With the end of World War II, foreign aid came to be seen as an important part of economic development. Europe received large-scale foreign aid from the Bretton Woods multilateral institutions and bilateral aid agencies to rebuild the war, and within about a decade foreign aid was reduced to almost zero.

 The example of Germany is important in this. The German economy took an epoch-making leap after the effective utilization of the economic assistance taken under the American Marshall Plan. US Secretary of State George Marshall at the time had a special form of foreign aid. The

consisted of three aspects. First, how long and for what the cooperation should have been clear. Secondly, it should have been clear how it transformed the country economically and socially. Third, the recipient country should have a democratic system and the expenditure should be transparent. These principles remain an integral part of US foreign aid policy today.

After World War II, the world was divided into two poles. During the Cold War, the countries associated with the United States and the countries associated with the Soviet Union at that time began to cooperate according to the interests of their respective groups. After the partition of India, foreign aid began to flow relatively more towards South Asia. Soon after the Korean War began, the foreign aid of the powerful countries began to increase towards East Asian countries. 

In the 1960s, international aid from industrialized countries flowed to South American countries and countries in the Middle East. More precisely, the success of the socialist movement in Cuba and the establishment of Israel in the Middle East were viewed both negatively and positively by many Western countries.

international cooperation was revolving around that serofero. In the 1970s, much foreign aid was diverted to Africa and the Persian Gulf. As many African countries were gaining independence from the British and French colonies, these two countries also had some responsibility towards the newly independent countries. On the other hand, after the success of the Islamic movement in Iran and the implementation of the republican system, more aid flowed to the Gulf countries to keep the entire Persian Gulf region in their favor.

In the 1980s, extreme debt crises occurred in the Caribbean region, including Central American countries. When the upliftment programs are not effective, it seems that a lot of foreign aid has flowed into this region to rescue it from the situation of not being able to get out of the debt crisis and not being able to repay the debt in the current situation. The problem of over-spending and under-performing public sector also emerged in Eastern European countries in the late 80s.

Socialist governments there fell one after the other and economic reform programs went ahead. With the transition from a centralized economy to a market system, there was a great need for foreign aid to accelerate reform programs. In the 1990s, the bulk of Western countries' foreign aid was diverted to Eastern Europe and Central Asia.

The world economy has been suffering from regional conflicts since the late 90s. After the conflict that started in Kuwait and Iraq, Afghanistan, Syria, Yemen, Sudan, Burkina Faso and most recently Ukraine have been invaded. A large part of foreign aid found its way to these warring geographies.

Nepal's historical background

Nepal started receiving foreign grants from the 1950s. The grant came mainly in the form of technical assistance from the Colombo Project. The entire development cost of the first five-year plan completed in this decade was covered by foreign grants.

From the 60s, Nepal also started receiving loan assistance. However, about 70 percent of the development expenditure of the Second Periodic Plan was received from foreign grants. The contribution of India and the United States to the bilateral aid remained about one-third, while other aid came mainly from China, the then Soviet Union, the United Kingdom, Switzerland, Australia, Japan and New Zealand. Thereafter, up to the Eleventh Plan, foreign aid contributed 40 percent to 60 percent of the total periodic plan expenditure.

In recent years, foreign aid accounts for 20 to 40 percent of periodic plan development expenditure. In terms of economic activities, agriculture, transportation and energy sectors received special support, while communication, industry, education and health sectors were the next priorities. Japan's contribution to bilateral cooperation has long been prominent.

From the 80s, the amount of multilateral cooperation started to increase in Nepal rather than bilateral cooperation. Since the 1990s, the foreign aid received by Nepal has been divided into four types: physical infrastructure, technical aid, material aid and humanitarian aid. In the mid-1980s, foreign aid in Nepal was relatively high.

In 1984, foreign aid reached 13 percent of GDP, which was 7 percent in 1987. Although there was no clear trend in the 1990s, it has not increased in relative terms since 2000. Fluctuating between 3 and 9 percent of GDP.

