Nepal explores lower-cost financing options from AIIB as concessional funding declines

Kathmandu, September 28, 2026 — Nepal, which has long been reluctant to mobilize significant resources from the Asian Infrastructure Investment Bank (AIIB) citing relatively high borrowing costs, has begun exploring options to use lower-cost financing available from the institution.

As concessional financing previously available from the World Bank, Asian Development Bank and Japan has gradually declined, the government has started discussions on using relatively cheaper facilities available through AIIB for eligible projects.

AIIB has said it can provide grants for project preparation and offer additional concessions on loan interest rates for eligible projects.

During a meeting in Doha, Qatar, with Finance Minister Dr. Swarnim Wagle, AIIB President Zou Jiayi said the bank could provide grants for project preparation and additional concessions on loan interest rates.

During the meeting, Minister Wagle urged the AIIB to expedite studies for the electricity distribution system improvement and expansion project and the Butwal-Pokhara road project being supported by the bank.

Wagle also called for greater cooperation with AIIB and other development partners to mobilize medium- and long-term resources for green energy, cross-border electricity transmission lines, roads and digital infrastructure.

Nepal had previously refrained from mobilizing large amounts of financing from AIIB, citing its relatively expensive loans. The government is now looking for additional sources and financing options as concessional financing available from development partners including the World Bank, Asian Development Bank and Japan has gradually declined.

Although Nepal is a member of AIIB, which was established to increase infrastructure investment in Asia, it has so far not mobilized significant loans from the institution. Nepal had cited AIIB’s relatively high interest rates while obtaining comparatively cheaper loans from the World Bank and Asian Development Bank.

Nepal has also been raising the issue of access to concessional financing facilities available through AIIB for least-developed countries. Although Nepal does not qualify for such facilities under the World Bank’s criteria, Nepal is preparing to draw attention to the need for different financing arrangements for countries such as Nepal.

AIIB has a policy of directing 50 percent of its total investment to areas related to climate change. Nepal, which faces high climate risks, has emphasized the need for concessional capital because it could use AIIB resources in such areas.

Nepal has already cooperated with AIIB on some projects. AIIB provided a grant for a study on upgrading the Butwal-Pokhara highway. Officials say AIIB also appears interested in providing a loan for construction of the project following the study.

The choice of currency when borrowing from AIIB could make a significant difference to the cost. If loans are taken in US dollars, the interest rate could exceed 4 percent depending on market conditions, while loans in Chinese yuan or Japanese yen could be obtained at comparatively lower interest rates. Although such financing would still be more expensive than loans from the World Bank and Asian Development Bank, it is being considered as an option when additional sources of financing are needed.

Borrowing in regional currencies also presents another challenge. If a loan is taken in Chinese yuan or Japanese yen while project contracts have to be denominated in US dollars, exchange-rate risks could impose additional costs on the government. The government is therefore also considering the option of making procurement agreements in the respective currencies.

As Nepal’s need for public borrowing increases, the government has reached the conclusion that it needs to diversify the sources available from multilateral development partners.

Although AIIB loans are comparatively expensive, they are not equivalent to commercial loans. With cheaper sources gradually becoming less available, the government is preparing to keep the option of using AIIB financing open by considering costs, currency and project returns.

Nepal explores lower-cost financing options from AIIB as concessional funding declines

Nepal is exploring relatively lower-cost AIIB financing as concessional loans from traditional development partners become less available, with discussions covering infrastructure and climate-related projects.

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