5 Things to Watch in South Asia Next Year – Foreign Policy

Welcome to Foreign policySouth Asia Brief.

After a turbulent year, South Asia is looking forward to a smoother recovery in 2026. Unfortunately, the region enters the new year facing serious risks of political and economic instability, as well as regional conflict as it grapples with the troubling effects of a volatile global order.

Welcome to Foreign policySouth Asia Brief.

After a turbulent year, South Asia is looking forward to a smoother recovery in 2026. Unfortunately, the region enters the new year facing serious risks of political and economic instability, as well as regional conflict as it grapples with the troubling effects of a volatile global order.

Here are five stories to watch that will shape the course of South Asia for next year – and perhaps beyond.

Decisive elections in Bangladesh and Nepal

Bangladesh and Nepal will hold high-stakes national elections in early 2026. Both are the first elections since mass uprisings ousted unpopular leaders — former Bangladesh Prime Minister Sheikh Hasina and former Nepalese Prime Minister KP Sharma Oli — but each country has taken a different path to get there.

Bangladesh’s interim government, which took power in August 2024, initially focused on pursuing ambitious reforms and waited a year to announce the election date, now set for February 12. Nepal’s interim administration took power in September and immediately announced a schedule for elections – scheduled for March 5. It focused on preparations for the elections.

If a critical mass of voters in each country concludes that their elections are not credible, or if they do not like the government that brings them to power, there is a real risk of new unrest. Both Bangladesh and Nepal have highly charged political environments. Mobilized youth have toppled previous leaders and see the elections as a crucial next step to restore good governance and democracy.

If these young leaders conclude that their expectations have not been met, they will likely return to the streets. India and China, which have important relations with both countries, will be watching the elections closely.

Pakistan and its neighbours

This year, Pakistan engaged in a brief military conflict with India and came close to a military conflict with Afghanistan. Islamabad faces the risk of hostilities with the two neighbors in 2026. Relations between India and Pakistan are more tense than they have been in decades, and one cause – a terrorist attack, a cross-border incursion, or an Indian dam project – could spark another conflict.

On the other hand, Pakistan has been unable to persuade or force the Taliban regime in Afghanistan to rein in terrorist groups that are launching increasing cross-border attacks. This has raised the specter of continued Pakistani military operations in Afghanistan to root out militants – and that the Taliban will retaliate by mobilizing militants to carry out strikes against Pakistan.

Mediation efforts by Qatar, Saudi Arabia, and Turkey have failed to calm tensions between Afghanistan and Pakistan, although these countries are likely to keep trying in the coming year. US President Donald Trump said that he wants to mediate between India and Pakistan, but New Delhi’s refusal to involve a third party will prevent this possibility.

Ultimately, in each case, the difficult task of keeping tensions at a manageable level will fall to Pakistan and its neighbors, not external actors.

Economy of Maldives

Two of the most serious economic crises the world has seen in recent years originated in South Asia. In 2022, Sri Lanka defaulted on its debt, and Pakistan narrowly avoided the same fate in 2023. Now, the Maldives faces significant macroeconomic pressures – and if they do not ease these pressures, it could raise concerns about becoming the next Sri Lanka.

In October, the World Bank warned that the Maldives faced a “high risk of debt distress” due to foreign exchange shortages, insufficient financing options, and huge debt service obligations (thanks in large part to massive Chinese loans). Public debt is expected to approach 135 percent of the country’s GDP next year.

In both Sri Lanka and Pakistan, severe debt and shrinking foreign exchange reserves were the main causes of economic collapses.

The good news for the Maldives is that it has so far managed to weather a larger crisis through strong tourism revenues and recent infusions of aid from key partners like India. But with the country’s economy remaining very weak, potential new external shocks – from sharp rises in global commodity costs to sudden disruptions in tourism revenues – could spell major problems.

Modi’s future

Political change has been a consistent trend in South Asia in recent years, but not in India. Prime Minister Narendra Modi, first elected in 2014, is the region’s longest-serving democratically elected leader. In the coming year, there will be increasing speculation about Modi’s political future – especially about whether he will run for a fourth consecutive term in 2029.

Modi remains hugely popular, and his party won several key state elections in 2025, a strong response to critics who hope the ruling Bharatiya Janata Party’s worse-than-expected electoral performance in 2024 will signal the beginning of its demise.

Modi’s supporters will be able to address concerns about anti-incumbency sentiment if the BJP wins another series of state elections next year – including a few in southern India, where the party is not as strong. There is no indication yet that Modi is preparing for retirement, but in 2026, observers will be watching closely for any signs of potential major changes.

Trump’s policy towards China

The policy direction the Trump administration takes next year on China will have major implications for South Asia. So far, the White House has not articulated a coherent strategy toward Beijing, with Trump indicating a desire to compete and cooperate with China.

Trump’s eventual approach will impact faltering US-India relations, where a shared desire to confront China has long served as a strategic glue. If Washington takes a more moderate view toward Beijing, and especially if Trump reaches an understanding with Chinese President Xi Jinping, US-India relations could face another major challenge in 2026.

Recently, US policymakers have tended to view South Asia through the lens of great power competition. Washington’s Indo-Pacific policy – which began during Trump’s first term – has focused on generating incentives for South Asian countries to reduce dependence on Beijing, from US infrastructure deals to arms packages. A softer US policy towards China will mean less pressure on it.

Such a shift is likely to be received positively in many South Asian capitals, as leaders seek to balance relations with the United States and China. But it may also lead to the United States pushing to reduce trade imbalances that are not in Washington’s favor.