Aid fragmentation continues as donor agencies scatter funds

April 17, 2017

The Kathmandu Post, 17th April 2017, Post Report, Kathmandu

Aid money extended by development partners remained fragmented in the last fiscal year as well, as donor agencies continued to scatter financial resources in relatively smaller projects, raising questions on effectiveness of foreign assistance, says a latest report.

Every donor agency worked with an average of eight ministries or agencies in 2015-16, which is the same as in the fiscal year 2014-15, says the Development Cooperation Report 2015-16 launched on Sunday by Deputy Prime Minister and Finance Minister Krishna Bahadur Mahara.

The more the aid money is fragmented the more it tends to erode aid effectiveness and raise transaction cost.

“Many development partners are associated with more than 10 counterpart ministries or agencies. This clearly shows the development partners’ need to concentrate resources on selected sectors where they have comparative advantage,” says the report.

Aid fragmentation occurs when development partners scatter financial resources in many projects or programmes.

The Organisation for Economic Cooperation and Development has defined fragmentation of international assistance as “aid that comes in too many slices from too many donors, creating high transaction costs and making it difficult for partner countries to effectively manage their development”. 

“We have been consistently telling donors to plough money into big projects, especially infrastructure projects, to ensure aid is not fragmented.

We have also been asking line ministries to accept foreign aid based on its impact to a larger segment of the society,” said Finance Secretary Shanta Raj Subedi. “Yet many ministries accept technical assistance of smaller amounts, leading to aid fragmentation.”

In 2015-16, the United Nations Country Team was found to be handling 73 projects of 17 ministries or agencies, followed by the Asian Development Bank (ADB), which was overseeing 48 projects of 15 ministries or agencies.

The United States Agency for International Development (USAID), on the other hand, was working with 20 ministries or agencies to implement 41 projects in 2015-16, while the Swiss government was handling 36 projects belonging to 12 ministries or agencies.

Other development partners overseeing implementation of large number of projects were the European Union, the World Bank, Japan and the UK, shows the latest report.

“In the case of the World Bank Group, the UK, the USAID and the ADB, the volume of their portfolios should also be taken into account, [as they are biggest contributors of development assistance],” says the report.

“But other development partners having many projects of small size should focus on areas of comparative dvantage, potentially through larger contributions to programme assistance or sector-wide approach to avoid duplication and aid fragmentation.”

A toolkit prepared by the European Union has recommended a maximum of three sectors for each donor. However, the toolkit calls for some flexibility at the country level if sectors are narrow in scope.

“Given the level of aid fragmentation in Nepal, concentration of five sectors or less per donor agency can be considered as satisfactory,” a previous MoF report said. 

Some of the sectors where donor involvement was high in 2015-16 were: energy, local development, education, health, and environment, science and technology. 

Aid disbursement tops $1 billion

KATHMANDU: Aid disbursement went up by 5.3 percent to $1.1 billion in the fiscal year 2015-16, shows the Development Cooperation Report 2015-16.

In the same period a year ago, aid disbursement stood at $1 billion. Of the total aid, $533.2 million, or 49.6 percent, was received in the form of grants, $374.7 million, or 34.9 percent, in the form of soft loan and $166.1 million, or 15.5 percent, in the form of technical assistance.

The biggest aid provider in 2015-16 was the World Bank Group, which extended $243.7 million in assistance, followed by the Asian Development Bank ($217.7 million) and the United States Agency for International Development ($118.9 million).

The top sector in terms of aid disbursement was energy, which received $150.6 million in assistance, followed by local development ($119.2 million) and education ($111.6 million). PR