KATHMANDU: Nepal´s improved debt paying capacity has prompted multilateral donors to cut off grants. The Asian Development Bank has decided to cut off grants two weeks ago which was being provided to Nepal under the Asian Development Fund while the World Bank is also mulling the same.
Madhu Kumar Marasini, chief of International Economic Aid Coordination Division of Ministry of Finance, informed that the World Bank is likely to follow suit soon. The multilateral development partners will only provide concessional loans with 30 years of gestation period and nominal interests.
Debt Sustainability Analysis jointly carried out by the International Monetary Fund and the World Bank in November 2012 had said the Nepal remains at moderate risk of debt distress. The report says, “The baseline external public debt indicators show that external debt dynamics are sound and broadly resilient to standard stress tests.”
During his visit to Nepal, Vice president of ADB Wencai Zhang had informed about the decision to cut off grants to Finance Minister Ram Sharan Mahat in second week of August. Minister Mahat had requested Zhang to reconsider the decision.
Zhang had said the multilateral donor decided to provide only Asian Development Fund (ADF) loan after their assessment of Nepal´s micro-economic situation, social development and country´s portfolio performance.
“We decided to shift to ADF assistance after looking into different situations of the country and comparing that situation with other countries receiving the fund under ADF,” Zhang had clarified.
ADB was providing grants worth US$ 100 million annually while World Bank grants under International Development Association comprises about 50 percent of its total donations to Nepal. The World Bank´s total donations to Nepal hovers around US$ 250 million, said Marasini.
Marasini also said that they have informally requested the World Bank to consider Nepal´s transitional political situation.
However, former finance secretary Krishna Hari Baskota is of the view that the move of the donors should be taken as an opportunity to mobilize donations as concessional loans into productive sectors and activities.
“Loans comparatively bring more efficient results than grants. There is no accountability on the part of the government officials and political leaders who sign grant agreement with the donors,” said Baskota. He also said the grants come with various conditions.
However, the donors still impose some of their conditions on soft loans and experts suggest the country should lobby for changing the practice of project-based funding and demand budgetary support system which can be spent on any project selected and prioritized by the government. Study says that World Bank and Asian Development Bank (ADB) loans account for 83 percent of external debt, while Japan is the largest bilateral creditor accounting for 6¼ percent of total external debt to Nepal.
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