Plan to fix minimum amount irks donors

KATHMANDU, MAY 27 - The government’s plan to fix the minimum amount of foreign aid that it will accept  has drawn criticism from donors who said that the policy could be counterproductive and detrimental to its effective use.

They have expressed concern not only at the provision which has been proposed to be inserted in the upcoming Development Cooperation Policy but also at ‘restrictions’ on their collaboration with international and national non-governmental organizations (INGOs and NGOs) and the use of technical assistance.

The proposed policy states that the government will not accept grants below $ 5 million, concessional loans less than $ 10 million and commercial loans below $ 20 million per programme or project.

“A rigid interpretation and implementation and further restrictions on grant aid, collaboration with INGOS and NGOs and use of technical assistance would be counterproductive and detrimental to the effective use of foreign assistance,” said Urs Herren, Swiss Ambassador to Nepal. Speaking on behalf of donors at a local donors’ meeting held by the Finance Ministry last Wednesday, he added that the development partners, however, were in wide agreement on the objectives of the policy.

Donors said that rigid provisions and their implementation may not serve the purpose of foreign aid. The Asian Development Bank’s Country Director Kenichi Yokoyama said that there was general consensus among donors that there should be flexibility in the limit. “Instead of setting a rigid minimum limit, it would be better to fix it based on geography and necessity,” he said. “For example, a small amount of aid may not be enough for the Kathmandu valley, but it may be a lot for other regions.”

The government has inserted the lower limit in the proposed policy in a bid to discourage aid fragmentation so that the desired impact can be achieved from it. According to the Development Cooperation Report 2012-13, a single donor has been found engaged in as many as 138 projects involving 25 ministries and agencies.

The proposed policy, however, has kept the door open for accepting grants under pooled funding including sector wide approach, environment and climate change related grants and small grant schemes under a separate umbrella agreement for community support, co-financing arrangement, humanitarian activities and technical assistance.

Similarly, concessional loans of less than $ 10 million will be accepted under pooled funding, Nepal Common Development Fund and co-financing arrangements.

The proposed policy has also talked about bringing transparency in technical assistance after the Office of the Auditor General issued a report that the government was unaware of how a huge amount of such aid was spent.

The proposed policy has also sought a written justification from line agencies in case any project or programme requires international consultants. A similar justification stating why regular government staff cannot do the job will be required to hire national consultants.

While the government has not been accepting commercial loans, the policy has also opened the door to accept such assistance for major infrastructure projects. Yokoyama said that it was important to invest in increasing human capital in response to the government’s request to donors to increase their aid to the infrastructure sector.

Considering the reservations raised by donors over the proposed policy, the government on Monday held another round of discussions with them. Madhu Marasini, chief of international cooperation coordination division at the Finance Ministry, said that the ministry consulted with donors to address their concerns.

The donors were concerned over a proposed government move to control foreign assistance. “We assured that the main intention of the proposed policy was to discourage aid fragmentation,” Marasini clarified. He, however, said that the fixed limit will be changed.

Marasini also said that that tone of policy has been revised, including provisions on gratis visa and tax regime for the INGOs.

It was earlier provisioned that expatriates employed with INGOS are not eligible for gratis visa and no tax exemption for INGOs unless specified in the prevailing Finance Act and Tax laws. “We have now stated that the tax won’t be imposed on foreign aid as long as the amount is used for non-profit making purposes,” said Marasini.

Meanwhile, experts said that fixing a limit on foreign aid was good. Former vice-chairman of the National Planning Commission Shankar Sharma said a minimum should be fixed for each donor but not for programmes or projects.

“Administrative costs consume a huge chunk of small aid packages, so it is better not to accept such assistance,” he said. “They consume a lot of time of government officials for negotiations, but the output is little.”

However, he added that donor concern over relations with INGOs and NGOs was natural given the fact that they wanted to mobilize their funds through them, finding the government mechanism not as efficient.