Nepal’s defence expenditure has risen steadily since 2018, according to a study by India’s Observer Research Foundation (ORF) on security trends across South Asia. The country spent $0.43 billion on defence in 2018, dipping slightly to $0.39 billion in 2019 before climbing again, reaching $0.44 billion in both 2024 and 2025. Nepal’s spending remains modest by regional standards, ahead only of the Maldives, and is directed largely towards internal security, disaster management and UN peacekeeping contributions rather than military competition.
The report finds that South Asian states are navigating a dual pressure: managing emerging and developing economies while pursuing military modernisation, all amid internal economic strain. Pakistan’s defence budget has swung sharply, falling from $11.4 billion in 2018 to $7.91 billion in 2023 amid economic crisis, before recovering to $10 billion in 2025. Bangladesh’s “Forces Goal 2030” modernisation drive pushed spending from $2.53 billion to $4.32 billion between 2018 and 2022, though it has since eased to $3.51 billion. Sri Lanka’s 2022 economic collapse hit its security budget directly, while Afghanistan’s figures have gone dark since the Taliban’s 2021 return, reflecting its political isolation.
For Nepal, the study argues that geopolitical relevance stems less from direct military threats than from its position between India and China, two expanding powers whose rivalry increasingly shapes the country’s security environment. Nepal’s principal risks, the ORF suggests, lie in strategic over-dependence, transit vulnerability and the danger of being caught between competing great powers, rather than in conventional military threats.
The report also credits Nepal’s hedging strategy: joining China’s Belt and Road Initiative to diversify transit options while expanding cross-border power trade and infrastructure cooperation with India, and securing US backing through the MCC compact. Nepal has so far avoided formal alignment with major security blocs, notably withdrawing from the US State Partnership Programme while declining to endorse China’s Global Security Initiative despite repeated overtures from Beijing, a posture the study frames as evidence of Nepal’s strategic autonomy.