The end of aid

US President Donald Trump’s decision to dissolve USAID and effectively cut American assistance to countries across the world, including Nepal, has forced many aid-supported programmes and projects to shut down, directly impacting Nepalis across the country who benefit from aid-funded services.

USAID-funded projects have provided direct budgetary support to projects in key sectors including health, education, agriculture, infrastructure, economic growth, humanitarian aid and women and children empowerment. 

The aid cuts have meant that people directly or indirectly employed in USAID-funded projects have found themselves without jobs, while its impact has reverberated across those that have indirectly benefitted from spillovers of American aid, such as the hospitality business operators, real estate owners, transport providers, and airlines. 

The abrupt shutdown of the largest bilateral aid agency in the world has significant impact and far-reaching consequences.

Historically, foreign aid has been the focus of intensive public debate both globally and in Nepal. Critics in donor countries—particularly those from the political right—view it as antithetical to their national interests and a waste of taxpayer resources. 

Meanwhile, those in the ideological left in recipient countries view it as help that comes with strings attached, a tool of neo-colonialism. Many are of the opinion that such assistance enriches people associated with the aid system rather than intended beneficiaries. So much so that Nepalis cynically refer to the aid-NGO complex as ‘डलरको खेती’ ( dollar farming).

Nepal’s leadership across the political spectrum have not pulled any punches in their criticism of aid institutions— the Maoists have called them ‘agencies of imperialism’, while nationalist discourses from the political right draw connections between foreign aid and Nepal’s sovereignty. 

Aid is, of course, essentially political—not just in terms of how it has been instrumentalised by donors, but also how it has been appropriated and used by the beneficiaries— governments, employees, consultants, NGOs, the private sector, and communities. However, viewing aid solely from its imputed political intentions is as naïve as it is counterproductive.

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While there is no denying that foreign aid is an instrument of soft power that comes with conditions, it has facilitated access to public services, generated direct and indirect employment and livelihood opportunities and empowered marginalised communities that have fallen through the cracks of the establishment.

Indeed, foreign aid has contributed significantly to the Nepal’s rapid socio-economic change over the last seven decades, such that the country has arguably become accustomed to and dependent on international funding. USAID was by no means the only source of grants and loans that provided Nepal with resources for numerous government and non-government programmes, projects and personnel.

But while the volume of aid has varied historically, Nepal had so far been immune to such ‘aid-shocks’ that compelled the government and people to imagine and work in a context with little or no international assistance.  

And it is not just the US that is pulling up stakes, other donor countries are similarly reconsidering their positions on bilateral aid. British Prime Minister Keir Starmer has announced a reduction in foreign aid from 0.5% of its GDP to 0.3%—primarily to accommodate an increase in the country’s defence spending.

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More donor countries will follow suit as their taxpayers—particularly those on the populist right—demand their government increasing spending on their own domestic public services, the military, and the private sector. The shrinking pot will directly impact multilateral agencies that rely heavily on funding provided by western donors to support their programmes across the world.

Some see the western world’s retreat from foreign assistance as an opportunity for emerging powers like China to fill the vacuum and expand their sphere of influence regionally and beyond. Nepal has been receiving aid and development assistance from Asian regional and global powers like India, China and Japan over the past decades. 

However, the nature, priorities, and the modality of aid from Asian powers has been notably different to that of western donors. It is therefore unlikely that China or India will offer aid to Nepal using western liberal frameworks, or be able to displace Western donors completely.

If nations in the region are successful in completely replacing western donors in Nepal, this will denigrate possibilities for the country to either bargain better and ‘forum-shop’ for aid that aligns with its national interests, or diversify sources of aid. 

As such, it might be time for Nepal to reevaluate its reliance on foreign aid, not just from the US, but from global and regional powers. So, the ‘end of aid’— if it comes to that— need not be end of development in Nepal.

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Data from the government of Nepal shows that foreign aid’s relative share in the national budget has been declining over the decades. In comparison, Nepal earns overs $30 million in remittances a day. Much of Nepal’s development is directly supported by migrant remittances, which remains under-acknowledged. 

Decreasing its reliance on foreign aid could mean that Nepal’s leadership is obligated to rethink its development priorities.  The government could increase its fiscal capacity to fund development programmes that are critical to its development objectives, demonstrably cost-effective and meet the real needs of communities. 

Additionally, there could be increased efforts to raise revenue from wealth and income taxes, attract foreign direct investment, and cut back on ‘white elephant’ projects—symbolic gestures designed to feed the egos of political leadership but serving little purpose or public good. 

All of this would ultimately be to the benefit of the Nepali people, reducing waste and corruption, encouraging a more responsible approach to government expenditure, and promoting a more careful husbandry of the country's own resources. 

To be sure, this change will not happen immediately.  It will be a slow and deliberative process, one that is likely to reset the development contract between Nepali state and citizens. 

Some have likened the flow of aid to the rush of heroin— something that provides a high and a momentary sense of extraordinary well-being but it is addictive and damaging. And like any debilitating dependency— being made to quit its reliance on foreign funding cold turkey will be challenging for Nepal. 

As things stand, it remains to be seen if as a result of President Trump’s cost-cutting rampage, Nepal might emerge as a leaner but fitter state after recovering from a painful period of withdrawal from its reliance on foreign aid. 

Jeevan R Sharma is a Professor of South Asia and International Development at the University of Edinburgh, and has authored publications on migration, development and social change in Nepal. David Seddon is Director of Critical Faculty, and is author and co-author of various publications on Nepal.