KATHMANDU, Feb 16: As Nepal grapples with resource shortages for development projects, there's been a huge decline in international aid extended to the country by its development partners. With the government facing challenges in meeting revenue collection targets, development initiatives are affected due to inadequate resources. In the current fiscal year, foreign aid has decreased by over half compared to the previous year.
According to the half-yearly assessment report released by the Ministry of Finance (MoF) last week, the international development aid commitments in the six months of the current fiscal year 2023/24 have decreased by Rs 77.14 billion compared to last year’s figures.
In the last fiscal year 2022/23 half-yearly assessment, Rs 137.12 billion was pledged as international development aid, but in the same period of the current fiscal year, only Rs 59.18 billion has been pledged for development aid. This is a decrease of 56.26 percent compared to the same period last year. Nepal has been receiving bilateral and multilateral aid. Looking at the half-yearly review of the last five years, the foreign aid commitment received in the current fiscal year is the lowest.
Former Finance Secretary Suman Sharma says that if there is a decrease in foreign aid, it would directly impact the development projects. "Foreign loans and grants are necessary for infrastructure development as the revenue falls short of covering even the recurrent expenditure," he said.
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He said that the reduced government spending capacity and sluggish project implementation may be the reason behind the decline in foreign aid. The government has been using foreign aid in areas such as roads, irrigation, electricity, and drinking water.
The government has set a target of mobilizing Rs 262.69 billion in the budget of the current fiscal year through international development assistance. Out of this amount, the government hopes to receive Rs 49.94 billion (19 percent) in grants and Rs 212.75 billion (81 percent) in loans. However, achieving this target seems increasingly unlikely this year, adversely affecting development projects.
According to the MoF, there has been a slowdown in the implementation of foreign-funded projects due to poor management and laxity among construction professionals. The MoF officials claim that since the government's capital expenditure has decreased, its impact has been on the direct payments and research funds made available by the development partners, leading to low foreign aid mobilization during the review period.
The government has been mobilizing aid in health, transportation, education, agriculture, environment, and economic development. Among the commitments received during the review period, Rs 16.65 billion has been committed in the health sector, Rs 8.6 billion in education, Rs 15.2 billion in transportation, Rs 3.45 billion in the environment sector, Rs 2.66 billion in agriculture, and Rs 825 million in economic development.
According to the MoF, negotiations regarding the acceptance of foreign aid worth Rs 59.97 billion and about Rs 27.17 billion in concessional loans in the first six months of the current year have been completed, awaiting financial agreements.
According to the MoF, the ministry has been engaged in discussions with various bilateral and multilateral development partners regarding the mobilization of around Rs 63 billion in grant aid and Rs 363 billion in subsidized loans. About Rs 6.93 billion from the International Monetary Fund and about Rs 13.30 billion concessional loans from the Asian Development Bank has been received as budgetary assistance.
However, challenges persist in obtaining more aid, attributed to delays in utilizing available foreign aid and a tendency to request financial assistance without completing project preparations, resulting in prolonged project implementation even after signing financial agreements.
The practice of mobilizing a part of the grants received by Nepal through international organizations and non-governmental organizations outside the budget system still continues. According to the arrangement in the annual budget, the government is ready to develop a system for contracting development assistance only after completing all project development preparations.
