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NEPAL
AND ITS RELATIONS WITH
THE WORLD BANK
A BRIEFING NOTE FOR THE
NEW WORLD BANK COUNTRY DIRECTOR
FOR NEPAL
June 2007
World Bank Kathmandu and Washington Offices
AAA ADB ADBIN AO AICP APL APP ARV AS BPC CAS CBAS CBO(s) CDM(s) CEA CFAA CIAA ClCL CMU CPAR CPN-Maoists CPN-UML CPPR CSSP DflO DNC DNF DOE DOHS DOLI DAR DRT ECD EFA EHCS EIA EPA EPR ERTA ETFC EU FAO FAP FAR(s) FCOO FI(s) FIAS FINOO(s) FM FRSP FSS FSTAP FY ODLN ODP OFTAM OHO GIS OMPCS ONI OON OPAl
OTZ
HIPC HLCIT HMON HPAI H
List of Abbreviations Analytical and Advisory Activities Asian Development Bank Agricultural Development Bank of Nepal Auditor Oeneral Avian Influenza Control Program Adaptable Program Loan Agricultural Perspective Plan Anti retroviral (lFC) Advisory Services Butwal Power Company COlmtry Assistance Strategy Capacity Building and Advisory Services Community Based Organization(s) Clean Development Mcchanism(s) Country Environmental Assessment Country Financial Accountability Assessment Commission for the Investigation of the Abuse of Authority Credit Information Center Ltd. Country Management Unit Country Procurement Assessment Review Communist Party of Nepal-Maoists Communist Party of Nepal-United Marist Leninist Country portfolio performanee review Community School Support Program UK's Department for International Development Dalit NOO Confederation DaIit NOO Federation Department of Education Department of Health Services Depart. of Local Infrastructure Develop. & Agricultural Roads Debt Recovery Tribunal Early Childhood Development Education for All Essential health care services Environmental Impact Assessment Environmental Protection Act Environmental Protection Rules Economic Reform Technical Assistance Electricity Tariff Fixation Commission European Union Food and Agriculture Organization Foreign Aid Policy Financial Administration Regulation(s) Financial Comptroller General Office FinanciaIlnstitution(s) Foreign Investment Advisory Service Financial NOO(s) Financial Management Financial Sector Restructuring Project Financial Sector Strategy Financial Sector Tcchnical Assistance Project Fiscal Year Global Distance Learning Network Gross Domestic Product Global Fund to Fight Aids, Tuberculosis and Malaria Oreen house gas Global Information System Global Mobile Personal Communication Systems Gross National Income Government of Nepal Global Program for Avian Influenza and Human Pandemic Preparedness and Response Gesellschaft fur Technische Zusammeenarheit (Gennan Aid Agency) Highly Indebted Poor Country High Level Commission for IT His Majesty's Govt. of Nepal; not used following 4/24/06 Highly Pathogenic Avian Influenza Head arters (Washin ton D.C.)
HSP lAP IBRD ICD lCSID
leT IDA IDF IFC lMAN IMF IP IPP(s) IPSAS ISN ISP(s) IT JBIC JE JTMM KFW LBFAR LIC DSA Lol LSGA (R) M&E MDG(s) MFA MFI(s) MIGA MOAC MOES MOEST MOF MOHP MOIC MOU MOU(s) MOWR MPPW MSE(s) MSM MTEF MTR NAIIPPRP
NAPN NBB NBL NCASC NCD NCD(s) NDCL NDF NEA NEA NEPAN NER NFDlN
FNIN NFIN NIC NIDC NlTC NJA NLSS NPC
Health Sector Program Indoor Air Pollution International Bank for Reconstruction & Develop. Inland Container Depot International Center for Settlement of Investment Disputes Information and Communications Technologies International Development Association Institutional Development Fund International Finance Corporation Intellectual Muslim Association of Nepal International Monetary Fund Indigenous Peoples Independent Power Producer(s) International Public Sector Accounting Standards Interim Strategy Note Internet Service Provider( s) Infonnation Technology Japan Bank for International Cooperation Japanese Encephalitis Janatanrik Terai Mukti Morcha Kreditanstalt fur Wiederaufbau (German Devlp Bank) Local Bodies (Financial Administration) Regulations Low Income Country Debt Sustainability Analysis Letter of Intent Local Self Governance Act (Regulations) Monitoring and Evaluation Millennium Development Goal(s) MuItifibre Agreement Microfmance lnstitution(s) Multilateral Investment Guarantee Agency Ministry of Agriculture and Cooperatives Ministry of Education and Sports Ministry of Environment, Science and Technology Ministry of Finance Ministry of Health and Population Ministry of Infonnation and Communications Ministry of Law, Justice and Parliamentary Affairs Memorandum(s) of Understanding Ministry of Water Resources Ministry of Physical Planning and Works Micro and Small Enterprise(s) Men having sex with men Medium Term Expenditure Review Medium Term Review National Avian Influel17A & Influenza Pandemic Preparedness and Response Plan Nepal Association of HIV +ve Persons Nepal Bangladesh Bank Nepal Bank Limited National Center for Aids and STD Control Nepali Congress Democratic Non-communicable disease(s) Nepal Doorsanchar Company Limited Nepal Development Fund Nepal Electricity Authority Nepal Electricity Authority Nepal Participatory Action Network Net enrollment rate National Foundation for the Development of Indigenous Nationalities Nepal Federation of Indigenous Nationalities Nepal Federation of Indigenous Nationalities Nepal Industrial and Commercial (Bank Ltd.) Nepal Industrial Development Corporation National IT Center National Judiciary Academy Nepal Living Standards Survey National Plannin Commission
NPL(s) NPR NRB NTA OAG ODI o ECD/DAC
PAC PAF peo PDP/F PEFA PFM PIC PIS PO(s) PRGF PRS(P) (C) PSC RAIDP RBB RCCC RMDP RPP RSRF RTI RVP
Abbreviations continued Non-Performing Loan(s) Nepalese Rupees Nepal Rasu"a Bank (Central Bank) Nepal Telecommunications Authority Office of the Auditor General Overseas Development Institute Organization for Economic Cooperation & Development! Development Cooperation Division Public Accounts Committee Poverty Alleviation Fund Public Call Office Power Development Projeet!Fund Public Expenditure and Financial Accountability Public Financial Management Public Information Center Personnel Information System Partner Organization( s) Poverty Reduction and Growth Facility Poverty Reduction Strategy (Paper) (Credit) Public Service Commission Rural Access Improvement and Decentrdlization Project Rastriya Banijya Bank Royal Commission for COmJption Control Road Maintenance and Development Project Rashtriya Prajatantra Party Rural Self Reliant Fund Rural Transport Infrastructure Re ional Vice President
RWSSP SEDF SEZ SGP SMC(s) SME(s) SPA SRN STM SW SWAps TA TI TOR(s) TSC TU UNCITRAL UNFCCC
USAID UTL VAT VDC(s) VRS VSAT WSUC WTO WTSS
Rural Water Supply and Sanitation Project SouthAsia Enterprise Development Facility Special Economie Zone Schools Grants Program School Management Committee(s) Small and Medium Enterprise(s) Seven Party Alliance Strategic Road Network Sanchar Telecom Private Limited Sex workers Sector Wide Approach(es) Technical Assistance Transparency International Terms of Reference(s) Transition Support Credit Tribhuyan University UN Commission on International Trade Law United Nations Framework Convention on Climate Change US Agency for International Development United Telecommunications Private Limited Value Added Tax Village Development Committee(s) Voluntary Retirement Schemes Very Small Aperture Terminal Water Supply and Sanitation User Committees World Trade Organization Women Technical Su ort Services
NEPAL AND ITS RELATIONS WITH THE WORLD BANK
A Briefing Note for the New World Bank Country Director, Ms. Susan Goldmark June 2007
Table of Contents
L Introduction and Summary of Key Issues .................................................................................... 1 A. Context and Essence of Development Challenges in Nepal .................................................... I B. Nature of the Nepal-World Bank Relationship ....................................................................... 2 C. Current Program and Portfolio ............................................................................................... 3 D. Current Political Situation ...................................................................................................... 4 E. Development Partners and Coordination Framework .............................................................. 5 F. Current ISN Scenarios/Program ............................................................................................. 7 G. Key Issues ........................................................................................................................... 12
II. The World Bank and Nepal ....................................................................................................... 14
III. Poverty in Nepal ....................................................................................................................... 17 A. Background ......................................................................................................................... 17 B. Drivers of the Decline in Poverty ......................................................................................... 17 C. Trends in Inequality ............................................................................................................. 18 D. Proximate Correlates of Poverty .......................................................................................... 20
IV. Inclusion ................................................................................................................................... 21 A. Background ......................................................................................................................... 21 B. Gender. ................................................................................................................................ 21 C. Janajatis ............................................................................................................................... 23 D. Dalits ................................................................................................................................... 26 E. Madheshi ............................................................................................................................. 27 F. Conclusions: Getting Beyond the Zero-sum Game ................................................................ 29
V. Macroeconomic Status and Economic Policy Issues .................................................................. 31 A. Recent Economic Developments .......................................................................................... 31 B. Economic Prospects ............................................................................................................. 32 C. Nepal's Macroeconomic Status: 1990 to 2006-A Pictoral Story ......................................... 33 D. The Bank's Support ............................................................................................................. 36
VI. Broad-Based Economic Growth ................................................................................................ 38 A. Financial Sector ................................................................................................................... 38 B. Infrastructure ....................................................................................................................... 45
i. Roads ............................................................................................................................... 45 ii. Information and Communications Technology ................................................................. 49 iii. Energy ........................................................................................................................... 52
D. Agriculture, Irrigation and Rural Development, including Avian Influenza ........................... 55 i. Agriculture, Irrigation and Rural Development ................................................................. 55 ii. Avian Influenza ............................................................................................................... 61
E. Environment ........................................................................................................................ 62 F. IFCIFIAS ............................................................................................................................. 66
VII. Social Sector Development ....................................................................................................... 69 A. Education ............................................................................................................................ 69 B. Health .................................................................................................................................. 73 C. HIV / AIDS .. , ........................................................................................................................ 75 D. Rural Water and Sanitation .................................................................................................. 77
VIII. Social Inclusion and Targeted Programs .................................................................................... 81 A. Poverty Alleviation Fund ..................................................................................................... 81
IX. Good Governance ..................................................................................................................... 83 A. General Governance Issues .................................................................................................. 83 B. Decentralization/Local Government Issues ........................................................................... 85 C. Public Financial Management Issues .................................................................................... 87 D. Legal/Judicial Reforms ........................................................................................................ 92
X. Portfolio Issues ......................................................................................................................... 97 A. Portfolio Performance in FY06/FY07 .................................................................................. 97 B. Projects-at-risk ..................................................................................................................... 98 C. Portfolio Reviews ................................................................................................................ 98 D. Mitigating Portfolio Risks .................................................................................................... 98 E. Fiduciary Aspects ................................................................................................................ 99
XI. Internal Issues ......................................................................................................................... 103 A. The Kathmandu Office ...................................................................................................... 103 B. The Media and the External Relations ("EXT") Strategy .................................................... 103 C. The Role of the CMU in Washington ................................................................................. 104
Annexes I. World Bank Portfolio in NepaL ........................................................................................... 107 II. IFC Portfolio in Nepal ........................................................................................................ 108 III. Project Overview, Results and Issues in the Lending Portfolio ........................................... 109 IV. Country Team Profile ........................................................................................................ 122
NEPAL AND ITS RELATIONS WITH THE WORLD BANK
A Briefing Note for the New World Bank Country Director June 2007
I. INTRODUCTION AND SUMMARY OF KEY ISSUES
A. Context and Essence of Development Challenges in Nepal
Contextual understanding of development in Nepal requires appreciation of both the short-term and long-term challenges. In the near term, the context for the Bank's work will be most importantly influenced by the on-going peace process. The political and social dynamics around this process are powerful and unstable. Therefore, we are likely to see continued fluidity and uncertainty, thereby creating both threats and opportunities. The threats will arise mainly from two sources. First, the forcefulness of the Maoists (albeit their limited number) and the relative lack on coherence of strategy on the side of the other political parties (despite their numerical advantage) make the political equation unstable. Second, self-interests of various groups that wield a measure of political power and the fragility of the national politics make it difficult to counter such pressures in favor of larger public interests. Some important reform progress won over the past several years-e.g., in the medium term expenditure framework (MTEF), education reform, and financial sector reform-may be undermined. Opportunities may also arise, however, as there are forces that seek genuine progress toward greater accountability and transparency in the state system and empowerment of the citizenry.
The seeming dysfunctionality of the political process-which generates frustrating ups and downs in the reform and development efforts and maddeningly parochial and myopic behavior on the part of many stakeholder groups-becomes more understandable when it is situated in a long-term perspective. Nepal is going through a fundamental transformation of the nation, from one that is bound in traditional and feudal values to one that embodies more liberal and democratic values. For the lack of a better terminology, one might say it is a process in which a 'feudal' nation is transformed into a 'modern' nation. This is a multi-generational process, in which the general rise in the education and income levels as well as the spread of the market system-or in short 'development'-seem to be the central drivers for change. Nepal embarked on this process shortly before 1951 (Le., the fall of the Rana regime) when antiRana movements began to gain some momentum. Starting from a very firmly feudal system and low levels of education and income, it is reasonable to expect the whole process would take over 100 years. Given that Nepal has not even attained universal primary education (currently only about 70 percent of children complete class 5), one should expect--even with the tendency for this kind of transformation to be accelerated by the influence of globalization-it will take another 50 years or more for Nepal to become a truly liberal and democratic system (socially, politically, and economically). In the meantime, the old, more feudal values will hold significant sway.
The fault line between the old and the new value systems, however, is intricate and runs through every sphere of Nepal, from the political parties and the business community to academia, civil society, and even families. Thus one should expect to find reform forces of varying strengths in every segment of Nepali society. As the battle line between the two large forces shifts back and forth in different areas, complex ups and downs in the development process are generated in the short-run.
The key then in supporting Nepal's development process seems to lie in identifying these reform forces wherever we can find them and supporting their own endeavors for change. In this regard, we have come to appreciate that a significant part of the energy for this long-term transformation is generated at
June 2007 Briefing Note tor the New World Bank Countrv Director [or Nepal Page 2 o[J35
the community level. Perhaps because they had been given little voice in the decisions that affect their future, when communities are given some space and control over even meager resources, they have tended to embrace open and liberal values rapidly and act on that basis. Supporting the growth of such energy may be a critical element of the long-term strategy for Nepal's development. By contrast, efforts to support enlightened change in the behavior at the top level and thereby facilitate more of a top-down transformation process have not proven very successful.
B. Nature of the Nepal-World Bank Relationship
Until about 1997, the relationship between Nepal and the World Bank was very 'traditional.' Lending seemed to be the central concern on both sides. This relationship changed significantly with the 1998 CAS, which placed poor governance at the center of the strategy and linked the lending level firmly to credible progress on the overall quality of governance. As a result, for four fiscal years (FY09-02), the Nepal program was put under a 'low case' scenario, and the lending volume fell to US$95 million for the four years, as compared to about US$100 million per year that the International Development Association (IDA) had committed in the period immediately preceding this tightening. In the meantime, maintaining that Nepal was in a base case and claiming that the governance situation was no worse than other countries in the region, the Asian Development Bank (ADB) continued to maintain strong lending, overshadowing the Bank with annual lending of about US$l 00 million. This reduced the fiscal pressure that Nepal might have felt from the lending reduction by the Bank, and may also have led to some distancing from the Bank on the part of the government.
By 2001, however, the government began to feel renewed fiscal pressures from the escalation of the Maoist conflict and the stagnation of the economy. The conflict has also raised serious concerns among some technocratic leaders about the failure of development. This has led to an emergence of several reform leaders at the civil service level and increasingly strong bonds were formed between them and the Bank team. The reformers have in fact appreciated the disciplined lending stance the Bank had taken and began to use our position to push back the political resistance to reforms. The Bank team's relationships with the National Planning Commission (NPC), Ministry of Finance (MOF), Ministry of Education and Sports (MOES), and some other key departments have been exceptionally strong. (In this regard, significant continuity of personnel in the positions of the NPC Vice Chairman and Finance Secretary between 2001 and 2006 was very helpful.) Given the instability at the political level, more stable and strong ties at the technical level has been critical in giving some key reforms the much needed continuity. By now, it is widely accepted that the Bank takes tough positions on key policy issues, but only because of its genuine concerns for long-term development of Nepal. Technocratic reform leaders see us as real partners.
In all this, the Bank team has stressed two broad themes. One is the change in the relationship between the government and the people, and the other is the change in the relationship between the government and donors. With regard to the first, there has been significant progress in the focus on service delivery and greater empowerment of the beneficiary groups-e.g., the transfer of school management to communities, banking sector reform, and Poverty Alleviation Fund (PAF). With regard to the latter, while donors continue to show old attitudes (see section E. below on development partners), the thinking of government leaders has been significantly changing, from one of dependence to one of leadership. In both cases, the Bank team has promoted these ideas through a constant collaboration and communications. Our preferred approach is to stand behind the reform-minded Government of Nepal (GON) leaders, provide them with support they might want from us, and let them take the lead.
June 2007 Briefing Note fOr the New World Bank Country Director for Nepal Page 3 0(135
C. Current Program and Portfolio
Lending
As of May 14, 2007, there are 14 on-going IDA projects, representing US$525 million in commitments, of which US$303 million remains undisbursed. Annex I summarizes the Bank's current portfolio and Annex 2 summarizes IFC's portfolio. Further details on the individual projects-including their current status--can be found in Annex 3.
Over the past years, the Bank's portfolio has shifted from large scale infrastructure projects to community-focused operations with a more devolved ownership (e.g., community managed schools), community driven-development-type projects (e.g., water and sanitation) and small scale infrastructure and income generation sub-projects (e.g., PAF). These types of projects have been largely successful as community ownership has proved more resilient in conflict-affected areas than projects implemented by traditional public sector agencies.
In FY07, one supplemental financing (Poverty Alleviation Fund) and two projects (Second Higher Education and Avian Flu) were approved for a total ofUS$103.2 million.
Analytical and Advisory Activities
Several new and upcoming analytical and advisory activities (AAA) will play an important role in assisting the government as it transitions to a more democratic society. The following studies are in draft form and expected to be delivered shortly.
• Managing Public Finances for a New Nepal reviews trends in public expenditure, the recent improvements made in the system, and how to address the remaining challenges to improve the public finances so to support the growing demands arising from Nepal's transition.
• Country Environment Assessment (CEA): Rebuilding Institutions for Stronger Environmental Governance identifies opportunities for enhancing the country's environmental management systems-with a special focus on rapid urbanization and the ensuing problems-through improvements in the effectiveness of institutions, policies and processes.
Studies planned for FY08 will examine governance, e-Procurement, growth and investment and options for financing hydropower, while work carried out during the last few years has played an important role in engaging Nepali authorities in policy dialogue and helping to evoke change. Speci fi call y:
• On economic and poverty reduction issues, the Nepal Development Policy Review: Restarting Growth and Poverty Reduction (June 2004) summarizes Nepal's development constraints and challenges, and attempts to foster the debate on the development agenda for re-starting inclusive economic growth. The poverty assessment study-Resilience Amidst Conflict: An Assessment of Poverty. FY95196 and FY03104 (September 2006), provides a cogent explanation for the impressive 11 percent drop in the poverty rate in a span of eight years. This report has helped to deepen the understanding of the complex process of changes in poverty and human development in Nepal, and contributed to a more sophisticated policy debate.
June 2007 Briefing Note tor the New World Bank Country Director for Nepal Page 4 0(135
• On social issues, Unequal Citizens: Caste and Ethnic Exclusion in Nepal (June 2005) provides a rich documentation of gender, caste and ethnicity-based discrimination in Nepal. For years to come, this will offer a strong analytical foundation for active public discourse on the inclusion agenda.
• Related to decentralization and the essential role played by local organizations, the report Nepal Decentralized Organizations (March 2004) documents the roles and relationships between local organizations operating in five sectors in rural Nepal, and will be a useful guide for helping to ensure success of decentralized planning, governance and implementation of programs. A complementary piece focusing on urban issues-Urbanization and Sen'ice Delivery in the Context of Decentralization: A Review of the Issues for the Kathmandu Valley (December 2004)--highlights specific issues facing urban local bodies and how these issues relate to plans for further decentralization.
• On financial issues, and continuing the Bank's strong emphasis on the financial sector reform agenda, the analysis from the Access to Finance (March 2007) study is shaping a new project that expand access to financial services, especially for unbanked small businesses and low income households. The report Legal and Judiciary Environment for Financial Sector Development (February 2005) reviews the larger setting of financial sector reform and development in Nepal, and suggests measures to strengthen the enabling environment. It has formed a basis for an active reform discussion with the Supreme Court that could result in grant financing from the Institutional Development Fund (IDF) to initiate reforms.
• On infrastructure, the strategy note on North South Transport Corridor Options (August 2004) provides analysis and recommendations on how to improve Nepal's north south transport corridors to enhance the accessibility of remote hill districts, and improve market integration and trade facilitation.
D. Current Political Situation
The ruling eight party government appears gripped by paralysis as a new date for Constituent Assembly elections continues to remain elusive. l As passions continue to run high in the southern terai districts, the Interim Parliament remains deadlocked for nearly a month over demands for federal autonomy, proportionate representation and greater inclusion more generally for terai people in the state apparatus. Even the cabinet fails to meet regularly over on-going differences.
At the heart of the crisis is the interim administration's continued inability to manage multiple transitions and special interest groups; a lack of confidence among constituent parties that they stand a good chance in elections that are free and fair; and general mistrust over the Maoists' real intentions. While the eight parties blame each other for the delay in the announcement of new election dates, the Maoists in particular seem to realize that they are losing political ground with each passing day. They see their best hope in keeping anti-King sentiments alive. They have tabled a proposal in Parliament seeking his ouster. The King, meanwhile, has been largely silent but some of his actions (such as sponsorship of
The ruling eight party government brings together the Communist Party of Nepal-Maoists (CPN-Maoists) with the seven party alliance (SPA) that consists of the seven main parliamentary parties: (i) the centrist Nepali Congress; (ii) the breakaway Nepali Congress Democratic (NCD); (iii) the Terai-based Nepal Sadbhawana Party (Anandi Devi faction); (iv) the left of center Communist Party of Nepal-United Marxist Leninist (CPN-UML); (v) the Nepal Workers and Peasants Party; (vi) Jana Morcha Nepal and (vii) Left Front Nepal. The Rashtriya Prajatantra Party (RPP) and the breakaway Rashtriya lanashakti Party-both previously labeled as 'royalist' before the King's takeover-are not formally part of the SPA, although both parties remain critical of the takeover.
June 2007 Briefing Note fOr the New World Bank Countrv Director fOr Nepal Page 50f135
an animal sacrifice on the very day the rest of Nepal was celebrating the first anniversary of Jana Anolan II) reinforce the image of him as a relic steeped in feudal traditions.
The terai, in particular, continues to simmer as rival groups up the ante. At one extreme are various splinter groups of the CPN-Maoists (such as the Goit and Jwala Singh factions of the Janatantrik Terai Mukti Morcha) who disown the peace process and claim their 'people's war' is a war of secession. The more moderate Madhesi Jana Adhikar Forum voices legitimate and longstanding grievances and therefore also enjoys wider public support in the terai, including among the parties in Parliament. It seems inclined to negotiate with the government but its structure as a loose federation makes it vulnerable to infiltration by radical, violent groups and individuals of dubious and criminal backgrounds. The Forum is demanding federal autonomy for the terai as well as a fresh census on the basis of which fair representation and inclusion would be ensured. Then there's the Churey-Bhawar group that claims to represent the interests of hill migrants-but is also suspected to receive Royal patronage--and the Tharu Liberation Front, aligned with the Maoists, that claims special indigenous rights over and above everyone else.
Both the United Nations (UN) and the Election Commission believe that elections are possible in mid-November, but they are awaiting a firm political consensus on this. The delay has also affected the UN's work in the second stage verification of Maoist combatants sequestered in camps, as the Maoist leadership is refusing to cooperate as the stalemate on elections continues. It is in fact stepping up acts of intimidation and violence through the Young Communist League that many suspect is the real home of the seasoned and battle-hardened combatants.
Prime Minister Koirala's Nepali Congress sees its strength in re-unification with the breakaway Nepali Congress (Democratic) but efforts at unity have been slowed down by ego fueled differences between party leaders over the spoils of merger. The Maoists are proposing a wider left front but their calls have so far been largely ignored by the CPN-UML, the second largest party in the erstwhile Parliament elected in 1999.
General public opinion seems to be one of bewilderment. In most people's minds, the purpose of the Constituent Assembly was to address these and other demands in a systematic and democratic way. There seems to be a growing feeling that the political parties have lost their sense of direction and, as such, are widely seen as going back to their old ways of promoting their own interests against the spirit and popular mandate of Jana Andolan II. Finally, passion also continues to run high on the future role of the monarchy.
E. Development Partners and Coordination Framework
Nepal has an extensive system of donor coordination. At the apex, there is the Nepal Development Forum (NDF), which is meant to meet every 18 months or so with participation from the donor capitals and headquarters.2 At the local level, there is an agency heads level donor coordination group (chaired by the Secretary of Finance, attended by heads of agencies), and a number of thematic groups (some chaired by the government and some chaired by a donor). But the level of true coordination remains less than needed. These coordination processes are sometimes long on formalities and short on substance.
Over the last several years, the Bank has consistently encouraged the government to take a real leadership role in defining the development agenda and managing donors, in several concrete ways.
In reality, however, it has met less frequently, with the last three meetings in 2000, 2002 and 2004.
June 2007 Briefing Note tor the New World Bank Country Director for Nepal Page 60(135
Nepal has a 60-year history of aid. Donors have become entrenched in the development scene in an unhealthy manner. All the good intensions aside, it is clear that donors have significantly stifled the development of domestic institutions. Despite all the rhetoric of harmonization and the Paris principles, there often remains at the subconscious level a patronizing attitude among the donors when it comes to development ideas. The fact of the matter is that many donors are as dependent on Nepal as Nepal is on donors. Nepal is an easy place to justify aid, and it is an attractive place for donor representatives to live and work. Thus, many donors have every reason to prolong their presence in Nepal rather than move out rapidly. This should give the government a significant leverage to reshape its relationship with donors, but the mind-set of subservience to donor interests remains difficult to overcome.
Since 2001, however, there have been some important steps taken to change all this. The first key step was the formulation of the Foreign Aid Policy (F AP) in 2001-02. This, in short, declared that all aid must fit into the overall development framework and priorities that the government would set out. It also promoted greater transparency and result focus. These were all consistent with the Paris principles, and not surprisingly the policy was endorsed by all donors at the 2002 NDF. To what extent donors took this seriously is an open question. In the process of the drafting of the policy, MOF solicited comments from donors. The then Finance Secretary (Dr. Bimal Koirala) vented his frustration to us at one point, saying that donors demand all kinds of things, but when the MOF asked for their comments on an important policy document, no one responded (except the Bank, which provided substantive comments). Nevertheless, this did lay some important principles to which the government could later refer.
By the time of the 2004 NDF, the MOF went a step further and proposed an "Aid Integration Process," which in essence proposed that the key aid allocation decisions by donors be integrated into the annual budget decisions. From the viewpoint of a rational budget system, the logic was unassailable (and was crucial for making the MTEF truly meaningful), and again donors in principle supported the concept. Unfortunately, the dismissal of the elected government by the King in October 2002 gave donors a perfect excuse not to move strongly in the direction of implementing this critical idea. Nevertheless, the concept remains valid and with the political change in 2006, it should become an important tool for the GON in managing donors in the coming years.
The formal leadership for donor coordination has gone though important changes in the last several years. At the level of NDF, the meeting in 2000 followed the classic model (held in Paris and chaired by the Bank's Vice-President for the South Asia Region). Based on the agreement reached at the 2000 NDF, the 2002 meeting was held in Nepal3
, chaired jointly by with the Minister of Finance (Dr. Mahat) and the Bank's South Asia RVP (Mieko Nishimizu). The 2004 NDF was chaired by the Minister of Finance (Dr. Lohani) and held in Kathmandu, in a rather open manner. At the local level, the United Nations Development Program (UNDP) and the World Bank traditionally co-chaired the bi-monthly coordination meeting. But, in 2003, at the suggestion of the World Bank, the donor group agreed to invite the government to chair this meeting. Since then, the Secretary of Finance has been the chair.
Key Documents
February 2002. Review of Development Partnerships in Nepal: Review Team's Main Findings and Recommendations.
3 The main meeting was held in Pokhara to avoid the glare of pubie attention in Kathmandu.
June 2007 Briefing Note for the New World Bank Countly Director for Nepal Page 70035
F. Curreut ISN Sceuarios/Program
In the context of a continuing fragile political environment, an Interim Strategy Note (ISN) was discussed at the Board of Directors on February 22, 2007. For the purposes of strategic planning, this document set out three scenarios:
•
•
•
4
In the best case scenario--'steady transition' toward a New Nepal-the country will continue to move forward toward lasting peace (based on the agreed roadmap) and a well functioning democracy and accelerated development.4 In this scenario, politics will remain the focus for the short term. As such, the initiation of new reform initiatives will be very difficult if not impossible, and past reforms may continue to come under threat of reversal. Thus, a top priority will be helping Nepal to protect the past reforms and move forward with some reforms on which there has already been considerable preparation. Since this scenario is inherently unstable in the long run, it also presents an opportunity to assist Nepal to prepare for the steady transition scenario and minimize the risk of moving toward deterioration.
In the worst case scenario--'deterioration '-the state would cease to be able to perform its basic functions-primarily due to the failure of the political process and the country could slide into a widespread civil war and a breakdown in the key functions of the state
Between these two extremes, there are many scenarios that would maintain a modicum of stability, but not make progress on the development agenda or in resolving the underlying issues, especially when the peace process hits contentious issues. If history is any guide, a 'stalled transition' is possible for prolonged periods, but is fundamentally not sustainable in the long run, as sooner or later the country will be forced to deal with the basic issues underlying the conflict. In this best case scenario, the country would continue to move toward reasonably free and fair constituent assembly elections, at which time both the SPA and CPN-M would accept the results. With that, the peace process would reach a significant milestone and Nepal would have moved firmly into a transition phase. At that stage, it would become important for the authorities to be able to demonstrate that a post-conflict economic program is ready. Such a program should be designed to accelerate development activities and rapidly generate employment opportunities to minimize the risk of reverting back to conflict. To enable sustained and effective development efforts thereafter, the issues of state building, national vision and inclusiveness become particularly important. A failure of the political elite in this regard could lead to a serious loss of popular confidence in the political process. In this scenario, development activities would accelerate, although the initiation of new reforms would remain difficult and become increasingly so as the date of the constituent assembly elections draws nearer. In addition, with the entry of the CPN-M into the government, there will be a need to bring them up to speed on the key elements of the reform and development agenda.s
Nevertheless, in various stages of the transition scenario, there is a window of opportunity to move the reform agenda forward.
Until free and fair constituent assembly elections are completed and the results are widely accepted, the peace process could easily be derailed. Therefore, the elections will be an important milestone in this scenario. This milestone will also be significant for development assistance, for it will put the government in a strong position to seek additional assistance from the development partners to accelerate implementation of an economic package to help cement peace.
It is important to note that the CPN-M has formed an 'economic team' and that a number of meetings have been held between this team and the Bank's team to discuss various reform and development-related issues. In general these meetings have been constructive.
June 2007 Briefing Note for the New World Bank Countrv Director for Nepal Page 8 0(135
It was noted that these possibilities make for an uncertain environment in which to contemplate development assistance to Nepal. Yet, regardless of the political developments, there are certain invariant points that are likely to define the development agenda and hence help guide the Bank's strategy formulation. Specifically:
• First, a fundamental challenge that the govemment---even with the CPN-M-will face is one of establishing credibility for the state as an institution, or at least taking concrete steps toward that goal. Without doing so, the basic govemability of the country will be threatened in the short run, and any endeavor to achieve significant development will be futile in the long run. Nepal must begin to reorient the state apparatus, which in the past has been more geared toward dispensing patronage to a privileged few at the expense of the rest. The state must become an instrument of collective action by the people. Related to this, Nepal needs to articulate a long term vision to give clear direction to the aspirations of the population and the social energies for change.
• Second, Nepal must sustain focus on development. The King's unsuccessful attempt to address the complex political and development problems through direct rule demonstrated that there are no shortcuts to solving them. The social, political and economic challenges of the country must be viewed in the context of the long term transformation-{)f the kind that can take several generations-that Nepal is going through. The shortcomings of the state and democratic political processes are linked to the generally low levels of economic security and education of the citizens. Without addressing these basic problems, it is unlikely that a 'New Nepal' would become a reality. While there is a tendency among some to think that Nepal should first address the political agenda and then the development agenda, such a sequential approach is problematic, as there are no guarantees that the political issues will be settled within a short period. 'Stop and go' development efforts would only compound the damage to the longer term process. A more immediate reason for keeping a focus on development is that if it is neglected the population could easily lose patience, making it impossible for the political process to run its course. Finally, it will be essential that Nepal's development partners-including the Bank-provide as much assistance as possiblefinancial, technical and other-to support the peace process to help ensure its success.
• Third, the evidence is compelling that the strength behind development in Nepal is highly concentrated at the community leveL Success stories abound, from forestry user groups and women's groups, to community-based programs in rural drinking water, rural roads, micro-hydropower generation, community management of schools and the Poverty Alleviation Fund (PAF). Many of the truly community-owned efforts have shown great viability even in conflict-affected areas. Where a supportive framework has been created for communities to undertake such activities, there have been impressive development successes. Therefore, much of Nepal's development effort-especially in the politically charged environment-should be built on community leadership.
• Fourth, among the many problems that Nepal has to address, focus on the inclusion agenda will be particularly important, especially given that greater inclusion was a central demand of the April "Second People's Movement." Coining of a new word for democracy ('loktantra' in lieu of 'prajatantra') reflects the recognition that democracy as practiced after the first People's Movement in 1990 was not truly inclusive. Without taking adequate steps to ensure that Nepal is becoming more inclusive socially, politically and economically, the underlying tensions will not be resolved. In this regard, creating more equal opportunities in education-including access to higher education-will be especially important, for that is central to effective inclusion in other dimensions.
June 2007 Briefing Note [or the New World Bank Country Director tor Nepal Page 9 0035
Areas of Bank Focus during the ISN Period
Protecting the Reforms. With regard to protecting the reform initiatives, the focus will be on four areas:
• Community management of schools. Despite strong obstruction-primarily from teachers' unions-about 2,350 schools have been transferred to community management with quite impressive early results. This has been the pivotal driver of a far-reaching education reform that is central to the inclusion agenda as well as poverty reduction more broadly. If the principle of community management is lost, the education sector is bound to suffer a major setback. The Bank will continue to strongly support the stakeholder groups working to further this reform.
• The set of governance reforms designed to improve public expenditure management, including MTEF, the Procurement Act and the Governance Act. Preserving and furthering progress in this area is critical to protect the system to ensure that fiscal discipline is maintained in times of political instability and the state can establish credibility as an institution.
• Financial sector reforms, in particular the issue of defaulters. If pressure is not maintained on this issue, significant damage will be done to the credibility of the government's commitment to creating an equitable market system and tackling the broader governance issues.
• The inclusion agenda, where some progress has been made in expanding access to primary education and developing an affirmative action in the civil service. As previously mentioned, this is critical to defend given its importance in inciting the recent People's Movement.
Preparing a Post-Conflict Economic Program. In collaboration with the ADB, in late 2005 the Bank started to provide support for preparation of a post-conflict economic program. For Nepal to move toward a steady transition, it is important that this work be accelerated. Four important elements should be woven into the program: (i) state building (I.e., implementation through existing public sector institutions as much as possible); (ii) inclusion; (iii) genuine partnerships between the public sector and the private sector/communities; and (iv) rapid impact through improved public services as well as economic growth and employment creation. Equally important in this effort is to continue to strengthen the public sector financial management and outcome monitoring systems. While such a package should be comprehensive-including significant investments in infrastructure-it is also critical to build on the strength of community-based programs and to ensure that the overall program pays careful attention to the inclusion agenda. The aim would be to have a program ready by the middle of 2007.
Carrying out a National Visioning Process. Viewed as a way of counter-balancing the national preoccupation with the political agenda and providing a coherent direction to the popular aspirations for change, some leaders in the government as well as leaders outside government have recognized the need for developing a national vision.6 While the Bank has been providing ideas about such a process and will continue to offer support as appropriate, clearly such a process requires national ownership. A visioning exercise may in fact help Nepal move toward the best case scenario.
Lending Support. Throughout the period, the Bank has consistently maintained the position that Nepal's development requires sustained support for the home-grown change efforts. It is clear that many
6 The purpose of a national visioning process is for Nepali citizens to develop a broadly shared vision of the future, in tenns of not only the political structure of the country, but also the basic framework for development, economic management and social change. Such a vision-ofwhat Nepal might look like in 20-25 years and what the country might have to do to get there-would not be a detailed blueprint, but more of a broad framework to guide development of more detailed plans of action, including the next PRS.
June 2007 Briefing Note for the New World Bank Countrv Director for Nepal Page 10 oU 35
of the efforts in the social sectors and infrastructure investments will continue to require external resources. In this spirit, as long as positive outcomes can be expected, the Bank will continue with new lending. If political developments remain toward the more favorable end of the scenario, the US$120-200 million range envisioned in the original CAS seems to offer appropriate parameters. The specific lending decisions and aggregate level will be guided by the assessment of the overall situation, carefully taking into account the collective sense of the international community on the need for external assistance to support the transition to peace. An indicative lending program for FY08 is presented in Table 1.1. Certain types of programs deserve particular attention, specifically:
•
•
Community-based projects. With the exception of a serious deterioration in the political conditions-especially one in which projects executed through public sector agencies will be approached with great cautionexpanding community-based development activities will continue to be a high priority. Even in the best case scenario, given Nepal's geographic challenges, CDD projects will continue to be critical in delivering broad benefits quickly. Therefore, the Bank will expand its support for such initiatives, especially scaling up what is already working. The Bank will pay special attention to PAF, which is being expanded with unprecedented speed.7 Similarly,
T bill FY08 T t ti a e .. en a ve L d· en m~
Road Sector Development Irrigation and Water Resource Mgmt Poverty Alleviation Fund II Sustaining Social Services to the Poor Education for All Supplement Access to Finance
Sub-total Standby Agriculture Commercialization/Trade HIV/AIDS Prevention Transitional Support Credit
Total
p rogram US$
million 40 40 100 5
40 30
255
30 25 50
360
the Bank would be prepared to help scale up other on-going community-based programs, including in rural drinking water, irrigation, rural electrification and rural roads.
Inclusion. The primary education SW Ap---Education for All (EF A)-will continue to be the central instrument to promote broad inclusion. To the extent that any additional financing may be needed, the Bank would be prepared to consider such support as long as the refonns stay on track. In moving toward a more inclusive Nepal, however, it is also important to ensure that in addition to receiving basic education every diligent child has a decent chance of receiving good quality higher education. The lack of such options has been an important contributing factor to both the discontent that underlies the insurgency and the recent People's Movement. Recognizing the need to refonn the tertiary education system to meet these challenges, a decision has been made to allow far greater autonomy to the campuses of the public sector university system and to support independent univerSItIes. In effect, this refonn taps into the energies that autonomous campuses, acting as 'communities,' can mobilize through greater empowennent. This refonn is equally important for the long tenn state building process, which requires well-trained university graduates. Despite the political uncertainties, a number of campuses are eager to move ahead with refonns and the Bank proposes to support this critical effort through a Second Higher Education Project. In addition, all interventions-but primarily those using a CDD modality-will continue to place a strong focus on inclusion issues.
Supporting a Post-Conflict Meeting of the Development Partners. If the political process secures what is broadly viewed as a foundation for lasting peace (e.g., successful constituent assembly
7 In recognition of this, in November 2006 the Board approved additional IDA grant financing (US$25 million) for P AF. Together with other donors, the Bank will consider a significantly larger follow-on project.
June 2007 Briefing Note fOr the New World Bank Country Director fOr Nepal Page 11 of135
elections), the government can be expected to organize a donor meeting to discuss and seek support from the development partners for its post-conflict economic program. The Bank would work closely with other partners in supporting such a process.
Should there be positive movement along the scenario continuum, it is possible to envision a number of different types of opportunities for the Bank to scale up its program by providing additional financing, most likely in the form of budget support. 8 In all cases, taking advantage of lessons learned from other successful budget support operations in fragile environments, the Bank would explore the possibility of a multi-donor budget support program.9 Budget support could be envisioned to:
• Support reform implementation. Despite the political turmoil, the dialogue on reforms has continued since approval of PRSC I (November 2003). To be able to implement the ambitious FY06/07 budget fully, additional funding will be needed. Or alternatively, in the absence of budget support, development activities that are essential for reinforcing the peace process could end up being scaled back. Hence, the authorities have expressed strong commitment to implementing significant reforms to underpin a prospective budget support operation. Reform actions are envisioned in four key areas: (i) progress against defaulters; (ii) adjustment of fuel prices; (iii) introduction of a more flexible labor law; and (iv) passage of the Governance Act. Given the political situation, however, the government is likely to have to use more incremental approaches to some of these reforms than earlier envisioned. The Bank will continue to carryon an active dialogue with the authorities on defining a realistic reform program that is nevertheless strong enough to sufficiently improve the development framework. If such a package can be actually implemented, the Bank remains committed to providing budget support. 10
• Finance a post-conflict program. Once a more lasting political basis for peace is secured, it would be reasonable to assume a fairly large post-conflict economic program will be proposed for a three to five year period, above and beyond the on-going assistance. In such a scheme, the Bank would naturally be expected to contribute significant amounts. II Working with other partners, the Bank
9
10
11
A concern with provision of budget support could be a sudden and unexpected political change that could take place after the release of such support and lead to questionable uses of highly fungible resources. Some financial mechanism to minimize such a risk will be considered should the Bank decide to move forward with this manner of support.
DfID has already expressed interest in joining such multi-donor support.
Technical assistance funds might also be needed to support implementation of the reform agenda. In FY05, the Bank provided US$3 million for the Economic Reform Technical Assistance (ERTA) project. With the funds managed by a steering committee within GON, this transparent source of grant financing-which any public sector agency can access on a competitive basis to promote reforms-has been much appreciated by the reform-minded leaders. To continue the efforts to protect, and deepen where possible, the past and present reforms, and support the peace process, more funds may be needed. The Bank would consider providing additional funding for this purpose and encourage other donors to contribute. This would also help move the aid harmonization agenda forward in a critical area where much aid money has been spent without due scrutiny or accountability.
Under IDA14, Nepal's indicative FY06-FY08 IDA allocation is about US$460 million. Given no new commitments in FY06, and limited new commitments so far in FY07, the Bank is likely to have significant flexibility to increase its financial assistance up to the indicative three year allocation if called on. In addition, Nepal's IDA allocation could increase over time with improvements in country policy and institutional performance, especially with regards to the governance situation. However, the exact IDA allocation would depend not only on Nepal's performance, but also on: (i) the performance of all other IDA
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 12 0035
would try to maximize the extent to which the programs will be implemented through or under clear auspices of the government. This is important in terms of the critical goal of establishing the credibility of the state. To meet an equally important goal of rapid implementation and broad reach, the Bank would encourage continued support to community-driven initiatives and public-private partnerships of all kinds. Much of the additional assistance from the Bank should take the form of budget support to allow the greatest degree of flexibility and speed.
• Support the transition to a more stable environment. The intricate transition process is already creating demands for resources to sustain the process itself. Containing the CPN-M combatants in camps during the cease-fire period, providing immediate relief to the victims of the conflict and conducting the constituent assembly elections all require resources. While several bilateral donors are providing support in limited ways in this regard, significant resources may have to be provided out of the budget. This in tum could crowd out much needed development spending. Whether there will be a real fiscal crunch is uncertain at this time. Should such an eventuality materialize that either jeopardizes the peace process or threatens deVelopment efforts, Bank support could be envisioned.
