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The budget is prepared on the basis of commitment. The reduc� on in
the commitment inevitably will have nega� ve impact on the achievement
of development goals. The reasons for the diff erences between the
commitment and disbursements have been a� ributed to lack of matching
fund; weaknesses on making claims for reimbursement; and inability to
fulfi ll the agreed grants and loan condi� onality.
Aid Eff ec� veness
O� en foreign aid is cri� cized for not contribu� ng to economic growth
in general and poverty reduc� on in par� cular. Foreign aid or (development
assistance) is regarded as being too much, or wasted on corrupt recipient
governments despite any good inten� ons from donor countries (Shah 2010).
While there are also number of issues for eff ec� veness of foreign aid, for
example- higher level of democracy, human rights, governance, liberaliza� on
and economic reforms backed by decelera� ng state of corrup� on and
confl ict in recipient countries; the central debate is over its contribu� on to
na� onal development of any na� on. It is argued foreign aid being supply side
driven a� ribute solely to mo� ves and objec� ves of donors; and therefore
not contribu� ng to developmental ac� vi� es of na� onal priori� es.
The review of available literatures refl ects, in development economics,
policy reforms occupy key posi� on in crucial development dialogue both in
developed and developing countries. Literatures on aid eff ec� veness show
varying impact under various policy environments with diff ering quality of
governance. Aid eff ec� veness study on Nepal shows that the rela� onship
between aid and per capita real GDP is found to be nega� ve in both aggregate
and disaggregated forms in the short-run implying that the country suff ers
from lack of absorp� ve capacity and high aid vola� lity (Bha� arai, 2005). Aid
is eff ec� ve when it is moderate in volume and counterproduc� ve when it
increases in size i.e., when it exceeds the absorp� ve capacity (Brynt 2005).
High level of aid erodes ins� tu� onal quality, increases rent-seeking and
corrup� on, therefore, nega� vely aff ects growth (Knack 2000).
Aid: Costs and benefi ts
Dra� Foreign Aid Policy, 2009 intends to develop and adopt a Na� onal
Ac� on Plan (NAP) on Aid Eff ec� veness both by the Government of Nepal and
donors, which is expected to formulate roadmap on foreign aid management
in the spirit of Paris Principles on Aid Eff ec� veness and Accra Agenda for
Ac� on. Foreign Aid Policy will help develop a common aid eff ec� veness
pla� orm as envisaged through NAP which will lead Nepal's aid regime
towards properly iden� fying key priority areas, contribute to harmoniza� on
and bring out sustainable outcomes.
Foreign aid has both cost and benefi ts to the recipient and donors. To
some extent aid has been an investment in maintaining global stability.
Globally, about one billion survive on less than $1 a day. The challenge is to
bring about real change in the lives of children and families living in extreme
Changing paradigms of aid eff ec� veness in Nepal 47