Foreign Aid

(Development Cooperation)
Madhab Prasad Ghimire
Faculty Member
National College
 Foreign Aid

•What are the reasons for accepting foreign aid by developing countries ?
Saving Gap, foreign exchange gap, and knowledge gap

•What are the reasons for the industrialized countries to support the
developing countries. Humanitarian or moral , Political , commercial motive
•Definition of Foreign Aid ( Official Development Assistance)
Transfer of resources on concessional terms from one country( usually from
industrialized country) to the other( developing country) for economic and social
welfare.

Explain resources, concessional , economic and social welfare

 History
• History of Foreign Aid
1944 - Conference on the requirements of support
to the war devastated countries in Europe. The
conference decided to establish Twin Bretton Woods
Institutions International Bank for Reconstruction and
Development ( IBRD)and International Monetary
Finance ( IMF)
1947 Marshall Plan launched by the USA for Europe
and Japan. Later extended to other countries ex
colonies and developing countries.
 History
1949 USA launched Technical Assistance
Program ( Point Four Program) to provide
technical skill and knowledge to the
developing countries .
USA provided assistance to the establishment
of the international research centers .
• The Volume of foreign aid increased when
China and USSR entered.
 Reasons

• To build up socio economic infrastructure, to

industrialize the country and increase the per
capita income
• The knowledge and skill level need to be
improved.
• Research centers to address the problems
 Conditionality of Aid
• The poverty is a threat to the stability and
peace of the country and the world. MDG,
SDG
• Conditionality of Aid : financial, project related
(Micro level)and political( Macro level)
It is not a free lunch
Conditions are discussed and agreed upon
during the negotiation .
 Technical Assistance (TA)

• The purpose of Technical Cooperation is to

build and enhance the capacity through
technology and knowledge transfer ( show
how and know how) For Example Green
Revolution, TB , Oral dehydration, polio,
Vitamin A Capsules.
 Foreign Aid Policy
• Foreign Aid Policy 2014 explains that Over 40
percent of all aid now is technical assistance;
• Donors will be encouraged to hire local
talents to build up local institutions and
technical capabilities (Page 22),
• Stimulate and encourage the use of local
consultancy in project design.(page 22).
• Local institutions should be encouraged.
 Foreign Aid in Nepal
• Nepal signed the foreign aid agreement on
January 23, 1951 with US Government during
the Rana regime.
• Both capitalist, communist and developing
countries have extended aid to Nepal
• It contributed about 16 to 20 percent of the
total government expenditure.
• Foreign Aid has contributed about 5 to 6
percent of GDP.
• A sizable amount of foreign aid has supported
the activities of the large number of INGOS and
the NGOs, the expenditure of which largely fall
outside the government budgetary framework
• Large and critical projects are implemented
with the bilateral and multilateral financial and
technical support
• Dependence on foreign aid has increased over
the years.
• Psychological impact that without foreign aid
we cannot move. 
• Foreign aid has supported in poverty alleviation,
• Weaknesses
• USA offered aid to Europe on the assumption :
Economic stability leads to political stability
• Rising expectation of the people
• People are prepared to change from subsistence to commercial
economy.
• Recipient country will submit plan and priority about their
requirements
• Administrative capability exists
• The foreign aid gap between the commitment and
disbursement has widened

• Aid flow seems to have been shifted more to social

sector.
• Alignment of priorities of recipient and donor is
difficult.
• Administrative capability is deteriorating .
Project is not completed on time , political
interference in project implementation.

• Conclusion