External Finance and the Role of Multilateral Financial Institutions in South Asia: Changing Patterns, Prospects and Challenges

Abstract

The paper analyzes the changing pattern and future prospects of external finance to South Asia and reviews the role of external finance, particularly that of multilateral financial institutions, in the economic development in South Asia. South Asian countries have relied heavily on external finance as their domestic saving rates have been much lower than their investment rates. External financial flows to South Asian countries generalLy have been official development assistance (ODA). Although ODA still accounts for the majority of financial flows to South Asia, its share in total net flows declined sharply. The terms and conditions of external finance to South Asia worsened as the share of ODA declined and that of private flows increased. At the same time, the external debt situation in these countries deteriorated significantly during the 1980s. South Asian countries will need an increasing amount of concessional aid to meet their ever rising development challenges: poverty alleviation, human resource development, environmental protection, private sector development, and structural adjustment. The less promising prospe.cts for the global supply of external finance justify the need for ari increase in the role of multilateral financial institutions.