Politics of Foreign Aid and Nepal


The extreme reliance of Nepalis on aid working along cross-cutting interests, sometimes centrifugal, makes them its victim beyond the coordinating ability of Finance and Foreign Ministries and Social Welfare Council.

By Prof. Dev Raj Dahal*

Prof. Dev Raj Dahal

Politics of foreign aid is a powerful economic statecraft of global politics. Nepali citizens are socialised to believe that survival imperative and legitimacy of leaders rest on how much foreign aid they bring to the nation. Foreign aid covers various goals and activities and responds to public expectations. But it also reflects political influence in the public life from family planning, education, health, culture to governance. Foreign aid will continue to lead its development discourse if power elites succumb to aid-addictive mentality and behaviour. Economic crisis, fall of certain donors, rise of nationalism in aid giving countries and newer alliance patterns have led to the sinking of grant and ascent of loan. Nepal needs to reorder its priority in the use of state funds beyond free market solution of the individual and societal problems.  

Foreign aid marks a transition from the patron-client web in the colonial days, economic “take-off” in the cold war, transformation of economy, polity and society in the post-cold war years to crisis management and sustainable development now.  Donors – bilateral, multilateral and INGOs and their allies NGOs and civil society – define priorities in Nepal and shift aid conditions, setting its strategic, political and development tone. Those complaints to donors’ ideological, strategic, commercial and humanitarian interests collect copious aid under paternal protection. Those in the shadow of great powers collect trickle-down. Ideally, aid emerges from the ethical obligation of the rich countries to help the poor to acquire self-dignity. Strings-free aid wires its sovereignty, not flag by external powers’ policy goal. Yet, any talk on aid in Nepal evokes the images of “weariness” owing to a constant lack of desired progress, “pervasiveness” in all sectors of society and “permanence” of aid thus failing to lift domestic capital, technology and skills. It has frequently introduced new paradigm of development.

The cold war ethics of liberal aid sought to foil socialism by exalting state institutions. Socialist nations aimed to free Nepal from reliance on liberal order while others favoured self-help. Secluded long by high mountain chains in the north and dense malarial forests in the south, Nepal was suddenly vaulted into a global strategic game. It drew a stream of aid from irreconcilable worlds, executed class-mediating liberal ideals and adopted economic nationalism, import-substitution, export promotion, neutrality, regionalism and active role in conference diplomacy. The fall of socialism erased the cold war virtues of aiding the state and marked the age of human rights, democracy, market economy, civil society and gender equality. Foreign aid has stabilised the elites’ survival as labour classes are stratified into multi-colour stripes. Aid’s public awareness strategy, however, questioned the performance of polity and detonated political movements of critical mass aiming to reorder elites. The discontent with official aid due to its bureaucratic-political control over the citizens’ lives widened the space for NGOs, civil society and citizens’ groups. The liberal donors gave off bulk of their funds through these sub-elites’ networks having outreach to the grassroots.

Their rivals fostered state sovereignty though multi-track actions. During the post-cold war phase, market sagacity of official aid did not function as Nepal’s economic forces created partisan market of monopoly, cartel and syndicate strutting Nepal into a capricious future. Donors’ support to partisan non-state actors also flagged the performance of local, provincial and federal state prompting the global community to review the utility of aid. The alignment of aid to rights-based discourse, national ownership, citizens’ participation, transparency, accountability, equity and Nepal Development Forum are the outcome of the realisation of inseparability of human values in aid policy. But it scarcely satisfied the restless aspiration of Nepalis for public goods. The aid flow mustered a general consensus of donors and Nepali polity on social development, ecological protection, human rights, democracy, governance and peace. Proper use of aid can build internal capacity to spur surplus to cover balance of payment deficits and reduce foreign exchange and domestic savings gaps. New geopolitics of aid offers Nepal a choice in a poly-centric global order driven by science, transport and connectivity, not geography or ideology determinism.

The realism of foreign aid lies in strategic, political, economic and commercial interests of donors. Sometimes they are mixed with humanitarian ideals of easing the suffering of citizens and saving the lives of innocent from premature death. It has also contributed to mutually beneficial progress, such as adaptation to climate change, protection of global common, management of existential risks, etc. Nepal’s aid practices have experienced many development notions presuming economic growth. Yet, the financial and technical aid which is meant to be its engine suffered from the assault of left and right critics refusing to admit its positive outcome. Left critics view that foreign aid smacks of charity and enhances the power of global capitalism, and its strategic ally comprador class, the enemy of nation’s industrialisation. Right critics claim that foreign aid helps to expand bureaucracy, enlarges the state’s authority and, therefore, creates obstacles to market economy and individual freedoms.  

