Nepal will push for concessional loans at the upcoming annual meeting of the Asian Infrastructure Investment Bank (AIIB), scheduled for September 25 and 26 in Uzbekistan. A high-level delegation, including Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel, will represent Nepal at the meeting.
Established in 2016, AIIB, headquartered in Beijing, China, aims to promote sustainable and green infrastructure investment across Asia and other member countries. However, due to the relatively high interest rates charged by AIIB, Nepal has struggled to secure loans as expected, prompting the government to request lower interest rates. A similar appeal was made during AIIB’s top leadership visit to Nepal in March last year.
Chinese President Xi Jinping first announced the establishment of AIIB in 2013. Despite being a founding member, Nepal has not significantly benefited from the bank, which has become a competitive player among international financial institutions. Finance Ministry officials have stated that although Nepal has submitted proposals for project loans, the high interest rates make it difficult to develop projects through AIIB funding.
A senior Ministry of Finance official noted, "Nepal, as a founding member of AIIB, has not reaped as much benefits as anticipated due to the high interest rates."
According to Finance Ministry sources, AIIB's interest rates are based on the Secured Overnight Financing Rate (SOFR), which has been higher than rates offered by other multilateral donors. SOFR, a benchmark interest rate based on US government bond rates, fluctuates daily. In the past month, SOFR hovered around 5%, contributing to AIIB’s relatively expensive loan rates.
Given that Nepal has been securing loans at subsidized rates from other multinational banks, the AIIB’s rates have become less favorable. In March, Nepal requested blended financial support from AIIB, combining grants with concessional loans. By comparison, loans from the World Bank and Asian Development Bank come with interest rates ranging from just 0.75% to 1.5%, according to the Public Debt Management Office.
Finance Ministry officials indicate that Nepal will again propose that AIIB increase its investment in infrastructure and other projects. As per AIIB’s policy to allocate 50% of its capital in partnership with the private sector, Nepal will also seek to engage its private sector in these ventures. With Nepal’s 2026 goal to upgrade from underdeveloped country status, diversifying investment is critical. At the AIIB meeting, Nepal will push for investments in areas where it holds a comparative advantage, such as hydropower, tourism, and information technology, alongside infrastructure development.
Nepal’s energy sector roadmap, which outlines plans through 2035, requires an estimated $60 billion for electricity generation, transmission, and distribution projects, including private sector involvement. "To achieve this, securing concessional loans from multilateral institutions like AIIB is necessary, and calls for investment will be made," a senior official of the Ministry of Finance told New Business Age. Despite repeated requests at AIIB’s annual meetings, the bank has yet to make a decision on concessional loans.
Currently, AIIB has over 100 member countries, including African nations such as Benin, Djibouti, and Rwanda. AIIB’s investment in Nepal, however, remains minimal. AIIB is providing concessional loans of $112.3 million for the improvement and expansion of Nepal’s electricity distribution system. This loan is being used for electrification projects in Lumbini and Karnali provinces, improving electricity access in districts like Dang, Banke, Bardiya, and Rolpa, as well as in eight districts of Karnali Province.
Additionally, AIIB has provided a $40 million loan for the 216 MW Upper Trishuli-1 hydropower project in Rasuwa, led by Korean companies through foreign direct investment.