• At least 75 per cent of the total infrastructure financing should go towards energy and transport

Kathmandu, February 19

The country needs to invest massively in the infrastructure sector to address the huge infrastructural gap that will provide the necessary impetus to unleash the country’s economic potential. Infrastructure deficit is the major cause for slow economic growth, low employment generation and high cost of production.

If the current challenge of infrastructure bottleneck is addressed, it will raise the competitiveness of the private sector and create more employment in the country, according to Hari Bhakta Sharma, president of the Confederation of Nepalese Industries (CNI).

Robust infrastructure is a prerequisite for economic growth. Following the promulgation of the new constitution, the government has envisioned to move towards a higher growth trajectory, which can be achieved by making adequate investment in human capital and simultaneously exploiting natural capital like harnessing hydroelectricity in which the country has tremendous potential.

“When the government starts investing massively in infrastructure, the impacts on the economy can be promptly seen, like it will generate employment and also demand for manufacturing goods like cement and rods and services will rise,” said Keshav Acharya, an economist. “When infrastructure projects are completed, they provide massive benefits to the people and also enlarge the space for private sector to thrive in.”

However, the country sorely lacks investment in physical infrastructure. As per the World Bank’s estimate, the country needs to invest $13 billion to $18 billion within the next 10 years to bridge the gap witnessed in infrastructure sector of the country. The country is in dire need of developing major infrastructure like energy, road connectivity and other transport infrastructure, irrigation, water supply, information and technology, among others. Some regional common infrastructure like roads, railway and cross-border electricity transmission lines have to be stressed on to bring down the cost of international trade and enhance economic cooperation at the regional level.

As per World Bank’s 2010 estimates, the country needs to invest nearly 12 per cent of the GDP annually for a decade to bridge the infrastructure gap. In between 1975 to 2009, the country’s investment in infrastructure remained very low at merely around five per cent of the gross domestic product.

The government’s allocation in the fiscal budget for development of infrastructure has increased to around 13 per cent of the GDP, but the resources have not been utilised in a proper manner. High allocation for infrastructure projects should go hand in hand with effective utilisation of resources but the lack of project handling capacity has been an obstacle to deliver the desired results.

It is only the government that has been taking the lead in infrastructure projects. Contribution of the private sector in infrastructure development was a marginal 0.7 per cent of the GDP between 2007 to 2012, according to National Planning Commission — the apex planning body of the government.

When compared to other South Asian countries, Nepal ranks in the last position in terms of telecommunication access. Likewise, the country ranks in the sixth position in terms of road access and improved water access and in fifth position in electricity consumption. Only 25 per cent of the territory has been termed as ‘urbanised’ in the country.

Nepal needs to invest massively in energy and transport, the two infrastructure sectors that are necessary to unlock the growth constraints, according to Deependra Bahadur Kshetry, former vice chairman of NPC.

“At least 75 per cent of the total infrastructure financing should go towards energy and transport,” he said. “For this, we can attract foreign investment as well as encourage the private sector to invest in infrastructure, which in turn will also help develop other sectors.”

Experts and policymakers have said that the country needs to bridge the infrastructure gap as soon as possible by making adequate investment in this sector, which will foster the economic potential of the country to achieve the target to graduate to the league of middle income countries by 2030.