The Ministry of Finance has drafted a new Development Assistance Mobilisation Policy aimed at facilitating loans for private sector projects prioritised under the Public-Private Partnership (PPP) model with government guarantees.
The draft policy, made public for feedback, includes provisions for extending government guarantees to mobilise loans for the private sector. While there have been past instances of government guarantees for private sector projects, such guarantees have predominantly been reserved for government bodies. A notable example is the Nepal Airlines Corporation, for which the government provided guarantees to secure loans for purchasing wide-body and narrow-body aircraft.
According to the draft of the Development Assistance Mobilisation Policy, 2081, the government can act as a guarantor to address capital shortfalls for national priority projects under the PPP model.
The draft states: “To make public-private partnerships feasible and attractive, the government will facilitate access to external capital for private sector participants.”
The policy also proposes the introduction of viability gap funding. This mechanism allows the government to provide specific financial resources for projects that are crucial for the country but lack financial feasibility.
“To make PPP projects economically viable and appealing, the government can mobilise development assistance to invest in capital, provide capital grants, or share financial risks through other means,” the draft notes.
The policy suggests establishing infrastructure funds to meet the needs of development finance. These funds could mobilise external capital, and bond issuance is also proposed as a means of raising funds.
The draft mentions that the government, either independently or in collaboration with national and international financial institutions, can issue ‘onshore or offshore’ sovereign bonds with fixed yields for sustainable development, energy, and green development projects.
“Institutions fully or largely owned by the government can also issue such bonds with counter-guarantees as per legal provisions.”
The draft aims to ease the mobilisation of development assistance in the private sector. It proposes directing aid received for private sector development through the government’s system towards public infrastructure, policy and regulatory improvements, and technology transfer.
Funds allocated for Nepal can be coordinated to channel grants or loans into the private sector. However, it emphasises that such assistance will not be mobilised in a way that creates future liabilities for the government.
The draft proposes a dedicated infrastructure fund to provide share investment or credit line facilities for private-led projects in transportation, energy, and industrial infrastructure.
“To promote private sector-led projects in these sectors, the government will provide policy facilitation for the establishment of an infrastructure fund,” the policy states.
The blended finance approach will mix grants, concessional loans, and other financial sources to attract private investment and make projects commercially viable. The funds will be pooled into a single basket to structure financial frameworks conducive to private sector engagement.
The Ministry of Finance has sought public feedback on the draft policy, which will be finalised based on suggestions. Mahesh Bhattarai, joint secretary of the ministry, mentioned that the proposal includes establishing an infrastructure fund, the specifics of which will be determined after considering public input.
