A recent U.N. commissioned report ranks Nepal sixth of Least Developing Countries (LDCs) for illicit capital outflows. The report, titled “Illicit Financial Flows from the Least Developed Countries: 1990-2008”, states that US $9.1 billion (NRs 657.93 billion) was shipped out of the country illegally during that 10 year period. Other highlights of the report, courtesy of The Kathmandu Post, are:

– Trade and commercial mis-pricing accounts for 65-70 percent of the capital flight;
– 20-30 percent is from corruption or kickbacks;
– For every dollar of official development assistance (ODA), 1.1 dollars leaves Nepal – i.e. 1:1.1 ratio of ODA to capital flight;
– The US $9.1 billion in capital flight during the 1998-2008 period amounts to 8.07 percent of Nepal’s GDP for that period.

Obvious questions on Nepali international development arise: How much of that siphoned money was intended for development aid? Has international aid itself encouraged some of this financial (mis)behaviour? How effective has aid been, or can be, considering the corruption? Or is it just part of the process, and one must take the bad with the good?

Now working with Nepali NGOs, I can see some evidence that supports the conclusions of this study. Many NGOs are excellent, delivering quality projects, are accountable and transparent, and provide genuine hope to those they help. Others, however, are inefficient, poorly managed, sometimes corrupt, and their chase for international grants is job number one. It appears to be a product of local capacities, and quality and respectable human capital running the operations. The promising shining lights are encouraging and making substantial differences on the ground, but they are not the rule.

So does aid need to be reconsidered? The works of Dambisa Moyo and William Easterly say it does. Development has not materialized with so much being spent, and it has mostly produced corruption and wasted resources. Where aid has produced local capacity and leadership growth, some successes have been achieved. Die hard international aid supporters like Stephen Lewis will never make such an outright admission, and state that aid, however imperfect, is necessary and saves countless lives, no matter the side effects and poor record.

To see more on this international development debate, see Dambisa Moyo and Stephen Lewis’ exchange in the Munk Debate in Toronto. For what it’s worth, the crowd voted in favour of Lewis’ position.

What are your thoughts?