Foreign Aid

Aid Conditionality for Reform: Effects on Country- ownership in Nepal

Donors have applied several models of conditionality for inducing policy reforms and institutional development in developing countries. This paper reviews the conditionality of policy-based lending (or structural adjustment) programs of Bretton Woods Institutions (BWIs)—the World Bank and IMF. They are the largest providers of policy- based lending for supporting member countries’ adjustment programs. The contents of the review section include: understanding conditionality; adjustment lending as a policy tool; criticism of traditional conditionality; new approaches to conditionality; and improving country-ownership. The present study examines the effects of aid conditionality on the country-ownership aspect of governance in Nepal. The survey data reveal that all the governance-related conditionalities have been positively affecting for improving the country-ownership in Nepal. It was also identified that there is no correlation between the level of the enforcement of aid-conditionality and its effects on the country-ownership in donor-funded activities.
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