Nepal relies heavily on foreign aids, and donors coordinate development aids through Nepal Development Forum, whose members include donor countries, international financial institutions, and inter-governmental organizations. My digital artifact entitled “Development Finance and ODA in Nepal” is targeted to anyone interested in understanding general context and status of development finance and ODA in Nepal. Despite rises in ODA, its effectiveness in Nepal is questionable. Hence, there is a need to make general public aware of development finance and ODA‘s status & effectiveness in Nepal, thereby emphasizing domestic resource generation and mobilization for sustainable development.

1. Development Finance and ODA in Nepal
Badri Prasad Manandhar
05 December 2015
A Fin4Dev Project

2. Objectives:
• Analysis of development
finance and ODA‘s status
& effectiveness in Nepal
• Issues and suggestions
A Fin4Dev Project
Target Audience:
Anyone interested in
understanding context and
status of development finance
and ODA in Nepal

3. 1. Brief Background on
Development Situation in
Nepal
2. Development Finance and
ODA in Nepal
3. Effectiveness of ODA
4. Some Issues and
suggestions
Presentation Layouts

4. 1. Brief Background

5. 1.1 General Context:
 A landlocked, culturally, ethnically,
geographically and religiously diverse
country
 Political transition in 2006 to be recognized
as a secular federal republic country
 Population: Around 30 million (Growth
Rate: 1.35)
 Population below poverty line: 23.8%
 GDP: US$ 703 per capita per annum
 Public Debt per capita: US$ 195
 Education/Health/Defence Expenditure per
capita: US$ 26/14/11 respectively
 Human Development Index: 0.54 (145th)
 Corruption Perception Index: 29 (126th)
 Economic growth negatively impacted by
recent earthquake and Indian blockade

6. 1.2 Annual GDP Growth Rate
Because of earthquake and economic blockade, the GDP growth rate is
expected to be half of the estimated rate in 2015.

7. 1.3 Development Issues and Challenges
 Mass poverty and Inequality: 23.4% of
population below poverty line, Gini
coefficient 0.46
 Inadequate physical infrastructure
 Widespread unemployment
 Stagnation of agriculture:68% of
population in agriculture, but,
contribution to GDP 34%
 Economic dependency:>60% foreign
trade with India
 Political Instability and Poor
Governance
 Low level of Savings and Investment:
Consumption to GDP ratio 93.3%
 Under-utilization of Natural Resources
 Under-utilization of Human Resources
 Less Benefits from Globalization

8. 2. Development Finance and ODA

9. 2.1 Total International Resource Flow
• In 2011, total spending by
the government was US$ 3.5
billion, which is equivalent to
US$ 116 for each person
• In 2011, the government
spent the must on the
education sector followed by
agriculture, health, social
protection, water and
sanitation
• All international resources
that flowed to Nepal totaled
US$ 5.4 billion.

10. 2.2 Flow of Resources in Nepal (US$)
• There are a number of international resources flows reaching Nepal.
• The largest international resources flowing to Nepal is remittances, the
total being US$ 4216.9 million followed by ODA of US$ 892.3 million

11. 2.3 Share of ODA in National Income
• Resources from ODA are representing an increasingly small share of
Nepal’s national income.
• In 2011, ODA represented 6% of national income.
• Nepal received less ODA as a share of its national income than other
countries in south Asia.

12. 2.4 Modality and Type of ODA in Nepal
Modality of ODA:
• Programme Support: Programme-based
support having comprehensive programme and
budget framework
• Project Support: Development projects which
operate on a stand-alone basis
• Sector Wide Approach (SWAp) Support:
Specific type of programme based approach
covering a whole sector (e.g. Education,
Health)
• Humanitarian Assistance: Designed to save
lives, alleviate suffering and maintain and
protect human dignity during and in the
aftermath of emergencies
• Budget Support: The fund that is directly
transferred to the Government’s treasury
through development partners
Major ODA type:
• Grant: Transfers made
in cash, goods or
services for which no
repayment is required.
• Loan: Transfers for
which repayment is
required.
• Technical Assistance:
Assistance for capacity
development including
consultancy services
and the cost of
associated equipment.

13. 2.5 Mode of Payment and Disbursements:
Mode of Payment:
• Cash: Money given in the form
of cash.
• Commodity: In-kind grant
given in the form of a physical
item (e.g. food aid).
• Reimbursable: Money spent
against the project by the
government which will be
reimbursed by the donor.
• Direct Payment: Payment
from the donor, given directly to
the providers of services and
goods.
Disbursements:
Represent the international
transfer of financial resources to
Nepal
• Actual Disbursements:
Funding which has been
transferred by the donor to the
government’s treasury.
• Planned Disbursements:
Disbursements to be made
during the life of the project. A 3
year forward schedule is
entered on the agreement.

