AIIB funds for Nepal
The pledge of the Board of Governors of the Asian Infrastructure Investment Bank (AIIB) to invest around Rs 114 billion ($1.14 billion) for infrastructure development in Nepal can be seen as part of the implementation of China’s flagship foreign policy initiative now popularized as One Belt One Road (OBOR). One of the goals for the establishment of AIIB, in which China holds nearly 29 percent share, was indeed to help with OBOR’s implementation. And this is precisely the kind of pool of funds Nepal was looking to tap into when it agreed to be one of the 21 AIIB founding members. Among other major projects, the bank has promised to invest Rs 10 billion in improvement of the power distribution system in Kathmandu valley, Rs 28 billion in settlement development and systematic urbanization in the Tarai-Madhes, and Rs 26 billion in the tunnel road between Samakhushi of Kathamndu and Chhahare of Nuwakot. According to Finance Minister Gyanendra Bahadur Karki, these soft loans will be made available at 2 percent interest.
On the face of it, there seems little to dislike about international investment at such a low interest rate, and in areas Nepal most needs it. Yet the country will have to be careful.
One of the big criticisms of the projects under the OBOR is that it saddles aid-recipient countries with huge loans sunk into financially unviable projects. This is why there must be proper homework in Nepal about long-term financial viability of the projects in which it seeks the help of AIIB. If not, there is a danger that the country, in its attempt to wrest free of India’s tight clutch, will sign up for projects that its smallish economy (worth some $70 billion in PPP) simply cannot afford. Yes, Nepal’s overreliance on India is dangerous, as Nepalis so cruelly found out during the recent border blockade. But the whole purpose of greater engagement with China will be defeated if instead of India we become heavily dependent on China. If the long history of unified Nepal has taught us anything, it is that the country’s interest is best served by maintaining a calibrated balance between India and China. Another risk is cost and time overruns; the question again boiling down to if there has been a rigorous cost-benefit analysis in Nepal on these proposed AIIB projects.
The AIIB, which will soon have 80 countries as its members, is a multilateral organization, and it would be unfair to see it only as a Chinese tool to spread its influence in the region.
Yet that does not mean that Nepal accepts everything that the AIIB or other bilateral and multilateral donors has to offer. Yes, the AIIB is a great potential source of quality finance.
But it would be dangerous to wantonly borrow from it just because it is ready to finance projects in Nepal. But if we cannot undertake some big infrastructure projects on our own, and if these projects are vital for Nepal’s growth and development, then it makes sense to seek external help. As more money becomes available to Nepal from international donors near and far, it can (and must) learn to be picky.