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IFF Exceed ODA Grant


Annual 62 Billion Drained and 37 Billion Received
By Hom Nath Gaire
The latest studies show that the Illicit Financial Flows (IFF) drained from Nepal in an average has exceeds the Official Development Assistance (ODA) grant received by Nepal.
A report published by Global Financial Integrity (GFI), a US longtime authority on financial crime, reveals Rs 62 billion has been drained from Nepal annually during the period of 2002 to 2011 in the form of IFF. In the mean time, the record with Ministry of Finance (MoF) shows Nepal has just received Rs 37 billion annually for the same period in the form of ODA grant.
According to these statistics, in an average Nepal has been losing net Rs 25 billion annually. This net outflow of money is more than 5 percent of Gross Domestic Product (GDP) of Nepal in constant price.

During the period, the capital flight from Nepal has been increased by an annual average growth rate of 15.64 percent. In 2010, a record high Rs 155 billion currency had smuggled from the country while the year 2003 witnessed the lowest capital flight which stands at Rs 25 billion. The trends show that Nepal suffered the most from the problem of capital flight in 2007-2010. Perennial political transition, instability created by communist-led government and ambiguity in the policy front are considered some of the major reasons for the problem of capital flight for that period.
The Maoist government failed to take business community into confidence due to their weak commitments for free market economy and failure to safeguard the right of private propriety encouraged big investors to take their investment out of the country,” an economist said.
The annual ODA grant for Nepal has increased by 31.85 percent during the study period. The percentage of currency outflow is higher than the actual grant the country received which clearly suggests that the country was in the net loss.
As far as grant is concerned, the country received the highest amount of grant Rs 70 billion in 2009 whereas it received only Rs 8 billion in 2003.
It was yet again political reason – lack of political stability and lack of local bodies to maintain transparency of aid money – for the low amount of grant, an official at the ministry of finance said.
How a country can take the path of prosperity where the government cannot spend grant money effectively and also unable to stop capital flight, questioned the official.

Major Reasons for the Capital Flight
1.         Decade long internal conflict followed by political Instability
2.         Rampant Corruption in Bureaucracy as well as business community  
3.         Tax evasion oriented mindset among businessmen
4.         Lack of accountability/transparency in private sector
5.         Unnecessary conditions of the donors
6.         Low confidence of investors
7.         Government's Failure to Safeguard the right to private Property
8.         Problem of under-invoicing and over-invoicing in trading
9.         Rampant transfer pricing in international trade
10.   Emergence of conservative (communist) forces in the government
Scenario of Capital Flight and Grants over the last decade (In million Rs)
Heading
Average
Maximum
Minimum
Annual Growth
Grant
37229
70260
8960
31.85%
Capital Flight
61678
154570
24752
15.64%
(Source: Ministry of Finance and GFI)



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