Nepal: Government and Donor Working Together

Foreign aid for Nepal has increased rapidly over the years. If it was US $ 36.49 million in 1974/75, ten years later it was US $ 150.36 million in 1984/85. In 1994/95 it was US $ 220.84 million and in 2002/03 it had reached US $ 230.04 million. The peak was in 1996/97 when it reached US $ 262.34 million.

The significance of these figures is quite apparent in the context of Nepal's development expenditure. For the entire decade of the nineties, foreign aid's share in development expenditure has been more than 50% when in 2003/03 it exceeded even 62% (CPWF Action Aid Annex V p96). With such a large role in the development budget, foreign aid is clearly very significant in all aspects of development in Nepal, including poverty reduction.

Another important characteristic of foreign aid is that the share of multilateral loans has increased quite markedly over the years. According to the estimate for 2003/04, the breakdown between grants and loans was about 54.75 percent and 45.25 percent respectively. Out of the total loans 92.7 percent was from multilateral sources (CPWFAction Aid Table 2.2, p 28). The external debt has also increased over the years because of the increasing loans. In 1975/76 the debt outstanding to GDP ratio was only 2.74 percent. In 1997/96 this had increased to 50.25 percent and it 2001/02 this was 52.25 percent. The debt service ratio however was 6.3% in 1994/95 and 4.7% in 1999/00 because of the highly confessional nature of the long term loans. Another important dimension of foreign aid has been the lack of improvement in aid absorption. "As more than one-third of aid commitment has remained un-utilized even after so much of efforts, there is no rational for seeking more aid without first improving the aid absorptive capacity of the economy."(Acharya etal ,p147)

Nepal’s Tenth Plan, PRSP and Aid Harmonization

Recognizing the fact that foreign aid was mostly not guided by the need of the recipients, and donors very often by passed government institutions, including the limited capacity of national governments to manage assistance, the government has taken measures to promote what it has called aid harmonization (NPC 2005, pp 70-72). Using the PRSP (Poverty Reduction Strategy Paper) and the Medium Term Expenditure Framework (METF) as reference, Nepal has announced a Foreign Aid Policy in 2002. This was presented at the Nepal Development Forum 2002 (Donor Meeting with the Government). Various measures were proposed for integration and harmonization with the MTEF — which was introduced in 2002/03 to maintain “fiscal discipline” and to “prioritize” and align resources for poverty reduction. It is expected that integration and harmonization will end the unpredictability of resources and help increase the effectiveness of aid — which has remained a major donor concern (NPC 2005, p 71).

Nepal has distinguished itself as “the only country in South Asia that has a fully operational PRS (Poverty Reduction Strategy), MTEF and an Immediate Action Plan (lAP). Nepal’s development partners have endorsed and strongly supported the PRSP, MTEF prioritization and annualized reforms being implemented on the basis of the TAP” (NPC, 2005, p 72)

Comments on the PRSP in Nepal have been the following (CWFT Action Aid, 2004):

PRSPs are supposed to be locally “generated and owned and developed through wide participatory dialogue” focused at both micro and macro-policy-making level. Given the conditions in the country it is doubtful how much of a meaningful consultation took place at both the micro and macro level. At the micro level insurrection and insecurity brought all movement and activity to a standstill. At the macro level political uncertainty followed by a clamp down on all political activities meant that participation was partial.

PRSP commitment on issues of decentralization, good governance and public private partnership lacked adequate supporting programmes and the prevailing political conflict and instability prevented these aspects from being discussed at the wider level.

PRSP’s four pillars of broad-based economic growth, social sector development, targeted programmes and good governance are still seen as confirmation of previous SAP programmes in different words.

Government and Donor Working Together

In order for policies to become successful, there must be a careful blending of external and internal elements. External factors are important in so far as it relates to new ideas, opportunities, resources, management systems and new technology. Internal factors play an important role in mobilizing the needed domestic support and in reducing possible resistance by different interest groups.

There are many examples of policy failures in developing countries because of the failure to find a proper balance between external and internal factors. As development itself is an external concept in many traditional societies, the challenge is to find the right internal chemistry that will make it work. In many developing countries there exists little capacity to see policies through. Consequently there is a constant lamenting by policy makers that while the plan was good it was fouled up during implementation.

The closer we look at developing countries and their development institutions, the more we find that there are competing national as well as opposing local elites. In traditional societies that have seen centuries of virtually no change there is passive resistance to new ideas and activities. People are willing to accept only the inevitable. There are wide gaps in values between the old and the new. Governments have always been distrusted as most governments in the past have tended to only take away things from the people. The concept of the welfare state is a very modem one and people are only recently seeing the developmental role of the state. There are many old loyalties that are not easily dislocated or altered by development programmes, especially if they are poorly designed and weakly organized.

