Govt to fix lowest acceptable amount of foreign aid

KATHMANDU, MAY 24 -

The government is preparing to fix the minimum amount of foreign aid that it will accept, and has planned not to take whatever donors hand out. As per the proposed foreign aid policy, the lowest amount of grant aid and commercial loans has been set at US$ 5 million and US$ 20 million respectively.

This is the first time that the government has planned to set minimum levels of foreign aid .

However, the policy will not say anything about the size of concessional loans. “If a pledged amount is lower than the limit, we will encourage donors to put the money in a pooled fund,” said a senior Finance Ministry official.

Meanwhile, former vice-chairman of the National Planning Commission Dipendra Bahadur Kshetry said that the government must be able to provide funds to needy areas if it plans to reject small handouts.

He added that donors had been gifting amounts as little as US$ 5,000 for the farm sector as the government had not been able to make even small budget allocations to this needy sector. “However, the small size of the budget shows that the country is not strong enough economically,” he said.

Meanwhile, in another first, the proposed aid policy will allow the government to take commercial loans even though the rate of interest is higher than for concessional loans. The current Foreign Aid Policy 2002 does not say anything about taking commercial loans, and the government has not taken such credit so far.

The proposed policy states that the government can take commercial loans for major infrastructure projects like hydropower, highway and railway that create massive job opportunities. “The policy will pave the way for taking such loans in the future even if we don’t get such loans immediately,” said a senior Finance Ministry official.

The government has been paying a maximum of 2 percent interest on loans. This maximum rate has been applied to loans obtained from Exim Banks of particular countries but not multilateral banks such as the Asian Development Bank and the World Bank.

Although loans provided by Exim Banks are commercial loans, they are subsidized by the government of the particular country. The ministry official said that the government planned to open the door to commercial loans as concessional loans alone may not be adequate to finance the country’s infrastructure development in the future.

Meanwhile, Kshetry said that the government could take commercial loans if it was capable of servicing them. Government officials believe that the country will not have to fulfil “unnecessary conditions” of the donor countries and institutions.

Presently, however, the government has not been able to spend the pledged grants and concessional loans due to political instability, delayed budget presentation and procedural delays, among other reasons.

The new policy will also seek to reduce the number of projects and allow certain donors to lead the sectors in which they are proficient. The recent Development Cooperation Report published by the Finance Ministry has stressed seeking donors’ concentration in areas where they have expertise.

The report has revealed that donors’ engagement in multiple sectors has resulted in aid fragmentation. When the aid divided among varied sectors, there has been greater spending on administration and less on the actual work besides delayed projects. Comparatively, there is a high level of fragmentation in technical assistance, an area that development partners and relevant ministries could bring to a manageable size after consultations, the report stated.

Source: The Kathmandu Post