Careful Financial Regrouping Cutbacks Imminent

Nepalese people should also be aware of how much they are paying and for what and ensure that they do not pay higher than the set amount, which people these days are likely to do to maintain a certain living standard.

Nov. 18, 2016, 5:45 p.m. Published in Magazine Issue: Vol 10. No.7, November 18, (Mangsir. 03,2073)

We all are part of a global economic system; we – rich countries and poor countries alike – contribute to and benefit from the system. While there are debates about what ‘contributing to’ and ‘reaping the benefits from’ may look like, countries are dependent on each other. This dependency takes on various forms – while the countries in the ‘global north’ are self-sufficient in terms of basic development needs, countries in the ‘global south’ are mostly dependent on the countries in the global north for their development needs. The system of foreign-aid have contributed to this dependency, and countries in the global south are now highly dependent on foreign-aid. On one hand, these countries enjoy money that enters the nation, on the other, the donor countries are glad to contribute to the well-being of people living in countries other than their own.

However, two major events that occurred in the past five months indicate that powerful nations have started looking inward. Britain’s exit from the EU and the commitment of the newly elected president of the USA, Donald Trump, towards prioritizing the needs of the people of his own country, indicate that powerful nations have started being less inclined towards helping those countries that are in need or are ‘in-trouble’. Nepal relies heavily on foreign aid and we cannot ignore the fact that these decisions may reduce the amount of foreign aid that comes into the nation. The Obama Administration had allocated 106.6 million USD for Nepal for this year. However, with the Trump administration soon to be in place, Nepal should know better than to rely on the aid Obama agreed to provide Nepal. The question that Nepal needs to ask itself and find a solution to is how the country is going to move forward in case foreign aid entering the country reduces significantly.

There are obviously many solutions that have been offered – the country should invest in trade, increase its capital expenditure, attract foreign investors, improve agriculture production, so on and so forth. We should not forget that Nepal has been successfully or unsuccessfully ‘trying’ to do all these for the past many years. While we are hopeful that Nepal may significantly improve in all these areas, we have no guarantee of it happening any time soon.  The actual question that Nepal should be asking itself and that may take a little more effort to find an answer to is slightly different than what was asked before. What can Nepal do and achieve with its limited resources and within a relatively short period to reduce its dependence on aid?

The first step that the Nepali government needs to take is to earmark the foreign aid that the country currently has for technological development. The country must be sitting on some unspent foreign aid and the sooner it utilizes that to develop or import technology to assist Nepal’s agricultural and industrial sector, the better. We all know that a lot of money enters the nation; however, the citizens of Nepal are truly denied any transparency on the foreign aid budget and its transactions. A mechanism needs to be established to earmark aid for technological development and ensure that it is used for that particular purpose. Importing or emulating technological advancements of developed nations are relatively cheap for developing countries today and Nepal should focus on taking advantage of the opportunity and using the resources available efficiently. Nepal is perfectly capable of doing so and it does not take any additional investment.

Another priority should be keeping the increasing inflation in check. The price hike that Nepal witnessed during and immediately post the fuel crisis of 2015 has not decreased. This has made life difficult for people all over the nation, especially small business owners. It is difficult for small businesses to contribute to the economy if their margin of profit decreases due to high transaction costs. Such high transaction costs are likely to discourage not only small business owners and entrepreneurs, but also multi-national and foreign companies from investing into the nation. Inflation, especially in prices of food and rent, can be checked using less resources and time. For example, standard prices should be maintained for particular food items. Nepalese people should also be aware of how much they are paying and for what and ensure that they do not pay higher than the set amount, which people these days are likely to do to maintain a certain living standard.

It has to be understood that foreign aid is precarious in nature and highly dependent on the administration that rules a powerful nation. It is not that aid will immediately cease to enter the nation; but it might gradually decrease and we have witnessed two major events to warn us. Thus, precaution and careful utilization is highly necessary. 

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