Foreign aid commitment up 40pc in first 6 months of FY

February 04, 2017

Kathmandu Post, Post Report, January 29, 2017- Foreign aid commitment jumped 40 percent in the first six months of the current fiscal year, as development partners continued to support Nepal to execute post-earthquake reconstruction works and confidence of donors grew with the normalisation in supply situation and stability seen in domestic politics.

Different bilateral and multilateral development partners pledged to extend Rs152.3 billion in between mid-July and mid-January of 2016-17, as against Rs108.5 billion recorded in the same period a year ago, show the latest data of the Ministry of Finance (MoF).

“The amount probably would have gone up further had we signed agreements with all development partners that expressed interest to support Nepal,” said Baikuntha Aryal, chief of the Internat-ional Economic Cooperation Coordination Division at the Finance Ministry. “But we are becoming selective these days and are signing agreements only if projects are ready for execution.”

The government had to become “selective” because of its low fund absorptive capacity, which is a result of weak planning, and delay in preparation of detailed project design, land acquisition, establishment of project management offices and preparation of procurement plans.

Of the total aid commitment received by the country in the six-month period, 25 percent, or Rs38.4 billion, was in the form of grants, while remaining 75 percent, or Rs113.9, was in the form of soft loan. In the same period last fiscal year, 15 percent of the pledged aid was in the form of grants and remaining in soft loan.

The amount of grant pledged by development partners was higher, in terms of share in total aid, this year, as a big chunk of funding commitments came from bilateral donors.

Bilateral donors, like the UK government’s Department for International Development (DfID), the United States Agency for International Development, and Japan, generally provide grants to Nepal.

Multilateral donors, like the World Bank and the Asian Development Bank, on the other hand, have significantly reduced the flow of grants to Nepal citing the country’s improved debt servicing capacity.

Nepal received only 12.5 percent of aid commitment from multilateral donors, namely the World Bank and the Asian Development Bank, in the six-month period.

The country received biggest aid commitment from India in the six-month period. The southern neighbour pledged to extend Rs79.5 billion ($750 million) in soft loan for post-earthquake reconstruction works.

Another biggest aid commitment came from the DfID. The UK government agency pledged to give away Rs24.4 billion in grant to support employment, climate change, health, security and justice, and post-quake reconstruction programmes. With this support, the DfID has emerged as the biggest provider of grants to Nepal.

Next in the list of biggest aid providers in the six-month period was Japan, which expressed commitment to extend Rs18.2 billion to the government. Of this amount, Rs2.8 billion was in the form of grants and remaining Rs15.4 billion in the form of soft loan at an annual interest rate of 0.01 percent for a period of 40 years. The loan was provided to build a tunnel on Nagdhunga-Naubise section of the Prithivi Highway.

Among others, the Asian Development Bank pledged to give away Rs13.2 billion, the World Bank expressed commitment to provide Rs5.9 billion, and the United States Agency for International Development pledged to offer Rs 3.2 billion.