This article was originally published by Ankshita Chaudhary in the Himalayan Times on November 10, 2019.
For more than six decades, Nepal has been a recipient of foreign aid. While hundreds of millions of dollars have been funneled into the Nepalese government, all the more has been lent to the same. Countless development agencies and experts have descended to navigate complexities and opportunities posed by the current change in political architecture. If we look specifically at the Official Development Assistance (ODA) mobilization, Nepal received development cooperation amounting to US$ 1,622.8 million in the FY 2017/18. Of this total disbursed amount, the contribution of loan was US$ 819.1 million (50.5%), grant was US$ 570.3 million (35.1%) and technical assistance was US$ 233.3 million (14.4%).
The very name, development ‘assistance’ presumes that the transfers are helpful. And indeed, it has yielded notable improvements in the socio-economic domain of Nepal particularly considering the low spending capacity of our government. Despite great intentions and noteworthy results, there do exist potential reasons for deficiencies in development assistance. More precisely, these deficiencies are locked within a vicious circle of corruption, overdependence on outside intervention and fragile institutions.
Aid for Progress?
The general tendency in aid-dependent countries is usually one of subservience. When bilateral and multilateral partners finance a significant proportion of government expenditure, there is an increase in the sense of accountability, on part of the recipient government, to foreign interests. In a bid to secure continual procurement of foreign resources, the recipient country is succumbed to foreign influence. Even more so, its policy autonomy is curtailed. Regardless of undue emphasis on altruism, it is conditionalities that have reached to the very core of policymaking in these aid-dependent countries. From stipulating the delivery of services to deciding the structure of political systems, donor countries control government policies and exercise power with no direct responsibility and no fear of accountability.
All too often, development assistance in the form of loan contributes to a debt cycle and eventually entangles a recipient nation. An overload of debt although coupled with low interest rate springs a condition of economic dependency towards creditor nations/agencies. Sri Lanka’s recent dealing with China offers a cautionary tale. After the end of a brutal civil war, Sri Lanka proceeded on a borrowing binge to rebuild its infrastructure. But as the country was unable to repay its ongoing deficits, the Sri Lankan government was forced to relinquish the Hambantota Port as a century long lease to China, in lieu of repayment. Given Nepal’s huge reliance on loans as a source of funding, Nepal may perhaps suffer a similar fate as Sri Lanka. According to Transparency International, Nepal happens to be one of the lowly ranked economies (124 out of 180) indicative of large-scale corruption. As this corruption level accounts for irresponsible spending of funds, Nepal may soon run into debt traps and may have to mortgage its resources/assets to external entities, posing a threat to its sovereignty.
Moreover, the dispensation of foreign aid in the form of technical assistance attempts to promote long-term growth of the recipient country by creating large developmental projects and building individual and institutional capacity. But despite the scale of aid, the effort has not led to sustained growth in Nepal. Owing to the fact that a significant portion of the aid-money is spent on maintaining the agency’s bureaucratic enterprise- salaries, training and field expenses, monitoring and evaluation costs- only a fraction of the pledged support practically reaches the targeted beneficiaries.
Development assistance only provides a partial and temporary solution to the problem. Conversely, a conducive business environment plays a central role in promoting national competitiveness which underpins rapid and sustained economic growth. Hence, efforts need to be directed towards generating necessary policy reforms that build and strengthen institutions for economic development.
According to the recent Doing Business Report, Nepal has soared 16 places overall however, starting a business- one of the major indicators to lure investment in the country- has plummeted significantly. This indicates that there still exist restrictive structural, regulatory and administrative factors- or a combination of such factors- that stifle investment. While there are plentiful opportunities that qualify Nepal as a country worthy of investment, the onerous regulatory compliances and taxing legislations outweigh the benefits of doing business in Nepal. Thus, there is a need to improve the policy landscape by implementing existing regulations and revising or removing outdated ones, thereby improving the investment climate. This will enable businesses to gauge opportunities and assess attractiveness of specific investments. Eventually, this will boost production and productivity, create employment, drive economic expansion and allow Nepalese to empower themselves rather than being dependent on aid.
With a view to identify a constructive way forward, the focus should now shift from aid to investment. Only if the policy regime supports us to develop our own potentialities and to raise the living standards of the masses, sustainable economic growth is guaranteed. We need to recognize that aid has not and will not aid Nepal. So, let us start doing development differently!