Foreign aid seems to have started in the world from the 18th century. The first form of foreign aid was in the form of military aid. World War II is the main reason behind the scope and structure of foreign aid today.

World War II established two main pillars of foreign aid. The first base is the 'Marshall Plan' implemented by the US to resettle 17 Western and Southern European countries.

The second is the establishment of international organizations including the United Nations, the International Monetary Fund and the World Bank. These international organizations played an important role in the distribution of foreign aid funds, eligibility for receiving foreign aid and the impact of foreign aid. 

After the Second World War, Britain, France and other European countries provided a lot of foreign aid to the countries that still had their colonies. The US, UK, Russia and their allies used foreign aid as a diplomatic weapon during the Cold War to bolster their political factions and gain strategic advantage.

After the Second World War, non-European countries also seem to have advanced their cooperation programs. By the end of the 20th century, Japan had become one of the world's top two donors of foreign aid. Japan seems to provide a large amount of foreign aid to Asian and non-Asian countries. At the beginning of the 21st century, China became the largest foreign aid provider, especially in Africa.

In early 2013, China proposed to provide infrastructure development loans to countries including East Asia, Africa and South America as part of the 'Belt and Road Initiative'. After the 1990s, donors including the IMF have been providing aid with the aim of market-oriented economic reforms such as reducing trade barriers and promoting privatization. 

reference to Nepal 

Nepal started receiving foreign aid from the first budget of 1951. Technical assistance provided by the United States in 1951 was Nepal's first foreign aid. Since joining the 'Colombo Plan' held in Colombo, Sri Lanka in 1952 with the aim of strengthening mutual partnership for social and economic development in the countries of Asia and the Pacific region, Nepal has started receiving multilateral foreign aid.

Especially since the first development plan (1956-1960), it seems that more foreign aid has started coming to Nepal. The first development plan was entirely based on foreign aid. It has been more than 6 decades since Nepal started receiving aid from foreign governments, multilateral organizations and INGOs (collectively known as External Development Partners - EDP). 

All foreign aid in the 1950s was provided in the form of grants, most of which went to agriculture, transportation, energy, and infrastructure development. Similarly, after the 1990s, Nepal started receiving foreign aid in the form of material aid, technical aid, project aid and program aid.

External development partners (EDP) have been participating in Nepal's economic policy formulation, program design and implementation. From the beginning, Nepal's dependence on foreign aid has been high.

According to Economic Survey 2080/81, during the period from 2070/71 to 2079/80, foreign aid worth about 21 trillion was accepted in Nepal through grants and loans, but only 13 trillion was received. Only about 33 percent of approved foreign aid is grants and the remaining 67 percent is foreign loans.

There is a large gap between foreign aid targets and receipts in almost every financial year. Compared to the annual target in 2079/80, foreign grant receipt was 41.7 percent and foreign loan receipt was 50.8 percent. Compared to the annual target in the last 5 years, the annual average of receiving foreign grants is 41.5 percent and the average of receiving foreign loans is 46.7 percent.

From this, it is necessary to ensure that foreign loans and grants are received during resource estimation and to make systematic improvements such that researches are accepted on time. Looking at the situation of foreign aid from 2031/32 to 2077/78, its increase is 14.7 percent on average, in which the increase of grants is 11.1 percent and the increase of loans is 17.5 percent. It is clear from this that the growth rate of loans is higher than that of grants.

In the 2081/82 budget presented by the federal government, it is estimated that 217 billion will be received from foreign loans and 52 billion from grants from foreign donors out of the total foreign aid that the government will bear financial expenses. According to the latest "Development Cooperation Report 2021/22" published by the Ministry of Finance, the "Official Development Assistance (ODA)" received by Nepal has dropped from $1.7 billion to $1.4 billion, which is a decrease of 15.7 percent from the previous financial year.

This data indicates that the environment for receiving international development aid in Nepal is deteriorating. The report showed that the ratio of ODA to GDP was 3.5 percent in 2021/22, compared to 5.8 percent in the previous decade. Similarly, the report shows that the contribution to the national budget is also decreasing.

The major multilateral development partners providing international development assistance to Nepal are the Asian Development Bank, World Bank, IMF, EU and the United Nations, whose contribution is 74.7 percent of the total ODA. Similarly, US, UK, India, China and Japan are major bilateral development partners. 

The impact of foreign aid in Nepal

Foreign aid has become the main basis for raising budget resources in Nepal. Foreign aid is the main source of finance for Nepal's economic and social development programs. Bilateral and multilateral assistance is being received in Nepal in the form of grants, loans, technical assistance and humanitarian assistance.

It can be felt that some direct or indirect support has been given to Nepal's gross domestic savings, investment and economic growth as well as the welfare of the common people. Despite the continuous receipt of foreign aid and development efforts based on foreign aid, Nepal has been known as a backward economy in the world until now. To break the story, it is not that Nepal has not shown its commitment and involvement in various principles related to the effectiveness of foreign aid from the beginning, but the mobilization of foreign aid does not seem to be effective. Nepal is not in a position to say what will happen in the absence of foreign aid. 

Due to increasing political interference in the country, corruption and weak ability to utilize foreign aid, the trust of donor countries and organizations towards Nepal is seen to be weakening. Foreign aid has not been able to achieve its original goals of increasing economic growth, improving living standards and establishing equality.

Since foreign aid has a higher proportion of loans than grants, although there is a positive relationship between foreign aid and economic development, it does not appear to be sustainable. Similarly, various unnecessary conditions of foreign loans are burdening future generations with debt. With the continuous increase in foreign debt, it is certain that Nepal's debt repayment capacity will weaken in the long run. 

The commitment and priority of foreign aid has changed from productive sectors to non-productive sectors such as humanitarian, social, and health services. The main problem of foreign aid in Nepal is that it is not prioritized and the foreign aid is too fragmented.

When foreign aid is available with focus on projects rather than budgetary aid and the said aid cannot be manipulated on the basis of priority, it seems that a big problem has arisen in its implementation. There are still problems such as not having a clear outline of foreign aid, the problem of adoption, not being able to include foreign aid in national priorities, and not being able to use aid funds efficiently. Similarly, for the implementation of development programs based on foreign aid, donors must follow Nepal's Public Procurement Act, but there are many difficulties arising in this too. 

Conclusion

Nepal's commitment to implementing the principles of adoption, result-oriented, inclusive partnership, transparency, and accountability with international development partners is not being fulfilled, and foreign aid is not being properly utilized. Foreign aid has not been fruitful especially in the structural reform of Nepal.

Because foreign aid is being used in consumption-oriented activities rather than result-oriented, foreign aid has not effectively had a positive impact on economic growth. Since Nepal cannot do anything without foreign aid, it should find a way to convert foreign aid into investment. Similarly, in the long term, we should develop a strategy to reduce foreign aid and move forward in the direction of becoming self-sufficient. 

Official Development Assistance (ODA) resources must be distributed effectively to combat major economic challenges. In order to achieve the sustainable development goal in the year 2030, it seems that much effort should be made to reduce the fragmentation of development aid and achieve economic progress.