14. 2.6 Composition of ODA in Nepal
• In Nepal, ODA is delivered through different instruments such as cash
grants, loan/equity, commodities & food, technical cooperation etc.
• In 2011, 43% of ODA delivered to Nepal was cash grants followed by
technical cooperation and commodities.
• Nepal is a country receiving grants as biggest proportion of ODA
among other south Asian countries.

15. 2.7 Sector-wise ODAAllocation
In 2011, the infrastructure sector attracted 18% of ODA to Nepal, followed
by governance and security sector (17%), education 17%), health (12%),
agriculture and food security (10%)

16. 2.8 Sector-wise ODA instruments
Different sectors in Nepal attract different types of ODA. For most sectors,
cash grants are the main components of ODA. In the infrastructure sector,
ODA was delivered as loans (29%). In health sector, the share of technical
assistance was 17%.

17. The volume of ODA in FY 2013-14 reached a total of US$ 1.112
billion, of which 51.6% was by multilateral donors, while 39.8% was
by OECD-DAC bilateral donors and 8.6% was by other partners.
The World Bank Group remained the top multilateral ODA provider
followed by the Asian Development Bank, the European Union, the
United Nations Country Team and the Global Fund.
The United Kingdom remained the top bilateral ODA provider
followed by India, USAID, China and Japan.
Education sector (16%) continues to be the largest ODA receiver
followed by local development (14%), health (11%), energy (5%) and
road transportation (4%).
Grant (66%) continues to dominate the total ODA followed by loan
(18%) and technical assistance (16%).
ODA portfolios in Nepal are relatively fragmented.
INGO contribution increased from last fiscal year.
2.9 Some recent trends as of FY 2013/14:

18. 3. Effectiveness of ODA

19. 3.1 ODA and Decline in Poverty
The share of ODA that Nepal receives for each person living in poverty
is increasing, while the number of people living in poverty has
decreased. In 2010, there were 7.4 million people living in extreme
poverty in Nepal.

20. 3.2 Remittances and Decline in Poverty
The amount of remittances that is reaching Nepal is increasing while
the numbers of people living in poverty has decreased. In 2010,
remittances to Nepal reached US$ 4 billions compared to ODA of US$
0.89 billion received in the same period.

21. 3.3 Corruption is increasing......
From Corruption Perception Index point of
view, Nepal is a country with rampant
corruption. Political parties, civil service,
police, parliament, judiciary and private
sector are most corrupt institutions in Nepal
followed by civil societies.

22. 3.4 Unemployment rate still remains high......
Even though it reduced from 8.80% in 2001 to 2.90% in 2012, the
unemployment rate still remains high at 2.90 % today.

23. • Despite the rises in ODA, Nepal is only country in South Asia that has
not experienced any significant improvement in micro and
macroeconomic aspects.
• The GDP growth rate: decreased from 6.1% (2008) to 4.6% (2010)
• Unemployment rate: increased from 42% (2004) to 46% (2013)
• The corruption: persistently increasing.
• Institutional gap in mobilizing acquired resources including ODA.
• Government mechanisms: not well functioning.
3.5 Conclusions:
• Effectiveness of ODA investment in governance
reform and productive sectors is questionable.
• Domestic resource mobilization i.e. remittances has
significant potential to finance development in Nepal.
But, it is still underestimated and unexplored!

24. 4. Some Issues and Suggestions

25. 4.1 Some Issues:
• Political instability
• Massive corruption and unaccountable and non-
transparent government mechanism
• Bottlenecks to public and private investment
• Difficult regulatory environment
• Fragmentation of ODA portfolios of Nepal
• Dependency on ODA
• Lack of innovation on domestic resource generation
• Donors’ unethical behaviour and weak commitment: too
frequented.
• Donors’ less commitment to ‘country ownership’ and ‘use
of country system’.

26. 4.2 Some Suggestions:
• Strengthening its governance and the management of its
public expenditures
• Domestic resource attraction and improved taxation
• Reprioritization of expenditures i.e. to agriculture,
infrastructures, energy etc.
• Investment of remittances in productive sectors
• More accommodating macroeconomic framework (e.g.
tolerance to some inflation, fiscal deficit, borrowing)
• Using fiscal and central bank foreign exchange reserves
• Increased aid and transfers
• Effective corruption control mechanism

27. 4.3 References:
• http://opennepal.net/sites/default/files/resources/
• http://www.aidflows.org/
• https://class.coursera.org/fin4devmooc/
• Development Cooperation Report (FY 2013/14), Ministry
of Finance, GoN, 2015

28. Thank you for your patience!