Foreign Aid & Development Programme
An Overview

By Uttam Maharjan

FOR a developing country like Nepal, economic development is a prerequisite for raising the standard of living of its people. But economic development is not so easy. It has many ramifications which should act synergistically to produce a coherent result. Such ramification include infrastructural development, health, education, sanitation, communications, transportation and so on.

Poor

Nepal is poor in mobilising internal resources for development programmes. So it is bound to depend on external aid and assistance.

The country has been receiving foreign aid since 1951 A.D. when she received foreign aid from the USA by reaching a 4-point development cooperation agreement. In the same year, the country also received foreign aid from India for the construction of roads and airports. Thereafter, the country reached similar agreements with China, the erstwhile USSR, Germany, Canada and Australia. The country also reached capital loan assistance agreements with India and the USA in 1952 A.D. and 1955 A.D. respectively.

Since 2013 B.S., when the first five-year plan was launched, the country has been receiving foreign aid on an institutional basis. After the establishment of the Nepal Development Forum in 2032 B.S., the inflow of foreign aid has witnessed a constant rise. Now the network of foreign aid has grown to encompass over 24 donor countries, and 19 bilateral and 23 multilateral agencies.

Foreign aid has a crucial role to play in the economic development of the country. In fact, some positive advances have been observed in industry, hydropower, communications, education, health and other fields.

It is an irony that despite the steady inflow of foreign aid for the last five decades, there have not been any significant changes in the economic status of the country. At the present exchange rates, the country has received around 350 billion rupees in foreign aid. Yet, the Nepalese people are now among the poorest in the world as evidenced by the per capita income of just USD 200, which is one of the lowest in the world. This shows that foreign aid has not been used in a proper and transparent manner.

Actually speaking, foreign aid has both good and bad aspects, good in the sense that it acts as a catalyst to accelerate development and bad in the sense that it gives rise to dependency at the cost of internal resources mobilisation, thus leading to laziness on the part of people despite their ingenuity.

Donor countries and agencies that purvey foreign aid have a penchant for imposing their own conditionalities on recipient countries. They want the projects to run at their own discretion. On the other hand, recipient countries cannot help but sign on the dotted line. In our context, foreign aid has
also been found to be used for procuring sophisticated equipment and vehicles.

As donor countries/agencies bring along with them their own consultants and technicians, a huge chunk of the aid money has to be paid as professional or consultancy fees. To add the last straw to the deplorable situation, corruption is always there to raise its ugly head, so much so that most of the foreign aid goes down the drain.

Other factors responsible for the underutilisation of foreign aid in the country are weak policy and implementation, inadequate attention to ownership, frequent change of project managers, lack of resource mobilisation and so on.

Foreign aid is made avialable in the form of either grants or loans. Till 1983/84 A.D. the portion of grants was heavier than that of loans. The trend has since been reversed. For example, the current budget (2057/2058) is financed by 35 foreign aid, which bifurcates into 13 per cent grants and 22 loans.

Heavy dependency on foreign aid, especially in the form of loans, may prove fatal in the long run. On the one hand, it gives rise to the dependency syndrome, while on the other it detracts from zest for making optimal use of internal resources, thus leaving them untapped.

The meeting of the Nepal Development Forum held in Paris in April this year proved substantial. At the meeting, the donor countries were convinced of the country’s reform packages regarding institutional and policy reforms, foreign aid utilisation, economic management improvement, revenue increases, civil service effectiveness and so on. The donor countries also pledged themselves to give more aid to the country provided there was progress in institutional and policy reforms and good use was made of aid money.

As foreign debt is growing year after year, a time has come that foreign aid should be gradually decreased. Just receiving a huge chunk of foreign aid cannot always contribute to economic development to a desired extent. After all, foreign aid is not a panacea. A time will come soon when a huge chunk of the budget will have to be earmarked for debt servicing. And there will be less funds available for development projects.

The Ninth Plan has envisioned a gradual reduction in foreign aid. The plan has provided for development expendi-tures on the strength of 33.3 per cent revenue, 58.8 per cent foreign aid and 7.9 per cent internal loans. Of these components, the foreign aid includes 17.2 per cent grants and 41.6 per cent loans.

Similarly, the current budget is supported by grants worth Rs. 11.842 million and loans worth Rs. 19,793 million. The budget has provided for foreign aid in a new perspective.

The country has not had any clear-out foreign aid policy, while donor countries have their own policies. After five decades of depending on foreign aid for development programmes, it has been finally realised that all the aid money has not been fully utilised. So there is ample room to suspect that there could have been some aberrations and anomalies in the use of the aid money.

New Draft

To overcome these shortcomings the government announced a new draft foreign aid policy in a July this year. The broad thrust of the policy would be utilising foreign aid in producing native skilled manpower for optimally harnessing indigenous resources and gradually reducing foreign aid. However, the success of the upcoming foreign policy, for that matter any other policy, lies, in its implementation. So long as the implementation phase is not strong, nothing will come out of the policy, no matter however excellent it may be.

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