The government has prioritized receiving foreign aid in the form of budget support which Nepal can utilize in its priority areas. 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 the Development Cooperation Report 2020-21. According to the ministry, budgetary support 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. However, most of the foreign aid is being received in the form of project support. However, multilateral donors have increasingly been supportive to provide aid in the form of budgetary support in recent years. In the mid-term review of the budget, the finance ministry has stated that the government has already received Rs 15 billion in budgetary support while the rest will be received in the due course as they are in different phases of completion. According to the ministry, development policy credit (DPC) worth Rs 12 billion has been received from the World Bank for Green, Resilient, and Inclusive Development (GRID). In August last year, the two sides signed a the concessional financing agreement of USD 100 million (equivalent to Rs. 12.7 billion) for the GRID. The proposed budgetary support aims to support improvements in the enabling environment in Nepal toward green, climate-resilient, and inclusive development. This is the first in a programmatic series of three concessional loans on GRID, according to the World Bank. Likewise, the ministry said that the government also received Rs 3 billion from the Asian Development Bank under its policy-based lending heading which is also budgetary support. Preparation is underway to receive DPC worth Rs 12 billion under Finance for Growth from the World Bank by the end of the current fiscal year, according to the ministry. The government of Nepal and the World Bank signed a $150 million ‘Finance for Growth’ Development Policy Credit (DPC) in May last year to strengthen financial sector stability, diversify financial solutions, and increase access to financial services in Nepal. The ministry also said that preparation is also ongoing to receive an additional DPC (Fiscal) worth Rs 12 billion by the end of the current fiscal year, according to the ministry. Extra funding of Rs 1.49 billion will also be received this fiscal under program-based result financing from the World Bank. “Preparation is being made to sign a concessional financing agreement for program-based result financing,” the ministry said. Likewise, the government said it aims to receive a total of Rs 22.5 billion as budgetary support in the current fiscal year of which Rs 3 billion has already been received. As much as Rs 13 billion will be received under Strengthening Public Financial Management and Devolved Service Delivery Program while Rs 6.5 billion will be received under SASEC Customs and Logistic Reform Program. The government expects Rs 6.6 billion under the extended credit facility (ECF) of the International Monetary Fund (IMF). The amount is expected to be received in February. In early 2022, the IMF approved ECF worth SDR 282.42 million (about USD 395.9 million) and it will provide the funding on an installment basis. The 38-month financing package will help mitigate the pandemic’s impact on health and economic activity and protect vulnerable groups; preserve macroeconomic and financial stability; and support a reform agenda that leads to sustained growth and poverty reduction, the IMF said. Likewise, the government aims to receive budgetary support of Rs 1.56 billion from the European Union (EU) under the EU Contribution to Agriculture and Rural Development (CARD) Program. The government has been encouraging donors to pour money aid under budgetary support for a long time. Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel last month asked the World Bank to increase its aid to Nepal in the form of budget support. Such a request was made during his meeting with the World Bank’s Country Director for Nepal Faris Hadad-Zervos on January 19. 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 FY 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. Budgetary support by donors in this fiscal year
| Project | Donor | Amount |
| GRID, DPC | World Bank | Rs 12 billion (Already received) |
| Finance for Growth, DPC | World Bank | Rs 12 billion |
| Fiscal DPC | World Bank | Rs 12 billion |
| Assistance for Higher Education | World Bank | Rs 1.49 billion |
| Strengthening Public Management and Devolved Service Delivery | Asian Development Bank | Rs 13 billion |
| SASEC Customs and Logistic Reform Program | Asian Development Bank | Rs 6.50 billion |
| PBL-FSACP | Asian Development Bank | Rs 3 billion |
| Extended Credit Facility | International Monetary Fund | Rs 6.6 billion |
| Contribution to Agriculture and Rural Development | EU | Rs 1.56 billion |
