Parliament on Monday ratified the Articles of Agreement of the Asian Infrastructure Investment Bank (AIIB) making Nepal a founding member of the China-backed institution. The accord was endorsed unanimously.

Minister for Finance Bishnu Prasad Poudel had tabled the Articles of Agreement in the House for discussion on Sunday. As per constitutional provisions, any international treaty or agreement has to be endorsed by Parliament.

Addressing the House, Poudel said that Nepal could benefit a lot from the bank mainly in infrastructure development and productive sectors. According to the minister, 56 countries have agreed to the establishment of the bank which has a paid-up capital of $20 billion and authorized capital of $100 billion.

Nepal will buy 806 shares worth around $16.2 million. Shares in the bank have been allocated to countries based on the size of their economy, but Asian countries hold 75 percent of the stock as per the article of agreement. Nepal as a least developed country will pay the money in 10 instalments over 10 years while developing and developed countries have to make payment in five years.  

The bank, which was formally established on Friday, is expected to provide new avenues of financing for countries like Nepal with poor infrastructure. As multilateral lenders such as the World Bank and the Asian Development Bank have limitations, the formation of a new bank with the initiative of cash-rich China is expected to be an additional source of finance for the country’s poor infrastructure sector. The AIIB has aimed to start lending in mid-2016.

Madhu Marasini, chief of the international economic cooperation coordination division at the Finance Ministry, said that Nepal could get financing from the bank faster if the necessary project preparations were started early.

However, the government’s capacity to absorb capital has remained as the biggest concerns. Besides the reconstruction of the infrastructure damaged by the earthquake, the development of new infrastructure is one of the priority areas of the government this fiscal year.

Nepal needs to spend huge resources to improve and develop the infrastructure sector. A World Bank report entitled “Reducing Poverty by Closing South Asia’s Infrastructure Gap” published in 2014 has stated that Nepal has to invest 8.24 percent to 11.75 percent of its gross domestic product (GDP) in infrastructure to bridge the investment gap in the sector.

Currently, Nepal’s investment in infrastructure amounts to 5 percent of the GDP. The country is short of $13-18 billion to bridge the investment gap in infrastructure between 2011-20, the report said.