On the shoulder of the southern Himalayas, Nepal is surrounded by India and China. It was ruled by an absolute monarchy until 1990; since then its politics have become increasingly turbulent. The mainly agricultural economy is heavily dependent on the prompt arrival of the monsoon. Hopes for development have been invested in hydroelectric power, despite the adverse impact of large dams. A Maoist insurgency which started in 1999 threw the country into chaos from 2001.

There are few tensions among diverse ethnic groups such as the Sherpas in the north, "Hill Hindu" Brahmins and Chhettris, Newars, and others in the Kathmandu Valley, and Terai in the south. The Sherpa and other Buddhist women are less restricted than Hindus. Polygamy is practiced in the hills. Since 1990 many ethnic Nepalese refugees from Bhutan have settled in Nepal.

Strengths

Self-sufficiency in grain most years. Economic liberalization under NCP government. Potential for hydroelectric power generation. Low debt level.

Weaknesses

Agricultural dependency: only 10% of GDP from manufacturing. Landlocked status. Low savings rate. Absence of active entrepreneurial class.

A multiparty system introduced in 1990 produced a short-lived communist government in 1994, then a series of unstable coalitions until the NCP won elections in 1999. Instability returned in 2001: the royal family was murdered and the Maoist rebel insurgency intensified. To tackle the Maoists, Prime Minister Sher Bahadur Deuba imposed a nationwide state of emergency. This was unilaterally extended in 2002, with the support of unpopular new King Gyanendra, sparking a political crisis which saw Deuba expelled from his own NCP.

Nepal's security relations with India are questioned by the UML which is more pro-Chinese. The NCP government has revived links with India. Relations with Bhutan are strained over ethnic Nepali Bhutanese refugees in Nepal. The intensification of the Maoist insurgency from 2001 has increased regional tension.

The army, at 46,000 men, is small and has no tanks or combat aircraft. Weapons come from India and the UK, in whose own army the Nepalese Gurkhas serve.

The first privately owned power plant, situated near Ramechhap, opened in mid-2000.

Kathmandu has chronic traffic and pollution problems. Deforestation and soil erosion are serious. The native tiger is fast disappearing. Approval of the controversial Arun III hydroelectric project was granted in mid-2000.

Domestic flights link the main towns. There are paved roads in the south and in the Kathmandu valley; only one runs north to China. Two short stretches of railroad cross into India.

There are about 100 dharmi-jhankri (faith healers) for every health worker. Maternal mortality is high, the result of harmful traditional birth practices; a reeducation program for midwives has been established.

Over 80% of boys attend school in Nepal, but still only a minority of girls. Nepal's literacy rate is among the lowest in the world.

Petty theft and smuggling are the main problems. The legal provision for detention without trial is used, and police suppression of demonstrations is often brutal.

Nepal is one of the poorest countries in the world. Bonded labor was abolished in mid-2000, releasing 36,000 people.

The wish to preserve the environment conflicts with the desire for tourist revenue. Backpackers have been a major source of income, but recent terrorist activity, such as the 1999 hijacking of an Air India aircraft bound for Nepal, and the Maoist insurgency, which resurfaced with a much higher public profile in 2001, threaten to deter visitors.

Child labor was banned in the tourism industry from 2000.

The foundations of the Nepalese state were laid in 1769, when King Prithvi Narayan Shah conquered the region.

• 1816–1923 Quasi-British protectorate.
• 1959 First multiparty constitution.
• 1960 Constitution suspended.
• 1962–1990 Panchayat nonparty system.
• 1972 Birendra succeeds to throne.
• 1991 NCP victory in elections.
• 1994 First communist government.
• 1995–1998 Succession of weak coalition governments.
• 1999 NCP election victory. Maoist insurgency in rural areas.
• 2001 King and family shot. Gyanendra crowned amid unrest. Upsurge in Maoist violence; state of emergency declared.