Faster Public Investment Crucial for Nepal’s Recovery - ADB President

News Release | 25 February 2016

KATHMANDU, NEPAL – Asian Development Bank (ADB) President Takehiko Nakao today met with Nepal’s Prime Minister Khadga Prasad Oli and Finance Minister Bishnu Prasad Paudel to discuss Nepal’s economic recovery and social development after the devastating earthquakes in 2015.

During his meetings, Mr. Nakao praised Nepal’s enactment of its new constitution as a major milestone in its political transition process. “The new constitution marks a new era for Nepal and lays the foundation for lasting peace, stability, and more rapid socio-economic progress. I hope the remaining political differences over the new constitution will be amicably resolved soon, paving the way for its timely implementation,” Mr. Nakao said.

ADB is ready to provide assistance for Nepal’s transition to the new governance structure and public management systems as envisaged in the constitution.   

ADB forecasts Nepal’s economy to grow 1.5% in the current FY2016 ending on 15 July 2016 after 3% growth in the previous year, affected by the tragic earthquake in April 2015 and subsequent supply disruptions. ADB is expecting growth will pick up to 4.8% in FY 2017.

During today’s visit, Mr. Nakao said ADB is willing to expand annual lending to Nepal by 70% to $500 million per year from the current $300 million to support critical investments and reforms. Under ADB’s country partnership strategy with Nepal for 2013–2017, ADB is prioritizing major investments in hydropower generation and transmission, enhancing the capacity of international airports, building new economic corridors to promote regional trade, and reforming higher education systems.

ADB will continue its support for inclusive growth through investments in agricultural diversification and productivity, urban and rural water supply and sanitation, and rural roads. ADB will work to attract private sector investment and public-private partnerships for large-scale hydropower and transmission projects and high-value agricultural value chains.

Mr. Nakao said it is essential to accelerate the pace of investment for reconstruction and other development programs in order to achieve its economic growth potential of 7–8% per annum in the medium term. Nepal’s public capital spending has been low at an average of 3.5% of gross domestic product (GDP) over the last 5 years compared to the 8-12% required to fill the critical infrastructure gap within a decade.

A large portion of ADB’s currently committed assistance of $1.75 billion—equivalent to 6% of GDP—remains unspent. The government and ADB should work together to speed up project implementation, including by promoting timely and proactive decision making by project implementing agencies.

Implementation of projects slowed further in 2015 due to the earthquake, aftershocks, and supply disruptions in southern border districts. “Now that the situation has normalized, the government needs to step up efforts to make up for the delayed reconstruction, as well as build fundamental capacity for project planning, implementation, and monitoring,” Mr. Nakao said. In this regard, Mr. Nakao welcomed the recent establishment of the National Reconstruction Authority.

The Capacity Development Resource Center at the Nepal Administrative Staff College, established in late 2015 supported by ADB’s technical assistance, will be instrumental in providing regular and long-term training to staff at agencies implementing projects and related government officials, he said.

Mr. Nakao also exchanged views with the Prime Minister and Finance Minister on the need for a long-term socio-economic development strategy and medium-term development plan, the preparation of which the government has initiated recently. 

“Enactment of the new constitution and launch of the United Nations’ Sustainable Development Goals have provided an excellent opportunity to prepare a long-term vision and development strategy for Nepal. They will help the government deepen reforms, prioritize public investment, and spur private investment in all sectors,” Mr. Nakao said. ADB will continue to provide technical assistance to support this planning process.

Nepal was a founding developing member country of ADB and ADB started lending operations there in 1969. ADB has approved 135 sovereign loans totaling $3.7 billion to date. It has also approved five non-sovereign loans, equity investments, and guarantees totaling $49.5 million.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region.