Money
‘USAID working to raise on-budget contribution’
Many donor agencies face charges of focusing too much on social sector development and scattering financial resources in smaller programmes or projects.Many donor agencies face charges of focusing too much on social sector development and scattering financial resources in smaller programmes or projects. There is no doubt that healthy social sector is key to sustainable economic development, but Nepal also needs billions of dollars to build much-needed physical infrastructure, such as roads, bridges, airports, hydropower plants and irrigation projects, to give the sagging economy a much-needed leg up. While the demand for funds for infrastructure development is high, aid fragmentation has been pushing up transaction costs of many projects, making it difficult for the government to effectively manage development and eroding effectiveness of projects. Rupak D Sharma of The Kathmandu Post talked about these issues in detail with USAID Nepal Mission Director Peter Malnak. Excerpts:
You’ve been here since April. What is your assessment on efforts being made by the government to develop the economy?
In the last seven months, tremendous developments have taken place in Nepal. I’ve seen a lot of open optimism for the future direction of reforms. I’ve also seen enforcement or drafting of reform-supporting legislations. These efforts will help in securing funds the country needs to expand. The process of framing laws is often very complex, especially in emerging economies, but I am impressed by the momentum here.
Health and education are two priority sectors for USAID. But how long can donor agencies extend support for these areas? Shouldn’t donors be working to strengthen the government’s fund mobilisation capacity rather than making it more and more dependent on aid?
Donor agencies shouldn’t cross that line. If they do, then they will actually disempower or disable the government from doing the job that it ought to do. So, in Nepal, we are very careful about our assistance going towards human and institutional capacity development of key governmental or non-governmental organisations. Our strategy is to support the decision-making processes at central and local levels, so that the government can make decisions based on global data and evidence, and make the right interventions. Nepal is a great example for USAID in terms of development of an innovative approach to reduce infant mortality. You must have heard of chlorhexidine, a gel that was piloted in Nepal to reduce infections in new-born babies from the umbilical cord. By applying this gel, we were able to reduce infant mortality by about 35 percent. Today, this gel is used in all 75 districts of the country. One of the reasons for the success of the project was evidence and data provided by us. Also, we recommended measures for institutional capacity development, which Nepal adopted and scaled up. Now, other countries are also looking to Nepal for innovative solutions. So, we help support Nepali institutions to make the right choices and informed decisions, but are mindful of the line as well.
Support provided by agencies like USAID has definitely helped in development of the country’s social sector. As a result, Nepal is ahead of countries like India and Pakistan in terms of human development. But what Nepal currently needs is big physical infrastructure projects to accelerate the pace of economic development. Isn’t it time for many donor agencies to gradually move from social sector to infrastructure development?
Most of the funds that countries receive from the US are approved by the US Congress. This means funds for many countries, including Nepal, is directed by the Congress for specific areas. In 2016, for instance, 99.6 percent of all the funds that the US government and the USAID provided to Nepal were directed by the Congress. So, the laws are very clear on areas where we should work. We can be creative and innovative, but we have to limit ourselves to the social sector because it is the priority area for the US government and the US Congress. Also, we cannot flout the budget law that provides us funding. However, it shouldn’t mean there is no dialogue between the executive branch like the USAID and the legislative branch, which is the Congress. We often have these dialogues to ensure the Congress understands the trends and situation on the ground. Because of such dialogues the Congress, in 2015, approved additional funds for Nepal to help with post-earthquake reconstruction. In 2016 as well we were allowed to shift funds to provide assistance for earthquake recovery. And most of these funds went for development of small-scale physical infrastructure projects.
So, the short answer is USAID will not move out of social sector anytime soon, isn’t it?
Well, Nepal has made great progress in the social sector, but it still has a long way to go. This, however, should not mean we have never been engaged in Nepal’s physical infrastructure development. We do build infrastructure but they are small-scale projects, like water systems that are targeted at reducing spread of disease or preventing malnourishment in children. We are also working in the hydropower sector. But we don’t build projects. Instead, we look into building human and institutional capacity of the Investment Board of Nepal, for instance, and work with other key regulators or promoters of the hydropower sector. We are not engaged in development of large-scale infrastructure projects because different donors and multilateral lending institutions are providing significant support in that area. Also, the government allocates a sizeable fund for physical infrastructure development, albeit it finds it challenging at times to make use of all the funds on time. So, some donors are providing funds for physical infrastructure development, while others are working on softer areas to ensure the infrastructure that has been built is well utilised and maintained. And the USAID works on softer areas. USAID’s budget for Nepal stood at $130 million in 2015 and $116 million in 2016. That assistance must be used in areas of our comparative advantage, which are improving human capacity and institutional functions, and developing areas that will catalyse investment in infrastructure development. So, both sides of the coin are necessary. If you don’t have both, the picture will not look complete.
But the USAID can consolidate its assistance in the social sector, isn’t it? This would reduce aid fragmentation, as the Ministry of Finance has identified USAID as one of the donor agencies with highly fragmented portfolio.
If you drill down in USAID’s foreign assistance programme, you’ll find highly integrated programmes that deliver strong results. For instance, the issue of nutrition is not only about making sure that children get supplementary vitamins or some kind of powder that you sprinkle on food to make it more nutritious. So, we have to look across all the sectors and integrate them to deliver best possible results. Issues like malnutrition and chronic malnutrition are very complicated and can be triggered by various factors. This means if you try to find simple solutions for a very complicated issue, you will fail in addressing the problem. Also, our programmes are strongly coordinated with those of other donor agencies and the government. Let me give you an example. We have to coordinate with 19 government ministries and entities to implement projects related to water security and watershed management. Also, multiple donor agencies are operating in that space. So, our work on the ground is not fragmented because we take a coherent approach to deal with issues and we make decisions based on global evidence and data. We also try to introduce international best practices in Nepal. So, aid fragmentation should be looked into in a nuanced way.
The government also complains about large number of off-budget programmes run by the USAID. This approach, the government says, prevents authorities from keeping tab on projects run by the aid agency. What is your take on this issue?
A vast majority of projects operated by the USAID in Nepal are not incorporated in the government’s annual budget. And around 95 percent of our assistance goes to off-budget programmes. One thing you need to understand is that the US government has a very strong audit standard. All of our programmes are audited regularly to make sure funds are going to the right place. Global evidence shows that on-budget support is very beneficial to countries, which is why we have raised the share of on-budget support in Nepal over the last three years. At the same time, we’ve also analysed the areas of risk for US government funds and have taken measures to ensure funds are used properly. In this regard, we’ve recently launched a $15-million programme that looks at public financial management. Under this project, local and central government systems will be strengthened so that they could withstand
our audit requirements. So, we’re trying to lay the foundation to raise our on-budget contribution.
A big chunk of off-budget support provided by donor agencies goes towards consultancy. Many complain the consultants brought into the country from overseas do not have sound knowledge of Nepal and make policy prescriptions that can’t be implemented. What is your assessment?
Evidence and data show that what you just said is not true. USAID Nepal has 107 employees in different positions and they are experts in their fields. The experts that we hire should also have in-country experience. So, these experts we hire understand Nepal’s system and many have even worked and lived here for a long time. These people bring in global evidence, data and best practices to Nepal and align them with the country context. Also, you need to know that we use Nepali experts abroad. For instance, research conducted by National Society for Earthquake Technology and local level expertise developed by the organisation were used during Pakistan’s earthquake 10 years ago.