Kathmandu, July 3 :

The time-honored practice of asking for aid from developed nations by ‘developing and

least developed countries’ is gradually being replaced by the increased globalisation and integration of economies.

Aid recipients are usually finding themselves in a dangerous spot, failing to push for their own priorities.

Some are now focusing on trade rather than aid, while some governments are in dire need of hard cash even to meet budgetary need and increased fiscal imbalance.

Sadly, for Nepal, the latter scenario currently describes its ground realities. But it would do well, if it opts for the first alternative at least in its long-term scheme of things.

Nepal is currently facing a sea of problems such as liquidity crunch, weak absorptive capacity, absence of matching funds and weak leadership quality.

This has directly hit the bargaining power of the country in terms of its trading capabilities. It leaves the country vulnerable to various pulls and pressures, allowing donors to play an unusually dominant role in economic policy formulation.

Government planners accuse in private the donors of always putting their own priorities first while offering aid, justifying it by saying that they are doling out taxpayers’ money from other countries.

Given such a context, aid receiving countries like Nepal should not always depend on aid but should be able to use it ‘productively’ when it does take it, focusing on income generation and capacity building. This will help in reducing its dependence on aid in the long run.

Foreign aid growth in Nepal in the fiscal year 2005-06 has been estimated at 12.18 per cent negative, compared to an increment by 25.37 per cent in the last fiscal 2004-05, thanks to slow reform process and political instability.

Whenever donors like World Bank want to give aid, they tie the aid with reform process

and always put pressure on the government to expedite reforms in sectors like governance, education, health and finance.

Similarly, Asian Development Bank (ADB) wants the aid money to be mostly used for poverty alleviation initiatives.

While these concerns expressed by donors are not really bad, all this suggests that Nepal is suffering from inefficiency syndrome to identify its own potential projects as per the requirements of the country.

Where the aid shoe really pinches is the fact that out of the total aid to Nepal, fifty per cent goes for payment of principals and interests to donors.

In figures, foreign aid — loans and grants — received by Nepal in the fiscal year 2004-05 stood at over Rs 23 billion which is estimated to go down to Rs 20 billion in the revised estimated of the government in 2005-06.

Some of the major donors to Nepal are World Bank, ADB, Japan, DFID, IMF, UK, Denmark, Finland, India, US and Norway.

The other problem with working with donors is that they have to forward their aid proposals to their headquarters for final approval. The procedural delays sometimes turn out to be major hindrances for recipient countries.

Even for Melamchi Drinking Water Project, donors had their own conditions and procedures for which Nepal couldn’t go aga-inst their interest. Whenever bo-th sides meet requirements from both the sides, aid can be fina-lised in time. In technical side, appointments of manpower in mega projects is done by donors just through simple consultations with the government.

If aid recipient countries continue to depend on foreign aid, they would never progress and become self-reliant economically. This can defeat the very purpose of aid itself.

In terms of disbursement ratio to Nepal, especially from World Bank and ADB, it seems to be less than 25 per cent despite ‘increased commitments’. Even the absorptive capacity of the country seems to be very weak at present, due to mis-governance by political parties.

Despite aid having been approved by donors, global tenders before starting a project is ‘mandatory’, which delays projects and their timely execution and disbursement.

The tendering process in Nepal faces major constraints due to changes in senior

project managers, obstacles at the field level and slow administrative procedures.

Nepal has been receiving aid on the basis of Poverty Reduction Strategy Paper (PRSP) especially after 2002 when first Nepal Development Forum (NDF) was held. Before, that Nepal had no foreign aid policy.

Similarly, Medium Term Expenditure Framework (MTEF) has been a ‘begging bowl’ for Nepal to attract more aid but the implementation has always been a major task.

During the year 2001-02, World Bank did not give any aid to Nepal that had pushed the foreign aid growth negative by 23.47 per cent. After 2001, the growth rate of foreign aid increased by 10.43 per cent in 2002-03, 19.05 per cent in 2003-04 and 25.09 per cent in 2004-05.

Foreign aid growth as a percentage of GDP stands at 3.58 per cent (estimated) in 2005-06 in comparison to 4.47 per cent in the last fiscal year 2004-05.

However, revenue growth as a percentage of GDP stood at 13.26 per cent in 2004-05 which now has been revised downward at 12.69 percentage.

Nepal should look forward to making budgets by not depending on foreign aid, which will ultimately erode the creativeness of its entrepreneurs and its quest to become a competitive economy.

What is more appropriate for both donors and recipients is that if the aid is productively used, recipients should have the opportunity to create their own ‘destiny’.

Donors have to push for real needs and requirements and for ‘poverty alleviation’, sacrificing their ‘grudges and interests’ for the larger good of Nepal. Donors have to work to eliminate corruption in donor-funded projects by developing an effective monitoring mechanism.

The time has come for all donors to help Nepal to reduce the transaction cost of its development cooperation and build recipient capacity. Donors must also look to put the recipients in the driver’s seat to enhance productivity and sustained economic growth.