22 per cent foreign aid disbursement out of budget

Though the foreign aid disbursement increased by 16 per cent to $1.62 billion in the last fiscal year, spending out of the budgetary system has not seen remarkable progress.
Of the total disbursement, some 78 per cent of the foreign aid has been received under on-budget headings, which means 22 per cent of the aid did not reflect in the government’s annual budget book.
According to thte Development Cooperation Report (DCR 2018) released by the Finance Ministry today majority of the development partners increased their aid to Nepal after devastating earthquake of April 2015. "Of the total disbursement, 50.5 per cent was loan, 35.1 per cent grant and 14.4 per cent technical assistance," the report reads, adding that the World Bank (WB) continues to be the largest development partner (DP) contributing the most in development aid to Nepal in the last fiscal year. "The WB contributed $533.51 million, up by 54 per cent aid compared to a fiscal year ago."
The World Bank’s financial support to Nepal significantly increased after the earthquake of April, 2015. During that year, the World Bank disbursement stood $188.12 million, and of the total disbursed amount, some 97.8 percent was on-budget.
Likewise, the Asian Development Bank (ADB) remained the second highest multilateral lending agency to Nepal, disbursing $291.69 million in aid last fiscal year, up by 14.88 per cent. "Out of the total disbursement, some 95 per cent was on-budget," it further notes.
The United Kingdom emerged as the third largest development partner with a total aid disbursement of $123.87 million. But the aid disbursement from the UK has dropped by 3.46 per cent in the last fiscal year compared to a fiscal year ago.
Under the bilateral development partner, Nepal’s northern and southern – India and China – neighbours stands at 8th and 9th position, respectively. "Though the aid from China jumped by 42.38 per cent to $58.72 million, the aid from India dropped by .2 per cent to $56.76 million in the last fiscal year compared to a fiscal year ago," the report adds.
"As Nepal has been receiving more than one-third of the development partners' money in the form of grants," finance minister Dr Yubaraj Khatiwada said adding that the grants will drop in the coming years as Nepal has made a number of institutional reforms, increasing its capacity to pack back its loans. "Drop in grant means Nepal's loan will grow."
"As Nepal aims to graduate to the league of developing nations by 2022, we will have to focus on mobilising the loans received under the low interest rate more prudently and in a transparent manner," he added.

Province 3 largest recipient of foreign aid

Province 3 is the largest recipient of the foreign aid, according to a report.
According to the Development Cooperation Report (DCR 2018) released by the Finance Ministry today, the Province 3 – despite a drop of 6.28 per cent in aid disbursement – is the largest recipient of the development assistance. "It received $332.47 million in foreign aid in the last fiscal year 2017-18," the report reads.
Five – out of seven provinces – saw their foreign aid disbursement increase in the last fiscal year, whereas disbursement in Province 1 declined by 5.46 per cent to $58.31 million. "According to the report, out of the total development assistance disbursed, about 57 per cent ($923.2 million) was disbursed through national level projects while about 43 per cent ($699.6 million) was disbursed to projects associated with specific districts or provinces.

New Foreign Aid Policy will be instrumental in boosting development

The government has renamed Foreign Aid Policy to Development Cooperation Policy aiming at increasing its effectiveness of foreign assistance

During the Local Donor meeting here today to discuss the draft of Development Cooperation Policy 2013, the Finance Ministry also urged the development partners to extend their assistance through budgetary system as the Development Cooperation Report 2012 had revealed that almost a quarter of the foreign assistance is still out of budgetary system. “Some 23 per cent of the total aid has still been out of the budgetary channel hampering government’s efforts to maintain transparency in foreign assistance,” chief economic adviser of the Finance Ministry Chiranjibi Nepal said.

The donors have been supporting various non-governmental organisations (NGOs) except their Official Development Assistance (ODA).

“Channelising the foreign assistance through the budgetary system will help increase the transparency and accountability,” he said, adding that the transparency and accountability – the key buzz words of the development partners – will also help better outcome from the external assistance and lessen the dependency on foreign aid.

Presenting the highlights of the proposed Development Cooperation Policy, joint secretary at the minister and chief of the Foreign Aid Coordination Department Madhu Kumar Marasini said that the draft has focused on establishing a system to accept and mobilise foreign assistance in line with the government policy to reap maximum benefit in a transparent manner.

The proposed Policy envisages an environment to accelerate economic growth through effectively channelising foreign aid in line with the government policy, create an environment for private sector growth, trade enhancement and formulate a mechanism for effective implementation of donor funded programmes.