Formulating a New Development Strategy. In a more stable environment, the new long term vision will need to be translated into a more concrete, medium term development plan (i.e., a new PRS). Many of the ideas may be reflected in the post-conflict package, but thc full scope of the new vision is unlikely to be completely incorporated. The Bank would assist Nepal in articulating a new plan that would likely include strong focus on state building, inclusion and decentralization.
History has shown that it is impossible to rule out a deteriorating situation. To the extent possible, the Bank will remain engaged through dialogue, analytical work and potentially limited financial support. If the situation is not so extreme (e.g., the conflict resumes but the government retains control over the basic state apparatus), the Bank will continue to support community-level activities as long as they remain viable. As mentioned, the track record of a few such projects--including in particular the P AF-is encouraging in this regard.
Key Documents
World Bank. November 18, 2002. Memorandum of the Preside of IDA to the Executive Directors on a Country Assistance Strategy Progress Reportfor the Kingdom of Nepal. Report No. 24170-NEP, Washington, D.C.
World Bank. October 20, 2003. Memorandum of the President qf IDA to the Executive Directors on A Country Assistance Strategy for the Kingdom of Nepal. Port No. 26509-NEP. Washington, D.C.
World Bank. January 7 22, 2007. IDA Interim Strategy Note for Nepal. Report No. 38119-NEP, Washington, D.C.
G. Key Issues
In the near term, the main challenge for Nepal is to move the peace process forward. Much of the process is highly political and hence outside the mandate of the Bank. We do believe, however, that there are critical linkages between what would be normally considered development work and this peace process. The basic challenge is to revive the momentum of development, with particular focus on community level activities and improvement of the overall growth prospects. Unless the majority of the Nepalis feel their lives are beginning to improve, their trust in the political process will erode and can
borrowers; (ii) the total size of the IDA resource envelope; and (iii) any adjustments arising from the IDA grant component and possible assistance under the Multilateral Debt ReliefInitiative.
June 2007 Briefing Note for the New World Bank Country Director fOr Nepal Page 13 0(135
easily narrow the space for the political in which the national level political forces can resolve outstanding issues through negotiations. Some bilateral donors have not fully appreciated our perspective, and perhaps felt that the Bank is very narrowly focused on the development issues even when there appears to be a higher priority issue. Given all this, the key issues for the Bank to focus on in the next 12-18 months are the following:
• Restore a better balance in the relative attentions paid to the political and development issues (and convince GON and others that they are tightly linked);
• In that framework, help GON and donors achieve a more conscious alignment between the two kinds of support that donors are providing, and in particular help GON shape a more coherent 3-year plan;
• Support the national vision process, as a way to help Nepal develop a coherent long-term vision that can better organize the social energies mobilized in lana Andolan II;
• Concentrate our effort in the first instance on protecting past reform gains, but also help focus political attention on the economic portion of the 'minimum common agenda' which remains too vague as the basis for reviving investment;
• Support expansion of community/citizen based development actIVItIes, in part to accelerate the development efforts and deliver 'peace dividends' but also to strengthen the foundation for democracy in the medium term; and
• Internally, balance the exuberance many of us feel about new opportunities and the political reality that indicates significant uncertainty and possibly strong resistance to economic reforms, and keep the program focused but flexible at once.
June 2007 Briefing Note fOr the New World Bank Country Director fOr Nepal Page 14 of135
II. The World Bank and Nepal
Introduction
The World Bank Group's mission is to fight poverty and improve the living standards of people in low and middle-income countries. The primary means of World Bank assistance to countries are long term low interest loans (International Bank for Reconstruction and Development-IBRD) and interest free credits (International Development Association-IDA) to implement a variety of development programs. 12 In a partnership spanning more than fifty years, the World Bank (Bank) has provided both financing and technical support for Nepal's economic development. Among other things, Bank assistance has helped in developing the island's energy, transport and telecommunications infrastructure, expanded health, education, water and sanitation services, and enhanced agricultural productivity.
The Country Assistance Strategy ("CAS',
As you are aware, a country's relations with the Bank are governed by a Country Assistance Strategy ("CAS") that is developed in consultation with the authorities and other stakeholders, and identifies the key areas for Bank involvement, and a four-year envelope of lending and AAA. The most recent CAS for Nepal-discussed by the Bank's Board of Directors on November 23, 2003-focuses on activities and outcomes for the period 2003-2006 in support of the country's Poverty Reduction Strategy (PRS):
• Achieving sustained high and broad-based economic growth, focusing particularly on the rural economy;
• Accelerating human development through a renewed emphasis on effective delivery of basic social services and economic infrastructure;
• Ensuring social and economic inclusion of the poor, marginalized groups and less developed regions; and
• Vigorously pursuing good governance both as a means of delivering better development results, and ensuring social and economic justice.
This PRS-based CAS was outcomes focused and built on the achievements under the 1998 CAS~which in short were to facilitate the beginnings of determined reform efforts-to support the Nepali-led reform process in a significant span and depth. The CAS anticipated a "base case" total lending program of US$765 million in this period-or an average of US$190 million per year-in addition to AAA that focus on public expenditure and poverty issues.
12 The other World Bank Group organizations include: (i) the International Finance Corporation (IFC) that promotes private sector investment by supporting high-risk sectors and countries (see section VI.B); (ii) the Multilateral Investment Guarantee Agency (MIGA) that provides political risk insurance (guarantees) to investors in and lenders to developing countries; and (iii) the International Center for Settlement of Investment Disputes (ICSID) that settles investment disputes between foreign investors and their host countries.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 150(135
Some Basic Facts about the Program
•
•
During FY04-FY07 13, IDA lending to Nepal has been a total of US$424 million or an average of
US$106 million per year. At about 55 percent of what was envisioned for this period when the CAS was developed, this reflects the instability that subsequently emerged.
In FY04, lending increased significantly with the approval of four new projects for a total of US$185.8 million: (i) Poverty Reduction Support Credit (PRSC): US$70.0 million credit; (ii) Financial Sector Restructuring Project (FSRP): US$75.5 million credit; (iii) Poverty Alleviation Fund Project (PAF): US$ 15.0 million credit; (iv) Second Rural Water Supply and Sanitation Project (RWSSPII): US$25.3 million credit.
Table 2.1: Lending Activities, FY04-FY07
Pillarl Creditl Approval Amount Category! Grant No.2 Name Date (US$ M)
Broad-Based Economic Growth (ii) 3830 First Poverty Reduction Support Credit (PRSC 1) 11/18/03 70.0 (ii) 38641H074 Financial Sector Restructuring Project (FSRP) 03/09/04 75.5 (i) H171 Rural Access Improvement & Decentralization Project (RAIDP) 03/31/05 32.0 (ii) H173 Economic Reform Technical Assistance Project (ERTA) 06/28/05 3.0
Sub-total Broad Based Economic Growth 180.5 Social Sector Development
(i) 3911 Second Rural Water Supply and Sanitation Project (RWSSP II) 06/01/04 25.3 (iii) 3956 Education for All (EF A) 07/08/04 50.0 (iii) 39801H125 Nepal Health Sector Program 09/09/04 50.0 (ii) H268 Avian Flu 1/19/07 18.2
(i), (ii) H274 Second Higher Education Project (SHEP II) 2/22/07 60.0 Sub-total Social Sector Development 203.5
Targeted Programs and Social Inclusion (i) H091 Poverty Alleviation Fund (P AF) 06/01/04 15.0 (i) H258 PAF Additional Financing 11/14/06 25.0
Sub-total Targeted Programs and Social Inclusion 40.0 Total 424.0
Notes: (1) Categories are: (i) CDD projects; (ii) projects that support reforms at the central level with strong ownership; and (iii) project that support core service delivery functions and backed by weIl-developed sector wide programs. (2) Items beginning with "H" are IDA grants; others are IDA credits.
•
•
•
13
In FY05 a total of four project were approved for US$135.0 million: (i) Education for All (EF A): US$50 million credit; (ii) Health Sector Program (HEP): US$50.0 million credit/grant; (iii) Rural Access Improvement and Decentralization Project (RAIDP): US$32.0 million grant; and (iv) Economic Reform Technical Assistance (ERTA): US$3.0 million grant.
In FY06, reflecting the worsening country situation that resulted in a limited reform effort, there was no new lending.
In FY07, lending picked up slightly with the approval of three new projects for a total of US$l 03.2 million: (i) Second Higher Education Project (SHEP II): US$60.0 million grant; (ii) Nepal Poverty
The Bank's fiscal year is from July 1 to June 30.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 16 ofl35
Alleviation Fund Supplemental: US$25.0 million grant; and (iii) Avian Flu Project: US$18.2 million grant.
As of May 31, 2007, the Bank's active portfolio consists of: ....... l
• Fourteen IDA credits/grants; Planned vs Actual Lending ,i
FV04·FV07 (In us Millions)
250 ,-----------~ .. --_,
• One DfID Grant that provides co-financing for the Financial Sector Technical Assistance Project;
200
150
• Two grants from the Institutional Development Fund (IDF)14; 100
• One Policy and Human Resource Development Grant (PHRD) for the preparation of the Agricultural Commercialization and Trade Project; and
o FV04 FY05 FY06 FY07
• Ran • Actual
• One Japanese Grant Fund (JGF) for the Implementation of the Community School Support Project.
The IDA portfolio contains a combination of credits and grants. IDA eligibility is determined on the basis of per capita income and creditworthiness. For the last few years, Nepal has received a combination of IDA credits and grants. All credits to Nepal are on standard IDA terms-i.e., repayable over 40 years, with 10 years grace and zero interest charges. IS Because of its classification as "high risk of distress" in the context of recent debt sustainability analysis (DSA), it is likely that all new commitments to Nepal in FY08-as in FY07-will be IDA grants. Total IDA commitments (net of cancellation) are US$525 million, with an undisbursed balance of US $303 million (see Annex 3).
Structure of this Document
This document covers the complete gambit of issues relating to the Bank's Nepal program as well as various internal issues. Structured around the CAS pillars, there are numerous sectoral briefs that touch on the state of the sector, the key achievements and issues facing the sector, current Bank activities, future plans for Bank involvement in the sector, and a list of key documents, all of which have been provided or are readily available.
14
15
Related to IDF grants, each region is given an annual allocation and the Regional IDF Committee (RIC)for which the Country Program Coordinator is a member-is the main decision-making body for individual grants under the program. The maximum amount per grant is US$500,OOO and the IDF supports activities in four focus areas: (i) core aspects of governance in the areas of public expenditure management and financial accountability, procurement, and results-oriented monitoring and evaluation systems; (ii) systemic legal and judicial reforms; (iii) program management for mV/AlDs; and (iv) strategic governance reform in "LICUS" (Low Income Countries Under Stress). The two current IDF grants to Nepal are for: (i) Institutional Strengthening for the Office of the Attorney General; US$204,OOO and closing in October 2007; and (ii) Improving Nepal's Public Finance through Pension Reform and Capacity Building, US$312,OOO and closing in October 2007. Another IDF grant-Legal and Judicial Reforms to Support Creditor Rights for US$405,OOO--was recently approved and is expected to become effective in the near future.
However, there is a: (i) service charge of 0.75% on the principal amount withdrawn and outstanding; and Oi) commitment charge (set between 0 and 0.50%) on the undisbursed amount.
June 2007 Briefing Note fOr the New World Bank Country Director for Nepal Page 17 0035
III. Poverty in Nepal
A. Background
Nepal experienced significant all-round improvements in economic and human development between 1995-96 and 2003-04. The incidence of poverty fell from 42 to 31 percent, with all three measures of poverty-i.e., the headcount rate, the poverty gap and the squared poverty gap--improving (see table x). Progress occurred in both rural and urban areas, although it was much greater in urban areas. Health and education outcomes also improved-particularly for girls and people living in remote areasas did connectivity-a factor of crucial importance in a landlocked country-along with the penetration of telephones, radio, and to some degree electricity. At the same time, education, primary health care, rural road maintenance, and some veterinary services have been devolved to the local level. This resulted in an increase in social mobilization, with the number of user groups-especially forestry user groupsgrowing significantly. These achievements are all the more impressive given that they took place in a politically difficult and conflict-ridden environment.
Table 3.1: Poverty in Nepal, 1995-96 and 2003-04 (percent) Headcount rate Poverty gap Squared poverty gap ~~o 4~ W~
1995-96 2003-04 Percentage
1995-96 2003-04 Percentage
1995-96 2003-04 Percentage
change change change
Nepal 41.8 30.9 -26 11.8 7.5 -36 4.7 2.7 -42
Urban 21.6 9.6 -56 6.6 2.2 -67 2.7 0.7 -73
Rural 43.3 34.6 -20 12.1 8.5 -30 4.8 3.1 -37 Source: CBS and World Bank staff calculations using NLSS-J and II.
This section presents some of the key findings from the recent report Resilience Amidst Conflict: an Assessment of Poverty in Nepal, 1995-96 and 2003-04. This report is a product of collaboration among the National Planning Commission (NPC), Government of Nepal (GON), the Central Statistical Bureau (CBS) and the World Bank, with contributions from the Department for International Development (DflD) and the Asian Development Bank (ADB). Building on the long-standing engagement between the World Bank and the CBS in the area of household survey data collection and analysis, the Bank and the CBS jointly carried out much ofthe analysis. Various background papers were prepared by the World Bank, DflD, ADB, the "Poverty Monitoring in Support ofPRS" unit in NPC, and the Ministry of Forestry.
B. Drivers of the Decline in Poverty
The Poverty Assessment identified that the decline in poverty was driven by growth in per capita consumption expenditure which increased in real terms by 42 percent between 1995-96 and 2003-04.16
16 The observed trend of substantial deelines in poverty is surprising considering the backdrop of insurgency in NepaL Evidcnce shows, however, that these estimates are robust and are corroborated by other indicators. (i) Self-reported information on the adequaey of consumption reveals improvements in all aspeets of perceived standards of living shows improvements. Whereas almost half ofNLSS households had responded that food eonsumption was inadequate in 1995-96, less than a third (30 percent) did so in 2003-04. Similar declining trends are observed for household consumption of clothing, health care, and ehild schooling. (ii) Per capita consumption of nearly all major food groups inereased substantially between 1995-96 and 2003-04. Per capita consumption increased by almost 50 percent for fine rice and fish, by 19 percent for milk, by 13 percent for goat and buffalo meat, and doubled for chicken. These trends are not speeific to high-income groups. In fact, pereentage increases in the eonsumption of fine rice, vegetables, and animal proteins and fats were higher among low-income households than among high-ineome households.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Pagel8 0(135
This increase, in turn, was driven by increases in remittances, higher agricultural wages, increased connectivity, urbanization, and a decline in the dependency ratio. More specifically:
• Remittances increased dramatically, with more than 1 million Nepalese were working abroad in 2003-04. Most of these migrants work in India, but an increasing number now go to the Persian Gulf or East Asia, where they earn much more than in South Asia. Migrant workers remitted US$794 million in 2003-04-equivalent to 12 percent of GDP-up from US$203 million in 1995-96. Econometric evidence shows that the increase in remittances is responsible for one-third to one-half of the overall reduction in headcount poverty rate between 1995-96 and 2003-04.
• Agricultural wages rose 25 percent, non-agricultural unskilled wages rose 20 percent and skilled wages more than doubled. Increases in aggregate demand (possibly due to increases in remittance income), improved connectivity and better access to markets stimulated entrepreneurial activities and allowed non-agricultural incomes to increase. Out-migration and availability of jobs outside of the agricultural sector tightened local labor markets and stimulated agricultural wages, improving the welfare of the agricultural laborers who tend to be the poorest in Nepal. At the same time, overall farm incomes stagnated because of the weak performance of the crop sector. Livestock incomes, on the other hand, grew 2.4 percent per year between 1995-96 and 2003-04. The decline in real prices of major staples (rice and wheat) benefited poor consumers.
• Nepal's road network increased 6.7 percent a year between 1995-95 and 2003-04, with the largest expansion occurring in roads classified as "district or rural roads" which had annual average growth of 11 percent. This pro-poor expansion-as well as improved modes of transportation-increased access to shops, markets, schools and hospitals. Improvements in rural connectivity helped raise nonagricultural employment and incomes.
• Urbanization moved workers from low-productivity jobs in rural areas to higher productivity activities in urban areas. Urban areas have significantly lower levels of poverty than rural areas (10 vs. 35 percent respectively in 2003-04). Urbanization was a powerful driver of poverty reduction: changes in the population shares across urban and rural areas and across regions accounted for about one-fifth of the overall reduction in the poverty headcount rate.
• The dependency ratio declined. The number of non-working people per working adult fell between 1995-96 and 2003-04, as a result of the decline in fertility that began in the 1980s. In urban areas the number of working males per household increased the most.
c. Trends in Inequality
While income growth in Nepal was high between 1995-96 and 2003-04, with real average per-capita expenditures growing on average by 4.5 percent per year, the increase was greatest for the higher expenditure groups (see figure). These patterns of growth were driven by the increasing returns to human and physical assets-since low-income groups lacked these assets, income inequality worsened, with the Gini increasing from 34.2 to 41.4 during this period.
All Nepal
10 Orowth.iocDetK:e~ -- OrowthtaleinJl'm.D
Mean of growth rates
20 40 60 80 100
Percentiles of per capita expenditure diSlribution
June 2007 Briefing Note (or the New World Bank Country Director (or Nepal Page 190035
Most of the increase in inequality occurred because the gap between the "middle class" and the "rich" grew. Inequality increased along the expenditure distribution, except at the bottom, with most of the increase concentrated in the upper half of the expenditure distribution (see figure). In particular, between 1995-96 and 2003-04, the ratio of per capita expenditure between expenditure group declined 2 percent for the ratio p2S/pl 0 (the ratio for "poor" and "very poor"), rose 6 percent for ratio pSO/p25 (the ratio for "middle class" to "poor"), rose 8 percent for the ratio p7S/pSO (the ratio for "upper middle class" to "middle class"), and rose 27 percent for the ratio of p90/pSO (the ratio for "rich" and "middle class").
Table 3.2: Headcount Poyeri}' Rate b~ Re&ion: 1995-96 and 2003-04 Poverty headcount rate Dis tribution of the poor Distribution of population
1995-96 2003-04 Change
1995-96 2003-04 Change
1995-96 2003-04 Change
(f2ercent) (percent) (E!.ercenl)
Urban 21.6 9.6 -56 3.6 4.7 30 6.9 15.0 117 Rural 43.3 34.6 -20 96.4 95.3 -1 93.1 85.0 -9 Total 41.8 30.9 -26 100.0 100.0 100.0 100.0 0
NLSS regions Kathmandu 4.3 3.3 -23 0.3 0.6 118 2.6 5.4 110 Other urban 31.6 13.0 -59 3.3 4.1 23 4.4 9.7 121 Rural Western Hill 55.0 37.4 -32 32.7 23.6 -28 24.8 19.4 -22 Rural Eastern Hill 36.1 42.9 19 19.4 29.4 51 22.4 21.1 -6 Rural Western T crai 46.1 38.1 -17 18.4 18.9 3 16.7 15.3 -8 Rural Eastern T erai 37.2 24.9 -33 25.9 23.5 -9 29.1 29.1 0 Total 100.0 100.0 100.0 100.0
Development regions Eastern 38.9 29.3 -25 21.0 23.4 12 22.5 24.7 10 Central 32.5 27.1 -17 26.9 32.2 20 34.6 36.6 6 Western 38.6 27.1 -30 18.7 16.7 -II 20.3 18.9 -7 Mid-western 59.9 44.8 -25 18.5 17.7 -4 12.9 12.2 -5 Far-western 63.9 41.0 -36 14.8 9.9 -33 9.7 7.5 -23 Total 100.0 100.0 100.0 100.0
Ecological belts Mountain 57.0 32.6 -43 10.7 7.5 -30 7.9 7.1 -10 Hill 40.7 34.5 -15 41.9 47.1 13 43.0 42.1 -2 Tcrai 40.3 27.6 -32 47.4 45.4 -4 49.2 50.8 3
~9.!al 41.8 30.8 -26 100.0 100.0 100.0 100.0 Source: CBS and World Bank statTcalculations using NLSS-I and [I.
Geographic disparities are evident. Economic and social outcomes are worse in rural areas, particularly in remote rural areas. Poverty levels are highest and access to services lowest in the remote Mid-west and Far-west. Good progress has been made in reducing poverty, and some human development outcomes have improved at above average rates in the Mid-west and Far-west. But these outcomes are still much worse than in the rest of Nepal. A variety of indicators reveal these disparities. The incidence of poverty in 2003-04 was 27 percent in Western region compared to 45 percent in the Mid-western and 41 percent in the Far-western regions (table xx). The under-five mortality rate was 84 deaths per 1,000 live births in the Western region and 149 in the Far-western region. Infant mortality rates ranged from 60 per 1,000 live births in the West to 112 in the Far-west. The Maoist insurgency that started in the Mid-west hills in 1996 imposed the heaviest toll in terms of human lives in the district with the highest poverty and the worst infrastructure and development indicators. Evidence suggests that lack of economic opportunity engendered grievances against the government and contributed to the spread of the insurgency.
June 2007 Briefing Note fOr the New World Bank Country Director fOr Nepal Page 20 0035
D. Proximate Correlates of Poverty
Households headed by agricultural wage laborers remain the poorest in NepaL The incidence of poverty among agricultural wage laborers remained virtually unchanged (at about 55 percent), but their share of the population fell from 12 percent in 1995-96 to 6 percent in 2003-04 reflecting the availability of alternate employment opportunities in the economy. People who are self-employed in agriculture (63 percent of the population in 2003-04) also tend to be poor. Unlike agricultural wage households, this group experienced a substantial decline in poverty, from 43 percent to 33 percent.
Education, family size, and ownership of too little land are all related to poverty. Both an increase in the number of young children and an increase in the number of household members are associated with an increase in the poverty headcount rate. Among rural households that own 1 hectare or less ofland (two-thirds of all rural households), the incidence of poverty is almost 40 percent.
Poverty rates are highest among the Hill/Terni Dalits (46 percent) and the Hill Janjatis (44 percent). Both groups experienced declines in poverty (by 21 and 10 percent, respectively) between 1995-96 and 2003-04, but these declines were more modest than the declines among the upper castes and the Newars (which declined by 46 and 28 percent, respectively), thereby widening inequality (table xx). Differences in poverty levels between disadvantaged castes and the majority population are determined by both differences in the amount of human and physical assets they own (three-fourths of the total difference in 2003-04) and the differential returns to these assets (one-fourth of the difference).17 Econometric evidence shows that over time, however, the differential changes in the levels of poverty are mostly due to the increasing returns to assets, not the "discrimination". Moreover, "discrimination" is less severe in urban areas than in rural areas and has declined faster in urban areas. In addition, qualitative studies show that younger Nepalese have a much more open attitude toward disadvantaged castes than the old generation.
Table 3.3: Pover~ Measurement b~ Caste and Ethnici~ of Household Heads in :"IIeeal: 1995-96 and 2003-04
Poverty Distribution Distribution of e.oe.ulation
Caste or ethnicity 1995 -96 2003-04 1995-96 2003-04 Change
(e.ercent) (eercent) (eercent)
Brahman/Chhetri 34.1 18A -46 26.7 15.7 -41 32.7 26.3 -20 Terai middle caste (Yadavs) 28.7 21.3 -26 2.9 1.9 -33 4.2 2.8 -34 Dalits (Hill-Terai) 57.8 45,5 -21 10.6 10.9 3 7.7 7A -4 Newar 19,3 14 -28 2.5 3A 35 5.5 7.5 38 Hill Janajati 48.7 44 -10 19.7 27.8 41 16.9 19.5 16 Terai Janajati (Tharu) 53A 35A -34 lOA 9.2 -/2 8.2 8.1 -1 Muslims 43.7 41.3 -6 5.7 8.7 53 SA 6.5 19 Other minorities 46.1 31.3 -32 21.4 22.3 4 19A 21.9 13
Total 41.8 30.8 -26 100 100 100 100 Note: The trends in poverty rates across caste-ethnic groups should be treated with caution. see Box 1.1 for details. Source: CBS and World Bank staff calculations using NLSS-I and II.
Key Documents
World Bank. May 1999. Nepal: Poverty at the Turn o/the Twenty-First Century: Main Report and Background Studies. Report No. 18639-NEP. Washington, D.C.
World Bank. June 26, 2006. Nepal: Resilience Amidst Conflict-An Assessment o/Poverty in Nepal, 1995-96 and 2003-04. Report No. 34834-NP. Washington, D.C.
17 Differential returns to assets across different classes of people are interpreted in the literature as "discrimination".
June 2007 Briefing Note fOr the New World Bank Country Director fOr Nepal Page 210(135
IV. Inclusion
A. Background
While gender-based social exclusion or discrimination has been recognized since the late 1970s in government planning documents and through the creation of special programs and government agencies focused on women, caste and ethnic exclusion only began to come out in the open after the restoration of multi-party democracy in 1990 and the geopolitical exclusion of the Madheshis has only exploded into the open since the beginning of 2007 with the continuing Tarai unrest.
The post 1990 Constitutionl8 provided a fairly wide range of civil liberties which ftrst gave identity-based groups space to organize, express their views and begin to articulate their demands. Prior to that during the 'Partyless Panchayat' regime the hill high caste elite had used the rationale and rhetoric of 'national unity' to ignore/suppress expressions of Nepal's vast linguistic, ethnic, caste, regional and religious diversity and instead project a single 'pan Nepali culture'. The fact that this version of Nepali culture continued to be based on the dominance of hill people (Parbatiya or Pahari) over plains dwellers (Madheshi), a patriarchal feudal system with the monarch (from the same elite hill group) at its apex and a Hindu caste hierarchy which privileged their own position, went unspoken and largely uncontestedl9
•
The conquest of diverse ethnic groups by the present king's ancestors which culminated in the victory over the Kathmandu valley Newars in 1768, was cast as the 'uniftcation' of the territory of present day Nepal into a nation state and a ftrst step in the on-going national project of' development'. Fitting into the high caste Parbatiya mold was part of being 'modem' while clinging to ethnic, caste and other traditional identities and practices was seen as 'backward'.
Since 1990, this version of Nepali history and the projection of a single, homogenized Nepali culture has been increasingly challenged by various identity groups. These fall into three main clusters, namely, the Janajati (indigenous, mostly Tibeto-Burman speaking ethnic groups), the Dalits (former "untouchable" occupational caste groups from the bottom of the Hindu hierarchy) and most recently, the Madheshi (people of 'Indian origin' from the Tarai or plans belt bordering India). Along with an increasingly vocal women's movement, these three groups have emerged as poly-centric "movements", each based on a common demand for greater political influence, greater social respect and recognition and equal access to economic opportunity and equal protection under the law for their particular social group.
Since the Jana Andolan II, each these four excluded groups or movements has been trying to secure its place in the emerging political structure. Each also has a different degree of visibility, cohesiveness and ability to exert political influence. What follows is a brief overview of the current state of play of each of these movements along these three dimensions.
B. Gender
Although women are demographically the most numerous excluded group, ironically, they probably have the least bargaining or "threat" power of any of the four groups to negotiate their demands
18
19
The 1990 Constitution has been replaced with the Interim Constitution but the civil liberties (that were withdrawn during the period ofking's rule (Oct 2002- April 2006) have been restored.
Except for gender-based discrimination which has been increasingly contested both in the urban and rural areas over the last 30 years. There had also of course, been occasional violence and some underground activity especially by the Newars and other Janajati groups.
June 2007 Briefing Note for the New World Bank Countrv Director for Nepal Page 220(135
in the current context Women's historical lack of economic and social autonom/o and their cross cutting ethnic, caste, regional and class identities, have sometimes made it difficult for their common concerns as women to emerge as a clear political agenda. Politics has been defined as a male realm and the political parties (including even the Maoists in terms of top leadership) have remained bastions of hill high caste male power. Moreover, most of the women who have been involved in either the political parties or the development field have been from the high caste hill Hindu group and they have been slow to recognize the diversity of Nepali women and their priorities. All of this has meant that women's political mobilization on their own behalf has been slow to emerge even during multi party democracy, and their ability to influence party agendas, limited. Women's representation in Parliament, in the party central committees and in civil service has never reached beyond 6 percent, 9 percent and 8 percent, respectively.
On the other hand, women were the first excluded group to become the focus of donor attention. Over the past 30 years steady donor and government support has gone towards their economic and social empowerment, especially through women's groups at the grass roots. These women's groups which conservatively number over 200,00021 have typically been organized around savings and credit, but also take up issues such as polygamy, gender violence, health-care, family planning, adult literacy, oversight of School Management Committees (SMCs), etc. In addition, over this period donor program and capacity building support for women's NGOs have created an organizational base and an articulate group of women development professionals. Rising female education levels and the high profile that the Maoists gave to gender issues and to recruiting women soldiers and workers during the ten year insurgency have also increased public awareness of gender discrimination at the state, community and family levels.
Nevertheless, there has been persistent male resistance to legal reforms that would actually affect power relations between men and women in the household and beyond-such as the efforts to change the inheritance laws during the post 1990 multi-party period. Legislation that would have been a sea change in women's property rights evoked an unprecedented uproar in Parliament and in the end, was crippled by amendments before it was passed. In response to the demand for "inclusive democracy" that was central to the Jana Andolan II, the Parliament, shortly after it was reinstalled in mid 2006, "proclaimed" that women must henceforth make up 33 % of all government bodies. But nearly a year later there has been no concrete follow up in terms of actual legislation or regulations to make this a reality; moreover, except for the Maoists, the traditional parties made no effort to reflect this commitment in their appointments to the interim legislature or the cabinet. This failure has attracted much comment in the press and has recently been challenged by hitherto compliant members of the women's wings of the major parties. Strong women's NGOs such as the Forum for Women, Law and Development also continue to bring public interest litigation cases to court to challenge discriminatory laws, including the state's continued failure to grant equal citizenship rights to women.22 There are also hopeful indications from rural as well as urban areas that male views are beginning to change. According to the results of the draft Participatory
20
21
22
There are of course, significant variations across groups in the behavior codes for women, but in all communities, land has traditionally passed in the male line and this has left women with little economic autonomy.
Unequal Citizens: Gender, Caste and Ethnic Exclusion in Nepal, Full version manuscript, Chapter 14.
Though the recent citizenship law is an improvement, women can still not pass their citizenship to their children and an adult woman still needs her husband's testimony in order to get citizenship, although the reverse is not true.
June 2007 Briefing Note fOr the New World Bank Country Director (or Nepal Page 230(135
Governance Assessment recently carried out by DflD23, men increasingly see things like women's lower
wages, the practice of menstrual seclusion and multiple wives as unfair.
But at present none of the parties seem to view women as an important constituency who need to be won over through legislation that responds to their demands. Because parties are not playing the role of aggregating and responding to the demands of various citizen groups, the primary means by which such groups seek political influence these days seems to through street protests, strikes and/or violence rather than voting.24 While women's organizations do organize occasional street protests, they are not sufficiently well organized or funded-nor are they probably even motivated-to attempt the more powerful options of strikes and violence. Therefore, the main sources of hope and potential influence on the process of restructuring the state for the women's movement are the strong international support they command, the slow shift in traditional gender relations underway and the growing acceptance by Nepalis of the idea of universal human rights and equality for all citizens under the law.
C. Janajatis
The diverse ethnic groups that were called "tribals" by the British colonial rulers of India, were called matwalis or "liquor-drinkers" in the Nepali version of the Hindu caste system codified by the Mulki Ain (National Code) in 1854. Although this set them below the Brahman's and Chhetris whose high ritual status did now allow them to take liquor, the matwalis as a group were still considered "clean" or pani chaine castes from whom high castes could take water. This distinguishes them from the "tribals" of India who have been placed lower in the caste hierarchy. It reflects the much greater numerical presence of the matwalis (they currently make up 37 percent of the population), their considerable military prowess and perhaps also, the fact that the Newars of Kathmandu valley (most of whom were also classed as matwalis) had already developed a sophisticated urban culture and their own caste hierarchy by the time they were conquered.
After some debate and discussion in the early 1990s the erstwhile matwalis have re-named themselves as Janajatis or Adivasi Janajatis which they translate as "indigenous nationalities". In a sense, individual Janajati groups were active even before the women's movement emerged. For example, the Newars have had a long tradition of resistance to the Rana-Shah rulers' efforts to suppress their language and in eastern Nepal there were violent protests by the Rai and Limbu against the Hindu king's ban on cow slaughter-a traditional practice for them. But such protests had been strongly repressed by the regime and had to go mostly underground. During the Panchayat era many groups had been allowed to maintain "cultural" organizations formed to preserve their traditional music, dances and mother tongue. Even after 1990, though identity groups were allowed to register as formal organizations, they were not allowed to form political parties based on ethnicity.
23
24
This is preliminary data from a DfID funded study conducted by the Nepal Participatory Action Network (NEP AN) and Overseas Development Institute (ODI) for the Nepal Planning Commission. The results which are still being written up are based on 42 focus group discussions (from 10 to 16 each, separate for men and women with mixed age groups) carried out in 21 communities from 10 districts.
Of course, due to the insurgency, and the current state restructuring process, there have not been elections for more than eight years. The recent DfID Participatory Governance Assessment reflected an intense eagerness to vote in elections. There was very little understanding of what the Constituent Assembly was about. People understand only that there is going to be an election and they want to participate in it. Indeed, the assessment showed that in rnral areas people are optimistic about the current process and despite their long experience of the state's failure to deliver, they still look to the state rather than NGOs or private sector to respond to their needs.
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There are officially 59 recognized Janajati groups, although some like the Rai contain numerous sub-groups who speak distinct languages and are now lobbying to be recognized as distinct peoples. Most groups are of Mongoloid racial stock and speak Tibeto-Burman languages. Some Janajati groups (like the Tamang) came to Nepal from Tibet quite recently after the main influx of Hindus of who migrated eastward into Nepal from the Indian Himalyas over many hundreds of years and spoke the Indo-Aryan language that became Nepali. But there is no dispute that the original inhabitants of the territory of modem Nepal were Tibeto-burman speaking Janajatis and certainly the ancient Newari culture of the Kathmandu valley has contributed the art and temple architecture and much else that is today seen as quintessentially Nepali.
Like most other interest groups in Nepal (e.g., teachers, labor unions, etc.) the Janajatis are crosscut by party factions and have different leaders and sub-groups jockeying for power. Some Janajati leaders who held important positions during the period of the king's absolute rule have lost credibility now, although others are accepted to some extent since they are seen to have used their power to advance the Janajati cause. There are also major disparities in wealth and power between the 59 + Janajati groups and not surprisingly, it is the more advanced groups who form the leadership of the movement~-· particularly the well educated urban Newars and the groups like Gurungs, Rais, Limbus and Magars.25
These fairly powerful groups with relatively large populations were deemed as "uninslavable" (namasine) in the Mulki Ain in eontrast to many other weaker groups who could be enslaved (masine) and also could not join the army. Service in the British Gorkha regiment has been a route to education, exposure and relative prosperity for many members of the namasine groups.
Another fissure in the Janajati unity is the gender issue. Although male Janajati leaders for nearly a decade after the demise of the Panchayat regime, got away with claiming that Janajatis were more egalitarian in terms of both gender and inter-caste relations than the dominant Bahun Chhetri society, both female Janajatis and Dalits have challenged this assertion. Until the recent formation of several organizations of female Janajatis such as the National Indigenous Women Pressure Group and the Himalyan Indigenous Women Forum, there were almost no women leaders in the Janajati movement. But this is being challenged now by younger, educated Janajati women who are pointing out not only the male-centric nature of the Janajati movement and Janajati societies, but also the domination of the women's movement by high caste women.
Despite its internal diversity and cross cutting ideological and party factions, the Janajatis seem to be able to present a relatively cohesive front as a political constituency. One way they have dealt with the wide disparity between different ethnic sub-groups is to simply acknowledge it. They have divided themselves up into five different clusters ranging from the Newar and Thakali who are considered "advanced" and thus, not in need of special government economic and education policies through different levels of disadvantage down to certain small rapidly diminishing groups like the Kasunda who are considered "highly endangered" and in need of intensive government support. Also they have had enough of their numbers and supporters in powerful party positions during the multi-party period and even during the period of king's rule to be able to broker the establishment of a relatively autonomous National Foundation for the Development of Indigenous Nationalities (NFDIN). Moreover, well before that, early in the 1990s they were able to establish a non-government Nepal Federation of Indigenous Nationalities (NFIN) that has had several (highly contested but democratic) changes of leadership26 and
25
26
Preliminary results from on-going AAA using small area estimation techniques on the 2004 NLSS data, show for example that poverty incidence among the Newars is only 14 percent, compared to 31 percent for all Nepal, 51 percent for the Tamangs and 64 percent for the Chepangs.
An election was recently held in which Dr. Om Gurung was replaced by Pasang Sherpa as President of NFIN.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 25 0[135
successfully established member organizations that represent most of the 59 recognized groups. NFIN actually has an official role in confirming the selection of the head of the government supported NFDIN, thus giving the latter some accountability and a measure of legitimacy as more than just a place where the ruling party could reward its loyal Janajati cadres. Moreover, NFIN must take the credit for having recognized the disparities of economic and political power between different Janajati sub-groups and acknowledged it through the classification into five clusters (mentioned above).
External donors have been less important to the Janajatis than they have been to the women's movement or to the Dalits. For one thing, in the 90's many donors picked up government's discomfort with the Janajati activists who were seen as divisive and politically threatening to the ruling elite many of whom were still committed to old Panchayat era ideology of a unified Nepali culture. The Danish were the only ones giving significant attention to them until very recently. In addition, the movement has been quite successful in raising internal funds and was initially hesitant about taking donor funds for fear that the purity of its agenda might be compromised. About two years ago however, both NFIN and NFDIN accepted large grants from DflD for their work.
The Janajati movement has been fortunate in that several of their core demands were taken up fairly early on by the Maoists, such as the secular state, and a federal state structure built primarily around autonomous ethnic regions. Janajatis are prominent in the Maoist ranks even at he higher levels (though not at the highest). The secular state has already been enshrined in the interim constitution and there is a growing consensus (among other parties as well) around a federal state structure with much more serious devolution of power and resources. However, now that more people have had a chance to think through some of the implications and logistical difficulties (ethnic cleansing? mass movement of people as happened in the partition of India and Pakistan?) of establishing ethnic enclaves in what is for the most part, a fairly geographically intermixed nation, the Maoists and even many of the Janajati leaders have been less vocal about this demand recently. Interestingly, the recent DflD-sponsored opinion poll on citizen state relations found that among their rural respondents, it was only the Janajati (and some other informants who had worked in India and seen its federal structure) who had a clear understanding of the concept of federalism, which suggests that Janajati activists have been effective in raising awareness on this topic?7 However, the Participatory Governance Survey mentioned earlier that was carried out at the same time found no sense of 'pan-Janajati unity' in any political sense among their rural respondents. Respondents were more likely to self-identify as members of their own sub-group (e.g., Tamang, Gurung, etc.) and some were not even familiar with the term' Janajati'.
In addition to recognition of their mother tongues in schooling and local governance structures, the main unfulfilled demand of the Janajati movement is the clarification and implementation of the interim legislature's "proclamation" (similar to the one made for women), that 45 percent of all (elected and administrative) government positions will be reserved for Janajati, Dalits, disabled and Madheshi citizens. How this pie will be divided is still under negotiation. To some extent the Janajatis have been outflanked by the Madheshis who have elevated their profile and the threat factor behind their demands by their violent behavior in the Tarai. The most radical and potentially violent Janajatis are still in the Maoist camp and hence, now part of "government". That is no longer true for the Mahdeshis whose Maoist breakaway group, Janatantra Terai Mukti Morcha (JTMM) has upped the ante on the Madheshi issue by pursuing violent means against the Maoists as well as the wider interim government. NFIN did lead a relatively well observed three day strike this spring and some Janajati leaders have threatened the use of violence. But thus far, their approach to exerting influence on the shape of the New Nepal seems to be primarily one of presenting a fairly unified front and homework (in terms of contributing to the three
27 Preliminary results from a nationally representative survey of 4000 adults from 66 districts in all development regions and ecological regions conducted during April 2007 by Nielsen.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 26 0(135
year interim plan) and the bargaining and negotiation that characterizes healthy democratic political processes.
D. Dalits
The name Dalit which means "the oppressed" is borrowed from the Indian Dalit movement and of relatively recent origin. Earlier this group of sub-castes at the bottom of the Hindu hierarchy had been known in Nepali as the sana jat (small castes) or referred to by their ritual status as achut or untouchable. The name Dalit itself is significant as it shifts the focus away from their supposed impurity which is implicitly part of the divinely ordained order of things to the fact that other human beings have acted unjustly towards them. It is a political term that contains an accusation of social injustice and implicit rejection of at least that part of Hinduism built around the hierarchy of purity and pollution.
It is significant that government documents now use this term (Dalit), though the earlier euphemisms, ('backward', 'marginalized' or 'disadvantaged' groups) which are less specific and also include disadvantaged Janajati groups, are still in use and preferred by many government servants from the high caste elite. But in the period since 1991 (when the census began once again to collect data on caste and ethnic identity), and particularly since the analysis by caste and ethnicity in the 2004 NLSS, the Dalits have emerged from their earlier statistical invisibility. Because of this, their significantly higher levels of poverty and poor health and education outcomes have been acknowledged by government though beyond continuing the Dalit scholarships instituted in the Ninth Plan and putting more emphasis on targeting in some donor and government sponsored community development programs, little of a structural nature has been changed. Over the past 10 years interuational donors (particularly INGOs but increasingly bilateral and multilateral donors as well) have also recognized Dalits (as well as gender) as a critical focus for poverty alleviation and social mobilization efforts.
Yet the Dalit movement has had difficulty in getting political traction either during the multiparty period or during the king's absolute rule. As they had done for women and Janajatis, most of the parties formed auxiliary wings for their Dalit members, but paid little attention to developing policies or legislation to address substantive concerns. Dalits were viewed as a vote bank to be rewarded for their loyalty through individual favors rather than through policies supporting the group's rights. In contrast to the Janajatis who managed to get legislation supporting the creation of a the National Foundation for Development of Indigenous Nationalities, the DaHt demand for a National DaHt Commission has languished for years unable to pass the required legislation. As a result the Dalit Commission has been dependent on the Ministry of Local Development's Dalit Committee for funds and been run by Dalits loyal to the ruling party but with little standing as leaders in the DaHt movement. Not only did the king's government fail to appoint members to the Commission, but even the government brought in by the Janadolan II seems to have ignored the Commission.
Although demographically Dalits are not insignificant-officially accounting for 13 percent of the total population in the last census28 -they still make up a much smaller proportion of the country than the Janajatis (37 percent) or the Brahmans and Chhetris (nearly 33 percent). Moreover, the Dalit movement, more perhaps than the Janajati, has suffered from internal conflicts, not only along strongly defined party lines, but also in terms of competition between different Dalit sub-groups. First of all, there is tension between the Hill or Pahari Dalit group, who together make up 61 percent of the DaHt population and the Tarai Dalits. Comprised of many small and often extremely poor groups, the Tarai DaHts have less contact with the (Pahari-Ied) political parties, often don't speak Nepali as a mother
28 Dalit activists generally claim 20% and although in some districts the proportion of Dalits does reach this high, most researchers, acknowledging the likelihood of some under reporting in the census, would put the figure at closer to 15 percent.
June 2007 Briefing Note tor the New World Bank Countrv Director fOr Nepal Page 27 of]35
tongue and feel that they have been denied the visibility and access to jobs that has come with donor and government recognition of Dalit issues. For example, the Dalit NGO Federation, (DNF modeled to some degree on the Janajati's successful Nepal Federation of Indigenous Nationalities) was criticized for its Hill centrism by the Tarai Dalits who formed their own Dalit NGO Confederation (DNC) for the Tarai. Even among the Hill Dalits there is resentment of the traditional blacksmiths (Kami or Biswakarma and their subgroup, the Sunars, who specialize in making jewelry) who make up nearly 40% of the total DaHt population and have similarly been accused of favoring their members of their own group above others.
