At a time when Nepal’s project implementation record is too slow, the decision of multilateral donors to cut off grants will adversely affect the development process

Aug. 30, 2014, 5:45 p.m. Published in Magazine Issue: Vol: 08 No. -6 August. 29- 2014 (Bhadra 13, 2071)

As remittances continue to increase and foreign currency reserve is record high, Nepal has improved its debt paying capacity recently. Nobody knows whether Nepal can sustain it. Given the present trend, Nepal’s overall situation will crumble in case of any implications in Gulf and other countries.

Citing Nepal’s performance, the Asian Development Bank recently decided to cut off grants. ADB provided Nepal grants under the Asian Development Fund. If the situation remains the same, other multilateral agencies like the World Bank are also likely to follow ADB.   

Realising the adverse implications of such decisions in the national economy, Finance Minister Dr. Ram Sharan Mahat requested ADB vice president Wencai Zhang to continue the grant assistance to Nepal.

“I will put the request of Nepalese finance minister at the board. However, it is the board which can take a final decision,” said Zhang. He said the multilateral donor decided to provide only Asian Development Fund (ADF) loan after their assessment of Nepal´s micro-economic situation, social development and country´s portfolio performance.

“We decided to shift to ADF assistance after looking into different situations of the country and comparing that situation with other countries receiving the fund under ADF,” said Zhang in a press conference.

Along with multilateral agencies, the bilateral donors are also on the mood of watch and see. As the Ministry of Finance announced the new Nepal Development Cooperation Policy, Nepal’s development partners feel sidelined by the government.

Although Finance Ministry has claimed that Nepal Development Cooperation Policy was promulgated with the consent of Nepal’s development partners, there was uneasiness after unilateral publication of the policy.

With the balance of over 70 billion rupees in government coffers and continual growth of remittances, the government seems to be confident that their withdrawal will have little impact.

However, economists say that any disruption in the present foreign aid will adversely affect Nepal’s social sector which has made good progress in the last decade.

According to an official, a group of Nepal’s development partners have already written a letter to Finance Minister expressing their displeasure over Nepal’s Development Cooperation Policy.

ADB was providing grants worth US$ 100 million annually while World Bank grants under International Development Association comprise about 50 percent of its total donations to Nepal. The World Bank´s total grants to Nepal hovers around US$ 250 million.

A few years ago, International Monetary Fund shut down their office in Nepal expressing their displeasure over the government policy. As government cannot bring back IMF again in Nepal, the recent decision of ADB is also unreversible. “This will have a major setback in Nepal’s infrastructure development efforts.”

In his recent visit to Nepal ADB vice president Wencai Zhang said that capital investments is key to higher and inclusive growth. “Scaling up physical and human capital investments while improving project implementation performance is the key to Nepal’s higher and inclusive growth and more rapid poverty reduction,” said Zhang.

“In the next five years, ADB can provide about $1.5 billion in the concessional Asian Development Fund resources to Nepal, to support Nepal’s economic and sector reforms, and investments in critical infrastructure such as energy, transport, urban services, and irrigation, as well as in human capital development and agriculture transformation,” said Zhang. “In this context, it is very important that the overall project implementation performance is substantially enhanced to achieve the intended development impact and qualify for increased ADB assistance,”

“We greatly appreciate the efforts of the Government of Nepal to work closely with ADB to enhance readiness of new projects, strengthen project management systems to pursue timely procurement and work execution, and support capacity and institutional development of sector agencies through long-term partnership. All these measures are critical for improving overall project implementation performance,” he said.

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