The Ministry of Finance has introduced a new foreign aid mobilization policy requiring procurement contracts financed by foreign loans to be denominated in the same currency as the loan agreement. The change is intended to reduce losses caused by currency fluctuations, which have in some cases turned concessional loans with 1 percent interest into effective costs of up to 6 percent. Previously, loans taken in currencies such as the Japanese yen or Chinese RMB were often disbursed in US dollars, creating costly mismatches. Under the new policy, contracts may be set in either the loan currency or Nepali rupees.
