book1

A look at Table 1.5 and 1.6 suggests that the growth rate is a shadow
or a mirror image of the poli� cal cycle. When polity is stable, the growth
rate averages fi ve percent; when confl ict ensues and turns violent, it falls
to three percent, and when there is a lull in the confl ict, it again goes up
to four percent (panel D). As expected, when non-agricultural sectors gain
prominence, the overall growth rate swings with the growth rate of this
sector. Of the fi ve observa� ons in the table, it is only once the agricultural
growth rate exceeds the non-agricultural growth. In HIC, agriculture grows
by 3.3 percent and non-agriculture by 2.9 percent. Yet, the 3.1 percent
GDP growth rate is the lowest in the series. This is because a higher growth
rate in the sector with a 36.7 percent of the aggregate produc� on weight
cannot compensate for a lower growth in the sector with a much higher 63.3
percent produc� on weight in the GDP.
Let us now briefl y refl ect on the composi� on of the total budget split
between agriculture and non-agriculture. A look at panel B of table 1.6
demonstrates that agriculture is being consistently marginalized. During
P era, it received over 13 percent of the total budget. It dropped to 10.5
percent in PD, 8.9 percent in LIC, 6.3 percent in HIC and further down to
6.2 percent in PT. Except for PD phase, the same trend is evident with aid
composi� on (panel C). Nevertheless, as a share of the total, the aid share to
the agriculture has always remained higher than the government’s budget
share to the agriculture sector. With the food defi cit widening each year, and
this spilling over into the defi cit in interna� onal trade, both the government
and donors as well as the private sectors should come forward aggressively
in the development of the agriculture sector. To address malnutri� on, rural
poverty and widening socio-economic inequality too, agriculture deserves
much more than what it is ge� ng so far. Or else, neglect of agriculture and
rural Nepal will again sow the seed of future confl icts in the country.
As illustrated by Table 1.6 Nepal’s debt profi le is remarkably healthy.
Total debt stock rose from 49.8 percent of GDP in P to 66.6 percent in the PD
era. From then on, it is steadily declining as a percent of GDP. It declined to
64.3 percent in LIC, 60.5 percent in HIC and further down to 43.9 percent in
the PT. One interes� ng observa� on to note here is that in phase P total debt
stock exceeded NAGDP by a small margin. It exceeded by a wider margin
in the PD. Such margin con� nued to narrow down in LIC and HIC. In the
PT phase, total debt stock amounted to only two-third of NAGDP. Of the
total debt stock, external debt has always remained below NAGDP. Of the
total debt stock, external debt comprised 74.4 percent in P, 79.1percent in
PD, and 80.1 percent in LIC. It again dropped to 73.1 percent in HIC and to
67.0 percent in PT. This means debt accumula� on grew at a pace lower than
the growth rate in GDP. Another factor behind falling external debt ra� o is
a falling share of loan in the total aid disbursements. Because of poli� cal
expediency, Nepal for long con� nued to suff er from an underemployment
equilibrium trap. Given the abundance of natural and human resources
endowment, Nepal’s growth performance has always remained far below
its poten� al. Once Nepal reaches the trajectory of its poten� al output, it
Changing paradigms of aid eff ec� veness in Nepal 15