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12 CHAPTER 3 Review of Key Expenditure Patterns


The objective of this section is to provide a descriptive account of the trends and geographic incidence of various components of government expendi- tures in the period 1999–2002. This is primarily to allow us to discern broad trends and also to assist us in interpreting impact estimates made later in the monograph.


Key Expenditure Categories


The top 20 expenditure categories over 1999–2003 (Table 3.1) reveal the policy priorities of the Government of Nepal. Education ranked the high- est in government priority and was allocated 15.21 percent of the total expenditure. If loan payments are disaggregated into internal and external debts, they are seen to have been the second and third priorities of public expenditures, respectively. In the aggregate, loan payments were the single largest budgetary obligation, representing more than 16 percent of govern- ment expenditure over the period. Spending on debt service was four times as great as the expenditure on irrigation. Of the public expenditures that we consider in our analysis, road transportation ranked highest, at 22.95 billion rupees, or 5.74 percent of expenditure between 1999 and 2003. Irrigation and agriculture were the 11th- and 13th-ranked priorities, respectively, rep- resenting 3.82 percent and 2.85 percent of the allocated expenditure. Figure 3.1 presents the average population by district over the period 1999–2003, which provides an important benchmark for evaluating public investment across districts. We disaggregate spending in per capita terms later. The inequality among the priorities of public expenditures is striking. If the defense and police sectors are aggregated into an overarching public secu- rity category, loan payments, public security, education, and miscellaneous spending are seen to have accounted for over 50 percent of the government’s spending. These expenditures were higher in part due to Nepal’s protracted civil war. The large share of expenditures on public security also implies a new opportunity for Nepal: with peace in place, the government may be able to cut the defense spending and use it for more productive purposes. Figure 3.2 shows the distribution of cumulative total public expenditure for the period 1999–2003 by district in Nepal in per capita terms. Allocation of public expenditures across districts in Nepal was by no means uniform. Per capita cumulative expenditures during 1999–2003 were actually the lowest in the Terai districts, which are thickly populated, but especially high in the western hill and mountain districts, where population density is the thinnest. Kathmandu District was the recipient of the most expenditure in per capita terms. However, this expenditure has been somewhat overestimated. This is because in a number of cases allocations ultimately destined for other


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