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Wednesday, 12 December, 2001, 15:32 GMT
Fighting hurts Nepal economy
Soldiers Kathmandu
Operations against the rebels are proving expensive
Nepal's finance minister says his country is being forced to divert funds from anti-poverty projects into meeting the cost of fighting the guerrilla war.

The impoverished Himalayan country has switched about 4bn Nepali rupees (36.5; $52.3m) of development funds towards the military, said Finance Minister Ram Sharan Mahat.

He said the civil war will increase the budget deficit and reduce economic growth.

Nepal, which declared a state of emergency three weeks ago, is seeking extra aid from foreign donors.

Tourism and textiles

The authorities' biggest fear is that Maoist rebels will increase their appeal in rural areas, where 80% of Nepali's live, if village development projects are scrapped, correspondents say.

The upsurge in fighting has disrupted tourism which is a key source of foreign exchange after textiles.

The 11 September attacks on the United States have hurt garment exports, which are now likely to grow this year by less than last year, when expansion was 14.9%.

"All this will definetely force the economic growth rate down from last year's level of 6%," said Mr Mahat.

Calculators out

Nepal has raised spending on the army and the police by 68% in the current fiscal year to July 2002, allocating 14.2bn Nepali rupees compared to 8.4bn last time.

India, the UK, the United States and others have all responded positively to appeals for extra aid, and the government is now doing its sums.

"We are doing our homework for the exact amounts but we have already sounded out our requirement for support to donors," the finance minister told Reuters news agency.

The BBC's Daniel Lak
"A flood of new money for development is needed"
See also:

12 Dec 01 | South Asia
Nepal gets military help from India
11 Dec 01 | South Asia
Nepal appeals for outside aid
29 Nov 01 | South Asia
Nepal rebels attack Coke plant
25 Nov 01 | South Asia
Nepal's Maoist insurgency reignites
23 Nov 01 | South Asia
Analysis: Maoist threat to Nepal peace
26 Nov 01 | South Asia
Nepal emergency declared
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