book1

divided by fi ve. It is done because agreement on foreign aid, its disbursement
to the government, the government’s spending of the aid money and fi nal
reimbursement by the donor has been a lengthy bureaucra� c process. The
averaging over the period is expected to normalize the impact of delay
on agreement, commitment, disbursement, spending, and the outcomes.
The paper doesn’t talk monotonously on ODA alone. As ODA, from both
the donors’ and recipient’s perspec� ves, is geared to improving the socioeconomic
life of the country and its ci� zens; the paper in the process related
aid with various macroeconomic variables such as total expenditures and
its components, revenue, domes� c borrowings, sources of foreign exchange
earnings, debt burden, and its servicing and structural evolu� on of the
Nepali economy over � me. Though drawing on the impact of external aid
on poverty and equity is of interest and profound importance, this paper
stops short of doing this due to the scope, space and � me constraints. It is
empirically evident that in Nepal foreign aid is shrinking in rela� ve importance
compared with the size of the total budget, domes� c revenue mobiliza� on,
various sources of foreign exchange earnings and the GDP. The paper begins
with the importance of foreign aid in the na� onal budget followed by its role
in the external sectors of the economy. The third sec� on will briefl y touch
upon the rela� ve role played by the foreign aid in the na� onal economy.
Foreign Aid in the Na� onal Budget
The table below makes a compara� ve assessment of the evolu� on of
expenditure composi� on over � me and fi nancing structure of the budget
in terms of revenue, foreign aid (decomposed into loans and grants), and
domes� c borrowings. Here, foreign aid refers to the Offi cial Development
Assistance (ODA) channeled through the na� onal budget. It refrains from
looking into the source (mul� -lateral, bilateral) and sectoral disbursement
and alloca� ons (agriculture, industry and physical, and social infrastructure
and so on).
2
Changing paradigms of aid eff ec� veness in Nepal