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demands capacity building in the government on project iden� fi ca� on and
priori� za� on, cost es� ma� on and speedy implementa� on.
Foreign Aid and the Na� onal Economy
This sec� on refl ects on the structural evolu� on of the Nepali economy
over the various poli� cal phases. While doing so, it will also look into the
sectoral growth pa� erns and trends. Given the dominance of agriculture in
employment and the na� onal output, it will make a compara� ve assessment
of the budget outlays made on agriculture vis-à-vis non-agricultural sectors.
Similar comparison will be made of total aid disbursement on agriculture
and non-agricultural sectors. Finally, as the theme of the paper is foreign aid,
it will compare the stock of domes� c and foreign loan and also the annual
fl ows of ODA and its component with the GDP.
There has been a sharp decline in the share of agriculture in the aggregate
GDP over the years. It declined from nearly half in the last fi ve years of the P
era to nearly 42 percent in the PD era. It dropped slightly to two-fi � h in the
LIC years. It further dropped to 36.7 percent in HIC and to 34.2 percent in the
PT years. A close look of table 3.1 reveals a clear cut pa� ern of a sharper drop
from P to PD and from LIC to HIC. Let us fi rst look into high drop years. From
P to PD marks a regime shi� . De-licenseing, decontrol, deregula� on and
priva� za� on of economic ac� vi� es a� er the restora� on of the mul� -party
democracy in the early 1990s enhanced the spectrum of private investment
par� cularly in non-agricultural ac� vi� es. Rela� vely larger gains in NAGDP
occur in PD and HIC. When the confl ict turned violent, agriculture sector bore
the full brunt of it. First, the well-to-do rural households were threatened
with confi sca� on of their property, extor� on, kidnapping and even murder.
They fl ed to safety from confl ict-torn villages. This had disastrous impact not
only on agriculture, but the en� re rural economy. Second, both the rebel
and the government launched recruitment drive in their respec� ve security
forces. This squeezed the supply of farm workers. Third, the young boys and
girls from poor rural households found new employment opportuni� es in
the oil-rich gulf countries and Malaysia. This further squeezed the supply of
farm labour. Fourth, right from the restora� on of the mul� -party democracy,
agriculture and rural sector completely lost the patronage and support from
the government.
Thus, what emerges as conclusion is the fact that a sharp or a mild drop
in the output share of agriculture is a direct func� on of the extent of shock.
The massive the shock the larger the drop, and the milder the shock milder
the drop! This explains a faster pace of non-agriculturiza� on in PD and HIC,
and a slower pace in LIC and PT.
Changing paradigms of aid eff ec� veness in Nepal 11