Kathmandu, June 17: Nepal is facing a sharp decline in foreign aid at a time when domestic revenue collection has fallen short, creating a funding gap for national development. In the past four years, aid has dropped by nearly Rs 61 billion, with both concessional loans and grants on the decline.
This drop is mainly due to the government’s limited spending capacity and project delays. Although the Finance Ministry attributes it partly to improved domestic resource mobilization and reduced aid dependency, the shortfall is hurting vital sectors like infrastructure, roads, electricity, water, education, health, and agriculture.
Between FY 2077/78 and 2080/81, foreign aid—grants and concessional loans fell by Rs 60.91 billion. In the current fiscal year (2081/82), expected aid inflows have yet to materialize.
National Planning Commission member Dr. Prakash Kumar Shrestha cited weak spending and borrowing capacity as key reasons, noting global shifts in grant trends. According to the Finance Ministry, Nepal received Rs 174.18 billion in aid in FY 2077/78, which plummeted to Rs 13.27 billion by FY 2080/81. As of Falgun this year, grants totaled Rs 9.16 billion and concessional loans Rs 65.74 billion—making total aid Rs 74.63 billion so far.
This averages Rs 9.3 billion per month, projecting an annual total of about Rs 111 billion. Aid has steadily declined over four years: Rs 174 billion in 2077/78, Rs 135 billion in 2078/79, Rs 123 billion in 2079/80, and Rs 113 billion in 2080/81.
From the Eighth to the Fifteenth Five-Year Plans, aid inflow and utilization dropped 20.7 percent. During the Eighth Plan, aid averaged 33.4 percent of total resources; by the Fifteenth, it was down to 12.7 percent. Utilization fell from 30.7 percent to 12 percent over the same period.
Officials point to better domestic resource mobilization, while experts also cite the end of large-scale post-earthquake reconstruction as a factor. U.S. aid cuts under Donald Trump’s presidency also impacted nearly three dozen USAID-backed programs.
Despite falling aid, government pressure to fund development continues. This year’s revised targets—Rs 34.89 billion in grants and Rs 1.69 billion in loans—are unlikely to be met. The Planning Commission had recommended a 22 percent rise in aid and 30 percent in loans, but actual inflows remain low. Domestic revenue isn’t even covering regular expenses, increasing reliance on external aid and borrowing.
For next year, foreign aid commitments total Rs 287.84 billion, with Rs 53.44 billion in grants and Rs 233.66 billion in concessional loans. Nepal receives grants from 31 donor agencies, including India, China, MCC, Japan, EU, and the UN. Seventeen agencies provide concessional loans, including ADB, China’s Exim Bank, IMF, and India’s Exim Bank—often with favorable terms, though some have conditions.
Despite available commitments, project execution is slow due to poor management and contractor delays. The Finance Ministry admits that low capital expenditure has reduced reimbursements from development partners, further limiting aid mobilization.
The government continues talks with donors to better use grants and loans, but concerns remain that declining aid will hinder development. Experts warn that infrastructure projects are already affected, and while some grants are managed outside the budget via NGOs and international agencies, Nepal still depends heavily on structured, budgeted foreign aid.
People's Review News Monitoring Service