All aid cannot be channeled through the government

  • Rameshwor Khanal
- POST REPORT, Kathmandu
All aid cannot be channeled through the government

May 11, 2014-

Nepal has been receiving foreign aid since the 1950s and ever since, this assistance has come under scrutiny for reasons concerning its utility and misuse. In recent times, foreign aid and donor agencies have been making headlines, after the government released the Development Cooperation Report 2012-13, which shows that 36 percent of the total foreign aid was disbursed bypassing the country's budgetary system in the last fiscal year. In this context, Mukul Humagain and Darshan Karki spoke to Rameshwor Khanal, former Finance Secretary, on ways to regulate aid, Nepal's problem with spending aid and donor agencies in general.

For an aid-dependent nation like Nepal, would channeling foreign aid through the government be a way to regulate it?

All aid cannot go through the government. There are certain forms of assistance that need a different path. For example, humanitarian assistance has to be delivered very quickly in case of a natural disaster or emergency. Even the recipient country may not have time to wait for the budget to be approved and released to the public.

In such cases, the government might need to ask the donor or foreign agency to directly provide aid to the people. Also, when a part of the country has entered into conflict, the beneficiaries might not comply with the government system.

In other cases, the government itself is not the right medium for implementing certain projects. For instance, in projects concerning social mobilisation—awareness creation and advocacy. People have a tendency to not believe in government officials. These projects are best carried out by NGOs, community-based organisations and locals. The issue is that aid has to be transparent, whether it is on budget or off budget.

Then why is there so much discontent about the way aid is used?

Much of the problem lies with us. Multilateral agencies provide both grants and loans to Nepal as it is a Least Developed Country (LDC). At one point in time, our low export base gave rise to suspicions that we might not be able to continue servicing our debts and Nepal even qualified as an heavily indebted country. At that time, multilateral agencies increased the aid component of their assistance. Still, there were problems because the agencies required a good environment policy, resettlement policy and insurance that the rights of indigenous people would be protected. The agencies wanted a good procurement practice in place. It was very difficult for Nepal to comply with all those conditionalities.

Many of our agencies, even today, do not submit audited reports. Donors cannot wait a year or two for an audited report. They are also accountable to their taxpayers. As it was difficult for us to submit a statement of expenditure, seek reimbursement in project audits and meet standards, we proposed a different arrangement for Nepal. Surendra Pandey was Finance Minister then and I was Finance Secretary. We had a meeting with the World Bank President and proposed that we would complete a project on our own with government money. Once the project is complete, the World Bank would verify if it was done up to their standards and if so, it would essentially finance the project. We would then use the money we got from the Bank to complete a new project. The World Bank agreed and the Program-for-Results (PforR) Financing was initiated in 2012. Nepal was the first country to receive this new aid modality. The World Bank has currently provided PforR to 11 different countries, from Brazil to India.

Donors frequently talk of a low absorption capacity when we raise questions of aid effectiveness. Is this a problem?

They are right. They do have problems of their own but most problems fall on our side. We do not implement projects on time. There was a study done some years ago that mentioned that many South East Asian countries take less than four years to complete a project so their disbursement ratio is more than 25 percent. In our case, the average time for project completion is more than 12 years. Our disbursement ratio is seven percent. Donors want to be flexible with Nepal. Instead of financing projects, on our request, they provided us with budget support wherein we get cash and can use it anywhere except in defense and other areas that donors don't support. Even with such a flexible financing arrangement, our performance and implementation was very poor. Furthermore, our staff turnover is very high. Senior officials are transferred in less than three or four months. This affects the implementation of the project and frustrates donors.

What kind of problems do donors have?

Donors are also part of a bureaucracy and are not as efficient as they should be. The World Bank and Asian Development Bank require headquarter approval for everything. This delays the implementation of the project as approval is required before the documents are designed, after they are designed, after floating the tender and getting the bids and during the course of evaluation. The Government of Nepal has asked them to delegate more power to their own local offices. In case of bilateral donors like USAID or DfID, they are always careful about how the money is used. These agencies themselves are monitored directly by their Parliament. After the 9/11 terror attacks, bilateral donors became concerned that their money was not promoting corruption or being diverted to finance terrorism. Post the 2008 financial crisis, governments have been more careful as they are giving us money by compromising on domestic needs.

Donors are also accused of taking back a significant amount of aid money to their own countries by hiring of expensive consultants or through technical assistance Nepal really does not require.  

If the Nepal government wants to use all the money here, no donor would be keen to assist it. Ultimately, the objective of aid is to help a country alleviate itself from a very low base to a slightly higher base: from LDC to low income country, then to higher income country. Donor agencies definitely presuppose that the recipient's system is weak, lacks experts and has poor quality equipment and machines. If we can produce evidence that our materials, machines and experts are good enough and make a strong argument, donors won't force their own consultants and technical assistance on us. It is all about negotiation. First, government officials don't negotiate well and once the public criticisms begin, they blame it all on donors.

What about prioritising sectors for foreign aid? The government has said that it needs more aid for infrastructure though donors are investing more in social sectors.

This was true only before 2000. Since the onset of the 10th Five Year Plan in 2002, the Nepal government asked all donors to align aid to Nepal's priorities. Since then, government approval is required for the country assistance plans of different aid agencies. Unless the plans comply with Nepal's policies and priorities, they are not approved by the National Planning Commission and the Ministry of Finance. Since 2002, at least on paper, foreign aid has been coming in as per our priority.

Aid seems to be coming into sensitive areas like the police, Army, judiciary and even the Constituent Assembly. Do we need aid in these sectors?

First, let us separate aid into different categories. Official Development Assistance (ODA) does not go to defence or security activities. ODA mostly goes through the government system and even if it goes from outside the system, it has the approval of the government. The second is military aid. Nepal has good relations with the militaries of other countries. It has military attachés in Pakistan, Bangladesh, India, the US and the UK. This does not come under official aid. The military in Nepal might be aiding other militaries and vice-versa. Some of this might even be confidential. The third is civil society to civil society aid. The fourth category of aid is from religious institutions abroad. In my opinion, religious aid has to be stopped. It is not good for our society or any society for that matter. Religion is a purely personal matter and should not be influenced by providing undue incentives. Most civil society aid has been put to good use, for instance, creating awareness. But if INGOs are working to create divisions in Nepali society then it is up to us to monitor them.

Who uses aid is also immaterial as long as it is transparent and reported to the public and government. No aid can come into Nepal without the knowledge of the government. An agreement has to be signed with the Social Welfare Council. Every new project has to be approved by the Special Committee within the Ministry of Women, Children and Social Welfare, which is represented by the Finance Secretary. So every time, money comes from outside, the government has a mechanism to learn about it.

Published: 12-05-2014 08:50

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