The Development Cooperation Report 2018 released by the Finance Ministry on January 16, 2019 showed a 16 percent rise in foreign aid disbursement to Nepal (USD 1.62 billion) in the ended fiscal.

World Bank topped the list of aiding agencies with USD 533.51 million support, showing a 54 percent year-on-year rise in funding.

Asian Development Bank (ADB), United Kingdom, USAID and European Union stand as the major contributors.

Majority of the funding was focused on economic reforms, education sector, health, urban development and local infrastructure development.

It is noteworthy that the World Bank’s funding to the nation has increased during and after the 2015 earthquake. Even the other agencies also showed a growing trend with regard to offering financial support post the earthquake incident.

Top-5 Disbursements from Global Funding Agencies Aid to Nepal- A Glance at Comparison (in NPR)

Of the total disbursed amount, 50.5 percent of the fund came in the form of loan, 35.1 percent in grant and 14.4 percent as technical assistance.

It is notable that 78 percent of the foreign aid has come under in line with the budgeted requirements, reflecting in the government’s annual budget book.

Country-wise

The United Kingdom emerged as the top-3 donor after the world’s leading funding agencies, while Nepal’s closest neighbors did not appear in the list and were at 8^th and 9^th positions, respectively.

India’s contribution to Nepal during the year was USD 56.76 billion, down 4.2 percent year-on-year.

Sector-wise

Economic sector topped the list with regard to sector-wise receiving of funds, followed by education sector, urban development, health, local development, energy and housing.

“The increase in disbursement was due mainly to the implementation of ‘First Programmatic Fiscal and Public Finance Management Development Policy Credit’ funded by the World Bank,” said the report.

Bagging on Capacity Development

Finance Minister Yubaraj Khatiwada is hopeful that the donations would further go down as Nepal is moving on the path of development with good number of institutional reforms and enhancing its capacity to pay-back loans.

It’s clear. Drop in grant means our loan will grow,” he told a press conference on Wednesday. “As Nepal aims to graduate to the league of developing nations by 2022, we will have to focus on mobilizing the loans received under the low interest rate more prudently and in a transparent manner,” says the Minister.

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According to the Ministry of Finance (MoF) Nepal, the revenue collection over the next fiscal is expected to see a 30 percent rise standing at around Rs 950 billion, around Rs 220 billion more than the current fiscal target of Rs 730 billion.

According to Finance Secretary Shankar Prasad Adhikari, this target can be achieved through control of under-invoicing practice and boosting inland tax revenues such as Value Added Tax (VAT) and Income Tax (IT).

“The target is quite ambitious, but if we’re able to control under-invoicing, we’ll be able to achieve it,” says Shankar Prasad.

The government is also planning to increase revenue generation through domestic debt to Rs 153 billion from the previous year’s revenue of Rs 145 billion.

“If the economy grows by six per cent this fiscal, we can easily raise Rs 153 billion through domestic debt, which is an ideal ratio of domestic debt to gross domestic product,” says Prasad.

Besides, the Finance Ministry is also expecting Rs 17 billion surplus revenue from the unspent budget of the current fiscal.

Apart from this, the government’s reliance on foreign aid for grants, loans and technical assistance for budget financing is expected to touch the Rs 450 billion mark.

Substantial Rise in Foreign Aid

The government’s dependence on the foreign funding is expected to see a substantial rise in the coming fiscal to meet the domestic development needs across provinces and local bodies.

Towards this end, the government is planning to welcome around Rs 286 billion as foreign investment.

The current fiscal saw a budget allocation of Rs 232 billion with Rs 225 billion for local bodies and Rs 7 billion for provincial levels.

The new Nepali Government, yet to be formed, will undertake the formulation works of new budget for 2018-19 fiscal.

The initial estimation of the federal budget for the 2018-19 fiscal is yet to be presented at the Resource Committee meeting led by the Vice-Chairman of the National Planning Commission (NPC) of Nepal.

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