The government has registered the Alternative Development Finance Mobilization Bill in parliament, which, when passed, will set the stage for a new autonomous agency – likely to be named Alternative Development Finance Mobilization Fund – with a budget of Rs 100 billion. The government will control 51% stakes with an investment of little over NRs 25 billion. The Employees Provident Fund, the Citizen Investment Trust and the Social Security Fund will chip in a combined 25% stakes while life, non-life and reinsurance companies will take control of the remaining 24% shares. The core objective is to mobilize funds required for large-scaled infrastructure projects with sustainable high-returns, for which the Fund will identify priority projects, securing long-term investments, promoting employment and ensuring sustainable economic growth. Understandably, the key areas of focus will be the industrial sector, special economic zones, smart cities, urban development, tourism development plans, roads, irrigation, drinking water and airport construction. In late December 2024, Nepal unveiled a highly ambitious target: generating 28,000 MW of electricity by 2035 – a half of that for export and the other half for domestic consumption. That is a big deal – both in terms of fund management and our national capacity to implement large-scale projects.
Nepal wants to attract the private sector to develop the much-needed infrastructure without relying heavily on tax and revenues. Various studies on the need and potential for investment in Nepal have shown that over the next decade, more than Rs 10 trillion of investment will be required. Currently, only Rs 200 to Rs 300 billion are being invested annually in infrastructure in Nepal, highlighting the need for additional investment. The proposed Fund definitely sounds like a forward-looking approach to address Nepal's chronic infrastructure financing gap, but its success will depend entirely on the ability to manage the fund, both coordination and cooperation with the existing mechanisms under the federal government, provincial governments and the 753 local levels. The alternative finance fund plans to invest in energy and electricity development, transmission lines, road construction and expansion, railways, tunnel routes, airports, special economic zones, industrial parks, and the construction and expansion of dry ports. Also important is the need to ask the right question: what is the root cause of Nepal's under-development? Is it lack of funds, or is it our collective failure to identify priority projects and implement them successfully? The Bill has been tabled in Parliament and the common citizenry hopes the seasoned elected representatives will delve into the pros and cons while they debate the Bill before it comes up for voting most probably within the ongoing Budge Session.
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The Bill raises promises and concerns. One of the key issues to factor in is potential clash with the existing ministries with their own mandates, infrastructure budgets and priorities. Any success of the Fund lies in the ability to structure the Fund, avoiding the traps of duplication and politicization, among others. There should be very effective and clearly defined coordination mechanisms between the Fund and the different ministries. The proposed Fund may have the potential to be a transformative instrument for national development but it again depends on the ability to deliver, ensuring sustainable and inclusive economic growth. In the absence of clear governance structure the Fund may be grossly mismanaged which will again breed inefficiency and corruption. Even as the Bill envisions the Fund as an autonomous agency, the fact that the government will control 51% stakes pretty much indicates that it will not be free from government interference. On the other hand, if well-managed the Fund will be a catalyst for transformative changes in areas of infrastructure development.
