FEATURES NEWS THE RISING NEPAL (DAILY)

Foreign Aid Management
Comprehensive Policy Necessary

By Uttam Maharjan

IN the present-day context, economic development is one of the formidable challenges for the developing countries like Nepal, where infrastructure development is very poor. The developing countries are in dire needs of funds to initiate development projects for national development. But they are not in a position to raise required funds by mobilising internal resources. Foreign aid can meet such financial requirements.

In Nepal, the need for foreign aid is acute. The country is backward in virtually every field. Almost 38 per cent of the people are living below the poverty line. The per capita income hovers at around USD 220, which is one of the lowest in the world. Most of the people in the country earn less than a dollar a day, a criterion designed to determine the degree of absolute poverty. The economic growth rate stands at around 4 per cent, which is not sufficient to raise the level of economic development to a desired extent.

Nepal is being beset with several problems now. The unemployment rate is around 4.9 per cent, with the semi-unemployment rate being as high as 47 per cent. The literacy rate is around 50 per cent. Similarly, health, education, sanitation, transport and other basic public amenities leave a lot to be desired.

Against this background, Nepal needs to make improvements on socio-economic fronts so as to uplift the standard of living of its people. But due to low capital available and lack of technical expertise, the country has not been able to utilise its resources satisfactorily. It is an irony that foreign assistance is needed even to harness internal resources. Therefore, it is obvious that the country will have to fall back upon foreign aid in the years ahead, no matter whatever implications it may generate.

Nepal first obtained foreign aid from the then East India Company in 1968 BS for the Pharping Hydroelectric Project. However, the institutional flow of foreign aid to the country began with the US aid in 1951 AD, when the four-point economic agreement was signed between the two countries.

The flow of foreign aid to Nepal has increased since its accession to the United Nations in 1955 AD. In 1956 AD, an economic cooperation agreement was signed between Nepal and China. Similarly, the then Soviet Union, Japan and Korea also provided the country with magnanimous assistance in the beginning years of its planned development.

Development planners are of the opinion that foreign aid should not be heavily depended on as it would hamper the proper utilisation of internal resources and give rise to nonchalant attitudes. More dangerously, it would give rise to the dependency syndrome, which is not a healthy signal for any country.

Now the question on the appropriateness of foreign aid to the developing countries like Nepal has cropped up. It is true that Nepal is poor in the mobilisation of internal resources due to inadequate capital and lack of technical knowhow. But it is obvious that five decades of foreign aid have not brought about any remarkable improvement in the economic scenario of the country. This shows that there must be something amiss in the utilisation of aid money.

Donor countries and agencies would certainly take into account their interests in the aid to the developing countries. They would sometimes dictate the course of action for the operation of the projects run through their aid. And the hapless recipients cannot help but accept such diktats for fear of losing the aid. As such, such projects may operate in accordance with the wishes of the donors, something which may even run counter to development models adopted by the recipients.

What is more, in our context most of the aid money is used to procure costly equipment, vehicles and buildings, and to pay consultancy fees to the technicians/consultants brought along by the donors themselves. And to add the last straw to the scene, corruption is always there, which hampers the proper use of the aid money. As a result, most of the foreign-aided projects are in a shambles now.

In recent times, the patterns of foreign aid have also changed, with loans outweighing grants, which implies that a huge chunk of the budget will have to be earmarked for debt servicing. The current budget, for example, is supported by foreign loans amounting to Rs. 16,420 million in contrast to grants amounting to Rs. 14,121 million.

There is complaints that foreign aid has not been used in a transparent manner. There lacks a proper accounting system of recording the movement of foreign aid. So the donor countries and agencies have equally shown interest in the proper use of aid money. The World Bank has linked the granting of aid to its proper use and satisfactory progress in socio-economic development.

In this context, it would be prudent for Nepal to determine priority sectors where foreign aid can bring about satisfactory progress. And the ad-hoc selection of projects for self-interest should be abandoned. A scientific accounting and audit system, an effective management information system, a hierarchy specifying rights, duties and responsibilities and the like should be in place. Additionally, a relevant policy should be formulated without any delay so as to streamline foreign aid.

The donors have their own policies on foreign aid, while Nepal has none. It may be recalled that the government announced a draft for foreign aid policy in July 2001. At that time, the policy was expected to come out soon. Unfortunately, it has been in limbo since then. So it is high time to revive the policy so as to utilise the aid money in a transparent, accountable and predictable manner. After all, foreign aid could be an effective tool for energising the economic development of the developing countries like Nepal.

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