⏱ 4 min read
Foreign aid, remittance from Nepalis working abroad and foreign direct investment (FDI) are three major sources of outside money for Nepal’s economy. Lok Sewa asks when Nepal first received aid, who the major partners are, how big remittance is, and which laws and bodies manage foreign employment and investment. This note covers these points.
1. Foreign aid
| Term | Meaning |
|---|---|
| Grant | Aid that does not have to be repaid |
| Loan | Aid that must be repaid with interest, usually on soft terms |
| Bilateral aid | From one country to another (e.g. Japan, India, China, UK, USA) |
| Multilateral aid | From international bodies (e.g. World Bank, Asian Development Bank, UN agencies) |
| Technical assistance | Experts, training and knowledge rather than money |
- Nepal received its first foreign aid from the USA in 1951 under the Point Four Program.
- The World Bank and the Asian Development Bank (ADB) are among the largest development partners.
- Aid is guided by the International Development Cooperation Policy 2076 and coordinated by the Ministry of Finance.
- The Millennium Challenge Corporation (MCC) Nepal Compact, a US grant of about USD 500 million for electricity transmission and road maintenance, was ratified by Nepal’s Parliament in 2078 BS (2022).
- Problems with aid: low spending capacity, conditions attached, and dependence.
2. Remittance and foreign employment
- Remittance is money sent home by Nepalis working abroad.
- It equals roughly a quarter of Nepal’s GDP, one of the highest ratios in the world.
- Main destinations: Malaysia, Qatar, Saudi Arabia, UAE and Kuwait; also South Korea (through the Employment Permit System) and Japan.
- Foreign employment is regulated by the Foreign Employment Act 2064, the Department of Foreign Employment and the Foreign Employment Board, which runs a welfare fund for workers.
- Workers need a labour permit before going abroad.
- Benefits: reduced poverty, foreign exchange, better education and health spending.
- Costs: loss of young workers, family separation, dependence on remittance for consumption and imports.
3. Foreign direct investment (FDI)
- FDI is long-term investment by foreigners in businesses in Nepal, usually with ownership and management control.
- It is governed by the Foreign Investment and Technology Transfer Act (FITTA) 2075.
- The Department of Industry approves smaller FDI; the Investment Board Nepal (IBN), set up in 2068 BS and chaired by the Prime Minister, handles large projects, including large hydropower projects.
- Major sources of FDI include China, India and other Asian countries; main sectors are energy, tourism, manufacturing and services.
- A one-stop service centre helps foreign investors get approvals in one place.
4. Facts at a glance
| Item | Fact |
|---|---|
| First foreign aid | From the USA in 1951 under the Point Four Program |
| Policy | International Development Cooperation Policy |
| Coordinating body | Ministry of Finance (International Economic Cooperation Coordination Division) |
| Remittance | About a quarter of GDP |
| Foreign employment law | Foreign Employment Act, 2064 |
| FDI law | Foreign Investment and Technology Transfer Act (FITTA), 2075 |
| Large projects approved by | Investment Board Nepal, chaired by the Prime Minister |
| MCC Compact | USD 500 million grant, ratified in 2078 BS |
5. Benefits and risks
| Source | Benefits | Risks |
|---|---|---|
| Foreign aid | Funds infrastructure, health and education | Debt burden, donor conditions, weak use of funds |
| Remittance | Reduces poverty, supports foreign exchange reserves | Brain drain, labour shortages, spending on imports |
| FDI | Brings capital, technology and jobs | Profit repatriation, policy uncertainty discourages investors |
6. How this topic is asked in the exam
Objective questions ask the first source of foreign aid, the types of aid, the remittance share of GDP and the laws on foreign employment and investment. Subjective questions ask about the role and problems of foreign aid or remittance in Nepal. Use the benefits-and-risks table and end with measures such as using remittance for investment.
📌 Key points to remember
- Grants need not be repaid; loans must be repaid.
- Bilateral aid: country to country; multilateral aid: from bodies like the World Bank and ADB.
- Nepal’s first foreign aid came from the USA in 1951 (Point Four Program).
- International Development Cooperation Policy 2076; aid coordinated by the Ministry of Finance.
- MCC Nepal Compact: about USD 500 million grant, ratified in 2078 BS (2022).
- Remittance is roughly a quarter of GDP; Foreign Employment Act 2064.
- FDI is governed by FITTA 2075.
- Investment Board Nepal (2068 BS) is chaired by the Prime Minister.
📝 Quiz
Test yourself: Foreign Aid, Remittance and Foreign Investment in Nepal
20 questions check what you read about Foreign aid, Remittance and foreign employment and Foreign direct investment (FDI).
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