Poor development spending means low foreign loan uptakeNepal met 50 percent of its foreign loan target in the fiscal year 2022-23.
The government has not been able to receive foreign loans as expected amid poor implementation of foreign-funded projects.
According to the Public Debt Management Office (PDMO), the government received 49.48 percent of the targeted foreign loans in the fiscal year 2022-2023.
And, this is just not about the last fiscal year alone. Foreign loans have been below expected levels for several years.
Since the fiscal year 2020-2021, foreign loans received by the country have been less than 50 percent of the target, according to the PDMO.
The government received less than 50 percent of the targeted foreign loans in six fiscal years, while the country received more than 50 percent of the targeted loans for fiscal years 2014-2015, 2015-2016 and 2019-2020, according to the PDMO.
The country received as low as 29.64 percent of targeted loans in fiscal 2016-2017, according to the annual report (2022-2023) of the PDMO.
Setting targets without any solid basis, the trend of spending budget in the last four months of the fiscal year when disbursement does not take place in that fiscal year, delays in the payment process and commencing projects without adequate preparation are among the factors responsible for poor utilisation of foreign loans, the PDMO said in its report for fiscal 2022-2023.
Usually, foreign loans are reimbursed to Nepal once the equivalent amount is spent with domestic resources. With government spending, particularly the capital budget, remaining poor, the country has not been able to receive foreign loans as targeted, according to officials.
According to the Financial Comptroller General Office, the government’s capital spending was just over 60 percent in the last fiscal year.
High turnover of key staff, issues related to land acquisition and forest clearance, and problems in contract management have been affecting the implementation of projects funded either domestically or with foreign aid.
Sushil Babu Dhakal, director general of the Department of Roads, said that foreign contractors are usually employed in foreign-aided projects and they struggle to work in Nepal as they are not familiar with the local work culture, leading to poor implementation of the projects.
“Donors also don’t support any forceful measures to remove the illegal settlements along the rights of way, which also affect the implementation of the foreign-aided projects,” said Dhakal.
In April, the Asian Development Bank said the overall portfolio performance (implementation of ADB-funded projects) in Nepal was lower than expected mainly due to insufficient project staff and high turnover, challenges in contract management, delays in environmental and land clearances, and the disruption in the construction supply chain.
As of 31 December 2022, ADB’s active portfolio in Nepal stands at around $3.2 billion, supporting a broad range of key sectors: energy, transport, agriculture, water and urban infrastructure and services, rural development and natural resources, health, and education, the multilateral lender said.
In the earlier years, the Covid-19 pandemic also affected the implementation of the development projects amid virus risk and failure to mobilise government staff and contractors on the ground.
The World Bank said in its Nepal Performance and Learning Review in January 2022 that the Covid crisis compounded the pre-existing implementation challenges, which were driven by nascent and weak institutional capacity.
“As of June 30, 2021, three out of 24 investment projects in the World Bank portfolio were in problem status and seven in potential problem status,” it said in its report. “With Covid-19 lockdowns, field supervision and site visits were limited, affecting implementation.”
According to officials, the red tape in implementation of foreign-aided projects also affect overall disbursement of foreign loans. At a press conference on June 18, Nepal Electricity Authority’s Managing Director Kul Man Ghising criticised the donors for putting several ‘unwanted’ conditions to sanctioning their loans.
“They threaten us to stop funding for another project if we don’t settle a dispute regarding land acquisition with locals in the under-construction projects,” Ghising had complained during the press meet.
Officials said it takes more time to implement the foreign-aided projects than those being implemented with domestic resources as the locals seek more compensation in foreign-aided projects.
For example, the World Bank had decided to discontinue its aid for two transmission line projects—400kV Hetauda-Dhalkebar-Inaruwa and 220kV Hetauda-Bharatpur-Bardaghat amid continued delays in their completion. That brought to the fore, once again, the challenges in constructing the energy infrastructure in the country.