Nepal | May 26, 2020

Foreign aid’s share in budget may cross 30 pc

Rupak D Sharma
Share Now:

Estimates prepared by NPC, projections made by officials of Ministry of Finance

New Budget

New Budget. Illustration: Ratna Sagar Shrestha/THT

Kathmandu, May 22

If indications given by the government are anything to go by, the contribution of foreign aid in the budget of the next fiscal is likely to cross the 30 per cent mark.

Rise in foreign aid’s share in annual budget should not come as a surprise in a country where development needs are high but domestic resources are limited due to low economic growth.

But is this development financing model sustainable?

Nepal’s reliance on foreign grants and soft loans had actually dropped in fiscal year 2012-13 when the share of foreign aid in the annual budget stood at around 18 per cent from 26 per cent recorded in fiscal years 2010-11 and 2011-12.

Although that share went up to around 22 per cent in 2013-14, it fell to around 20 per cent in 2014-15.

Then foreign aid’s contribution to the budget suddenly jumped to 25.12 per cent in this fiscal year, largely because of higher funding needs for post-earthquake reconstruction and rehabilitation.

Now, that share is expected to balloon to anywhere between 30.65 per cent and 33.79 per cent in the next fiscal year, as more funds will be required for reconstruction and rehabilitation works.

These estimates were made based on figures presented in the draft approach paper of the 14th Periodic Plan, prepared a few days ago by the National Planning Commission, and projections made by officials of the Ministry of Finance.

The draft approach paper estimates the budget of next fiscal to stand at Rs 978.10 billion. To fund this spending, the government, according to the approach paper, is likely to mobilise Rs 231.43 billion in foreign soft loans and Rs 99.05 billion in foreign grants.

This means a total Rs 330.48 billion or 33.79 per cent of the projected budget of Rs 978.10 billion is likely to be mobilised in foreign aid in the next financial year.

The projection on foreign aid mobilisation is Rs 36.83 billion higher than foreign aid ceiling of Rs 293.65 billion extended earlier by the NPC.

Yet the caveat is the Ministry of Finance does not always follow projections laid in approach papers to frame the annual budget. This is likely to happen this year too, as the government is expected to register a treasury surplus of Rs 50 billion to Rs 100 billion by the end of the fiscal.

So, this amount will most likely be taken into account while finalising next financial year’s budget. This means next fiscal’s budget may balloon to anywhere between Rs 1,028 billion and Rs 1,078 billion.

If the size of next fiscal year’s budget swells to Rs 1,078 billion, the proportion of foreign aid in the projected annual outlay will stand at 30.65 per cent, considering the government’s plan to mobilise Rs 330.48 billion through foreign grants and soft loans.

Such a hike is expected to come at a time when the latest Development Cooperation Report of the MoF has sounded alarm bells over fragmentation of aid money, as each development partner operating in the country worked with eight ministries or agencies on average in the last fiscal year, scattering financial resources in a number of projects or programmes.

The Organisation for Economic Cooperation and Development says aid fragmentation pushes up ‘transaction costs, making it difficult for partner countries to effectively manage development’. This, in turn, erodes effectiveness of projects.

Considering the negative impacts of aid fragmentation, the government has introduced sector-wise approach in foreign aid utilisation, under which resources from several donors are pooled to support a sector.

This joint financing arrangement has been implemented in education and health sectors.

“It would benefit the country if similar arrangement is introduced in the physical infrastructure sector. This will help us build selected but strategically important infrastructure projects,” Narayan Dhakal, under secretary at the International Economic Cooperation Coordination Division of the Ministry of Finance, told The Himalayan Times.

But many donors, especially bilateral, do not want to participate in such programmes because they do not get recognition for contribution they have made, as their names get buried among other development partners engaged in the work.

Also, what is true is sector-wise approach introduced in education and health sectors has not produced desired outcomes because of weak governance and defects in the country’s policies and institutions.

“Foreign aid is not the panacea. But it is helpful for countries that have just begun climbing the rungs of development,” said Dhakal. “So to reap maximum benefits a country must hone its negotiation skills to divert aid to priority areas.”

A version of this article appears in print on May 23, 2016 of The Himalayan Times.

Follow The Himalayan Times on Twitter and Facebook

Recommended Stories:

More from The Himalayan Times:

Drunken man murders spouse in Udaypur

GAIGHAT: A man has murdered his wife after consumption of alcohol in Rautamai Rural Municipality-8 of Udaypur district, on Monday. The deceased has been identified as Dil Maya Tamang, 43, of the Rural Municipality. According to Superintendent of Police (SP) Bir Bahadur Budha Magar at the Distr Read More...

Highlights from today’s media briefing on COVID-19 response

KATHMANDU: The Ministry of Health and Population (MoHP), in its regular press briefing, shared the latest updates from across the country on government’s response to COVID-19 crisis. As of today, 51,642 tests through Polymerase Chain Reaction (PCR) method and 95,192 Rapid Diagnostic Tests Read More...

25 people recover from COVID-19; nationwide recovery tally reaches 112

KATHMANDU: Twenty-five persons earlier diagnosed with the coronavirus infection, admitted at different health facilities across the country, have been discharged following recovery, confirmed the Ministry of Health and Population (MoHP). Eighteen persons of Chhapkaiya in Parsa district -- all of Read More...

NPC-NPI meet on virtual 'Policy Dialogue post COVID-19'

KATHMANDU: The National Planning Commission (NPC) and Nepal Policy Institute (NPI) held the first meeting in the series of NPI-NPC Policy Dialogue post COVID-19 via Zoom conference. Several experts from NPI Global experts community of Nepali origin and NPI Board members based in South East As Read More...

BTS label Big Hit acquires Pledis Entertainment home to NU'EST, SEVENTEEN

KATHMANDU: Big Hit Entertainment, the music label of K-pop band BTS, said on May 25 that it has acquired Pledis Entertainment that manages NU'EST and Seventeen, as part of efforts to diversify its business portfolio. Quoting Big Hit statement, The Korea Herald stated: "We've become the largest st Read More...

Queen guitarist May reveals he suffered heart attack

KATHMANDU: Queen’s guitarist Brian May suffered a “small” heart attack and was rushed to the hospital recently. May, 72, shared the news via a video on his Instagram page on May 25. In the video he revealed that the heart attack unfolded after he discovered that he had ripped his backsid Read More...

Beyoncé's taken a liking to Jungkook's My Time, reveals producer

KATHMANDU: There is no doubt that BTS's Jungkook is loved by ARMYs worldwide. But a piece of news that has all his fans feeling great is that global R&B queen Beyoncé has taken a liking to his solo My Time. According to Allkpop, My Time's producer SleepDeez took to Twitter to reveal that Read More...

Saif treats Kareena, Karisma to 'best mutton biryani' on Eid

MUMBAI: Bollywood actresses Kareena Kapoor Khan and Karisma Kapoor had an "insane lunch" — mutton biryani, prepared by actor and best chef Saif Ali Khan. Karisma took to her Instagram stories, where she posted a picture of the biryani made by Saif on the occasion of Eid. On the image, Read More...