The proposed foreign aid policy will help graduate Nepal from the current status of Least Developed Country (LDC) to Developing Country status, said finance minister Shankar Prasad Koirala said, chairing the meeting.

However, donor’s support would play a key role in its effort to graduate Nepal to developing country, he said, adding that Nepal with proper utilization of foreign aid would graduate to developing country status by 2022. “The proposed policy is aligned to approach paper of third three-year interim plan and included the interest of development partners, and aims at restoring the confidence of private sector.”

The political stability after the CA election will ensure the economic growth, the minister added.

Finance secretary Shanta Raj Subedi, on the occasion, informed that the timely budget for the current fiscal year will help spur the economic growth this fiscal year 2013-14.

Addressing the meeting, World Bank country manager for Nepal Tahsin Sayeed asked the government to speed up the process of implementing the long pending economic reform to create investment friendly environment in the country.

World Bank assistance for trade facilitation

The World Bank (WB) Group has agreed to provide $99 million, including grant and loan, to Nepal to facilitate trade and promote export.
Nepal-India Regional Trade and Transport Project (NIRTTP) – that is expected to boost the foreign trade – will receive $27 million grant and $72 million loan, respectively, according to an agreement signed here today by World Bank country manager for Nepal Tahseen Sayed, and joint-secretary and head of Foreign Aid Coordination Department at Finance Ministry Madhu Kumar Marasini, on behalf of their respective institutions.

The project aimed at decreasing transport time and logistics costs between Nepal and India will also facilitate transit trade along Kathmandu-Kolkata corridor to reduce key infrastructure bottlenecks and support modernisation of border management, according to the Finance Ministry.

The project covers modernisation of transport and transit arrangements between Nepal and India, strengthening trade related institutional capacity and improving selected trade related infrastructure, it added.

“The project, which is the first of its kind in South Asia, will be instrumental in introducing a modern and effective transit regime and enhancing efficiency in trade system as well as simplifying movement of goods between the Kolkata port and Kathmandu,” Sayed said after signing the agreement."The project would create an environment to expand regional trade enhancing transport, trade and transit facilities, which would be most beneficial for Nepal," said Marasini, on the occasion.

The project also covers upgradation and expansion of Narayanghat-Mugling road section to Asian Highway Standard, improvement of the Birgunj-Kathmandu corridor, construction of a Container Freight Station or an Inland Clearance Depot (ICD) in the Kathmandu Valley, enhancing capability of trade related laboratories and facilitation of arrangements for mutual recognition of quality certificates.
According to Development Cooperation Report (DCR) 2013, World Bank with $269.60 million was the largest multilateral donor in the fiscal year 2011-12.

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Government to create investment friendly climate

According to the finance minister, the government is trying to create an investment friendly environment.
Talking to World Bank vice president for South Asia Isabel Guerrero and International Finance Corporation (IFC) regional vice president Karin Finkelston, at the ministry here today, finance minister Shankar Koirala said that the government is committed to attracting foreign investment in the country.
The IFC — the private sector lending arm of the World Bank Group — has been helping the country create an investment friendly environment by reducing the doing business process.
Koirala, on the occasion, also informed that the government is preparing guidelines to issue local currency bonds. IFC and Asian Development Bank have been keen on issuing local currency bonds that are expected to bridge the gap between long-term financing needs and short-term deposits in the financial sector. "It is expected to  finance big infrastructure projects."
Likewise, the budget — that is under preparation for next fiscal year 2013-14 — will address foreign currency volatility mitigation measures in big infrastructure projects funded by development partners, he said, adding that the fiscal policy has also prioritised energy as it is the engine of growth for the country.
Guerrero, on the occasion, said that the World Bank will increase its investment in the energy sector in cooperation with the private sector.
The World Bank has in its draft country strategy paper also prioritised investment in energy and domestic transmission lines, apart from cross-border transmission lines. It was the largest multilateral development partner in the last fiscal year 2011-12, with a contribution of $269.60 million. The World Bank Group has been funding 42 projects and working with 17 ministries and government agencies, according to the Development Cooperation Report 2013.

