Foreign aid disbursement drops marginally to $1.04 billion

Actual foreign aid disbursement dropped marginally to $1.04 billion in the last fiscal year, from $1.07 billion a fiscal year back, according to a report. However, the total commitment including technical assistance from development partners had crossed $1.21 billion in fiscal year 2011-12.
Likewise, the priorities of the government and development partners also do not match, the Development Cooperation Report (DCR) 2011-12 -- which is the second one since it has been started to be published since last fiscal year -- published today revealed.
"The Three-Year Interim Plan focuses on infrastructure development, whereas aid flow seems to have been shifted more to social sectors," said chief of Foreign Aid Coordination Division at the finance ministry Madhu Marasini, adding that aid flow has, however, shown a positive outcome on social indicators, and there is a need to align the priorities of the government and development partners in the future.
Sectorwise, education is the largest receiver of foreign aid, according to the report that revealed that education had received $229.04 million foreign aid in fiscal year 2011-12, followed by local development ($154.51 million), road transportation ($116.73 million), electricity ($106.82 million) and health ($85.07 million).
But the challenge is that aid in health and agriculture is highly fragmented, and aid in too many slices from too many donors will add high transaction cost and make it difficult for partner countries to effectively manage development. "On average, one donor has 11 line ministries or agencies," said Marasini, adding that aid flow does not reach districts, where there are more poverty headcounts as the donor support is less targeted in rural areas.
"The Central Development Region has the highest number of on-budget projects, whereas Western Development Region has the lowest number of projects including technical assistance," the report revealed, adding that off-budget aid distribution stands at 23 per cent, whereas some 77 per cent aid flow is on-budget.
"The government has a long way to go to bring all aid money in the red book," Marasini suggested, adding that full entry of aid information into the Aid Management Platform is a key challenge that will not only bring aid into the national system but also enhance mutual accountability. "The new Foreign Aid Policy that will be a major policy departure will address these challenges."
The government has prepared a draft of the new Foreign Aid Policy that will be discussed with development partners at the next consultative meeting, informed finance minister Shankar Koirala, on the occasion.
"The government is planning not to accept off-budget aid," he said, adding that the Auditor General has the right to audit foreign aid too, which will make aid flow more transparent and donors more accountable.
In the short run, the country needs foreign aid to finance development projects. However, in the long run, the country should be able to mobilise internal resources, he added. "Foreign aid has a key role in development but it will be reduced and concentrated on selective areas in the long run."

Distribution of Disbursement
On budget — 77 per cent
Off budget — 23 per cent

On Budget breakdown
On treasury — 58 per cent
Off treasury — 19 per cent
(Source: Development Cooperation Report 2011-12)

Top five projects
Education Sector Reform Programme — $606 million
Nepal Health Sector Programme — $254 million
Poverty Alleviation Fund II — $247 million
Melamchi Drinking Water Project — $226 million
Middle Marsyangdi — $201 million
(Source: Development Cooperation Report 2011-12)

Top five multilateral donors
World Bank — $269.60 million
Asian Development Bank — $193.40 million
UN Country Team — $118.17 million
European Union — $43.97 million
Global Fund — $15.09 million
(Source: Development Cooperation Report 2011-12)

Top five bilateral donors
UK — $84.24 million
India — $50.62 million
Japan — $44.09 million
Norway — $41.68 million
Germany — $38.83 million
(Source: Development Cooperation Report 2011-12)

Top five ministries with highest number of projects
Ministry of Health and Population — 83
Ministry of Physical Planning — 60
Ministry of Federal Affairs and Local Development — 57
Ministry of Agriculture — 41
Ministry of Women, Children and Social Welfare — 39
(Source: Development Cooperation Report 2011-12)