FOREIGN AID AND POLITICAL ECONOMY OF NEPAL

This article provides a critical analysis of the political economy of foreign aid in Nepal. It examines the scale and nature of international development assistance to the country and its impact on Nepal's economic development, state institutions, and domestic politics. The study investigates the motivations of donor countries and agencies and analyzes how aid flows have interacted with Nepal's unique political system, the partyless Panchayat system. The research argues that while foreign aid has been crucial for financing development projects, it has also created a dynamic of dependency, distorted local economies, and in some cases, reinforced the power of the ruling elite rather than promoting broad-based development. The paper concludes by assessing the overall effectiveness of foreign aid in addressing Nepal's deep-seated problems of poverty and underdevelopment, calling for a re-evaluation of aid strategies to ensure greater local ownership and accountability.

For decades, foreign aid has been a central feature of Nepal's political economy. This paper delves into the complex and often paradoxical role that international assistance has played in the country's development. The analysis begins with a quantitative overview, mapping the major donors and the sectors that have received the most aid. The study then moves to a critical examination of the impact of this aid. It explores the concept of the "rentier state," arguing that the large influx of foreign aid has, to some extent, reduced the pressure on the state to be accountable to its own citizens, as its survival is partially underwritten by external resources. The core of the paper is an analysis of how aid projects are implemented on the ground, focusing on the interplay between donor agencies, the central bureaucracy in Kathmandu, and local communities. It highlights the challenges of aid effectiveness in a country with difficult geography, weak administrative capacity, and a political system that has historically limited grassroots participation. The findings suggest that the dependency on foreign aid has created a parallel system of development, often disconnected from the genuine needs of the people and susceptible to corruption and inefficiency. The paper concludes with a call for a fundamental rethinking of the aid relationship, emphasizing the need for donors to support locally-driven initiatives and for the Nepali state to build its own capacity for sustainable and equitable development.