Government Must Invest Public Funds in Infrastructure Development

Infrastructure, generally defined, refers to the essential physical and organizational structures needed for the operation of society, industry, and commerce. It includes critical services and systems such as transportation, communication, drinking water, irrigation, healthcare, tourism, energy, and both personal and business buildings. These infrastructures significantly contribute to the country’s economic activities, improving the living standards of the people. According to Nepal Rastra Bank, the infrastructure sector is broadly categorized into 14 areas, including energy, industry, agriculture, trade promotion, transportation, health, education, and urban development.

Categories of Infrastructure

Infrastructure is typically divided into three categories: primary (core) infrastructure, secondary (social) infrastructure, and tertiary (economic) infrastructure. Primary infrastructure includes essential services like transportation, communication, and drinking water, which directly support the economy and meet human needs. Secondary infrastructure includes services aimed at improving societal welfare, such as education, healthcare, and recreation. Lastly, tertiary infrastructure, which facilitates economic activities and business, includes services like banking, insurance, capital markets, and commercial centers. These infrastructures collectively contribute to job creation and GDP growth.

Agriculture and Hydroelectricity: Key Sectors for Nepal’s Growth

In Nepal, the agriculture sector has always been central to the economy, contributing about 24.1% to the GDP. However, much of the agricultural work remains traditional, and there is insufficient preparation and management of market infrastructure and transportation networks to support the sector’s modernization. As a result, industrialization in agriculture has been slow.

The hydroelectricity sector, vital for the country’s economic development, is showing progress with about 3,000 megawatts of electricity being produced. Private sector investments are increasing in this sector, signaling potential growth. In addition, tourism, which can generate substantial long-term employment, is receiving promising investments and growing as a thriving industry.

The Importance of the Service Sector

Nepal’s service sector is also crucial, contributing 62.9% to the GDP. In the development process, countries typically transition from agriculture to industry and then to services. However, Nepal has been slow to develop its industrial sector, focusing more on services. While the service sector is growing, much of it depends on foreign investment and demand. The real question remains: what would happen to Nepal’s economy if foreign entities stopped using Nepalese services? On the other hand, the construction and manufacturing sectors account for 13% of the GDP, contributing significantly to the economy.

Private Sector’s Role in Sustainable Economic Development

To ensure sustainable economic growth, Nepal needs to strengthen its productive sectors—agriculture, industry, and services. The private sector has already made remarkable contributions, with about 81% of GDP and more than 85% of job creation coming from private enterprises. However, infrastructure development is crucial to support further growth in these sectors. Without robust infrastructure, businesses cannot flourish, which ultimately stunts economic progress.

Nepal Infrastructure Bank (NIFRA): A Key Player

Established as Nepal’s first infrastructure development bank in 2018, Nepal Infrastructure Bank (NIFRA) plays a crucial role in funding and expanding infrastructure projects. The bank’s mission is to contribute to infrastructure development across various sectors, including transportation, smart cities, energy, and urban development. However, despite some progress, public infrastructure projects are primarily being carried out by the government, which faces limitations due to its small capital expenditures. Private sector participation in public infrastructure projects could accelerate development and reduce the financial burden on the state.

The Need for Public-Private Partnerships (PPP)

Public-private partnerships (PPP) have long been discussed in Nepal, particularly in the energy sector, but their implementation in other areas has been slow. Successful PPP models in countries like India provide a blueprint for Nepal, especially in infrastructure sectors like hospitals, airports, and roads. To achieve success, the government must create clear, strong, and sustainable policies that are favorable to both public and private interests. Effective implementation and coordination among all stakeholders—government agencies, investment boards, and the private sector—are key to ensuring the success of infrastructure projects.

Challenges to Infrastructure Development in Nepal

One of the primary reasons for slow infrastructure development is policy inconsistency. The lack of comprehensive studies before implementing policies has resulted in challenges during the execution stage. For example, the concept of a smart city has been in discussion for years, but land integration issues and boundary disputes have hindered progress. Similarly, rapid urbanization has created new challenges for implementing modern urban planning concepts.

Another significant obstacle is the insufficient investment in infrastructure. Although the government has pledged to invest NPR 3 trillion annually, the implementation often falls short. For instance, the 16th Five-Year Plan promised to invest about NPR 111.83 trillion in capital expenditure, yet the country’s total budget is only NPR 1.6 trillion, with only NPR 350 billion allocated to capital expenditure. This discrepancy limits the capacity to fund large-scale infrastructure projects.

The Role of the Private Sector in Addressing the Infrastructure Gap

Given the state’s financial constraints, private sector involvement in infrastructure development has become essential. The Nepalese private sector is eager to participate in large-scale projects, such as roadways, airports, and hospitals, but the government has not been able to engage them effectively. If the private sector is allowed to contribute, it would not only reduce the state’s financial burden but also accelerate the pace of infrastructure development, providing better services to the public.

Solutions to Overcome Infrastructure Challenges

To address infrastructure challenges, Nepal must adopt short-term, medium-term, and long-term strategies. Policymakers need to create inclusive policies, ensuring that all stakeholders—government bodies, investors, and the private sector—are involved in the decision-making process. Strengthening coordination between various levels of government, including the Investment Board of Nepal, Nepal Rastra Bank, and other relevant agencies, is critical for effective implementation.

Additionally, to minimize costs, the government should explore various infrastructure funds and engage in partnerships with international institutions. The government’s domestic funds alone may not be sufficient for large-scale infrastructure development, which is why foreign investments should also be attracted to meet funding gaps.

For Nepal to realize its full economic potential, infrastructure development must be prioritized, with the private sector playing a key role. The government must implement policies that encourage private investment, provide clear incentives, and ensure effective project management. By leveraging both domestic and foreign resources, Nepal can accelerate infrastructure development, improve its economy, and enhance the standard of living for its citizens. The success of these initiatives will be a crucial factor in shaping Nepal’s future economic trajectory.