IMAGE: PRIME MINISTER’S OFFICE
THIS WEEK Asian Development Bank President Masato Kanda flew to Kathmandu, signed two loan agreements worth $165m with Prime Minister Balendra Shah’s three-month-old government and said that “Nepal is at a defining moment, with an opportunity to build a more dynamic and resilient economy”.
The visit marked 60 years of partnership between the ADB and Nepal, and the bank announced that its support to the country is expected to strike $2.4bn by 2029. Kanda was the right person to say it, and the moment was significant. It was also the kind of statement that sounds familiar if you have been paying attention to Nepal for long enough, because multilateral development banks have been saying some version of it, at periodic intervals, since 1966.
To date, the ADB had committed 529 public sector loans, grants and technical assistance packages totalling $9.4bn to Nepal. Its current public sector portfolio includes 32 loans and 10 grants worth $3.94bn.
That portfolio, at current exchange rates, is equivalent to some 40% of Nepal’s annual GDP: a remarkable figure for a bilateral relationship, and a measure of how central the ADB has become to Nepal’s public investment architecture. Roads, hydropower, irrigation, water supply, trade corridors, digital infrastructure: virtually every category of capital spending Nepal has managed in the past three decades has had ADB fingerprints somewhere on it. The bank established its Nepal resident mission in Lazimpat in 1989. It has been a permanent fixture of Kathmandu’s development landscape for longer than most of Nepal’s current government ministers have been alive.
During Kanda’s visit, two loan agreements were signed. A $115m project will bring reliably managed water and sanitation services to more than 850,000 people while a $50m policy-based loan will modernise the systems that move goods across Nepal’s borders, helping businesses bring down costs and improve efficiency through digitalisation and streamlined procedures.
Both projects address real problems. Nepal’s urban water infrastructure is chronically underfunded and often unsafe; a World Bank study found that Kathmandu Valley residents spend more than they should on bottled water in part because tap water isn’t reliably potable. The customs modernisation loan targets a real bottleneck: Nepal’s cross-border trade procedures are slow, paper-heavy and corruptible in ways that add cost to every import and export, which in a country whose trade deficit runs at ten-to-one against its exports is not a trivial concern.
The ADB launched its new Country Partnership Strategy for Nepal for 2025-2029 in March, setting a comprehensive agenda to support the country’s inclusive, resilient, green and employment-intensive economic growth. Annual lending is expected to strike up to $660m this year, driving a total $2.4bn envelope towards key development pillars including job creation, private sector development, sustainable infrastructure, public service delivery, resilience, empowerment of women and excluded communities and digital transformation. The scale represents a welcome step-up. The bank’s historical average annual commitment to Nepal, across its first 60 years, works out to some $157m. Scaling to $660m this year is a near quadrupling, and it reflects both the ADB’s sharper focus on Nepal and the implicit recognition that the investment needed to move a country from LDC status to middle-income is not the kind that trickling in over decades can deliver.
To finance these ambitious goals, the ADB plans to leverage innovative financial tools, including green bonds and local currency bonds, ensuring that Nepal’s trajectory towards economic self-reliance remains environmentally and structurally sustainable.
The local currency bond idea is especially worth watching. Nepal’s perennial FDI problem is partly a currency problem: foreign investors who borrow in dollars and earn in rupees face the 3.07% annual depreciation that the INR peg imposes on all dollar-denominated commitments. If ADB can develop local currency instruments for Nepal’s infrastructure financing, it would begin to address a deterrent that no amount of promotion or summit attendance has been able to fix.
The big question, though, is why $9.4bn over 60 years has left Nepal still applying for a third deferral of its graduation from least-developed-country status, projecting only 2.3% GDP growth for the current year, and watching its young people leave in record numbers.
The answer is not that the ADB’s money was wasted, exactly. Roads were built and some have held. Hydropower was developed and electricity generation has tripled since 2015. School enrolment has leapt. Life expectancy has improved substantially. These are real outcomes.
Yet the ADB itself acknowledged in a 2019 news release that disbursement has historically lagged commitments—that Nepal repeatedly secured loans it then struggled to spend, because the same procurement bottlenecks, land acquisition delays and implementation capacity problems that constrain government capital spending apply equally to multilateral project budgets.
The ADB now says it supports Nepal by promoting private sector-led, employment-intensive as well as green economic transformation, while strengthening human capital and public services and enhancing environmental sustainability and resilience. The move towards “private sector-led” and “employment-intensive” in the strategy language is the key shift. Infrastructure alone, the 60-year record suggests, does not produce the private investment and job creation that keeps young people from boarding flights to Doha. The new strategy is explicitly trying to change that: to use ADB capital not just to build things but also to create the conditions in which Nepali businesses can hire.
Whether a multilateral development bank is the right instrument for that kind of transformation, or whether it requires the sort of domestic political will that Balendra Shah’s government was elected to provide, is the question that the next five yearss will begin to answer.
Kanda told Shah that Nepal is at a defining moment. He was right. He has probably been right before, at previous defining moments, and so have his predecessors. The problem this time is that Nepal has a government with an unusual degree of popular mandate and an unusually young leadership—and the ADB has an unusually large commitment on the table to support whatever they do with it. Whether the moment gets defined, or just passes, depends less on the $2.4bn than on what happens around it. ■
