Why Nepal struggles to build infrastructure – and what can be done about it?

The Nagdhunga–Naubise–Mugling (NNM) road is one of Nepal’s most vital transport corridors, connecting the Kathmandu Valley to the Terai and onward to India.

As part of Asian Highway AH42, it carries an estimated 60-70 percent of all goods entering Kathmandu, including food, fuel, construction materials, and medicines.

Recent upgrades under the Strategic Road Connectivity and Trade Improvement Project (SRCTIP) have improved pavement quality, road safety, and travel times along the 94.7 km stretch.

However, progress came at a cost: land acquisition alone took 35 months—nearly 150% longer than planned—highlighting the systemic delays that continue to slow infrastructure delivery in Nepal.

Land acquisition alone for NNM road took 35 months—nearly 150% longer than planned—highlighting the systemic delays that continue to slow infrastructure delivery in Nepal.

This project reflects a broader challenge facing major investments in Nepal.

[tweetquote:[tweetText=Large investments in roads, hydropower, irrigation systems, and water supply projects are routinely approved, but implementation delays and incomplete projects remain widespread.,tweetData=WorldBankGroup,tweetHash=]]

According to the World Bank’s Nepal Capital Expenditure Bottlenecks Analysis (October 2025), this gap between planning and delivery is structural—and persistent.

At the federal level, the share of the capital budget in the total budget declined from 27.1 percent in FY21 to 20.9 percent in FY24, with only around 62 percent of these allocations executed on average. As a result, federal capital expenditure as a share of GDP fell from 5.3 percent to 3.4 percent.

Combined with underspending at the subnational level, total capital expenditure (CAPEX) across all three tiers of government fell from 11.4 percent of GDP in FY21 to 7.8 percent in FY24, well below the 10-15 percent of GDP estimated as necessary to close the country’s infrastructure gap.

Total capital expenditure (CAPEX) across all three tiers of government fell from 11.4 percent of GDP in FY21 to 7.8 percent in FY24.

These trends carry real economic consequences: [tweetquote:[tweetText= delayed infrastructure projects raise investment costs, slow service delivery, constrain economic growth, and limit job creation.,tweetData=WorldBankGroup,tweetHash=]]

Why does public investment fail at the implementation stage?

On paper, Nepal seems to have a sound public investment management system. In practice, weaknesses appear throughout the project cycle—from selection to funding and contract management.

Start with budgeting. Nepal approves far too many poorly prepared projects. This spreads resources thin— [tweetquote:[tweetText=at current funding levels, completing 17 National Pride Projects would take 41 years as per World Bank estimates. ,tweetData=WorldBankGroup,tweetHash=]]Outdated costing data and weak monitoring also undermine strategic planning and the medium-term expenditure framework.

At current funding levels, completing 17 National Pride Projects would take 41 years as per World Bank estimates.

[tweetquote:[tweetText=Project preparation is slowed mainly by delays in tree cutting clearance and land acquisition. ,tweetData=WorldBankGroup,tweetHash=]]For infrastructure projects, tree cutting approval processes take 2 years on average due to multiple approval procedures, duplicate surveys and limited use of digital tools. Land acquisition takes 2-3 years on average because of outdated valuation methods, fragmented records, and frequent compensation disputes.

For infrastructure projects, tree cutting approval processes take 2 years and land acquisition takes 2-3 years on average.

[tweetquote:[tweetText=Quarterly cash rationing leads to a year end spending surge—over 40% of capital spending occurs in the last month—reducing quality.,tweetData=WorldBankGroup,tweetHash=]]

Projects face added delays due to low disbursements (especially in donor-funded projects) and frequent staff turnover.

As an example, poor planning, combined with inflexible in-year fund reallocation rules, resulted in a 60-day delay to reallocate the periodic maintenance budget under SRCTIP, significantly slowing project implementation.

Finally, [tweetquote:[tweetText= procurement is a major bottleneck: Nepal has the longest World Bank–financed project procurement timeline in South Asia (231 vs. 192 total days).,tweetData=WorldBankGroup,tweetHash=]]

Mandatory use of lowest bids approach, strict termination penalties, paper decision making processes, and unclear guidance stall contracts.

A reform agenda to close the implementation gap

[tweetquote:[tweetText=Nepal must focus on better implementation of investment projects by shifting attention from budget allocations to how projects are selected, prepared, financed, and executed.,tweetData=WorldBankGroup,tweetHash=]]

We recommend five reform areas across the project cycle to address implementation bottlenecks.

Reform area	What changes are recommended?	Why does it matter?
Project prioritization	A tighter project pipeline where only investment ready projects enter the budget and new approvals wait until existing commitments are funded.	Public money goes to fewer, better‑prepared projects, improving value for money and reducing the stock of stalled investments.
Project readiness	Faster land acquisition and environmental clearances through digital records, standardized valuation, and streamlined approvals before project inclusion in the budget.	Projects break ground sooner, idle allocations fall, and implementation delays linked to land and tree‑cutting are significantly reduced.
Cash management	More credible cash forecasts, protection of capital budgets from mid‑year cuts, and fund releases aligned with realistic work plans.	Smoother project execution throughout the year—less stop‑go spending, better quality works, and fewer year‑end rushes.
Budget reallocations	Simpler and delegated reallocation rules within clear accountability limits.	Funds move quickly from stalled to performing projects, keeping implementation on track without weakening fiscal control.
Procurement reforms	Clearer bid evaluation, screening of abnormally low bids, enhancement of the‑procurement system, balanced risk‑sharing, and stronger procurement capacity.	Faster contract awards, fewer disputes and more reliable delivery of infrastructure projects.