28th July 2025, Kathmandu
World Bank has doubled the interest rate on its loans to the country from 0.75% to 1.5%, effective July. This change comes as a direct consequence of Nepal’s recent upgrade in income classification, signaling a new era for how the nation accesses and manages international development assistance.
World Bank Increases Interest Rate
Dhaniram Sharma, Head of the Foreign Aid Coordination Division at the Ministry of Finance, announced the update during an orientation session on foreign aid management systems, co-organized with the Nepal Forum of Economic Journalists (NAFIJ). Sharma explained that the revised terms also shorten the loan repayment period from 40 years to 30 years, which includes a six-year grace period.
“The interest rate was increased starting this July. Previously, we had loans with up to 40 years of maturity, but now it has been fixed at 30 years,” Sharma stated, attributing the change solely to Nepal’s improved economic status. “The only reason for the hike is our upgrade from a low-income country. We are now in a better category than before.”
Strategic Alignment and Stricter Project Scrutiny
The increased interest rates are part of a broader evolution in Nepal’s engagement with its major development partners. Sharma highlighted that both the World Bank and the Asian Development Bank (ADB), which together account for nearly 80% of Nepal’s development aid, have introduced new country strategies – the “Country Partnership Framework” (World Bank) and “Country Partnership Strategy” (ADB). These strategies, developed in collaboration with Nepal, will guide future development assistance priorities.
To enhance the quality and effectiveness of aid utilization, the government has implemented a “Project Readiness Filter.” This new mechanism aims to ensure that only well-prepared and high-impact projects are approved for foreign funding. “Earlier, ministries could easily apply for projects, but that won’t be the case anymore. The trend of taking on numerous projects without proper scrutiny will now be controlled,” Sharma asserted.
Negotiation and Aid Effectiveness
Sharma also underscored that foreign aid implementation is a collaborative process, dependent on mutual agreement between donors and recipients. While acknowledging public complaints that aid isn’t always aligned with Nepal’s national priorities, he stressed that “all development aid is based on negotiation, and we can only try to align it with our national agenda.”
Undersecretary Dolendra Sharma, speaking at the same event, emphasized that committed aid is not always disbursed as anticipated. He cited the example of the Millennium Challenge Corporation (MCC) project, noting that nearly NPR 7 billion allocated for this fiscal year would not have been realized without the continuity of the MCC compact.
Furthermore, representatives from the Ministry of Finance, Prem Upadhyaya and Bishesh Pradhan, provided insights into the Aid Management Information System (AMIS), a digital platform designed to track and monitor development finance within Nepal.
In essence, the World Bank’s decision reflects Nepal’s evolving economic standing, prompting a more strategic, filtered, and negotiation-driven approach to foreign assistance in the years to come. This shift will necessitate greater diligence in project selection and stronger alignment with national development goals to maximize the impact of international aid.
For more: World Bank Increases Interest Rate