Foreign Aid Far From Adding Growth: Report

Foreign Aid Far From Adding Growth: Report
ArthaExpress.com, 7-Feb-08

Foreign aid in whatever form has not made any significant contribution for reducing poverty and supporting income generation activities in Nepal, says a report.

Although the volume of foreign aid has increased over the years and has been instrumental in meeting resource gap, it has been unable to enhance sustained growth.

The report entitled -´Role and Effectiveness of Foreign Aid Under PRSP in Nepal´ says that the aid is primarily contributing to induce aggregate demand in the economy for a short term. "The foreign aid measurably failed to enhance productive capacity of the Nepali economy which could have helped unleashing resources for sustained growth and, there by lessening of external dependency over the time."

Releasing the report, Speaker Subash Nembang on Wednesday stressed on the need to initiate public debate on aid effectiveness and its contribution to the socio-economic development in the long run. He pointed out that the status of foreign aided programmes and projects should be made transparent and people should have the rights to know about them.

Prof Bishwambher Pyakuryal said that the procedural complications and delay in disbursement have slowed down the effectiveness of foreign aids. He, however, claimed foreign aid played an instrumental role in the country´s expenditures, as it contributed almost one fourth of total expenditures.

Another economist Dr Raghab Dhoj Pant argued "Why should Nepal constantly beg donors for support, if foreign aid has not made any contribution to poverty reduction or enhancing incomes and savings. He also criticised the programmes and policies initiated by PRSP as being donor predominant, which ultimately failed to yield the projected results.

He criticised the government for implementing PRSP or the Tenth Plan (2002-2007) without realising the economic structure and ground realities of Nepal. Dr Pant countered the government´s claim of increasing flow of grants and said, "It will be useless to be happy unless we have counterpart fund to receive in large volume of grants."

Stating the most striking features of the 10th Plan, the report states that there were no attempts made to bring about a consistency between objectives and strategies, policies, programmes and implementation modalities. ´The donors´ policy conditions were predominant.´

The report findings observe that a unique phenomenon of foreign aid to Nepal is that more than one third of the total aid is neither audited, nor has proper records. The ratio of disbursement to commitment is not consistent. Besides low disbursement, on an average, aid utilisation capacity has remained less than 50 per cent.

The report also blames the state mechanism and government for low utilisation of the aid. "Despite expertise and qualified people inside and outside the government, no initiatives are taken to make detailed homework to identify major constraints and evolve better policy or programme options taking political economy and institutional into account," it says.

Contemplating Nepal´s aid dependency and its effectiveness, Dr Dilli Raj Khanal, principal author of the report said, "Unless foreign aid strategies and donors´ behaviour are changed following an overhauling approach, the debt trap situation will perpetuate accompanied by continued dependency on aid with some zero sum game type effect."