book1

Figure 1: Sectoral Alloca� on of Foreign Aid (1990-2007)
Rs. In million
70
60
50
40
30
20
10
0
1990\91
1991\92
1992\93
1993\94
1994\95
1995\96
1996\97
1997\98
1998\99
1999\00
2000\01
2001\02
2002\03
2003\04
2004\05
2005\06
2006\07
2007\08
Source: Calculated from Economic Survey 2003/04 and 2008/09, MoF
Agriculture, Irriga� on and
Forestry Sector
Transport, power and
communica� on
Industry and commerce sector
Social services sector
Other Sector
During early 90s, Nepal received sizeable foreign aid in transport, power
and communica� on followed by industry and commerce; and agriculture.
A year a� er Nepal implemented the eighth fi ve year plan in 1992, the
agriculture sector received highest share of foreign aid. However, this trend
discon� nued following years and again, transport, power and communica� on
sector con� nued to receive highest share of foreign aid fl ow in Nepal. This
shows a divergence between Na� onal plan’s priority and actual areas of
funding. Nepal con� nued to receive a larger share, though declining, on
transport, power and communica� on up to FY 2003/04. Trend reveals that
social sector has been fi nanced with its increasing share over the year right
from early 1990s up � ll now. A� er 2003/04, social sector has been receiving
a highest share of foreign aid in Nepal. The industry and commerce sector
has been receiving a nominal share of foreign aid in recent years.
While Nepal had diff erent policy priori� es at diff erent Na� onal Plans,
there are no one-to-one correspondence between policy priori� es and
areas with higher investment. This is not only an isolated case of na� onal
expenditure on less priori� zed areas through domes� c source of fi nancing
expenditure; rather the same goes with foreign aid. For example, despite
major poverty thrust given during the Eighth and Ninth Plan period, the
external resource alloca� on as outlined above does not demonstrate strong
linkage between focused priority and resource alloca� on. The total resource
fl ow during the period of 1990 to 1998 in the basic social services sectors,
which includes primary schooling, drinking water and sanita� on, primary
health, and family planning, has increased on an average annual rate of 11.4
percent.
However, the total volume of aid is found to be inadequate to address
the poverty reduc� on objec� ve. During the same period, an average annual
rate of increase in the educa� on sector remained 5.3 percent. In the year
Changing paradigms of aid eff ec� veness in Nepal 43