Nepal had to face a major economic setback during the decade-long insurgency. While over 15,000 people were killed, thousands of individuals and families were displaced. The government estimated the number of the displaced population to be 5,656; while UNDP claimed the number to be between 150,000 and 200,000.

Similarly, Force Nepal estimated the number of IDPs to be a whopping 400,000. Tens of thousands of girls aged 15-30 were forced to work in dance and cabin restaurants to earn their livelihoods. As many as 70,000 girls are believed to be sex workers. Nepalis were affected by the conflict irrespective of the economic status, ethnicity and social background.

The regular bandhs affected the movement of the people. In several districts, food supplies were disrupted. Since 2003, the number of people crossing the border to India also went up significantly.

It is estimated that the conflict forced 2 million people to migrate overseas for employment. Tens of thousands migrated to India.

During the conflict, the rate of economic growth plummeted to an all-time low, 1.9% during 2002-2004, as compared to that of 4.9% in the previous decade. Development activities in the VDCs and DDCs came to a halt as funds expected to be disbursed by those bodies were diverted to mitigating effects of the conflict. As many as 1,500 VDC buildings were partially or completely destroyed. Many of the rural bridges, schools, communication installations, district level government offices, police posts and private properties were damaged. DFID estimated the cost of conflict in Nepal at 8-10% of GDP, while National Peace Campaign (2004) estimates the cost of conflict to be $66.2 billion between 1996 and 2003. Economic costs of destruction in some of these areas were also estimated at $2 billion.

The royal coup of February 1, 2005 further aggravated the prospect of socio-economic

development of Nepal. The local production of goods and services recorded a low growth of 2%. There was a decline in foreign grants as well as in government development expenditure on account

of the internal conflict. Of the $1.8 billion budget in 2005/2006, 20% of the resources were diverted to the security sector. This directly affected major development programmes related to poverty-reduction, rural development, education, health and forestry. Norway during this period decided to withdraw investment of a half-billion dollar water supply project in Kathmandu. The World Bank followed suit and withdrew its 65 million investments in this project.

Of course, the present government through the budget has given indications that it is serious in building the infrastructural facilities partially or fully destroyed during the conflict. Yet, in view of the past experience, it is difficult at this stage to predict if the implementation of such projects would be effective. Even if it is supposed that the projects are properly implemented, the cost would be enormous.