FOREIGN AID PLAYS A CRITICAL ROLE IN INFRASTRUCTURE DEVELOPMENT. BUT IT IS YET TO BE APPRECIATED BY THE PUBLIC

KATHMANDU: Foreign aid is considered a key factor in enhancing competitiveness of development projects and expediting economic activities especially in least developed countries (LDCs) like Nepal. However, when it comes to utilisation of foreign aid or its effectiveness, Nepal still seems to be far away in the picture.

Over-dependency on foreign aid has made the people parasites. But when it comes to utilising aid (both loans and grants) productively for self-reliance, Nepal is lagging behind. As foreign aid is composed of loans and grants, of the total commitments, Nepal has been able to use less than 50 per cent as of now. Do our institutions have capacity to use it properly and and timely manner? This is the million dollar question.

The top five multilateral agencies to provide aid to Nepal are mainly the World Bank, Asian Development Bank, European Union, UN Agencies and Global Fund (GFATM). These agencies always feel privileged to give aid to Nepal but they also put strict conditions for effective utilisation to enhance economic activities and support economic growth.

The economic survey for the fiscal year 2014-15 shows that outstanding debt of Nepal in the form of foreign debt and domestic debts stood at Rs 545.31 billion by fiscal year 2012-13. This had increased by 1.5 per cent to Rs. 553.50 billion in fiscal year 2013-14. It also shows that outstanding debts seem to be on the rise. The share of foreign loan stands at over 61 per cent in the fiscal year 2012 to 13. It indicates that per capita outstanding debt stands at Rs 20,068.00 in the fiscal year 2013-14, according to the Economic Survey for 2014-2015.

Though some international agencies are currently focusing on trade rather than aid, Nepal also as a member of WTO needs to think seriously about diversification of aid utilisation

Total grants that Nepal received in the fiscal year 2013-2014 stood at over 42 billion rupees, according to government documents. Now the question that arises is whether we have utilised these grants productively for the economic development of Nepal. It is also being monitored by donors and development partners. Donors’ intentions are to enhance the capacity of Nepal and that needs to be measured and monitored while giving additional aid in future.

Though Nepal is the top country in South Asia to register highest revenue GDP ratio (which stands at 18 per cent of total GDP), the revenue is all consumed for recurrent expenditure. So, the time has come to use foreign aid in capital formation and also save some money out of revenue mobilisation (reducing unnecessary expenses) for economic advancement.

The quality of foreign aid has increased after the implementation of the ‘Foreign Aid Policy – 2002’. However, there are still some problems associated with the management of aid by implementing agencies. Lack of proper recording system, conditionality associated with aid, and lack of transparency in spending are some serious issues that should be addressed by the government in the days to come for making foreign aid more effective.

One of the key problems on the part of donors is transparency which is yet to be maintained. On the part of recipients as well, there are complaints. Donors feel the outreach and transparency is weak according to reports produced by donors and they are losing confidence in Nepal.

As foreign aid plays a critical role in infrastructure development such as highways, power plants and airports, the realisation is yet to be appreciated by the public. Deficit financing is another critical part of budget management. Of the total budget, the foreign aid composition in the current fiscal year’s budget is estimated at 25.1 per cent (Rs 206 billion). In such a situation, we should think seriously to use foreign aid with focused strategy.

It is high time the government check funds being spent by INGOs and NGOs on the pretext of utilising for needy people or sectors. There is no reliable account of the amount of aid used by these agencies which needs to be properly recorded after the implementation of the Development Cooperation Policy 2014 (DCP 2015).

Though some international agencies are currently focusing on trade rather than aid, Nepal also as a member of WTO needs to think seriously about diversification of aid utilisation strategy and utilise such funds in productive sectors jointly with investors. It will surely support to attract foreign direct investment and infrastructure for sustainable economic growth in a changed globalised regime.

The author is Secretary General of the Forum for Economics Studies (FESCOST). He can be contacted through bhuban_sth@yahoo.com.