Govt capacity to utilise foreign aid falls

- PRITHVI MAN SHRESTHA, Kathmandu

Sep 2, 2014-

The government has been working to channel all foreign aid through the government mechanism, but its capacity to utilize it has diminished.The Finance Ministry said the government was able to make use of only 49 percent of the grants and 24 percent of the loans it received in the last fiscal year 2013-14. The government had aimed to spend Rs 69.54 billion in grants and Rs 43.7 billion in loans.

In the previous fiscal year 2012-13, utilization reached 74 percent and 36 percent respectively. The deteriorating capacity to utilize foreign aid is also reflected in the performance of the past six years until fiscal 2012-13. Utilization averaged 66.91 percent for grants and 49.18 percent for loans, according to the Mid-Term Review document of the last fiscal year’s budget.

“This suggests that our absorbing capacity for foreign aid has deteriorated,” said Ram Sharan Pudasaini, spokesperson of the Finance Ministry, who also heads the ministry’s monitoring and evaluation division. Utilization of foreign aid has remained relatively poor compared to domestic resources.

Due to the government’s poor absorbing capacity, donors have been insisting on utilizing their resources through actors outside the government mechanism.

“If we fail to utilize foreign aid adequately, it will be hard to ask donors to channel all the aid through the government mechanism,” said Madhu Marasini, chief of the international cooperation coordination division at the Finance Ministry.

Frequent transfers of project staff, delays in procurement of goods and services, lack of financial discipline and weak monitoring have been persistent problems in better utilization of foreign aid.

They have been consistent topics for discussion between the government and donors at bilateral talks about aid utilization at various forums including the Nepal Portfolio Performance Review meetings.

“We have been failing to award contracts and obtain reimbursement of foreign aid on time which has affected its utilization,” said Marasini. He added that the requirement for government agencies to follow the procurement guideline of donors had also affected spending of donor-funded projects.

“The best option would be to receive foreign aid in budgetary support format which would remove one layer in the procedure involving donors. For this reason, we have given first priority to receiving foreign aid in budgetary support in the Development Cooperation Policy,” said Marasini.  

Experts said that low spending was not a problem just with donor-funded projects but with locally funded projects too. Former vice-chairman of the National Planning Commission Shankar Sharma said that fragile governance in the government mechanism was the main reason behind the under-utilization of foreign aid.

“As a result, time and cost overruns have been a normal feature of both donor-funded and domestically funded projects,” he added.

Given the weak performance of the government mechanism, Sharma suggested that the government should not hesitate to allow donors to channel resources through other actors in addition to the government.

But the government should be informed about how the donors’ resources have been utilized, he added.

Published: 03-09-2014 09:31

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