The government has proposed foreign aid through a basket fund in which donors put their resources and the federal administration allocates it to provincial governments and local units as conditional grant.

The proposal comes at a time when there is no clarity over how the provincial and local governments get resources from donors for projects in their areas. Clarity on the matter is crucial since the constitution authorises only the central government to access grants or loans from donors.

Provincial governments can deal with the issue only with the Centre’s consent while local governments have no access to donors.

Shreekrishna Nepal, chief of the International Economic Cooperation Coordination Division at the Finance Ministry, said they have discussed the proposal with donors. “We seek to give them a window to mobilise their resources for programmes implemented by provincial and local governments,” he said.

According to ministry officials, the donors are “eager” to help provincial and local governments in capacity building in their early stage of operation in the federal set-up. But the federal government has sought more resources for infrastructure projects.

“We have demanded technical assistance less than 10 percent of overall assistance for the provincial or local levels,” said another Finance Ministry official.

Officials believe that channelising foreign aid through the basket fund would help align development assistance with the country’s key priorities. The government consulted with donors in line with a concept note prepared by the Ministry of Federal Affairs and General Administration.

As per the idea, the donor money put into a single basket can be utilised in different priority areas in consultation between the two sides.

Although the federal government will allocate resources for provincial and local governments, programmes and projects will be proposed by the lower federal units.

“A local unit will be responsible for implementing a project within its area of jurisdiction while schemes covering more than one local unit will be funded through the provincial government,” said Amrit La msal, under-secretary at the Federal Affairs Ministry. There are, however, questions over utilisation of foreign aid that does not come through the budgetary system.