Weeks after parliamentary ratification of the Millenium Challenge Corporation Nepal Compact, a $500 million US grant to Nepal, the two countries are all set to sign a new five-year agreement to continue regular US aid to Nepal.

Both sides are in their final legs to sign the grant worth $659 million or around Rs81 billion to Nepal and negotiations are in the last stages, multiple government officials told the Post.

The proposed aid is about $100 million more than the total disbursement by the US government through the United States Agency for International Development (USAID) over the last five years till the end of the last fiscal year in mid-July 2021, according to the Ministry of Finance.

As per the ministry’s data, the US had disbursed $560.53 million from its regular aid channel during the period. In the last fiscal year 2020-21, $105.94 million was disbursed by the US aid agency.

As much as $134 million, the highest in the last decade, was disbursed in the fiscal year 2016-17, amid Nepal’s effort to accelerate reconstruction activities after the deadly earthquake of 2015, according to the statistics included in the Development Cooperation Report 2019-20 unveiled by the ministry.

After the last aid agreement on regular US aid, which was being provided by the US through the USAID, expired in September last year, Nepal and the US have been in a negotiation for a new agreement.

“We are in the last leg of our negotiations with the USAID,'' a senior Finance Ministry official said, adding, ''If everything goes as planned, we will sign the deal within two weeks.”

The US grant, which is coming from the USAID, will be spent on Nepal’s priority sectors like education, health, economic development and growth, and strengthening the democratic institutions and framework, for another five years, the ministry official said.

A sizable amount will be allocated for the development of health infrastructure as the Covid-19 pandemic exposed Nepal’s poor health system, according to another official at the ministry. “The initiative to promote democracy and the rule of law will continue to receive US funding,” he said.

Ishwori Prasad Aryal, the chief of international cooperation coordination division at the Finance Ministry, confirmed that aid negotiation was undergoing with the US. He, however, refused to provide details saying that they are still in the negotiation phase.

An official of the ministry said that the US side had sent a draft agreement several weeks before the expiry of the past agreement last September. “The Covid-19 pandemic and other administrative processes such as taking the opinion of different ministries and agencies delayed the negotiation process,” said the official. “Once the agreement is signed, it will be effective from the expiry date of the last agreement for five years.”

Now, the new agreement is being finalized right after the ratification of the MCC Compact by the Nepali parliament. Even though the USAID has adopted the Country Development Cooperation Strategy (2020-2025) for Nepal, the timeline of the aid agreement is different from that of the strategy, according to the ministry officials.

Officials at the ministry said that they were trying to ensure that a relatively higher amount of the US aid comes through the government’s budgetary system. Most of the US aid is being spent through non-governmental mechanisms such as non-governmental organizations, which are outside the government’s budgetary system.

According to the Development Cooperation Report 2019-20, only around five percent of the US aid was ‘on-budget’ or the amount was disbursed after being included in the government’s annual financial plan. But most of the foreign aid being provided to Nepal is reflected in the government’s annual financial plans. In the fiscal year 2019-20, 83.5 percent of the foreign aid was disbursed after being incorporated in the government’s budgetary plan.

The US has been one of the largest bilateral donors for Nepal for the last several years. With the disbursement of $125 million in the fiscal year 2019-20, the US was the largest bilateral development partner for the year followed by the United Kingdom, India, China and Japan, according to the Development Cooperation Report 2019-20.