The K-town is abuzz over budget, particularly its size and nature. Here are two charts that shows foreign aid (both loan and grant) as a share of actual expenditure, total revenue (i.e. total receipts minus grants) and development expenditure. These are actual figures and disbursed amount.
Foreign aid as a share of development expenditure has always been high. The highest was 86.53 percent in 2004/05. Total foreign aid in 1975/76 was Rs 0.51(grant Rs 0.36 billion and loan Rs 0.15 billion) and in 2009/10 it was Rs 49.76 billion (grant Rs 38.55 billion and loan Rs 11.22 billion). In 2009/10, total actual expenditure and total tax revenue were Rs 259.69 billion, Rs 179.95 billion. Development expenditure was Rs 151.02 billion in 2009/10.
As a share of actual expenditure, revenue, and development expenditure, foreign aid was 19.16 percent, 27.66 percent and 55.15 percent respectively in 2009/10. In 1975/76, the respective figures were 26.43 percent, 45.32 percent, and 40.81 percent.
In 2010/11, actual expenditure was Rs 295.36 billion and revenue collection was Rs 199.82 billion. Total aid (loan Rs 12.07 billion and grant Rs 45.92 billion) was Rs 57.99 billion. Aid constituted 19.64 percent of total expenditure.
In terms of loan and grant, it appears that donors are increasing grant portion in total foreign aid starting early 1990s.
Now, the question is: How far has foreign aid been helpful in meeting growth and development objectives? Since there is no comprehensive analysis of the effectiveness of overall aid in Nepal, we just can’t say that it is working or not working just by looking at these numbers.
That said, looking at the triggers of GDP growth, it is quite clear that foreign aid has not been a contributing factor in the short run. Aid to construct roads (intra district or intra villages) did help, but it didn’t go far enough to make a difference. There was no aid on hydropower, the important sector to stimulate growth and employment creation. Aid got concentrated in social sector, which did yield fairly good result (judging from the progress in achieving MDG targets). Here is more on aid in Nepal. Here is an evaluation of the effectiveness of Aid for Trade in Nepal.