Bureaucratisation of aid has cut its ability to renew creative social institutions. In Nepal, the “pervasiveness” of aid reveals the loss of confidence of leaders and citizens in native knowledge, skill and resource owing to their uncritical habits to take external policy advice, power and legitimacy regardless of their utility. Nepal faces a gap between aid promises of donors and their supply. Similarly, skewed aid does not tally Nepal’s aid requirements to resolve state weakness and market failures in meeting basic needs and renewing hope. Aid needs to assess the source of economic paralysis of the nation whether it is rooted in the security and political disharmony, corruption, abuse of resources, mismanagement, or bundle of political, legal, institutional and administrative flaws, contributing to a lack of desired progress. If deficits of political security and civil order are the primary problems, balance of payment support will hardly set Nepal in a sound progress curve. Specially, chronic dependency of Nepal has cut its haggling craft for the mobilisation of aid in the national interests and strap up domestic resources for rebuilding the nation.

If the effectiveness of foreign aid in Nepal is judged by its ability to expand high productive capacity to satisfy basic needs, there is a pause. The Development Cooperation Report of Finance Ministry unveils that donors have spent most of their money in Province 1 and Province 3 where human development index is relatively better. The backward Province 4 got the least. This means aid did not follow the criteria of human development index nor geographic distribution. Aid allocation has become elite-centric while the burden of debt for each citizen is Rs 24,276 which is equally shared. Nepal’s foreign debt stands at Rs 436.6 billion while domestic debt is Rs 394.6 billion, unsettled account of government offices is Rs. 120 billion. The flaws of foreign aid can be corrected if elites do not lose integrity of public life, do its need assessment and remain clear about policies, aims and strategies in aid negotiations. It is helpful to know what works and what does not and internalize feedbacks into the aid policy. In the link between knowledge-based advanced society and old Nepali state, foreign aid can serve a mediating platform for mutual learning, not imposing the ideologies, institutions and values of dominant culture.

The extreme reliance of Nepalis on aid working along cross-cutting interests, sometimes centrifugal, makes them its victim beyond the coordinating ability of Finance and Foreign Ministries and Social Welfare Council. If market is regarded as the prime motor of progress and functions of aid underlie filling gaps – saving, investment and foreign exchange- , it is bound to nosh general deficiency, institutional weakness and democratic deficits. Empowering Nepali state and society can spur their equal integration in the global market and reap benefits cutting the density of grievances.  Nepal faces huge migration of youth, brain drain and capital flight while real foreign direct investment is stunted. The choice of Nepali policy makers is neither de-linking from the self-regulating international system nor radicalism, but reforms which provide it option for economic diplomacy.

Foreign aid in Nepal’s external opening can provide better choice  if  it does not lack vigour in fulfilling social needs, diversification owing to small size, initial stage of industrialisation and dependent on imports, investment, remittance, grants, loans, export of primary products, tourism, etc. The question is how the priority of Nepal’s progress be built on common agenda of aid coordination and controlling duplication and inefficiencies. Aid priorities should focus on domestic resource mobilisation, inclusive economic growth, building knowledge relevant to policy on education and skills, health, institutional framework of regional cooperation and overcoming powerlessness of Nepalis. Beating the flaws of aid is vital to achieve its goals in the mutual interests and validate its “permanence.” A search for new ways in which foreign aid can be utilised in a productive manner, set new objectives, methodology and programmes for partners of development is underway.

At a time when foreign aid in Nepal continues to become a tuneful music to elites for the secret of their political success, it is right time to make it citizen-centric, ecological sensitive, non-commercial and non-strategic. To free Nepal from the trap of vicious cycle of poverty, debt and conflict grant components should get precedence. But international redistribution of public goods demands equal justice at home. The genesis of aid emerged as altruistic motive but suffered from general “weariness” inflicted by bribery, commission, leakage or capital flight abroad incubating a class of elites which thrives on aid and dies with the drying up of aid oxygen. Appropriate outlay of aid in the nation’s priority areas is vital to have symbiotic ties between state and citizens where democracy can mediate the state’s need for civic order and delivery of public goods and citizens’ conscious impulse for freedom, education and dignity. Tied aid for the one-sided adjustment of Nepal to neoliberal economy appears to be based on military model of homogenisation. It exercises disturbing power over citizens causing political decay. If the reality of conditionalised aid produces democratic recession, Nepal should think about de-conditionalisation. Nepalis cherish the values of freedom which is the linchpin of democracy, human rights, justice and peace. Mutual determination of aid spawns positive outcome for functional necessity of Nepali democracy’s chance of survival.

*Professor Dahal is Political Scientist

Source: The Rising Nepal