Er.energyNP@Gmail.com

Nepal’s foreign aid commitments have declined as the government’s spending capacity remains weak and the country gradually reduces its dependence on external assistance amid increased mobilisation of domestic resources.

Nepal received foreign aid commitments worth Rs 161.46 billion in fiscal year 2025/26, according to a Ministry of Finance report released last week. The amount, comprising grants and concessional loans, was significantly lower than the Rs 273 billion committed in the previous fiscal year.

Grants accounted for 23 percent, or Rs 37.13 billion, of the total commitment, while concessional loans made up 77 percent, or Rs 124.33 billion.

The figures show that Nepal continues to rely heavily on loans rather than grants for external development financing. Such assistance is generally used for infrastructure development and various sectoral programmes.

Roads and physical infrastructure received the largest share, accounting for 24.6 percent of total commitments. Public financial management received 19.2 percent, followed by drinking water and sanitation at 10.8 percent, climate change and environment at 10 percent, energy at 8.8 percent and digital transformation at 8.2 percent.

The remaining commitments went to urban development, trade facilitation, education, health and other sectors.

Multilateral development partners accounted for 63.6 percent of total commitments, while bilateral sources contributed 36.4 percent. The Asian Development Bank was the largest multilateral partner, accounting for 28.2 percent of total commitments, followed by the World Bank at 27.2 percent.

Foreign aid dependence declines

The role of foreign assistance in Nepal’s public finances has fallen considerably over the longer term.

According to the Finance Ministry, the share of foreign assistance received and utilised declined by 20.7 percentage points between the Eighth and 15th Five Year Plans.

During the Eighth Plan, the annual average share of foreign assistance, including grants and loans, stood at 33.4 percent alongside government revenue. By the 15th Plan, it had fallen to 12.7 percent.

Foreign aid utilisation as a proportion of total government expenditure similarly declined from 30.7 percent during the Eighth Plan to just 12 percent during the 15th Plan. The ministry attributes the decline partly to increased domestic resource mobilisation.

Nepal has traditionally used foreign assistance to finance roads, irrigation, electricity, drinking water, education, health and agriculture.

Former National Planning Commission vice chairman Dr Prakash Kumar Shrestha, however, said the decline also reflects the government’s weak spending capacity. Nepal seeks foreign grants and loans to address financing gaps when domestic revenue falls short of development needs, but poor implementation limits the country’s ability to use committed resources.

Nepal receives grants and loans from bilateral and multilateral development partners including the Asian Development Bank, European Union and World Bank Group. Other lenders include China’s Exim Bank, Saudi Fund, Kuwait Fund, European Investment Bank, International Monetary Fund, IFAD and India’s Exim Bank.

Loans from these institutions are generally long term, concessional or tied to specific conditions and projects.

Weak project management and delays by contractors have slowed implementation of several foreign funded projects. Low capital expenditure has also reduced direct payments and reimbursements from development partners, contributing to weaker foreign aid mobilisation during the review period, according to the Finance Ministry.

The government continues discussions with bilateral and multilateral partners to mobilise grants and concessional loans.

Stakeholders warn that a sustained decline in foreign assistance could affect development projects. With government revenue struggling to cover even recurrent expenditure, Nepal continues to require foreign grants and concessional financing to fund major infrastructure and development programmes.

By Dilip Paudel