The traditional internal hierarchy among the Dalit sub-castes, which demands that the "higher" groups must not share food or intermarry with groups lower in rank, has undermined the logic of the Dalit critique of the caste system and weakened their internal solidarity. Educated urban Dalits active in the movement have made doing away with this internal discrimination a high priority, but it continues among many who have not had education and exposure. The low education levels among the DaHt 29also constrain the movement's access to effectiveness leadership who are able to function effectively in the halls of power in Kathmandu. DaHts also share the overarching male bias of their surrounding society. The lack of women at senior levels in Dalit organizations has attracted strong criticism from articulate DaHt women leaders and weakened their case equality and social justice.
But there is hopeful news that Dalits may be overcoming their internal divisions and presenting a united front. The DaHt wings of 6 of the most powerful political parties (including the Maoists, both Congress factions, the UML and Sadbhavana) have formed a committee with three members (one must be a woman) from each of the six parties. They have worked out an 11 point program which includes the demand for 20 percent reservations (based they say on their share of the population). They have presented these to Ram Chandra Poudel, the Minister for Peace and Reconstruction. Apparently, they have also hinted that if these demands are not met in the next 20 days, they too will be forced to use violence. Sadly, this seems to be an essential currency in political bargaining in the current context.
E. Madheshi
Among the four socially excluded groups examined here, it would appear that at the moment the one with the most power to bargain effectively for a seat at the constituent assembly table is the Madheshi group. The willingness of the JTMM breakaway Maoist faction to use violence and do so over an extended period of time, has frightened the current interim government and war weary citizens. In the eastern Tarai something akin to ethnic cleansing has been going on. Though the scale is nothing compared to Bosnia, several government officers of hill origin (and one engineer working on a Bank project) have been murdered. According to conversations with UNDP personnel who just returned from a monitoring trip in the eastern Tarai, other government staff from the hills say they are willing to remain, but they will not travel or go to the field. In a similar vein, the recent Participatory Governance Assessment30 found most of the country eager to participate in elections, except for respondents in the eastern Tarai who reported that they were unwilling to participate in any sort of election at present because of their sense of insecurity.
It has been an open secret that the hill elites who rule the country have always looked down on the Masheshi and mistrusted them as likely to be more loyal to India than to Nepal. Though many of them have been resident in Nepali territory for generations, if they are accepted as Nepali citizens at all,
29 Dalits make up less than 1 percent of the population educated to the Bachelor's level or above.
30 Op cit.
June 2007 Briefing Note (or the New World Bank Countrv Director (or Nepal Page 28 of 135
they are still spoken of as Nepalis "of Indian origin,,3l because their mother tongue is Avadhi, Bojpuri, Maithili or Hindi rather than Nepali and because they maintain long standing kinship and marriage ties across the border and have similar cultural and religious traditions to those in neighboring North Indian states.32 Nepal's long standing fear of being submerged by its giant neighbor to the south has "justified" a discriminatory system of granting citizenship papers which has resulted in millions of Madhesis who were born in Nepal (sometimes even with parents and grandparents born in Nepal) and yet have been unable to obtain Nepali citizenship. Nepali speaking government officers from the hills have been able to demand land registration (though land ownership is not required for citizenship) and otherwise exercise considerable discretion about whether or not to issue the papers. Failure to obtain these papers~ especially for poor and landless Madheshis who had no means to influence the bureaucracy~has meant lack of access to basic services and rights such as education and the right to vote. As preparation for the CA a massive campaign to distribute citizenship papers through mobile teams has been underway across the country and especially in the Tarai. According to a February 1 report in the Kathmandu Post, a total of 300,823 people in 69 districts have received citizenship papers. While there are some positive stories in the press of grateful new citizens, there are also many negative stories that seem to reflect the fear of either massive Indian immigration or fear of the Tarai radicals. One story in the Kathmandu Post on the April 9th told of "Indian brokers ... selling Nepali citizenship ... to Indian hordes" for bribes of between NRs 2,000 to 20,000. An earlier report in February told of death threats from the JTMM to government servants on the mobile teams if they did not distribute papers. It is difficult to assess what the state of play on the distribution of citizenship papers is at the moment, but it is very likely that the whole citizenship registration campaign has become a lightening rod for the long standing tensions of the Tarai.
Although the presence of Madheshi politicians in the legislature has somewhat increased to 20 percent since the advent of multiparty democracy, it is less than their in the population which according to the last census (but excluding Tarai residents of hill origin) would be about 33 percent. The problem here is that not even all non- hill origin residents ofthe Tarai self identify as "Madheshi". The Tharu and other Tarai Janajatis (who together account for 4.7 percent of the national population) do not and neither do the 4.3 percent Muslim population who live mostly in the Tarai33
• Similarly many of the Dalits, though they may have their problems with the hill dominated Dalit movement, have an even greater hesitancy about being part of an interest group that lead by the upper and middle caste tarai groups who have dominated them for centuries.34 A recent letter to the Kathmandu Post expresses this view: "Among the thirty percent of the total population (who are Madhesis), the leading voices like Yadav and Singh (middle castes) are the most represented groups from the tarai and they cannot represent the voices of the Chamar,
31
32
33
34
Ironically, the ruling hill elite are of course also "ofIndian origin", although they came earlier and migrated in through the hills.
David Gellner points out that the Nepal India border was artificially declared by the British colonialists to include a swath ofthe rich North Indian rice land that was culturally part of Uttar Pradesh, Bihar, and West Bengal so that the poor mountainous country of Nepal would be economically viable. "Caste, Ethnicity and Inequality in Nepal", Economic and Political Weekly, May 19, 2007, pp 1823-1828.
This note does not cover the Muslims as a separate excluded group, but they are and have recently presented their demands to government through the Intellectual Muslim Association of Nepal (IMAN). The demands included equal access for Muslims to resources and opportunities, observation by government of key Muslim holidays, the introduction of Muslim personal law, a Muslim Commission and a Madrasa Education Board.
Indeed, one of the reasons that the Madhesi were not much on the donor radar screen as an excluded group is that donor focus has tended to be on social and economic exclusion more than on political exclusion. The poorest Tarai groups such as the Dalits, Muslims or Janajati groups like the Tharu had been targeted because of their poverty or their social exclusion rather than their regional or geopolitical identity.
June 2007 Briefing Note tor the New World Bank Country Director tor Nepal Page 29 of] 35
Musahar, Tharu (Tarai Dalit and Janajati groups) and the likes because they haven't experience their sufferings and grievances."
Indeed, probably one of the reasons that the Madhesi were not much on the donor radar screen as an excluded group is that donor focus has tended to be on social and economic exclusion more than on political exclusion. The poorest Tarai groups such as the Dalits, Muslims or Janajati groups like the Tharu, had been targeted by donors because of their poverty or their social exclusion rather than their regional or geopolitical identity. In a similar vein, the Bank's AAA on gender and social exclusion looked at the issues of Madheshi women, Dalits and Janajatis as part of these groups rather than as Madbeshis per se. Though it did mention the issue of Madheshi citizenship and the dominance of the hill elite, the GSEA did not focus specifically on the wider issues of Madheshi exclusion which is primarily a lack of political voice and presence in the projection of Nepal's national identity.35
At this historic junction, the importance of all groups in Nepal being able to have some political influence on the restructuring of the state, can hardly be over estimated. The challenges of the current situation are two. First, mainstream Madheshi politicians and intellectuals must find a way to channel the anger and energy first tapped by the Maoists and now taken over and multiplied by the JTMM, into a set of reasonable demands--perhaps placed before the interim government Peace and Reconstruction Minister as the Dalits have done. Second, the interim government-still dominated by hill groups-has to recognize the systematic discrimination faced by Madheshis and be willing to share power with leaders who represent their interests and are accountable to them rather than the Kathmandu-based elite.
F. Conclusions: Getting Beyond the Zero-sum Game
Political parties in Nepal are still seen more as sources of individual patronage in a feudal limited access system, than as responsible for producing legislation and public policies that respond to the interests of broad voter groups. This heightens the sense of a zero-sum game which the different interest groups believe they face and increases the likelihood that they will seek a strategy of violence rather than negotiation, coalition building and compromise. Patronage is a zero sum game.36 Shifting the source and currency of political power from individual patronage to the development of sound public policy and the efficient implementation of effective systems that deliver on basic rights and services to broad constituencies is the major challenge faced by the leaders of the current political coalition-and the leaders of the various excluded groups seeking entry into that coalition.
The zero-sum mentality of the leaders of the excluded groups (and most other groups who are contending for influence in the state restructuring process) reduces the incentives for cooperation between them. They tend to see themselves as competitors for government benefits and donor funding rather than seeing the tactical advantage offonning a coalition (which could potentially include more than 80 percent of the country's population) to press for a common agenda of an "open access" state where all there is substantive equality for all groups. An example of this mindset is the opposition from certain influential women leaders from the elite group to the idea of including the analysis of women situation and their
35
36
This has been criticized by Madheshi intellectuals and activists and so a separate chapter on the Madheshi movement, parallel to the chapters on the women's, Dalit and Janajati movements has been commission for inclusion in the full version of Unequal Citizens which is being edited and published by Himal Books.
Patronage (which is extracted through rents on assets exclusively controlled by the elite) is the currency of the 'limited access society" described by North, Wallis, and Weingast in their recent paper ("A Conceptual Framework for Interpreting Recorded Human History", NBER, December 2006). In order to keep the rents high enough to maintain the ruling coalition of elites, the group in power must remain small and focus on control of assets rather than grov.1h. Hence the zero-sum mentality that pervades limited access (feudal) societies like Nepal.
June 2007 Briefing Note (Or the New World Bank Countrv Director tor Nepal Page 30 oU 35
demands within the broader social exclusion framework. While it is true that each group has its specific needs and priorities which also need attention, there has been a failure to view their common demand for a government that will deliver equal rights and protection under the law for all citizens as a platform upon which they could form a powerful pressure group. Instead, each group seems to focus on its victim status-to which some add the threat of violence~~as their primary tactic to achieve political influcnce in the emerging political order. All too often the bargaining is for narrow group-specific gains rather than for an enabling environment with more equitable distribution rules for everyone and a chance for fair competition of individuals and ideas.
While each of the excluded groups is using the language of rights, each seems to be thinking and behaving as if it were seeking favors from a powerful patron in the old feudal mode. This ignores the dimension of citizen responsibility (as tax payers and upholders of the law) that must accompany a rightsbased polity. It has the pernicious effect of inflating interest group demands beyond what is fiscally and even logistically (not to mention politically) possible for government (or political parties) to deliver. Yet both the government and the political parties (which also continue to think and function in the feudal mode) encourage this approach, thinking they can win the necessary interest group votes as they have in the past-without ever delivering on their high promises.
Key Documents
World Bank and DflD. 2006. Unequal Citizens: Gender, Caste and Ethnic Exclusion in Nepal. [Executive Summary, Summary, and Full Manuscript].
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 310(135
V. Macroeconomic Status and Economic Policy Issues
A. Recent Economic Developments
Growth projections for FY06/07 have been revised down to between 2.5 to 3.5 percent from the targeted 5 percent (see Table 5.1). Bad weather has dampened hopes of a revival in the agricultural sector, and continuation of industrial and political conflict, power shortages and weak external demand have limited growth in the non-agricultural sector. Preliminary growth estimates for the previous year (FY05106) are 1.9 percent owing largely to the slow growth in the agriculture, transport, finance and real estate sectors, while construction (4.2 percent) and trade, restaurant and hotels (3.9 percent) were the key drivers of growth.
On the fiscal front, the deficit (after Table 5.1: Selected Macroeconomic Indicators, FYOI/02-FYOS/06
grants) declined from FYOlm2 FY02m3 FY03104 FY04mS FYOSm6 Growth (percent change)
4.0 percent of GDP in Real GDP at market prices .{J.6 3.4 3.7 2.7 1.9
FYOl102 to 1.7 percent CPI (period average) 2.9 4.7 4.0 4.5 8.0 Government fmances (percent ofGDP)
In FY05106 for two Total revenue 11.5 12.3 12.2 12.9 12.2
reasons. First, on Total expenditure 16.9 16.0 15.5 16.5 16.2 Current expenditure 11.5 11.4 11.2 11.6 11.4
account of tax policy Capital expenditure 5.4 4.6 4.3 4.9 4.8
and administrati ve Overall deficit (before grants) 5.4 3.7 3.3 3.5 3.9
reforms, Overall deficit (after grants) 4.0 1.6 1.0 0.8 1.7
Nepal's Net domestic borrowing 2.9 0.9 0.6 0.2 1.4
revenue effort has been Public debt 69.5 66.5 65.2 59.0 56.2
respectable in Broad money growth (end of period) 4.4 9.8 12.8 8.3 15.6
recent 91-dayT-bill (end of period; percent) 3.8 3.0 1.5 3.9 3.3 years, increasing from Balance or payments (percent of GDP)
11.5 percent of GDP in Current account balance (excluding grants) 1.9 0.3 0.9 -0.3 0.6 Trade balance -12.6 -15.4 -15.6 -16.1 -19.1
FYOll02 to 12.2 External debt 53.4 52.6 51.2 45.8 43.0
percent of GDP in Debt service 4.9 5.0 4.5 4.5 4.2 Gross official reserves (end of period)
FY05106. Second, the (months of Un20rls of goods and services) 7.0 6.6 7.3 6.2 6.5
intensification in the IMF staff estimates. FY05106 is provisional.
conflict and deterioration in the security situation-particularly in rural areas-have affected the public sector's ability to spend on development activities. These implementation difficulties have translated into a decline in capital spending from 5.4 percent of GDP in FYOll02 to 4.8 percent in FY05106. This decline notwithstanding, the public sector has managed to shield expenditures earmarked for pro-poor community-driven projects through the effective implementation of a number of expenditure management reforms introduced in the Medium Term Expenditure Framework CPllnflation In Nepal and India
(MTEF). The FY06/07 budget- _ .... ___ . __ .... ___ .~ __ (y_ea_r_.o.~n-_y_e_a_r_) _______ ~ .. _____ ,
presented in July 2006--projects 28 percent growth in public spending (compared to the estimated FY05106 outturn), much of which is directed towards pro-poor expenditures and community-based activities. However, as a result of nonfunctioning local bodies and a deterioration in political stability due to the disturbances in the Terai, the most recent data indicated that only 27 percent of the capital budget has
10.0 ,
9.0
8.0 -
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0 +-C--~~~~--··T~~~T···~~~····~~~·~,···~~r-~~.····~~.~-~~
June 2007 Briefing Note (or the New World Bank Country Director (or Nepal Page 32 ofl35
been spent so far. Concomitantly, an increase in revenue collection and foreign cash grants has led to a comfortable cash balance of the Treasury, which has limited domestic borrowing to around half of the budgeted ceiling.
The Central Bank of Nepal (Nepal Rastra Bank; NRB) has maintained a cautious monetary policy over the past few years. By keeping broad money growth at reasonable levels, it has been able to contain inflation between 4 and S percent through FY04/0S (see figure). However, the cascading effects of increases in the value added tax (V AT) rate (10 percent to 13 percent) and the rise in price of petroleum products, together with blockades and supply disruptions, led to inflation rising to around 8 percent in FYOSI06. The pass-through effect from rising prices in India has kept inflation levels between 7-8 percent throughout the current year.
Nepal's external sector-mainly international trade-has suffered severe setbacks in recent years. Exports have stagnated at an average of around 16 percent of GDP since FYOI/02 when Nepal suffered the first and the biggest blow in what has unfolded as a series of tenns of trade shocks.37 On the other hand, imports have regained their pre-FYOl/02 levels with signs of some pickup in economic activity. In FYOS/06, export value growth was around 4 percent while import value growth was over 18 percent. Despite the persistent trade deficit, Nepal's current account balance remained positive in FYOS/06, largely due to the offsetting effect of remittances that have registered phenomenal growth in recent years and are now about 16 percent of GDP. The increase in remittances reflects the high number of Nepalese migrant workers seeking employment abroad-i.e., in FYOS/06, nearly 180,000 Nepalese workers sought employment out of the country.38 Total international reserves at the end of FYOS/06 were sufficient to cover about six and one half months of imports of goods and services.
Nepal's public sector debt situation was reviewed for the 200S Highly Indebted Poor Country (HIPC) Initiative implementation status report. This analysis indicates that Nepal is likely to be eligible for HIPC debt relief. Based on estimated end December 2004 debt indicators, Nepal's net present value of debt to exports is 198 percent. Furthennore, based on the Low Income Country Debt Sustainability Analysis (LIC DSA) framework-an exercise conducted jointly by the International Monetary Fund (IMF) and the World Bank in January 2006-Nepal's external debt dynamics are subject to a high risk of debt distress.39
B. Economic Prospects
Nepal's macroeconomic outlook for the medium term rests heavily on the prospects for sustained peace and political stability. A lasting improvement in the security situation, a return to nonnalcy on the political front and concurrent acceleration of key economic refonns, ought to lead to a gradual return to growth rates of S percent. Based on a simple model developed by the Nepal PREM country team, growth
37
38
39
Initially Nepali exports were affected by the dampened external demand following the world-wide economic downturn after September 11. Nepali exports were then hurt by the unfavorable terms of the 2002 Trade and Transit Treaty with India through which India imposed quantitative restrictions on four key Nepali goods. Subsequently, Nepali goods have been losing out in the international marketplace due to increased competition, and more recently, the phasing out of the Multi-Fibre Agreement (MFA).
The data quality is poor, but this could mean as high as 7 percent of the total labor force in the nonagricultural sector went abroad in one year.
The DSA was released in the IMF's Staff Report on the 2005 Article IV Consultations (February 2006), and since that time Nepal has continued to be current on its debt service. A revised DSA was recently completed and will be finalized in the context of the IMF Staff Report on the next review of the Poverty Reduction and Growth Facility (PRGF).
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 33 0(135
would be driven by marked rebounds in the manufacturing and services sectors, and would be enhanced by contributions from public sector investment and increased tourism earnings40
• Long run growth prospects are also dependent on improvements in the stock of human capital, improvements in governance and a deeper financial sector. However, if there is a resumption of the conflict, much lower growth rates-Le., 2 to 3 percent--could be expected.
The fiscal framework-with a deficit (before grants) of around 3.5 percent of GOP-is an indicative one, given the possible shifts in public expenditures following a likely peace dividend. The cessation of the armed conflict will be instrumental in bolstering the revenue effort and the public sector's ability to scale up capital investments. At the same time, election-related and immediate post-conflict expenses will need to be factored in.
The current account balance is likely to remain positive as remittances are projected to grow faster than the deficit in the trade account. The growth of remittances has thus far not resulted in a Dutch disease effect as the real exchange rate has not appreciated by more than 5 percent over the FY06 medium run average. Nevertheless given the projected increase in aid due to the peace dividend, the real exchange rate will need to be monitored carefully to ensure Nepal's competitiveness. Given the currency peg with India, price movements will broadly mirror India's except for temporary spikes owing to exogenous shocks (e.g., pass-through of international petroleum prices) and inflation is projected at around 5 percent in the medium term.
C. Nepal '8 Macroeconomic Status: 1990 to 2006-A Pictorial Story
Nepal's GNI per capita is the lowest in the region. GOP growth is erratic due, in part, to huge dependence on agriCUlture, and since 2002 has been far below regional rates.
GNI per capita, Atlas method (USO)
1200 -~----------~--------------~,
1000 + ---800
600
400 ___ I 200 ,----------"..",..,.....,..---- --- --,
o t ... ,,--,--,--r-I "~--,-----.---,-~ .... ~M·--r·---.. .,.-----··-~ g m
--r~eDal ---India SA
GOP Growth (annual %) 12------------ -----------------------
10
8
Broadly, inflation follows the patterns from India.
40 These projections are based on a macro-modeling framework developed by the Nepal country team-i.e., the "1-2-3 PRSP model" (see Guimbert and Tiwari 2006 mimeo)-and are in line with IMF estimates.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 34 of 135
Inflation, consumer prices (annual %)
25~---~-~~--~~--~--------~~-- -~
20 t-15 T -,7
, i .-1':t __ \,r.;-.~= o +: ~---.-~ -'---'---'--~r -.---.--.--~7'f ~,-,--,----,
-51~- ----i:l~'j--) ----in-
Real effective exchange rate growth (annual %)
12~~---~~~~~~~---~~--
8
4
O+-~~~~~~~~~~~~rl-~~
-4
-8
-12 ~~~-----~~~~-----~~~~-----~~-
g ~ ~ ~ ~ g ~ ~ : Ol Ol Ol Ol Ol 0 0 0--l£.... .... .... .... .... C\l C\l C\l
r=~Nepal ---India -- SA avg (excllnd & Nep) I . ~": .... -----~-: .... -----~--: .... - -:..... I
While revenue collection-which is poor-has improved over the years, expenditures have been constrained by the insurgency in recent times leading to a fiscal balance that is comfortable by regional standards.
Overall budget balance, incl grants (% of GOP)
o c---,---o---c--.-
-2 T-
-4+
-8
-10 .12 _':'_~_~_~~_~ __ ~~~~~_~ ___ ~~---1
o o @
v o o N
----~-
-Nepal - - -India --SA avg (excllnd & Nep)
I
~entral government debt, total (%ofGDP)
801
---
! 70 ~ - - - - - - - - - - - - - - - - - - - - -
! 60
i 50
I 40
30
20+-~,~~~--~~'-~~-r'-'~~~- r~
Regionally, Nepal compares well in terms of trade openness. However, exports have suffered particularly after the phasing out of the multi-fibre agreement (MFA), while imports are picking up after a slight slump during the conflict years.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 35 0(135
Exports 01 goods and services (%01 GOP)
35.0-----
30.0 - - - - - . - -
I. :~:~ IT ..... ...... >: i 15.0 - ~ - - - - ......... - .. - .. - :..:. -_-;- - -
• 10.0 .::.::.. -;..--- - ------ -, ::-.-.-:. - ...
5.0 -
0.0 +--.,---,.---,-
~ ~ ~ ~ ~ ~ ~ ~ ~ i
--Nepal---India --SA avg (excl Ind & Nep) Ii ~============mmmmmmmm ________ ~i
Imports 01 goods and services (%01 GOP)
45.0 --:-------------------.---.--- -------.-----, 40.0 35.0 -'-. 30.0 -, -25.0 - - - -- --- _m m - ... :": ...... 20.0 -'- - - - - - - m --.. ----.. --. 15.0 + . - - - ::..-_--~~~-~--~~--=-=~ 10.0 t-_-.:-:-_--5.0 + 0.0 +--,.---,---r-,---,--
The large trade deficit that would normally also have resulted in an untenable current account, however, has been prevented by an astounding rise in worker's remittances that leads to a positive current account balance ....
Worker's remmittances (% of GOP)
18.0 ~-.---------------------------------__
16.0 14.0 12.0 10.0 - - - - - - - - - --
8.0 6.0-~=-
4.0 c- - -2.0 t-.::.::.-:. ... -~ 0.0 +: ..:;-;,..-,........---.,...L..-,-~
8 8 N N
... and contributes to a healthy foreign reserves balance of more than six months worth of imports of good and services.
Current account balance (% of GOP)
9.0 ~-----------------.----------------~
6.0 3.0 0.0 +--",,---,=,-,--,-..,.-::I7f:,--,=--t=-r-'-~-r-,---j -3.0 -6.0 -9.0
-12.0 -15.0 ~ _____ m ___ ._. _______ ,
c::..:Nepal - - -India --SA avg {excllnd & NapI]
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Gross international reserves (months 01 imports)
0 C\I O'l O'l O'l O'l
.--Nepal
June 2007 Briefing Note for the New World Bank Countrv Director for Nepal Page 36 of] 35
D. The Bank's Support
The underlying basis of the SASPR work program is to support the attainment of the CAS objectives for Nepal. Out of the four CASIPRS pillars-growth, service delivery, social inclusion and governance-the analytical work program of SASPR focuses on the objectives of improving growth and governance, primarily through a continuing dialogue combined with the potential for provision of budget support operations (originally envisaged as a series of Poverty Reduction Support Credits, PRSCs) that would encompass all four pillars drawing from a multi-sector team. Given Nepal's current political transition, the series of PRSC has been suspended, and dialogue is on-going around a potential Transition Support Credit (TSC) that is tentatively scheduled to go to the Board in the last quarter of calendar year 2007.
The proposed TSC is intended to provide the fiscal space required to maintain stability and support feasible 'quick-win' reforms. The political and security landscape in Nepal is fluid, with demands on the State being made from numerous quarters. It is therefore essential that the macro-economic fundamentals remain in place and fiscal stability is maintained. Hence the TSC intends to provide a fiscal cushion for the FY08 Budget.
The reforms that are supported by this operation (See Box 5.1) are opportunistic 'quick-wins' designed to strengthen the legitimacy of the State. They will contribute to employment creation, improve the quality of public services in key sectors and strengthen governance. For example, the boost in tourism that has occurred from having signed numerous air service agreements with international airlines in the last few months-a prior action that has been met
•
•
• •
•
•
• •
Box 5.1: Key Actions for the Transition Snpport Credit Improve transport links by connecting an additional five district headquarters with road access. Strengthen tourism flows by permitting at least three new airlines access to and from N epa!. Cabinet approval of a Special Economic Zone (SEZ) law Credible actions on defaulters such as seizure of passports, restrictions on transfer of assets and creation of new businesses and withdrawal of state facilities for defaulters. A per student funding formula for schools implemented, starting with community managed schools and "unaided schools" Creation of auxiliary nurse mid-wife positions in all sub-health posts and recruiting trained mid-wives into these positions. The new Procurement Act to be enacted, with adequate provisions. Greater transparency in the Army Welfare Fund through public disclosure of its composition and investments
-if it continues, is likely to lead to further job creation in remote scenic rural areas. As another example, growth and employment creation is heavily dependent on improving connectivity within Nepal, and the Government is committed to connecting five remote district headquarters with road access (a prior action that is not yet fully met) in the next few months. The reforms in education and health are related to better quality of education and reduction in maternal mortality. The governance improvements that the TSC supports are designed to bring about a more accountable and less corrupt government.
In FY08, a comprehensive study will be initiated on growth in Nepal. This report will aim to discuss options for boosting pro-poor growth, partly updating the FY04 Nepal Development Policy Review and the FY04 Trade and Competitiveness study. Other work will build on previous work with the dissemination of the Public Financial Management Review (Managing Public Finances for a New Nepal) and the Governance Note. A status update will also be produced on Bank assistance to Nepal's monitoring and evaluation framework.
June 2007 Briefing Note for the New World Bank Countrv Director for Nepal Page 370035
Key Documents
World Bank. March 31, 2000. Public Expenditure Review (in Five Volumes). Report No. 20211-NEP, Washington, D.C.
World Bank. October 15, 2003. IDA Program Document for a Proposed First Poverty Reduction Support Credit to the Kingdom of Nepal. Report No. 26556-NEP
World Bank. October 16, 2003. Nepal: Joint Staff Assessment of the Poverty Reduction Strategy Paper. Report No. 26674-NEP. Washington D.C.
World Bank. March 29,2004. Nepal Trade and Competitiveness Study. World Bank. April 27, 2005. Simplified Implementation Completion Report: His Majesty's Government
of Nepal-First Poverty Reduction Support Credit (Credit No. 3830-NEP). Report No. 31959. Washington D.C.
World Bank. March 29, 2006. Implementation Completion Report on a Credit to Nepal for the First Poverty Reduction Support Credit. Report No. 35462. Washington, D.C.
World Bank. November 28,2006. Nepal: Joint IDA-IMF Staff Advisory Note on the Poverty Reduction Strategy Paper Annual Progress Report. Report No. 37887-NP. Washington, D.C.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 38 of] 35
VI. BROAD-BASED ECONOMIC GROWTH
A. Financial Sector
The financial system in Nepal consists of 20 commercial41 banks (17 of which are private, including nine joint ventures with foreign banks), 24 development banks, 61 finance companies, 116 postal saving banks, 20 savings and credit cooperative societies, 47 financial NGOs, 6 microfinance development banks and 5 regional rural development banks, one stock exchange, 18 insurance companies, one employees provident fund, one credit guarantee and deposit insurance corporation.
There has been a tremendous growth in the number of financial institutions in Nepal in the last decade. Prior to liberalization in the 1980s there were only two commercial banks-Nepal Bank Limited (NBL) and Rastriya Banijya Bank (RBB) and two development banks-Agricultural Development Bank of Nepal (ADBIN) and Nepal Industrial Development Corporation (NIDC)-perforrning banking functions. By January 2006, the number of financial institutions (FIs) had reached 186 (see Table 6.1).
Table 6.1: Structure of Financial Institutions in Nepal Type of Financial Number of financial institutions as of mid-July May Institution 1980 1985 Commercial Banks 2 3 Development Banks 2 2 Finance Companies
Micro Credit Development Bank Savings and Credit cooperatives NGOs (limited banking)
Source: NRB
Similarly, the assets of the financial system have witnessed consistent growth over the last half decade signifying the important role of banking and financial institution in the economy. The ratio of total assets of the financial system to GDP at current prices increased significantly to 93.4 percent in January 2006 from 89.6 percent in July 2005, and 59.4 percent in July 2000.
Rnancial System
• Banks • Flflance Co a Dev Banks a F\lral Dev Banks
lut'DevBanks • Cooperawes .I'als
41 As of April 2007.
1990 5 2
100"k
80%
60%
40%
20"/.
0"1.
1995 2000 2005 2006 2007 10 13 17 18 20 3 7 26 30 37
45 60 70 73 7 II 11 11
19 20 19 19
47 47 47
Financial AssetsIGOP Ratio
~-93% 'v_
~ ~
1999 2000 2001 2002 2003 2004 2005 2006
Within a span of less than two decadesi.e., since the liberalization of financial markets in the mid 1980s-the Nepalese financial system has grown in terms of business volumes and size of the market. However, the system is bank-dominated with the stock markets still in infancy and yet to make any visible impact in the economy.
In terms of total financial system assets, as of January 2006, commercial banks accounted for
June 2007 Briefing Note (or the New World Bank Country Director fOr Nepal Page 390(135
81 percent followed by development banks with 11 percent and finance companies with 6 percent. Prior to 1999, banks and finance companies accounted for 99 percent of the total financial system. However, with the opening of licenses to development banks and micro credit development banks, the banks and finance companies' share of market has gradually reduced.
The trend in the M2/GDP ratio over the last decade has been Financial Deepening (M21GDP) favorable indicating increased financial deepening. However, one 70%
must take in to account that GDP 60%
growth during the last five years 50%
has increased at a much lower rate 40%
than money supply, resulting in a 30%
high M2/GDP ratio-i.e., in 1965 20%
it was only 8.7 percent, but rose to 10%
30 percent in the early 1990s and 0%
reached about 40 percent in the 1999 2000 2001 2002 2003 2004 2005 2006
mid 1990s. Only after 2001 has the ratio exceeded 50 percent, reaching 62 percent in April 2006--a level comparable to the average for middle income countries. The growth in this ratio implies a continued expansion of financial intermediation sector relative to the rest of the economy.
Since the late 1990s, with World Bank support, Nepal has embarked on a broad financial sector reform agenda (see Box 6.1) which includes:
• Improving corporate governance, operating capacity and commercial viability of the two large state banks (NBL and RBB) in preparation for privatization;
• Strengthening the supervisory and monitoring capacity of the Central Bank (Nepal Rastra Bank, NRB) by enhancing its technical capacity;
• Improving the enabling environment in areas such as enhanced credit information, improved financial journalism, and better training for staff in financial institutions.
Box 6.1: Targeted Outcomes of the On-going Reforms
• Improve corporate governance through provision of management support to NBL and REB to improve their operating capacity and commercial viability (as measured by performance indicators-i.e., profitability, non-performing asset (NP A) level, staff size, net worth) in preparation for next stage of restructuring (i.e., privatization).
• Improve market structure by reducing the state-owned segment of the banking system (as measured by an increased share of private FIs assets in the total financial system and reduced interest spreads).
• Sustain and deepen the banking reforms (as measured by financial assets to GDP; savings/deposits and credit to GDP).
• Strengthen the supervisory and monitoring capacity of the regulatory authority and enhance their efficiency and professional status (as measured by a quicker supervision cycle, timeliness and quality of disclosure standards, reduced staff size, ratio of professional to nonprofessional staff, and ability to take prompt corrective action against troubled banks).
• Introduce a better environment for financial sector reforms in areas such as enhanced credit information (as measured by increased access to credit and reduced NPA level), improved financial journalism (as measured by better financial news reporting), better training for staff in FIs (as measured by establishment of a functioning Bankers Training Centre) and an efficient Debt Recovery Tribunal (as measured by turnaround of judgment of cases within prescribed timeframe).
The Asian Development Bank (ADB) has supported the efforts to reform NIDC and ADBIN.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 40 ofl35
As part of the reforms, both NBL and RBB have launched intensive debt recovery programs which have helped to reduce their NPA levels. However, mainly due to weak enforcement of creditors' rights, the recovery efforts have been slow and NPAs remain at 35 percent for and 25 percent for NBL. Nevertheless, the restructuring of NBL and RBB has improved the overall performance of the entire banking sector significantly. After continuous losses in 2000-2003, the sector turned around to post net profits in 2004-2006. Despite the improvement, however, the large retained losses of the two banks resulted in negative core capital for the period as a whole, depressing both return on equity and return on assets. With the negative capital base and the lower returns, both the performance and the efficiency of the commercial banking sector have suffered.
---------------------------------------,
Net Profit of NBL & RBB 100 - ----------- ----------------------,
4000
1/1 2000 c:: I ~ 0
-IP ~
/ / I :i ·2000 .
I .-.;:;: -.....' / .E ·4000
"'- ,/" I
iii a: ·6000 .,/
80
60
40
20 ·8000
1999/001200010112001/02 200310412004/05 i 2002/03 2005106 o
-+-NSL ·2698 i ·2178 I ·3071 ·252 710 I 1730 1207 -20 -'-----------------------------------------"
___ RSS ·1791 ,
·7083 I ·7068 -4839 1040 ,
1323 1683 ! _ ROA _ Gross NPLs Credit Growth ____ Financial Assets/GDP I
The on-going re-engineering of the Central Bank-NRB-has also had mixed results. The quality and timeliness of disclosures have slightly improved, the excessive staff size has been reduced marginally and the issuance of corporate guidelines for banks is a positive step towards ensuring greater compliance with prudential regulations. However, despite these positive developments, there has been little improvement in supervision capacity, in large part due to delayed recruitment of international bank inspectors and to the large number of institutions that NRB has licensed and that now must supervise. With limited capacity and a large number of institutions to be supervised, NRB struggles to detect breach of prudential norms.
The reform program has improved the stability of the sector, and despite government efforts, access to financial services has been decreasing in recent years. These efforts to increase access to financial services, which started in the late 1950s, include:
• Introducing policies to encourage banks to open more branches outside the Kathmandu valley.
• Requiring banks-both private and public-to direct a certain percentage of their loans to lowincome households and small businesses-i.e., so-called 'deprived and priority sector' lending. Priority sector loans are not to exceed NRs 2.5 million, and are limited to manufacturing and service firms whose total fixed investment does not exceed NRs 10 million. Deprived sector loans must be less than NRs 30,000. Banks can fulfill these targets by lending directly to these sectors or through intermediaries. Moreover, banks that invest in the equity of microfinance banks can classify these investments as deprived sector lending. Banks that do not meet the priority and deprived sector lending targets are subject to fines, which are calculated by multiplying the shortfall amounts against the highest interest rates that the banks charge to their clients.
• Creating institutions to cater to the underserved, such as cooperatives, postal savings banks, regional rural development banks, and the Small Farmers Development Bank, the Rural Self-Reliance Fund and the Rural Microfinance Development Center. The last three are apex microfinance institutions
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 41 ofl35
that receive funds from different sources (Ministry of Finance, NRB, donors and especially financial institutions trying to fulfill their deprived sector lending quota) at subsidized interest rates and onlend them to retail microfinance institutions. While the institutions receive the funds at subsidized interest rates, they do not pass on the subsidies to the final borrowers.
• Licensing new types of financial institutions-finance companies, development banks and microfinance development banks-with lower capital requirements, thus sharply increasing the number of financial institutions.
Despite these efforts, the number of deposit accounts per 1,000 people dropped from 113 in 2001 to 90 in 2005. Similarly, the number ofloan accounts per 1,000 people fell from 19 to 10 during this same period. From 1999 to 2005, the number of inhabitants per bank branch also increased by 30 percent, mainly due to the closure of NBL and RBB branches under pressure from the Maoist insurgency and a process of rationalization. Moreover, access to banking infrastructure is very skewed toward the Central region, where there is one branch for roughly every 50,000 inhabitants (compared with one for every 111,000 inhabitants in the Mid-western region). This regional disparity is mainly due to the fact that private commercial banks are concentrated in the Central region, which contains 46 percent of their branches. This further increases the disparities amongst regions as many branches of public banks cannot offer the same range of products as their private counterparts due to lack of computerization. Making matters worse, non-branch infrastructure is largely undeveloped.
As NRB has lowered the targets for priority sector loans, banks have been reducing lending to priority sectors, demonstrating that the policy has not resulted in sustainable lending to the segment. In the 1970s, when the requirement was introduced, priority sector loans were to account for 12 percent of bank portfolios, today they are to account for 3 percent and the requirement is expected to be phased out next year. Banks are progressively leaving the sector because they cannot serve it profitably. Large volumes, efficiency and quality are key to profitable small business lending. Because of the high costs involved in making small loans, banks need to make many good loans. However, Nepali banks serve the segment with the same products and procedures they use for large corporations. As a result, it takes a bank three to four weeks to issue small loans and each loan officers can do only three to four loans per month which is insufficient to make lending to the segment profitable. Moreover, while small businesses have mainly movable assets, banks require mainly immovable collateral primarily due to the absence of a functioning secured transaction regime and high provisioning requirements for standard loans secured with movable assets.
Furthermore, lending targets for deprived sectors have not increased microfinance outreach. As of 2005, the industry had 360,000 loans outstanding while the microfinance sector was very liquid and 11 commercial banks preferred to pay fines and not meet their targets. Several factors explain the incapacity of the microfinance sector to transform liquid funds into a larger loan portfolio---i.e., a complicated geopolitical environment, lack of commercial orientation, slow professionalization and related weak capacity in technical areas. In 2005 only eight out of 20 financial cooperatives and four of 47 financial NGOs recorded profits over NRs 1 million and only two of the top microfinance institutions were rated 7 out of 10, with all the others being rated lower.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 42 of 135
Microfinance Institutions have Considerable Liquidity, 2005
Assets Liabilities and Equity 100.0%
~ .. P"1 IiIiIII
100%
I I I -80.0%
60.0%
, I
40.O"k j
I
20.0"/0 l I II
0.0"/0 +-1 ~------,~-~,------"-----,---~ .. • II -Coop FINGO MFDB RRDB
Investments Uquid funds Loans Other assets
80% I I I t:lJX,
Coop FINGO MFDB RRDB
Borrowings DepOSits Other liabilities Equity and reserves
Despite a six year restructuring program, regional rural development banks-the largest providers of microfinance accounting for 36 percent of loans from regulated microfinance institutions-are in poor financial health. In 2005, only two of the five recorded profits and two had negative capital adequacy ratios. Moreover, one of the two profitable banks-the Western Region Rural Development Bank which was privatized in 2005-made its profit by investing deprived sector loans it received in fixed term deposits rather than from its own lending operations.
Finally, after 50 years of public sector policies aimed at increasing access, as of 2006 only 26 percent of the Nepali households had a bank account42
• Use of bank accounts was also low, even amongst the wealthiest. For example, 39 percent of the wealthiest quintile with a bank account preferred to borrow from informal providers rather than a bank because of the long loan delivery time. Although data of access is limited and difficult to compare43
, Nepal' banking sector penetration is amongst the lowest in the world.
If the banking sector has a limited penetration, financial NGOs (FJNGOs) and cooperatives playa very important role in Nepal-i.e., 18 percent of the households have an account with them (versus 20 percent with banks) and 41 percent of the households with loans from formal institutions borrow from FINGOs/cooperatives (versus 35 percent from banks). However, very little is known about these providers and the vast majority is unregulated and unsupervised.
In conclusion, efforts to increase access seem to have had two outcomes: (i) an exponential increase of institutions, which NRB now needs to regulate and supervise with limited resources; and (ii) market segmentation defined by different prudential rules and liquidity. Deposits (and hence liquidity) are
42
43
Source: 2006 Access to Financial Services Survey, World Bank.
This is due to two main factors: (i) countries for which data is available have financial systems much more developed than Nepal; and (ii) the unit of account used in Nepal is households, while in other available dataset it is individual.
June 2007 Briefing Note [or the New World Bank Countrv Director [or Nepal Page 43 o(J35
heavily concentrated in the four largest fully licensed banks, with lower tiers of the banking system-i.e., development banks and finance companies, which are restricted in the types of deposits they may accept-heavily dependent on inter-bank borrowing and fixed term deposits rather than retail deposits to finance their operations. The lower tier banks thus function mostly as on-lending institutions rather than full financial intermediaries between savers and borrowers. The lower tier banks are well-positioned to service micro and small enterprises, but due to these liquidity constraints have limited funds available to lend and must lend largely short term because of the volatility of their inter-bank funding. By contrast, the microfinance institutions (MFIs) are artificially excessively liquid as a result of mandatory lending to them by banks generating inflows of funds which they lack the capacity to redeploy into loans.
The combination of a multi-tiered banking system with mandated lending to MFIs has thus had the unintended consequence of segmenting the market into three "layers": (i) a liquid bottom layer of MFIs, which has artificially high lending but lacks the capacity to lend to micro and small enterprises (MSEs); (ii) a liquid top layer of the largest banks which pursue large corporate lending; and (iii) a middle layer of development banks and finance companies which is short of funds but is closest to the MSE market. This layering thus reduces MSE access to finance by reducing the excess liquidity of the top tier banks (thus reducing the pressure on them to go down market to serve micro and small enterprises in order to place their liquidity in earning assets) while simultaneously diverting funds away from lower tier banks which would otherwise be likely to serve the micro and small enterprise market.
The Bank's Current Activities
Currently, a number of projects are under implementation; specifically:
Financial Sector Technical Assistance (FSTA): (IDA: US$16.0 million; DFID: GBP 7 million). The objective is to support Nepal's efforts to improve the financial sector in order to bring macroeconomic stability and promote private-sector-led economic growth. The project focuses on:
• Helping to restructure and re-engineer the Central Bank (NRB), so that it can effectively perform its key central banking functions;
• Commencing commercial banking reform in the two large ailing commercial banks-NBL and RBB-that dominate the sector by introducing stronger bank management that protects the financial integrity of the two banks and would take on a conservator role to prepare the banks for the next step of restructuring; and
• Supporting a better environment for financial sector reform in areas such as enhanced credit information, better financial news reporting, and better training for staff in financial institutions.
Financial Sector Restructuring Project (FSRP): (IDA: US$75.5 million). The main objective of the project is to support the on-going efforts to develop a healthier financial sector in Nepal which intermediates funds more efficiently and effectively to the benefit of all segments of society and in a manner which supports private sector development, increased investment, and faster growth. Specifically, the project development objectives are to:
• Improve corporate governance through provision of management support to NBL and RBB. The development objective of this component is to substantially improve their operating capacity and commercial viability; to move them as swiftly as possible into the private sector; and thereafter, develop the government's oversight and supervisory capacity over them and other banking institutions.
• Improve market structure by reducing the state-owned segment of the banking system.
June 2007 Briefing Note (or the New World Bank Country Director for Nepal Page 44 of135
• Sustain and deepen the banking refonns. This entails further strengthening of NRB through an ongoing program of bank supervision strengthening; accounting and auditing development; human resource re-engineering; infonnation technology upgradation; and other support. The objective is to also further enhance the professional status of the central bank and its capacity to oversee the development of a prudently operated financial sector in line with its own medium tenn vision as enunciated in the Financial Sector Strategy (FSS).
