The government, which had been providing tax exemptions under various headings to construction companies involved in projects funded by foreign grants and loans, has now decided not to offer such exemptions when signing new agreements. This change follows the issuance of the Foreign Aid Policy-2025, which clearly states that tax exemptions will no longer be provided for projects financed through foreign loans.

Previously, agreements included provisions for tax exemptions to construction companies working on projects funded by foreign grants and loans. Earlier development aid policies supported these exemptions, but the government revised its stance after concerns were raised by the Office of the Auditor General and parliamentary committees. Notably, irregularities were highlighted in the case of Pokhara International Airport, where a scandal involving more than Rs 10 billion was reported. The government revoked the tax exemption after this agreement courted controversy.

The Foreign Aid Mobilization Policy-2025 now states that "there will be no provision for tax exemptions when signing agreements for such projects." The new policy emphasizes that foreign aid should be mobilized through INGOs in alignment with national needs and priorities. It further specifies: "Apart from the aid amount allocated by development partners to be provided to the Government of Nepal, national and international non-governmental organizations (INGOs) should collect aid at the international level on their own initiative and propose projects through the Social Welfare Council."

When proposing a project, INGOs must submit prior consent from the local level implementing the project. Details of such assistance must be entered into the Assistance Management Information System at the Ministry of Finance. Additionally, INGOs are required to develop project plans in collaboration with federal, provincial, and local governments.

The policy also states that the government will mobilize foreign aid to develop the private sector and attract private capital. Strategies include the use of new tools for aid mobilization and the promotion of public-private partnerships (PPPs). For national priority projects under PPPs, the government may provide loans or guarantees to address capital shortages in the public sector. The policy also includes provisions to improve access to external capital for private sector entities involved in PPPs, including viability gap funding to enhance project feasibility.

In line with this, the government may mobilize external capital through public investment or development funds. It may also issue onshore or offshore sovereign bonds independently or in partnership with national and international financial institutions with fixed returns for investment in sustainable development, energy, and green infrastructure. If a government-owned or majority-owned institution wishes to issue bonds, the government will offer a counter-guarantee as per legal provisions.

The policy supports the establishment of infrastructure funds to invest in equity or provide credit line facilities to private-sector-led projects in transport, energy, and industrial development. Its overarching goal is to increase production and productivity through effective mobilization of foreign aid. By accelerating the implementation of development programs and projects, the government also aims to enhance the country's capacity to utilize foreign aid efficiently.

The foreign aid policy seeks to bridge the financial gap required to achieve long-term development goals and foster economic growth. It emphasizes Nepal's leadership role in aid mobilization and aims to enhance the qualitative use of such aid. A strategic framework has been introduced to boost the national capacity to utilize foreign aid, prioritizing program-based and budget-based assistance aligned with sectoral reforms and national plans.

The Ministry of Finance has outlined several work strategies to implement the policy. These include aligning aid programs with thematic and sectoral priorities identified in the Periodic Development Plan, as well as implementing initiatives announced through federal, provincial, and local budgets and annual programs.

When preparing projects, the strategy is to prioritize grants over loans. To address the development financing gap, the government will also employ a blended finance approach. This involves combining grants and concessional loans with investments from commercial, private, and non-governmental funds. The financial structure under this model will be designed to ensure commercial viability and attract private capital by pooling various funding sources.

Dr Yubaraj Khatiwada, the Prime Minister's Economic and Development Advisor, stated that achieving an economic growth rate above 5 percent is not possible without internal borrowing. He emphasized that even with increased borrowing, achieving a growth rate of 6–7 percent requires such loans. Recalling his tenure as Finance Minister, Khatiwada noted that merely identifying sectors for internal loans is no longer sufficient and that it is now necessary to specify the exact projects for which loans are taken.

“There is much debate about whether to raise internal loans,” he said, speaking at a program held in the capital on Sunday. “Next year’s internal debt repayment obligation stands at Rs 317 billion.” He added that when he was Finance Minister, the growth rate had reached 6–7 percent, and borrowing had increased accordingly.

Khatiwada concluded by saying that since the government’s revenue cannot even cover current expenditures, borrowing becomes essential for development. “Achieving a 6–7 percent growth rate is impossible without taking loans. Every finance minister is compelled to borrow in order to exceed a 5 percent growth target,” he said. He also noted that the new foreign aid policy imposes stricter rules to avoid indiscriminate borrowing.