Nepal’s foreign aid expenditure is poorer than capital spending from local resourcesGovernment data shows additional procedural layers involved in foreign aid mobilisation contribute to its poor spending.
Government spending, particularly capital expenditure, has remained consistently poor for the past several years, and spending of foreign aid has been even poorer, government data show.
Every year, the government seeks to get a significant chunk of foreign aid either in the form of grants or loans to bridge its resources gap. But when it comes to utilising the aid money, the government has not been effective.
In the fiscal year 2017-18, for instance, the government spent only 54 percent of the total grant amount that it had planned on spending. Expenditure from foreign loans that fiscal year was a mere 42 percent of the funds received.
The government’s capital expenditure in the last five years has remained in the range of 59 percent to 87 percent.
“Our overall spending capacity is poor and additional layers for the procedure involved in foreign aid mobilisation contribute to the poorer expenditure of foreign aid,” Shanta Raj Subedi, a former finance secretary, told the Post. “Donors’ resources are used in actual development work while local resources are used in purchasing vehicles and furniture, despite being categorised as capital budget. This is another reason for poor foreign aid expenditure.”
In the projects where foreign aid is involved, donors also get involved in monitoring, releasing the budget and in the procurement of contractors.
“We cannot award a contract without taking approval from the donors and the contract should follow the procurement guidelines of the donors as well. This adds one extra layer and causes slowing of the expenditure of foreign aid,” said Subedi.
Although the government has been lobbying with donors for single procurement guideline for spending both local resources and foreign aid, it has been unable to convince the donors.
The current Public Procurement Act was also introduced in consultation with the donors.
Economist Chandan Sapkota sees three key factors that are slowing foreign aid spending.
“Donor-backed projects have stricter procurement and reporting requirements and such projects are based on reimbursement, which sometimes delays payment because accounting requirements are stricter and both donor-funded and the government-funded projects suffer from the same structural and procedural issues,” he said.
Officials said spending from the head of foreign aid is time-consuming because the government offices should take approval from the donor at each stage of procurement, construction and payments.
“They check from zero to the end,” said Arjun Jung Thapa, chief of foreign aid section of the Department of Roads. “We have to consult with donors for issuing tender notice, notify them about the bidders and they examine if the bidders have been blacklisted by the donors. Thereon, we can start the evaluation process and we should then take a final approval from the donors for awarding contract.”
According to Thapa, the procedure is more complicated in Exim Bank-funded projects than the multilateral donors such as the Asian Development Bank and the World Bank because multilateral donors have their residence offices here, which makes things easier.
In the case of Exim Bank, the documents should reach the concerned country and the Exim Bank takes more time for taking a decision. “For example, it is too lengthy to get approval for projects from Exim Bank of India for its financing in a number of road projects because the bank is in India,” said Thapa.
Besides these factors, the government’s poor allocation capacity, scattered allocation, a number of projects being outside the control of monitoring and evaluation, resources dispersed on small projects and lack of result-orientated projects are other factors affecting proper expenditure of foreign aid, according to a study report titled ‘A Study on Foreign Aid Mobilization in Federal Nepal’, published by the Finance Ministry.