Most developing countries have failed to deliver the basic needs and services to the people and thus have had to rely on foreign aid. Recent international initiatives on foreign aid reveal that UN Millennium Declaration 2000 aimed to work for sustainable development, reduction of global poverty and global partnership for development. Likewise, Monterrey Consensus in 2002 emphasised stimulating growth, reducing poverty and achieving MDGs; strengthening policies and institutions in developing countries through commitments on harmonisation and alignment of donor resources. More and better aid, favourable trade and debt environment, effective and flexible Official Development Assistance and untied aid to LDCs are the main areas agreed by the donors. Similarly, recipient nations have to increase absorptive capacity and ownership role and improve financial management.

Bilateral donors impose conditions and multilateral donors often include macro-economic and structural reform requirements. These reform requirements have helped maintain macro-economic stability. However, some unachievable triggers resulted in commitment failures, obstructing implementation of programmes like Poverty Reduction Strategy Credit (PRSC) and Poverty Reduction and Growth Facility (PRGF). Unattainable conditions are agreed by authorities to meet the immediate financial needs.

The trade-off between country’s ownership and donors’ perception and accountability has also contributed to improving additional conditions that had resulted in implementation failures. Actual aid flow tends to be lower than the commitment, further burdening the treasury, and audit irregularities affecting the project’s overall performance. Nepal’s share of foreign aid in this year’s budget is about 28 per cent of total expenditure, 90 per cent of capital expenditure and 47 per cent of total revenue, which reflects the dependency syndrome.

A shift from project approach to sector-wide and programme approach with well-defined target, result-based monitoring, and common implementation system will facilitate harmonisation and aid alignment. Nepal’s reliance on aid continues with the adoption of poverty reduction strategy paper, medium term expenditure framework and foreign aid policy. We need to integrate aid regime and strengthen the existing systems.

Joint analysis, simplifying procedures and audit, and sharing of information among donors will contribute to aid effectiveness. Recipient countries have to assess the advantages of aid, deny a party, or readjust package according to their needs. Donors should align aid programme with priorities, strategies and target set by recipient countries, using the partner country’s system on financial management, procurement and environmental safeguards.

If donors support the strengthening of national system and furnish comprehensive, reliable and timely information on aid flow and recipients improve development strategies through a clear poverty reduction strategy, a reliable medium term expenditure framework, a workable plan, coverage and disclosure of financial reports, would strengthen accountability and trustworthiness between the parties.

Acharya is a former finance secretary