The supply and demand side of aid

The share of grants in foreign aid is decreasing and loans are increasing in the global scenario. Although this trend began in the world economy after the end of the Cold War in the 1990s, it was clearly seen after the global economic recession that began in 2008.

The Paris Declaration 2005 for the effectiveness of cooperation was released and although the Accra agreement approved the decision that the countries under the "OECD" should give 0.7 percent of their gross domestic product (GDP) as foreign aid to the underdeveloped and developing countries, many "OECD" countries have not followed it, except for the Netherlands and some Scandinavian countries. Many studies show that Sardar foreign aid is around 0.36 percent of their GDP.

At present, a large part of the grant aid is poured into war-torn lands. Looking at the last year's statistics of these humanitarian aid, almost half of the OECD countries' grant aid is being spent on Yemen, Afghanistan, Syria, Ukraine and Palestine.

Even if there is an increase in aid, aid will not increase significantly in countries like Nepal, which are transforming from underdeveloped to developing countries, but aid will increase in countries like Ethiopia, El Salvador, Burkina Faso, Myanmar, Sudan and Venezuela, where aid is very low. Currently, only 14%, 14%, 16%, 12%, 17% and 10% of the aid needed to address the humanitarian crisis there have been received, according to the latest data released by the Norwegian Refugee Council.

In the absence of sufficient homework, the demand side of help becomes weak and the supply side becomes strong. This tendency is also seen in the foreign aid received by Nepal. Many charities want to involve themselves in small and fragmented projects. The negative side of this is the lack of coordination and the birth of policy instability. In 2016, more than 370 foreign aided projects were in operation in Nepal.

Of them, 212 were in grants, 145 in technical assistance and 21 in loans. Some projects involved a mix of loans, grants and technical aspects. Coming to 2021, the number of projects did not decrease significantly, remaining at 262. Government machinery to effectively monitor and supervise hundreds of projects remained weak.

When foreign aid does not increase sufficiently, it is natural that there will be increased competition for limited resources. For that, the countries receiving assistance should adopt a strategy of effective use of expenses. In the case of Nepal, the capital expenditure of periodic plans has mostly been with foreign aid. The entire capital expenditure of the first five-year plan was in foreign aid, while in subsequent plans, a large part of foreign aid has remained. 

The International Monetary Fund conducted a study on the aid effectiveness of various developing countries. Through which it has been concluded that in the case of grants, at one time and in the case of loans, obtaining conditional loans at different stages will result in high returns and effectiveness.

Change in US policy

After being elected for the second time as the US president, Donald Trump decided to stop all grant programs through the United States Assistance Mission (USAID). In addition, the United States has stopped all the support it has been giving to the World Health Organization (WHO). The United States is the largest donor to the World Health Organization, contributing $1.2 billion annually (obligated by the world's largest economy) to the organization.

After this change, various health care programs run by WHO in poor and developing countries will be affected. This will especially affect immunization and nutrition programs in underdeveloped, developing and conflict-affected countries. Regionally, African countries around the Sahara desert will be more affected than other regions.

Trump's decision to recall all but certain American employees of USAID and to completely close this organization was stopped for the time being by the US Supreme Court, but there is no doubt that the development projects in Nepal will be affected by US aid in the future. US grant assistance in Nepal is particularly focused on promoting school educational programs, public health, biodiversity conservation, and building a business environment. There is a need for the government to look for alternatives before the effects of aid cuts become apparent.

Mainstreaming of assistance

For the high effectiveness of foreign assistance, it is necessary for the government of Nepal to adopt some concrete strategies. At present, more than 16 percent of the grant aid given by various donor organizations is being spent without having anything to do with the government budget system. On the other hand, about one-third of the grant assistance is mentioned in the government budget, but it seems that it is not under the control and supervision of the government.