Nepal first began its push for digital socio-economic transformation in 2007 with the drafting of an E-Governance Masterplan. Since then, donor agencies have consistently backed the government’s digitalisation drive through loans and grants. Yet the very projects envisioned as the foundation for future e-governance and economic growth have repeatedly faltered.

Time and again, these initiatives have become trapped in a cycle of weak needs assessments, policy and structural ambiguity, cumbersome procurement procedures, disputes, irregularities and flawed project design.

The Government of Nepal has now signed a loan agreement worth approximately Rs13 billion ($90 million) with the World Bank and the Asian Development Bank (ADB) for the “Nepal Digital Transformation Project”. The project promises to strengthen secure digital infrastructure and data centres, deliver streamlined online public services to 7 million citizens over the next five years, and reduce government service delivery time from six hours to two.

According to project documents, the largest share of the proposed investment, around Rs3.61 billion ($27 million), will go towards strengthening data centres and hosting services. Another Rs2.01 billion ($15 million) has been allocated for the business process re-engineering of government services aimed at simplifying and digitising public service delivery systems.

Cybersecurity strengthening and improvements to the National Identity Card system have each been allocated Rs1.34 billion ($10 million). Similarly, Rs670 million ($5 million) each has been earmarked for an integrated social protection system, the establishment of a national data exchange platform, digital transformation of land administration services, including land titles, and project management and implementation support.

The project also proposes Rs536 million ($4 million) each for upgrading digital signature infrastructure and expanding the Nagarik App platform. Altogether, the programme’s estimated cost stands at Rs12.06 billion, equivalent to $90 million, according to the World Bank and the ADB.

Such promises, however, are not new. Previous initiatives, including the Digital Nepal Acceleration (DNA) project and the Digital Nepal Project (DNP), were scrapped without achieving any substantial progress. The government was eventually forced to return Rs17 billion allocated for the DNA project to the World Bank, a failure for which no one has publicly accepted responsibility.

With the government signing off on a new loan for a project that is, in many ways, a reworked version of the failed DNA initiative, questions are resurfacing in Parliament and across social media. What will make this project succeed where the last one failed? Why was the earlier loan returned? And was any serious review ever carried out into the collapse of the previous programme?

Rastriya Prajatantra Party lawmaker Khusbu Oli questioned in Parliament whether the loan had been sought by the government or proposed by donor agencies themselves.

“Based on which parliamentary committee, which policy debate, and which needs prioritisation assessment was the decision taken to accept such a massive loan?” she asked.

Under the agreement, the government will borrow $50 million from the World Bank and $40 million from the ADB. According to the ADB, the concessional loan carries an interest rate of 1 percent per annum for the first eight years and 1.5 percent for the remaining period, with repayment extending over 32 years, until December 2058. The World Bank has similarly agreed to provide its loan at 1.5 percent interest with a 20-year maturity period, including a five-year grace period.

The central objective of the new project is to establish core Digital Public Infrastructure (DPI). The earlier DNA project focused heavily on expanding connectivity, building digital foundations and promoting digital literacy programmes, but ultimately failed to deliver results. Now, with revised terminology, procedural changes and an expanded scope, a fresh agreement has been signed with donors for what remains, in essence, a similar programme.

Digital economy observers say the government should have first conducted a thorough review of past failures, introduced corrective measures and redesigned the programme before signing a new agreement.

Red tape and turf wars

Experts say the collapse of the DNA project exposed deep administrative inertia and intense turf battles between government agencies.

“The project collapsed because ministries spent their time blaming each other, inter-agency coordination was virtually absent, and stakeholders were excluded,” said Bibek Rana, a digital economy expert. “The government was also paralysed by political pressure from different provinces concerning the DNA project.”

Rana said banks do not hand out loans without being asked. According to him, requesting funds and then failing to execute projects exposes serious weaknesses in the government’s ability to assess needs and manage loans effectively.

