoring the need for Nepal to broaden its foreign-policy outlook beyond its two large neighbors and to integrate more strategically into global value chains.
Participants emphasized the importance of enhancing Nepal's negotiating capacity, reflecting on missed opportunities in negotiations, such as those over the Belt and Road Initiative and the Millennium Challenge Corporation agreement. The discussion highlighted the need for Nepali diplomats to strengthen their capabilities and set a clear, long-term strategic vision to build on successful outcomes and further improve the country's negotiating capacity.
Key Takeaways
Small states often find greater strength by coming together building thoughtful coalitions and alliances around shared goals to amplify their collective voice.
In a world of changing dynamics, true neutrality is uncommon. Nepal’s strategy involves carefully aligning with partners who reflect its unique needs and aspirations.
In small states, the foundation of meaningful agency rests on nurturing strong institutions, fostering the rule of law, and cultivating a shared vision in foreign policy that transcends political divides.
Nepal can assert greater agency by utilizing its role in climate justice and diversifying its foreign policy amidst rising geopolitical tensions and weakened global institutions.
With traditional forums losing influence, Nepal should actively participate in smaller, issue-based coalitions, particularly in digital governance and climate diplomacy, to shape global rulemaking.
Nepal must implement thematic diplomacy focused on areas like renewable energy and disaster resilience, while strengthening partnerships with middle powers and other Least Developed Countries (LDCs). It should draw lessons from the experiences of countries like Bhutan, Singapore, and Rwanda.
The country’s foreign policy should transition from a reactive stance to a strategic approach by establishing a unified framework, enhancing coordination, and institutionalizing long-term diplomatic capabilities.
Investing in skill development, fostering diaspora partnerships, and adopting circular migration strategies will be crucial for transforming labor migration into a driver of national development.
Nepal needs to move away from aid reliance towards an investment-led growth model by improving governance, accelerating infrastructure development, and enhancing institutional capacity to attract sustainable Foreign Direct Investment (FDI).