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expenditure has been largely relying on the ODA, that too on grants. But,
one has to take into account the bi� er reality of rela� ve squeeze in the size
and composi� on of the development expenditure itself. In such situa� on,
one expects a sharp increase in the level of ODA, so that it can at least
compensate for the loss in the revenue surplus. Unfortunately, it did not
happen. It is implicitly sugges� ve of the fact that donors are much more
incrementalist and bureaucra� c than the Government of Nepal (GoN). On
the part of the GoN too, it should have stepped up its eff orts in rapidly
securing the disbursement of the aid already commi� ed by the donors.
But the en� re GoN machinery got bogged down in coping with and aba� ng
the confl ict. People’s need and expecta� on, in the current juncture, calls
for signifi cantly increasing the size of the development expenditure from
current one-third to two-third. This is where the government of Nepal and
its development partners need to co-work as early as possible.
Foreign Aid and the External Economy
This sec� on examines the rela� ve importance of foreign aid in comparison
to Nepal’s total amount of foreign exchange earnings, par� cularly with
respect to merchandise exports and remi� ances. It also examines the size of
external debt stock in rela� on to the total foreign exchange earnings. Finally,
this sec� on also looks into the debt servicing burden: repayment of principal
and interest on foreign loans in comparison to the total foreign exchange
earnings and its principal components; the exports, remi� ances, and aid
infl ows.
In the P era, ODA was the single largest source of foreign exchange
receipts in Nepal. It was followed by merchandise exports, while remi� ance
was nominal. There was a signifi cant turnaround in the PD years, when
remi� ance exceeded all the other sources of foreign exchange earnings. It
was followed by exports, while foreign aid infl ows were relegated to the third
place. In the LIC years, exports topped the list of foreign exchange earnings
which was followed by aid and then by remi� ances. In the following two
phases of HIC and PT, remi� ances dominate all other sources of foreign
exchange earnings followed by exports and foreign aid.
Changing paradigms of aid eff ec� veness in Nepal 7