“Instead of learning from past failures and positioning this project as a broader digital economic reform initiative, it is still being treated as a routine IT project,” Rana said. “Nepal needs such digital projects, whether financed through domestic resources or external loans. But proceeding without a strategic anchor such as Digital Nepal Framework 2.0 risks fragmented implementation and the same lack of integrated results seen in the past.”

According to Rana, donors are currently financing nearly a dozen digital projects in Nepal, yet implementation and progress remain deeply unsatisfactory. Nepal ranks 119th in the United Nations E-Government Development Index, trailing regional neighbours such as India and Bangladesh.

The cycle of failed digital projects in Nepal is longstanding. Although Nepal began pursuing digital socio-economic transformation in 2007, institutional mechanisms for implementation are frequently disrupted whenever governments change, adding another layer of uncertainty to the current Nepal Digital Transformation Project.

However, officials from both the World Bank and the government insist the current initiative will be different. The project’s Project Appraisal Document stipulates that before funds can be disbursed, the government, in coordination with the World Bank, must prepare operational regulations and establish a Project Management Unit (PMU).

“We designed the Digital Transformation Project by drawing lessons not only from the DNA project, but also from similar initiatives worldwide,” David Sislen, the World Bank country director for Maldives, Nepal and Sri Lanka, told Kantipur in an email interview. “Our assessments show that digital transformation requires strong policy foundations, user-friendly design, institutional and managerial capacity, inclusivity and public trust. Those lessons have been incorporated into the new project.”

Sislen said structural and strategic changes had been introduced to prevent a repeat of earlier failures.

“In the previous DNA project, nearly 50 percent of total investment was allocated to expanding broadband internet in rural and remote areas. In contrast, the new project removes the connectivity component entirely and focuses directly on public service delivery,” Sislen said. “Building on the new government’s vision and lessons from the past, the focus this time is on establishing core Digital Public Infrastructure, including the National Identity Card, the Nagarik App, data exchange platforms, data hosting, cybersecurity and data privacy.”

The World Bank’s Board of Executive Directors approved the $50 million loan for Nepal on February 10 in Washington, DC. The Cabinet, led by Balendra Shah later decided to accept the concessional loan during its April 4 meeting. Electronic signatures were exchanged between the Ministry of Finance and the World Bank in the final week of April, while the agreement with the ADB was signed during an internal event on April 27.

Design flaws and contradictions

As the project moves towards implementation, the failure of the scrapped DNA project continues to invite scrutiny. In its “Note on Cancelled Operation” report, the World Bank said that even 18 months after approval, implementation had not progressed and not a single rupee had been spent.

The original agreement stated that grants would be provided to the Nepal Telecommunications Authority (NTA) for broadband expansion. However, after the November 2022 general elections, the then government, led by Pushpa Kamal Dahal, where Bishnu Prasad Paudel was finance minister, insisted the funds should be channelled to the NTA as a loan rather than a grant. The NTA refused, arguing that the original agreement clearly specified grants, leading to a prolonged deadlock.

On September 18, 2022, then finance secretary Krishna Hari Pushkar and then World Bank country director Faris H Hadad-Zervos signed the agreement. However, an agreement signed the same day between Hadad-Zervos and then NTA chairman Purushottam Khanal used the term “credit” instead of “grant”.

“The DNA project was structured as foreign assistance in the form of a loan, but broadband expansion support was intended to be passed on to the NTA as a grant through a subsidiary agreement between the Ministry of Finance and the regulator,” Sislen explained.

As confusion persisted over whether the funds constituted a loan or a grant, the Ministry of Finance entirely omitted the project’s budget heading from the Line Ministry Budget Information System for the fiscal year 2023-24. The World Bank concluded that without a budget heading, the Ministry of Communication and Information Technology could not begin procurement for consultants or equipment.

Dhani Ram Sharma, joint secretary at the International Economic Cooperation Coordination Division of the Ministry of Finance, also attributed the cancellation to flawed project design and disagreements over implementation modalities.