Economic Reform Technical Assistance (ERTA): (IDA: US$3 million) .The objective of this project is to build government's capacity to implement its stated economic refonn program. This will be achieved by funding priority technical assistance that will provide government with the executive capacity required to implement its refonn agenda. The implementation of economic refonns will improve service delivery, public sector management, increase inclusion and reduce government intervention in the economy, putting the country on a higher growth path. The project is outcome driven; with a focus on implementation, it will avoid funding studies and undertaking policy analysis, wherever possible. In many areas of the economy-such as civil service refonn, privatization and labor regulation·-large amounts ofT A have been disbursed by several donors with little or no tangible outcomes to date.
The immediate recipients of the project funds are refonn-minded public sector agencies that were better able to design and implement selected refonn measures. The central focus of these refonns is to improve governance and pro-poor service delivery. Operationally, these sub-projects are categorized as pre-identified projects. In order to maintain flexibility in the proposed credit and simultaneously ensure the quality of the refonn program, a challenge fund was created for new proposals, which needs to clearly spells out the objective, strategy to achieve the objective, the key challenges or bottlenecks, and how the proposed activity contributes to removing the bottlenecks in achieving the objective.
In FY07, a report on Access to Financial Services Report was completed. The report aims at measuring access to financial services by Nepali households and small businesses, understand what has held back the supply of services to the underserved and explore what new products and lor institutions can be developed to bridge the demand/supply gap. The report recommendations are based on a nationally representative household survey, including households operating small businesses, case studies on banks, rating of microfinance institutions, a Qatar-Nepal remittance corridor study and an assessment of the existing legal/regulatory framework for microfinance. The upcoming Enhancing Access to Financial Services Project builds on the findings of the report. In response to the analysis of the report the government has taken the following policy actions: (i) drafted the Rural Self Reliant Fund (RSRF) Act to make an ineffectivc and politically controlled apex institution, into an independently run and sustainable institution; and (ii) initiated the mapping of the microfinance sector to overhaul the existing regulation and supervision of the sector.
Future Plans for Bank Involvement
The Bank's involvement will continue to be in the following refonn priorities under on-going programs:
• Reduction of state ownership in the banking sector through sale of public commercial bank shares to strategic investors;
• Strengthen regulatory capacity ofNRB, especially in the area of supervision; • Improve financial sector infrastructure by building the capacity of the Credit Infonnation Centre and
the Debt Recovery Tribunal, establishing commercial bench in the court to protect creditors' rights and implement Insolvency law and creating a collateral registry to implement Secured Transaction laws; and
June 2007 Briefing Note fOr the New World Bank Country Director tor Nepal Page 45 o(]35
• Create enabling legal and regulatory environment, and provide capacity building TA for development of microfinance to increase access to financial services by the underserved.
Going forward, the Bank plans to continue to engage in the financial sector to increase system stability, outreach and availability of long tenn finance. The Bank is also planning to deepen its engagement in private sector development by improving the doing business environment for private sector in general, and the tourism sector in particular, and by strengthening Nepal's capacity to deal with private and financial sector issues. The program in the coming year program includes:
• Operationalizing the findings of the Access to Financial Services Report through a US$30 million project to Enhance Access to Financial Services. The project will aim at removing legal/regulatory, infrastructural and institutional level obstacles to increase access to financial services to underserved market segment in a sustainable fashion. In particular, the project will seek to increase access for small and micro enterprises in urban areas and rural households and micro-enterprises. In addition, the team will prepare a policy note on the legal/regulatory and infrastructural obstacles to an increased use of technology by the financial services industry and a policy note on how to remove the legal regulatory obstacles to fonnal remittances, especially in the India-Nepal corridor.
• A policy note on how the financial sector can provide long term resources to finauce infrastructure; and
• Supervision of the IDF Grant to establish a commercial bench, evaluation of the land computerization effort to assess how it could be scaled up and, in the context of the Growth Report, a supply chain analysis of the tourism sector.
Key Documents
World Bank & Federation of Nepalese Chambers of Commerce and Industry. December 2000. The Business Environment and Manufacturing Peiformance in Nepal.
World Bank. February 2002, Financial Sector Study. Report No.-NEP. World Bank, 2006, Getting Finance in South Asia. World Bank. 2005. The Legal and Judicial Environmentfor Financial Sector Development. World Bank. 2007. Insolvency and Creditor Rights ROSe. World Bank. 2007. Access to Financial Services in Nepal. World Bank. 2007. Doing Business. World Bank. January 22,2004. Financial Sector Restructuring Project. Report No. 27417. World Bank. November l3, 2002. Financial Sector Technical Assistance Project. Report No. 23992-
NEP. World Bank. May 25,2005. Economic Reform Technical Assistance Project. Report No. 31928-NEP. Government of Nepal. Economic Survey: 2005/06 (annual publication).
C. Infrastructure
(i) Roads
Background
The availability--or lack-of an adequate and efficient transport system is a defining development issue in Nepal. Poor rural access is synonymous with rural isolation and poverty, while high external and domestic transport costs constrain the country's economic growth potential. Almost all transport services are provided by road transport, but they are slow and regularly disrupted by landslides
June 2007 Briefing Note for the New World Bank CountlyDirector fOr Nepal Page 460[135
and flooding especially during the monsoons. Of the 75 district headquarters in Nepal, 12 are not connected by motorable roads, and many villages and settlements in otherwise connected districts are also not served by road. An estimated 60 percent of the hill and mountain population lives four hours away from the nearest motorable road, causing many in these isolated communities to rely on foot trails and mule tracks with some in mountain districts walking up to 13 days to reach the nearest road head. The costly transport system in Nepal is a major factor constraining the delivery of social services to communities as well as the promotion of agriculture development, tourism, horticultural exports, and agro-processing and wood-based industries. With high construction costs, low population density and difficult terrain, the provision of road infrastructure remains a critical challenge in the hilly part of Nepal.
Domestic air transport is important in Nepal connecting many remote places with Kathmandu and providing tourist and business travelers easy access to many parts of the country. There are 42 domestic airports and airstrips, many of which are located in hilly and mountainous areas that are not connected by road, thus providing a vital connection. The international airport at Kathmandu connects Nepal with countries in Europe, South and East Asia, and the Middle East, and is important in supporting the growth of the country's trade and tourism.
Urban transport services are rudimentary, mostly provided by small informal transport. Traffic congestion and air pollution is becoming increasingly problematic, especialIy in Kathmandu. Nepal's access to the sea is only through India using the Port of Kolkata, which is 660 miles from the Nepali border town of Birgunj. There is one Inland Container Deport (lCD, i.e., 'dry port') in Birgunj which is linked to the Indian railway system.
Nepal's Road Network
Nepal's main road network consists of 17,000 km of roads, of which: (i) about 7,200 km are part of the Strategic Road Network (SRN, see Table 6.2) that is comprised of 15 national highways and 51 major feeder roads; and (ii) 11,000 km of trafficable village and agricultural roads. In addition, there are 10,000 km of dry season roads and tracks in rural areas, bringing Nepal's total road network to 28,000 km.
Table 6.2: Nepal's Strategic Road Network (in kms)
Road Type Bitumen Gravel Earth Total "Kational Highways 2,448 417 444 3,339 Feeder Roads 1,361 1,240 1,249 3,850 Total 3,839 1,657 1,693 7,189
The quality of the road network is low, in particular owing to expensive and poorly-resourced maintenance. Nearly 85 percent of local roads have earthen surface, and most of them are operational only during the dry season. Given the its steep and fragile mountainous terrain, varied climate and unstable geographical structure, Nepal has one of the most vulnerable environments for natural disasters.
Table 6.3: Even the roads that are of standard quality are frequently subject to natural damages such as Road Network Densit) in Selected Developing Countries slips, land slides, run-off cuts, scouring of Afghanistan
side slopes and uneven settlements. Often Bangladesh
huge amounts of sediments and debris carried Bhutan out by flood water block the cross-drainage structures, resulting in a complete washout of structures as well as damage to road formations. This results in extremely high maintenance costs (in particular for fair-weather roads).
India
Laos Nepal
0.91 1.71 5.15 2.87 4.44
0.69
0.03 12.21 1.49 4.66 0.09 7.38 0.91 5.98 0.10 ~ 0.11 2.85
I
June 2007 Briefing Note (Or the New World Bank Countrv Director (Or Nepal Page 47 of135
Nepal's road density is the lowest in South Asia and ranks lower than many similar developing countries (see Table 6.2). It is also unequally distributed, with about 63 percent of the network concentrated in the Terai, while roads in the hill and mountain districts comprise respectively about 33 percent and 4 percent of the network. This has limited the economic development potentialespecially for high valued agricultur~ and delivery of social services in the more
Table 6.4: Key Transport Sector Statistics Particulars Units As of 2004
Length of Roads Km. 17,281 Main Roads Km. 9,448 Paved Roads % 25 Access to All-Season-Roads % 39 within 30 minute walk Road Density LAND kmll,OOO sq. km. 117.4 Rail Track Length Km. 52 Total No. of Ports None Airports 43 Dry Port 1
remote hill and mountain districts. Some key transport sector statistics are summarized in Table 6.4
Sector Challenges
Large unmet investment requirement Public sector spending in the road sector is only about half of what is required to support the growth and poverty reduction targets set out in the Tenth Plan. in order to facilitate the Tenth Plan's target of 6 percent GDP growth, Nepal needs to invest about 2 percent of GDP (about US$115 million) annually on expanding the road network to remove transport impediments to economic growth, and another 0.5 percent of GDP (about US$30 million) annually on maintaining the current road assets. In sum, Nepal needs to invest about 2.5 percent of GDP (about US$145 million) annually in expanding and maintaining the road network44
• However, as shown in Table 6.5, spending in the road sector over the last three years has been less than half of the requirements. In addition to being under-funded, the road sector depends largely on foreign assistanceie., more than 80 percent of development expenditure spending in the road sector is funded by foreign assistance.
Road sector expenditures---especially for development-are expected to be financed by revenue sources that are characterized by weak domestic mobilization efforts and as mentioned, a heavy dependence on foreign sources. As an example, the transport sector was expected to generate NRs 22.3 billion (US$31 million) in FY04/05 through transport related taxes and fees, or about 30 percent of the current road sector expenditure allocation. Only a fraction of the road sector revenues (about US$5 million) were earmarked to the Roads Board in FY04/05.
44
Table 6.5. Road Sector Expenditure (US$ Million) 2002/03 2003/04 2004105 Source (2004/05)
Budget Head Actual Revised Allocation GON Foreign Expenditure Estimate Grant Loan
Highways 19.7 20.8 11.8 1.8 3.1 7.0 Feeder Roads 5.3 8.1 10.7 2.8 1.4 6.4 Rehabilitation and Maintenance 12.6 15.6 35.0 8.1 6.3 20.6 Recurrent Expenditure 3.0 3.2 3.3 3.3 0.0 0.0 Urban Roads 0.5 0.6 4.4 0.0 4.4 0.3 Bridges 3.4 5.6 11.0 0.0 11.0 1.3 Misc. Projects 9.9 2.7 0.9 0.0 0.9 0.6 Total Road Sector Expenditure 54.5 56.4 77.1 16.1 27.1 36.1
Total GON Budget 1,166.75 1,279.27 1,551.25 1,102.50* 213.2 235.5
For comparison with other countries, China currently invests about 4 to 5 percent of its GDP on expanding and maintaining its transport system, while Korea, during its development used to spend about 5.2 percent of its GDP. Brazil spends about 2.4 percent of its GDP, and Bangladesh spends about 2.5 percent of its GDP.
June 2007 Briefing Note for the New World Bank Country Director (or Nepal
Source: Ministry of Finance, Red Book. * Includes domestic borrowing.
Page 48 oU 35
Inadequate maintenance funding and poor performance of the Roads Board. In 2002, to overcome maintenance neglect and secure adequate funding for road maintenance, a Road Fund was established to finance road maintenance from off-budget sources and through an Act of Parliament, a Roads Board was constituted to oversee the generation and allocation of road maintenance resources. The Roads Board generates about NRs.300 million annually, but this only approximately one-third of the maintenance funding requirement for the main road network. It has not been possible to raise the fuel levy to cover the maintenance funding needs because of the political problems associated with fuel prices. However, maintenance funding has been augmented from the general budget and commitment has been expressed to increase maintenance funding in the next budget.
Furthermore, the Board has been ineffectually in dispensing its responsibility, in particular, in overseeing the allocation and monitoring of the resources. There has been a poor working relationship among the members which are composed of public sector officials, political representatives (from District and Municipal associations), and private sector and user representatives. Each Board member looks out for his own interests (e.g., getting more funding to hislher district), rather than the functioning of the Board. A recent Bank assessment of the Board revealed that the main problem affecting the performance of the Board is the composition of the Board, and the fact that it is chaired and dominated by the public sector-i.e., the Board is chaired by the Secretary for Ministry of Works. An amendment to the Roads Board Act has been drafted to change the composition of the Board and allow for a private sector chairman if the public sector chair fails to improve the Board's functioning.
Urban Transport Issues
Urban transport systems in Kathmandu suffer from major constraints that include: (i) insufficient financial resources; (li) inefficient regulatory frameworks; (iii) poor allocation of road space; (iv) inadequate traffic management systems; (v) institutional weaknesses; and (vi) an under-developed public transport system. Kathmandu's road network was developed in an unplanned fashion, and without proper adherence to urban planning and land use. Residential areas have inadequate access roads, especially in the new settlements, and the roads have limited provisions for pedestrians, cyclists, and parked vehicles. In addition, the road network has many missing links, forcing the overuse of existing road sections. Recent upsurge in migration from rural areas to Kathmandu to escape the conflict increased the population in Kathmandu and strained an already weak transport system. The public transport system in Kathmandu and other cities is poorly developed, and formal and regulated schedule bus service is almost non-existence in Nepal. Therefore, bus and paratransit services are largely provided by the private sector that operates in a poorly regulated environment.
World Bank Activities
The Bank has two active projects in the road sector; specifically:
• The Road Maintenance and Development Project (RMDP) aims to reduce rural poverty by improving access in the remote hill areas of the country. After a number of extensions and two restructurings, this IDA Credit ofUS$54.5 million will close in June 2007; and
• An IDA grant of US$32 million for the Rural Access Improvement and Decentralization Project (RAIDP). Effective since August 2005, this project aims to help decentralized local bodies develop and manage rural roads in 20 districts across the country. The project will help residents of the participating districts to utilize improved rural transport infrastructure and services, and benefit from enhanced access to social services and economic opportunities. With enhanced capacity, the
June 2007 Briefing Note (or the New World Bank Country Director (or Nepal Page 49 of] 35
Department of Local Infrastructure Development and Agricultural Roads (DOLIDAR) shoul be able to carry out the implementation of its Institutional Strengthening and Action Plan, capacity-building priorities and long-term functional and organizational change goals set by GON for the rural transport sector, and for project coordination and implementation activities.
Future Plans for Bank Involvement
A number of operations are being considered for Bank support in the road sector in the next three years, including the following:
• A Road Sector Development Project to finance upgrading of about 382 km of roads to all season standards and provide access to five district headquarters.
• Additional financing to RAIDP to expand RAIDP's support to an additional 16 districts. DflD also plans to provide co-financing through RAIDP to expand the program even furthers.
• Early discussion is on-going to provide support to the new government initiatives to scale up rural infrastructure development through local bodies.
• An Urban Sector Review is on-going and could possibly lead to a project, including an urban transport project which the government has expressed interest in.
Key Documents
World Bank. December 21, 1999. Implementation Completion Report on a Credit to Nepal for a Road Maintenance and Rehabilitation Project. Report No. 19952. Washington, D.C.
World Bank. September 24, 1999. Project Appraisal Document, Road Maintenance and Development Project, Report No. 19760-NEP
World Bank. January 28, 2004. Implementation Completion Report on a Credit to Nepal for a Rural Infrastructure Project. Report No. 27565. Washington, D.C.
World Bank. March 18, 2004. Implementation Completion Report on a Credit to Nepal for a Multimodal Transit and Trade Facilitation Project. Report No. 27813. Washington, D.C.
World Bank. 2005. Nepal North-South Transport Corridor Options, IDA Assistance Strategy Note, Mimeo.
World Bank. 2005. Project Appraisal Document, Rural Access Improvement and Decentralization Project, No: 31624-NP. Road Maintenance & Development Project, Sector Wide Road Program and Priority Investment Plan, Draft Final Report, December 2006.
World Bank. 2007. Concept Note, Nepal Road Sector Development Project.
(ii) Information and Communications Technology (ICT)
Background
The Infonnation and Communication Technologies (ICT) sector in Nepal-which includes telecommunications-has an important role to play in supporting the four pillars of Nepal's PRS. As envisaged in the current draft three year interim plan "Promoting the ICT sector in such a way that it could be used by all community and micro-level economic units and linked with business and service purposes. It will promote the way of life skills promptly. It will also help reduce unnecessary channels of distribution of goods and services from producers to ultimate consumers. "
Nepal embarked on telecommunication sector refonns in 1997, with the enactment of the Telecommunications Act that allowed for the establishment of an independent sector regulator and set the
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 50 ofl35
framework for private participation in the sector. This was followed by the announcement of a number of other policy and legislative instruments: (i) the 1999 Telecommunications Policy; (ii) the 2000 Information Technology (IT) Policy; (iii) the 2002 Long Term Policy for the Information and Communication Sector; (iv) the 2004 New Telecommunications Policy; and (v) the 2005 Cyber Law. An IT policy has also been drafted that envisions transforming Nepal into a knowledge-based society by harnessing information communication technology for the achievement of good governance, poverty alleviation and socio-economic growth by 2015. With an obvious abundance of stated strategies in the sector, the key challenge in the past few years has been one of implementation.
Private entry in telecommunications has led to some improvements in sector performance. However, the Maoist insurgency and other related political/security challenges have to some extent stymied growth and expansion of the network. In February 2007, telecom penetration stood at 6.5 percent, with PC penetration at 6.2 computers per 1,000 people. Other IT initiatives include the establishment of public ICT access centers, private provision of IT services (call centers, software exports and an IT incubation program. An overview of the institutional and market structure in the sector is found in Table 6.6.
Table 6.6: Overview of Institutional and Market Structure Ministry responsible for Ministry of Information and Communications (MOIC) telecommunications policy Ministry responsible for ICT policy High Level Commission for IT (HLCIT), with its secretariat in the Ministry of
Environment, Science and Technology (MOEST) Telecommunications Sector Regulator Nepal Telecommunications Authority (NTA) Ministerial division responsible for Frequency Management Division (FMD) in MOIC radio spectrum management Fixed Line Operators • Nepal Doorsanchar Company Ltd (NDCL) - 100% Government owned.
• United Telecommunications Private Limited (UTL) started service provisioning in July 2003.
• Sanchar Tclccom Private Limited (STM) licensed in I\'ovember 2003 and providing services in over 534 village development committees in rural Eastern Nepal
Mobile Operators • NDCL
• Spice Nepal (Mero Mobile) Internet Service Providers (ISPs) Over 25 licensed operators, or which 20 are providing services Others Very Small Aperture Terminal (V SAT) operators, paging, radio broadcasters, cable
television providers, and Global Mobile Personal Communication Systems GMPCS) service providers
leT firms ,500 firms involved in web solutions, nctwork solution, software ions, GIS, hardware assembling, call centers and IT training.
Key Achievements and Issues
Some of the major achievements in the sector include: (i) the licensing of new telecommunication operators in the market; (ii) private provision of rural telecommunication services in the Eastern Development Region; (iii) marginal reforms with spectrum delicensing in certain bands; and (iii) emerging growth in private sector led IT entrepreneurship. Nevertheless, a number of issues constrain ICT development in Nepal, including: (i) poor information and communication infrastructure, especially in rural areas; (ii) delays in amending the Telecommunications Act; (iii) the need to rationalize the ICT institutional structure and functions within the public sector as many organizations are active leading to lack of effective coordination; (iv) high telecommunications sector taxes; (v) dominance of the stateowned incumbent in the telecom sector; (vi) ineffective implementation of the regulatory framework; (vii) low leT uptake within public sector agencies and businesses; (viii) lack of adequately skilled ICT -skilled labor and management personnel; and (ix) limited local content and un-integrated information resources.
June 2007 Briefing Note tor the New World Bank Country Director fOr Nepal Page 510[135
The Bank's Current Portfolio
The Telecommunications Sector Reform Project-a US$22 million IDA Credit-has been effective since May 2002 and aims to strengthen the policy, legal and regulatory environment in the telecommunications sector to facilitate competition and private sector participation, and increase rural access to services by facilitating private investments and operations.
Implementation progress has suffered over the years due to: (i) the difficult political and security situation; (ii) delays in amending the Telecommunications Act; (iii) the lack of policy and regulatory leadership during the 2002-2006 period; and (iv) protracted delays in the procurement of a spectrum management and monitoring system by the Frequency Management Division in MOle. However, there have been numerous project achievements, including:
• The licensing of a rural telecommunication service provider in the Eastern Development Region. This operator-STM Sanchar Private Ltd (STM)-is providing Public Call Office (PCO) services in over 1,400 locations in 534 Village Development Committees (VDCs);
• Approval of a new telecommunications policy in 2004; • Establishment of cybercafes in Doti, Bardiya and Dhankuta; and community managed telecenters in
Ilam, Dhankuta, Gorkha, Bardia, Dang, Surkhey, Doti and Kanchanpur; and • Corporatization of Nepal Telecom into the Nepal Doorsanchar Company Limited (NDCL) under the
Company's Act.
Project savings of approximately US$2.5 million have been re-allocated towards the private provision of telecommunication services in unserved areas of regions outside the Eastern Development Region. The project is also financing the purchase of a National Automated Radio Spectrum Management and Monitoring System, equipment to help the government manage an important communications resource. The project closing date was extended in the second half of 2006 as a number of steps had been taken to address issues related to this subcomponent. However, the procurement process has been fraught with delays emanating from the client's unwillingness to agree \vith its consultant's advice and recommendation of award. In the event that substantial progress on the procurement does not take place in the immediate future, the subcomponent will be cancelled.
In the second half of FY07, a stocktaking exercise of existing ICT activities, donor programs and government policies of the broad ICT sector in Nepal was launched. To share the initial findings of this work and to receive government's views on priorities for the sector, a meeting was held on March 23, 2007 with about 25 officials from MOF, NPC, the High-level Commission for IT (HLCIT), MOlC, NT A, MOEST, the National IT Center (NITC), the Ministry of Home Affairs, and the Election Commission. Issues discussed at the meeting and the agreed next steps include:
• The ICT/communications sector is generally identified as a potential area for quick wins in terms of job creation, growth and high spillover effects to other sectors. Its role in improving governance and facilitating democracy/inclusion is also widely acknowledged.
• The institutional structure of the ICT sector in Nepal needs further clarification, especially among HLCIT, MOEST and NITC. These agencies \vill send their respective Terms of References (TORs) and responsibilities to the Bank team for separate follow-up meetings in April.
• Infrastructure and ICT policies are building blocks for e-government and IT/IT -enabled industry development. These are areas where the Bank has comparative advantages and experience from many countries.
• The Bank team will meet with the private sector, NGOs, academia and other major donors (especially ADB) to continue the sector dialog and identify concrete options for Bank support.
June 2007 Briefing Note fOr the New World Bank Countrv Director fOr Nepal Page 52 aU 35
Key Documents
World Bank. 2001. Project Appraisal Document: Telecommunications Sector Reform Project. Report No. 22955 NEP. Washington, D.C.
World Bank. 2004. Output-based aid in Nepal- Expanding telecommunications service to rural areas. Global Program for Output based Aid (GPOBA)
Government of Nepal: Ministry of Information and Communications: Telecommunications Policy 2004
(iii) Energy
Background
Nepal has vast hydro resources, which present a source of potential wealth. Total theoretical hydro potential is estimated to be about 83, 000 MW but economically exploitable potential is roughly 43,000 MW. Only about 613 MW has so far been developed, representing a fraction of the economic potential. Nepal's power system is dominated by hydro, mostly run-of-river facilities. The private power plants account for about 22% of total installed capacity. About 40% of Nepalese households have access to electricity. Disparity in access is stark with over 90% of the urban population connected, in contrast to an
Table 6.7: Energy Sector Statistics Installed capacity 613MW
Private 865 Gwh Hydro 2,387 Gwh
Non-hydro renewable 200kW Peak demand 557.5 (MW)
Annual generation 2,401 Gwh Annual consumption 1,964.4Gwh
Estimated demand growth/year 7.8% Total losses 24.8% Customers 1,159,855
Household access 40%
estimated 30% in rural areas. Key data on Nepal's energy sector is presented in Table 6.7.
Government Strategy for Hydro Power Development
Recognizing the critical importance of improving domestic energy access, and generating revenues from energy exports, the Government of Nepal, has made environmentally and socially sustainable development of Nepal's hydroelectric potential one of its key objectives. This objective is emphasized in the 2001 Hydro Power Development Policy and the national development plans. The hydro policy envisages increased involvement of private investors in the production, distribution, and management of electricity, while recognizing the need for institutional and structural changes in the power industry to meet the sectors developmental objectives. The policy calls for the creation of a more competitive environment for private sector participation, including the creation of more transparent and investment-friendly procedures. Development of small hydro projects, as well as district-level projects under decentralized schemes in hilly and remote areas has also been highlighted.
Key Issues and Developments in the Energy Sector
Despite the policy to promote hydropower development, except for small capacity additions by independent power producers (IPPs), there have been no new capacity additions by the Nepal Electricity Authority (NEA) since the commissioning of the 144 MW Kaligandaki-A hydro power station during the first half of 2002. At the same time, power demand has increased as new connections are added to the system. With supply not keeping pace with demand growth, serious shortages have now become a common place. Energy shortages are managed through load shedding and imports from India. In 2005, Imports from India increased about 30% to 241.4 GWh. Given the uncertainty over additions to generation capacity, shortages are likely to increase over the next few years.
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A major issue facing Nepal's power sector is the lack of competent and effective independent regulatory body. The Electricity Tariff Fixation Commission (ETFC, established under Section 40 of the Electricity Act 1992) has been put in place to regulate the sector, but presently the ETFC falls well short of a fully fledged regulator. Partially because of the lack of a competent regulatory agency, the IPP costs in Nepal are high.
The average power tariff in Nepal-at NRs 6.64/Kwh (about 9 centslkwh)-is amongst the highest in South Asia. For many consumers, power cost has reached the limits of affordability. Although agriculture users (for irrigation) pay less than other types of consumers, the fundamental pricing issue in Nepal is not as much in the tariff structure as it is related to the high cost of power which is passed on to consumers in tariffs.
293.76 309.67 401.50 727.93
153.98 210.29 232.39 232.20 226.54
77.28
ear in
936.31
238.29
778.69
149.88 185.65 241.39
864.79
to India.
Nepal Power Sector Market Structure
NEA
7.8%
30.0%
2.9%
In the early nineties, Nepal started to invite the private sector to invest in the power sector, but the power sector still remains dominated by NEA, an integrated utility. NEA covers most of the country but only a small percentage of the population has access to electricity. The privately owned hydropower stations in operation sell their entire output to NEA under long term power purchase agreements on a take or pay basis. In addition, there is a relatively small integrated utility, the Butwal Power Company (BPC), which is connected with the main grid. BPC has about 17MW of installed capacity and sells power to its own consumers as well as under a contract to NEA. It also purchases power from NEA during the dry season. The current structure of the power sector is shown in the chart:
ROR Hydro Station I NEA
Hydro Storage Power Statio
Load DispatchCenlre
I"II'EA Transmission and Substation Dire<:torare Trennat General ion
NEA Planning, Development, and
General Management Directorate
r.T~
Distribution and Consume Services
Over the past two years, NEA has implemented a series of reform to improve its financial and management performance. One of the most significant developments has been the functional unbundling of NEA, by creating separate profit centers at generation, transmission and distribution levels.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 54 0(135
Furthennore, the bye laws for the functional unbundling of operations have been prepared. Transfer pricing for generation and wheeling charges for transmission have been worked out. Incentives, under perfonnance contracts with profit centers have been established which would be paid to the units on meeting performance targets.
One of the critical risks facing the energy sector in Nepal is the political and security uncertainty that has remained prevalent over the past decade. This was exacerbated after the establishment of the Royal Commission for Corruption Control (RCCC), following dismissal of the coalition government by King Gyanendra in February 2005. This uncertainty has manifested itself in the power sector in a number of ways, including: (i) increased the risks to the private sector and, hence, constraining the mobilization of resources for investments; (ii) diverted public resources away from investments in generation, transmission and distribution; (iii) slowed down the decision-making process, as government officials became extremely cautious about making decisions about 'high profile' power sector investment projects. (Decisions are referred to committees, which inevitably caused delays in project implementation); and (iv) restrieted billing and collections in insurgent dominated areas impacting, in partiCUlar the financial perfonnance of the NEA, and hence its ability to finance new projects.
Although the situation in Nepal has improved since the events of April 2006, there are several critical challenges facing the energy sector that need to be addressed; notably the Establishment and Management of the National Electricity Regulatory Commission. Recent development in this regard is that the draft regulation has been approved by the Ministry of Water Recourses and the Ministry of Law and Justice, and is expected to be sent shortly to the Cabinet for approval. As is the case for other important decisions in Nepal, this is dependent on the resolution of the political uncertainty in Nepal.
World Bank Activities
In line with Nepal' objectives and the CAS, the Bank's current engagement focuses on the development of Nepal's hydropower potential (including through private sector participation), improving access to electricity services in rural areas, and enhancing the transmission and distribution capacity of the state utility. The current project was developed following the Bank's withdrawal from the controversial Arun large hydro project. However, given Nepal's huge potential to develop medium to large hydro for both domestic use and export, we remain interested in re-engaging in this sub-sector in the future. The Nepal Power Development Project (PDP, US$ 75.4 million through a blend of IDA grant and credit) has three components: (i) Power Development Fund (PDF) Investments; (ii) Micro-Hydro Village Electrification Program; and (iii) NEA Transmission and Distribution Investments.
Future Bank Involvement
There is tremendous potential for future Bank involvement in the energy sector. Current possibilities under exploration include: (i) a possible medium-sized hydro project in FY09; (ii) the strengthening of transmission systems also for exports to India; and (iii) a Carbon Finance proposal for micro-hydro, solar and biomass.
Key Documents
World Bank. June 27, 2000. Implementation Completion Report on a Credit for a Power Sector Efficiency Project. Report No. 20634. Washington, D.C.
World Bank. March 21,2001. Proposed Power Sector Development Strategy. Report No. 21912-NEP, Washington, D.C.
World Bank. April 25, 2003. Nepal Power Development Project. Report No. 23631-NEP.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 550(135
D. Agriculture, Irrigation and Rural Development, including Avian Influenza
(i) Agriculture, Irrigation and Rural Development
Background
The Nepalese economy is primarily agricultural, with agriculture contributing 38 percent of GDP. About 66 percent of the population lives in rural areas, with about 80 percent of the rural population aged 15 and above engaged in smallholder agriculture. As indicated in Section Ill, poverty is widespread in Nepal-Le., with 31 percent of the popUlation living below the poverty line-but it is more severe in rural areas (35 percent) compared to the urban areas (10 percent) and particularly severe in the Mountain zone (33 percent). The level of income in Nepal and among the agricultural population in particular is low by international standards. With a GDP per capita at about US$270 (2005) Nepal is among the poorest countries in the world. GDP in the agricultural sector is even lower at less than US$140 per agricultural worker.
Of Nepal's total surface area, 35 percent is occupied by the mountains in the northern belt, 42 percent by the hills/middle belt and the remaining 23 percent by the Terai plains in the southern belt. In general, altitude increases from south to north and ranges from less than 100 meters in the Terai to 8,000 meters in the Himalayas. Of the total area (147,480 sq km), 21 percent is cultivated, 37 percent forest land, 12 percent grass land, 5 percent shrub land and degraded forest and the rest consists of noncultivated inclusions, urban areas and snow covered areas (see figure). Although Nepal has abundant water resources, their availability vary widely in time and space. The annual rainfall varies from 500 mrnIyear in some western areas to more than 4,000 mrnIyear on the southeastern slopes of the Himalayan
18%
Land Types in Nepal
7%
• Cultivated Land
• Non·cultivated Inclusions
[] Grassland
[] Forest Land
• Other Forest Land
.Others(urban. snow co"ered)d
range, with 70-80 percent occurring in summer (monsoon season) and generating runoff that varies greatly from place to place due to large variations in climate and topography. The seasonal variation is very large and flow variations from dry to wet years are tremendous, generating restrictions for irrigation and power generation.
Because of the large seasonal and spatial variation in water availability, the potential for irrigation varies across the high mountains, mid-hills and the Terai. More than three-quarters of total irrigable land lies in the Terai where the quality of irrigation-in terms of quantity, timeliness and year-round availability-is better, especially given the potential for groundwater use. However, many irrigation systems have not reached their planned levels of productivity, and public irrigation systems have typically placed too much emphasis on simply supplying water, with poor attention to the farmers' demand of better irrigation services and to sustainable operation and management arrangements.
Since the early 1990s, agriculture has been growing at 2 percent per annum in nominal terms, against 4 percent for the rest of the economy. Three major crops account for 80 percent of the total cropped area and 66 percent of the gross crop output. Paddy is the dominant crop across the country. Area under paddy has been increasing at about 0.7 percent per annum on the average in the last two decades while production increased at 2.4 percent per annum during the same period. Wheat and maize
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 56 of 135
are important in the Terai, while maize is more important than wheat in the hills and the average annual production growth rates have been 4 percent and 3 percent, respectively, for the same period.
The production of fruits and vegetables has increased in recent years, with some rapid growth in high-value crops such as citrus, apples, mango, vegetables and tea. For example, during the period 1995/96-2004/05, vegetable production increased annually by 5 percent, which was the combined result of an increase in area (2.5 percent) and an increase in productivity (2.5 percent). Livestock rearing is also an important-and more dynamicsource of income, with a recent shift toward poultry and small ruminants (sheep and goats) at the expense of cows and buffalos. Forestry also provides a substantial renewable resource in rural areas in the form of timber, fuel-wood,
Total and Agricultural Exports
40000 ....-----------,
II) 30000 1-----~.::7~ a: o 20000 +-----~------1 o ?
10000 +-------.-=-----------1
1994/95 1997/98 2000101 2003/04
Year
I-+-Total Exports ---Agricultural Exports I
l
etc. Commercialization of agriculture has increased in recent years, even though agriculture remains largely oriented toward subsistence-i.e., the value of marketed agricultural commodities increase from 16 percent to 25 percent of the gross crop output between 1995/96 and 2003/04. Exports have also been increasing, from less than 5 percent of agriculture GDP in the early 1990s to over 35 percent around 2000, but still remain a small share of total exports (see figure). Despite a considerable increase in the use of modem inputs, yields have increased modestly and, at national averages of 2,300 kg, 1,300 kg and 1,500 kg per hectare yields for paddy, maize and wheat, respectively, are the lowest in the region.
Diversification has also been slower than expected, with a limited share of land cultivated by high-value crops. In addition, both domestic and export commercialization remain weak for most products. A number of causes have been identified for the lack of productivity increase, diversification and commercialization, including: (i) inadequate supply of agricultural inputs and services; (ii) limited appropriate technologies; (iii) lack of access to key factors of production; and (iv) uncertainties and instability in product prices due to the porous nature of the boarder with neighboring countries. Moreover, irrigation investments have overlooked the possibility of utilizing small-scale "on-farm" water supplies and the weak transport infrastructure has restricted high productivity agriculture to small pockets of the country. Because of these constraints, the technology generation and dissemination services appear worse than they actually are, although they were far from what is required based on the technological needs of farmers.
Sector Policies and Programs
Over the years, agriculture development in Nepal has been directed by a series of studies and development plans. The earlier major plans include: (i) the Perspective Study of Agricultural Development for Nepal (1970-1990); (ii) a Ten-Year Agricultural Development Plan (1975-1985) implemented as part of the Fifth Five-Year Plan in 1975; (iii) the Nepal Agriculture Sector Strategy Study prepared in 1982; (iv) the Perspective Plans for Land Use, Agriculture and Food commissioned by the NPC in 1985; (vi) the Basic Needs Program of the government in 1986; and (vii) a number of Master Plans prepared for key sectors (forestry, irrigation, horticulture, dairy and livestock), only some of which were implemented. In addition, the country's succession of Five Year Plans have treated agricultural development as a key economic priority.
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In spite of the intensive planning effort, few of these proposals have received serious government attention and most have been left unimplemented. As such, Nepal's agricultural production-which until the end of the 1980s had kept pace with population growth primarily through expansion of the production area in the Terai-has stagnated. After the 1991 National Census, it became apparent that population growth was about to outstrip food production growth, and unless productivity was enhanced, Nepal would move from being a net exporter of food grains to becoming a regular net importer.
The Agriculture Perspective Plan (APP). To redress the negative trends in the agriCUlture sector, a 20 year strategy for agricultural development-i.e., the Agriculture Perspective Plan (APP) in 1995-was developed and issued, adopting and building upon the main themes of many of the earlier plans. As per the APP, the Terai was still viewed as the primary region in which intensive production of cereal grain and other food crops would be promoted, but with commodity/cash crops also produced in some specific areas. The mid-hills would exploit the natural advantage for fruit and high value vegetable crop production, while the mountain districts had a natural advantage for livestock and livestock products.
Where other proposals had been vague, both in design and objective, the APP focused on four priority areas-i.e., irrigation, fertilizer, infrastructure (roads and power) and technology-the lack of which was considered to be constraining the realization of rapid improvements to agricultural productivity. The sustained application of these inputs through a system of "Prioritized Productivity Packages" would be the means of increasing the growth of crop and livestock production. Agriculture would then become the "engine of growth" for the wider economy through farming households with higher purchasing power from the increased incomes, and an attendant increase in non-agricultural employment to support the demand for consumer goods.
The Ninth Five Year Development Plan (1997-2002). Nepal's Ninth Plan coincided with the start of the 20-year APP. With a theme of poverty alleviation in the Ninth Plan, the development of the agriculture sector was seen as the means to accomplish the plan's targets. In addition to the four main priority themes, the APP also stressed the need to diversify agricultural production on the basis of geographical location and commercialization of agro-products. In addition, the need to further encourage private sector participation in the agriculture sector was emphasized. At the plan's mid-term, there were apparent improvements within the sector. For instance, the private sector did enter dairy production, small farmers did invest in milk production, and output growth was satisfactory with a noticeable shift to cash crops.
Nevertheless, plan targets set for the sector were not fully met for many reasons, including: (i) under-funding of the program; (ii) limited availability of, and access to key inputs central to implementation of the APP strategies were not effectively provided--e.g., the groundwater (shallow tube well) development program was poorly implemented, the development of the agricultural roads network lagged behind schedules, the prioritized pocket program approach to extension and research was poorly implemented; and (iii) the fragmentation of responsibilities for APP implementation among a number of ministries/departments and the lack of coordination.
Towards the end of the Ninth Plan, a comprehensive review of the agricultural sector was carried out. This showed a small but nevertheless upward trend in some key performance indicators as the policy reforms helped in shifting agriculture toward a more market-oriented system. The review also indicated a need to adjust some of the APP strategies in light of the country's decentralization policy. This would involve endeavoring to establish favorable conditions for farmers to achieve increased productivity through better access to the market, rather than through government interventions.
Decentralization: the Local Self-Governance Act. Following the restoration of multi-party democracy in 1990 and the adoption of the new Constitution, the Ninth Plan established decentralized governance as a policy priority. The promulgation of the 1999 Local Self-Governance Act (LSGA) and its
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 58 0(135
rules built on and improved the existing legislative framework for decentralization. Local Governments were to directly manage basic services such as primary education, primary health, postal services, agriculture extension and animal health by progressively transferring responsibility. However, implementation of the decentralization policy did not take firm root, and the central government continues to control almost 90 percent of public expenditure in the country, with little going to locally elected bodies. This has eroded both ownership and accountability at the local level. Furthermore, since the end of 2001102 there has no representative elected bodies at the local levels, given the inability to hold new local elections under the fluid situation previously existing in the country. The local governments are currently under the administration of Local Development Officers who are appointed by the Ministry of Local Development.
The Tenth Five Year Development Plan and PRS (2003-2007). The Tenth Five Year Plan and PRS started with the understanding that most of the poor in Nepal are located in the rural areas and derive their livelihood from agriculture. Therefore, a broad-based growth approach to poverty reduction based on acceleration of agricultural growth was adopted as a strategy. Agricultural growth was assumed to contribute directly to poverty reduction through improved food security, increased income and employment at the farm level, and induced employment in the rural economy. The planed interventions were to be self-employment creating, income generating and protective programs which directly benefit the economically, geographically and socially backward groups, castes, disabled and helpless people and people living below the poverty line. To increase rural employment and income generation, the agriculture sector was to be commercialized. For this, the strategy is to: (i) mobilize the private sector and NGO service providers in partnership and on a contract basis with farmers and farmer groups; (ii) promote cooperative and contractual farming; (iii) devolve local agricultural programs to local bodies; (iv) strengthen agriculture farms/stations as resource centers to ensure the supply of quality "mother stock" seeds, saplings and breeds for their subsequent multiplication to meet local needs from local multipliers; and (v)o provide technical back-stopping.
Issues and Challenges
A number of challenges are currently facing the sector, including:
• Low productivity. A critical constraint to improving productivity is access to improved technology. Improvement in the generation and dissemination of agricultural technology is critical as the scope for horizontal expansion in areas under cultivation is limited. The major scope now is intensification of production and raising productivity levels. The opportunities for raising productivity are high as current levels are extremely low. Even within the country there are wide variations in productivity between progressive growers and ordinary farmers, and raising the average national productivity of major crops to 80 percent of the productivity of progressive farmers will have a major impact on production.
• Isolation and access to markets. By far one of the most significant challenges to the country is its terrain that reduces access to markets and keeps agriculture in low value subsistence mode, constraining agricultural growth and diversification into higher value added activities. Poor road infrastructure, especially in the Mid- and Far-western regions has kept agriculture in this mode because of high transport costs and product losses during transit. Weak institutions and inadequate technical support for commercialization and supply chain development have further contributed to poor marketing opportunities.
• Standards and quality for agriculture exports: Nepal's recent entry into the World Trade Organization (WTO) requires establishing food safety regulations, animal health regulations and quality standards, and re-evaluating import restrictions, subsidies, pricing controls and other domestic
June 2007 Briefing Note fOr the New World Bank Country Director fOr Nepal Page 59 of135
support programmes. Efforts in this regard have been limited and Nepal is facing difficulties in meeting the import requirements of its major trading partners.
• Under-exploitation of water resources: Although there was significant expansion of irrigation in the 1990s, Nepal has inadequately harnessed its irrigation potential. Less than 40 percent of the cultivable land in Nepal is irrigated (only 17 percent is irrigated year-round), while the potential is to irrigate almost two-thirds. Inefficient pricing and weak institutional incentives in water resources management are major challenges. As such, there is a need for: (i) coordination and management of water use for various purposes, including basic human needs, productive activities, aquatic habitats and other environmental needs; (ii) development of multi-purpose reservoirs that could increase the amount of water available in the dry season, support activities downstream and reduce flooding risks; and (iii) implementation of adequate groundwater resource management and protection measures for having a sustainable use with focus on crop diversification and higher levels of productivity.
• Access to assets: Both inadequate and unsustainable access to credit and market rigidities in land further hamper opportunities for growth. Tenancy restrictions, high land fragmentation, absentee landlordism and high land inequality pose key challenges. Land disputes are common, yet many cannot afford to file court cases and the judicial process is often lengthy. Moreover, policy restrictions such as large-scale contract farming using land area ceilings on various commodities (excluding tea) still remain.
