Let aid do more

Nepal has long been an ‘aid favourite’, receiving interest (and financial commitments) from a plethora of international agencies and donor countries. In a matter of just 3 years between fiscal year 2010-2011 and fiscal year 2013-2014, Nepal received aid commitments of $5.46 billion from a total of 73 donors, of which $3.41 billion has been disbursed for 742 projects across 50 sectors.

These numbers are quite staggering, particularly considering that for most of this period, Nepal has either had an unstable government or no government at all. While there is no denying that Nepal requires significant external assistance to bolster its economy, it is important to ask where this money has been going, especially at a time of near-paralysis of government.

A look below the surface is quite revealing, for the choice of sectors that have received funding indicates the dilemma donors have been facing in Nepal. The sector that has received the greatest amount of disbursements is education, followed by local development and health. These are followed by road transportation and electricity, arguably more important sectors. That electricity and road transport have received less assistance than education and health illustrates the challenges donors face in funding projects that require extensive state participation and a stable political environment.

In Nepal’s context, the priority areas for fostering economic growth and development must be the power sector, followed by transport infrastructure. Not only do these two sectors have a more significant direct impact on economic growth, but their follow-on development effects are also greater than that of other sectors.

This is not to suggest that donors have got it wrong. In fact, it only suggests how poor successive Nepalese administrations have been in creating conditions conducive for the development of the electricity, road and other infrastructure sub-sectors. Donors are still putting money to work in Nepal, but largely in sectors that see less direct government involvement. Essentially, these are sectors in which it is easier for donor commitments to have greater impact.

This shift in focus started happening at the turn of the century when political instability in Nepal peaked with the heightening of tensions with the Maoists. While the proportion of funding for social sectors vis-à-vis hard infrastructure has dropped somewhat, the focus is still squarely on the former.

It is a unique predicament donors find themselves in as their hands are tied due to the political environment in the country. On the one hand, they are criticised for taking the easy way out and not doing enough to support infrastructure development. On the other, when they occasionally do try and push for reforms that can make it easier for them to commit to projects in these sectors, they are accused of trying to push their agenda and impose on governance. It is a lose-lose situation.

If they try and seek accountability through the disbursement of loans instead of grants, they are accused of burdening a poor country with further debt obligations. If, on the other hand, they provide grants instead of loans, questions relating to accountability are raised.

Our new government needs to address this issue soon, for greater donor involvement in the infrastructure sector will be a natural catalyst for the private sector to boost its participation in this sector too. For too long now, aid agencies have been blamed for misplaced focus. It would be good to remember that charity begins at home.  

(This appeared as a column in The Himalayan Times on 9 March 2014).