Infrastructure Projects Hampered by Systemic Bottlenecks: World Bank

Delays in the construction of roads, irrigation systems and other infrastructure projects in Nepal stem not only from slow government spending but also from deep structural problems within the public investment management system, a new study by the World Bank has found.

The report titled Nepal Capital Expenditure Bottleneck Analysis states that systemic obstacles across the entire project cycle—from identification to implementation—have prevented development budgets from being spent effectively.

According to the report, weak project preparation, disputes over land acquisition, complex approval procedures and weaknesses in budget management have made it difficult to translate allocated funds into actual infrastructure development.

The study notes that these problems are also affecting the broader economy. Ineffective implementation of capital expenditure has limited the creation of productive assets, expansion of physical infrastructure and the country’s capacity to support long-term economic growth.

Former director general of the Department of Roads Arjun Jung Thapa said most of the problems highlighted in the World Bank report were accurate and reflected the challenges he experienced while working at the department. According to him, projects handled by foreign contractors often face longer delays.

“If capable domestic contractors are involved, they tend to address complaints raised at the local level and complete the work on time,” he said. “Foreign contractors often face difficulties in dealing effectively with local communities.”

Thapa cited the Nepalgunj–Gulariya road and the Karnali Bridge as examples of projects undertaken by Nepali contractors that were completed ahead of schedule.

Large projects financed by foreign donors are generally awarded to foreign contractors. “Donors often include additional social components in project agreements, which can also slow the pace of work,” he added.

According to the report, Nepal’s public capital stock has declined significantly over the past three decades. Public capital assets, which accounted for around 75 percent of the gross domestic product (GDP) in the mid-1990s, fell to about 54 percent by 2019.

The report describes this decline as unusual for a country that still faces large infrastructure gaps in sectors such as transport, irrigation, energy and urban services. Although public investment increased temporarily following the 2015 earthquake and the implementation of the federal governance system, it has since shown a declining trend.

Capital expenditure reached around 11.4 percent of GDP in fiscal year 2020/21 but gradually declined to about 7.9 percent by fiscal year 2023/24, the report says.

According to the Financial Comptroller General Office (FCGO), the government spent Rs 78.73 billion on capital expenditure by March 15 of the current fiscal year, which is about 19.3 percent of the annual target. Capital spending by mid-March this fiscal year was about Rs 4.11 billion lower than in the same period last year. By mid-March of fiscal year 2024/25, the government had spent Rs 82.56 billion, equivalent to 23.43 percent of the annual capital expenditure target.

President of the Federation of Contractors’ Associations of Nepal Ravi Singh said capital expenditure is unlikely to increase significantly this fiscal year.

“Construction activities slowed after the instability created by the Gen Z movement in September, and it has become difficult to find workers,” Singh said. He added that the ongoing United States–Iran conflict has also caused shortages of diesel and bitumen while pushing up the prices of other construction materials, which could further dampen capital spending.

According to the World Bank, Nepal needs to invest between 10 percent and 15 percent of its GDP annually over the next decade to address its infrastructure gap. However, the report states that the challenge is not only to increase the budget but also to ensure effective implementation of the projects included in it.

The study found that many projects are included in the budget without adequate feasibility studies, realistic cost estimates or clear implementation timelines. Although mechanisms such as the National Project Bank exist to evaluate projects, the report says these standards have not been implemented effectively.

As a result, projects are often included in the budget without sufficient preparation, increasing the total number of projects and intensifying competition for limited resources. This leads to the budget being fragmented into small allocations, slowing overall project progress.

Administrative procedures during project implementation also contribute to delays. The report states that obtaining approval to cut trees for infrastructure projects located within forest areas takes an average of 22 to 24 months. The process involves environmental impact assessments, manual tree counting by forest offices and multiple levels of approval from government agencies. If discrepancies emerge between initial studies and field surveys, the process can take even longer.

Land acquisition has also emerged as a major obstacle. The report notes that acquiring land for large infrastructure projects typically takes two to three years in Nepal. Disputes over land valuation are the main cause of delays, as different government agencies use varying valuation systems and proposed compensation often fails to match market prices.

Such disputes frequently end up in legal proceedings, further delaying project implementation, the report says.

Weaknesses in the land management system also exacerbate the problem. Although digital land records have expanded, different databases remain poorly integrated, making it difficult to quickly verify land ownership and valuation.

The study also found that public procurement procedures and budget management practices contribute to delays. Capital expenditure in Nepal is often concentrated toward the end of the fiscal year, with less than half of the annual capital budget typically spent in the first three quarters.

A large portion is spent in the final quarter, when government agencies rush to utilise the remaining budget.

Delays in land acquisition, environmental clearances and procurement procedures often mean that construction work begins only toward the end of the fiscal year. The cash management system also adds to the problem. Although government agencies are allowed to mobilise the full budget at the beginning of the fiscal year, funds are often released gradually or withheld due to revenue shortfalls.

As a result, a significant portion of the development budget remains unspent each year. According to the World Bank, ineffective utilisation of development spending has reduced public investment by about 5 percent of GDP in recent years.

The report concludes that minor administrative reforms alone will not be sufficient to address these issues. It recommends strengthening project preparation standards, improving coordination between planning and budgeting systems, digitising land and forest management processes and reforming public procurement procedures.

It also stresses the need to improve project selection and prioritisation so that limited public resources can be concentrated on well-prepared priority projects.

Without such reforms, the World Bank warns, major infrastructure projects in Nepal will continue to face delays for years despite repeated announcements of development budgets.