Priority Areas for Bank Support
The World Bank's support program to create growth opportunities in rural Nepal is focused on three broad thematic areas; specifically:
Stimulating agricultural productivity, competitiveness, and exports through investments in irrigation, applied research, agricultural commercialization, trade and agribusiness promotion
Irrigation infrastructure and management. Improving irrigation infrastructure through: (a) promoting both surface and groundwater irrigation for commercial and industrial crops, while encouraging high-value horticulture, as well as cereal production; (b) developing year-round irrigation in perennial flow areas and small storage facilities in other areas; (c) building low pressure sprinklers and drips for high value crops, and shallow and deep tube wells only where profitable; and (d) investing in mini and micro hydro facilities where feasible, to avoid costly irrigation infrastructure. At the same time the Bank will support and encourage farmer management of tertiary, and eventually secondary, irrigation infrastructure, and replacing targeted irrigation subsidies with grants for demand-driven farm interventions. Farmer-managed schemes are already predominant in the surface water-irrigated Hills and Mountains, and some Government-managed schemes in the Terai have also transferred tertiary level management to farmers, who retain a share of water charges for operations and maintenance. An Irrigation and Water Management Project is under preparation and will be presented to thc Board in FY08
Applied research: Supporting applied research, dissemination and technical advice for improved seeds, agronomic practices, soil and water management, integrated pest management, packaging, processing, and storage is critical. However, currently, neither the Bank nor other donors are providing support in this critical area. The aim of productivity improvement and commercialisations will be hard to meet unless it is backed by strong applied research capacity relevant for different ecological regions of the country. There is currently no proposed intervention in this area, however, sector colleagues strongly recommended that we get involved.
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Commercialisation and trade: This entails supporting commercialization of agriculture focusing on strengthening and creating value chains around commodities that have the most impact on incomes, employment, and overall agricultural growth. Full range of activities required to bring a product or service fro conception through the intermediary phases of production, to delivery, to final consumers should be supported and promoted. Catalyzing investment in local public goods and income-generating assets such as marketplaces, collection centres, and facilities for storage, processing and drying is an integral part. Moreover, promoting trade in agriCUlture by: (a) strengthening institutions, systems, and procedures for export quality control, certification, inspection and approval; and (b) investing in both physical infrastructure such as laboratories and testing stations and human resources. The Agricultural Commercialization and Trade Project is under preparation and will be presented to the Board in FY08.
Improving service delivery and implementing targeted interventions to empower local communities and improve incomes.
Empowering communities: Where local bodies and communities are empowered, decision are likely to reflect diverse local preferences and needs, accountability and oversight will be strong and speed and relevance of decision-making improved. This will have a positive impact on service delivery and would enable design and implementation of interventions that directly support the most marginalized groups in the rural areas, especially women and janajatis. The community empowerment agenda through demand-driven and community-centered approach should be scaled up, with the aim to improve access to income-generating projects and improve service delivery to the most marginalized and poorest segment of the rural poor. Such groups will also be directly involved in the provision of rural infrastructure that are necessary to sustain the income generating activities and provides a good opportunity to promote a mix of local public and private investment in infrastructure. P AF I is currently under implementation with new commitments made in FY08 through Additional Financing and a proposed large follow up/repeater project in FY08/FY09 (see section VIII.B).
Generating information through analytical work that helps in the formulation of policies that support rural growth and poverty reduction
There are many areas where AAA could be justified in the medium term. However, selectivity is very much needed based on the demand and the information gap that is prevailing. Land is the most important productive asset in Nepal and a major determinant of social status, political influence and income. Land ownership provides access to political power and public incomes for large land owners, and has considerable pecuniary and non-pecuniary returns. More than two-third of landholdings are less than one hectare, and both leasehold and tenancy are prevalent. Land fragmentation, due mainly to inheritance practices and topographical constraints is a serous issue for the agriculture sector. In order for the government to debate on future land policy and administration, as well as to plan for land related investments, a thorough analytic work on constraints and opportunities would be useful. The analytic work will examine the merits of redistributive policies, including the abolition of dual ownership and the 1998 amendments; will explore ways to achieve a more accessible legal system and simpler judicial process to address land disputes, and identify market and non-market mechanisms to improve access to land. Defining measures to improve land administration systems, particularly cadastral and land title records, to provide greater security of ownership and reduce transactions costs. AAA focused on land administration and tenure is planned for FY08
Key Documents
World Bank, HMGN NPC, SAPPROS. October 2000. Nepal: Delivery of Rural Development ServicesA Comparative Assessment of Alternative Institutional Arrangements with a Focus on the Terai.
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World Bank. March 24, 2003. Agricultural Research and Extension Project. Report No. 25634. Washington, D.C.
World Bank. March 21, 2005. Implementation Completion Report on a Credit to Nepal/or an Irrigation Sector Project. Report No. 31484. Washington, D.C.
(ii) Avian Influenza
Background/Context
The rapidly expanding area in which avian influenza has been discovered and the escalating number of human infections have raised concerns worldwide over the possible evolution of the next influenza pandemic and its potentially disastrous consequences. Nepal has so far not had any cases of avian influenza in either birds or humans. However, the country is at high risk, with the disease already recorded in China to the north and in India to the south. The limited border controls with both these countries on animal and human population flow increases the potential for spread of infection to Nepal. In addition, Nepal is on two routes for migratory birds, which are known to be carriers of the disease. The ability to detect avian influenza in the country is severely handicapped by access problems related to Nepal's rugged terrain and widespread security problems.
Key Issues and Challenges
Poultry sector and veterinary services: There are an estimated 22 million chickens and 408,000 ducks in Nepal. The poultry industry employs roughly 400,000 people and provides livelihood to millions of households. Poultry farming takes place within two systems-Le., 45 percent of (hybrid) birds are found in a few large commercial farms located in peri-urban areas. The remainder consists of backyard units of indigenous fowl and ducks in roughly half of the rural households across Nepal. While most of the commercial farms have good bio-security arrangements in place, poultry meat marketing is traditional and unorganized. While there is a well-knit veterinary infrastructure with considerable experience in the control of many livestock diseases, there is no experience with culling and disposal of chicken and related compensation to farmers. Bio-security protocols, ring-fencing and foreign border quarantine are under implementation, and there was a ban on imports of poultry from India as a result of the recent outbreaks of avian influenza in that country. The Ministry of Agriculture and Cooperatives (MOAC) is already suffering from capacity constraints for the testing of suspicious birds. Checking of trans-border movements of animals is a daunting task because of remoteness of the borders from the capital, insufficient check-posts, and traditional free movement of animals and people between India and Nepal.
Human health: A public health service delivery system is reasonably well established in Nepal with the Ministry of Health and Population (MOHP) at the center, five regional health directorates, regional and zonal hospitals and district level hospitals. However, the health system is constrained by quality of care and access, issues that are being addressed within the Nepal Health Sector Program. With respect to a possible pandemic, this system will be required to: (a) detect and characterize human influenza outbreaks promptly through surveillance mechanisms within the existing system for disease control and epidemic management; (b) be prepared to diagnose and treat large numbers of people with influenza and its complications; (c) implement a communication strategy to inform the public on the progress of avian influenza, its risks and threats, methods of self-protection against infection and sources of treatment; and (d) ensure inter-sectoral and inter-governmental coordination in preparing for, and responding to, the threat of avian influenza and its possible spill-over to the human popUlation.
National preparedness plan: MOAC and MOHP are aware of the potential risk of avian flu. An inter-sectoral Task Force was set up under the chairmanship of the Director-General of Health Services to
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coordinate Nepal's response to avian influenza and its potential for human infections. In early 2006, the Task Force prepared a National Avian Influenza and Influenza Pandemic Preparedness and Response Plan (NAIIPPRP) with assistance from the World Health Organization (WHO), and the Food and Agriculture Organization (F AO). This plan was formally endorsed by the government. After preparing the plan, the Task Force was dismantled and the coordination function now resides under a sub-committee of the National Disaster Management Committee. The Plan provides a strong basis on which to detect and combat possible outbreaks, and outlines the institutional mechanisms for doing so. The Plan is also candid about what capacity and resource constraints exist.
The Bank's Current Activities
The Bank has in place an Adaptable Program Loan (APL) to finance the Global Program for Avian Influenza and Human Pandemic Preparedness and Response (GPAI), which can rapidly support country-specific preparedness using guidelines for accelerated project processing. Under the GP AI, the Bank has helped Nepal prepare an Avian Influenza Control Project (AICP) that will be financed through and IDA grant of US$18.2 million. AICP was launched on May 3, 2007, and will be implemented over four years by the Ministries of Health and Agriculture.
The overall project objectives are to minimize the threat posed by avian influenza to humans in Nepal by: (i) controlling such infections among birds, especially domestic poultry; and (ii) preparing for, controlling and responding to possible human infections, especially an influenza epidemic and related emergencies. Though the objectives are specific to avian influenza, the interventions are expected to contribute to the control of other zoonotic diseases and other types of infectious diseases, in terms of building overall response capacity. These objectives will be achieved through three types of interventions: (i) prevention; (ii) preparedness and planning; and (iii) response and containment. If these types of interventions achieve their goals, the proposed project will reduce the burden of disease in animals, the consequent economic losses, the risk of human infection and the loss of productivity attributable to human infections in Nepal and limit the risk of avian influenza to other countries.
E. Environment
Background/Context
Recent studies suggest that more than 38 percent of Nepal's GDP is derived from its 'environment and resource sector,' which includes agriculture, fisheries, forestry, and the mining and quarrying sectors. In addition, significant portions of the power, water, manufacturing, trade, and tourism sectors are also dependent on the environment in one form or another, directly or indirectly. When factoring these sectors with the more traditional definition of the natural resource sector, it is estimated that the total contribution of "environment-related income" to Nepal's economy may well be over 50 percent. All environmental pressures, therefore, have the potential to strain the country's environmentrelated income and, in turn, the country's overall economic and human development performance.
Nepal has adopted significant environmental policies and laws, most notably the Environmental Protection Act and Environmental Protection Rules (EP AlEPR), which cover a broad range of issues. These policies and laws are generally sound, but there are several important policy gaps and legislative inconsistencies that exist and require further clarification. However, the most major and urgent challenge lies in the very low capacity of various institutions to effectively implement environmental policies and laws. The Ministry of Environment, Science and Technology (MOEST) and many of the sector agencies face serious challenges from unclear and overlapping lines of authority, lack of adequate and technically trained staff, and very weak financial and informational resources for discharging their environmental
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responsibilities. There are also no structured and effective mechanisms for coordinating actions, monitoring compliance, and reporting violations among agencies and to the public, which has resulted in a serious lack of accountability and transparency in environmental decision-making and enforcement.
The Local Self Governance Act (LSGA) requires the national government to delegate or devolve a number of responsibilities~including environmental management and pollution control~to locally elected bodies. While the LSGA requires the decentralization of government functions, the transfer of these responsibilities by the national government to the local bodies has been very limited. With the new political shift in the country, it can be expected that the push for decentralization of power will accelerate and, consequently, greater efforts to simultaneously build local capacity and transfer environmental management functions to local governments will be required.
Key Environmental Issues and Challenges
Environmental health. Environmental health costs represent a significant burden on Nepal's economy. Evidence shows that the environmental health implications of poor water supply and sanitation as well as indoor and urban air pollution dramatically impact Nepal's ability to achieve targets for reducing child mortality, improving maternal health, combating diseases and other MDG goals. The analysis of economic costs associated with three environmental health risk factors evaluated for Nepal amounts to US$356 million~or 4.84 percent of GDP (see Table 6.9). From indoor air pollution (lAP) perspective alone, it is estimated that the total cost of indoor air pollution is therefore calculated to be US$213 million, equivalent to 2.9 percent of Nepal's
Table 6.9: Aggregate Environmental Health Costs for Nepal
US$ (millions) %ofGDP
Indoor air pollution 212.8 (167.6-253.1) 2.90 (2.28-3.45)
Lack of water & sanitation 125.7 (111.0-141.8) 1.71 (1.51-1.92)
Urban air pollution 17.1 (14.4-20.0) 0.23 (0.20-0.27)
Total 356 (293.0-414.9) 4.84 (3.99-5.64)
GDP. While some progress is being made to improve environmental health, much more attention and resources are needed in order to meet many of Nepal's MDG goals.
Infrastructure development. There are two primary growth areas-the hydropower and road sectors~which have received much emphasis in Nepal's development strategy. The Tenth Plan has set targets for completing 36 hydroelectric projects and starting 11 new projects and the construction of 20,000 km of operational roads during the Plan period. These development objectives represent significant environmental management challenges for the sector agencies charged with their implementation and for the principal environmental agency, the Ministry of Environment, Science and Technology (MEEST). The main instrument for ensuring that infrastructure development will be environmentally sustainable is the Environmental Impact Assessment (EIA) System. The Bank recently completed a case study analysis of several projects in the hydropower and roads sectors and found serious policy gaps and implementation deficiencies in the EIA system that have affected the adequate inclusion of environmental concerns into the planning, design, implementation, and monitoring stages of infrastructure projects.
Solid waste management One of the greatest challenges facing local governments is to generate sufficient revenue to provide basic urban environmental services, such as solid waste management. The five municipalities in the Kathmandu Valley, together, spend approximately NRs 235 million (US$3.2 million) annually on solid waste management and with the growing population pressures from rapid urbanization, the cost of solid waste management is increasing rapidly. Yet, one of the main sources of revenue for local governments-the Local Development Fee-is being phased out by 2013, and, consequently local governments will need to explore new mechanisms that would generate the necessary revenues to provide financially sustainability in the future. Currently, much of the waste from Kathmandu and Lalitpur are being landfilled in Sisdol, which is 28 km from Kathmandu and expected to
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be filled in less than two years. Landfill alternatives need to be explored, including plaCing greater emphasis on recycling and composting given the high potentia) and feasibility of recycling and composting a large portion of Kathmandu's waste.
Air quality management. Air pollution is another serious challenge facing Nepal's urban areas, particularly in the Kathmandu Valley and other large cities. Various studies have shown that air pollution in Kathmandu-particularly the concentration of particulate matter-is already several times higher than national and international standards. MOEST has recently prepared a comprehensive air quality management plan, but it has not been endorsed by the govemment nor developed into a concrete action plan for implementation. Furthermore, the impacts on air quality are determined not only by the effectiveness of environmental policies, but also by the integration of environmental impacts and consequences in the development of sectoral policies in transportation, energy and industry, among others. For example, sectoral policies are needed to promote the supply and utilization of good quality petroleum.
Growing industrialization. While industrial activity in Nepal represents only 10 percent of GDP, it is expected to double to 20 percent by 2020 as envisaged in the Industrial Development Perspective Plan. There are currently an estimated 3,300 large, medium and small scale industries, and 80,000 cottage industries registered in the country and a large portion are small and medium enterprises (SMEs) clustered in urban and peri-urban areas. While the total number of industries remains relatively small, industrial pollution is of increasing concern because industries have not adopted adequate measures for pollution prevention and control, and enforcement of industrial pollution is weak and ineffective. There have been some attempts to control industrial pollution through the introduction of cleaner technologies in certain sectors, such as the ban on bull trench brick kilns and the promotion of less polluting vertical shaft brick kilns, but the success has been limited. The level of awareness about good environmental management practice and industrial pollution issues is still very low among key stakeholders, including small industries and government regulators. This is an important emerging area of growth where strategic assistance could be provided to promote environmental incentives for cleaner technology and cleaner energy sources.
Climate change and adaptation. While its contribution to green house gas (GHG) emissions is tiny, Nepal will face a significant challenge in responding to the effects and impacts of climate variability, climate change and extreme weather events. The projected temperature change above the baseline average is estimated at 1.2°C for 2030, 1.7°C for 2050, and 3.0°C for 2100. As a consequence, Nepal's First National Communication Report to the United Nations Framework Convention on Climate Change (UNFCCC) notes that with predicted increases in temperatures and changes in rainfall patterns, there will be significant negative impacts on Nepal's ecosystems and people's livelihoods in the future. Overall prospects for Clean Development Mechanisms (CDMs) and climate change mitigation as a whole in Nepal are limited, as many CDM projects would be too small (in terms of total emissions reduction generated) to cover the transaction cost. However, CDM can be used to supplement financing of the country's environmental management strategies in renewable energy, cleaner technologies and solid waste management.
The Bank's Current Activities
The Country Environmental Assessment (CEA) was developed to re-engage the authorities on the environment front by identifying opportunities for enhancing the overall performance of Nepal's environmental management systems through improvements in the effectiveness of institutions, policies and processes. The areas of focus were to strengthen the EIA system in key growth sectors (power and roads), improve urban environmental management in priority areas (solid waste, air quality and industrial pollution) and support institutional capacity building for environmental management at the national and
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local level. The CEA has proven to be an important vehicle for engaging not only the authorities, but also other key stakeholders such as the Judiciary, Parliament, local governments, private sector and civil society.
The Adaptation to Climate Variability and Change activity was launched earlier this year and has the potential to be developed into a significant analytical piece given the opportunity to link this to the broader regional water strategy/dialogue that is being put together within the Bank. The broader regional water strategy is likely to begin with an assessment of risks at the source of much of the water basins in the region, namely the upper Himalayans in Nepal. In discussions with the authorities, was agreed to undertake a rapid needs and capacity assessment of their current data management and computing capacity as a basis from which to begin scoping out a concept note.
Clean development mechanisms. Two biogas CDM projects from Nepal have already been registered at the CDM Executive Board in December 2005 and are currently generating certified emissions reductions. An additional CDM project is currently under preparation in the area of village micro hydro and there is potential to receive CDM revenue from solar home systems if they are deployed on a large enough scale.
Safeguard policies. Support has been and will continue to be provided to ensure that the Bank's safeguard policies are successfully implemented in the Nepal program. These efforts include technical support in the evaluation of environmental aspects of project investments currently underway and an analysis of the harmonization of Nepal's environmental safeguard policies-i.e., the ETA system-with the environmental safeguards of the Bank and other donors.
Future Plans for Bank Involvement
The Bank has not played a significant role in the environment sector in the past and the CEA represents an important opportunity to continue building momentum with Nepal in strengthening institutional effectiveness in key areas that will affect future growth and sustainable development. There are three potential areas for future Bank intervention: (i) technical assistance to MOEST, sector agencies and local governments in support of their on-going efforts to strengthen the EIA system, particularly in targeted growth sectors; (ii) utilization of CDM to supplement financing of innovative environmental management strategies in renewable energy, cleaner technologies and solid waste management; and (iii) strategic investments in priority sub-sectors-such as urban air pollution-to support implementation of actions that will improve environmental health.
Key Documents
World Bank. 2007. Country Environment Analysis Draft Report Work Bank. 2007. Environmental Health Valuation in Nepal: Preliminary Analysis Asian Development Bank and International Centre for Integrated Mountain Development (lCIMOD).
2006. Environment Assessment of Nepal: Emerging Issues and Challenges Environmental Resources Management (ERM). 2002. Linking Environment for Poverty Planning in
Nepal. Report for National Planning CommissioniNepal funded by DFID.
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F. The International Finance Corporation (IFC)
The International Finance Corporation (IFC) supports the 2003 Country Assistance Strategy (CAS) for Nepal, specifically through the "broad-based economic growth" pillar by facilitating increased private sector investment. New IFC investment and advisory (i.e., technical assistance) services have been limited during the CAS period due to the weak security situation and political uncertainties. Looking forward, IFC's depth of engagement will depend on progress with the agreed political roadmap.
IFC has developed a strategy based on scenarios laid out in the January 2007 Nepal Interim Strategy Note (ISN). Specifically, in a steady transition scenario, IFC will seek to gradually deepen its engagement in Nepal through targeting investments in the following sectors:
• The small, but growing, general manufacturing sector, particularly enterprises with export potential;
• Tourism; • Power generation and distribution, telecommunications and water supply; • Financial market development, through institution building and direct investments in banks,
insurance companies and non-bank financial institutions; • Private provision of social services such as in healthcare and education; and • Development of SMEs through financial services and technical assistance (T A).
With advisory services, the IFC SouthAsia Enterprise Development Facility (SEDF) will increase its spending from US$79,000 in 2006 up to a possible US$1.4 million in 2008. T A will be focused on improving Nepal's investment climate in Nepal, specifically in the areas of: (i) access to finance; and (ii) business enabling environment/investment climate assessments.
In a stalled transition scenario, IFC will look to consolidate its T A with Nepal, but likely actively seek new investment opportunities. In a deterioration scenario, IFC would not commit to further investments in Nepal, nor new T A projects.
IFC's Program in Nepal
IFC investment services. IFC's portfolio of committed projects in Nepal totals US$48.3 million of which US$34.67 is from IFC's account. Exposure is currently all in debt, in three projects: two in the hyrdo-power sector and one in the tourism sector (see Annex II for the entire portfolio). Investments in the hydro-power sector have performed well and have helped expand power generation capacity by 96 MW. The current debt investment in the tourism sector~-Jonsom Resort is in arrears for both principal and interest. An equity investment made in 2001 in a local leasing company has failed.
IFC has a sufficient exposure limit in Nepal to accommodate further investments if appropriate in sectors such as telecommunications, hydro power generation, infrastructure, and financial market development. IFC is currently secking Board approval for a facility to allow the financing of smaller manufacturing projects in certain frontier countries, including Nepal. A scoping mission was conducted in Nepal in April 2007.
In 2005, IFC launched the Global Trade Finance Program which offers confirming banks partial or full guarantees on issuing banks' payment risk. IFC is expected to formally sign two Nepali banksi.e., Bank of Katmandu and NICB-to the program. IFC would also consider equity financing and long term credit lines to some selected banks.
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IFC Advisory Services. IFC's main delivery mechanism for Advisory Services (AS) is through the Dhaka-based IFC-SED. This facility~funded by IFC in partnership with Canada, Netherlands, Norway, the UK, ADB and the European Union (EU)-delivers TA programs in Nepal to: (i) increase access for SMEs to financing and business development services; and (ii) improve the overall business environment for investment in Nepal.
Privatization/corporate advisory services. IFC has initiated discussions with the authorities on providing advisory services for a possible privatization/restructuring of Nepal Airlines and Nepal Telecom. This work will be closely coordinated within the Bank Group.
Access to finance. IFC-SEDF has undertaken an SME banking diagnostics with the Bank of Katmandu and Himalayan Bank using the IFC SME Banking Diagnostic Toolkit. Following this, IFCSEDF has signed Partner Financial Institution memorandum of understandings (MOUs) with Himalayan Bank and Bank of Katmandu and hopes to sign another MOU with a third bank (Nepal Industrial and Commercial Bank Ltd.; "NIC Bank") very shortly. The MOUs outline specific programs to assist the banks with institutional capacity building that will help enhance the quality of service to the bank's SME clients. By comparing these financial institutions to best practice banks in this sector, the diagnostics provide a needs-gap analysis of the banks' strengths, weaknesses, opportunities and threats within the overall structure of the bank. The road-map for future interventions is based on these findings. A diagnostic of NIC Bank is scheduled for mid-June.
Advisory services to the banks following on from these diagnostics will include: 0) formulating a holistic SME strategy, including human resources policy developing appropriate SME banking products and services; (ii) building institutional capacity through training; (iii) developing more standardized products; (iv) streamlining processes; (v) effectively using technologies to derive more cost-effective delivery channels; and (vi) implementing all this in an effective manner. These activities will involve assisting the client banks to transition to a more industrialized form of banking and would involve a cultural change in mindset from traditional corporate banking. Future work in the area of access to finance will include a Credit Bureau Strengthening Project aimed at making the newly privatized credit bureaus commercially viable.
Business enabling environment. The business enabling environment AS business line is jointly implemented by IFC-SEDF and the Foreign Investment Advisory Service (HAS). At the request of the Ministry of Industry, Commerce, and Supplies (MOICS), IFC-SEDF and HAS undertook a detailed review of the draft Special Economic Zone (SEZ) legislation in September 2006. This was followed by an Investment Climate Mini-Diagnostic (February-March 2(06) which uncovered constraints to investment in terms of excessively rigid labor regulations, inefficient customs administration, non-transparent and inconsistent tax administration, inappropriate and uncoordinated licensing and certification regimes, lack of inspections capacity, and barriers to exit. See
<http://www.fias.neVifcexVfias.nsf/AttachmentsByTitle/FIAS_Resources_Countryreports_NepaIMarch07/$ FILE/Nepal+mini+diagnostic+-+FINAL+3-28-07.pdf>
The proposed SEZ regime presents an important opportunity for Nepal to offer a stable and efficient environment for investors to do business in the short-term while building up the support for scaling up reforms to the national level through demonstration effects. FIAS and IFC-SEDF are continuing to advise Nepal on bringing the draft SEZ law in line with international good practices and will couch this assistance in a broader program of support over the next few years to help implement a number of recommendations from the mini-diagnostic and make Nepal a more attractive investment destination.
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Relationship with Nepal
IFC has a very positive relationship with the Government of Nepal who would like to see greater IFC investment in the country. Up until recently, IFC has been unable to respond to these requests due to the political and security risks and the limited number of projects of sufficient scale backed by strong sponsors. Through advisory services, IFC is responding positively to requests for increased TA, but IFCSEDF is a relatively small player in Nepal in terms of volumes of financial resources for TA (compared to ADB, EU, etc.). Nevertheless, it enjoys a strong reputation for technical competence especially in the areas of infrastructure finance and banking reform.
Staffing
IFC currently manages its Nepal activities out of the Dhaka Office for both investment and advisory services. Dependent on continued progress with the peace process and political transition, IFC would consider creating a position in Katmandu to cover both investment and advisory services work.
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VII. SOCIAL SECTOR DEVELOPMENT
A. Education
Background/Context
Denying access to education for the common people was the state policy prior to the advent of democracy in 1951. Until then, only a few government schools and colleges-designed to serve the ruling elite-existed. Starting in 1951 communities have begun to establish schools and colleges. By 1971-when all community (then called public) schools and colleges were nationalized-there were already over 4,000 community schools and 50 community colleges, with a heavy reliance on these types of institutions.45 During the pre-nationalization days, schools and colleges were funded from tuition fees, philanthropic donations and government grants. The grants accounted for about 25% of the operating costs, whereas capital costs were borne almost exclusively by the communities.46 Founders, teachers and graduates of community schools and colleges remember them with pride. Schools and colleges were accountable to communities and the terminology "teacher absenteeism"-something very familiar these days-was then just simply not in the vocabulary.
In spite of the significant increase in state funding following nationalization, the quality of service delivery of schools and campuses (i.e., colleges renamed as campuses) started to deteriorate. The primary reason for this deterioration was that schools and campuses stopped being accountable to the communities, and the state---due to the endemic bad governance-was not able to ensure the accountability of schools and campuses. Following the introduction of the private provision in the beginning of the 1980s, those that could afford to started walking away from public provision to private provision. The segregation of the education sector along income lines has been a contentious issue in Nepal.
Today, private (for profit) provision accounts for 9, 12, 15, 50 and 9 percent respectively of enrolment in primary (grades 1-5), lower secondary (grades 6-8), secondary (grades 9-10), higher secondary (grades 11-12) and higher education. Private-not-for-profit institutions-i.e., community schools and campuses-have emerged as a significant player in the education sector. If community colleges account for 27 percent of higher education enrolment, community higher secondary schools47
account for about 50 percent of higher secondary enrolment. The contribution of community schools (unaided)48 in primary, lower secondary and secondary schools lies with in the range of 3 to 10 percent.49
There has been a strong conviction within political parties, the government as well as the general public that the only way to fix the governance issues within the public education system is to have greater involvement of the beneficiaries in the management of schools and campuses. Whereas, as a whole, the country is moving in this direction, teachers' unions (not necessarily teachers in general) have been trying
45
46
47
48
49
There were five government colleges in 1965. Tribhuvan University (TU) was established in 1959.
In some cases, the government did provide land to schools and campuses.
There are no government higher secondary schools. The main attribute of a government school is the existence of government teachers.
All public schools-(i) with and (ii) without government teachers-are called community schools. While the first type-also called "aided"-have government teachers, the second type-also called "unaided"does not have government teachers, but receive some government grants.
These are estimates, as due to problems with classifying schools, accurate data are unavailable.
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to maintain the status quo, which protects the interests of teachers at all costs. The major reform initiatives initiated during the last decade are:
• Adoption of the Tribhuvan University (TU) Decentralization Rules (1998) which aim to build accountability of campuses to beneficiaries through formation of Campus Management and Development Committees with beneficiary representation. Presently, 40 out of 60 TU campuses are decentralized.
• Adoption of the TU Autonomous Campus Rules (2006) providing academic, administrative and financial autonomy to campuses.
• Promulgation of the Seventh Amendment of the Education Act, paving the way for devolving the management of schools to school management committees accountable to communities/ beneficiaries.
• Transfer of schools to community management.50 To date over 2,700 out of about 23,000 public schools have been transferred to community management.
• Introduction of salary grants to schools enabling them to hire and fire community recruited teachers paid by government funds. Prior to the introduction of salary grants, communities recruited teachers and paid them from community funds.
• Funding of unaided schools-i.e., community schools without government teachers-improving equity in education sector funding.
• Introduction of per capita grants for non-salary recurrent costs--i.e., school improvement plan grants-which has made resource allocation more equitable.
• Opening textbook production and distribution to the private sector. • Integrating higher secondary education with the school education system by channeling funds to
higher secondary schools through the Department of Education (DOE) instead of the Higher Secondary Education Board.
The above list demonstrates that Nepal has been able to implement serious reforms in spite of the difficult political environment characterized by the decadeold insurgency and political instability. If Nepal is able to protect these reforms, it should reap rich dividends.
Table 7.1: Key Education Indicators Indicator
Net enrolment ratio primary education Gross enrolment ratio
Lower secondary education Secondary education
Higher secondary education Higher education
Gender parity index Primary education
Lower secondary education Secondary education
Higher secondary education Higher education
Literacy rates, + 15 years Share of education in the total budget Education expenditures as percentage of GOP Share of primary education in education expenditures Share of secondary education in education expenditures Share of higher education in education expenditures
Value 87.4%
71.5% 56.7% 17.0% 6.0%
0.87 0.83 0.80 0.50 0.38
49.2% 16.7% 3.7%
62.1% 24.0%
9.3%/
Despite the governance challenges, Nepal continues to make progress in terms of access. The net enrolment rate (NER) at the primary level has reached 87.4 percenel-one of the highest in South Asia. The rapid increase in access to primary education was also confirmed by in the
. Note: (i) Includes partially higher secondary budget. Pure higher i education budget is about 7%.
Nepal Living Standard Survey (NLSS). According to this survey NER
50
51
Community managed schools have more authority than regular public schools. The main authority they have is power to hire teachers on a permanent basis and appointing head teachers.
Based on Ministry of Education and Science statistics.
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increased by 15% points between 1995/96 to 2003/04. Some key education indicators are presented in Table 7.1.
Table 7.2: IDA Supported Education Project in Nepal
Bank involvement in the education sector began in 1977 with a technical education project-Le., Institute of Engineering Development. The entire list of Bank supported projects is presented in Table 7.2. Following the first project, the Bank's engagement was
Name Institute of Engineering Development Western Region Campus Primary Education Agriculture Manpower Engineering Education Higher Education Earthquake Emergency Schools Rehabilitation BasiclPrimary Education I Basic/Primary Education II Community School Support Education for All Higher Education Education for All: Additional Financing
(Amounts in US$ millions) IDA
Duration Amount Field 1977-1986 4.7 Engineering (higher/medium level)
1979-1987 12.0 Engineering (medium/basic level) 1984-1992 8.6 Primary 1985-1994 10.9 Agriculture (higher/medium level) 1989-1999 10.0 Engineering (hill:her/medium level) 1994-2001 17.0 Hill:her 1989-1996 23.0 School
1992-1998 30.3 Basic/primary 1999-2004 12.5 Basic/primary 2003 -2006 I S.O Community schools
2004-2009 50.0 Basic/primary 2006-2013 60.0 Higherlhigher secondary . ..
40.0 Basic/primary education
284.0
extended to basic/primary education and subsequently, higher secondary/higher education. The Bank is the only donor today significantly involved in higher education.
The Bank, ADB, Finland, Norway, Denmark, UK, nCA, UNICEF, WFP and UNDP are involved together in providing support to basic and primary education. The donor harmonization efforts were initiated in 1999 with the Second Basic and Primary Education Project (BPEP). BPEP II adopted a "basket" approach, which signified a shift away from pr~ject implementation unit (PIU) based implementation to the implementation through regular public sector agencies-i.e., the Department of Education. Donors were harmonized through a common Program Implementation Plan, and common reporting, monitoring, supervision and disbursement arrangements. Another milestone was reached in 2004 when a "sector wide approach" (SWAp) was adopted for the Education for All (EF A) Program. Currently, the Bank, ADB, Finland, Norway, Denmark, UK and UNICEF participate in the SWAp.
Key Issues and Challenges
Nepal has not had a duly elected government since 2002. As such, initiating new reforms-and even protecting the on-going reforms-is challenging in such an environment. These challenges have been further amplified since the popular uprising of April 2006, which led to the formation of the SPA government and more recently with the addition of the CPN-Maoists, the Eight Party Alliance government. Primarily preoccupied with restoring law and order and holding Constituent Assembly Elections, this government has not been able to devote time and effort to sector specif1c reforms. High aspirations generated through the uprising have made many people-especially those organized into groups-impatient about getting their grievances addressed and have resorted to street protests to make their voices heard. The more the elections are delayed, the more such protests are likely to proliferate. These street protests can be used by the elites to reverse some of the reforms mentioned above, which are designed to serve the interests of the common people--e.g., community management of schools.
The Bank's sustained dialogue with the government and civil society has played an important role in protecting the reforms and initiating new ones by strengthening the hand of reformers. To ensure long term sustainability, the capacity of the reform beneficiaries-i.e., students and parents-also needs to be enhanced, in part by helping them to organize. Assistance to organizations such as the Community School National Network-an organization of community-managed schools--can go a long way in this direction.
June 2007 Briefing Note (or the New World Bank Country Director (or Nepal Page 72ofl35
Nepal's dependence on donors is significant-i.e., about one-quarter of funding for basic/primary education is from foreign assistance. Therefore, donors wield great influence on policies, but it is sometimes extremely difficult to harmonize policy preferences among donors. In this context, to enable the government to make clear policy choices and consistently stick to them assistance for building the capacity of the senior government officials-especially the reform champions-is critical.
The key issues and challenges in the sector currently are the following:
• Although Nepal is making progress towards increasing access to primary education, disparities in access across geographical regions and ethnic groups still remain stark. The current incentive system-i.e., primarily scholarships--is unlikely to be effective in bringing all out of school children into schools;
• The primary completion rate remains poor and the survival rate to grade 5 is estimated at 80 percent. Improving the completion rate remains the single most important challenge to achieve universal primary education;
• A system of standardized tests of learning achievements has yet to be established. Without this, it will not be possible to have a meaningful assessment of improvement in learning achievements;
• Although some achievements have been made towards more equitable and transparent allocation of resources, a lot more needs to done in this area. Without additional efforts, universal access to quality education will not be achieved. Inequitable allocation of permanent teacher positions, salary grants, and grants for classrooms are also matters of concern.
• Poor market relevance, low pass rates, low sharing rates and engagement in higher secondary programs are concerns in higher education.
Addressing these issues will only be achieved through continuation of the systemic reforms program.
The Bank's Current Activities
The following projects are currently under implementation:
• The Community School Support Project-effective in August 2003 and closing in September 2007-supports transfer of schools to community management. Without this assistance, this radical reform initiative may not have taken the root. Now the concept of community management has been firmly established.
• The Education for All (EFA) Project became effective in Augusts 2004 and closes in January 2010. This SW Ap is the main vehicle in Nepal for achieving the universal primary education and gender parity in primary education Millennium Development Goals (MDGs).
• The Second Higher Education Project was signed in May 2007 and it is expected to be effective in June.52 The project will support decentralization in higher education, help setting a market mechanism in higher education by triggering competition between pUblic, private and community campuses, provide means-based financial assistance to students from poor households, and establish a quality assurance system.
52
In addition, a number of analytical pieces are underway:
Although only being approved by the Board in February 2007 (along with the Interim Strategy Note), the project was negotiated in March 2006. It became necessary to delay presentation of the project to the Board as the politicalicountry situation deteriorated sharply, with some Executive Directors questioning whether or not higher education was a real priority under such conditions.
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• A PHRD Grant-funded Community School Evaluation Project is on-going. While a pilot baseline survey and an associated NGO-Ied advocacy intervention have been completed, impact evaluation activities for an expanded sample of schools/communities are underway. The on-going evaluationbased on a randomized design-should help determine whether community-managed schools outperform regular government-managed scbools in terms of schooling outcomes and quality; and
• A small JSDF grant has been secured and activities are underway to prepare a JSDF-funded pro-poor targeted stipend program in secondary schools. This is intended to complement the means-tested student financial assistance in higher and higher secondary education.
Future Plalls for Balik Illvolvemellt
A number of activities are planned actlVltles or under consideration; specifically: (i) EF A Additional Financing in FY08; (ii) EFA II (School Sector Reform Program) in FYlO; (iii) an Education Review in FY09; and (iv) piloting secondary scholarships through a proposed JSDF Grant.
Key Documellts
World Bank. July 18, 2001. Nepal Priorities and Strategies for Education Reform. Report No. 22065-NEP. Washington, D.C.
World Bank. June 19, 2002. implementation Completion Report on a Credit to Nepal for a Higher Education Project. Report No. 23713. Washington, D.C.
World Bank. 2007. Second Higher Education Project. Project Appraisal Document. Report No. 34916-NEP. Washington, D.C.
World Bank. 2004. Education for All Project. Project Appraisal Document. Report No. 27890. Washington, D.C.
World Bank. February 4, 2004. implementation Completion Report on a Credit to Nepal for the Basic and Primary Education Project 2. Report No. 30718. Washington, D.C.
World Bank. 2003. Community School Support Project. Project Appraisal Document. Report No. 25789-NEP. Washington, D.C.
B. Health
Backgroull d/COIl text
Health indicators in Nepal have been improving since the 1990s, and despite the decadelong conflict, have recently caught up with those in Bangladesh and India. According to the 2006 Demographic and Health Survey Report, during the last five years there have been sharp declines in the total fertility, infant mortality and child mortality rates with the immunization, contraceptive prevalence and skilled birth attendance rates registering impressive increases (see Table 7.3). Now this progress needs to be sustained and for this, concerted efforts are required to: (i) further improve maternal health and child nutrition; and (ii) address the threat of a generalized HIV / AIDS epidemic. In addition, national level health indicators mask large disparities across the country's geographical regions
Table 7.3: Selected Health Indicators Indicator 2001 2006 Total Fertility Rate (children per woman) 4.1 3.1 Infant Mortality Rate (per 1,000 live births) 64 54 Under 5 Mortality Rate (per 1,000 live births) 91 65 Contraceptive Prevalence Rate (% use of modem methods) 35.4 44.2 Immunization Rate (% offully immunized children) 66 83 Skilled Birth Attendance (%) 11 19 Source: Report of the Demographic and Health Survey (200 I) and the Preliminary Report of the Demographic and Health Survey (2006)
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and social c1asses~e.g., life expectancy in Kathmandu is about twice that in the mountainous district of Mugu. Equity issues~related to gender, age, caste, ethnic group, income and area of residence and transport costs~are a significant deterrent to the poor accessing health care in remote areas. The overall pattern of morbidity in Nepal is dominated by infectious disease, nutritional disorders, and maternal and perinatal diseases. However, non-communicable diseases (NCDs) are beginning to increase in relative importance.
Health expenditure is low in Nepal at US$1O.5 per capita, of which US$7.4 is out of pocket and US$3.1 public expenditure. Of the latter, US$1.8 is contributed by donors and only US$1.3 by the treasury. Of out-of-pocket expenditures, about 70 percents are spent on pharmaceuticals either through cost sharing at public facilities or with the private sector. There is an unregulated and expanding private sector that provides services of uncertain quality and often at costs which are high for the poor. Public expenditure allocation has been improving over recent years with over 70 percent being allocated to essential health care services.
Several development partners~including DflD, GTZ, JICA, KFW, UNFPA, UNICEF, USAID and WHO-and a large number of NGOs and missionaries have been independently supporting several effective initiatives in the sector. However, these were not well linked to national priorities and often result in duplication of scarce resources. In December 2003, the Government approved its "Health Sector Strategy: An Agenda for Change (Reform)" which focuses on attaining the Millennium Development Goals (MDGs), and is based on wide-ranging stakeholder consultations. This strategy is being implemented through the multi-donor supported Nepal Health Sector Program, which is based on a sector-wide approach and seeks to expand access to and increase the use of essential health care services, especially by the underserved.
Key Issues and Challenges
The challenges faced by the health sector in Nepal are similar to those facing other low income countries~namely an under-resourced public health sector and an expanding and unregulated private sector. Key issues and challenges are:
Ensuring access by the poor to essential health care services (EHCS). Given the limited resources, public finance needs to be directed towards EHCS for the poor. Along with improved resource allocation policies, alternative financing schemes for these services need to be explored. Cost sharing in public facilities needs to have workable pro-poor exemption policies. Regular data from benefit incidence studies as to which socio-economic groups are accessing health care at all levels is needed to monitor progress.
Leveraging value for out-of-pocket expenditure. Out of pocket expenditure constitutes about 70 percent of health expenditure in Nepal. As such, there is a need to develop alternative financing mechanisms such as social and community insurance schemes whereby such expenditure is channeled to get better value. This would also call for improving Central regulation and quality assurance of pharmaceuticals and trying interventions such as consumer and provider education, pre-packaged drugs, franchising of providers, vouchers, etc.
Improving the productivity of the public health services. The planned decentralization of authority and responsibility for service delivery to local bodies has progressed minimally. "Handing over" of sub-health posts and health posts to VDCs needs to be completed and combined with a performance management system in which the center sets targets and monitors compliance. Also, the public sector should contract with private and NGO providers to deliver services for which they have a comparative
June 200 7 Briefing Note tor the New World Bank Countf]J Director for Nepal Page 75 o(] 35
advantage. For this to be most effective there is a need for sustained and systematic capacity building in the Ministry of Health and Population (MOHP).
Harmonizing aid. The health sector in Nepal has traditionally been known for its fragmented approach to management with several donors financing their vertical projects and some even implementing these. Much of the donor financing to the sector is outside the MOHP budget. While the move to a SWAp has helped in all donors supporting the commonly agreed strategy/program and their participation in a joint review mechanism, there have not been significant changes in the financing and implementation of donor activities. As such, aid harmonization remains a challenge.
Strengthening inter-sectoral coordination. Since health outcomes depend largely on outputs of a variety of different sectors-e.g., water, sanitation, environment, education, food, etc.-inter-sectoral coordination is important. However, this has proved a challenge, in part because the public health sector has not reached out to NGOs and the private sector to harness their capacities. The political instability over the last decade has also been a constraint towards improving such collaboration.
The Bank's Current Activities
Along with other donors, the Bank is currently supporting the five-year, US$SOO million, Health Sector Program which became effective in February 200S. The Bank's contribution is US$SO million, consisting of a grant of US$40 million and a credit of US$l 0 million. The program has disbursed 63 percent of the grant and the credit in about three years of implementation, and is scheduled to close in July 2009. As mentioned previously, the Bank is also supporting an Avian Influenza Project. Finally, in FY07, the Bank supported a project to improve immunization performance through capacity building for micro-planning in four weak performing districts at a cost of US$34,000 from the SAR Immunization Trust Fund.
Future Plans for Bank Involvement
The Bank is initiating preparation of an HIV/AIDS Prevention Project in FY08. In FY09, the proposed program includes AAA on Nutrition and preparation of the second phase of Nepal Health Sector Program. Possibilities for FY 10 include a Nutrition Project and AAA in human resource development.