Foreign aid a necessary evil, experts

Foreign aid has become a necessary evil as it has been financing around 60 per cent of the development programmes, according to the experts.
Without developing our own competency, there is no alternative to the foreign aid, though our dependency syndrome is increasing, said former ambassador to India Prof Lok Raj Baral, speaking at a workshop on 'The Political Sociology of Aid in Nepal', organised by Alliance for Aid Monitor Nepal (AAMN) here today.
Apart from increasing the absorptive capacity of the country, the aid has also to be channelised to the priority sectors, he added.
State's regulatory capacity has to be increased for the better output of the aid, as the resource distribution depend on political influences, he said, adding that there is also a need to serious study on its contribution to various sectors like poverty alleviation.
Backing Baral, senior economist Prof Dr Bishwhambher Pyakuryal also agreed on a serious need to study on why foreign aid failed to respond in Nepal. "The impact of foreign aid on inflation, exchange rate and other critical indicators have to be studied in detail for effective public expenditure management and formulation of appropriate fiscal and monetary policy," he added.
"We should also be aware that over dependency on foreign aid could erode domestic resource mobilisation capacity," Pyakuryal said, adding that external aid should not suppress the domestic resource mobilisation capacity.
The government has also started monitoring development cooperation through Aid Management Platform to take maximum benefit of the aid. It has also asked the development partners to align their assistance with the Three Year Interim Plan that could bring more output.
Likewise, Prof Dr Krishna Bhattachan, on the occasion, asked to study the contribution of foreign aid on state and the society as the effectiveness also depends on strong state and society.
National Programme Manager of AAMN Prabash Devkota, meanwhile said that the foreign aid has to be linked with the political sociology to understand why foreign aid did not deliver economic success in Nepal. "Not only would it shed light on why foreign aid aimed at economic development failed in the past but also can analyse and explain what a country like Nepal should expect from foreign aid to achieve economic development," he added.

Government claims there will be no plan holiday

Finance minister Shankar Koirala said there will be no plan holiday, assuaging the serious concerns of development partners.
Trying to satisfy development partners — during the Local Donor Meeting here today — regarding their concern on a 'plan holiday' due to the vacant National Planning Commission (NPC) at a crucial time when the third Three Year Interim Plan (2013-16) needs to be finalised, he said the government will appoint planning commission members including the vice chair soon.
The planning commission that remains vacant after vice chair Deependra Bahadur Kshetry and three members resigned on April 22, has not been able to call the meeting of National Development Council that will finalise the draft of the third Three Year Interim Plan.
Koirala, however, asked the development partners — who are waiting for the finalised draft of the plan — to align their respective country strategy papers in line with the government's development map.
Asking the development partners to also follow the Development Cooperation Report (DCR) 2013, which has concluded that foreign aid has been widely fragmented and not aligned to the government's ongoing second Three Year Interim Plan (2010-13), he blamed untimely and low disbursement, lack of effective oversight and low absorptive capacity as the key impediments to effective mobilisation of foreign aid.
"Aid effectiveness is key with accountability," he said, adding that effectiveness of foreign aid is also a concern of development partners that have been helping Nepal for the last six decades.
The development partners, however, asking the government to focus on four key areas as stop-gap measures to continue mutual accountability, transparency and aid effectiveness, asked for an update on the preparation status of the next three-year interim plan.
"The plan will provide the framework for long-term partnership and commitment of development partners, especially in the context of their next country partnership strategies," said World Bank (WB) country manager for Nepal Tahseen Sayed, speaking on behalf of the development partners.
She also asked the government to focus on budget and portfolio management for maximum development results; economic planning and programming; accountability and governance; and Foreign Aid Policy and aid effectiveness. "By adopting the MfDR approach in the plan, with associated results framework, greater harmonisation and alignment will take place," said Sayed, adding that more rapid progress in establishing a medium-term expenditure framework, with stronger linkages to budget allocation and outputs would bring more discipline and better oversight in managing the expenditure programme.
"We have recently seen unprecedented consensus among top political leaders on hydropower development and the government can use the opportunity to take administrative, legislative, and institutional measures to support hydropower development, including mechanisms for meaningful consultations with the local population," she added.
Hailing the release of the Auditor General's report on time, the development partners also asked the government to form an extraordinary committee — as an interim measure — to play the role of Public Accounts Committee (PAC) consisting of qualified personnel to scrutinise accounts and take necessary actions until a regular PAC is established.
On the occasion, they also welcomed and hailed the sharing of contours of the draft Foreign Aid Policy. "We understand that finalising the policy, in consultation with development partners, is a key priority of the government to bring more clarity with regard to foreign aid management," Sayed said.