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egular spending once and forever, the revenue surplus would have dwarfed
foreign aid in suppor� ng development expenditures. However, Nepal should
thank its donors for eleva� ng the size of grants vis a vis loans, par� cularly
since the HIC years. There is also a strong ground for displeasure as the
donors failed to compensate for the confl ict-induced fall in revenue surplus.
Another aspect of aid is the BOP support. Here too, the role of foreign
aid has fallen from very signifi cant level to least important level over � me.
Foreign aid’s share in annual foreign exchange earnings has fallen from half
during P era to consistently down to 13 percent in the current transi� onal
phase. It was solely due to resurgent remi� ance infl ow that pushed down
the rela� ve contribu� on of exports and aid towards the bo� om. But the
remi� ance euphoria is causing policy complacency, which may put the
economy to the fate of the Dutch disease. An emerging worry for Nepal’s
economic managers is a consistent under-performance of exports vis-àvis
imports in the recent years. Nonetheless, as of today, Nepal’s external
posi� on remains very healthy whether viewed from the size of total foreign
exchange earnings or from the viewpoint of debt servicing burden.
From the viewpoint of na� onal economy, the Nepali economy has
undergone a signifi cant structural shi� . The output share of agriculture,
which was nearly half in P has gone down to 34.2 percent in PT. This means
an average rate of decline of over 0.6 percentage points every year. The
rapid drop occurred during the � me of intense poli� cal shocks of far greater
magnitude: from P to PD and from LIC to HIC. Nepal’s debt profi le, whether
external or domes� c, remains very healthy which leaves enormous scope for
further debt absorp� on capacity.
Both the government and donors, the government more so, has
completely ignored agriculture since the restora� on of the mul� party
democracy. This could be cited as one of the factors behind the erup� on of
violent confl ict in the late 1990s that lasted un� l the fi rst sixth year of the new
millennium. Nepal is s� ll recovering from the trauma of the confl ict. Finally,
the confl ict had tellingly adverse eff ect on the growth rate. It is because the
confl ict contributed to shi� in the deployment of resources, away from the
infrastructures such as irriga� on, roads, bridges, airports, drinking water to
police, armed forces and the armaments.
On recommenda� ons, there is a need for serious introspec� on on
domes� c factors that impede the absorp� on and deployment of commi� ed
aid resources. Why the cabinet, ministers, and civil service scramble for
alloca� on from the domes� c resources, while commi� ed external resources
remain unu� lized and no request even being made for reimbursement from
the donors? Donors also need to see how can they simplify and expedite the
release of commi� ed resources. There is a pressing and an urgent need to
understand norma� vely what should come fi rst: awareness? empowerment?
protest? or decent employment?, increased produc� vity? output, export
promo� on, and import subs� tu� on? social harmony and stability?
Beginning from the new millennium, remi� ance has pervasive infl uence
on the economy and the society. Remi� ance alone exceeds all other
Changing paradigms of aid eff ec� veness in Nepal 17