Key Documents
Nepal Health Sector Strategy: An Agenda for Change (Reform), Government of Nepal, August 2002. Nepal Health Sector Program - Implementation Plan, Government of Nepal, June 2004. Review of Nepal Health Sector Program by Mick Foster and Raghav Regmi, September 2006. World Bank. June 8, 2000. Nepal: Operational Issues and Prioritization of Resources in the Health
Sector. Report No. 19613. Washington, D.C. World Bank. August 4,2004. Health Sector Program. Project Appraisal Document. Report No. 296S1-
NEP.
C. HIV/AIDS
Background/Context
Nepal faces a clear and present danger of a generalized HIV/AIDS epidemic. Though the HIV prevalence among the general popUlation is estimated to be around 0.3 percent (based on an estimated 70,000 persons living with HIV/AIDS), much higher prevalence rates are seen among specific high risk
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groups, including: (i) injecting drug users (IDU)-SI.6 percent positivity in Kathmandu; (ii) men having sex with men (MSM)-3.9 percent positivity in Kathmandu; and (iii) sex workers (SW} 2 percent prevalence in Pokhara. As such, the HIV situation in Nepal is characterized as a concentrated epidemic, a characterization that has been questioned by certain quarters, especially in the civil society, who feel that the epidemic is already generalized, at least in cenain geographical areas.53
Regardless of where one comes out on this debate, there is general agreement that the risk factors are present in very serious measure. Though the knowledge and awareness about HIV and its prevention are estimated at relatively high levels, relevant behaviors continue to be on the risky end of the spectrum. The post-conflict scenario, high levels of poverty, open borders with India with free movement of people, fairly porous borders with China and the lack of culturally-supported male circumcision only add to Nepal's vulnerability to HIV/AIDS.
There has been considerable improvement in Nepal's response to HIV/AIDS in the past couple of years with the preparation of a national plan through a broad-based participatory process, with the help of external and internal development partners including the NGOs and community based organizations (CBOs). Currently, the main financiers of the program are USAID, DflD and GFATM, with other external development partners contributing to lesser degrees. DflD and GF ATM funds-which were being left unused for a long tim~are now being channeled largely through the UN system who manage the activities through NGO contracting. USAID funds have always been channeled through nongovernmental intermediaries. The public sector's own financial contribution to the national program is small. As per the national plan, there is an estimated financing gap of about US$32.8 million for the current fiscal years needs alone, although the capacity to absorb such additional funds is doubtful.
Key lflsues and Challenges
•
•
•
53
The first and foremost challenge is to establish an appropriate institutional mechanism to coordinate and oversee the national response to the HIV/AIDS threat. Currently, the national program is managed by the National Center for AIDS and STD Control (NCASC) which is located under the Department of Health Services (DOHS), the operational arm of MOHP. Apart from capacity constraints, the current mechanism suffers from four key problems: (i) it is primarily uni-sectorali.e., health-centric, with little success in involving non-health sectors; (ii) it is bound by public sector rules, with little or no flexibility in human resource and financial matters; (iii) although NGOs and civil society have been very active in the field, NCASC and MOHP have not built effective partnerships with them to scale up anti-HIV interventions; and (iv) NCASC has been less than effective in reaching the necessary resources to the grass-roots, resulting in an interim arrangement of engaging the UN system to help with this. A Nepali solution to this challenge-in the form of a multi-sectoral semi-autonomous entity-has been under discussion for the past several years. While it had picked up some momentum in the last two years, it has since stalled in the context of the country's broader political changes. Enhancing budgetary contribution of the Treasury to HIV / AIDS is a critical issue to be addressed to ensure deeper ownership and longer-term sustainability. Coverage of preventive interventions targeted at high risk and vulnerable groups, and of treatment and care services to HIV positive individuals is quite low. Effective scale up of well-known and proven interventions is needed. Recently, the Nepal Association of HIV positive persons (NAPN)
Supporting this, limitations of the surveillance system are cited as are the lack of actual prevalence data among the general public and the fact that the largest proportion of the known HIV positive population comes from the migrants (46 percent of known HIV positives) and clients of sex workers (19.4 percent).
June 200 7 Briefing Note for the New World Bank Country Director for Nepal Page 77 of] 35
launched a protest program to highlight inter alia the issue of insufficient access to ARV and other treatment facilities. This group also strongly supports the proposed semi-autonomous entity.
• The surveillance system, which has recently been reviewed by a joint UN team, needs to be improved further to provide a more robust evidence-base to inform the design of Nepal's future program on HIV prevention and control.
• As well as the implementation capacity of the public sector, there is a need to strengthen civil society capacity to scale up their interventions.
• Although donor coordination has improved considerably and most major donors rally around a common national program, there is still further scope for improving it.
The Bank's Current Activities
The Bank has provided significant TA to address the main issue mentioned above-i.e., establishment of an appropriate institutional mechanism. This assistance has been provided in the form of an international staff member posted in the Nepal country office, spending about 40 percent of his time in the first year, and about 5 percent of his time in the second year on HIV / AIDS related issues. This T A contributed to the development of an options paper and the proposal for the multi-sectoral semiautonomous entity. The Bank T A also contributed to an improvement in the HIV donor coordination, with the institutionalization of a monthly HIV -EDP lunch.
Future Plans for Bank Involvement
The Bank's position has been that an IDA grant or credit to provide financial support for the national program would be conditional upon an appropriate institutional mechanism being put in place. Alternative approaches such as opening a special HIV window under P AF have been under discussion as well. However, concerns have been expressed about overloading the PAF mechanism and about the risk of violating the demand-driven character ofPAF.
During the recent visit of the SASHD Sector Director to Nepal, a discussion was held with the Chief Secretary and it was decided that a HIV project would be prepared on fast track, including the institutional reform as a part of it (rather than a pre-condition). A project concept note is to be prepared shortly. The option of channeling HIV funds through P AF has been kept open, in case the probability of getting an appropriate institutional entity becomes very low.
Key Documents
Nepal HIV/AIDS Institutional Framework Options Paper (November 2005), Prepared by the HIV/AIDS Institutional Reform Task-force constituted by the Ministry of Health and Population.
Draft Proposal for a New HIV/AIDS Institutional Framework for Nepal (August 2006) - prepared for the MOHP, based on recommendations of a Core Committee on Institutional Reform, constituted by the Ministry of Health and Population, and on the above Options Paper.
National HIV/AIDS Strategy 2006-2011 (Draft). National Consolidated HIV/AIDS Work Plan: 2006-2008.
D. Rural Water and Sanitation
Background/Context
Nepal's over arching objectives for the rural water and sanitation sector are to increase sustainable access to basic drinking water supply and sanitation facilities to improve health and lessen the
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drudgery of the beneficiaries. Around 5 to 7 percent of the total development budget has been allocated to the sector. During the Tenth Plan period, the aim is to: (i) increase coverage of basic drinking water services to 85 percent (from 72 percent) of the rural population with gradually increasing drinking water service standards; (ii) provide suitable sanitation facilities in rural areas; and (iii) decrease child mortality rates by reducing water borne and water related epidemics.
Rural water supply and sanitation is an important sub-component of Nepal's water supply and sanitation sector as majority of the people live in rural areas. The rural water and sanitation component of the 1998 National Water Supply and Sanitation Policy was revised in 2004. The thrust of this revised policy is consistent with that of the Tenth PlanlPRS, with a number of key principles:
• Provision of water supply and sanitation services will be based on "effective demand" and service standards will correspond with affordability and willingness to pay of the consumers. The basic service level-with 15 minute round trip to fetch water at 45 liters per capita per day (lpcd)-will be subsidized with users to pay the incremental costs for better service;
• Capacity building, health and hygiene will be integrated with water supply and sanitation; • Service delivery to be participatory involving women and assets to be owned by the community; • The government's role will be limited to: (i) financing and allocation of sector investments; (ii)
formulating policies (including consistent community cost sharing principles) and legislation; (iii) regulating sector development and management including sector monitoring and evaluation (M&E); and
• The Fund Board will be established as a regular sector institution through an Act of Parliament.
Recent estimates show that more than 82 percent of the population have access to water supply facilities and 46 percent to sanitation facilities. Expanding community-driven development (CDD) activities such as these will continue to be a high priority for both Nepal and the Bank as indicated in the ISN. Even in the best case scenario, given Nepal's geographic challenges, CDD projects will continue to be critical in delivering broad benefits quickly.
The Bank's Current Activities
After successfully completing the first Rural Water Supply and Sanitation Project (RWSSP), the Bank is currently financing the RWSSP II (total project cost US$41.50 million, IDA funding US$25.30 million). These projects have been provided through the Rural Water Supply and Sanitation Fund DeVelopment Board (the "Board") to improve water and sanitation services in participating communities.
The success of this approach to the rural sub-sector has been widely acknowledged, as it has helped to define a demand-driven approach to service delivery through an inclusive, participatory process in which the communities are empowered to make informed decisions about their schemes. The approach has brought about much greater sustainability and strong community mobilization to a sub-sector where sustainability of conventional schemes was a serious problem. Community ownership is proving to yield much more sustainable water supply and sanitation services as they are also operated and maintained by the communities who play the lead role in the planning, designing and implementation. The results of sustainability--carried out three years after installation of the schemes---found that around 85 percent of the schemes were institutionally, socially, financially and technically sustainable. This is in stark contrast to the sustainability of traditional schemes, where 10 percent of the completed schemes require rehabilitation and 50 percent require major repairs. The preliminary findings of the sustainability of schemes constructed five to seven years ago indicate that about 92 percent of them are still running in good condition.
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The participating communities have not only benefited from improved water supply, but also from time savings (averaging three hours per day) from fetching water as it is brought closer to their houses. In addition, with the project supporting the women's technical support services, women are able to put the time saved to productive use-e.g., income generating activities, such as poultry farming, vegetable gardening, goat raising etc., and/or being able to devote more time to childcare, personal hygiene and even attending non-formal education classes. With health, hygiene and sanitation education, and the availability of a community-managed Sanitation Revolving Loan Fund to provide funding for buying materials needed to construct latrines, sanitation coverage is also increasing.
StatuslResults to Date
The project has entered the third year of implementation and has brought safe drinking water within 15 minutes of a roundtrip walk from their residence to about 166,850 beneficiaries and provided latrines for about half that number. Until today, out of 1,355 schemes as targeted in the project, 289 schemes-47 from batch IV (carried over from RWSSP-I) and 242 from batch V-have been completed. By the end of the project period, 1168 schemes are expected to be completed. Although this does not meet the project target in terms of the number of schemes, but the overall achievement in terms of popUlation coverage is estimated to be 833,163 or 103 percent of project target population of 813,000. The Board is currently working in 71 out of75 districts in all five development regions. The project has focused more on coverage of the remote rural areas and ensures social inclusiveness with priority to the indigenous people, dalits and disadvantaged groups. Based on the analysis of Batch V schemes, around 52 percent of schemes are located beyond 8 km and 23 percent schemes are located beyond 20 km away from an all weather road head. Because of lack of progress in the monitoring and evaluation component (see below), the project has been in problem status since September 2006. Implementation progress was down-graded to "moderately unsatisfactory" in June 2006.
Key Issues and Challenges
Despite evidence at the grassroots level that a demand-driven partICIpatory approach is increasingly being taken up across the sector, it is difficult to assess how widely the sector policy is being adopted and implemented because of the absence of sector-wide monitoring by the Ministry of Physical Planning and Works (MPPW). Progress has been slow in establishing a rural water supply and sanitation sector monitoring and evaluation system within MPPW. This and some other legal covenants are in violation. The internal management of the Board still needs to be improved. There has been an 8 to 9 month delay in implementation of different phases of the schemes. Scheme implementation when out of phase with the scheme cycle has serious implications on the quality and sustainability. The Board is unlikely to complete the targeted 1,355 schemes due to cost overruns, primarily as a result of an increase in the cost of construction materials. These, along with overall implementation progress, are being reviewed in the midterm review currently underway
Future Plans/or Bank Involvement
RWSSP II is scheduled to close in August 2009. This project has proven that a demand driven approach to participatory decision-making which empowers rural communities is the way forward to cater sustainable rural water supply and services to villages in Nepal. Hence, it is expected that beyond this project, Bank involvement would continue in the sub-sector, possibly through scaling up the Board approach through a SWAp. The Bank could also provide assistance to improve the water supply and sanitation services in small towns as well as urban areas outside the Kathmandu Valley.
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Key Documents
Government of Nepal. 2003. Tenth Five Year Plan. Nepal World Bank. 2007. Interim Strategy Notefor Nepal. Report No. 38119-NEP. Washington, D.C. World Bank. 1996. Rural Water Supply and Sanitation. Staff Appraisal Report Report No. 15232-NEP.
Washington, D.C. World Bank. June 15, 2000. Implementation Completion Report for a Credit to Nepal for the Urban
Water Supply and Sanitation Rehabilitation Project. Report No. 20606, Washington, D.C. World Bank. 2004. Second Rural Water Supply and Sanitation. Project Appraisal Document. Report No.
28124-NP. Washington, D.C.
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VIII. SOCIAL INCLUSION AND TARGETED PROGRAMS
A. Poverty Alleviation Fund
Background
Nepal's Tenth PlanlPRS identifies inclusion as one of the strategic pillars that development efforts would focus on. The Poverty Alleviation Fund (P AF) was subsequently established for this purpose.
Access and targeting. The PAF strategy is based on the premise that poor communities should organize themselves to prepare, implement and manage their own sub-projects and resources-in effect, putting communities in the driver's seat. PAF aims to reach poor and excluded groups, especially women, Dalits and Janjatis. Primary beneficiaries are identified by the communities themselves, through a participatory "well-being" ranking process at the settlement level. Criteria determined by the community classifies hardcore poor as those with less than 3 months of food self-sufficiency, medium poor between 3 and 6 months, and the poor as those with 6 to 12 months of food self-sufficiency. In most cases, the nonpoor are only marginally above the 12-month cut-off point.
Coverage. PAF is currently being implemented in 45 districts, with total beneficiary households amounting to about 127,000 or about 650,000 people. Based on community demand, several different activities related to income generation and infrastructure sub-projects are being implemented. Income generation activities have most commonly related to agriculture, livestock, cottage industries, trade and services, whereas infrastructure activities are related to micro-irrigation, link roads, culvertlbridges, micro-hydro, water supply, sanitation, school and health post buildings.
Economic returns. A baseline survey has been completed and will be used in two to three years to carry out a comprehensive formal evaluation of PAF impact. In the interim, data from PAF's monitoring and evaluation (M&E) system and a commissioned study of ex-post rate of return analysis for a sample of sub-projects suggests that the economic returns are high at about 29 percent for different types of income generation activities. 54 P AF project beneficiaries generally do not have access to formal credit markets. Without PAF, the only option available to these households would be informal credit markets, which charge interest rates of 30 to 40 percent. Thus, PAF is in effect helping poor households who are blocked from undertaking highly productive investments by lack of access to formal lending institutions. Even the private good component of PAF is helpful in overcoming credit market failures.
Empowerment. Although less easy to measure, P AF is also having an impact on empowerment, and confidence building of the members of community organizations (Cos). Data collected by P AF shows that women and excluded groups (Dalits and Janjatis) are strongly represented in the leadership structure of COs (Chairperson, Secretary, and Treasurer). These constitute 54 percent DaHt, 28 percent Janajati, and 18 percent other (13 percent BrahminiChettri, 2 percent Muslim and 3 percent other ethnicities). Gender-wise, 55 percent of key position holders in COs are women.
P AF management and governance. With the change of Government, a new Vice-Chairman (V C) for P AF was appointed in January 2007. Also at the same time, the existing P AF Board was dismissed. Since then, a new P AF Board has been proposed, but is not yet in place because a formal approval has not been issued by the Cabinet. The Executive Director, who acts as secretary of the Board,
54 The rate of return analysis is based on interviews with beneficiaries using actual costs and estimates of project benefits that can be measured.
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and oversees the day-to-day operation of PAF, was maintained, as were most of the cadre of competent professional staff, in particular Portfolio Managers in the field.
The Bank's Current Activities
The original grant of US$15 million providing support to PAF was approved by the Board on June I, 2004 and became effective on December 13, 2004. Its key development objective was to support Nepal in initiating a new poverty alleviation approach that could subsequently be scaled up, providing direct and indirect benefits to people who had been excluded by reasons of gender, ethnicity and caste, as well as to the poorest groups in rural communities in the selected districts, by: (i) creating infrastructure, employment and income-generating opportunities in poor communities; (ii) enhancing the capacity of local bodies, particularly the Village Development Committees (VDCs), to provide better services for poor and socially excluded groups; and (iii) improving efforts to better coordinate support targeted towards poor and excluded groups. This objective is being achieved by using the P AF-a targeted instrument-to reach poor and excluded communities. The program was initially piloted in six poor conflict-affected districts. An additional financing grant for US$25 million was approved by the Board in December 2006. With the additional financing, the program is now active in the poorest one-third of the districts in Nepal. The objectives of the program and the institutional arrangements remained unchanged.
The project is achieving its development objectives of improving access to income generation and infrastructure investments by poor rural communities. Benefits have gone almost exclusively to the poor and are well targeted on excluded groups. Initial results show that Dalits, Janjatis and women are actively participating in decision-making processes on the prioritization of their needs and implementation of their SUb-projects. Implementation progress is highly satisfactory. The level of ownership by the communities is reflected in their willingness to contribute 20 percent toward the costs of sub-projects.
Future Plans for Bank Involvement
Preparation has begun for PAF II (US$100 to 120 million), a repeater project to be approved in the first half of FY08. It is hoped that other donors may also come in to finance the program, and with these resources it would be possible to make the program a national program.
Key Documents
World Bank. November 20, 2002. Nepal: Towards a Sustainable Approach/or Poverty Reduction and Decentralization-A Note on Nepal's Proposed Poverty Alleviation Fund. Report No. 25019-NEP. Washington, D.C.
World Bank. April 29, 2004. Poverty Alleviation Fund Project. Project Appraisal Document. Report No. 28606-NEP
World Bank. 2006. Nepal Poverty Alleviation Fund Project: Additional Financing. Project Appraisal Document. Report No. 37162. Washington, D.C.
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IX. GOOD GOVERNANCE
A. General Governance Issues
Background
While Nepal has made considerable progress in establishing the elements of a modem parliamentary democracy and public administration, there is widely perceived to be a gap between the rhetoric of good governance and the reality of administration. It is widely recognized that Maoist activity emerged out ofa context of poor governance. The focus on Governance in the Tenth Five Year Plan and the November 2003 PRSC was evidence of the recognition amongst some sections that Nepal's development challenges are fundamentally linked to improving governance to enable equitable and broad based growth, improve service delivery and facilitate social inclusion. Nepal needs to make its governance institutions more inclusive, strengthen its institutions of accountability and expand service delivery to disadvantaged and marginal groups.
Nepal's development history can at one level be seen as a triumph of institutions over constraints of history and geography. A range of new institutions evolved out of a feudal context from the 1950's including a civil service, Parliament and independent accountability mechanisms. Nepal's public administrative institutions cannot therefore be really compared to corresponding institutions in other countries of South Asia which have much earlier histories of bureaucratic development. The rapidity of change has meant that the foundations of these institutions are not yet robust and the years of conflict have further eroded public institutions. The post-conflict challenge is to strengthen and restore institutions to deliver services and make these institutions more inclusive
The institutional framework for public administration in Nepal is reasonably sound-i.e., there is a strong tradition of civil service-led development, institutions for planning, financial management and oversight, and a reasonably strong judiciary. Unlike most of its South Asian neighbors, Nepal's civil service is not overstaffed, although it is hampered by inappropriate skills mix, poor incentives and its exclusiveness (the civil service is heavily dominated by high caste Nepalese). Systems and procedures have not been modernized, accountability across the system is weak and internal controls are poor. A patronage-based political system and a political ideology that has primarily been about "managing the spoils" has affected policy-making and implementation, as well as human resource management. Corruption-both petty and grand-is widespread, with Nepal ranking high on Transparency International's (TI) corruption ranking and has some of the poorest governance indicators in the region.
Key Issues and Challenges
Despite the environment of conflict and political uncertainty, Nepal has succeeded over the last five years in taking forward significant governance reforms. As far as civil service reform is concerned, the government has acted on the recommendations of the Expenditure Review Commission and amongst other measures, merged a number of ministries, abolished vacancies and instituted a freeze on new hiring. Guidelines have been issued to protect civil service tenures and amendments to the civil service act allow for affirmative action in recruitment. An anti-corruption strategy has been prepared and a National Vigilance Center established in the Prime Minister's Office. The government has already strengthened the Commission for Investigation of Abuse of Authority (CIAA) which is the only constitutionally independent anti-corruption institution in the region. Although an institutional framework exists to ensure sound financial management and accountability, this needs to be strengthened. Measures to improve budgeting, expenditure management and monitoring systems have begun to be implemented and the Country Financial Accountability Assessment (CF AA) has laid out an action plan for reform.
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The civil service reform agenda remains extremely important. To make the civil service more accountable and efficient, there is a need to revise recruitment and promotion policies, manage and monitor the performance of human resources more effectively, and build new skills and capacities among civil servants. In addition, a variety of initiatives would need to be implemented to make the civil service more representative of Nepali society as a whole. Departments need to develop a citizen focus and set service standards. Measures to insulate civil servants from arbitrary political interference will need to be strengthened. In addition agency/institutional reforms in district administration will be needed to be taken forward over the coming years and institutional capacity strengthened to effectively carry out anticorruption programs.
A kcy reform area is the need to strcngthen the policy framework by defining boundaries between the political and administrative spheres. One of the most dysfunctional features of Nepal's administration has been frequent transfers and lack of stable tenure within the bureaucracy. The draft Governance Act currently circulating within government is an extremely important piece of legislation that seeks to establish a proper set of roles and responsibilities for politicians and bureaucrats, with the goal of helping to eliminate arbitrary or improper movement of personnel. In addition, there are plans to introduce amendments to the Civil Service Act which will provide the legislative framework for a policy of affirmative recruitment. An umbrella Public Management Act is under consideration that will harmonize the rules within which the entire civil service functions. While it is critical to have these acts in place, at the same time institutional strengthening initiatives at the level of the Public Service Commission (PSC) and line departments will be essential to underpin implementation.
Human Resource Management and Development
While public employment is not overly large, it suffers from problems of inappropriate skills mix, heavy wage compression and low productivity. The composition of Nepal's civil service is particularly skewed towards the lower tiers. A particularly striking feature of Nepal's civil service is the heavily compressed wage structure, which is among the worst in both South Asia and the developing world. The compression ratio (defined as the ratio of highest to lowest paid) in the Nepalese core civil service is 3.6 (for salary) and 3.3 (for total net compensation), which means that a ministry secretary is paid only three and a half times more than a peon in the same ministry. The result is an extraordinarily flat pay structure that is making it increasingly difficult to motivate employees and to attract the best talent into the public sector.
Some progress has been made on civil service reform issues in recent years. A Personnel Information System (PIS) has been developed that, for the first time, is capable of providing accurate, real-time information on the size and composition of the civil service. The PIS is being linked to the payroll system to create a comprehensive human resource database (essential for tracking posts, vacancies, transfers, and forecasting future salary and pension liabilities).
Improving employee performance, productivity and motivation are key challenges. Performance evaluation remains under-utilized as a management tool and has virtually no role in any human resource function beyond promotion, such as placement, transfer, compensation and career development. The current system is cumbersome and lacks transparency; it does not allow for intermediate feedback to enable corrective action. Clear job descriptions do not exist against which performance can be measured. Capacity for performance assessment is low and there is little understanding of its value as a managerial tool for performance improvement and staff development.
It is not as if the senior civil service is unaware of the reforms needed to improve governance. Technical capacity within the public sector at certain levels is very high. However, there is a substantial lack of managerial capacity at the lower levels. As part of the national visioning process to guide the
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future of the country, a comprehensive civil service reform vision and matrix have been developed which specifically notes the lack of managerial and policy support skills. This vision has the potential to form the basis of reform in the new environment.
The Bank's Current Activities
Governance has been at the core of the Bank's agenda since the late 1990s. In addition to the support provided in the financial sector, the Bank has been supporting the governance reform agenda through the PRSC dialogue which focused on many of the core policy and institutional issues, including human resource management and role delineation. The Economic Reform Technical Assistance (ERTA) Project directly supports the building of better managerial and administrative capacity, including supporting the development of a human resource data base and providing capacity building support to anti-corruption enforcement institutions.
In addition, the Bank has been informally supporting the development of the civil service reform vision. This has proved to be an excellent process and close linkages have been created at the highest levels. Senior bureaucrats recognize that the window of opportunity for implementing reforms is shrinking and that unless credible reforms that impact on service delivery occurs, the state will not be able to meet the aspirations created out of the Jana Andolan II. Support to the implementation of the vision and helping the government identify "quick wins" may provide an entry point for future work on governance. There is substantial goodwill towards the Bank and the authorities often tum to the Bank for informal advice on issues of both the process and the content of governance reform.
B. DecentralizationILocal Governance Issues
Background
Nepal's local governance structure has two tiers: (i) the 75 District Development Committees (DDCs) as the upper level; and (ii) 58 municipalities and 3,915 Village Development Committees (VDCs) as the lower tier. The DDC electoral constituency comprises of 9 to 17 Ilakas. A VDC has 9 wards, and the number of municipal wards vary from 9 to 35 based on popUlation, geographical coverage, development level, income and need for services. All three units of local Government are autonomous in terms of functions. The DDC has a supervisory role over the municipalities and VDCs. The Government grant to VDCs is channeled through the DDC, which is also responsible for supporting the VDCs through internal resources.
The 1990 Constitution set off the proeess of decentralization in Nepal. Successive enactment of the DDC Act, the VDC Act and the Municipality Act in 1992 provided the basis for forming local Governments. However, real decentralization began only in 1999, following the enactment of the Local Self-Governance Act (LSGA). The LSGA provides a framework for managing local bodies, including provisions to make them accountable to the people. The law led to the formulation of the Local SelfGovernance Regulations (LSGR) and Local Bodies (Financial Administration) Regulations (LBF AR). The process was slowed down by the contlict, which, combined with the inability of the central government to up decision-making powers, resulted in confusion and poor coordination during implementation.
Nepal made some progress in empowering local bodies by providing them fiscal and decisionmaking authority, accompanied by clear assignment of expenditure and local revenue generation functions. However, the LSGAIR remains to be fully implemented. The local bodies were dissolved in
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July 2002 following which successive Governments, failing to hold elections, appointed officials to run local bodies. The Bank's Involvement
The Bank has been working with the government on issues around fiscal decentralization for the past three years or so. The strategy being followed was that the Government should first get some initial aspects of the fiscal framework agreed upon amongst them before the Bank provided any lending support. What this meant was that the center would lead this agenda and agree on some broad policy issues like the vertical share (the percentage of national revenues that it is willing to pass down to the local governments) so that the local governments would know their budget envelope before capacity building and other transitional issues were to be addressed. The second big policy clarification was on the expenditure assignments broadly. What would these governments be doing? Hence, our entire effort was around policy support and technical assistance to provide knowledge and technical support on how to go about these aspects, and how it was being done in other countries. This was done by hosting various knowledge and policy forums, by multiple discussions with the steering committee hosted by the NPC Vice Chairmen, by bringing in world class expertise to Nepal on these topics, study tours, financing the participation of six members of the Fiscal Commission to visit Andrew Young School of Policy Studies in Atlanta, and Duke University on an executive course on Fiscal Decentralization.
Decentralization is a political agenda and political environment in Nepal has been transient for a long time. Hence, when there was not much movement on the policy side from the center, the second approach that was deliberated was to do a pilot by providing financing to some of the more progressive DDCs, VDCs, and even a municipality to demonstrate the implementation of the fiscal framework and maybe even be able to highlight some of the efficiency gains. This plan too, did not go far because the country began to rethink its federal nature. Meanwhile all other kinds of political events overtook the landscape. However, a policy note on Fiscal Decentralization in Nepal was produced.
Future Plans/or Bank Involvement
The decentralization team feels that Bank support for this agenda should continue in a visible manner using a two-pronged approach:
• Continuing policy dialogue/technical assistance to the center and providing requested assistance as it deliberates on its new intergovernmental system.
• Contemplate starting a pilot that begins to provide block grants for infrastructure, a clear function in the realm of local governments. As a part of this pilot, capacity of the local governments should be built in matters of budgeting, financial management, procurement, and planning of expenditures that are truly a priority of the local constituents. In addition, this pilot should also provide capacity building through information to constituents on their rights and roles are in the new decision making system. This is an attempt to bring about new rules of the game at the local level and begin to strengthen local governance.
The decentralization agenda remains very relevant and core to the interim strategy of the eight party alliance. The following commitments have been articulated in the 2007 Interim Constitution: (i) progressive restructuring will be done to end the centralized and unitary structure of state, (ii) local selfgoverning bodies will be managed to promote the public interest and to provide service at local level through decentralization/devolution of authorities to the local level, (iii) roles and responsibilities of the centre and local bodies will be clearly delineated based on which expenditure and revenue assignment will be done, and (iv) special attention will be given to ensuring equitable and balanced development of the state while allocating resources and sharing revenue with special emphasis for uplifting the socioeconomic status of excluded
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The Interim Constitution has devoted a separate chapter on local self-governance aimed at bringing the state closer to people. The following articles further highlight the point:
• Progressive restructuring will be done to end the centralized and unitary structure of the state. A highlevel commission will be set up to ensure this.
• Self-governing bodies will be created to provide services to the local people along the 'full devolution' concept. Interim local bodies will be constituted at district, municipal and village level comprising all political parties belonging to the recent peoples' movement.
• There will be clear delineation of authority between the government and local bodies; revenue mobilization and allocation will be done accordingly.
C. Public Financial Management (PFM) Issues
Public Financial Management
Given the decade-long strategic focus on better governance, the Bank has placed considerable emphasis and cffort in improving the quality and effectiveness of resource management in Nepal to improve service dclivery. After maintaining aggregate fiscal discipline, the starts from improving the efficiency of the overall allocation of budgetary resources, introduction of better service delivery mechanisms and finally strengthening the more traditional financial management systems. With sustained support from the Bank, significant reforms are being implemented at all three levels. Governments of Nepal have traditional been fiscally prudent, and with the introduction of MTEF, allocative efficiency has improved bringing a greater poverty focus to thc budget. To improve service delivery modalities, community management of schools and sub-health posts have been introduced and reliance on autonomous bodies (e.g., PAF, the rural water 'Fund Board') has been expanded. At the more technical level, based on the joint FY02 GON/Bank CF AA, the Financial Administration Regulations (F ARs) were revised, as was the Procurement Act to introduce international standards into public sector procuremcnt. Procurement monitoring indicators (based on OECD/DAC Guidelines) are being prepared to measurc progress in performance. Related to auditing, the Bank has supported the Auditor General's (AG's) Office in its effort to: (i) upgrade auditing practices toward international standards; and (ii) develop staff skills. On oversight, the Bank has placed a high priority on working with legislative and administrative oversight bodies, including the Public Accounts Committee (PAC), the AG's Office and other relevant anti-corruption agencies.
One of the key activities under public financial management work is the assessment of the public financial management as per the Public Expenditure and Financial Accountability (PEF A) Guidelines. The strategy that has been adopted is to provide technical backstopping to the government as they do their own self-assessment. The purpose of this strategy is to: (i) to mainstream the assessment among those who really work on these issues on a day-to-day basis; (ii) internalize the process; and (iii) create a critical mass of people to carry this process forward. The process was very effective as candid discussions were held, and except for a few indicators, general consensus was reached with little debate. Interestingly, the ratings that resulted coincided very well with what the Bank internally conceived for these indicators. Overall, the Bank is impressed with the extensive efforts put in by the working groups, made up of 48 members from various line ministries. (A synopsis of key findings, and a matrix of the Summary Assessment and the preliminary rating against 28+3 PEF A Indicators are attached.)
The assessment of Nepal's Public Finance Management (PFM) performance suggests a system that is well designed but unevenly implemented. In recent years, the budget has become a policy tool that is largely credible, clearly linked to policies in some sectors, with a solid control of aggregate outturns,
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and a reasonable control framework at the transaction level (notably for payroll). However, there are many gaps in the control framework, significant implementation constraints, and large fiscal activities outside the scope of the central government budget. The origin of several of these weaknesses can be traced in the weak demand (from both Government and external stakeholders) for better budget information (financial and physical) and management.
Credibility of the budget. The budget is credible at the aggregate level for revenues and recurrent expenditures. However, the capital budget chronically falls short of budget. In addition, the credibility of the budget is undermined by significant deviations in terms of expenditure composition (in part due to shortfalls in capital spending) and large fiscal activities outside the budget.
Comprehensiveness and transparency. The budget is based on a solid classification system (in need of minor improvements) and is published in a transparent fashion. In recent years good efforts have been made to improve the coverage of the budget with reports on a "consolidated fund" and monitoring of some fiscal risks (notably the situation of public enterprises). However a significant-and possibly growing-gap comes from the fiscal activities of: (i) many development funds and boards; and (ii) local level governments (covered by annual audit reports but not by the budget itself or any other public report). In addition, transparency could be improved especially to systematize the reporting on past achievements and make reports more analytical.
Policy-based budgeting. Significant progress has been made toward a sound policy-based budget system with the roll-out of the MTEF throughout the budget and the creation of "business plans" for several sectors. Gaps include: (i) lack of engagement of the political leadership on the MTEF and budget preparation; (ii) inadequate engagement or understanding on the MTEF by mid-level civil servants and below; (iii) insufficient focus on past achievements and monitoring of outputs; and (iv) residual focus on fragmented projects as opposed to programs structured around sector strategies (or "business plans").
Predictability and control in budget execution. Predictability in budget execution has significantly improved by guaranteeing cash releases to high priority ("PI") projects (provided satisfactory implementation). Payroll controls are also well developed. Procurement has many positive features, with some gaps (e.g., complaint mechanism and monitoring system) to be addressed by the new law. However, the use ofless competitive procurement methods is often not adequately justified. A basic control framework for non-salary expenditures which includes physical verification is in place, but is unevenly implemented. There is no commitment control. Internal audit limitedly focuses on pre-audit of transactions (with no system reviews). Service delivery units receive information about budget releases, but there is little monitoring at this level of actual expenditures and outputs. On the revenue side, much progress remains to be made toward better accounting of revenues and services to taxpayers.
Accounting, recording, and reporting. Current cash-based accounting practices are generally well established and accounts frequently reconciled (with the exception of the revenue accounts). However, incomplete computerization weakens the timeliness and quality of accounting. In addition, there are gaps between accounting policies and international standards, with no official public sector accounting standards. Annual reporting and financial statements are timely and of acceptable quality (although with some gaps in the content). However, within-year reporting is weak and not public.
External scrutiny and audit. Annual financial statements are audited by the independent AG in a timely manner and discussed by a Public Accounts Committee (although the reality was weaker in recent years given the political situation). However, annual audit reports and external scrutiny focus more on "irregularities" as opposed to identifying and correcting systemic issues, and there is little evidence of follow-up to clear "irregularities" identified by the AG. External scrutiny is also weakened by a: (i) long political uncertainty; (ii) lack of public access to information (including accounts of local level
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governments; contracts); and (iii) weak process to engage the legislature to discuss the MTEF and scrutinize the annual budget.
Donor practices. Despite progress in recent years-toward general and sector-specific budgetsupport-much remains to be done to meet the principles of Nepal's 2002 Foreign Aid Policy (FAP) and the Paris Declaration. In particular, the quality of financial information provided by donors is weak and the proportion of aid that uses national procedures is below 50 percent.
The performance in terms of fiscal discipline is generally positive (i.e., a reduction in (net) financing from 4 percent of GDP in FY02 to 0.8 percent in FY06) but threatened by four main weaknesses: (i) lack of monitoring of fiscal risks (including related to donor funding) is creating significant uncertainties; (ii) poor capital budget preparation and implementation weakens the capacity to make the best use of existing fiscal space; (iii) weak sector strategies prevents management of the medium-term fiscal space; and (iv) weak reconciliation of revenue accounts reduces available resources.
Similarly, the progress in strategic allocation of resources (doubling of pro-poor expenditure in Tenth Plan)-through the MTEF, business plans, and prioritization of projects for cash management-has somewhat realigned resources, but falls short of its promises due to: (i) weak capital budget preparation and implementation; (ii) insufficient reporting systems (in-year financial data linked to outputs); and (iii) large amounts of spending outside mainstream reporting systems (dedicated funds and boards, donorfunded projects. etc.). This is compounded by insufficient engagement from political leadership and external scrutiny on the strategic allocation across sectors.
The efficiency of delivering services has improved, notably through more predictable cash releases and some devolution of resources (there was an increase in absorption capacity from 80 percent of budget at end of the Ninth Plan to 88 percent in Tenth Plan). However, it is hampered by several factors, including: (i) lack of procurement plans and non-observance of competitive tendering; (ii) focus of internal audits on transactions and external audits only on "irregularities" as opposed to systemic improvements; and (iii) major gaps in monitoring systems. These factors notably materialize into an ineffective bunching of expenditures toward the end of the fiscal year.
Finally, progress has been made toward a transparent and accountable management of public finance. However critical gaps remain, including: (i) coverage of fiscal reports; (ii) within-year reporting; (iii) access to information on taxpayer liabilities and procurement activities; (iv) quality of external audit report; and (v) engagement ofthe legislature.
A Way Forward
The on-going PFM review-jointly carried out by the authorities and the Bank in close coordination with other development partners-and the establishment of PFM benchmarks will provide new opportunities for further strengthening PFM and procurement as an integrated system. The PFM review forms part of a comprehensive approach to supporting PFM reforms emphasizing country-led reform, donor harmonization and alignment around the PRS with focus on monitoring and results.
The PFM work has put forward a four-point agenda to improve the contributions of public finances to assist Nepal's transition. This four-point agenda will support the four blocks of Nepal's development strategy. It will require appropriate sequencing, piloting, monitoring, evaluation, and adjustments as appropriate. The central themes of this agenda are the need to: (i) gradually scale up public expenditures and PFM performance as capacity is built; (ii) boost the use of monitoring systems and ex post evaluation as management tools to strengthen efficiency and accountability; (iii) simplify complex systems when possible; and (iv) ensure that external assistance meshes with these objectives.
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Strengthening PFM systems require embracing a holistic but realistic reform management approach. One option to sequence the reforms is to define a series of platforms, each around one particular outcome. The series of platform would provide a way to focus capacity to ensure synergies between reform efforts. In the short term, the priorities would be to maximize the credibility of the budget, simplify some processes, realize the analytical and policy potential of reporting, implement the Procurement Act, and strengthen tools to hold policymakers accountable of the budget and its outcomes. At the local level, a stronger commitment from the center to simplify guidelines, move toward block grants with fewer constraints, and provide support to local bodies is needed. Beyond this first platform, a more evidence-based approach (for budgeting) and risk-based approach (for audits of both expenditures and taxes) should be envisaged. Progress in this area will be closely related to progress in other areas of good governance in the civil service and the overall environment.
The Bank should continue to provide support to Nepal to prepare a cohesive and integrated PFM improvement program in a holistic approach, with realistic targets and coordinated support by all development partners.
Performance Indicator Set: An Overview
qUi) Accounting, Recording and Reporting
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Public Procurement Reforms
In Nepal, poor financial management (including non-transparent procurement practices), perceived high levels of corruption and a decline in the quality of the civil service, have led to low expectations for public services and contributed to high costs of doing business. Improving governance, establishing effective public accountability, and enhancing the trust citizens have in government are high on the list of priorities for the current administration as they are all instrumental in creating the conditions for national peace and stability. Public procurement is a fundamental component of governmental systems for planning, spending and accounting for the use of public money. The Bank has previously analyzed Nepal's public procurement system in the 2002 Country Procurement Assessment Review of (CP AR). The findings of that report formed the basis of an action plan to improve the workings of public procurement.
The task of assessing the Nepali public procurement system changed with the passage of a new Procurement Act in January 2007. The Act changed the entire legal framework for undertaking procurement in Nepal, as well as modified the arrangements for managing and overseeing procurement. In these changing circumstances, the Bank agreed with the authorities that any assessment of the legal and managerial components of the procurement system should take into consideration the recently promulgated law.
Significant improvements have been made in the Nepali public procurement system over the course of the last four years. Notable advancements introduced with the new Procurement Act include:
• Adoption of a modem procurement law with provisions generally in line with the UNCITRAL model law;
• Creation of a Public Procurement Monitoring Office with responsibility and authority for setting procurement policy, monitoring practices and reporting on overall system performance;
• Initiation of training programs designed to establish core competencies in procurement; and • Amendment of anti-corruption legislation to enable the imposition of harsher penalties (such as
blacklisting) for acts of fraud and corruption and allow for bidders to report acts of corruption by other bidders or government officials.
At the same time, a great deal of work remains to translate the improvements that have taken place into concrete improvements in procurement outcomes. Implementation of the new Procurement Act is a core challenge in the public sector and will require the dedication of significant resources if the Act is going
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to successfully improve procurement practices across the public sector. In addition, the Act itself contains some provisions which may prove to be problematic when implemented. Chief among these is the provision that contract variations that exceed more than 15 percent would require the approval of the Cabinet. This provision potentially creates an excessively cumbersome review process and may need to be revisited sometime in the near future.
The application of the OECD/DAC baseline indicators provides a profile of a procurement system that is in the midst of transition. The assessment covers four main areas-i.e., the legal and regulatory basis for procurement; the institutional architecture of the system; the operation of the system and the competitiveness of the national market; and the integrity of the procurement system. There is significant room for improvement in each area, with no one area standing out as particularly weak or strong.
A Way Forward
A small investment through the Institutional Development Fund (IDF) Grant provided for public procurement reform has demonstrated the impacts that such funds can have to accelerate reform processes. Although the draft Public Procurement Act was ready nearly one and one-half years ago, it remained pending mainly due to the political turmoil. Now with its approval, the authorities have recently requested the Bank to provide continued support in implementing the Act. In response to this request, the Bank is organizing a technical workshop in the last week of May to share knowledge and experience in other countries in the implementation of procurement law, and then to discuss with the key components the prioritization of activities. On possible way forward would be to continue our support to procurement reform by fully integrating it with PFM initiatives as part of a sector-wide approach.
Key Documents
World Bank. 2006. Managing Public Financesfor a New Nepal: Public Financial Management Review. April 23, 2007 Draft. Washington, D.C.
World Bank. 2002. Financial Accountability in Nepal: A Country Assessment. ISBN 0-8213-5441-8. Washington, D.C.
World Bank, 2005. Financial Accountability Review Mission, A Joint GON/DflD and World Bank Assessment Update, May 2005, Washington, D.C.
World Bank. 2002. Nepal Country Procurement Assessment Report. Report No. 23917-NEP. World Bank. 2002. Nepal Public Expenditure Review. Report No. 20211-NEP. Washington, D.C. World Bank, 2006. Nepal: Public Sector Accounting and Auditing: A Comparison to International
Standards. World Bank. 2006. Review of Key Issues and Recommendations of Auditor General's Annual Report
2005 and 2006 and Review of Monitoring System of Auditor General's Recommendations.
D. Legal/Judicial Reforms
Background and Context
Although Nepal was never part of the British Commonwealth, due to its close interaction with India, its legal system is very influenced by common law. Also noteworthy is that the system of law and justice in Nepal-a 'Hindu kingdom' until 2006-has its roots in the ancient Hindu religion and culture. Indian legal and judicial values were imported by succeeding generations of law graduates who came from India, in particular after the 1950s.
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The foundation of an independent judiciary in Nepal was laid in 1950 with the establishment of the Pradhan Nyayalaya, a term which was changed into Sarbochha Adalat in 1956 (both terms meaning Supreme Court). The judiciary has long been recognized as one of the three pillars of the state, and courts have always been required to impart justice "in accordance with the provisions of the Constitution, the laws and recognized principles of justice."
