KATHMANDU, June 5: Foreign grants flowing into Nepal have declined at a time when the government is increasingly relying on external aid and loans to finance its budget due to weak domestic revenue collection.
The fall in grants comes as the government struggles to meet revenue targets, creating resource shortages that have already affected development projects. Development partners have also reduced grant assistance, adding further pressure on public finances.
The government had targeted receiving Rs 53.45 billion in foreign grants during the current fiscal year 2025/26. However, as of June 3, with about six weeks remaining in the fiscal year, Nepal had received only Rs 20.91 billion, just 39 percent of the annual target.
Based on the government's projections, grants should have been arriving at an average rate of about Rs 4.45 billion per month, meaning around Rs 46.76 billion should have been received by now. Instead, actual receipts stand at only about Rs 21 billion, leaving a shortfall of nearly Rs 26 billion.
The Ministry of Finance says the decline in grants is increasing pressure on resource management.
According to Joint Secretary Dhaniram Sharma, one reason is Nepal's rising per capita income, which has gradually reduced its eligibility for grant assistance.
Govt secures less than Rs 3 billion in foreign grants, far shor...
"As Nepal's income level increases, foreign grants tend to decline," Sharma said, noting that most grants are project based.
He explained that grants are generally disbursed only after project expenditures occur. As a result, projects that fail to spend allocated funds often fail to receive expected grant disbursements.
Economists also point to global developments. Ongoing conflicts, including those involving Iran and other regions, have prompted donor agencies to divert more resources toward humanitarian assistance, reducing the amount available for development aid.
By mid-March of the current fiscal year, Nepal had received Rs 63.14 billion in total foreign assistance, including Rs 56.8 billion in foreign loans. This represents a 15.4 percent decline compared to the same period last year.
The sharp fall in international assistance has added strain to government spending plans at a time when Nepal already faces shortages of development financing.
Nepal receives both bilateral and multilateral assistance from organizations and countries including the World Bank, Asian Development Bank, USAID, and the European Union.
A review of the past five years shows that grant assistance has been steadily declining. Since revenue collection is barely sufficient to cover recurrent expenditures, Nepal remains dependent on foreign grants and concessional loans for infrastructure development. Any reduction in aid directly affects development projects.
Stakeholders cite several domestic factors behind the decline, including weak project implementation, poor spending capacity, inadequate project preparation, and delays by contractors.
Foreign assistance is mobilized across sectors such as roads, irrigation, electricity, drinking water, health, transport, education, agriculture, environmental protection, and economic development.
The Ministry of Finance says projects funded by foreign assistance have been slowed by weak management and construction delays. Low capital expenditure by the government has also reduced direct payments and reimbursement claims from development partners, contributing to lower aid mobilization.
The government introduced a Rs 1.964 trillion budget for the current fiscal year. It expected to raise Rs 1.315 trillion through revenue, Rs 53.45 billion through foreign grants, and Rs 233.66 billion through foreign loans.
For the upcoming fiscal year 2026/27, the government has projected Rs 61.74 billion in foreign grants and plans to borrow Rs 247.28 billion in foreign loans.
The Finance Ministry said discussions are continuing with bilateral and multilateral partners to secure concessional financing. However, delays in utilizing existing aid, requests for funding before project preparation is completed, and slow implementation even after financing agreements are signed have made it harder to secure additional assistance.
The ministry also noted that a portion of foreign grants continues to be channeled outside the national budget system through international organizations and non-governmental organizations, a practice that remains in place.
