Govt to mobilize alternative development finance for major public infrastructure projects

KATHMANDU: The government is preparing to introduce a new policy through the fiscal year 2083/84 (2026/27) budget to mobilize private and alternative development financing for large-scale public infrastructure projects, marking a significant shift in Nepal’s infrastructure investment strategy amid limited public resources.

To facilitate the move, the government has already secured parliamentary approval for a bill related to the mobilization of alternative development finance, paving the way for broader private-sector participation and innovative financing mechanisms in infrastructure development.

According to Finance Minister Dr. Swarnim Wagle, the government is prioritizing policies that can attract private investment into infrastructure, as Nepal can no longer rely solely on tax revenues or modest donor assistance to fund large-scale national projects.

“Building mega infrastructure projects solely through limited public revenue and small donor support is no longer feasible,” Wagle said during a recent meeting of the House of Representatives’ Finance Committee, emphasizing the need to unlock investments worth hundreds of billions of rupees beyond conventional public financing.

The minister had stressed the urgency of passing the legislation before the budget announcement to create the legal framework required for alternative financing. Following that push, the bill has already been endorsed by the House of Representatives.

No Rush for New Mega Projects, Focus on Completion

Sources at the newly formed Ministry of Infrastructure Development said the government’s immediate focus will be on accelerating and completing projects initiated by previous administrations rather than announcing a large number of new infrastructure schemes.

While major new infrastructure announcements are unlikely to dominate the upcoming budget, the government is expected to unveil policy measures that formally open doors for private and alternative financing in infrastructure sectors.

The conceptual framework behind the legislation argues that Nepal’s long-term development ambitions—including the target of producing 40,000 megawatts of electricity under the 16th national plan—require massive capital inflows beyond traditional budgetary support.

Significant investments are also needed in electricity generation, transmission and distribution, industrial zones, special economic zones (SEZs), smart cities, urban development, tourism infrastructure, roads, irrigation, drinking water systems, and airports.

‘Mission Mode’ Infrastructure Push

The government has declared an infrastructure “mission mode” under its policy priorities and budget principles, aimed at removing bureaucratic hurdles and accelerating stalled projects.

According to ministry sources, projects that have achieved more than 70–75 percent physical progress will receive full budgetary support based on demand, provided they are completed within the next fiscal year.

Finance Minister Wagle has already signaled strong backing for this approach.

“If a project is already 70–75 percent complete, let us finish it this year. We will allocate whatever budget is required because these are priority development projects for the state,” he told the parliamentary finance panel.

Officials say the government’s rationale is to ensure that projects with substantial public investment do not remain incomplete due to funding shortages, even if they were not originally launched under the current administration.

However, projects still in preliminary stages or those progressing slowly with minimal budget allocations are expected to undergo reassessment in the next fiscal year.

Budget Allocation Across All Electoral Constituencies

The Ministry of Infrastructure Development is expected to become Nepal’s largest development ministry after the merger of the ministries responsible for physical infrastructure and transport, urban development, and drinking water.

Sources said the upcoming budget is being prepared to ensure that at least one priority project identified by lawmakers from every electoral constituency receives funding.

These projects may vary depending on regional needs—ranging from roads and drinking water systems to urban infrastructure—but lawmakers’ priority schemes are expected to be reflected in the budget.

Previously, Finance Minister Wagle had advised lawmakers seeking budget allocations to route their proposals through relevant line ministries, assuring that recommended projects would be prioritized by the Finance Ministry.

Bridge Construction to Receive High Priority

The government is also planning to prioritize bridge construction, addressing a longstanding bottleneck where completed roads often remained underutilized due to delayed bridge projects.

Officials said Nepal plans to construct more than 3,000 bridges within the next three years, with financial resources expected to be secured in advance. Bridge infrastructure is likely to receive substantial priority in the first year of implementation.

How Alternative Development Finance Will Work

Under the new legal framework, the government will be able to raise funds for specific projects by issuing financial instruments, bonds, equity, debt, or blended financing instruments to investors and the general public.

Special borrowing mechanisms will also be permitted using guarantees from the Government of Nepal, international financial institutions, implementing agencies, or through self-guaranteed alternative financing funds.

The legislation further allows the establishment of investment funds through domestic and foreign capital mobilization. It also proposes creating remittance-based investment funds, enabling Nepali migrant workers and non-resident Nepalis (NRNs) to invest in national infrastructure.

The framework includes provisions for asset monetization, allowing the government to leverage assets of institutions or infrastructure projects to generate investment capital. It also proposes integrated investment funds for infrastructure financing.

However, the government plans to restrict alternative development financing to projects costing at least NPR 1 billion, while smaller and local projects will continue to remain under provincial and local government responsibility.

The policy shift signals Nepal’s effort to diversify infrastructure financing, reduce overdependence on public spending, and accelerate major development works at a time when fiscal pressures and capital constraints are intensifying.