What Nepal stands to gain and lose from BRI

The Belt and Road Initiative (BRI), a Chinese project introduced in 2013, has generated interest and concerns around the world. Through a network of highways, railroads, ports and other infrastructure, it seeks to link Asia, Africa, and Europe. One of the 149 nations that have ratified BRI is Nepal. Between China and India, Nepal has experienced its fair share of BRI-related advancements. This article investigates the contention that Nepal will fall into a debt trap as a result of BRI and analyzes the economic, geopolitical and developmental ramifications.

Understanding BRI: The BRI is a massive international infrastructure initiative that aims to link nations through a network of ports, highways, trains and other crucial infrastructure. It aspires to improve connectivity, trade and investment between participating countries. However, worries have been mounting in recipient nations over a possible debt burden resulting from these initiatives. In the case of Nepal, BRI’s effects are wide-ranging and intricate. Before signing any agreement related to BRI, Nepal must thoroughly weigh its advantages and hazards. 

The debt debate: According to critics, BRI projects, most of which come with Chinese loans attached, could result in a debt trap where recipient nations struggle to pay off their debts, which reduces their ability to make strategic decisions. Nepal may encounter this problem, given its constrained fiscal capability. Also, proponents highlight the possibilities for infrastructure development, economic growth and job creation that BRI projects may offer to Nepal.

There is a chance that Nepal may gain a lot from BRI. It might help in enhancing the nation's connectedness, boosting its economy and generating jobs. However, there are worries that Nepal could fall into a debt trap because of BRI as China is presumably ‘giving unfavorable loans to developing nations to seize their assets’. This claim has been made in relation to BRI and other Chinese investment initiatives in underdeveloped nations. The debt trap argument is supported by some evidence. For instance, several nations, which borrowed money from China, have had difficulty paying back their loans and have been compelled to cede control of critical resources like ports. To be clear, not all Chinese loans are predatory, and the debt trap argument is frequently exaggerated.

BRI engagements: Nepal has expressed interest in BRI and sees it as a chance to address its lack of infrastructure. The BRI’s proposed cross-border road, hydropower, and railway projects have the potential to improve Nepal’s connectivity and energy security. The financial viability, environmental effect, and transparency of these initiatives continue to be a source of concern.

Risk factors

Debt sustainability: China’s loans account for a sizable amount of Nepal’s external debt, raising concerns about the country’s debt-to-GDP ratio. Implementing projects successfully and achieving strong economic growth are essential for repaying these debts on time and avoiding a debt catastrophe. 

Geopolitical implications: Given its ties to both China and India, Nepal’s participation in BRI has geopolitical implications. Maintaining a balance between these two powerful neighbors is essential for the stability of Nepal. 

Project viability: The long-term profitability, potential for revenue generation and adherence to environmental and social criteria all play a role in how economically viable BRI projects are in Nepal.

Mitigation techniques: Nepal might use a number of techniques to avoid falling into a debt trap and profit from the BRI. 

Transparent project evaluation: Thorough cost-benefit evaluations and open tendering procedures can be used to find projects that are both fiscally and developmentally feasible for Nepal. 

Diversified partnerships: Including a variety of parties like global financial institutions helps lessen reliance on a single lender and advance monetary stability. Put an emphasis on local benefits: Projects that promote local employment, technology transfer and skill development should be given first priority to maximize the beneficial effects on Nepal’s economy.

 

There are opportunities and hazards involved in the complex discussion of whether BRI will trap Nepal in a cycle of debt. To maximize the advantages and reduce potential risks of BRI, Nepal’s rigorous evaluation of project viability, transparency decision-making, and proactive interaction with different partners will be essential. Nepal’s response to BRI projects will influence its economic and geopolitical trajectory for years to come as the initiative develops.