Planning: Never without aid

Foreign assistance in Nepal has involved multiple donors, billions of rupees and numerous projects — all funding remarkable portions of all Five Year Plans.

The year 1951 was remarkable for two events that dramatically altered Nepal´s political and economic directions. The first, of course, was the end of the century-old Rana regime, stirring political consciousness that swept hill and Terai. The second was that foreign aid made its debut in January of that year, about a month prior to the Fagun Saat democracy proclamations. The United States Government´s gift of NRs 22,000, provided under President Harry Truman´s Point Four programme, was the first droplet of foreign aid, which was soon followed by grants and technical assistance programmes from India and others. For a country that had been heretofore rigidly isolationist, Nepal decided that it liked the taste of aid, and opened the faucet wider. For whatever good it might have done, foreign aid had since come to stay, in a flurry of donor dollars, marks, yen and pounds. According to an unofficial estimate made by a member of the National Planning Commission (NPC), the total aid (including loans) that Nepal has gathered since 1951 to 1990 from both foreign governments and international banks, stands at a stunning current-price figure of around NRs 85,000 million.

What does the Nepali government do with foreign aid? The most visible way it utilises the contributions is, of course, by having them pay for all or most of increasingly ambitious Five Year Plans. Every paisa of nearly NRs 383 million spent in the First Five Year Plan (1956-61) came from the United States, India, China and the former Soviet Union. Though such 100 per cent foreign financing was true only in the case of the First Plan, aid has nevertheless paid for a large portion of subsequent Plans. The share of aid in Plan expenditures declined to an all-time low of 45 per cent towards the end of the Fourth Plan (1970-75), but rose up to a high 50 percentage of the total expense through the Fifth, Sixth and Seventh Plan periods.(See table)

The volume of total aid per year, however, continued to increase with each Plan: the gross aid mat defrayed the cost of the Seventh Plan (1985-90) was about 75 times larger than the amount received during the First Plan, The volume of foreign aid grew at the rate of 21.6 per cent per year between 1975 and 1990, compared to its slower1 annual growth of 16.2 per cent during 1960-75. The fast-paced expansion of the role of foreign aid in the Nepali economy is quite alarming in the face of the relatively slow annual growth of Nepal´s Gross Domestic Product (GDP). An analysis of the GDP and aid data from 1975 through 1990 shows an increase in the proportion of aid in relation to GDP. To put in numbers, in every 100 rupees of GDP in 1975-76, about three rupees of it came from outside. By 1989-90, that outside share had risen, to a little over seven rupees. The pace of aid influx continues to rise faster than Nepal´s general economic growth.

WHY AID?

Why does Nepal need more aid with each passing year? Some analysts go so far as to point out the sheer economic necessity of it A look at Nepal´s domestic investment and domestic saving patterns since 1971 shows that investment has consistently outpaced savings by a margin of nearly 10 per cent The gap widened even more to over U per cent by 1989-90. The argument for aid runs like this: when Nepal spends money to build factories and schools and its savings do not cover the total expense, how is it going to pay for excess expenditure? By letting foreign aid fill the gap.

For a country that has been receiving aid for more than four decades, Nepal has yet to define its foreign aid policies and priorities. This prolonged absence of guidelines on the home turf has distinctly added to Nepal´s disadvantage on the aid-negotiating table. Lacking both the data on sectors needy of aid and the results of periodic governmental assessment of foreign aid, Nepal has never been able to assert how much aid it needed for a particular sector from a certain donor. Nor has it been able to explain what type of aid it did not need. Such meekness on Nepal´s part has decidedly made it easier for the donors, especially the multilaterals, looking for ways to justify their own existence, to point out Nepal´s needs through their own surveys and research, and dole out the largesse. Thus, with the donors in the driver´s seat of the Nepali foreign aid superstructure, no wonder that a mishmash of loans, grants and technical support for misplaced or unfeasible priorities have found their way to Nepal, increasing both the total volume of aid and the clout of the donors.

THE DONORS

So who has been providing aid over the past 40 years? Three types of donors stand out bilateral, multilateral arid international non-governmental organizations (INGOs). The first refers to foreign governments or their aid-administrating bodies in Nepal such as the United States´ USAID, Japan´s JICA, Germany´s GTZ and Switzerland´s SDC. The second identifies international agencies, differentiated by the varying degrees of power that the industrial west and Japan exercise in their governing boards. Their sampling would include the World Bank, the Asian Development Bank (ADB) and the UN sisters, FAO, WHO and the UNDP. (The UN agencies provide mostly technical assistance and grants, whereas the international development banks dispense both hard and soft loans.) And the third indicates private organisations such as CARE, the United Mission to Nepal, OXFAM and others, which have laid stress on the growth of social sectors such as primary education, public health, micro-hydro power and so on.

