Nepal’s Development Goals and the Role of Foreign Aid
Nepal is currently working toward some major national targets. The country hopes to achieve the Sustainable Development Goals (SDGs) by 2030, graduate from the Least Developed Country (LDC) category in 2026, and eventually become a Middle-Income Country by 2030. Meeting these goals requires a huge amount of financial resources. Nepal is trying to improve its domestic revenue, but foreign aid still plays a very important role in supporting development programs across the country. Because of this, the government prepares the Development Cooperation Report (DCR) every year. The report helps keep track of how much aid Nepal receives, who gives it, and how it is being used. It mainly covers Official Development Assistance (ODA), which includes support from governments and international organizations, along with contributions from INGOs. The purpose is to make the flow of aid transparent and easy to understand.
How Much Aid Did Nepal Receive in FY 2022/23
In the fiscal year 2022/23, Nepal received a total of USD 1.37 billion in foreign aid. This amount is slightly lower than what the country received in the previous fiscal year, but still close to the average of the past decade. One of the most noticeable changes in recent years is the type of aid Nepal is receiving. A large portion of the aid now comes in the form of loans rather than grants. In FY 2022/23, loans made up 66.5% of total disbursements, while grants accounted for only 19.8%. The remaining 13.6% came as technical assistance, which mostly involves expert support and capacity-building rather than direct money. This shift toward loan-based aid means Nepal’s future debt burden is likely to grow, which is something the country must carefully manage.
When we look at who is supporting Nepal the most, multilateral development partners contribute the largest share. These are big international organizations where many countries pool their resources. The World Bank Group and the Asian Development Bank (ADB) were the two biggest multilateral contributors during this fiscal year. Bilateral partners meaning individual countries also played an important role. Among them, Japan provided the highest amount of aid, followed by the United States (USAID) and India. Nepal also signed several new aid agreements during the year. In total, 26 new agreements were signed, amounting to USD 1.68 billion, and most of these were also in the form of loans. The largest new commitments again came from the World Bank and the ADB.
Which Sectors Received the Most Aid
The aid Nepal received was distributed across many different sectors. In FY 2022/23, the sector receiving the highest ODA disbursement was Economic Reform with 14.7 percent (USD 202.1 million), which surpassed the Health sector as the top recipient from the year before. The overall top five sectors receiving the most ODA disbursements were: Economic Reform (14.7%), Health (12.5%), Education (12.4%), Energy (including hydropower/electricity) (10.4%), and Environment, Science, and Technology (7.6%). The sharp increase in funding for the Environment, Science and Technology sector was mainly due to a large loan from the World Bank known as the Green, Resilient and Inclusive Programmatic Development Policy Credit (GRID-DPC).
Key Challenges in Managing Foreign Aid
Nepal faces several problems when it comes to managing foreign aid effectively. In FY 2022/23, ODA made up 16.6 percent of the total national budget. However, a large amount of aid, USD 309.3 million was delivered outside the national budget. This is called off-budget aid, and it means the money does not go through the government’s official financial systems. Instead, donors or other agencies directly handle the funds. This practice goes against Nepal’s policy goal of strengthening its own government systems and improving national capacity.
Predictability is another major challenge. Nepal is very accurate in predicting how much aid it will receive within the same year, with a 97.1 percent success rate. But when planning two or three years into the future, this predictability drops sharply. Only 26.1 percent of aid is predictable two years ahead, and only 11.7 percent is predictable three years ahead. This lack of long-term certainty makes it difficult for the government to plan big projects or create stable long-term policies.
Nepal also struggles with fragmentation. This means too many development partners and too many separate projects, which makes coordination difficult. In FY 2022/23, 20 different government agencies were handling 351 projects supported by 22 partners. Managing this many projects increases administrative work and costs. On top of that, funding from International Non-Governmental Organizations (INGOs) decreased significantly. Their disbursements dropped by about 57.2 percent. Another ongoing issue is the slow progress of post-earthquake reconstruction. Out of the total aid committed for earthquake recovery, only 39 percent (USD 1.6 billion) has been disbursed so far, even after many years.
Nepal’s Future Direction
Looking ahead, Nepal is focusing its development efforts through the Green, Resilient, and Inclusive Development (GRID) strategy. This approach aims to ensure that economic growth is not only fast but also environmentally friendly, socially fair, and resilient to challenges like climate change. Development partners have already shown strong support for this approach and have pledged up to USD 4.2 billion in possible future funding under the GRID framework.
To improve how aid and development finance are managed, the government plans to upgrade its current tracking system. At present, Nepal uses the Aid Management Information System (AMIS). However, it wants to replace this with a more advanced system called the Development Finance Management Information System (DFMIS). This new system will be able to track a wider range of financial flows and will be better at linking planning, budgeting, and actual development results. The main goal is to make aid management more efficient, transparent, and aligned with national priorities.
Conclusion
The DCR for FY 2022/23 shows that foreign aid is still very important for Nepal’s development goals, but most of this aid now comes as loans (66.5 percent), which is raising concerns about increasing debt. Nepal is trying to align its funding with the GRID strategy, but the actual impact of this aid is weakened because of several ongoing issues. A large amount of aid is still off-budget, long-term aid planning is highly unpredictable, and there are too many partners and projects for the government to manage efficiently. Nepal’s progress in the coming years will depend on how well it can use the potential USD 4.2 billion pledged under the GRID framework, and to do this, the country needs to urgently fix its aid management problems by upgrading its systems, especially through the new DFMIS, which is expected to improve transparency, accountability, and overall use of development funds.