KATHMANDU: Finance Minister Dr. Swarnim Wagle has warned that Nepal is entering a challenging phase as foreign grants and highly concessional loans become increasingly difficult to secure.
Speaking at a meeting of the Public Accounts Committee on Thursday, Wagle said Nepal’s access to grants and concessional financing has been shrinking in recent years.
“The window for highly concessional loans, which were available at interest rates of 1 to 1.5 percent, with 40-year repayment periods and an eight-year grace period, is now closing,” Wagle said. “I am concerned that this window is narrowing. The grants we are supposed to receive are also drying up.”
According to Wagle, Nepal has relied on foreign aid and loans to finance expenditures not covered by domestic revenue since the country’s first budget. However, as the size of the economy and the national budget has grown, the relative share of foreign grants has declined.
He said financing for major infrastructure projects and institutional reforms is becoming increasingly difficult, with interest rates rising, grace periods becoming shorter, repayment periods shrinking and competition for limited concessional resources intensifying. “A very challenging phase is now coming for us,” Wagle said.
He said the current fiscal year’s budget has projected around Rs 201.2 billion in foreign borrowing and approximately Rs 62 billion in foreign grants. However, actual grant receipts have consistently fallen short of budget estimates in recent years. While annual budgets have projected grants of around Rs 48 billion to Rs 52 billion, actual receipts have generally remained between Rs 10 billion and Rs 15 billion, he said.
Wagle said Nepal’s foreign assistance should be assessed separately under different categories, including aid channelled through NGOs and international NGOs, bilateral grants and multilateral concessional loans.
He noted that assistance channelled through international NGOs has been declining and now represents a relatively small share compared with the size of Nepal’s economy and budget. “INGOs were also limited in this respect, and it is unlikely that there will be a complete turnaround,” he said.
Wagle said Nepal has received bilateral grants from countries including India, China, the United Kingdom, Japan and the United States. He added that concessional loans from multilateral development partners remain an important source of development financing.
Loans from institutions such as the Asian Development Bank and the World Bank have traditionally offered Nepal long repayment periods, low interest rates and extended grace periods, he said. However, access to such financing is gradually narrowing.
With traditional sources of foreign assistance declining, Wagle stressed the need to mobilize private capital to finance large-scale infrastructure projects. “Now, in the last phase, private sources have entered large-scale infrastructure projects, from Kulekhani to hydropower. Traditional sources, particularly foreign aid, are drying up. Therefore, we are now moving towards new sources of private capital,” he said.
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