Role Of Foreign Aid In Nepal’s Development


Kushal Pokharel


Foreign aid in Nepal has emerged as the subject of a great deal of development rhetoric. Despite the fact that its objectives have rarely been met, it continues to have a firm grip in shaping Nepal’s development priorities, modalities and outcomes. Owing to limited resources to invest in socio-economic development infrastructure and cash-strapped status of the nation, aid continues to be an integral part of Nepal’s economy. Some of the key questions pertaining to foreign aid in Nepal include: Why has there been very little development despite six decades of foreign aid? Is foreign aid part of the solution or part of the problem? 

Since its inception in the 1950s, the aid regime has tremendously flourished, leaving too little to cherish for the larger citizenry. Among the South Asian countries, Nepal is one of the highest aid receiving nations. During 1995-2001, foreign aid to Nepal, as a percentage of the GDP, averaged 8.68 per cent higher than that of Sri Lanka and Pakistan, who received 3.06 per cent and 2.09 per cent respectively during the same period. Likewise, in subsequent periods, foreign aid has consistently increased in volume and expanded to include all ‘development sectors’ and ministries.

Having said this, aid in Nepal is not confined to conventional enterprise of ‘development’ as it is often projected to be; it is deeply entrenched in our society such that social peace and survival of the nation hinge on it. Against this backdrop, examining aid by going beyond the apparent innocence and triviality of development assumes greater prominence.


Wider Debate

The debate is mainly centered on whose interest aid actually serves—the recipients’ or the donors’. Existing aid literature is ambivalent as to whether foreign aid can support the socio-economic transformation of the nation or not. While some of them vehemently criticise the basis and administration of foreign aid, others support the view that aid is essential for the development of poor countries.

Intellectuals, development practitioners and writers have found it increasingly difficult to pinpoint the rationale, adequacy, efficiency and effectiveness of aid. With the objective of helping the developing nations to overcome the savings investment gap, hard currency and technological shortages, foreign aid had traditionally emerged, promising to uplift the developing economy and living standards of the people.

Amid the shifting of the conventional notion of development from being not so much a materialistic pursuit but a humanitarian one, the rationale for aid likewise has shifted from fulfilling hard economic aggregates to contributing to human development through poverty reduction for socio-economic transformation.

Critics argue that aid has not only increased the dependency but also stifled local innovations. The penetration of the ideals of globalisation into the Nepalese society has socio-economic ramifications. With the erosion of the self-reliant mindset and the larger apathy towards indigenous knowledge and practices, aid intervention continues to diminish the local development initiatives. Moreover, the strict conditionality of the donors that come with fulfilling their vested corporate interests often undermine our national priorities. Aid in this sense has served the expatriate interests instead of really helping the developing nations to come out of the poverty trap. Nevertheless, the blanket imposition of aid doctrines without linking it to the specific national context has come under a great deal of scanner. 

Effective utilisation of foreign aid demands changes at the level of institutions and organisations. Firstly, institutional strengthening of the agencies working in the field of aid management will be a stepping stone towards channelising the aid money for the overall development of the nation. Developing the knowledge, attitude and skill of the officials so as to equip them with the necessary tools to tackle the challenges of aid economy is necessary.

Secondly, promoting transparency, accountability, predictability and participation, often considered as the four pillars of governance in bureaucracy and development agencies, can ensure that the aid money is going into the right sector. Problems related to good governance are rife in Nepal with increasing incidents of aid money being spent haphazardly. In most cases, the targetted groups haven’t had the privilege of getting the aid resources for improving their quality of life. The invisible nexus between the bureaucrats, politicians and expatriates has made aid defunct as aid for them is a tool to serve their own vested interests.

Equally crucial will be the skill of negotiation that our diplomatic machineries must show in aid dealings. Coming out of the ‘begging bowl’ mentality, they should conduct aid diplomacy in the broader interest of the nation. Knowing the priortiies of the nation and coming out of the dependency syndrome, foreign aid ought to be accepted. Aid with ‘No strings attached’’ should be a top priority.


Intensive stakeholder consultation

Fostering critical policy dialogue to restructure the aid economy of Nepal also demands serious attention. An intensive stakeholder consultation among the academia, development scholars, politicians and bureaucrats should be conducted aiming at reaching a consensus on the major policy agendas  pertaining to aid.  



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