Kathmandu,Mar 2, 2016:Â India has reduced its annual grant to Nepal by 40 percent.
The Indian government through its union budget for fiscal year 2016-17 allocated Rs4.8 billion (IRs3 billion) for Nepal against Rs6.4 billion (IRs4.2 billion) the previous year.
The reduction in grant comes days after Prime Minister KP Sharma Oliâ€™s visit to India.
However, the reduction in assistance, has nothing to do with Indiaâ€™s low confidence on KP Sharma Oli-led government, an Indian newspaper quoted Indian government sources as saying.
For many years, donors have been complaining about poor development expenditure by the government which has led to slow disbursement of foreign aid in Nepal.
The Indian budget has manifested this fact.
â€œThe issue in Nepal is of that of absorption capacity, and they have been quite poor in utilising the aid being given to themâ€¦ Look at the earthquake reconstruction programmeâ€¦ they have just set up the reconstruction authority in Nepal. The aid last year could not be utilised, which led to revision of budget estimates,â€ the Indian Express quoted an Indian official.
Govind Nepal, chief economic adviser at the Finance Ministry, however, said there is no need to read too much on Indian aid cut to Nepal, linking it to soured bilateral relations following the promulgation of the constitution. â€œNot only to Nepal, Indiaâ€™s aid allocation to other South Asian countries except the Maldives also has decreased in general,â€ he said.
He, however, admitted that Nepalâ€™s aid absorption capacity has remained low. â€œThe situation worsened this year due to supply constraints caused by the blockade,â€ Nepal said. â€œReconstruction of damaged infrastructure by the earthquake will begin soon, which will increase overall spending.â€ Utilisation of Indian aidâ€”both grant and soft loansâ€”has remained poor.
Former finance secretary Rameshore Khanal said that India itself is responsible for the poor performance of most of the projects undertaken with Indian aid because the southern neighbour is responsible for procurement and awarding contracts.
In a follow-up meeting on utilisation of Indian aid held in New Delhi in January 2015, India had agreed to eliminate many procedural steps for loan utilisation after Nepalâ€™s complaints. According to Nepali officials, two sides had agreed to create a provision allowing Nepal to utilise the credit by just â€œinformingâ€ the Indian authorities about the progress instead of obtaining approval. The government has not yet decided on where the half of $1 billion line of credit announced by Indian Prime Minister Narendra Modi during his visit to Nepal in August 2014 would be invested, while projects have been finalised for half of the amount.
Likewise, no project has been finalised for investing additional $1 billion announced by Indian Foreign Minister Sushma Swaraj during the International Conference on Nepalâ€™s Reconstruction (ICNR) on June 25, 2015.
â€œThe government does not even have a list of projects whose feasibility study has been done, let alone detailed project report,â€ said economist Chandan Sapkota.
The poor spending of foreign aid is not limited with Indian aid only.
The Asian Development Bank, one of the largest donors of Nepal, has said that Nepalâ€™s overall portfolio performance has been trailing behind the ADB average.
â€œOf the available funding of $1,733 million spread over 33 investment projects,
55 percent is still to be contracted and 72 percent remains to be disbursed,â€ it said recently in its portfolio review.
â€œThe main reasons behind low spending this year is supply constraints since September-October,â€ said Kenichi Yokoyama, ADB Country Director for Nepal.
â€œAfter situation normalised, construction works in most of the ADB-funded projects have moved ahead and we hope works will move ahead at a faster pace.â€
According to him, procurement in energy projects was hamstrung by long
The ADB recently 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).
â€œNow, with NEA managing director having been given right to take decisions on procurement, the progress in the energy related projects could move ahead,â€ he said.
The mid-term review report of budget of this fiscal year released by the Finance Ministry has also depicted poor expenditure pattern of foreign aid.
Out of Rs110.92 billion of allocated budget under foreign grant, only Rs5.9 billion (5.32 percent) was spent during the first half of the current fiscal year.
Likewise, of the total allocation of Rs94.96 billion under the foreign loan heading, only Rs2.91 billion (3.07 percent) has been spent.