Donors opting for off-budget aid due to govt inefficiency

KATHMANDU, MAR 14 -

A majority of donor-supported projects have been receiving funding through non-government channels. Donors have cited distrust of government mechanisms and failure to spend their money effectively as key reasons for circumventing them.

According to the Finance Ministry, 445 projects have not used the national system to obtain financing while only 187 have done so as of December 2012. The budget allocations for the projects in the respective categories are $ 552.33m (off budget) and $2.15b (on budget)

The ministry has defined projects that have used the government’s mechanisms as on-budget and those that have not used them as off-budget. In all the five development regions of the country, the number of off-budget projects are far higher than on-budget ones.

The government has issued a report entitled District Aid Profile incorporating the status of foreign aid in each district at a time when it has been working to formulate a new foreign aid policy in which it wants to insert a provision that all foreign aid should be channelised through the national system.

“The government has long been focusing on channelling foreign aid through the national system to ensure that the state has a major say in determining priority, and to know exactly how much foreign aid has come to Nepal and whether it has been utilized properly,” said Madhu Marasini, chief of the international economic cooperation coordination division at the Finance Ministry. “This is why we are seeking to bring all donor aid through the government’s mechanism in the new foreign aid policy.”

The cabinet has recently formed a committee headed by former chief secretary Madhav Ghimire to review and recommend policies to be adopted in the new foreign aid policy. The government decided to set up the body after the Finance Ministry, which prepared a draft of the new policy, could not settle a number of crucial policy issues—where direct foreign investment could be accepted and where bilateral and multilateral donor agencies could step in.

According to Marasini, all the technical assistance being provided by donors fall under the off-budget category, and multilateral donors provide a greater amount of such assistance. “However, bilateral donors have been delivering off-budget aid in the project’s actual work,” he added. According to the ministry, projects delivered through civil society and the private sector also receive off-budget aid.

Meanwhile, donors have said that they could not fully trust the government’s mechanisms as they are ineffective and have failed to spend the aid money to greater effect. Corruption, frequent transfers of secretaries and project chiefs and failure to conduct timely audits are the other reasons they have pointed out for their continued off-budget aid at the recently concluded Nepal Portfolio Performance Review meet.

The District Aid Profile also shows that the Central Region received the highest amount of foreign aid worth US$ 819 billion, followed by the Western Region with US$ 627. The Eastern Region came third with US$ 457.7 million while the Mid-Western Region came fourth with US$ 454.6 million. The Far Western Region received the least foreign aid amounting to US$ 346.8 million.

Nepal receives official development assistance from over 40 donors , and foreign aid constitutes 20 percent of the national budget, according to the ministry.

Source: The Kathmandu Post