Bilateral donors were most active in giving aid, predominantly in the form of grants, till the start of the Fifth Plan in 1975. Since the mid-1970s, however, multilateral donors, especially the international banks, have moved in with bigger aid- packages, overtaking, in terms of the total aid disbursed to Nepal, their bilateral counterparts by 1983. In the 1950s, more than SO per cent of aid came from two sources — the USAID (then USOM) and the Indian Corporation Mission (ICM). The Americans concentrated more on social sectors such as village development projects that included irrigation, high-yielding crops and provision for improved agricultural equipment. They also helped eradicate malaria, and establishment of the College of Education and the Laboratory School. The USAID had thus provided the highest volume of aid till the closing of the Second Plan in 1965. Then, what with the Vietnam War, oil shock, recession and changes in American foreign policies, there was an ebb in their aid, helping India emerge as Nepal´s number one donor. Indeed, between 1965 and 1975, 50 per cent of the total aid to Nepal came from India.

Unlike the Americans, the Indians pushed infrastructural growth. The Tribhuvan Highway, which opened up Kathmandu to other parts of Nepal, the airport in Kathmandu, postal and telecommunication facilities, irrigation in the Gandak and the Kosi Rivers are some notable examples of Indian projects. Until the recent emergence of Japan and Germany as the two largest donors. India´s support remained the most significant.

China shouldered the responsibility for about 10 per cent of the total aid that was used in the Second Plan. Beijing´s magnanimity paid for over 16 per cent of each of the Third and the Fourth Ran expenditures. Chinese assistance emphasised the growth of both the import-substituting industries, i.e. leather shoes and brick and tile, and road construction projects, such as the building of the Kathmandu-Pokhara and Kathmandu-Kodari highways. The only country that actually cut back drastically on aid to Nepal was the former Soviet Union: its share of 13 per cent in the Second Plan which financed the construction of the Janakpur Cigarette Factory and Kanti Children´s Hospital, plunged to about two per cent in the Third Plan. Thereafter, its support was virtually nil, although it did show renewed interest in the mid-1980s.

Since the signing of the Colombo Plan in 1952, other countries also appeared on the aid horizon. The United Kingdom provided technical assistance and built Dharan´s main road link-up to Jogbani. It boosted up its scanty share of one per cent in the Third Plan to six and seven percent in the Fourth and the Fifth Plans. Canada´s initial help came in the form of wheat that compensated for Nepal´s bad harvest in the mid 1950s. Its loans to help build Royal Nepal Airlines´fleet was agreeably converted to grants in the mid-1970s. Japan brought in its technical assistance programmes through Japan Overseas Co-operation Volunteers (JOCV). It also helped build, among others, the Teaching Hospital in Kathmandu. Switzerland started by providing experts to develop dairy products in high Himal, while West Germany helped set up public companies such as the Himal Cement Company. Other countries that began aiding Nepal in the mid-1970s include the Netherlands, Finland, Austria, Australia and France. In addition to providing straight grants to the Government, these countries, together with the United Nations agencies, are also active in running technical assistance programmes: scholarships to Nepali students, their experts to oversee aid-funded projects and to advise the Nepali Government.

As for the multilaterals, the increase in their total disbursement of aid, both in terms of loans and grants, has been sharp. They contributed NRs 175 million in 1975-76, which made up about 35 per cent of the total aid received in that fiscal year. The total volume had gone up by 22 times to NRs 3,892 million by the end of 1990-91, composing over 60 per cent of that year´s total aid received. (Comparatively, for the same period, the rise in the volume of bilateral aid was only eight-fold, from NRs 330 to NRs 2554 million, which actually represents a reduction— from 65 per cent to 39 per cent—in the bilateral : share of the total aid.) International lenders such as the OPEC Fund and the World Bank, together with its soft loan affiliates, the International Development Agency (IDA) and the Asian Development Bank (ADB), have been the major providers of multilateral loans. Much of their money has gone into power, telecommunications and air transport. Others, such as the UNDP, the world´s largest grant-giving multilateral, has primarily been providing grants for the growth of social sectors such as education and public health. Practically every UN specialised agency from ICAO to ILO to WHO has been active in providing technical assistance in the areas of its domain.

Because of such an increasingly complex aid scenario involving multiple sources and numerous projects, the World Bank thought it was advisable to form a Nepal Aid Group (NAG) in 1976. The purpose was to do three things: to facilitate the aid-giving mechanism by sharing information, to coordinate the objectives of aid-funded projects to avoid duplication, and to increase the impact of aid through well-monitored projects. Composed of six member countries in the beginning, the Group now includes 16 countries (Australia, Austria, Belgium, Canada, Denmark, France, Finland, Germany, Japan, Kuwait, the Netherlands, Sweden, Saudi Arabia, Switzerland, the United Kingdom and the United States) and seven multilateral agencies (the International Monetary Fund (IMF), European Economic Community (EEC), UNCTAD, IDA, ADB, UNDP and the World Bank).

Through its meetings and policies, the NAG is thought to have benefited Nepal in two ways. First, Because of its diverse membership, aid coming from the Group is seen as being relatively independent of political attachment, which might not be the case with bilateral assistance. Second, some observers say that the total aid that this Group has given to Nepal is actually higher than what would have amounted if individual donations had been in place.

LOANS

Until 1959, each foreign aid package entering Nepal was either in the form of outright grant or technical assistance programme. Nepal profited from both: free money poured in from various sources, projects were underway in different parts of the country, and all this without Nepal owing a single paisa to the international community.

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