With capital expenditure continuing to remain dismal, the government has not been able to receive external loans as expected. According to the Public Debt Management Office (PDMO), as of the third quarter of the current fiscal year, the government received Rs 64.99 billion in foreign loans against the budgetary target of Rs 242 billion which is only around 27 percent of the target. Government officials say that the main reason behind the low foreign financial assistance, particularly the loans, is the government’s inability to expedite its capital expenditure. Nepal has a system of taking reimbursement of resources spent from domestic resources first. Most of the foreign loans are spent in the form of the capital budget. “When the government fails to spend capital budget, it cannot seek reimbursement of spent financial resources from the foreign donors,” said a senior official at the Financial Comptroller General Office (FCGO). “We also don’t have a culture of seeking reimbursement as easily as possible from the donors as well.”

As of mid-January of this fiscal year, the reimbursement to be received by the government from the donors had stood at Rs 26.72 billion, according to the Ministry of Finance.

Amid sluggishness in capital budget spending, the government has also downsized the foreign loans to be spent in the current fiscal year. The government now expects to spend Rs 170.53 billion in foreign loans in the current fiscal year, as per the mid-term review of the budget for the current fiscal year 2022/23. Nepal’s nearly 90 percent of total foreign loans come from multilateral donors such as the World Bank, Asian Development Bank, International Monetary Fund, and the Asian Infrastructure Investment Bank among others. According to the FCGO, the government’s capital expenditure as of May 16 stood at 33.45 percent. With less than two months remaining before the current fiscal year ends, the government’s capital spending will remain poor even in the current fiscal year. Contractors say that their works have been affected by the government’s failure to provide payments for the works they have already completed. In April, the Asian Development Bank (ADB) said that implementation of the ADB-funded projects in 2022 remained poor. “In 2022, the overall portfolio performance in Nepal was lower than expected, affected mainly due to insufficient project staff and high turnover, challenges in contract management, delays in environmental and land clearances, and disruption of the construction supply chain,” said Arnaud Cauchoi, ADB’s Country Director for Nepal during the country portfolio performance review meeting. As of 31 December 2022, ADB’s active portfolio in Nepal stands at around USD 3.2 billion supporting a broad range of key sectors including energy, transport, agriculture, water and urban infrastructure and services, rural development and natural resources, health, and education. According to ADB's Director General for South Asia Kenichi Yokoyama, Nepal needs to achieve better performance in the disbursement of resources to be eligible for more funding from the ADB. “Nepal needs to achieve at least USD 350 million to USD 450 million in disbursement per year to be considered for higher concessional resource allocations based on ADB’s performance-based allocation system,” said Yokoyama. “Higher disbursement is doable with collective efforts of the government and ADB by pursuing higher implementation disciplines.”