“There was a fundamental flaw in the project design because insufficient attention was paid to how funds would flow,” Sharma said. “The NTA, which was responsible for broadband expansion, already had billions of rupees sitting idle in its Rural Telecommunication Development Fund. Under such circumstances, it was impractical to ask it to invest using borrowed money. The project stalled because the NTA did not want to take on a loan, while the government could not legally provide a grant.”

The project design involved direct coordination among World Bank representatives, the IT division of the ministry, the NTA and the Ministry of Finance.

Rekha Sharma, who served as communications minister while the dispute escalated, said the ministry and the NTA failed to reach consensus on borrowing money to expand optical fibre infrastructure.

“Donor agencies often pressure us to spend funds according to their own priorities, which pushes the country’s actual needs into the background,” she said. “That is precisely what happened in this case. They insisted on broadband expansion, despite the NTA already carrying out similar work through its own rural fund.”

Even beyond the dispute over loans and grants, questions remain over why the NTA agreed to sign the original agreement despite already implementing broadband expansion through the RTDF.

Unapproved drafts and institutional restructuring

Against the backdrop of poor coordination and structural disputes that derailed the DNA project, many fear history may repeat itself. Rana argued that accepting a new loan before clarifying the status of “Digital Nepal Framework 2.0”, which is expected to guide the Digital Transformation Project, risks repeating earlier mistakes.

Released for public feedback in April 2025, the framework remains in draft form and has yet to receive Cabinet approval. Project appraisal documents available on the World Bank and ADB websites state that the Digital Transformation Project aligns with the original Digital Nepal Framework of 2019. However, that framework was itself considered outdated, prompting the drafting of version 2.0, which now remains stalled.

Aadesh Khadka, joint secretary at the IT Division of the Ministry of Communication and Information Technology, disputed that interpretation, saying the project is intended to align with Digital Nepal Framework 2.0, the E-Governance Blueprint and the 16th Five-Year Plan.

“As a strategic document, DNF 2.0 is currently awaiting Cabinet approval, and project implementation will move forward in accordance with that updated vision,” Khadka said. “The delay has occurred solely because of changes in government.”

In a written response to Kantipur, the ADB said the project was designed to align with the government’s broader digital reform priorities.

“The Government of Nepal has articulated its digital ambitions through the current Digital Nepal Framework, the E-Governance Blueprint, the 16th Periodic Plan and the National Integrated Social Protection Framework,” the ADB stated. “This project will support those digital transformation priorities and expand access to quality digital services for citizens and businesses.”

Although the project was initially expected to be implemented through the Ministry of Communication and Information Technology, the Department of Information Technology and the Department of National ID and Civil Registration, the government is now preparing to shift technology-related portfolios directly under the Prime Minister’s Office.

Khadka said the restructuring process has effectively placed the project on hold.

“Because information technology responsibilities are being transferred from the communications ministry to the Prime Minister’s Office, the project is effectively paused for now,” he said. “Further clarity will emerge only after the Ministry of Finance and donor agencies hold detailed discussions.”

Experts say the transition period should be used to integrate both legal and institutional frameworks.

“It is essential to consolidate the many fragmented laws governing the digital sector,” said former communications minister Rekha Sharma. “Taking on loans without a clear legal foundation and implementation roadmap only increases debt burdens without producing results.”

Speaking at the recent Kantipur Economic Summit, Finance Minister Swarnim Wagle said digital projects would no longer be treated merely as technical matters, but as central tools for governance reform and economic restructuring.

“The government plans to establish a powerful IT authority under the Prime Minister’s Office and consolidate all IT-related functions there,” Wagle said. “We must end the old bureaucratic culture of ministries working in silos and establish data sharing and interoperability as core principles.”

According to government officials, the sudden institutional shift has once again introduced transitional uncertainty into project implementation. Officials acknowledge that time may be lost while aligning the existing institutional setup with the framework agreed upon with donors.

