The reason for this belief emanates from the fact that foreign aid finances a significant portion of Nepal’s national budget. For example, 27.45 percent of the total expenditure and more visibly 73.87 percent of development expenditure, which is also known as capital expenditure, is expected to be financed by foreign aid in the current fiscal year.
From a classical view point, foreign aid is required because countries like Nepal are always faced with the problems of (i) savings-investment gap, (ii) minimum foreign exchange reserves (trade imbalances) and (iii) lack of skilled manpower. For example, according to Nepal Rastra Bank’s latest data, the ratio of consumption to GDP in 2008/09 stood at 92 percent, meaning only 8 percent of GDP was available for investment while trade continued to be lopsided in favor of other countries. In addition, Nepal continues to be constrained by the lack of people with skills needed to carry out development works effectively.
It means socio-economic development through foreign aid continues to be the number one priority. Sadly, foreign aid comes laden with stringent conditions.
Literatures on contribution of foreign aid, those primarily coming from Malaysia, Singapore and Thailand, conclude that foreign aid must work in 20 years. The logic is simple: If a country has Rs 100 and it mobilizes foreign aid worth Rs 50, it would have invested Rs 150 in the economy. From this investment, it would be able to have domestic resources worth Rs. 200 for next year’s investment. Again, if it mobilizes foreign aid worth Rs 25, it will have a total of Rs 225 to invest in the economy. If the country continues to use foreign aid in this way, the literatures conclude that within 20 years it will have more than enough domestic resources, which means it will not need foreign aid.
The same literatures also conclude that if foreign aid does not help meet the savings-investment gap, soar up foreign reserves and produce enough skilled manpower in 20 years, then it will never ever be able to do so. In Nepal, which has been receiving foreign aid from the 1950s, it’s evident that money coming from the donors is not supplementing domestic development efforts.
Does Nepal have alternatives resources to meet its socio-economic development needs? There are many. We should concentrate on mobilizing domestic resources, revenue and promoting exports. Then, there is remittance. If we give priority to facilitating and managing remittance, I am sure that we will be able to achieve self-sufficiency within a decade.
According to Nepal Rastra Bank, Nepal received remittance to the tune of Rs 209.7 billion, which is equivalent to 35.8 percent of GDP, in the previous fiscal year. Contrary to foreign aid, which has to be utilized on the basis of donors’ priorities and whims, this money is more predictable because it can be mobilized as per the country’s needs.
Foreign aid is not a free gift. No matter in what form it comes – loans or grants – it is an obligation to both present and future generations. Remittance is less obligatory. Therefore, there is a clear need to shift our priority from foreign aid to remittance. Such a shifting of priority would yield what could not be achieved through foreign aid in over 50 years.
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