The Changing Context of Aid

Post-WWII, the Marshall Plan marked the beginning of modern aid, where the US aimed to rebuild Europe and contain communism, establishing aid as a vital foreign policy tool for diplomacy and development. However, China’s ascension as a global power is reshaping aid dynamics, prompting countries to adjust to a new era of Great Power rivalry. The US grapples with coexisting with China, which challenges its longstanding dominance and seeks to assert its interests globally. China utilizes aid similarly to Western nations but also diverges from established principles, infusing it with a distinctly Chinese character. However, China’s expanding aid portfolio faces criticism for lack of transparency and alleged ulterior motives, as it is accused of resource exploitation and debt-trap diplomacy, raising concerns about its true intentions.

Beyond China, countries like Russia, India, and Turkey increase aid to assert influence in a shifting global order, diverging from Western aid norms and labeled as “emerging donors.” The evolving role of aid reflects a new global political order, where donor countries old and new seek to maximize their interests. This transition presents opportunities and challenges for recipient countries, such as Nepal, strategically positioned amidst donor competition.

Aid, Infrastructure, and Nepal

Nepal’s infrastructure development history traces back to the mid-twentieth century, notably marked by the rule of the Ranas. Their focus on infrastructure, particularly roads along the Terai belt, served mainly to facilitate tax collection rather than connect Kathmandu to the rest of the country, as they relied on natural fortifications against British India. The subsequent panchayat system placed a strong emphasis on infrastructure and development, driven by political ambitions to unify Nepal’s diverse population and reduce India’s influence. Significant investments were made in road construction, including the East-West highway and the Arniko highway, aimed at internal integration and countering India’s dominance. With limited resources, however, Nepal had to depend heavily on external donors for infrastructure financing. Countries like India, China, and Japan, along with Western donors and multilateral institutions, played significant roles in financing major projects, such as highways, airports, and energy infrastructure.

Today, Nepal still relies on donor support for infrastructure development, with multilateral institutions being the primary source of funds. India remains a major donor, financing projects like cross-border transmission lines, while Japan and China have also resumed their aid contributions, focusing on key infrastructure projects. The aid Nepal receives is influenced by global political dynamics, with donor countries’ political interests shaping the nature of aid and diplomacy. Nepal has historically balanced between competing political forces to garner support from major powers like the US, USSR, India, and China. However, as the global balance of power shifts, Nepal’s ability to navigate new competitions will determine its access to emerging opportunities.

About this Report

This report on aid, infrastructure, and diplomacy is part of a series of publications by the Society of Economic Journalists-Nepal (SEJON) and the Policy Entrepreneurs Inc. (PEI) that are meant to promote an informed discourse around infrastructure and diplomacy. It has been designed as reference material for those interested in the topic of infrastructure diplomacy and consists of brief descriptions, and key observations, of the various bilateral aid of key countries, namely, the United States, the United Kingdom, Japan, China, and India. Our primary target audience is the journalists that regularly report on this and through them the general public. But we are confident that this document can be of help to anyone, from policymakers to practitioners, keen about this topic.