Foreign assistance in Nepal has involved multiple donors, billions of rupees and numerous projects — all funding remarkable portions of all Five Year Plans.
The year 1951 was remarkable for two events that dramatically altered Nepal´s political and economic directions. The first, of course, was the end of the century-old Rana regime, stirring political consciousness that swept hill and Terai. The second was that foreign aid made its debut in January of that year, about a month prior to the Fagun Saat democracy proclamations. The United States Government´s gift of NRs 22,000, provided under President Harry Truman´s Point Four programme, was the first droplet of foreign aid, which was soon followed by grants and technical assistance programmes from India and others. For a country that had been heretofore rigidly isolationist, Nepal decided that it liked the taste of aid, and opened the faucet wider. For whatever good it might have done, foreign aid had since come to stay, in a flurry of donor dollars, marks, yen and pounds. According to an unofficial estimate made by a member of the National Planning Commission (NPC), the total aid (including loans) that Nepal has gathered since 1951 to 1990 from both foreign governments and international banks, stands at a stunning current-price figure of around NRs 85,000 million.
What does the Nepali government do with foreign aid? The most visible way it utilises the contributions is, of course, by having them pay for all or most of increasingly ambitious Five Year Plans. Every paisa of nearly NRs 383 million spent in the First Five Year Plan (1956-61) came from the United States, India, China and the former Soviet Union. Though such 100 per cent foreign financing was true only in the case of the First Plan, aid has nevertheless paid for a large portion of subsequent Plans. The share of aid in Plan expenditures declined to an all-time low of 45 per cent towards the end of the Fourth Plan (1970-75), but rose up to a high 50 percentage of the total expense through the Fifth, Sixth and Seventh Plan periods.(See table)
The volume of total aid per year, however, continued to increase with each Plan: the gross aid mat defrayed the cost of the Seventh Plan (1985-90) was about 75 times larger than the amount received during the First Plan, The volume of foreign aid grew at the rate of 21.6 per cent per year between 1975 and 1990, compared to its slower1 annual growth of 16.2 per cent during 1960-75. The fast-paced expansion of the role of foreign aid in the Nepali economy is quite alarming in the face of the relatively slow annual growth of Nepal´s Gross Domestic Product (GDP). An analysis of the GDP and aid data from 1975 through 1990 shows an increase in the proportion of aid in relation to GDP. To put in numbers, in every 100 rupees of GDP in 1975-76, about three rupees of it came from outside. By 1989-90, that outside share had risen, to a little over seven rupees. The pace of aid influx continues to rise faster than Nepal´s general economic growth.