Foreign aid to Nepal surged 26.87 percent to $2 billion in the last fiscal year 2019-20 ended mid-July, helped by the funds allocated to assist Covid-19 response and recovery programmes, the Finance Ministry said.

The money received from the country's development partners accounts for 23.3 percent of the national budget.

In the previous fiscal year, foreign aid disbursement amounted to $1.57 billion.

The Finance Ministry's Development Cooperation Report released on Thursday shows that out of the $2 billion disbursed as foreign aid in the last fiscal, 25.6 percent or $512.9 million came for Covid-19 response and recovery.

In terms of the Covid-19 response support, the largest proportion was in the form of loans ($469.8 million), followed by technical assistance ($29.7 million), grants ($11.9 million) and direct implementation ($1.5 million). According to the report, 93.6 percent of the Covid-19 support was provided on-budget.

In the last fiscal year, 69.9 percent of the foreign aid disbursement ($1.4 billion) consisted of loans.

The report said that $1.67 billion (83.5 percent) of the total foreign aid went into on-budget projects and the remaining $329.9 million (16.5 percent) into off-budget projects.

“This is a significant improvement compared to 2018-19 when only 78.4 percent of the foreign aid was channelled as on-budget funding,” the Finance Ministry said in its annual publication.

The health sector received the largest chunk of the aid money—$318.4 million or 16.1 percent. The financial reform sector came next with 11.0 percent, housing received 7.7 percent, energy 7.2 percent and road transportation 7.0 percent.

The report said that it was one of the biggest foreign aid disbursements on record.

A similar surge in foreign aid disbursement or official development assistance was observed during the fiscal years 2015-16 and 2016-17 due to the massive earthquake that struck the country in 2015. The pay-out then had swelled by 29.9 percent.

“This reflects the strengthened ties of the development partners with Nepal during times of difficulty,” said Suman Dahal, spokesperson for the Finance Ministry. “We hope that the support will continue.”

The Finance Ministry said that looking at recent trends, it’s a positive indication that the growing gross domestic product or the size of the economy has not led to a reduction in foreign aid disbursement.

“Both foreign aid disbursement and gross domestic product have increased, but the second at a faster rate.”

According to the Central Bureau of Statistics, Nepal saw robust economic growth for three consecutive years—rising by 8.59 percent in 2016-17, by 7.37 percent in 2017-18 and by 6.39 percent in 2018-19.

Disaster struck in the last fiscal year 2019-20 when Covid-19 related social distancing measures and lockdowns paralysed the country, and it suffered the first economic contraction in 37 years.

According to Dahal, Nepal is looking forward to graduating from its least developed country status, even though donors prioritise them for foreign aid. The inflow of aid in Nepal is not expected to be affected by its development and economic growth.

The report said that multilateral development partners accounted for 71.0 percent of the total foreign aid disbursement. The top disbursing multilateral partners in 2019-20 were the Asian Development Bank, the World Bank, the International Monetary Fund, the European Union and the United Nations.

Bilateral development partners contributed 29 percent of the total aid. The top disbursing bilateral development partners were the United States, the United Kingdom, India, China and Japan.

The report said that some of the multilateral partners including the Asian Development Bank, the European Union and the World Bank increased their support substantially in 2019-20. In contrast, support from the UN has continued to decline, reaching a 10-year low of $44.3 million.

The Asian Development Bank was the largest disbursing development partner, contributing 30.5 percent of all foreign aid disbursements in 2019-20. Annual disbursements reached $611.5 million, up from $292 million in 2018-19, representing a 109.5 percent jump.

The World Bank was the second largest disbursing development partner with a 23 percent share of all aid disbursements to Nepal. Annual disbursements declined to $461 million from $528 million in 2018-19, representing a 12.7 percent drop.

Departing from past practice, International Monetary Fund disbursements in 2019-20 have been reported separately from World Bank disbursements.

In the reporting year, the International Monetary Fund was the third highest disbursing development partner, with disbursements totalling to $214 million. This amount was issued as a loan and was fully on-budget and was provided to the financial reform sector, said the report.

The United States was the fourth highest disbursing development partner in 2019-20 with annual disbursements totalling $125.16 million.

The United Kingdom was the fifth highest disbursing development partner in 2019-20, providing 4.8 percent of all foreign aid disbursements. Annual disbursements reached $95.2 million, down 18.8 percent from 2018-19.

India was the sixth highest disbursing development partner in 2019-20, providing 4.7 percent of all aid disbursements. Annual disbursements reached $93.6 million, marking a 58.7 percent increase in support from 2018-19.

Following a steep increase in 2018-19 from 2017-18, Chinese support dropped in 2019-20.

The report said that the international community had pledged $4.1 billion for post-earthquake reconstruction at the International Conference on Nepal’s Reconstruction held in June 2015 in Kathmandu,.

As per the Finance Ministry, $3.88 billion (94.6 percent) of the total pledged amount has been committed through the signing of formal agreements with the government of Nepal.

Out of this amount, a sum of $1.4 billion, representing 36.2 percent of the commitments, has been disbursed.