Nepal rejects BRI loans over debt concerns and high interest rates

KATHMANDU : Nepal’s decision not to take loans under the Belt Road Initiative (BRI) caused Prime Minister KP Sharma Oli’s visit to China to lose steam before it started. There has been commotion over the BRI as many crucial Nepalese leaders have opposed it due to its failure to prove useful and viable for the country. 

Nepali Congress, a key partner in the government, has opposed loans under the BRI, fearing it could lead to a debt trap.  While Oli and his party UML appeared interested in the BRI, major concerns over debt and high interest rates shot down his proposal. There have been apprehensions about the BRI being non-transparent, clandestine, and expensive, which forced several countries including Sri Lanka into the debt trap. 
    
NC leader Ram Hari Khatiwada firmly stood his ground and told Oli that no BRI loans will be allowed further. “We have an understanding with the UML that our country cannot afford to execute any major projects through loans,” he said.  The reason behind it is clear- Nepal is not in a condition to afford loans with heavy interest rates.  When the World Bank and Asian Development Bank (ADB) lend at 0.5-1 percent, the BRI loans are said to cost Nepal a 2-4 percent interest rate.    
    
After the heated debates and meetings, Kathmandu has decided not to take loans from China, but financial grants. Following the recent visit to China, Nepalese Foreign Minister Arzu Rana announced that loans will not be taken from China, calling it infeasible.  “Our discussions focused on grants,” said Rana.  “Any progress on the BRI would be based on mutual understanding between the two nations and a consensus within Nepal.” 

China has not responded to Nepal’s decision to allow only grants. Oli’s China trip is likely to remain ineffectual in the context of BRI.   Because the BRI is a commercial project that it is funded by Chinese policy banks, Silk Road Fund, EXIM Bank, CDB, said Raunab Singh Khatri, researcher on Nepal-China relations.  Moreover, concerns have been raised about encroachment by Chinese in Nepalese territory in Humla area. 

Notably, the BRI agreement Nepal signed in 2017 has not been made public yet.  Nepali lawmaker Rajendra Bajgain said the BRI should be discussed in the country’s parliament since the loans under it charged high interest rates. "We want to hear the government's view on the BRI funding modality. A country serving nearly one and a half trillion in debt cannot bear more. Why has that framework document not been made public yet?" he said. 

Earlier, nine projects were proposed in Nepal under the BRI. However, no progress was seen on the implementation front. Nepal has concerns and reservations over several issues including the clause of the BRI implementation plan dealing with security. “The BRI is unlikely to move forward in Nepal anytime soon because there is no discussion, consultation and consensus,” said a joint secretary at the Nepalese Ministry of Foreign Affairs.  

People and leaders in Nepal expressed anger when China took credit for the construction of the Pokhara International Airport despite their repeated assertion that it was not a BRI project.  Chinese Embassy in Nepal and state-run media continued to harp on BRI funding for the airport.  Rejecting the unilateral announcement by the Chinese Embassy, the then Foreign Minister NP Saud said “Not a single project in Nepal under the BRI has been executed. The project implementation plan of the BRI is at the stage of discussion between Nepal and China.” 

Foreign policy expert Vijay Kant Karna said that China claiming the airport construction showed its desperation. “China is facing a dilemma because it couldn’t manage the BRI projects in Nepal. China has now started claiming random projects as BRI out of desperation,” he said.  A former secretary at the Nepalese Ministry of Physical Infrastructure said the mechanism brought in to implement the BRI did not work. They became defunct without holding a single meeting,” he said. 

Nepal appears not so keen on the BRI since it lost momentum globally, said Prashanti Poudyal, a researcher at the Centre for Social Inclusion and Federalism. “The experiences of regional neighbors, such as Sri Lanka and Pakistan, with the BRI projects that were either indefinitely stalled or handed over on lease to the Chinese companies failing to repay the loans, served as cautionary tales for Nepal’s political leadership,” she said. (Hamrakura)