new foreign aid policy: Govt to tame off-budget aid

  • Finance Ministry seeks to channel technical assistance through government system
- MUKUL HUMAGAIN, PRITHVI MAN SHRESTHA, Kathmandu
new foreign aid policy: Govt to tame off-budget aid

Jun 27, 2014-

In a measured assertiveness to put a cap on off-budget foreign aid flow, the government on Friday made public a new foreign aid policy that makes it mandatory for donors to furnish the details of their technical assistance (TA) to the government system.

The donors will now have to report the details of the TA given to Nepal in the government’s aid management platform (AMP), an online system that the government and development partners use to manage foreign aid.

The policy launched by Finance Minister Ram Sharan Mahat on Friday has several new provisions that aim at putting the government on the driving seat while mobilising foreign aid. For the first time, limits have been set for accepting grants, concessional loans and other types of loans. The policy clearly states that grants below $5 million for a project will not be acceptable while concessional loans below $10 million will be ruled out. Loans from other windows in which interest rates remain a bit higher will not be accepted below $20 million. The policy has defined the areas in which grants, loans and other loans may be accepted.

According to Finance Ministry officials, the provision to put details of TA in the AMP is introduced following a huge amount of TA remaining non-transparent and the government system unable to trace where and how it is being spent.

“We do publish a book on the committed TA, but it

has not been clear so far

how it is spent. The provision of putting the details in

the AMP will help maintain transparency of such assistance,” said Madhu Marasini, chief of the international cooperation coordination division at the Finance Ministry.

The latest report of the Office of the Auditor General (OAG) says the government has little information about a huge chunk of the TA it receives. According to the report, a total of Rs 84.48 billion was received under TA in the last fiscal year but it was not known in which sectors the amount was spent. Furthermore, there is little information which agencies mobilised Rs 27.73 billion of the total.

TA is usually used for jobs such as detailed project report studies of large projects, capacity enhancement of domestic institutions and individuals and for consultancy services. Ministry officials say a majority of the assistance which does not come through the government’s budgetary system is aid under the TA. Of the total foreign aid, 36 percent is off-budget.

The government has also made it clear to the donors that it would not accept TA that comes without Finance Ministry’s approval and it would not accept loans for TA. Mahat said the new policy seeks to establish the notion that foreign aid should be channelled through the government mechanism for the sake of transparency and effectiveness.

Amid complaints that a huge amount of money that Nepal receives in TA returns to the donor country as payment to foreign consultants, the new policy gives priority for government employees for the implementation of projects that use TA.

“Only if they are incapable to do the job, consultants can be hired where domestic consultants get privilege,” reads the policy. According to the OAG report, the donor-funded projects have spent 4.40 percent to 24.50 percent on consultants.

With huge amounts of foreign assistance still being spent through non-government organisations, the policy states that the government will not accept assistance that does not adhere to the national system and foreign aid policy.

The policy has increased the government’s vigilance on I/NGOs which are now required to submit details about banks where they have transactions.

The organisations will need to take approval from the Social Welfare Council to mobilise foreign aid and such approval could be given on the recommendation of the Project Analysis and Facilitation Committee headed by a joint secretary at the Women, Children and Social Welfare Ministry.

Donors have maintained that they do not fully trust the government’s mechanism as it is ineffective and fails to spend aid money to greater effect. In the past few Nepal Portfolio Performance Review meetings, donors cited corruption, frequent transfers of secretaries and project chiefs and failure to conduct timely audits for their continued off-budget support. With government spending remaining poor, the argument of the development partners holds some truth. The government was able to spend only around 67 percent of the assistance received as foreign grant over the last six years on an average. In foreign loans, the spending is poorer at 49.18 percent.

On the issue of the minimum assistance threshold, donors have been insisting that there should not be limits on foreign assistance warning that the restriction could be counterproductive.

bid to use funds for greater good

-    Minimum threshold fixed for grant, concessional loans and other types of loan

-    Donors required to put details about technical assistance in the AMP

-    Tougher provision for transparency of aid resources that I/NGOs receive

-    Priority sectors for utilising grant, concessional loans and other loans set

Published: 28-06-2014 08:43

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