Nepali Times
Aid policy is better than no policy


Beggars can\'t be choosers, is the way Nepal has looked at foreign aid for the past 50 years. And that was the way aid has been given from the very early US, Soviet, Chinese or Indian aid programmes: as handouts.

Things may at last be changing so that Nepalis can see foreign assistance more as a partnership, and less as charity.

The government kept an important promise made last year by finally coming out with a draft of a new Foreign Aid Policy. It was released three days before the end of the fiscal year, nervously close to the government\'s self-imposed deadline.

It doesn\'t make any earth-shattering revelations. And for a country\' that is almost completely donor dependent, it doesn\'t overtly criticise aid or aid-givers. Nor does it go for the jugular by analysing aid utilisation and effectiveness. The Ministry of Finance (MOF) seems more concerned about regulating and controlling aid flows than in ensuring its efficient use.

Like all reports that are published in a hurry, the content is general and is full of holes. But at least Nepal now has a "Policy". The recommendations include:

. Local auditing of donor-funded activities
. Transparency in fund transfers through INGOs
. All agencies to inform government of aid transfers
. Donor-funded official activities to be reflected in budget
. Ministry of Finance to be focal point for all donor contact

In a country where donors and diplomats have become used to not-so-subtly dictating public policy, the draft document may not mean much in the short term. But if followed faithfully, MOF officials say it could improve selection, monitoring, and efficiency of future foreign aid.

Nepal\'s reliance on aid is severely lopsided: 60 percent of this year\'s budget depends on foreign grants and loans.

The debt-serving bill ion an external loan portfolio that adds up to a hefty 54 percent of GDP) is now 34 percent of the regular budget. Nearly 70 percent of the money Nepal gets as aid are loans, up to US$ 400 million annually.

The problems with aid are well known: it is donor-driven, fragmented, projects are half-baked and directionless, resources are wasted and duplicated. At best it creates dependency, and at worst much of it never gets to target beneficiaries. Why else, after US$ 4 billion worth or aid in the past 50 years would Nepal be as poor as when it started out?

Nepal\'s decade-old democratisation has led to the growth of a new sector in foreign aid: NGOs. Seeing its sources of funds channelled elsewhere could be one reason the government is trying to regulate aid flows to NGOs. But it could also mean victimisation of genuine grassroots development groups.

The Foreign Aid Policy at least articulates a sort of a "mission statement" for what aid should achieve in Nepal: self-sustained high economic growth and self-reliance to mobilise resources needed to finance development.

The means to carry that out are also what they should be: enhanced transparency, uniformity and accountability, donors made to act more as facilitators and less as dictators. The policy tries to define priorities, although the one in circulation reads more like a wish list than a realistic inventory.

The document also recognises a well-known problem in the foreign aid business that goes by the jargon, "capacity building". It says: "Excessive dependence on technical assistance has also not contributed to the development of institutional capacity." The Ministry of Finance is one entity that should understand more than any other what a "TA" is-two technical assistance projects have been underway there for about 10 years now with little tangibles to show.

A typical TA sets aside up to 80 percent of the budget to pay foreign consultants, another 10 percent for project vehicles (read: consultant\'s Pajero) and only the remaining 10 percent for actual operational activities.

"We now want to retain and use as much of that money as possible for the intended purpose," says a Nepali aid official. "That is not happening now, and worse, the technical assistance projects tend to be never-ending."

An economic liberalisation project funded by the US government in the early 1990s is still ongoing. In the beginning the project did provide valuable advice on how to set up Nepal\'s nascent stock market and go about privatising state enterprises. Today, even Finance Ministry officials are not sure what the project is doing, or even who runs it.

Such TAs can be found in even,\' government ministry. Vehicles with blue plates in ministry parking lots testify how-many donors may be working to build our capacity. Today, technical experts are even attached to NGOs.

"We now have TAs to prepare terms of references for consultants, report writing, even to tell us how to make our laws," an MOF official said. "The question is: do we really need them?"

Nepal may not be able to reject TAs outright since it is high on the donor agenda. TA budgets can be very high, as in the case of one NGO, where almost 35 percent.

"We\'ve not been consistent with decisions because we never had a policy before," says Finance Minister Mahesh Acharya.

The government discussed the draft with donors on 25 July. Only the World Bank came prepared for the meeting with written comments. Others commented on specific areas, but seemed less prepared, according to sources.

Overall, the Bank praised the government\'s effort but did have some "frank and sincere" comments. It said making a medium-term expenditure framework would help bring all public aid inside the budget envelope, which could encourage donors to move away from the general practice of financing new investments and not recurrent costs.

"Our main comment was about the missing link in the policy for getting from point A to B," says Rajib Upadhyay, External Affairs Specialist, at the World Bank.
Not all TAs are bad, said one donor pointing to the GTZ-funded Bhaktapur urban development. But another GTZ-funded TA for solid waste management has not gone well.

Several donors did raise questions about priorities, saying that the policy was infrastructure-driven and ignored the social sectors, such as female education.
The government took its policy to various political parties, experts and NGOs. Most participants didn\'t look like they had read or were interested in the draft policy; they just listened silently as the speeches droned on.

Among the few that did comment, Rashtriya Prajatantra Party\'s Prakash Chandra Lohani picked on procedural lapses and suggested that the document should be "shorter and more focussed".

One of only two women at the discussion, Arzu Rana Deuba, was more forthright. She questioned why some donors were not required to disclose their contributions to different projects for listing in the government budget. "We need to make donors pay the TA costs through their administrative costs," she said. "They cannot factor them in the money that comes as aid."

Guns \'n\' aid

The government\'s draft aid policy does not even attempt to explore the emerging relationship between trade and aid. If foreign aid is now increasingly linked with trade or trading prospects. Bilateral donors generally prefer the money they give be spent on buying goods produced by their domestic industry.

When British Foreign Secretary Robin Cook visited Nepal early this year he not only discussed bilateral projects but also put in a good word or two for Airbus Industries, although he did not tie British aid with aircraft purchases.

This is worth close scrutiny because poor countries often end up paying more for purchases from donor countries than what they get in aid. Austria\'s aid to Nepal has plummeted to about US$1.6 million last year, and may fall further. But last year Nepal purchased guns and ammunition from Austria worth US$1.63 million, which makes the net balance of give-and-take to about zero.

This year Nepal has more money to buy guns with-the Rs 1.8 billion budgeted for the proposed Armed Police Force. Wait and see where that goes.

(11 JAN 2013 - 17 JAN 2013)