“However, once an empowered body is established, coordination among ministries will improve significantly and implementation will move much faster than before,” Dhani Ram Sharma said.

According to Sharma, the project remains in its preliminary stage, with preparations underway to establish the PMU, recruit experts and draft operational procedures.

Digital economy expert Deepta Shah said that because digital transformation projects involve multiple agencies, placing them under an empowered and technically capable unit within the PMO would improve implementation.

“Loans from the World Bank and the ADB are not comparable to commercial borrowing from local banks,” Shah said. “These are highly concessional loans with minimal interest rates, and they come with significant technical assistance. In practical terms, that support functions almost like a grant.”

Shah argued that Nepal’s digital agenda is now too important to ignore because today’s infrastructure will form the basis of future governance and economic growth.

“Donor agencies may not fully understand Nepal’s ground realities, so it is our responsibility to explain our priorities and negotiate accordingly,” Shah said. “When negotiating loan agreements, Nepal needs capable teams that understand both the broader national picture and the operational approaches of donor agencies.”

Global models and domestic realities

As Nepal continues to lag in digital transformation, international examples offer important lessons. Countries such as Estonia, Ukraine and India have achieved major cost savings and efficiency gains in public service delivery through Digital Public Infrastructure.

Sri Lanka accelerated its transformation by establishing the GovTech Agency, an autonomous technical body supported by the World Bank. The agency was empowered to recruit highly skilled private-sector professionals and oversee digital platforms across government institutions. Through World Bank support, Sri Lanka developed a national digital identity system and a centralised data exchange platform.

Malaysia incubated a powerful body such as MDEC directly under the Prime Minister’s Office before eventually elevating it to ministerial status. India, meanwhile, adopted a public-private partnership model that leveraged private sector investment to build digital infrastructure.

“Why do identical donor-funded projects succeed elsewhere but fail in Nepal?” Shah asked. “The same teams that achieved success in Sri Lanka, Georgia, Egypt and South Africa saw projects collapse in Nepal. That shows success depends less on donor agencies and more on the implementation capacity of the borrowing country.”

Nepal’s public-sector digital landscape remains littered with stalled or controversial projects, including the National Payment Gateway, the Mobile Device Management System, smart driving licence procurement, 5G expansion and ICT laboratory programmes in schools.

“The Central Bank Reform Programme approved by the World Bank in 2002 with an allocation of $30.1 million eventually had to be redirected to Kyrgyzstan because Nepal failed to use the funds,” Rana recalled. “Government agencies continue to focus excessively on applications and hardware while ignoring institutional reform and behavioural transformation.”

A research paper by Madan Prasad Pariyar, former member secretary of the High-Level Commission for Information Technology, notes that political instability, weak political commitment, low internet penetration, load-shedding and poor digital literacy were among the biggest obstacles facing earlier projects.

Despite repeated implementation failures, the blueprint for the current project appears ambitious. The World Bank says the platforms developed under the project will be integrated and reusable, avoiding duplication of private-sector investment. The agreement also incorporates “Privacy by Design” principles and commits to international data protection standards.

The ADB said it would align with World Bank policies as a “trail lender” and require internationally recognised EDGE Green Data Center Certification standards for upgraded data centres. The bank also said it plans to support Nepal through a separate programme focused on cybersecurity and data privacy reforms.

“At present, Nepal’s public digital infrastructure faces multiple vulnerabilities, and several systems are approaching end-of-life status,” ADB country director for Nepal Arnaud Cauchois said during a press conference releasing the Asian Development Outlook. “Integrating digital transformation into the core of government systems will help attract skilled professionals and technical talent.”

The Shah government appears to have recognised that need and has begun groundwork to establish a powerful IT authority under the Prime Minister’s Office. Ultimately, however, the future of Nepal’s digital transformation will depend heavily on the budget Finance Minister Wagle is set to unveil on May 29, as well as the final structure and staffing of the proposed authority under Prime Minister Shah.