A Study on Foreign Aid to Nepal With Reference to Danish AID

Abstract

This Study entitled “ A Study on Foreign Aid to Nepal :With reference to Danish Aid (1992/93–2011/12)” has been carried out in partial fulfillment for the degree of Master in Arts in Economics. The study analyzes the trend of foreign Aid and Danish Aid in Nepal ,areas of Danish assistance to Nepal,policies and commitment made by Denmark to Nepal and the overall impact of Danish aid in Nepalese economy. Secondary data have been used for the analysis. The data have been collected through annual reports, economical surveys and related publications. The data are presented in figures, tables,percentage, ratio and correlation analysis have been used to calculate facts under study. Trend lines and diagrams are also used to present the situation. During the period of 1992/93-2011/12, the amount of total foreign aid received by Nepal is Rs.4763369.9 million, out of which Rs. 287932.5 million (60.4%) is of grant and Rs.18446.4 million (39.55%) is of Loan. In the initial period, most of the aid was in the form of loan but later on the share of grant has been increasing. Similarly, the trend of bilateral and multilateral aid seems to be fluctuated in the beginning of the study period. But in total, bilateral and multilateral aid amount to Rs. 195374.8 million and Rs.281004.9 million which comprises 40.1% and 58.98% respectively. In the beginning period, sector like transportation, power, and communication had the biggest share of aid and the industry and commerce had the lowest share of the aid but later on the amount of aid to social service increased and became the most recipient sector. During the review period, social service received Rs. 233722.01 million (50.6%), transportation, power and transportation received Rs. 160378.4 million (34.77%), agriculture and irrigation received Rs.62681.9 million (13.5%) and industry and commerce received Rs.7992.8 million (1.9%) of total aid to Nepal. Foreign aid disbursement is less than that of aid commitment by more than half in which aid disbursement is Rs.476379.5 million and aid commitment is Rs. 799183.2 million. During the review period Denmark has provided Rs. 54349.18 million as aid which covers 27.81% as share of Danish aid to bilateral aid and 18.87% as share of Danish aid to foreign grant. The percentage of Danish aid to foreign aid is 11.40% which is about one eight of total foreign aid. Danish aid has highly concentrated in Education, Local Development,Road/Transportation, Agriculture, Forestry and Irrigation, Health, Economic and Financial reform which is 20.14%, 14.70%, 10.91%, 9.79 7.87%, and 7.56% respectively. The analysis shows that the correlation coefficient is o.45, which means there is positive relationship between GDP and Danish aid inflow. The variation in Danish aid has significant influence on GDP variable in the Nepalese Economy.