The green bridgeNepal must make diplomatic efforts to revive the trade and romance of the Silk Road
The expansion of strategic quality infrastructure in Nepal is the need of the hour to deliver green growth. This is possible through appropriate designs and interventionist supply side policies implemented in coordination with monetary and fiscal policies. The development of infrastructure such as waterways, ropeways, cable cars and high-speed railways, among others, has the potential to produce an inclusive, sustainable and prosperous economy. Building high-speed railways to link vibrant tourist destinations like Pokhara, Janakpur, Kathmandu, Lumbini and Chitwan and establishing interconnectivity between Kathmandu, Lalitpur, Bhaktapur and Nagarkot is essential to improve the tourism industry. High-speed rail connectivity providing greatly reduced travelling times can immensely help promote trans-Himalayan tourism between Nepal, China and India.
Approximately 600 million Hindus from India and 50 million Buddhists from China are drawn to religious and spiritual centres around Nepal. Meanwhile, adventure sport and mountain lovers travel to Pokhara and Everest and wildlife lovers visit places like Chitwan. Furthermore, the casinos in Birgunj, Pokhara and Kathmandu are a major attraction for Indian tourists. Train connectivity between these cities can boost Nepal’s tourism economy. Designing and implementing huge infrastructure projects, especially railways, is beyond the capacity of the private sector. Hence, the government needs to be a guarantor for financing such large scale infrastructure projects besides facilitating and funding detailed project reports. The private sector can help during the implementation phase.
Sale of bonds
An efficient and reliable way of raising funds for such projects is selling Nepal government bonds on the international market. The bonds should be designed to promote green growth, and the capital thus accumulated should be used strictly to finance green infrastructure projects. From the viewpoint of green growth and energy security, the abundant renewable energy sources available in Nepal can become the core source of power for constructing infrastructure projects and designing supply side policies. Sales of such bonds with a guarantee mechanism need to be backed by credible feasibility studies so that the projects can be started as soon as funding becomes available. The prospectus for bond issuance should describe how the money will be used to construct the project besides containing a clear debt repayment mechanism.
Credible feasibility studies in all areas of infrastructure have to be completed before Nepal’s moves towards financial closure via bond issuance. This could help attract possible bond buyers. Furthermore, the government should pilot trading small financial products of the bond to small investors both within and outside Nepal. Civil society should be strengthened to keep tabs on the money raised through bond sales so that value for money within the projects is not compromised.
Such a financing mechanism can bring a systemic change to strengthen Nepal’s monetary and fiscal policies besides reducing project costs. This is because bond financing may require less debt payment for the bond than the internal rate of return payment for foreign direct investors interested in funding infrastructure projects, resulting in huge savings for the government of Nepal. Due to low debt repayment, the cost of using the infrastructure could be comparatively lower for consumers. This could make the service attractive for public consumption, which means continuous revenue generation for debt repayment. As a result, the break-even point can be reached in a shorter time. Furthermore, if the bond issuance goes well and the government is able to raise abundant funds, it should conduct transparent bidding for the project so that the contract goes to deserving firms that can deliver a quality product in a cost effective fashion. This will reduce the cost of the project and the size of the government’s debt.
The Lichchhavi period in Nepal, which lasted from 300 to 879AD, was a prosperous period. Nepali merchants conducted trade with China and India over the Southern Silk Road, a network of caravan trails winding over the mountains of Sichuan, Yunnan and Guizhou in southwest China to Lhasa, Tibet and extending to Bengal through Nepal. Re-energising these historical links and connecting the second and fifth largest economies in the world is in the economic interest of Nepal, China and India. Such trade connectivity could open new vistas for businesses and entrepreneurs. However, it is very important that supply side policies be made contextual in
Nepal from other core policy opportunities and challenges such as security, climate change, mobility, tourism development, land reform, terrorism, pollution and disease control.
Such modern trade routes could reignite the romance that caravans on the Tea Horse Road once did. The connectivity plan of the One Belt One Road initiative should consider these issues to foster interregional trade and tourism, promote peace and prosperity and strengthen the trans-Himalayan bond in the region.This is an issue that needs vibrant diplomacy by Nepal so that a trilateral dialogue between Nepal, China and India can be held.
Dhakal is the CEO of 8848 Inc