Although considerable progress has been made in its socio-economic development, Nepal is often assumed to be becoming more and more aid dependent. The country is struggling to maintain economic growth and there has always been resource gap that is partially fulfilled by foreign aid. It should, however, be understood that foreign aid is only a tool to support development. Primarily, we should analyze where and how we have erred in our economic development trajectory. Many of the challenges toward effective aid mobilization require reforms that go beyond aid management to broader aspects of government processes. [break]
While not all aid succeeds in its objectives, it is not always true that aid encourages dependency. Its effectiveness depends on how and where it is used. For instance, food aid to some districts in the Mid-western and Far western Development Region made people dependent on imported food rather than encouraging them to produce their own.
However, it is not wise to blame all aid money. Aid can help countries achieve sustainable economic growth and graduate from aid dependence. Failure in one specific project or area should not be generalized as failure of all types of aid. No country is self-reliant today and Nepal still needs foreign aid despite more than six decades of independance. The volume of aid should increase if we wish to realize our dream of graduating from LDC status.
Difficult to assess
Effectiveness implies efficient use of aid money. Human Development Index, GDP, Millennium Development Goals and Paris Declaration Evaluation/Monitoring Principles are tools that can measure aid effectiveness. Despite the international community addressing aid effectiveness through the Paris Declaration and the subsequent Accra Agenda for Action, the implementation of this agenda has proved difficult. According to these Principles, the major objectives defining “good” aid are those that foster the recipient countries’ ownership of development policies and strategies, maximize donors’ coordination and harmonization, and improve aid transparency and mutual accountability of donors and recipients, to name a few. According to Nepal’s Monitoring Survey on Paris Declaration 2011, there has been progress on all effectiveness measures.
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It is, however, difficult to establish strong correlation between aid and development. One reason is the fungibility and use of aid for unproductive expenditure in public sector. Moreover, at micro level, all donor agencies as well as implementing partners regularly report the success of their projects and programs. This contrast is known as the micro-macro paradox. Assessment of aid is further complicated where the money is a combination of government and international support.
Enhancing effectiveness
There is growing realization among development partners, governments and civil society alike on the need to work together on aid and development policy. It is necessary to coordinate donor practices and clearly define current and future roles of the government and civil society in aid delivery and management. In the context of Busan Partnership for Effective Development Cooperation, there are steps which can be taken to improve aid mobilization in Nepal.
Nepal’s aid project portfolio spans more than 500 projects, which is not a healthy number. A threshold aid amount should be set for aid projects (including grants and loans) so that the number of projects can be minimized to a more manageable figure. If any development partner wishes to mobilize aid below the threshold, they would be encouraged to opt for pooled funding, joining other partners to help deliver the intended project.
Engaging fewer but larger initiatives will allow development partners to gain economies of scale and a higher return on their investments while making it easier for the government to manage and coordinate their work.
Moreover, Sector Wide Approaches (SWAPs) are yet to be adopted in sectors beyond health and education. In case the key line ministry is hesitant, the lead development partner(s) in the respective sector should support the sector ministry initiate this task.
The government should be selective in foreign aid, identifying niche area(s) like hydropower, highways, airports, large irrigation projects, agriculture and tourism. It should be able to say “no” to assistance which does not support national priorities and which will not be reflected in government budget.
The government should attempt to bring maximum aid into its budget. Development partners should regularly report aid information to Aid Management Platform at the Ministry of Finance.
The government should initiate a downward accountability mechanism at the district level, forming a Development Coordination Committee led by a DDC Chairperson/LDO. This mechanism may help smooth the implementation of foreign aided projects and minimize corruption. The government should encourage civil society and private sector to participate in existing aid coordination mechanisms like Local Donor Meeting and NPPR.
While smarter risk-mitigation techniques should be employed, development partners also need to be prepared to take more risks, recognizing that this will increase the potential for higher returns. They should try to minimize risk jointly rather than avoiding it.
Increasing use of country systems to channel aid should be a priority. Good practices should be taken on board by emerging donors so that all aid providers are guided by a single framework.
Development partners should provide clear commitments on their planned support, and be held accountable for these commitments and for achieving the results they forecast.
Political parties should prioritize economic agenda. There should be common consensus that political problems require political solutions. For instance, announcement of annual budget should not be delayed for political reasons. On the other hand, development partners should ensure that aid is not manipulated for political advantage.
INGO engagement should be linked to national plans and programs. Line ministries as well as development partners should effectively track aid money being channeled through INGOs.
Parliament and other constitutional bodies need to actively oversee aid provided to support national development plans. Oversight agencies can monitor foreign aided projects in many ways, such as ensuring sufficient budget is released, and contracts are tendered, audit reports submitted, and reimbursements are made on time. However, such actions should not affect the implementation of projects. Civil society also needs to be more involved in aid management. They can monitor activities of local projects.
Similarly, the media should publicize the progress of government and development partners. Aid works better in a country with an effective state and good governance. Aid worked in Nepal even during the 10-year-long conflict, and it will work more effectively once the political situation is stable and economic agenda receives priority.
The author is associated with Aid Management and Coordination Project under the Ministry of Finance. Views are personal
tilakman@hotmail.com
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