FinMin asks World Bank to increase its budgetary support

Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel asked the World Bank to increase its aid to Nepal in the form of budget support which Nepal can utilize in its priority areas. During a meeting with the World Bank’s Country Director for Nepal Faris Hadad-Zervos on January 19, DPM Paudel sought an increment in budgetary support. The share of budgetary support in total aid to Nepal has been increasing in recent years. The government's International Development Cooperation Policy (DPC)-2019 has highlighted that budget support is the country’s most preferred official development assistance modality. “This is because budget support inherently ensures coherence with the principle of country ownership. It is predictable, allows for better development planning, lowers fragmentation, and leads to more effective use of pooled resources,” states the Finance Ministry in its Development Cooperation Report 2020-21. “It is also flexible, allows for greater responsiveness to development needs, reduces transaction costs associated with managing various implementation channels, and helps build government capacity, contributing to more sustainable results.”

According to a senior official of the Finance Ministry, the government expects to receive around Rs 36 billion in Development Policy Credit (DPC), a lending facility as budgetary support, from the World Bank in the current fiscal year 2022/23. “We have already received around Rs 13 billion from the World Bank,” the official said.

In recent years, the Washington DC-based multilateral agency has been increasing its support to Nepal under DPC. The latest DPC that the World Bank approved is USD 100 million for helping to improve the enabling environment for Nepal’s green, climate-resilient, and inclusive development pathway. This is the first in a programmatic series of three DPCs on Green, Resilient and Inclusive Development (GRID). In June 2020, the government and the World Bank Board signed the USD 100 million credit line to improve the financial viability and governance of the energy sector and recover from the COVID-19 crisis. It was the second installment of DPC in the energy sector. The first installment of USD 100 million was approved in September 2018. The global lender started Financial Sector Stability Development Policy Credit in 2013. The World Bank said that it introduced the DPC series to promote policy reforms for strengthening institutions and their governance in the medium term. They have been an important financing instrument in this regard. After the evaluation of the liquidity crisis of 2011, the first DPC was approved, according to a 2013 World Bank report. The DPF series enabled the deepening of policy dialogue and supported the momentum for key policy reforms (e.g. modernized legal/regulatory framework for crisis management and bank resolution and consolidation of the financial system), the international donor agency said in its country assistance strategy for 2019-2023. According to the Finance Ministry official, another multilateral lender, Asian Development Bank is also providing budgetary support to Nepal. “We are supposed to receive $175 million under budgetary support in the current fiscal year,” the official said. The International Monetary Fund’s USD 395.9 million Extended Credit Facility is also the budgetary support to Nepal with the country receiving USD 110 million in the last fiscal year. However, citing the import restriction policy of Nepal among others, IMF has been withholding the release of further installments so far. As Nepal seeks more resources to fulfill its financing needs, the share of budgetary support has increased in the past decade. According to the Development Cooperation Report 2020-21, the share of budget support stood at 30.27 percent of the total disbursed official development assistance in the fiscal year 2020/21. As much as USD 509.99 million was disbursed as budget support in that fiscal year. In FY 2019/20, the share of budget support was 36.52 percent. In the earlier years, the share of the budget support was lower with 15 percent being disturbed as budget support in FY 2018/19, according to the Development Cooperation Report 2018-19.