Currently, the country has a neat structure of courts, with one Supreme Court, 16 Appellate Courts and 75 district courts. Due to its relatively wide network of courts-staffed by over 250 judges and around 4,500 other officials-Nepalese courts have fairly good geographic accessibility. However, other problems of accessibility, including cost, language, culture, infrastructure, cumbersome rules, biases, and so forth, are still present
Key Issues and Challenges
Nepal, today, is in a state of transition in terms of its constitutional framework. Certainly, following the April 2006 uprising, an air of uneasiness and uncertainty pervades over Nepal's constitutional future, particularly in connection with the country's political governance structure and questions of distribution of power and justice. The constituent assembly elections will lead to a decision on the country's future political structure and thereafter to draw up a new Constitution. In view of the severe conflict that has afflicted the country for the past decade, this appears to be a very serious task fraught with risks. Whether the monarchy continues as a titular head of state (with a ceremonial role) or Nepal becomes a republic with federated structure, the Constitution to be drafted in that connection will have to be able to create a balance between state powers by creating enough check-valve mechanisms. And this is, no doubt, likely to affect the role and the structure of the judiciary.
Similarly, the country is in a post-conflict situation and thus will have to take a number of measures to cope with that situation, including, but not limited to, dealing with the issues of property rights, recovery of lost properties, indigenous people's rights, demobilization, governance, and so forth.
Reforms in Nepal
During the period 1960 to 1990, judicial reforms were carried out through a number of legal and institutional measures. In 1970, a high-level Judicial Reform Commission recommended the enactment of a Summary Procedures Act for small causes, and in 1983, a Royal Judicial Reform Commission undertook a comprehensive review of the works of the court, prosecution, quasi-judicial institutions, and made several substantive, procedural, and institutional reforms recommendations for making their work more efficient. Such recommendations were implemented by successive administrations, but nevertheless, the judiciary performed in a lackluster manner during this period. In 1990, the judiciary was made the custodian of the national Constitution. In addition to tackling arrears and clearing up the docket (although the courts in Nepal processed over 85,000 cases in the 1990s, less than half of this number were decided), the judiciary was required to rationalize the distribution of courts based on the caseload; reform procedural laws; streamline the court process; improve the execution of its own judgments; improve the infrastructure; and introduce modern management techniques.
In 1997, the Supreme Court created a committee to examine these issues. This committee carried out an in-depth study of the prevailing situation and recommended the introduction of case-flow and court management, records, statistics, and information system management; human resource management (both judicial and non-judicial); physical resource management; and budgetary fiscal management. Following these initial recommendations, another Court Strengthening Committee Report (2001) suggested various additional measures to reform the Nepalese jUdiciary. As a follow-up, the Supreme Court prepared a Strategic Plan of the Judiciary in 2004. This plan analyzed and identified the system's strengths,
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weaknesses, opportunities, and threats and proposed reform measures to improve the quality of service of the Judiciary in the core areas. Further, it identified 16 areas of strategic intervention and proposed a budget for each proposed activity. The Supreme Court is currently executing the Strategic Plan, but because of political problems and resource gaps, the pace of execution has remained slow.
External FUllds
In so far as funds from multilateral or bilateral agencies are concerned, Nepal seems to have taken a very fragmented (micro) approach oflegal reform, dealing separately with line agencies, several sources of funds, and multiple sub-sectors in smaller, separate programs. It has never approached legal reform as a comprehensive whole, in part because of lack of a champion. For methodological simplicity, the reform initiatives in the legal and judicial sector of Nepal are considered here in two sets: (i) one set sponsored by the Bank; and (ii) the other by other institutions such as ADB, USAID and other development partners.
The Ballk's Currellt Activities
Office of Auditor Genera) (OAG). With the exception of a number of sporadic regulatory and institutional reform initiatives built into other projects (mostly in infrastructure, private andlor financial sector development, and social projects), the Bank's first involvement in Nepal's legal sector began in December 2003, when it was invited by the then Attorney General of the country to conduct a rapid assessment of his office (the OAG). This assessment identified a number of bottlenecks, including resources, insufficient administrative support, outdated and complex working practices and procedures, a shortage of reliable data, insufficient access to legal infonnation and case law, and inadequate staff training. It also identified a need to modernize the ~AG's modus operandi so as to ensure efficiency, limit delays in the prosecution and processing of cases, and reduce overall transaction costs.
The Bank provided an IDF Grant that aimed to assist OAG to: (i) strengthen the capacity of its staff by designing and implementing a training strategy; (ii) improve case administration by designing and implementing a master plan to enhance the functioning of the OAG; and (iii) improve prosecution. In order to improve overall efficiency and ensure speedier prosecution, the Grant financed computerization of OAG services and management. Furthermore, it focused on strengthening the capacity of the OAG through continuing education and training. Finally, to harmonize prosecutions among courts, it financed the preparation of a Prosecutors' Manual for use by all prosecuting staff, which, in addition to being a useful tool for prosecutors, is expected to help ensure proper monitoring of cases.
Supreme Court-Commercial Bench. A Review of the Legal and Judicial Environment for Financial Sector Development was completed in March 2005. The review emphasized the contribution of improved legal and judicial framework, particularly court performance to facilitating economic transactions. While it recommended a detailed legal and judicial assessment to identify weaknesses in the sector and remedy them, it also proposed emphasis on training and knowledge of judges and court staff, and improving case management techniques in the interim. In addition, the 2006 Doing Business Report highlights the long delays in enforcing contracts and closing unprofitable businesses in Nepal, and the associated costs. It draws attention to the unsatisfactory framework surrounding these sectors in the country.
The Strategic Plan of the Nepali Judiciary 2004-08 identifies a number of strategic interventions to streamline the management capacity of the judiciary; review relevant laws and simplify court procedures to improve quality of legal and judicial service; develop proper case management system to reduce delays and case congestion etc.
June 2007 Briefing Note for the New World Bank Country Director fOr Nepal Page 950(135
Current donor programs to improve judicial performance in Nepal concentrate largely on access to justice issues. The recently approved (April 2007) Bank IDF grant aims to link these efforts with fundamental and structural problems of the judicial system, the role of the judiciary in Nepal's development agenda and lays the foundation for future reforms and modernization of the judiciary. The IDF grant ofUSD $405,000.00 for the judiciary that will cover:
• The establishment of commercial bench and supporting related activities. Nepal has recently passed a set of legislations (such as the Insolvency Ordinance) vesting jurisdiction in a yet to be established Commercial Bench for matters that are presently being taken to the general courts, whose functioning leaves a lot to be desired. In absence of continuing training being provided to judges (see below), judges get insufficient exposure to commercial practices and there is little awareness of the opportunity cost when productive assets get blocked in the courts. An all new Commercial Court looks like an attractive alternative, but may possibly be unproductive as an independent entity. Another way of achieving this may be through a dedicated Commercial Bench at the Appellate and Supreme Court level. This sub-component of the grant will finance: (i) the setting up of the Commercial Bench, the drafting of procedures and manuals, introduction of a case management system in the commercial Bench; and (ii) an assessment of training needs, development of training modules which can be used to train the judges and support staff and further training of the judges and registrars for the effective implementation of the Commercial Bench.
• The carrying out of a judicial assessment. Lengthy court proceedings are perhaps the most visible symptom of the crisis in the Nepali judiciary. They translate into significant and perpetual backlogs-a breeding ground for petty corruption. While there have been many initiatives to tackle this problem, most of them have focused at case management in the narrow sense of processing papers and reorganizing and/or automating some of the business operations. More is needed to sustain an increase in court productivity and reduce both the time and costs of court operations. Such reforms should certainly include consolidation of court jurisdiction and competence so the cases are decided with less cost without compromising quality. The reform should expand to include the distribution of cases among the courts to allocation of cases to judges. A Judicial Map (geographical organization of the courts) seems also to contribute to lower performance of the courts, as large number of the courts necessarily impede specialization and lead to difficult and costly supervision. Although civil procedures in Nepal do not seem to be terribly formal (28 steps comparing to the regional average of 29.7) they are in need of improvement. Endless opportunities for appeals seem to be a big problem which, in addition to increasing delay and costs, raises opportunities for corruption. To formulate the foregoing reforms it is necessary to have the necessary data and information on the jUdiciary. This component of the grant will finance: (i) the judicial map; and (ii) a judicial assessment, including public perception of the judiciary and performance of the judiciary.
Activities of Other Donors
After funding several regulatory and institutional reform components through different projects, in December 2000 ADB approved financing for a project to improve legal enforcement mechanisms. The project sought to ensure satisfactory corporate and financial governance. Project components supported the establishment of: (i) a National Judicial Academy (NJA) as an institution mandated to provide training in the sector; (ii) a legal information center; (iii) a commercial bench; and (iv) a secured transaction registry. As part of this project, a technical service provider-Uniquest-was asked in 2002 to look into the training and construction aspects of the NJA component. Many other bilateral agencies have been involved in sporadic interventions. But none, so far, has approached the legal and judicial sector as a whole.
June 2007 Briefing Note (or the New World Bank Countrv Director (or Nepal Page 96 oU 35
Scope for Bank Involvement
Legal and judicial sector has a huge potential for Bank involvement. There is demand for overall institutional strengthening, capacity building and other ancillary reforms, as well as for infrastructure support. The post-April 2006 political transition has further increased this potential and expanded the scope for coverage. But the same political transition also calls for the Bank to be more careful in decisionmaking, so as to ensure that all that we do will fit well in the emerging new Nepal.
Key Documents
IDF Grant proposal for the OAG Institutional Strengthening Project. Institutional Framework for Legal and Judicial Training in South Asia (With Particular Reference to
Bangladesh and Nepal). World Bank Legal Department's Working Paper Series (by Anand M. Bhattarai, and Kishor Uprety).
A Review of the Legal and Judicial Environment for Financial Sector Development (Nagavalli Annamalai).
IDF Grant Proposal for theLegal and Judicial Reforms to Strengthen Creditor's Rights Project.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 970(135
X. Portfolio Issues
A. Portfolio Performance in FY06JFY07
As of April 30, 2007, the IDA portfolio in Nepal consists of 14 credits/grants, with total commitments of about US$525 million and an undisbursed balance of about US$321 million. The portfolio is relatively young (an average project age of three years), with nine of the projects and the additional financing (68 percent of outstanding commitments) approved since the last CAS, and only two projects (14 percent of outstanding commitments) older than four years. With regard to overall portfolio performance, the picture has been mixed. In terms of riskiness, there has been some deterioration in portfolio performance over the period with projects-at-risk and commitments-at-risk increasing due to long-standing implementation delays in two projects and country-related risks in all projects.55 However, in a recent country portfolio performance review (CPPR) it was noted that many of these problems are on the way to being resolved and the number of projects-at-risk is expected to decline in the coming months. In terms of disbursements, after sluggish performance in FY04 (a disbursement ratio of about 15), disbursements increased significantly in FY05 (a disbursement ratio of nearly 30 percent) and dropped in FY06 (a disbursement ratio of about 21 percent).56 In FY07, disbursements are expected to be about 20 percent. The chart below compares the disbursement performance in FY07 as compared to FY06. Although project implementation-as measured by disbursements-has fluctuated a bit in the volatile country environment, it has remained very respectable even when compared to overall Bank-wide averages.
55
56
[ Monthly Disbursement Ratio -+-FY06 ····~I I~FY07 . : .. i 15 E ~ 10 :::I .0
I ~ : ~~ __ A_U_9 __ Se_P
.&~
~ ......
Oct
~I
~
~ ~
/
Fe_b __ Mi_r __ A_pr __ Mi_Y __ J:j Dec Jan Months
Under the Bank's project risk rating system, Nepal has one "risk flag"-Le., country environment-which is non-project specific. Therefore, as the entire portfolio is considered risky from the country standpoint, to be considered "at risk", an individual project requires two more project-specific risk flags.
About 60 percent of disbursements in FYOS were from the two financial sector reform projects, with a significant share being payments for the voluntary retirement scheme (VRS) programs in NBL and RBB. While the use of IDA funds for this purpose was questioned by a number of chairs at the Bank's Board, "right-sizing" is an important action from the standpoint of restructuring NBL and RBB, and hence, for the overall financial sector reform program. However, even excluding the amount disbursed from these two projects, disbursements in FYOS were higher than in the two previous fiscal years.
June 2007 Briefing Note (or the New World Bank Country Director (or Nepal Page 98 oU 35
B. Projects-at-risk
As of April 30, 2007, there are two actual problem projects, putting the country's projects- and commitments-at-risk at 14 percent and 19 percent, respectively. 57 The Power Development Project (PDP) has remained in the problem status for 40 months, and the Second Rural Water Supply and Sanitation Project (R WSSP II) for 8 months. During the PDP mid-term review to be carried out in May 2007, appropriate pro-activity action will be taken either to restructure or to cancel a portion of the funds. Similarly, the May 2007 mid-term review of RWSSP II will also closely assess the project performance and reassess the ratings. Recent supervision mission of the Telecommunications Sector Reform Project also assessed project performance, and due to slow implementation progress, has downgraded the implementation progress to "Unsatisfactory". This will increase the projects-at-risk to 21 percent, and the commitments-at-risk to 23 percent.
C. Portfolio Reviews
Internally, an RVP-Ievel portfolio review is carried out twice a year. The review meeting is coordinated by the Regional Operations and Quality Group, which sets the agenda prior to each meeting. The Country Management Unit (CMU) prepares an update of portfolio performance and background notes as per the meeting agenda. Following the meeting, key points noted in the minutes and a follow up management letter (signed by the RVP) is sent to the Borrower. The last such RVP meeting held was on November 30, 2006.
At the country level, GON and three of its development partners-ADB, Japan Bank for International Cooperation (JBIC) and the Bank-have been undertaking joint portfolio reviews over the past six years. These annual reviews critically examine the program/project implementation successes and weaknesses with a view to further consolidating the successes while attempting to find solutions for the weaknesses. Every year, based on the review, the partners agree on a matrix of reforms for the subsequent year. The approach has been very useful in building consensus on the problems and tbeir solutions. Last year, for the first time, GON organized and led the portfolio review process (held on September 4-5, 2006). Its theme-Budget Implementation and Improving Portfolio Performance-was significant for it reflected a shift in the focus of the portfolio review away from the performance of a narrow set of projects to improving budget outcomes more generally. It also aims to end an artificial bifurcation between donor funded and government-funded projects. This year, the government is tentatively planning to hold the annual review in the last week of August.
D. Mitigating Portfolio Risks
To mitigate the portfolio risks, the Bank pro-actively monitors project implementation. The approach taken includes close monitoring of the country situation, continuous dialogue with the authorities and other key stakeholders, and timely supervision-although perhaps with limited field visits depending upon the security situation-to help keep portfolio performance stable and detect potential risks. The policy dialogue with senior officials helps to mitigate external risks that are beyond project control. The portfolio implementation strategy focuses on providing responsive and cost-effective, continuous implementation support, along with streamlining/harmonizing some of internal processes. This requires more frequent reviews with project implementation agencies, hands-on T A and continued training of project staff in issues related to the Bank's fiduciary and safeguard policies. Safeguard issues-including financial management and other fiduciary obligations--eontinue to receive priority attention during project identification, preparation and implementation to ensure effective compliance.
57 These can be compared to regional averages for projects-at-risk of 14 percent and commitments-at-risk of 13 percent over the same period.
June 2007 Briefing Note for the New World Bank Country Director {Or Nepal Page 990(135
On the preparation side, project readiness filters have been developed and are applied to all projects to ensure the alignment of quality-at-entry of new projects/programs with the MTEF process, thus precluding the need for effectiveness conditions in new projects/programs. Finally, given the outcomesfocus of the program, outcome-based monitoring is also an integral focal area during project supervision.
E. Fiduciary Aspects
The Nepal Country Financial Accountability Assessment (CFAA)-conducted jointly by the autllOrities and the Bank in 2002 and subsequently updated in 200S-concluded that the failure to comply with the impressive legal and regulatory fiduciary framework makes the fiduciary risk in Nepal "High", but the risk is similar to that in most developing countries. The situation has not significantly changed since these diagnoses. The authorities are committed to improving the overall financial accountability framework. Further the PFM work has included setting up the PFM benchmarks as per the PEF A guidelines and subsequent implementation of actions is helping to mitigate the inherent country risk.
The PRN assessment suggests a system that is well designed but unevenly implemented. In recent years, the budget has become a policy tool that is largely credible, clearly linked to policies in some sectors, with a solid control of aggregate outturns, and a reasonable control framework at the transaction level (notably for payroll). However, there are many gaps in the control framework, significant implementation constraints, and large fiscal activities outside the scope of the central government budget. The origin of several of these weaknesses can be traced in the weak demand (from both Government and external stakeholders) for better budget information (financial and physical) and management.
Until the overall country risk environment is improved, our strategy at the project level has been to harmonize witl1 the country financial management system to the extent possible, but agreeing on a specific risk mitigation action plan to address gaps observed during thc financial management risk assessment. This may include ensuring placement of skilled staff, preparation of a financial management manual, arranging specific review mechanisms, promoting community audits for community level programs, arranging ex-post reviews, etc. Over the next few years, significant improvements are not expected unless there is implementation of a program to strengthen PFM systems embracing a holistic but realistic reform management approach. Following the PFM work, the Bank should take a lead to support Nepal's preparation of a cohesive and integrated PFM improvement program using a holistic approach, with realistic targets and coordinated support by all interested development partners.
With regard to external PAC scrutiny, there have been no arrangements in place for the public scrutiny of the AG's audit reports due to the political instability and dissolution ofthe Parliament in 2002 as PAC was not in existenee for nearly four years (2002 to 2005). Due to this gap, there is obviously a need for major institutional strengthening of the PAC, including providing exposure to PAC members to best practices from other countries. Previously PAC was one of the most active parliamentary committees. After its restoration in 2006, it again tried to build up momentum to be active in undertaking in-depth hearings on key findings of the audit reports, but the four year gap has given PAC a tremendous backlog. An effective monitoring role for PAC in terms of compliance of recommended actions is yet to be seen.
The following sections highlight current challenges that pertain to some key areas of financial management, and how they are being addressed within the current constraints.
Accounting, recording and reporting. Current cash-based accounting practices are generally well established and accounts frequently reconciled (with the exception of the revenue accounts).
June 2007 Briefing Note (Or the New World Bank Country Director (Or Nepal Page 100 o(J35
However, incomplete computerization weakens the timeliness and quality of accounting. Annual reporting and financial statements are timely and of acceptable quality (although with some gaps in the content). However, within-year reporting is weak and not public. There is no national Public Sector Accounting Standards. The audited consolidated financial statements and annual revenues and expenditure statements do not include accounting policies and explanatory notes as required by International Public Sector Accounting Standards (IPSAS); whereas the consolidated financial statements issued by the Financial Comptroller General Office (FCGO) for government use include basic accounting principles and assumptions.
Accouutiug procedures and practices in Bank-financed projects. To a large extent, the Bank harmonizes with the government's accounting procedures and practices. All projects have aligned their core practices with country systems--e.g., the government financial regulations, treasury circulars and relevant Ministry circulars. In addition, where there are unique features in design of projects, such projects have a project financial management manual to capture the unique project features. Because of project specific risk mitigation measures that we undertake, the periodic project reports that we receive from projects are reliable. Many projects already have in place a computerized financial management system, and the reports generated are reliable. Gaps observed in the overall country system do not have any major impact in project reporting.
Fixed asset managemeut Poor management of fixed assets is a systemic issue in the country system, and this does not exclude Bank-funded projects. Problems include: (i) poor documentation; (ii) not carrying out frequent physical verification; (iii) inadequate information in verification reports; (iv) idle assets; (v) poor warranty management; and (vi) lack of budget provisions to carry out repairs and preventive maintenance.
Funds flow and disbursements. For all Bank-funded projects, the "Designated Accounts" are opened at the NRB and operated by the project offices. All designated accounts, except for the two SWAps (education and health), are managed by project offices. Desi!,1Jlated accounts in the name of Foreign Exchange Accounts where funds from pooled partners are deposited, are managed by FCGO. However, the Bank advances funds to all designated accounts including that of SWAps are made by the respective implementing agencies. For large expenses, direct payments are made from the designated accounts or submit request to the Bank for direct payments if the balances in the designated accounts are insufficient to cover such large expenses. For small expenses and community level programs, the Government pre-finances expenditures as per the approved budget, and later, implementing agencies submit request for reimbursement to government's treasury or transfer such expenditures directly from the designated accounts to the treasury following the confirmation of expenditures. There is very little risk to the Bank funds for paying ineligible items since transfers are made only after verification of actual eligible expenditures. Government staff are familiar with the Bank system, and through ongoing supervision and monitoring by the Bank staff, there are virtually no burning issues. Further, with the two SWAp operations and RWSSP II, report-based disbursements are already in practice; with increased capacity, report-based disbursements are slowly expected to be the norm.
External audits. The AG has the constitutional mandate to carry out audits of all activities using public/government funds. While the Bank considers the AG as an acceptable auditor for all Bank-funded projects, the AG by its mandate has the flexibility to appoint private auditors-private auditors are used mainly in the audit of state-owned enterprises or autonomous bodies. More than 50 percent of projects receive unqualified audit opinions, a few qualified opinions but in general the qualifications are not of significant/material in nature. Except for two SWAp operations, all audit reports are due six months after the end of the fiscal year end-i.e., January 15th
• Because of involvement of other development partners in SW Ap operations, on the request of the government, an exception has been granted in the education SWAp to 8 months (i.e., March 15m) after the end of fiscal year, and 12 months (Le., July 15th
) for the
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 1010[135
health SWAp. Although a few projects this year have submitted audit reports on time, in general, there are delays in submission of audit reports by the due date, primarily due to: (i) delays in the projects sUbmitting the financial statements, affected by difficulty in consolidating statements from districts, and (ii) delay in the start of audit.
Overall, the quality of external audit reports is good and acceptable. Audit reports generally highlight systemic internal control weaknesses where observed, and also suggest ways for resolving such weaknesses. Based on auditors' management letters, we take follow-up actions with the auditees (projects) and when serious observations are observed, we agree on action plans to mitigate such issues with the projects. Overall, audit reports have been our important means to address overall accountability issues, and to help improve any observed deficiencies. With regard to improving the timely submission of audit reports, there have been steady improvements over time. However, due to challenges of consolidating financial statements from all cost centers scattered in difficult geographical terrain of the country, especially in projects with operations in multi districts, meeting the six month time frame will continue to be a challenge for several years.
Internal audits. Internal audits are carried out by FCGO on a regular basis, mostly on a bimonthly basis. Internal audit reports generally are weak, and not focused from the risk management perspective. Very little observations are made on the performance of internal control systems. There is no appropriate structure with regard to professional independence of the internal auditors. Internal audit function is one of the functions of FCGO, which also administers the accountants, and is responsible for submitting consolidated accounts to the Auditor General. There is a conflict of interest in carrying out effective internal audit since the same cadre of accounting staffs rotate to carry out both the accounting and internal audit functions. Internal auditors do not use professional audit methods and follow riskbased approach. The scope of work under internal audit is also not properly defined. Code of ethics for internal auditors does not exist. The concept of internal audit committee has not yet been introduced in the system. Capacity in internal audit is a major constraint affected by trained and skilled manpower in this field, and inadequate motivation and incentives to carry out meaningful internal audit. In case of local government, capacity is even weaker and the internal audit system as required by local Financial Administration Regulations has not yet been institutionalized. Improving internal audit capacity at the country level is being addressed through PFM.
Improving internal audit system in the country will take some time until we can approach the improvements of financial management in a holistic way. As interim measures in projects, we ensure adequate internal control arrangements are built in into the financial management system design of projects which include periodic and independent reviews by consultants and ex-post reviews by the Bank. In community-led projects, community audit is a strong feature.
Donor harmonization On financial management arrangements. Stemming from the Paris harmonization agenda-which the Government of Nepal and most development partners operating in Nepal have signed on to---harmonization of financial management arrangements is already in practice in two SWAPs. Even the individual projects are harmonized with the government financial management system, with a provision to improve financial management system specific to the project through action plan agreed between the Borrower and the Bank, if gaps are observed during financial management assessment.
Country financing parameters. In the disbursement simplification process, the country financing parameters agreed for Nepal allow to finance up to 100 percent for all categories of expenses financed under IDA program. Percentage of financing would, however, be determined as per the nature of the project or program.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 102 of 135
FM risk assessment. As required by the Bank's FM policy, capacity assessment from financial management perspective of the implementing agency is carried out for all projects. Risks are rated from the project concept stage based on assessment at each stage. Risk mitigation measures are proposed, and implemented through specific action plans during implementation.
FM supervision strategy. A risk-based approach is followed in planning and carrying out FM supervision. FM risk ratings vary across projects based upon: (i) the complexity of the project design; (ii) funds flow arrangements; and (iii) competency and experience of the implementing agency. The current FM risk ratings, which have been recently revised based upon the SARFM quality guidelines, are presented in Table 10.1.
FM Risk rating Portfolio
Lending Trust Funds
Pipeline Lending
Table 10.1: Summary of Portfolio Risk Ratings High Substantial Modest
2
1
2 o
5 3
2
Low
3 o
1
The projects currently rated as high FM risk include the Health Sector SWAp and Power Development Fund Project. Those rated as having substantial risks include: (i) Education for All SWAp; and (ii) Telecommunications Sector Reform Project. In two sector-wide programs, together with other pooled development partners (DflO, Norway, Finland and Danida), we are paying special attention to FM and accountability issues, as a result of which, we have recently agreed to the immediate Action Plan to address these issues. In other projects, we are closely monitoring the progress and also have agreed action plans for rectifying any observed deficiencies. We have an overall strategy of continuous supervision for FM high risk operations.
Key Documents
World Bank. 2006 (latest), Nepal Portfolio Peifonnance Review A Background Paper. World Bank. 2002. Financial Accountability in Nepal: A Country Assessment. ISBN 0-8213-5441-8. World Bank, 2005. Financial Accountability Review Mission, A Joint GONIDFID and World Bank
Assessment Update, May 2005. World Bank. 2002. Nepal Country Procurement Assessment Report. Report No. 23917-NEP. World Bank, 2006. Nepal: Public Sector Accounting and Auditing: A Comparison to International
Standards. World Bank. 2006. Review of Key Issues and Recommendations of Auditor General's Annual Report
2005 and 2006 and Review of Monitoring System of Auditor General's Recommendations
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 103 of] 35
XI. Internal Issues
A. The Kathmandu Office
The team based in Kathmandu is a compact and cohesive group. The staffing has relied on a basic model in which Nepali colleagues carry out much of the primary policy dialogue ('motivating reform thinking') and headquarter (HQ) colleagues bring in the global knowledge when the counterparts are committed to reforms and are exploring different options. This means in recruitment oflocal staff, we need to be selective so that we find people who can establish high degrees of credibility with their counterparts, and in bringing additional HQ staff into the office, we ensure they fit into this basic model well.
In terms of immediate staffing issues, we have a gap in agriculture where we lost Dr. Ram Yadav to the PAF Board, and will have a gap in social development when Lynn retires later this year. In terms of sectors, there is no one working in environment at the moment.
With the gradual expansion in the program, there is some pressure on the office space, and this will become acute if IFC decides to re-establish and/or expand its presence in Kathmandu. Some expansion options have been discussed with the Yak and Yeti.
B. The Media and External Relations
The external affairs function in the Nepal Office is a close to 14 years old. The function was created in 1993, largely to handle difficult NGO and media relationships during the years the Bank was helping Nepal prepare the controversial Arun III hydropower project, which was subsequently abandoned in 1995.
Over the years, the external affairs function (EXT) has evolved to include, among other things: (i) advisory services to the CD, CMU and sector groups; (li) support to the CD's country dialogue, outreach and relationships with a wide range of stakeholder groups; (iii) project communications support; (iv) media management; (v) civil society partnerships; and (vi) public disclosure, information services and dissemination through the Bank's Public Information Center (PIC). Over the years, EXT has also played a key role in the design and delivery of consultative and participatory processes around the CAS, the NDFs and the Development Marketplace. More recently, it has partnered with the government (NPC/MOF) and other development partners (DANIDA, DflD and Norway) to design and manage a PRS communications program. Of late, it EXT is also supporting the advocacy effort to move forward a homegrown and citizen-led national visioning exercise by helping expand the Bank's partnerships with civil society leaders and providing "quiet" support to the core team of facilitators.
The EXT strategy in Nepal is underpinned by two major principles:
• Positioning the Bank as a small but catalytic player in the much larger arena of development and emphasizing the centrality of government; and
• Emphasizing that development is everyone's business.
The EXT team in the Nepal Office includes a Sr. External Specialist (Rajib Upadhya, joined in 1996) and a Public Information Associate (Reena Shrestha, joined in 2004). The team also manages the PIC, located offsite but close to the main office premises. The PIC also functions as the local global distance learning network (GDLN) affiliate. The PIC space is open to the wider development community to organize events.
June 2007 Briefing Note [or the New World Bank Country Director [or Nepal Page 104 oU 35
The Jledia in Nepal
Nepal enjoys a vibrant free press that has experienced an explosion in growth since 1990. Until 1990, the press was largely state-owned and the independent media-mostly weekly tabloids-was subject to strict state censorship.
Nepal saw its first independent broadsheet daily in 1991 when Kantipur, and its sister English language daily The Kathmandu Post hit the newsstands. These two newspapers continue to dominate the market. Chasing limited advertising revenues, a number of other dailies have come and gone over the years.
Professional standards of journalism have improved vastly since the 1990s, but still differ widely between the various publications. Politics dominates content and coverage, but increasingly more space is being devoted to development coverage. The weekly tabloids, in particular, are characterized by political color and a penchant for sensationalism. Weekly newsmagazines have started to emerge in Nepali, with Himal, an early market entrant, taking the cake in this category in terms of quality and readership.
Most remarkable, however, has been the growth in the broadcast media, particularly in private and community-owned FM radio. Most urban centers now have at least one local, privately owned FM station, and some have two to three. In addition, most of Nepal 's 75 districts have at least one community radio station. Current affairs and development commentary constitute the bulk of content in radio. From one local TV channel until 2002, there are now five local language channels, with several more in the offing.
Web-based news portals and blogs are also developing as major sources of news and information on Nepal, especially for the Nepali diaspora. Market leaders in this segment are nepalnews.com and ekantipur.com.
English language publications constitute only a small fraction of newspaper readership. For example, Kantipur_Nepal,s largest selling vernacular-has a print run of close to 100,000, whereas its sister publication in English, The Kathmandu Post, is around 12,000. The most widely respected English language newspaper, by most accounts, is the weekly Nepali Times.
The Bank's Engagement with Media in Nepal
The Bank's engagement with media and journalists has been at several levels. Through the PRS communications program as well as Bank-funded projects, we are helping improve levels of economic literacy in the media by supporting training programs for journalists. The PIC, in particular, has been quite successful at providing development information tailored to media needs.
The Bank also engages newspaper editors as a regular part of the country dialogue in an effort to deepen understanding about the work we do and why. On occasions, such as the 2004 NDF and the 2005 Development Marketplace, the Bank has successfully partnered with leading media houses. In addition, the current CD has been a regular contributor of op-eds on issues of development in leading newspapers in Nepali and English.
C. The Role of the Country Management Unit (CMU) in DC
The Nepal Country Management Unit (CMU) in Washington D.C. is a small unit, consisting of four staff: (i) a Country Program Coordinator (CPC); (ii) a Country Officer (CO); (iii) a Country Program
June 2007 Briefing Note for the New World Bank Countrv Director for Nepal Page 1050(135
Assistant; and (iv) a Resource Management Analyst (RMA).58 For at least the last 7-8 years, Sri Lanka and Nepal have shared a single CMU in Washington. The CPC-currently Debbie Bateman, who has been in the position nearly seven years-is mapped to the Nepal Anchor Unit (SASNA), while the COcurrently filled by Elaine Tinsley in a Developmental Assignment-and the Country Program Assistant (CPA)-currently vacant-are mapped to the Sri Lanka Anchor Unit (SACSA). Ron Bessett~the current RMA-has been a part of the team for about six years. The CMU in Washington is guided and supervised by the CPC.
The CMU in Washington plays a variety of roles, but most fundamentally acts as the 'eyes, ears and voice' of the Country Directors (CDs) in Washington. The CMU works pro-actively to ensure timely and high quality delivery of the work programs in order to achieve the agreed CAS outcomes. The CMU tries hard to not be viewed by the country team as yet another hurdle or 'clearance shop', but tries more to work as a facilitator to help strengthen and polish all products. Although quality assurance is theoretically the job of sector managers (SMs), the CD ultimately is responsible for everything that is issued for Nepal. As such, the CMU in Washington places tremendous emphasis on ensuring high quality-in both substance and appearanc~products.
Key activities ofthe CMU in Washington include:
• Budget and WPA formulation and monitoring. The CMU in Washington has traditionally taken the lead in this area. The budgetlWP A formulation cycle generally starts in about March and ends with a confirmation of the agreements in late-June. With regard to the monitoring aspects, the RMA produces monthly reports on budget usage and the CO produces periodic (four times a year) reports on WPA delivery.
• "Feeding the beast". The Washington-based CMU generally takes the first shot at all bureaucraticrelated tasks-as examples, often the Office of the Regional Vice President (RVP) will ask CDs to provide various country inputs to the regional strategy, work program planning documents/exercises or other such requests. The CMU will try to routinely handle such requests either directly, or in certain cases when it is felt that the response should come directly from the CD, draft a response for the CD to send. The CMU has the policy to respond to such requests or at least inform the CD of the pending response within 24 hours of receipt.
• Liaising with regional and senior management, other Bank units including the offices of the Executive Directors (EDs), client counterparts, and representatives of NGOs, other donor agencies and other interested parties. The CMU has the philosophy that especially when working with such countries as challenging as Sri Lanka and Nepal, the best thing that we can do is to better educate all on how we view the country situation and explain our strategy/approach. As such, sufficient emphasis is placed by the CMU on meeting with Bank staff and management and other Bank units on issues of relevance to the programs. Also, as representative of the CD in Washington, CMU staff are often required to represent the CD in various meetings with Bank management and others stakeholders. Good contacts have been established with the offices of all the Executive Directors (EDs) and when important issues arise, the CMU proactively reaches out with offers to brief/educate. This has proven extremely useful and makes formal Board presentations on Nepal somewhat less complicated, although there have been some rather explosive episodes in the past. In addition, meetings are held when requested with representatives of NGOs, other donor agencies visiting Washington, and companies/consultants interested in bidding on certain Bank projects. In addition, close touch is kept with the Nepali senior at the ED's Office (EDS16)-currently Dr.
58 Although officially mapped to the region's Resource Management (SASRM) staff, the RMA is considered to be a key member of the eMU team.
June 2007 Briefing Note fOr the New World Bank Countrv Director fOr Nepal Page 106 o(J35
Madhav P. Ghimire who is recently arrived-and various contacts at the Nepali Embassy in Washington (which has been difficult in that the Ambassador position has been vacant for a few years).
• Preparing briefing notes and summaries of various team meetings, as well as handling correspondence on country matters. Typical briefing notes include those prepared for Annual/Spring Meetings, visits by the VP or other senior management to the country, special briefing for meetings, etc. On top of this, numerous letters are fairly routinely sent from Nepalis to the office of the Bank's President on topics such as seeking personal assistance, reporting alleged misproprieties, etc. The Bank's policy is that each and every letter is responded to, most generally going out under the signature of the CPe.
• Coordinating the preparation of the main documents prepared by the CD's office, including CAS and policy notes. Obviously, while documents such as CASes and policy notes require inputs from many CT members, there is a need to coordinate the overall pulling together, polishing and finalizing. The CMU in Washington is responsible for this type of coordination work which generally involves: (i) coming up with an outline for the proposed document and drafting an announcement for the CD to send to the CT; and (ii) pulling together and final comprehensive and coherent document.
It is some what difficult to clearly delineate responsibilities between the CMU team members in Washington, especially the CPC and CO. However, it is the case that more routine tasks-such as drafting briefs/correspondence, monitoring portfolio and WPA deliveries, coordinating trust fundlcofinancing activities, drafting minutes of CT meetings, etc.-are carried out by the CO. However, given that a new CO will be joining the team in the near future, it is envisioned that significant effort will be placed on refining the job responsibilities.
•
•
•
59
Other noteworthy items include:
For the past few years, there has NOT been a regular country team meeting connecting the team in Kathmandu and elsewhere with Washington. It is suggested that some sort of regular meeting be reinstated, perhaps every other month or so. Such a meeting would be useful to discuss current topics (country situation, etc.) and/or 'special topic' (i.e., a piece of sector work, a discussion on a sector strategy, etc.).
The CD is usually in Washington a minimum of twice a year-Le., at the time of the Annual Meetings [September or October] and at the time of the Spring Meetings [ApriIJ.59 It has been the general practice that when the CD is in Washington we generally have a country team luncheon/meeting to allow for the DC-based team to have more informal interaction with the CD.
The CPC and CPA participate in A WS on alternative Fridays and all attempts to ensure that at least one member of the CMU team is in the office each and every working day. However, occasionally during holiday periods it is difficult to ensure this, and during these times coverage is provided by another CMU.
As an aside, around the time of the Spring Meetings, there is generally a retreat of the Regional Management Team (RMT) in the Washington DC area. In addition, generally in mid-November (prior to the Thanksgiving holidays), there is an RMT retreat in the South Asia Region. As voted at the last retreat in Washington, the next such 'in country' retreat is scheduled to be in Nepal in November 2007.
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 107 ofl35
Annex 1. World Bank Portfolio in Nepal Net Commitments in US$, as of May 14,2007
CrediU Project Task Closing Undisb FyI Grant Project Secto.-3 IDA
Numbe.-l ID Leader Date ursed4
02 3293 P04505 Road Maintenance and
Joshi SASEI 06/30/2007 54.5 5.2 Development
02 3581 P05067 Telecommunications Sector
Singh CITPO 09/0112008 20.4 9.1 Reform
...... _---_ ...... . ..... _--_ ...... ...... --03 3727 P07129 Financial Sector T A Shrestha SASFP 06130/2007 16.0 7.9
3808 P08264 Community School Support Joshi SASHD 09/3012007 5.0 1.0 37661
P04331 Power Development Imran SASE! 06/3012009 74.8 70.2 H039
04 H091 P08196 Fund SASAR 0210112009 40.0 31.0
38641 P08421
Financial Sector Restructuring Shrestha SASFP 09/3012009 75.5 20.6
H074 (Phase II)
3911 P07128 Rural Water Supply and
Tenzing SASEI 08/3112009 25.3 14.2 Sanitation
05 H125
P04061 Health Sector Program Kang SASHD 0111512010 50.0 20.1
H268 P07463 Education for All Joshi SASHD 0113112010 50.0 11.3
H171 P08392 Rural Access Improvement
Reja SASEI 1213112010 32.0 28.2 and Decentralization
H173 P09329 Economic Reform T A Radwan SASFP 1.9 07 H268 Pl0034 Avian Flu Sellen SASAR 18.4
H274 P09096 Second Education Joshi SASHD 0111512014 60.0 63.4
Total Number of Projects: 14 524.7 302.5
11 Fiscal year of approval. 21 IDA grants begin with uH"; otherwise a credit. Note that there are a number of partial grants/partial credits. 31 SASEI: Energy and Infrastructure; SASES: Environment and Social Development Sector; SASFP: Finance and Private Sector; SASHD: Human Development Sector; SASPR: Poverty Reduction and Economic Management; SASAR: Agriculture and Rural Development Sector; CITPO: Global ICT Policy Division 41 As the figures are denominated in US$, exchange rate fluctuations may result in undisbursed balances that are greater than the original principal amounts that are officially express in Special Drawing Rights (SDRs).
June 2007 Briefing Note fOr the New World Bank Countf-v Director fOr Nepal Page 108 0035
Annex 2. IFC Portfolio in Nepal Committed and Outstanding Amounts in US$ Millions, as of May 21, 2007
FYA roval 1998 1994 1998
Total Portfolio:
GTFP Kathmandu GTFP NIe Bank
Quasi 11.29 0 0
Rimal Power 15.64 0 2.09 Jomsom Resort 4.00 0 0
30.93 0 2.09
Approvals Pending Commitment Loan Equity
o 0 o 0
Quasi o o
Partie 13.62
0 0
13.62
GT
2
11.29 15.64 4.00
30.93
Partie o o
uasi Partie 0 0 13.62 0 1.80 0 0 0 0
0 1.80 13.62
June 2007 Briefing Note tor the New World Bank Country Director tor Nepal Page 109 oU 3 5
Annex 3. Project Overview, Results and Issues in the Lending Portfolio
As of May 14, 2007, there are 14 on-going projects, representing $525 million in commitments. Organized by sector, each of the active projects in the portfolio are described in some detail below.
SECTOR: Energy and Infrastructure
Road Maintenance and Development Project (RMDP) Amount: US$54.5 million IDA credit
Project Description and Objective: The Road Maintenance and Development Project (RMDP) aims to provide sustainable and efficient road service on the Strategic Road Network (SRN). The project will help reduce poverty in rural areas by improving rural access and prompting higher agricultural output, as well as non-farm income, in remote hill areas of the country. The project objectives were amended following a project restructuring, effective April 5, 2004, to: (a) establish a stable road sector maintenance funding from road user fees; (b) improve resource allocation by implementing a MediumTerm Expenditure Framework for the SRN; (c) improve institutional capacity of the Department of Roads (DoR); and (d) promote effective maintenance and rehabilitation of the SRN.
Status/Results to Date: Except for one civil works contract for the upgrading of Katari-Sunkoshi road, all the on-going contracts are near completion and progressing satisfactorily. Compliance with safeguards related to civil works is reasonably satisfactory. The Institutional Strengthening Component (ISC) has been satisfactorily completed, including implementing a variety of additional activities to modernize DoR and develop a lO-year plan for the way forward to ensure improved service delivery in various DoR core and supporting functions.
Issues: There are delays with regard to agreed action plan for the improvement of the Roads Board. Increasing fuel prices is a sensitive issue and the Government of Nepal (GoN) has found it difficult to raise prices in the past in line with increased international prices; however, currently the domestic price is not that far off. The GoN has assured that there will be an adequate allocation of the maintenance fund until the fuel levy can be increased/implemented. It has been suggested that part of the present Customs duty on fuel be converted to a fuel levy without affecting the retail price. It has also been suggested that the entire road maintenance budget be consolidated under one budget heading to the Roads Board. The GoN has agreed to consider this for the corning fiscal year.
At the request the of the GoN, through a follow up project, IDA will fmance upgrading of about 350 krn of roads to all season conditions. As such, the project will provide all weather access to five district headquarters. The project is being prepared on a fast-track basis with the target of making it effective by end August 2007. Future IDA assistance to the sector will continue to emphasize satisfactory functioning of the Roads Board.
The project closing date is June 30, 2007.
Rural Access Improvement and Decentralization Project (RAIDP) Amount: US$32 million IDA Grant
Project Description and Objectives: The Rural Access Improvement and Decentralization Project (RAIDP) is designed to enable the residents of participating districts to utilize improved rural transport
June 2007 Briefing Note fOr the New World Bank Countrv Director fOr Nepal Page 1100(135
infrastructure and services, and also to benefit from enhanced access to social services, and economic opportunities. The project has two components: (a) Rural Transport Infrastructure (RT!) improvement through which: (i) existing dry-season rural roads are rehabilitated and upgraded to all-season standards, (ii) existing rural trails and tracks are upgraded to dry-season standards in remote hill districts, (iii) rural roads are maintained, (iv) short-span trail bridges are constructed, (v) small, community-based infrastructure is developed supporting resettlement and rehabilitation of projectaffected people, and (vi) a pilot rural transport services scheme is being implemented; and (b) Capacity Building and Advisory Services (CBAS) through which: (i) training-related activities are implemented on major aspects of rural infrastructure development and management, and (ii) the provision of related technical assistance and advisory services is provided to participating district development committees on various aspects of project management.
