November 20: Although revenue collection is the main source of government's income, the government has been actively engaged in receiving foreign aid due to its failure to collect revenue as expected.

Finance Minister Dr Prakash Sharan Mahat has stepped up his efforts to solicit support from large donor agencies. Due to his active efforts, the government has signed agreements for foreign aid worth Rs 40 billion in the last four months.

Between mid-July to mid- October, the government has reached separate agreements with the main donor agencies including the World Bank, the Asian Development Bank, the European Union and the Japanese government to receive foreign aid.

Out of Rs 40 billion agreement, the government will receive more than Rs 13.5 billion as subsidy.

The government has also signed a grant agreement worth Rs 10.63 billion with the European Union.

This grant agreement is to be spent in the fields of education and climate change adaptation. The European Union has signed an agreement with the Government of Nepal to provide a grant of Rs 7.38 billion for the education program for all and Rs 3.25 billion for the local climate change adaptation program.

The education program for all has the backing of eight donor agencies including the European Union. This program is being run to produce skilled manpower.

Similarly, the Japanese government has signed an agreement to provide a subsidy equal to Rs 2.96 billion to Nepal. The Japanese government will provide the grant for upgrading of the emergency trauma center at Dhulikhel Hospital. Japan's grant will be used to build infrastructure for immediate treatment of victims of emergency accidents.

The World Bank has also signed an agreement to provide a grant of USD 3.8 million to the Government of Nepal. Along with the grant, the government has entered into a loan agreement worth Rs 13 billion with the World Bank during this period. As per the agreement, the loan will be spent in the health sector of Nepal.

The Government of Nepal is increasing investment in infrastructure and production of skilled manpower to expand health facilities to the local level. The government signed the agreement with the World Bank under the same campaign.

Likewise, the government has also signed a loan agreement worth Rs 13 billion with the Asian Development Bank for the rural road infrastructure improvement project.  

According to officials of the Ministry of Finance, the government has prioritized foreign aid as the revenue, the main source of government’s income, has not been raised as expected.

"Support from donor agencies is increasing, this will help the government's financial system which is under pressure," a senior official of the International Financial Aid Coordination Division under the Ministry of Finance told New Business Age.

If we look at the status of revenue collection, the government has collected Rs 276.64 billion till mid-October of the current fiscal year. This is 19.45 percent of the annual target. Tax revenue collected during this period is Rs 254.30 billion and the non-tax revenue is Rs 22.33 billion.

According to the officials of the finance ministry, the government has been facing problems to meet the revenue collection target from the beginning of the current fiscal year.

Finance Minister Mahat announced a budget of Rs 1751 billion for the current fiscal year. So far 20 percent of the budget has been spent.

While announcing the budget, Finance Minister Mahat said that the government will raise Rs 1248.62 billion from revenue and Rs 49.94 billion from foreign grants.

Likewise, the government plans to raise Rs 212.75 billion from foreign loans and Rs 240 billion from internal loans.

In the first four months of the current fiscal year, the government has already taken internal loans of Rs 100 billion.

As the main source of revenue is shrinking, the government has been criticized for meeting its financial liabilities by taking internal debt. Government officials have been rejecting this accusation.

Economist Keshav Acharya says that the government’s finances are deteriorating due to the lack of responsibility and accountability among top political leadership and high-level employees.