English | French | Home

International Financial Assistance

International Financial Assistance Nepal relies heavily on foreign aid (both grants and loans). The country has become highly dependent on the international donor community. During the current Tenth Plan (2002-2007) period as a whole, it has been projected under normal case scenario that foreign financing would be equivalent to 58 percent of the development budget-about the same ratio (56 percent) under the Ninth Plan-while domestic borrowing would finance 21 percent, and the revenue surplus the remaining 21 percent. Nepal's increasing dependence on external economic assistance and its growing debt service payments have had a negative impact on the overall development of the country. Although Nepal's external debt was contracted on highly concessional terms, the amount to be repaid every year is high17. The present value of Nepal's external debt service is about 118 percent of its exports and 31 percent of its GDP18. Despite having received large amounts of foreign aid to enhance economic development, the well-being of the Nepalese people has not increased, demonstrated by the lack of improvement in living standards indicators19.

The international financial assistance to the forestry sector is substantial in Nepal. With financing and technical support provided by the World Bank and diverse group of bilateral donors and INGOs, the Nepalese Government was able to initiate community forestry pilot projects in many of the country's watershed in the mid 1970s. Donor organizations were eager to establish field projects in the scenic Himalayas, and community forestry provided an ideal approach to address both social and environment concerns by the 1980s20. By the end of 1980s, approximately 50 percent of all donor assistance to the forestry sector in Nepal was being invested in community-based initiatives21 . The first 'official' Community Forestry Development Project was initiated in 1980 with the establishment of the Community Forestry Development and Training Project funded by the World Bank and technical assistance provided by the Food and Agriculture Organization (FAO). Shortly thereafter, Australia (1978), Britain, Denmark, Finland, the United States (1980), and Switzerland also initiated community forestry projects in Nepal22.

Now, a number of community forestry projects have been supported in different districts in Nepal by various international aid organizations. These organizations include: DFID (UK Department for International Development), Swiss Development Agency (SDC), GTZ (German Aid Agency), SNV (Netherlands Aid Agency), USAID (US Agency for International Development), DANIDA (Danish), and AusAid (Australian). However, recently due to the increasing political conflict and existence of a 'void' situation in the parliament and local bodies, together with Maoists activities hampering development works at the local level, some donors have threatened to pull out their development aid for Nepal, including community forestry projects.