The issue of foreign embassies and bilateral donors being allowed to directly fund projects at the local level, without prior government approval, has been a matter of grave concern for Nepal. The standard international practice is that foreign aid is channeled through the central government in the areas it deems of high priority. The ‘one-window’ to foreign aid prevents donors from dictating the terms of the aid and of trying to peddle undue influence. But given the widespread misappropriation of development funds in Nepal, donors are justifiably reluctant to entrust government agencies with vital resources. This is one of the main causes of constant tussle between Nepal and its development partners.
Amid growing concerns, the Ministry of Local Development has recently forwarded a proposal to the Ministry of Finance on streamlining foreign aid being spent at the local level. As per the proposal, from now on, donor agencies will have to sign formal agreements with the government, clarifying how much they wish to spend, and in what areas. On the weight of evidence, there is a strong case for establishing a one-window policy. As a recent Freedom Forum investigative report hints, the high level of transparency claimed by donor agencies fails to materialize in practice. Not just that. Even when their failings are pointed out, seldom is any corrective action taken. It has thus become important to enforce greater accountability on donors. The amounts in question are staggering: in the fiscal year 2010/11 alone, Nepal got US $1.8 billion in aid, 58 percent of which came from multilateral donors, and 36 percent from bilateral donors. As in most areas of life, there is no such thing as free lunch in foreign aid regimen. India will always tie up its aid, overtly or covertly, with its security and other vital concerns in Nepal. The same is true of China, or any western power worried about its growing influence in the region. This is the reason the special privilege granted to the Indian embassy, which can spend up to Rs 50 million per project at local level without government approval, grates on other donors. In their reckoning, the rules of engagement should be the same for all the sides.
Despite some legitimate concerns on the part of donors, ultimately, it should be the government of Nepal which has the final say in deciding where the money goes and how it is spent. This is not a new realization among Nepali policymakers. In the past too, there has been a lot of talk of streamlining foreign aid, but little has come out of it. This vital matter can be shelved no longer. Nepal is likely to witness some kind of political instability for years to come, which is sure to entice foreign players to fish in muddy waters. To be able to decide its own future, it is important that the country gets its foreign aid regime in order. A more accountable and transparent system of for-now indispensible foreign aid (which makes for over 70 percent of development budget) would be a big step in the right direction.
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