Assessing Foreign Aid from The Perspective of Nepal’s Economic Diplomacy

Abstract

The present study has attempted to analyze the effectiveness of economic diplomacy to attract more and more foreign aid for development in hydropower and tourism sectors, from the two fast growing neighboring countries India and China. This research acknowledges that the foreign aid means the transfer of financial, social, cultural and technical assistance from the developed countries to the underdeveloped or developing countries, and it can be more effective and fruitful to Nepal by exercising economic diplomacy with India and China. This study argues that though Nepalese economy is passing through a critical phase of low level of equilibrium trap circumscribed by poverty, and stagnation over long periods along with slow economic growth rate, traditional way of diplomatic practices and internal conflicts, no commitment and implementation of settled program thus foreign aid has very high possibility to mobilize the resources. Due to lack of economic diplomacy, there is a poor utilization of resources, even though foreign aid was introduced since Rana regime. Present study discusses that Nepal is getting large amount of foreign aid from India and China, but it is not mobilizing towards top priorities sectors like hydropower and tourism, which can lead the country to the path of high growth rate and rapid reduction of poverty and unemployment. The reason behind this is nothing rather than lack of the effective and contextual economic diplomacy. This study uses qualitative as well as descriptive research methodology in which various empirical results are drawn using secondary data from various sources like Ministry of Finance, Embassy of India and China etc. This study concludes with a note that economic diplomacy can work as a tool to attract foreign aid from Indian and China towards top priority sectors that have huge potentialities. If Nepal is able to change its traditional way of economic diplomacy then the days of prosperity are not far off. Similarly, increasing trends of foreign aid from India and China to Nepal because of their competition or by their foreign policy instrument, in both ways Nepal can be benefited if Nepal government focuses on economic diplomacy through both government and nongovernment agencies.