Foreign grant inflows to Nepal have declined sharply at a time when the government is becoming increasingly reliant on external assistance and concessional loans to finance its budget amid weak domestic revenue collection.
The decline comes as the government struggles to meet its revenue targets, resulting in resource shortages that have already affected development projects. At the same time, development partners have reduced grant assistance, putting additional pressure on public finances.
Grant Receipts Fall Far Short of Target
For the current fiscal year 2025/26, the government had set a target of receiving Rs 53.45 billion in foreign grants. However, as of June 3, with only a few weeks remaining in the fiscal year, Nepal had received just Rs 20.91 billion, equivalent to only 39 percent of the annual target.
Based on government projections, grant inflows should have averaged around Rs 4.45 billion per month, meaning approximately Rs 46.76 billion should have been received by now. Instead, actual receipts amount to only about Rs 21 billion, leaving a gap of nearly Rs 26 billion.
The Ministry of Finance has acknowledged that the decline in grants is increasing pressure on the government’s resource management.
Rising Income Levels Reducing Grant Eligibility
According to Joint Secretary Dhaniram Sharma, Nepal’s rising per capita income has gradually reduced the country’s eligibility for grant assistance.
“As Nepal’s income level increases, foreign grants tend to decline,” Sharma said, noting that most grants are tied to specific projects.
He explained that grant disbursements are generally made after expenditures are incurred. Consequently, projects that fail to utilize allocated budgets often fail to receive the expected grant reimbursements.
Global Crises Affecting Development Aid
Economists also attribute the decline to changing global priorities. Ongoing conflicts in various regions, including tensions involving Iran, have prompted donor countries and international agencies to redirect resources toward humanitarian assistance, reducing the funds available for development support.
By mid-March of the current fiscal year, Nepal had received Rs 63.14 billion in total foreign assistance, including Rs 56.8 billion in foreign loans. This represented a 15.4 percent decline compared to the corresponding period last year.
Declining Trend Continues
A review of the past five years shows that foreign grant assistance has been steadily declining. Since government revenue is barely sufficient to finance recurrent expenditures, Nepal continues to rely heavily on foreign grants and concessional loans for infrastructure development. Any reduction in external assistance directly affects development activities.
Nepal receives bilateral and multilateral support from institutions and development partners such as the World Bank, Asian Development Bank, USAID, and the European Union.
Domestic Challenges Hindering Aid Mobilization
Stakeholders point to several domestic factors behind the decline, including:
- Weak project implementation;
- Poor spending capacity;
- Inadequate project preparation;
- Delays by contractors;
- Weak management and supervision;
- Low capital expenditure.
According to the Ministry of Finance, slow implementation of foreign-funded projects has reduced direct payments and reimbursement claims from development partners, contributing to lower aid utilization.
Foreign assistance supports sectors such as roads, irrigation, electricity, drinking water, health, transport, education, agriculture, environmental protection, and economic development.
Greater Reliance on Foreign Loans
The government introduced a Rs 1.964 trillion budget for FY 2025/26, expecting to mobilize:
- Rs 1.315 trillion through domestic revenue;
- Rs 53.45 billion through foreign grants; and
- Rs 233.66 billion through foreign loans.
For the upcoming fiscal year 2026/27, the government has projected foreign grants worth Rs 61.74 billion and plans to borrow Rs 247.28 billion in foreign loans.
The Ministry of Finance said discussions are ongoing with bilateral and multilateral development partners to secure concessional financing. However, delays in utilizing existing aid, requests for funding before project preparation is completed, and sluggish implementation even after financing agreements are signed have made it more difficult to attract additional assistance.
The ministry also noted that a portion of foreign grants continues to flow outside the national budget framework through international organizations and non-governmental organizations, a practice that still persists.
As domestic revenue remains under pressure and external grants continue to decline, Nepal faces growing challenges in financing development projects and maintaining fiscal sustainability.
