Nepal is set to become a founding member of the proposed Asian Infrastructure Investment Bank (AIIB). Finance Minister Ram Sharan Mahat departed for China on Thursday to sign a memorandum of understanding (MoU) on the establishment of the multilateral bank making Nepal one of the creators.
He will be rubbing shoulders with 21 other finance ministers from Asian countries who are slated to sign the document on Friday in the presence of Chinese President Xi Jinping, the Finance Ministry said in a statement.
Following the signing of the MoU, its working modality will be finalized through discussions on the bank’s memorandum of articles.
The Cabinet has decided to become a founding member of the bank which is expected to open new sources of capital for Nepal to develop its poor infrastructure. The China-sponsored bank will focus on investing in the infrastructure sector in the Asian region.
“With the country aiming to graduate to developing country from the current least developed country (LDC) status, we need more resources, and the new bank will offer a new window to finance our infrastructure sector,” said Finance Secretary Suman Sharma.
According to a study carried out by the National Planning Commission (NPC), Nepal will need to invest Rs 9,696.76 billion at constant prices (or Rs 16,754.85 billion at current prices) through 2022 to achieve the gross national income target for graduation.
A World Bank study also shows that Nepal will require $ 13-18 billion from 2011-20 in order to bridge the investment gap in infrastructure.
Besides Nepal, other South Asian countries including India, Bangladesh, Pakistan and Sri Lanka are also likely to join the Beijing-led bank which is expected to rival the Asian Development Bank (ADB) where Japan and the US have a greater say.
South Korea, Thailand, Indonesia, Singapore and Malaysia are other countries expected to join the new bank as founding members.
The AIIB has planned to come into operation within 2015. It will have a paid-up capital of $ 50 billion and an authorized capital of $ 100 billion. The shareholding in the bank has been proposed to be maintained as per the Gross Domestic Product (GDP) of the respective member countries.
China will have the largest shareholding as the largest economy in Asia and the bank’s main promoter. As per the plan, 25 percent of the funding will be generated from other Asian countries while the rest will be sought from Western countries.
However, Finance Secretary Sharma said that calls had been made at a meeting to discuss the bank’s establishment that shareholding should be determined on the basis of purchasing power parity.
“Nepal is in favour of such a mechanism which will ensure a greater stake in the bank,” he said. The bank’s headquarters has been agreed to be maintained in Beijing. Chinese President Xi first raised the idea of establishing the infrastructure bank last October.