Donors had their grievances to hash out as did the senior Nepali officials present at the donors’ meeting organized to discuss the draft of upcoming Nepal Development Cooperation Policy (DCP) 2013.
Nepali officials spoke out about the issues of transparency in foreign aid in the same manner that donors have been demanding proper utilization of their tax payers´ money.
In past meetings, Nepali officials used to remain mere listeners of one-sided preaching from donor representatives on development issues, good governance and transparency, effectiveness of aid and the implementation capacity of Nepal.
This time, possibly for the first time ever, Nepali officials openly and critically presented themselves before the development partners over the effectiveness of foreign assistance in Nepal.
The donor community, which has been asking for transparency in the spending of the budget, themselves seemed to maintaining an opaque system while releasing the assistance -- something which has put more than 23 percent of the foreign aid coming to Nepal out of the budgetary system.
“We have records that show that around 23 percent of the foreign aid is still off-budget. We want to urge donor agencies to support us in bringing all the foreign aid amount under our budgetary system so that we can enhance transparency on spending of their aid extended to Nepal,” Chiranjibi Nepal, the MoF’s Chief Economic Advisor, said.
Nepal also expressed dissatisfaction that foreign assistance had not been able to play a leading role in bringing down the poverty level in the country.
“Over the last decade we have witnessed significant success in reducing poverty in the country. But remittance from Nepali migrants working abroad has been the key factor behind this achievement. We couldn´t utilize donor´s assistance in generating employment that directly benefits the poor,” Nepal added.
Having acknowledged that a huge amount of donors´ assistance was spent beyond the government´s radar, the current budget has also pledged to make foreign aid mobilization more transparent and accountable by bringing it under the national budgetary system. Timely reform in the foreign aid policy and integrating an information system relating to foreign aid management are also on government´s agenda in the current budget.
A huge amount of foreign aid has been coming into the country through donors´ own agencies and non-governmental organizations without notifying the government.
The time has come not only to bring all foreign assistance into the national budget system, but the voice for the need to align foreign assistance in line with the government priorities rather than accepting the conditions of the donors is also getting stronger.
“We have brought the billions of rupees mobilized from our own resources into our budget system. Why can´t we introduce the same practice to the receiving and utilizing of the foreign assistance,” Finance Secretary Shanta Raj Subedi said.
Keeping in view the practice of off-budget spending of foreign assistances, the government is drafting the DCP, which is expected to regulate foreign assistance and channel it through in a transparent manner to support the government’s priority programs. “We can´t generate better results from the huge foreign aid until and unless we align it with our priority programs and bring it into our national budget system. The proposed DCP has tried to address the challenges seen in the mobilization of external assistance,” Madhu Kumar Marasini, who heads the International Economic Cooperation Coordination Division at the MoF, said.
Keshav Acharya, former chief economic advisor at the MoF, also sees off-budget spending of foreign aid having a negative impact on the economy in the long term and adding to the contingency liability of the government.
“Flow of foreign currency in an informal way increases liquidity in the market which can´t be tracked by the government. If such liquidity increases without the government´s notice, it will affect the whole money supply and risk the failure of the monetary policy of the central bank,” said Acharya, who is also a former chief of the Research Department of Nepal Rastra Bank.
Inflow of foreign aid for different programs through non-governmental organizations bypassing the government system will increase contingency liability of the government after termination of terms of such dependence of beneficiaries of programs.
On the other hand, Nepal has to lessen the dependence on foreign assistance on the back of Nepal´s target to graduate from a Least Developed Country (LDC) to Developing Country status by 2022. Nepal will lose privileges such as confessional windows for loans and grants from donors once it graduates to the status.
“Nepal has to increase the contribution of revenue to the budget resources to lessen the dependence on foreign aid after it becomes a Developing Country,” Marasini said.
In the last few years, revenue has been contributing around 80 percent of the total resources of the budget.
However, donors are not showing confidence that Nepal would be able to mobilize the whole aid amount under it budgetary system without enhancing good governance and spending capacity. Though the timely announcement of the budget and the approval of the budgetary programs; filling up of the vacant posts of office bearers in the crucial constitutional bodies; and the formulation of an Approach Paper for the next Three-year plan, were hailed by donors as positive steps taken by the government, they want more effort from the government.
“Merely the allocation and approval of the budget is not sufficient, effective implementation of the budget through regular follow ups is equally important,” said Tahsin Sayeed, country manager of the World Bank for Nepal. She drew the attention of Nepali officials to retain the confidence of the public on the government which has been restored with the some positive efforts and initiatives taken by the government.