KATHMANDU, May 5: The government has enforced the Foreign Aid Mobilization Policy 2025 for the effective utilization of the foreign assistance through public-private-partnership modality amid growing concerns for low returns from the donor funded projects.
The Ministry of Finance (MoF) has brought online the new policy effective from Friday. According to the MoF, the new policy has integrated the changing dimensions of foreign aid with the country’s federal structure along with introducing measures to address challenges of the low utilization of the aid amount in the country.
Recently, the proportion of foreign grants has been declining sharply while the amount of concessional loans has been escalating in the country. In addition, Nepal has been receiving large amounts of multilateral loans compared to bilateral loans.
“Although the country enjoys cushion of low interest rate and longer maturity date in multilateral loans, the country faces challenge of increased cost burden on such loans due to fluctuation of exchange rate of the US dollar and delay in realizing returns from development projects due to longer gestation period that these projects have been sustaining for their completion,” the ministry wrote in a statement.
New Foreign Aid Policy
In addition, the country in many cases goes into foreign assistance agreements without carrying out proper preparation of projects. The mobilization of foreign assistance is not being effective due to the delay in awarding contracts, defective procurement process and lack of coordination among the government agencies.
“As most of the donor funded projects are based on reimbursement process, absence of effective monitoring of reimbursement from donor agencies exerts pressure on the cash flow by the government,” reads the policy report. “As a larger portion of the foreign assistance is based on work performance of the projects, lack of timely completion of the projects has led to low utilization of the pledged foreign assistance amount.”
Nepal’s utilization of foreign aid remains low, with spending on grants and loans standing below 15 percent in the fiscal year 2023/2024, according to a MoF report. In the first eight months of the current fiscal year, Nepal received foreign aid commitments totaling Rs 221.99 billion, which was more than double of the pledged amount in the same period last year.
Since the early 1950s, Nepal has been receiving notable foreign aid in various forms, including loans, grants, technical assistance, and humanitarian aid. It also plays a vital role in the development activities of the landlocked country.
Despite receiving commitment for a notable amount, bureaucratic hassles, political instability, and a culture of corruption, however hinder the effective use of foreign aid.
Through the revised measures, the government aims to mobilize foreign aid through public-private-partnership under viability gap funding modality. The partnership is also expected to minimize financial risk incurred in mobilization of the foreign aid.
The new foreign aid mobilization policy has replaced a similar policy that the government enforced in 2020. The federal government has come up with the revised policy at a time when the donor agencies have been facing financial management problems due to changing global scenarios, and the country itself requires clear policy to address the effectiveness of such assistance at the sub-national government level.
The policy is also expected to enhance the role of the private sector in the aftermath of Nepal upgrading to the status of developing nation in 2026. Experts believe it will also supplement the recently enacted laws related to financial responsibility and climate change.
