Nepal expects to be AIIB’s first customer

Yuba Nath Lamsal

When Chinese President Xi Jinping mooted the idea of establishing the Asian Infrastructure Investment Bank (AIIB) in Indonesian capital Jakarta on October 3, 2013, it instantly sent ripples worldwide. The proposition was greeted with both enthusiasm and perplexity. While it was baffling for some Western powers particularly the United States, the developing countries took it as a new opportunity. Washington’s skepticism is natural as AIIB seems to be a rival multilateral financial institution, which is apparently a rival to the US-led World Bank.  However, Chinese authorities insist that AIIB does not seek to compete but complement with the World Bank and other multilateral financial institutions.

With the signing in the Articles of Agreement by 50 out of 57 founding member nations on June 29, 2015, the AIIB has formally come into being.  The Articles of Agreement state that the AIIB aims to invest in areas of infrastructure construction in the developing countries, which are desperately seeking foreign investment.  These resource-strapped countries are struggling to build large infrastructure projects leap forward in the development but lack resources and money to finance them.

Against the background of infrastructure gap and resource crunch in the developing countries, the AIIB will fill that gap and step in to help the brethren in the developing world in areas of infrastructure development.  Thus, the AIIB will be a clear and better alternative for financing in the developing countries. In other words, AIIB will be the first multilateral development bank of the developing countries, managed by the developing countries and for the infrastructure construction in the developing countries. By this it implies AIIB is the bank of developing countries, for developing countries and by developing countries.

In the beginning, it triggered curiosity in Asian countries as to what AIIB really meant in practical terms because not many details had been immediately available. Many of the Asian countries including Nepal were, therefore, in the ‘watch and see’ mood.  With more details slowly starting to trickle in, Nepal has been exceedingly enthusiastic to work with the AIIB and seek its meaningful support for the construction of some of Nepal’s mega projects.

 Construction of huge infrastructure projects in Nepal has remained a pipe dream over the years. One of the world’s least developed countries with poor resource base, Nepal has not been able to manage huge fund from its internal resources for mega projects like hydro power plants, highways, airports and railway networks that cost billions of dollars. There are already over a dozen big projects awaiting funds from outside investors including multilateral financing institutions like the World Bank, International Monetary Fund and the Asian Development Bank. However, not much progress has been achieved as most funds from these institutions come with strings attached, which often make the recipient country uncomfortable to accept.  Moreover, the assistance that has so far come from these institutions has either been limited to financial sector reforms or in areas other than big infrastructure construction projects. In certain circumstances, Nepal accepted funds from these institutions with harsher conditions as there was no better alternative. Against this background, Nepal has taken AIIB as a better alternative and expects its funding will be free from conditions and will give more leverage to the recipient country for the best utilization of the assistance based on the needs and local conditions.

Nepal is more enthusiastic, if not jubilant, not merely because the AIIB has come into being at the initiative of its next door neighbor but because the establishment of the AIIB has marked an evolution of a new alternative fiscal mechanism in the international arena. Nepal wholeheartedly accepted the request to become a founding member and signed its Articles of Agreement along with other 49 countries from across the five continents laying a formal and legal ground for the AIIB. Although meticulous details are yet to be devised, the new multilateral lending institution has been finally set up creating new options, new opportunities and more leverage for the developing countries in the international financial decision-making system. 

Nepal is desperately in need of investment from abroad including from private as well as public sectors, for which it has adopted investment friendly laws and policies. However, not much foreign direct investment has been forthcoming in Nepal to fund big infrastructure projects, which is mainly attributed to Nepal political instability as businesspeople and institutions from abroad do not normally risk investing in politically volatile country and zone.

Nepal is currently undergoing the process of writing a new constitution aiming to institutionalize peace--the process started way back in 2006 after the government and Maoist insurgents signed a peace deal. The Constituent Assembly, which was formed through an election held in November 2013, is in the final phase of delivering a republic constitution. The promulgation of the new constitution is expected to pave the way for more investment both from within and outside the country because the new constitution will ensure peace and stability in the Himalayan republic sandwiched between China and India

Already stung by resource crunch to finance its infrastructure projects, the April 25 massive earthquake of 8.1 magnitude on the Richter has posed even more challenges for a resource strapped Nepal. The government’s post-earthquake needs assessment report puts earthquake damages at US$ 6.69 billion and estimates to require about US$ 10 billion for the reconstruction of the damaged structures including public buildings, heritage sites, roads and bridges. In the international conference held in Kathmandu in June this year to raise fund for reconstruction, donors pledged US$ 4.4 billion leaving Nepal to manage the rest of the amount. Chinese foreign minister Wang Yi  promised 3 billion RMB  grant to Nepal  for the period of two years between 2016 and 201, in addition to 1.7 billion RMB committed last year to be spent on ‘five major areas namely, infrastructure, livelihood for people living in mountains, cultural relic renovation, disaster preparedness, and health’. Besides Wang has hinted more may be forthcoming in the form of loan possibly through AIIB.

Encouraged by positive gesture from Chinese authorities, Nepalese officials and leaders are hopeful of getting fund from AIIB at the earliest to rebuild structures damaged by earthquake, perhaps becoming the first customer of the China-led new multilateral financial institution. According to Nepalese finance minister Dr Ram Sharan, ‘Nepal is eagerly waiting formal operation of the AIIB to approach for funding to rebuild infrastructures damaged by recent earthquake’. But it remains to be seen how soon the AIIB will come into operation to ensure the realization of Nepalese dream of getting fund for its reconstruction.