Price and the choice of technology also have a role in balancing internal realities with external factors. By heavily subsidizing imports of capital-intensive technology, poor countries have not succeeded in promoting labor-intensive activities that are needed for employment promotion. Many of the successful countries promoted strongly labor- intensive technologies and supported the growth in the productivity of labor (Oshima 1990). In the unsuccessful cases, however, the picture is just the reverse, where labor remains unutilized while capital is heavily subsidized through exchange mechanism, credit policies and other special mechanisms.

The conditions in one country are so unique that is not possible to blindly copy development approaches or policies from others. Special political, economic and institutional circumstances necessitate continuing modification, adaptation and even alteration of policies and programs. In this context, the former Prime Minister of Singapore, Mr. Lee Kuan Yew, was once asked about his model or approach and he replied that he had borrowed in an eclectic fashion element from Hongkong, Switzerland and Israel and also improvised (Huff 1995) what needs to be probably underlined is ‘borrowed in an eclectic fashion” emphasizing the need for pragmatism. More recently, the experience of China also underscores the need for pragmatism. The best test of any good idea is its workability and it is here that a nation’s leaders must know what to borrow and how to use it. China has sequenced its reforms in such a manner that the transition has been far more attractive and beneficial (at least so far!) than the big bang approach which the Russians have used in their economic adjustments (Rana 1995). Man Mohan Singh in a interview took pride in his achievements and yet admitted that significant reforms were not possible in many areas as the Government was unable to arrive at a consensus (with other groups) on the course of action.

Nepal presents the most interesting case regarding the role of external and internal factors.

Many see the country’s present and past development as being excessively “donor driven”. As over 60 percent of the development funds are coming from outside it is believed that donors basically decide what needs to be done. Significant section of the private sector is also dependent on capital from India. Insofar as rural population is concerned, many work in India. All this indicates the extent to which Nepal is economically dependent. Fortunately or unfortunately these are the prevailing facts and no amount of wishful thinking on our part can change it. What could have changed all this was sustained development over the years, and this is where Nepal has completely failed. External factors such as development concepts, technology and resources were not in any way more adverse for Nepal than for other countries. In fact, there was a lot of genuine sympathy for this poor country. Why the country could not effectively overcome its development problems has a lot to do with the endogenous chemistry of coalitions rather than external factors. Commenting on why countries fail Olson writes, “As I see it in these days it takes an enormous amount of stupid policies or bad or unstable institution to prevent economic development. Unfortunately growth retarding regimes, policies and institutions are the rule rather than the exception, and the majority of the world’s population lives in poverty. The example of successful growth did not occur because of any special promotion or plan Britain did not seek a plan to have an industrial revolution: (Olson 1982, 175).

Every time there is a new government in Nepal, there has been a rush to introduce new policies. Just as none of us would wish to get into somebody else’s clothes, no government wants to be under the shadow of its predecessor. Consequently even if there are no changes in substance, new initiatives are introduced. Take the recent example of the Agricultural Perspective Plan. It reintroduces activities that have been talked about for decades within the implementation structure that has prevailed all these years at both regional and district levels. The only good policy is the one that can work and for reasonable operations, there are a whole host of basic preconditions to be met. The lack of a realistic assessment in terms of what is required by way of basic minimum physical and social infrastructure and resources to get results in the district and villages is probably the most important question before Nepal today.

Arun III hydroelectric project dissolved in paper work because there is no road. Melamchi drinking water project is running into problems. The Agriculture Perspective Plan that began in 1995 is running into all sorts of difficulties. Apples were planted in Jumla 20 years ago with the expectation of a road coming through, unfortunately it may be another 20 years before Jumla sees any road. Can all this be the result of an unfortunate concoction of external factors or is this a reflection of what is typically Nepali? Realism does not enter into our calculations of what can work and incessant policy acrobatics will continue. No one can get rid of all the leakages of development resources. There will always be conflicting interests in every sphere of work. How can we make some headway within these limits is the important question before our policy makers, politicians, administrator, the private sector and the local community? I. G .Patel points out that, “Sound policies cannot be read from a recipe book they have to be devised as we go along in the light of experience and practical realities. No computers can run an economy of any sort of automatic pilot” (Patel 1993). Hopefully all the concerned institutions including the donor community will work together in the new political climate in Nepal to empower the poor, rural people, indigenous groups and women so that the new policies and programmes will reduce poverty, promote economic growth and improve the conditions of human resources and the environment. (Logon to www.saceps.org to download the paper)

Posted on : 2010-01-27 06:54:22

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