Foreign funds make up 22.37 percent of the projected revenue inflow in Nepal’s $12.79 billion budget for the fiscal year 2017-18. Of the total foreign funds, foreign grants account for 5.64 percent and foreign loans 16.72 percent. Besides highlighting what can be very intriguing international fund governance discussions, and an analysis of the growing opportunities in the global economy, a budget data segregation also illustrates why Nepal perceives its foreign relations with India and China in the way that it does.

Keeping track

A key principle of fund governance in global financial studies is to ensure that fund operations uphold the interests of the fund and its investors. Roles defined by a fiduciary, both legal and ethical, influences its cycle. In Nepal, the Ministry of Finance (MoF) divides foreign funds into multi-lateral funds, bilateral funds; and mutual funds. This year, 36.71 percent of foreign funds is projected to come through multilateral partners, 59.45 percent through bilateral partners and 3.84 percent through mutual funds.

Nepal will receive multilateral funds from eight sources. The World Bank, Asian Development Bank and Social Sector Development Plan are the highest contributors. Bilateral funders include 12 countries. India, Japan and China are projected to be the largest contributors. With regard to mutual funds, development-donor agencies are the focal players among the six major contributors.

Now, depending on the goal of the funds, its investors and contractual understandings, foreign investments are expected to benefit key sectors of the economy. But without proper fund governance, these resources will go off the radar and will not be able to acquire anticipated outcomes. For example, even though millions of dollars in foreign aid has been coming into Nepal annually since the 1950s, the country remains one of the poorest in South Asia.

So, it is important that algorithms which track fund governance are used to ensure that funds are purposeful and meet the desired results. The then finance minister, speaking during the budget announcement last May, said that inter-agency coordination would be increased and administrative procedures related to foreign funds would be reinforced to establish and promote employment generating and export oriented industries. For this to happen, it is important that regulatory companies collaborate with the concerned authorities to track funds and accomplish the desired results.

Proper utilisation

Nepal is set to receive foreign funds through a total of 26 multilateral, bilateral and mutual fund sources this year. This is the lowest recorded number of foreign funders in the past five years. There’s no question that the global financial system is more diverse and webbed than before. To make a mark and challenge the potentials, a strong foreign front equipped with the right strategies is required. And it is crucial to tap into the various global sources who govern funds to tackle socio-economic and political problems the world over. Here, joint programmes with regional and global sources such as the South Asian Association for Regional Cooperation (Saarc) development goal funds and the UN Sustainable Development Goals funds should be utilised. A more specialised foreign front at home and a virtuous internal financial system will help.

Among the 12 major contributors in bilateral foreign funds, India accounts for a whopping 61.8 percent, which is more than all the other bilateral partners combined. China contributes only 3.19 percent in foreign grants. Similarly, India surpasses China by 55.91 percent in loans. India contributes 63.29 percent of the total foreign loans. However, the dynamics of India and China’s role in Nepal is truly elaborated only when we look at the foreign direct investment (FDI) coming from these two countries.

China is the largest contributor in terms of FDI. China pledged direct investments worth $8.3 billion during the Nepal Investment Summit last March. India will be investing $317 million, which places it behind Bangladesh, Japan, the UK and Sri Lanka. China accounts for 68 percent of the total $13.52 billion pledged during the summit. China’s FDI is equivalent to an astounding 64.89 percent of Nepal’s entire annual budget for this fiscal year. Therefore, though India is 10.5 times ahead of China as a foreign funder in Nepal’s annual budget, China is ahead of India 26 times in terms of FDI.

First, progressive and professional fund governance requires procedures that track funds into proper development pipelines. It is important to use foreign funds to establish and promote employment generating and export-oriented industries. This can be done through full-bodied regulatory companies. Second, inter-agency coordination needs to be improved to acquire the benefits of a robust global financial system. Doing so will help tackle development challenges in Nepal and the region, and help meet the common goals of these possible financial networks. Finally, the yearly budget reflects the dynamic power play of China and India in Nepal. While India is the largest bilateral contributor in foreign funds, China’s FDI pledges amount to about two-thirds of Nepal’s annual budget.

Basnyat holds a Master’s in diplomacy and international studies; Bista holds an Association of Chartered Certified Accountant degree