For a developing country like Nepal, the role of the government’s vision, priorities, and delivery mechanisms cannot be overstated in the economic development discourse. In Nepal however, a disconcerting reality emerges: Flawed visions, misplaced priorities, and inefficient delivery mechanisms have thwarted the nation's path to prosperity. The establishment of the Nepal Infrastructure Bank Limited (NIFRA)—a bank for investment—spearheaded by governmental bureaucracy, symbolises a poignant illustration of these systemic shortcomings.

Over the past five to seven years, the country's external debt which was borrowed mainly for infrastructure. Investment has tripled, yet the anticipated impacts on revenue mobilisation and people’s daily lives remain elusive. The bulk of these funds has been channelled into heavyweight infrastructure endeavours, often known as projects of national pride—airports, buildings, bridges and roads. Such a trajectory necessitates a reevaluation of investment priorities, policies and practices. Regrettably, the government appears unresponsive to this stark reality, persisting in pursuing what it perceives as development. Concurrently, the government has embarked on initiatives to establish yet another public-sector-led company ostensibly dedicated to infrastructure investment. This move underscores a broader confusion in the country's development policy and priority, warranting closer scrutiny.

Establishing a new bank aimed at re-lending funds to projects prompts analysis from various perspectives: Some may view it through the lens of potential corruption, while others speculate it as a response to pressure for alternative funding models from international lenders. Alternatively, it could be perceived as a result of a cash-strapped private sector seeking financial support from development partners, leading to a symbiotic relationship between potential private sector borrowers and bureaucratic entities. This development underscores the evolving landscape of development finance and warrants careful examination within the developmental discourse.

It is intriguing to discern whether NIFRA was conceived to organise people's savings and channel them into investment projects. Remarkably, the public's inclination to invest in companies of their choice is evident in the substantial investments in various sectors such as hydro, hotels and hospitals. Notably, by the day of drafting this piece, the hydro sector boasts a staggering total paid-up capital of Rs152,000 million and a market capitalisation of Rs490,000 million for 91 listed projects in the Nepal Stock Exchange (NEPSE). This underscores the potential redundancy of NIFRA in incentivising public investment, given the significant levels of general people’s investment already prevalent in the market.

The decision to establish entities like NIFRA, especially with the involvement of select business conglomerates and the government itself as promoters, invites scrutiny. It prompts inquiry into why the government, ostensibly committed to fostering private sector growth, would choose to venture into the banking sector. This juxtaposition underscores a shift in government strategy and prompts speculation about its motivations and implications for private sector dynamics.

Decades of substantial investment under the government's transformative promises have resulted in a disheartening outcome, with foreign debt tripling in size. This prompts a critical examination of how the government's newfound approach through NIFRA can yield beneficial results. The prevailing public mistrust may stem from the performance disparities between NIFRA and other government-promoted behemoths compared to the companies listed on the NEPSE. Companies boast market capitalisations up to 30 times higher than their total paid-up capital. Two major government-controlled entities—NIFRA and HIDCL—exhibit a twofold difference. Furthermore, the revelation that NIFRA's circulated ‘loan notes’ remained unsold in the market, as per the 2079-80 audit report, serves as a poignant indicator of public scepticism toward initiatives championed by the public sector, contrasting sharply with the overwhelming subscription rates observed for other companies' IPO announcements.

The composition of the board of directors for NIFRA raises pertinent questions, as the government appears to favour retired civil servants for key positions. Intriguingly, out of the six board members, three are present or past public service employees, including those affiliated with the company's promoters. This trend hints at underlying structural issues and highlights potential lapses in legal provisions regarding sufficient cooling-off periods for retired public servants. The pervasive corruption within Nepal's public services raises concerns about its impact on the bank's integrity and overall health.

There is a compelling rationale for suspicion surrounding the government's need for this institutional model for investment. The emergence of viable projects, Foreign Direct Investment (FDI), remains the optimal choice, supplemented by borrowing from development partners if necessary. However, this new NIFRA initiative requires an inspection of potential risks including corruption, mismanagement, flawed infrastructure planning, and the predominance of retired civil servants on the board of directors. Failure to heed these warning signs could lead to public frustration and disillusionment with the government's decision-making processes.

Let's delve into the investment model adopted by NIFRA by examining the sectoral allocation outlined in the 2079/80 annual report. Energy emerges as the dominant sector, accounting for 50 percent of total investments, followed by tourism at 19 percent, and hospitals at 16 percent. However, despite significant investments in the energy sector, the envisioned long-term success through favourable cross-border energy trade has yet to materialise. Similarly, despite decades of efforts and substantial investments, the tourism sector has yet to achieve its potential, evident in stagnant arrival numbers, limited duration of stays, and spending patterns. Furthermore, directing investments towards private hospitals could exacerbate public discontent, exacerbating healthcare inequality and potentially widening social divides, contrary to the country's constitutional commitment to equality.

Amidst past infrastructure investments amounting to billions of dollars, the government is still grappling with revenue shortfalls, failing to meet anticipated levels necessary for loan repayment. Given this context, the prospect of a new bank specialising in infrastructure investment faces challenges in persuading the general public of its financial viability and potential returns.

Another legal lapse lies in insufficient legislation mandating public companies to disclose information to the public, leaving a vast majority unaware of internal company affairs. This lack of transparency further compounds public distrust and undermines accountability within the corporate sector.

The composition of NIFRA's board raises concerns, with institutional investors holding a 60 precent majority compared to general shareholders' 40 percent. This prompts questions regarding whether the representation of general shareholders is adequate for such a sizable company. Moreover, the presence of three private companies and a government ministry as promoters raises eyebrows, as these institutional investors collectively wield significant influence over decision-making. Compounding this issue, the overlapping business interests and social affiliations among the private sector promoters suggest a concentration of control within a select group, potentially leaving general investors vulnerable to exploitation.

Another aspect deserving scrutiny in the company's operations is the Auditor General's report for the recent year. Interestingly, the report outlines principles and beliefs in auditing/accounting rather than highlighting observed issues such as the arrangement and practice in fund generation, risk management provisions, and fund management strategy.

A lingering question in the realm of development wisdom underpins the formation of this company: Why is its focus solely on physical infrastructure? Rather than prioritising investments in tangible assets, the government and the company should consider arranging social and human capacity building. Without addressing this fundamental question, the shift in organisational investment models may fall short of delivering the promises articulated by political leaders to the public.