The government has not been able to spend the foreign aid received even as it has been trying to have all financial assistance channelized through its administrative system.

During the first half of the fiscal year, only 4 percent of the budgetary resources expected under the foreign aid heading were spent, according to the Finance Ministry.

The spending of foreign aid, including both grants and loans, amounted to Rs8.85 billion as of mid-January 2016, against the total allocation of Rs205.88 billion for the current fiscal year, the ministry said.

There has not been any marked improvement in spending levels compared to the last fiscal year when Rs8.59 billion in foreign aid was spent during the same period.

“We have to admit that the government’s absorptive capacity is low which is clearly reflected in the massive gap between foreign aid commitments and disbursements of actual aid,” said Baikuntha Aryal, chief of the International Economic Cooperation Coordination Division at the Finance Ministry, speaking at the parliamentary International Relations and Labour Committee on Monday.

While the government’s low spending capacity has been a continuous trend over the last several years, a shortage of construction materials and fuel due to the Indian embargo has further slowed expenditure as projects ground to a halt.  

“The situation would have been relatively better if there was no shortage of fuel and aggregates,” said Aryal. Expenditure levels were expected to soar this year with the planned massive spending on reconstruction after the deadly April 25 earthquake, but delays in the formation of the National Reconstruction Authority have resulted in funds remaining in the treasury.

The government has set aside Rs74 billion for the authority to spend on reconstruction, but it has only begun to announce its programmes. Most of the money for reconstruction is expected to come in foreign aid, but the low level of spending has led to such assistance lying unused.

Likewise, dillydallying by government agencies has been a major reason behind the low foreign aid spending. The Asian Development Bank has said that nearly $1 billion in aid earmarked for the energy sector has not been disbursed till now due to the indecision of the board of the Nepal Electricity Authority (NEA).

ADB-funded projects such as the Tamakoshi-Barhabise Transmission Line Project,  Barhabise-Kathmandu substation construction, Dana-Kusma Transmission Line Project, Distribution System Reinforcement and Expansion Project, Project Supervision Service for the NEA, Consulting Service for Feasibility Study and Detailed Design for the Dudhkoshi Hydropower Project and Distribution Master Plan for the NEA were delayed due to the NEA board’s indecisiveness.

Most lawmakers at the parliamentary committee meeting urged increasing the disbursement of foreign aid while also bringing this source of funding under government channels.

“We can bring foreign aid, but we cannot spend it. So donors have been spending their resources through non-governmental organizations,” said lawmaker Ram Krishna Rai.