Infrastructure financing: Challenges and Opportunities

Key speech points by CNI President Mr. Hari Bhakta Sharma On the Workshop
"Infrastructure financing: Challenges and Opportunities"
Organizers: CNI, HIDCL and YCNC
 
Background
The first Nepal Infrastructure Summit, organized by CNI and its partners, had been very successful in identifying various bottlenecks in the development of infrastructure. Of them, financing of infrastructure projects had been pointed as one of the key bottlenecks that hindered the infrastructure development in Nepal. This program is follow-up program for the issues raised in the last Summit.
CNI would be conducting next summit in November and also organizing such programs in due course for other issues identified in the last Summit.

Present Status of Infrastructure Financing

  • As indicated by the Incremental Capital-Output Ratio (ICOR), which is highest (around 1:5.5) for the infrastructure sector, the investment in infrastructure   projects is highly desirable, especially in LDCs like Nepal.
  • However, the money being invested by the Government in infrastructure sector of Nepal is only around 1-2% of GDP. Whereas, the required rate of investment for the sector is at least 8-10% in order to achieve the targeted economic growth rate.  
  • From the private sector very minimum money is being invested in the infrastructure sector. But the hydropower sector is exception where the private investment increasing gradually (but not enough as per the required energy)   
  • The only alternative of the domestic (public and private) financing is the foreign investment including technology
  • Studies have shown that there are so many legal as well as procedural complexities (separate presentation will be done by the expert) impeding the big investment in the infrastructure sectors.
  • Issues of managing cross boarder risk associated with the investment are not addressed by the existing acts and rules.  


Way Forward

  • Creating the favorable environment for private investment through legal reforms.
  • Reducing the country (political) risk by policy stability and high level commitments.
  • Assess the country risk by an international rating agency so as to convey the real message to the potentials investors.
  • Need to develop sustainable foreign exchange risk management regime and mechanism.
  • Simplify the approval, procurement and implementation process by removing the unnecessary layers.

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