StaluslResults to Date: This project is in its second year of implementation and overall, project implementation is progressing well despite the difficult country circumstances over the last year. Nineteen out of the 20 project districts will complete 308 km of upgrading works to all-season standards during FY06/07. Consultants for the dry-season road construction have been hired, and after completing preparatory studies and activities, construction under community-based contract will start from May 2007. The maintenance sub-component, however, is lagging behind, and only six districts have done maintenance work during FY05/06. All districts are expected to do maintenance work during the current fiscal year. The trail bridge sub-component-with technical assistance from SDC/Helvetaswill be implemented in 28 districts. So far, 89 trail bridges have been identified and will be constructed in FY06/07. The community infrastructure sub-component has received some good proposals from communities, including market improvements, repairing schools walls and rehabilitating an irrigation scheme. The District Development Committees (DDCs) should commence implementation of the works in FY06/07.
The project has included a measuring and monitoring system to report on the progress of rural access among project districts. The project has also developed a baseline data on rural access among all districts in Nepal, and is working towards the adoption of such system by the Department of Local Infrastructure and Agricultural Roads (DOLIDAR) and the National Planning Commission (NPC). A socio-economic baseline study is on-going and GIS mapping of the baseline is about to be completed for rural roads and access to services in project districts. Capacity building for the Monitoring and Evaluation Unit of DOLIDAR is on-going, however, progress has been slow and negatively impacted by the political upheaval in the country.
Issues: While the project started well, its implementation has suffered country-environment related delays. As a result, 14 months after its effectiveness, only 8 percent of the grant has been disbursed, and nothing was disbursed in the first quarter of FY07. Nevertheless, of the 20 project districts, 16 DDCs have awarded works contracts; two more will be signing contracts soon; and the two remaining districts are processing bids. Because of delays in contract awards, the real field work will start only in the dry season, which means works should progress by end October after cessation of rainfall and local festivities.
The project closing date is December 31, 2010.
June 2007 Briefing Note for the New World Bank Country Director for Nepal
Second Rural Water Supply and Sanitation Project (RWSSP) Amount: US$25.3 million IDA Credit
Page 111 of] 3 5
Project Description and Objectives: The primary objectives of the Second Rural Water Supply and Sanitation Project (RWSSP) are to: (a) improve rural water supply and sanitation sector institutional performance and mainstream the "Fund Board" (Rural Water Supply and Sanitation Fund Development Board) approach; and (b) support communities to form inclusive local water supply and sanitation user groups that can plan, implement, and operate drinking water and sanitation infrastructure that delivers sustainable health, hygiene and productivity benefits to rural households. There are three project components: (a) strengthening the operation of the Fund Board; (b) financing selection and construction of water supply and environmental sanitation schemes; and (c) supporting institutional deVelopment studies. This last component supports technical assistance to the Ministry of Physical Planning and Works (MPPW) to carry out sector assessments and monitoring, as well as undertake special studies, such as low-cost technology options, water quality control at source, health impact studies, and studies examining the inclusion of poor families.
Status/Results to Date: The project has entered the third year of implementation and has brought safe drinking water within 15 minutes of a roundtrip walk from their residence to about 166,850 beneficiaries and provided latrines for about half that number. This has, by early estimates, decreased the prevalence of diarrhoeal disease morbidity among young children by at least 1 ° percent and has reduced the water fetching time by an average of three hours per household per day. The time saved is being utilized by the women of the community with the support provided through Women Technical Support Services (WTSS) in various income generation activities. So far, WTSS has reached 323 groups covering 15,236 women who have collectively saved NRs. 14.80 million on top of the NRs. 1.80 million grants received from the Board and have mobilized this resource for income generation activities. Under Batch V, the 334 registered Water Supply and Sanitation User Groups have elected Water Supply and Sanitation User Committees (WSUC) which comprise more than the stipulated three women members, and 78% female treasurers. The Board adopts an all inclusive policy to ensure that Indigenous People (IP), Dalit and disadvantaged groups are not excluded. In Batch V schemes, 59 percent households are Dalit, IPs and disadvantaged people whereas this has increased to 61 percent in Batch VI schemes. Of the target of benefiting 813,000 people through 1,355 schemes, so far 225 schemes have been completed. Work is underway in different phases in 1,078 schemes which will collectively provide safe drinking water to an additional about 372,600 beneficiaries.
Issues: The project has been in problem status since September, 2006 and implementation progress was down-graded to "moderately unsatisfactory" in June 2006. Despite evidence at the grassroots that a demand-driven participatory approach is increasingly being taken up in the sector, it is difficult to assess how widely the sector policy is being adopted and implemented because of the absence of sector-wide monitoring by MPPW. Progress has been slow in establishing a rural water supply and sanitation sector monitoring and evaluation system within the MPPW. Only recently MPPW has been able to obtain Cabinet approval to create positions in the Ministry to staff the RWSS sector Monitoring and Evaluation (M&E) Unit and the positions have not yet been filled. MPPW has shared with the IDA task team a preliminary draft M&E road map. However, substantial progress in this front is yet to be seen.
The internal management of the Board needs to be improved. There has been an eight to nine month delay in implementation of different phases of the schemes. Implementation when out of phase with the scheme cycle has serious implications on the quality and sustainability. The Board is unlikely to complete the targeted 1,355 schemes due to cost overruns, primarily as a result of increase in cost of construction materials. These and the overall progress of implementation would be reviewed during the mid-term review in AprillMay 2007.
June 2007 Briefing Note (or the New World Bank Countrv Director (or Nepal
The project closing date is August 31, 2009.
Power Development Project (pDp) Amount: US$74.8 million IDA Credit/Grant
Page 1120(135
Project Description and Objectives: The development objectives of the Power Development Project (PDP) are to: (a) develop Nepal's hydropower potential in an environmentally and socially sustainable manner so as to help meet electricity demand; (b) improve access of rural areas to electricity services; and (c) promote private participation in the power sector as a way to improve sector efficiency and to mobilize financing for the sector's investment requirements. The project consists of three components, namely: (a) establishment of a Power Development Fund (PDF) to finance private development of small and medium-sized hydro schemes; (b) community-based village electrification through construction of micro-hydro systems (sizes of up to 100 kW); and (c) grid transmission and distribution improvements.
Status/Results to Date: This project has been in problem status since its approval in May 2003, primarily due the PDF component. Regarding this component, while there has been good progress in the first window (Kabeli-A, a medium-sized hydro project) since June 2006-reflected in the finalization of bidding documents, inviting of proposals from short-listed developers, and implementing a successful pre-bid meeting on 11117/06)-the progress with regards to tbe second window (small-scale hydro projects in the range of 1-lOMW) remains weak. Except for one project (Riddi Kbola) for which a letter of intent (LoI) has been issued, it appears unlikely that any other project would reach the letter of intent stage in the near future. Therefore, it is likely that fmancing from the PDF second window would be limited to one hydro project only, requiring restructuring of this component. The extent of restructuring would, however, not be know until the bids for the Kabeli-A project are received and evaluated. This process is expected to be competed by end February 2007.
The Nepal Electricity Authority (NEA) and Micro-Hydro Village Electrification components are proceeding well with the notable exception being NEA's deteriorating financial performance. An action plan, to improve financial performance, has been agreed with the NEA which takes into account recent developments (revisions in interest rate and royalty terms and the increase in sales). NEA management has agreed to submit to IDA a revised plan to meet the financial covenants including additional actions effecting the financial performance that are under NEA own control, such as reductions in transmission and distribution losses.
Issues: The latest audited financial statements of NEA for FY04/05-submitted several months after the due date and following issuance of a warning letter-reflected a deteriorating financial status. For the first time, the auditors have provided a disclaimer opinion on NEA's accounts. The auditors pointed out several omissions, inappropriate evaluation methods and inconsistencies in the accounts to suggest that if they are reconciled, the impact on financial statements is likely to be even worse thus indicating an even worse scenario.
In January 2007, the IDA team re-assessed implementation progress and discussed with the implementing agencies and the concerned ministries the prospects for restructuring the project. The Ministry of Water Resources (MOWR) has been advised to consider options for reallocating funds in the event that the project is restructured. A formal restructuring of the project would be discussed and agreed with the GON in March 2007 during the mid-term review mission. It is anticipated that the project would be restructured by June 2007.
The project closing date is June 30, 2009.
June 2007 Briefing Note (Or the New World Bank Country Director for Nepal
SECTOR: Finance and Private Sector
Economic Reform Technical Assistance (ERT A) Amount: US$3 million IDA Grant
Page 113 0(135
Project Description and Objectives: The Economic Reform Technical Assistance (ERTA) project aims to support the implementation of key short term measures of the reform agenda as embodied in the Royal Proclamation, the 21-point program and the Poverty Reduction Strategy (PRS). The project is structured to provide flexibility in sourcing and building capacity, particularly in the following areas: (a) improving governance and public sector management; (b) accelerating privatization; (c) improving service delivery; and (d) implementing a strategic communications program. These areas form the areas of pre-identified technical assistance while the remaining resources are placed in a challenge fund that supports emerging reform efforts.
StatuslResults to Date: The project is in the second year of implementation and is running satisfactorily. As of date, 18 memorandum of understandings (MOUs) have been signed for pre-identified projects. The Implementing Agency (EASU) has further received 37 proposals for the Challenge Fund out of which only 26 are being processed because the rest (11) came from the non-government sector (schools). The last Steering Committee (SC) meeting approved six of the 26 proposals. With several sub-projects under pre-identified category and the Challenge Fund already approved and more in the pipeline, the EASU should start focusing on improving the monitoring and evaluation (M&E) system.
Issues: As the project moves ahead with implementation of SUb-projects under the Challenge Fund, more areas of reforms would be identified and an appropriate outcome indicator would need to be agreed upon. A robust M&E system has yet to be established to monitor the performance of subprojects against envisaged outputs and outcomes. The absence of such a system makes it problematic to monitor progress and achievements of expected results of SUb-projects. The project is considering outsourcing monitoring and reporting to a consulting firm with credible experience in the field to help EASU develop a robust M&E system to monitor the implementation of sub-projects. Almost all sub-projects have provided good base-line indicators.
Due to the recent political transition resulting in the April 2006 change of Government, almost all positions on the SC and key positions in the EASU remained vacant (until mid-August 2006) affecting project implementation.
The project closing date is December 31, 2008.
Financial Sector Technical Assistance Project (FSTAP) Amount: US$16 million IDA Credit
Project Description and Objectives: The Financial Sector Technical Assistance Project (FST AP) focuses on restructuring the Central Bank (Nepal Rastra Bank; NRB), as well as initiating commercial banking and financial sector reforms through: (a) helping to restructure and re-engineer NRB so that it can effectively perform its key central banking functions; (b) initiating commercial banking reform in the two large ailing commercial banks that dominate the sector-Le., Rastriya Banijya Bank (RBB) and Nepal Bank Limited (NBL)-by introducing international bank management that protects the financial integrity of the two banks and takes on a conservator role to prepare the banks for the next steps of restructuring; and (c) supporting a better environment for financial sector reform in areas such as
June 2007 Briefing Note tor the New World Bank Country Director tor Nepal Page 114 o[]35
enhanced credit information, better financial news reporting and better training for staff in financial institutions.
Status/Results to Date: The project has been successful in starting to tum around the two large ailing public banks and preparing them for the next steps of restructuring-Le., sale to strategic investors. 6o
Given that the privatization process is expected to take longer than originally envisaged, it is essential that the external management teams continue to manage these two banks until the point of sale. This will require additional funding. Re-engineering of NRB has progressed well and is also supported by the Phase II operation (FSRP discussed below). In order for NRB to effectively perform its monitoring and regulatory functions, installation of a modem information technology (IT) platform is considered essential. The scope and cost for computerization was highly under-estimated in the beginning of both financial sector projects, and additional support will also be crucial. The level of project support to Credit Information Centre Ltd (CICL) has been very limited although its role in reducing NonPerforming Loans (NPLs) and enhancing access to financial services is extremely important.
Issues: This project requires restructuring in terms of extending the project period from the original closing date of June 2007 and reallocating the potential savings (estimated at US$11.3 million) towards: (a) upgrading IT under NRB Re-engineering component; (b) extending the management contracts of NBL and RBB; and (c) enhancing the capacity of Credit Information Centre Ltd. In the near future, the government will be requesting this restructuring and internal processing will take place within the Bank and DfID (for their co-financing grant portion of around US$5.3 million).
The project closing date is June 30, 2007.
Financial Sector Restructuring Project (FRSP) Phase II Amount: US$75.5 million in IDA Grant and Credit
Project Description and Objectives: The main objective of the Financial Sector Restructuring Project (FRSP) Phase II is to support the on-going efforts to develop a healthier Nepali financial sector which intermediates funds more efficiently and effectively to the benefit of all segments of society and in a manner which supports private sector development, increased investment, and faster growth. Specifically, the project development objectives are to: (a) improve corporate governance through provision of management support to the two large commercial banks (Rastriya Banijya Bank; RBB and Nepal Bank Limited; NBL)-Le., to specifically improve their operating capacity and commercial viability to allow them to move as swiftly as possible into the private sector; (b) improve market structure by reducing the state-owned segment of the banking system; and (c) sustain and deepen the banking reforms. This includes further strengthening Nepal's Central Bank (Nepal Rastra Bank; NRB) through supporting the on-going programs of bank supervision strengthening; accounting and auditing development; human resource re-engineering; information technology upgrading and the like. Another objective is to further enhance the professional status of the central bank and its capacity to oversee the development of a prudently operated financial sector.
Status/Results to Date: Under the management contracts, NBL and RBB posted net profits for the third consecutive year. In large part, the non-expatriate teams are being replaced by local counterparts.
60 There has been considerable success with regards to the day to day operations of the Banks, with considerable reductions in excess staffing having taken place and the banks having posted net operating profits for the third consecutive year. However, progress has been much more limited with regard to recovering on non-performing loans.
June 2007 Briefing Note for the New World Bank CountlY Director for Nepal Page 115 0035
Selection of the Sales (Privatization) Advisor from the six short-listed firms is in process. A contract with a team of International Bank supervisors (MIS IEF Inc. with KPMG, Sri Lanka) has been terminated for non-delivery and replacements are being sought. Progress in re-engineering NRB is mixed. While accounting functions have been streamlined and the majority of the auditor's comments have been addressed to comply with lAS, the timeliness of financial disclosure lags far behind owing to delays in appointment of Statutory Auditor by Office of Auditor General. Implementation of a new human resource plan is progressing in the area of recruitment, transfer, training, appraisal, grievance handling and rationalization of departmental structures. Staff force is reportedly in excess by 4 percent compared to the level recommended by consultants.
Issues: It is quite likely that privatization of NBL and RBB will be delayed due to the current political complexities. However, it remains critical that the management teams be retained in these two public banks until the point of privatization. Given that vested groups have always opposed external management of NBLlRBB by alluding to the "expensive" cost, the savings from the DflD "grant" associated with FSTA project will be used for further extension of management contracts. NRB's weak supervisory capacity was further evidenced recently (November 10, 2006) when there was a "run" on Nepal Bangladesh Bank (NBB) before NRB stepped in and took over the management. The Bank and IMF missions have frequently raised the issue of corporate governance in NBB and other financial institutions managed by the same promoters. The recent mission to review the IT component recommends changes in the scope and implementation phases to enable NRB to become a modem central bank. This will require an additional US$6 -7 million, which will be met either through reallocations/restructurings of the two financial sector projects.
The project closing date is September 30, 2009.
SECTOR: Human Development
Second Higher Education Project Amount: US$60.0 million IDA Grant
Project Description and Objectives: The project development objectives are to: (a) enhance quality and relevance of higher education and research through a set of incentives for promoting effective management and financial sustainability of academic institutions; and (b) improve access for academically qualified under-privileged students, including girls, dalits and educationally disadvantaged janajati to higher education through financial assistance and enhanced capacity of higher secondary schools.
The key indicators for measuring achievement of project development objectives are employability of graduates, cost sharing levels, number of publications in refereed journals, and number of girls, dalits and disadvantaged janajati students in higher secondary schools and higher education programs. The impact of the Project in terms of improvement in employability of graduates and increase in number of publications in refereed journals will not be fully evident within the project period. But it is expected that statistically significant improvements compared to the control group will take place in relation to both indicators.
Status/Results to Date: This project was approved on February 22, 2007 and the signing of the documents took place on April 20, 2007.
The project closing date is January 15, 2014.
June 2007 Briefing Note for the New World Bank Countrv Director for Nepal
Community School Support Project (CSSP) Amount: US$ 5 million IDA Credit
Page 116 o(]35
Project Description and Objectives: The Community School Support Project (CSSP) provides block, performance, supplementary, and other grants, including scholarships, and technical assistance (T A) for capacity building, to support communities taking over the management of government-funded schools. To this end, the project: (a) provides incentive grants for communities to manage schools funded by the government, through block grants tied to performance of lower secondary, and secondary schools. It also provides performance grants for the improvement of access to primary education, and promotion rates, and supplementary grants to marginal communities; (b) provides scholarships to out-of-school children in the first year, and maintenance scholarships in the later years of primary schools to all children from poor households, making the school a focal point for inclusion; (c) supports capacity building to assist communities, through non-governmental organizations (NGOs) and support organizations in school management, as well as providing training for teachers in instructional planning/delivery and in improving community relations; and (d) assist in the development of a monitoring and evaluation system in project coordination, within the existing monitoring and evaluation system of the Ministry of Education.
Status/Results to Date: The main achievement of CSSP has been its critical role in implementing the policy of transferring management of public schools to communities. There is already evidence that community management is contributing to improvement of access to and quality of education. The table below illustrates some of the preliminary results.
Indicators April 2004 April 2005 April 2006 N % N % N %
Out of school children of primary age in the service area 2,549 41% 2,248 36% 895 15% Out of school children of age 6 in the service area 888 76% 755 63% 422 34% Out of school girls of primary age in service area 1,248 42% 1,111 36% 443 15% Out of school girls of age 6 in service area 440 76% 372 63% 196 33% Out of school daHt children of primary age in service area 320 50% 270 41% 114 18% Out of school datit children of age 6 in service area 104 85% 94 75% 55 38% Out of school janjati children of primary age in service area 972 44% 862 38% 344 16% Out of school ianiati children of age 6 in service area 330 79% 291 69% 183 40% Note: Results based on survey of over 10,000 households in the area of 29 schools. The first batch of schools for project support was selected in March 2004. An independent survey of the first batch of schools to establish the baseline was conducted in May and September 2004. The baseline data is from the independent study. Preliminary result from the second round of house survey of selected 29 schools was commissioned by DOE.
Issues: Transfer of management of public schools to community management-one of the most radical reforms in school education-was initiated in Nepal during a fluid political situation. Due to political instability, it has been hard to protect this reform from attacks by teachers I unions and later by the Maoist affiliated students' union. After considerable efforts, recently a multi-party meeting (including Maoists) was held to garner the critical support for this reform. In spite of the fact that all parties renewed their commitment to the reform, attacks against the reform continues. In this back drop, project efforts were focused more on defending the reforms than supporting schools in capacity building. Still, schools have been able to make achievements. Recently, the press has given good
June 2007 Briefing Note for the New World Bank Countl'V Director for Nepal Page 1170035
coverage of the refonn and highlighted the progress made by community-managed schools. Support from civil society will be critical for consolidating this reform.
The project closing date was recently extended to September 30, 2007.
Education for All Project (EF A) Amount: US $50 million IDA Credit
Project Description and Objectives: The long term development objective of the sector-wide approach ('SWAp') Education for All (EFA) project is to improve access to, and benefit from basic and primary education for children, especially girls and children from disadvantaged groups, and from literacy programs for poor adults. The project has three strategic goals: (a) improving access to, and equity of basic and primary education; (b) enhancing educational quality and relevance; and, (c) improving efficiency, and institutional capacity of education service delivery. Equitable access will be approached through implementation of measures to increase both the demand for education, and the supply of services. On the demand side, expanded involvement of community-based organizations in identifying, and motivating out of school children to enroll, will strengthen school outreach. Scholarships, funded through school grants, targeted to poor girls, "dalits" and out of school "janajati" children, will offset the private costs of schooling for these groups. Additionally, expansion of classrooms, and non-formal programs based in schools, should accommodate growing demand. Resources will also be provided to communities for constructing temporary classrooms. Literacy programs for adult women, targeted to dalits and ethnic minorities, will be expanded. Second, early childhood development (ECD), delivered through community managed centers, and through pre-primary classes, will be expanded, supporting teacher education through a certificate training. Recurrent in-service teacher training will be strengthened, while substantial funding through the School Grants Program (SGP) will enable financing local expertise, including teacher training. Improved school facilities, and newly developed transitional language support on entry for non-Nepali speaking students, will further improve learning quality, retention of children, and school completion rates. And third, improving efficiency and institutional capacity, will finance the transfer of primary schools to community management, through grants support. A feature of the SGP will be the inclusion of funding for non-salary recurrent costs in school grants. Depending on accreditation levels, schools will be eligible to apply for grants for construction improvement, enhanced student access, capacity building, and quality improvement.
Status/Results to Date: This project is in its third year of implementation, our dialogue in this area has facilitated extension of EF A funding to unaided community schools and the transfer of schools to community management. IDA disbursements will be accelerated by US$4 million in FY07 to provide grants to such schools towards salary of teachers and construction of classrooms. The Auditor General, in the audit opinion for FY05, expressed concern about over disbursements under teacher salaries and failure to complete audits by some schools. While the Department of Education (DOE) has provided clarifications on the observations, there is a need to provide an action plan to address the issue. The Auditor General has also mentioned weakness in the internal control system. ADB and UNICEF have declared their intention to enter into the SWAp, increasing the number of donors from the original five to seven.
Issues: The problem of uneven deployment of teachers has long been known, but not the extent. A technical review, commissioned by donors, has for the first time estimated that while a set of schools has 12,000 surplus teachers, another set of schools has a deficit of 37,000 teachers. As a SWAp, EFA finances salary of teachers. While it is critical to supply additional teachers, additional funding for teachers is difficult to justify without redeploying surplus teachers. Dealing with the huge wastage of
June 2007 Briefing Note fOr the New World Bank Countrv Director fOr Nepal Page 1180[135
resources associated with uneven deployment of teachers should become one of the priorities of supervision.
A Financial Management and Procurement Review is underway and the report is expected by January 2007. A group of independent consultants is scheduled to undertake a review of the progress, which will become the main basis for the Medium Term Review (MTR) to be held in April 2007. The need for revising of the project objectives will be assessed during the MTR
The project closing date is January 31, 2010.
Health Sector Program (liSP) Amount: US$50 million IDA Grant/Credit
Project Description and Objectives: The Health Sector Program (HSP) for Nepal seeks to address inequities and improve the health of the Nepalese as a means to develop healthy and capable human power to support poverty alleviation. The project seeks to expand access to, and increase the use of, essential health care services, especially by underserved populations. The project has the following two components, the first of which supports the expansion and/or strengthening of eleven priority costeffective services by: (i) developing and implementing technical standards to improve service quality;(ii) providing in-service training to upgrade the technical skills of field workers; (iii) ensuring drug availability in health facilities by improved drug procurement and distribution; (iv) using behavior change communication to inform the public about services, to promote healthy behaviors and to promote a client focused, gender-sensitive attitude among providers; (v) improving outreach activities especially in the Mid and Far-Western Regions; and (vii) conducting service delivery surveys to obtain client and provider feedback about the quality and adequacy of health services. The second component aims at strengthening the Ministry of Health· s capacity to undertake a sector-wide approach and manage the sector more effectively focusing on (i) the division of labor among key actors in the sector; (ii) the key management tasks of planning, programming, budgeting and monitoring; and (iii) resource management-financial, human and physical.
Status/Results to Date: The project is in its third year of implementation and was recently upgraded from problem status. Despite the political instability and disruption, Ministry of Health and Population (MOHP) has been able to achieve progress in some key areas. The sector-wide approach is gradually taking roots in the MOHP. Important capacity building studies have been contracted out; a three-year expansion plan for essential health care services has been prepared; and substantial progress in civil works and goods procurement achieved. The Japanese Encephalitis (JE) Vaccine has been included in the routine immunization program, procured and is now available for use (last year there were over 350 deaths due to JE). So far commitments have been kept to allocate the agreed over 5 percent of the budget to health, over 65 percent of the health budget to essential health care services and over 35 percent of the recurrent health budget to non-salary costs. Over 25 percent of the pool funds have already been disbursed.
Issues: Insufficient leadership and lack of skilled manpower to manage the sector-wide program remains a challenge. The Ministry's planning and monitoring capacity is weak as a result of which obtaining procurement data and information is very difficult. Overall, financial management of the program is weak, and despite continuous follow-up by the task team, the Ministry has not yet satisfactorily implemented the agreed actions for improving financial management.
The project closing date is January 15, 2010.
.June 2007 Briefing Note tor the New World Bank Count1l1 Director (or Nepal Page 1190f135
SECTOR: Agriculture and Rural Development
Poverty Alleviation Fund Project (pAF) Amount: US$40 million IDA Grants, through an initial project of US$15 million and subsequent additional financing (approved in November 2006) of US$25 million
Project Description and Objectives: The PAF project aims to improve access to income-generation projects and community infrastructure for the groups that have tended to be excluded by reasons of gender, ethnicity and caste, as well as for the poorest groups in rural communities. There are five main project components to: (a) support income-generation projects targeted to the poorest and excluded groups (e.g. micro-irrigation, micro-enterprises, crafts, land productivity, and animal husbandry); (b) support Small Scale Village and Community Infrastructure (e.g. engineered trails, footbridges, schools, clinics and other "public goods ") which are small scale and can be managed by community groups or Village Development Committee (VDCs); (c) support innovations and special programs (this component provides a small amount of funds in a demand-driven window to finance proposals of special merit related to PAF objectives); (d) provide capacity building, comprising five sub-components: community mobilization, with particular attention to the needs of marginalized groups; capacity building for local bodies, particularly the VDCs; capacity building of target groups; support to micro-finance intermediaries; and a monitoring and evaluation system for self-learning; and (e) finance project administration, financing project staff, establishment and operating expenses including financial, procurement and environmental management.
StatuslResults to Date: The project is in its third year of implementation and is running satisfactorily. Within the space of two years, the PAF has impacted over 62,000 households or over 314,000 people in six conflict-affected districts. The quality of communication and dissemination of PAF principles, both by PAF staff and Partner Organizations (POs) is excellent. Turnaround time from the receipt of a community SUb-project proposal to the deposit of money in their account averages one month. This is impressive given difficult conditions in Nepal. POs are committed and have close links with the communities.
The project is achieving its development objectives of improving access to infrastructure and income generating investments by poor rural communities. Benefits have gone almost exclusively to the poor and are well targeted on excluded groups-of the PAF beneficiaries, 43 percent are dalits and 35 percent are janajatis, although these groups only account for 15 percent and 23 percent of the population in the targeted districts. Initial results show that Dalits, Janjatis and women are also actively participating in decision-making processes on the prioritization of their needs and implementation of their sub-projects. The level of ownership perceived by the communities is reflected in their Willingness to contribute 20 percent (the remaining 78 percent is from PAF and 2 percent from other sources) toward the costs of sub-projects. Based on this success and increasing demand from communities and additional districts to be included in the project, PAF has decided to expand its program from 6 pilot districts to an additional 19 districts.
Issues: An additional financing of USS25 million was approved by the Board on November 14, 2006 to help in the scaling up efforts to expand PAF operations to the additional 19 districts. Further, because of an increased pace of implementation and scaling up, the additional financing is likely is likely to be committed quickly. To ensure continuity of the program, a second phase of support has been requested from the Bank. If implementation progress is maintained, the Bank will likely provide a large follow up project in FY08.
June 2007 Briefing Note fOr the New World Bank CountlY Director fOr Nepal
The project closing date is February 1, 2009.
Avian Influenza Control Project Amount: US$18.2 million IDA Grant
Page 120 ofl35
Project Description and Objectives: The overall objectives of the Avian Influenza Control Project are to: (a) minimize the threat in Nepal posed to humans by Highly Pathogenic Avian Influenza (HPAI) infection by controlling such infections among birds, especially domestic poultry; and (b) prepare for, control and respond to possible human infections, especially an influenza epidemic and related emergencies. Though the objectives are specific to HPAI, the interventions are expected to contribute to the control of other zoonotic diseases and other types of infectious diseases, in terms of building overall response capacity. These objectives will be achieved through three types of interventions: (a) prevention; (b) preparedness and planning; and (c) response and containment.
Status: The project was recently approved on January 19, 2007 and the Financing Agreement is expected to be signed in mid-February.
The project closing date is July 31, 2011.
SECTOR: Telecommunications
Telecommunications Sector Refonn Project Amount: US$20A million IDA Credit
Project Description and Objectives: The Telecommunications Sector Reform Project aims to strengthen the policy and regulatory environment in the telecommunications sector to facilitate competition and private sector participation, and increase rural access to services by facilitating private investments and operations. The project provides support to: (a) local and international consulting services, studies, training, and equipment, to strengthen the Ministry of Information and Communications' (MOIC) policy, and radio spectrum management functions, by building capacity, and services, through technical cooperation, and information sharing; (b) strengthen the Nepal Telecommunications Authority's (NTA) capacity to respond to regulatory issues in a competitive sector, by financing consulting services, and providing resources for institutional capacity building, through training provision. In addition, support has been provided to the awarding of a rural license to a private rural telecommunications service operator to expand services to the Eastern Development Region; and (c) assist NTA in policy implementation for expanding access to information and telecommunications services, by financing public information and communications technology access centers, in addition to supporting the project management unit to enable successful implementation of NT A's functions.
Status/Results to Date: A major outcome of the project-private provision of rural telecom services in the Eastern Development Region-has been achieved. A review is currently underway by NT A and their independent consultants (ITC) to utilize the project savings of about US$2 million to support the roll out in the other rural regions. The other development outcomes are expected to be achieved during the one year extension period.
Issues: After having been submitted to the Cabinet in March 2006, the draft amendments to the Telecommunications Act have still not been approved. With the change in Government in April 20C>6, all pending draft legislation was removed from the Cabinet's agenda. The MOIC, NTA, and tlle
June 200 7 Briefing Note (or the New World Bank Countrv Director (or Nepal Page 1210035
Ministry of Law, Justice and Parliamentary Affairs (MOLJ) are closely coordinating to restart the process in order to re-submit this key legislation for Cabinet approvaL Without the amendments, key policy measures to facilitate competition and regulations (licensing new service providers, interconnection, and tariffs) cannot be fully implemented as there is no concrete legal basis for NTA directives. Related to rural access, the government has suggested that its development priorities will be more fully met by initiating additional activities. In light of the successful implementation of the roll out in the Eastern Development Region, a similar national program could be considered.
The project was recently granted a one year extension and the revised closing date is September 1, 2008.
June 2007 Briefing Note for the New World Bank Country Director for Nepal
Annex IV Nepal Country Team Profile
(as of May 31,2006)
Page 122 of135
REGIONAL VICE PRESIDENT'S OFFICE
Name: PATEL, Praful C. Title: Vice President Tel.: 202-473-4250
Name:
Title: Tel.:
DEVARAJAN, Shantayanan Chief Economist 202-473-7691
Name: HINDERDAEL, Els Title: Manager, Procurement Tel.: 202-473-3306
Name: LAUTENBACH, Dale Title: Communications
Advisor Tel.: 202-473-3405
Name: ROOME, John A. Title: Operations Director Tel.: 202-473-3373
Name: VIDYASAGAR, Rajesh
Title: HR Manager Tel.: 202-473-0550
Name: ABUSHAKRA, Hadi Title: Chief Counsel Tel.: 202-458-1732
Name: DUCES, Brigitte Title: Operations Advisor Tel.: 202-458-2701
Name: Title:
Tel.:
KAFKA, Barbara Director, Operational Services and Quality 202-473-9488
Name: NDOKO, Honore Title: Chief Administrative
Officer Tel.: 202-473-3633
Name: SAUM, Robert Title: Manager, Financial
Management Tel.: 202-458-4298
Name: WALLICH, Christine Title: Sr. Advisor Tel.: 202-573-5687
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 1230U.
SECTOR DIRECTORS AND MANAGERS
Poverty Reduction and Economic Management Unit (SASPR)\ Finance and Private Sector Development Unit (SASFP)
Name: AHMED, Sadiq Title: Sector Director Tel.: 202-458-9008
Name: NABI, Ijaz Title: Sector Manager
(Economic Policy) Tel.: 202-458-5361
Sustainable Development Unit (SASSD)
Name: Title: Tel.:
Name: Title:
Tel.:
Name: Title: Tel.:
Name: Title:
Tel.:
BERNARD, Constance A. Sector Director 202-458-5175
BRIZZI, Adolfo Sector Manager (Agriculture & Rural Development) 202-473-5809
CHEN,Guang Sector Manager (Transport) 202-458-7474
KAMAl AHMED, Junaid Sector Manager,
(Social Development) 202-458-8470
Name: Title:
Tel.:
Name: Title:
Tel.:
Name:
Title:
Tel.:
Name: Title:
Tel.:
Name: Title:
Tel.:
Name: Title:
Tel.:
KAPOOR, Kapil Sector Manager
(Public Sector) 24617-426 (Delhi, India)
BELL, Simon Sector Manager (Finance & PSD Sector Unit) 202-473-4931
PATHMANATHAN, Gajanand Sector Manager (Agriculture & Rural Development) 202-473-7142
ZAHEER, Salman Sector Manager (Energy & Mining) 5785-815 (Delhi, India)
HAMMAM, Sonia Sector Manager, (Urban Development) 202-458-5335
KEMPER, Karin Sector Manager (Environment and Water Resource Management) 202-473-1995
June 2007 Briefing Note for the New World Bank Country Director for Nepal
Human Development Unit (SASHD)
Name: SCHWEITZER, Julian F. Title: Sector Director TeL: 202-473-3640
Name: RffiOUD, Michelle Title: Sector Manager,
(Education) Tel.: 202-473-8743
Name: Title:
TeL:
Name: Title:
Tel.:
Page 124 ofl35
RASHID, Mansoora Sector Manager, (Social Protection) 202-473-3900
ABREU, Anabela Sector Manager, (Health, Nutrition and Population) 202-458-7763
June 2007 Briefing Note fOr the New World Bank Country Director fOr Nepal Page 125 o(]35
NEPAL COUNTRY OFFICE
Clo Yak & Yeti Hotel, Lal Durbar, Durbar Marg Phone.: (977) 1 4226792/93; Fax.: (977) 1 4225112; http://www.worldbank.orglnp
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
OHASHI, Kenichi Country Director SACNP 5770-157/106
BASNET, Abhishek Research Analyst SASPR 5770-116
GAUT AM, Kiran Executive Assistant SACNP 5770-109
GURUNG, Sunita Program Assistant SASSO 5770-139
Name: JOSHI, Surendra G. Title: Sr. Transport Specialist Unit: SASSO Tel.: 5770-125
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
KUNWAR, Radha Administrative Officer SARRM 5770-103
MAHARJAN, Tirtha Sr. Messenger SACNP 5770-204
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
BAJRACHARY A, Roshan Sr. Economist SASPR 5770-110
BENNETT, Lynn Lead Anthropologist SACNP 5770-137
GOPALAN, Sundarajan Sr. Public Health Sp. SASHD 5770-136
JOSHI, Rajendra D. Sr. Education Specialist SASHD 5770-124
KARKI,Rajshree Receptionist SACNP 5770-1011102
LAMA, Bharat Driver SACNP 98510-00102
MASKEY, Lafima Team Assistant SASFP 5770-114
June 2007 Briefing Note tor the New World Bank Country Director tor Nepal
Name: Title: Unit: Tel.:
Name: Title:
Unit: Tel.:
NAGARKOTI, Laxman CleanerlBearer SACNP 5770-209
PRADHAN, Bigyan Sr. Financial Management Specialist SARFM 5770-127
Name: QIANG, Christine Title: Sr. Economist Unit: CITPO Tel.: 5770-138
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
RANJITKAR, Shyam Sr. Irrigation Engineer SASSD 5770-105
SHAH I, Ram Bhakta Driver SACNP 9851043822
Name: SHARMA, Nastu P Title: Public Health Sp. Unit: SASHD Tel.: 5770-128
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
SHRESTHA, Iswar Accounting Assistant SARRM 5770-123
SHRESTHA, Neena Program Assistant SARPS 5770-113
Name: Title: Unit: Tel.:
Name: Title: Unit Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title:
Tel.:
Page 1260035
NAKARMI, Nagendra Sr. Program Assistant
SARFM 5770-133
PRADHAN, Maureen Account Analyst SARRM 5770-122
RAI, Sushila Program Assistant SASHD 5770-108
SHAH, Pradeep Security Advisor GSDSO 5770-147
SHARMA, Narayan Consultant
(Procurement) 5770-126
Name: SHRESTHA, Bhim Title: Driver Unit: IFC Tel.: 9851024917
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.
SHRESTHA, KESH Office Assistant SACNP 5770-118
SHRESTHA, Niraj Information Officer ISGCR 5770-120
June 2007 Briefing Note tor the New World Bank Country Director for Nepal
Name: SHRESTHA, Reena Title: Public Infonnation
Associate Unit: SAREX Tel.: 977-1-4249731
Name: Title: Unit: Tel.:
SHRESTHA, Silva Research Analyst. SASSD 5770-131
Name: TEN ZING, Tashi Title: Sr. Sanitary Engineer Unit: SASEI TeL: 5770-129
Name: THAPA, Bishnu Title: Messenger Unit: SACNP Tel.: 9851026620
Name: Title:
Unit: Tel.:
Name: Title: Unit: Tel.:
UPADHYA, Rajib Sr. External Affairs Specialist SAREX 5770-102
ZAMAN, Hassan Sr. Economist SASPR 5770-111
Name: Title: Unit: Tel.
Name: Title: Unit: Tel.:
Paue 1270035
SHRESTHA, Sabin Sr. Financial Sector Sp. SASFP 5770-117
SHRESTHA, Tara Team Assistant SASSD 5770-115
Name: THAP A, Badri Title: Driver Unit: SACNP Tel.: 9851034879
Name: Title: Unit: TeL:
THAPA, Madhav Driver SACNP 9851000101
Name: Y ADA V, Sunita K. Title: Team Assistant (ETT) Unit: SASPR Tel.: 5770-140
June 2007 Briefing Note tor the New World Bank Country Director tor Nepal Page 128 of135
IFC, India 50-M Shanti Path, Gate No.3, Niti Marg, Chanakyapuri, New Delhi-l 10 021 (India)
Name: Title:
Tel.:
SINHA, Anil General Manager, SEDF, New Delhi 5741-lO68
June 2007 Briefing Note for the New World Bank Country Director for Nepal Page 1290(1.
NEPAL COUNTRY PROGRAM MANAGEMENT UNIT
1818 H Street, N.W., Washington, DC 20433, USA Phone: (202) 473-1000; Fax: (202) 477-6391; http://www.worldbank.org
Name: Title: Unit: Tel.:
BATEMAN, Deborah Country Program Coordinator SACNA 202-473-1462
Name: TINSLEY, ELAINE Title: Research Analyst Unit: SACNA Tel.: 202-458-7986
(picture not available)
Name: BESSETTE, Ronald A. Title: Resource Mgmt. Analyst Unit: SARRM Tel.: 202-458-0361
Country Program Assistant VACANT
June 2007 Briefing Note fOr the New World Bank Country Director tor Nepal Page 130 0035
TASK TEAM LEADERS
On-going IDA Projects
Project Road Maintenance and Development Project Rural Access Improvement and Decentralization Project Second Rural Water Supply and Sanitation Project Power Development Project Financial Sector Technical Assistance Project Financial Sector Restructuring Project Poverty Alleviation Fund, incl. Additional Financing Economic Reform Technical Assistance Project Community School Support Project Education for All Health Sector Reform Project Telecommunication Sector Reform Project Second Higher Education Project Avian Influenza Control Project
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: TeL:
Name: Title: Unit: Tel.:
JOSHI, Surendra Sr. Transport Specialist SASSD 5770-125
TENZIING, Tashi Sr. Sanitary Engineer SASSD 5770-129
RANJITKAR, Shyam Sr. Irrigation Engineer SASSD 5770-105
SETHI, Geeta Program Coordinator SASSD 202-473-1386
Name: RADWAN, Ismail Title: Sr. Private Sector
Development Specialist Unit: SASFP TeL: 5723-316
Task Team Leaders and Local Contacts JOSHI, Surendra Govinda REJA, BinyamlJOSHI, Surendra Govinda TENZING, Tashi IMRAN, MudassarlRANJITKAR, Shyam SHRESTHA, Sabin Raj SHRESTHA, Sabin Raj SETHI, Geeta/GAUT AM, Kiran RADWAN, IsmaiVSHRESTHA Sabin Raj JOSHI, Rajendra Dhoj JOSHI, Rajendra Dhoj KANG, Jagmohan S.lSHARMA, Nastu P. SINGH, RitinlPRADHAN, Bigyan JOSHI, Rajendra GOPALAN, Sundarajan S. & SELLEN, DanieV SHARMA, Nastu P.
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: TeL
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
REJA, Binyam Sr. Transport Economist SASSD 202-458-5630
IMRAN, Mudassar Sr. Energy Economist SASSD 202-473-3858
SHRESTHA, Sabin Sr. Financial Sector Sp. SASFP 5770-117
GAUTAM, Kiran Executive Assistant SACNP 5770-109
JOSHI, Rajendra Dhoj Sr. Education Specialist SASHD 5770-139
June 2007 Briefing Note tor the New World Bank Country Director tor Nepal Paze 131 of135
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
KANG, Jagmohan S. Sr. PHN Specialist SASHD 274-3318
SINGH, Ritin Sr. Telecom Specialist CITPO 202-458-2302
GOPALAN, Sundarajan Sr. Public Health Sp. SASHD 5770-139
Projects under Preparation
Project
Road Sector Development Project Agriculture Commercialization and Trade Project Irrigation and Water Resources Management Project Nepal Access to Finance Project Transitional Support Credit Poverty Alleviation Fund II Sustaining Social Services to the Poor Nepal Emergency Employment Project
Name: Title: Unit: Tel.:
Name: Title: Unit: TeL:
KILPATRICK, Marianne Sr. Transport Specialist SASSD 202-458-7580
DEJENE, Tekola Lead Operations Officer SASSD 202-458-2771
Name: SHARMA, Nastu P Title: Public Health Sp. Unit: SASHD Tel.: 5770+128
Name: PRADHAN, Bigyan Title: Sr. Financial
Management Sp. Unit: SARFM Tel.: 5770-127
Name: SELLEN, Daniel Title: Sr. Agric. Economist Unit: SASSD Tel.: 5785-153
Task Team Leaders and Local Contacts
KILPATRICK, Marianne/JOSHI, Surendra DEJENE, TekolalRANJITKAR, Shyam RANJITKAR, Shyam FERRARI, AuroraJSHRESTHA, Sabin ZAMAN, HassanlBajracharya, Roshan SETHI, GeetaJGAUT AM, Kiran KHAN Qaiser M. ITENZING, Tashi KHAN Qaiser M.
Name: Title: Unit: TeL:
Name: Title: Unit: Tel.:
JOSHI, Surendra Sr. Transport Specialist SASSD 5770-125
RANJITKAR, Shyam Sr. Irrigation Engineer SASSD 5770-105
June 2007 Briefing Note for the New World Bank Country Director for Nepal
Name: Title: Unit: Tel.:
FERRARI, Aurora Private Sector Oev. Sp. SASFP 202-473-3547
Name: ZAMAN, Hassan Title: Sr. Economist Unit: SASPR Tel.: 5770-104
Name: Title: Unit: Tel.:
SETHI, Geeta Program Coordinator SASSO 202-473-1386
Name: KHAN, Qaiser M. Title: Lead Human Oev. Sp. Unit: SASHD Tel.: 5764-4346
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Page 132 0035
SHRESTHA, Sabin Sr. Financial Sector Sp. SASFP 5770-117
BAJRACHARYA, Roshan Sr. Economist SASPR 5770-110
GAUT AM, Kiran Executive Assistant SACNP 5770-109
TENZIING, Tashi Sr. Sanitary Engineer SASSO 5770-129
June 2007 Briefing Note tor the New World Bank Country Director tor Nepal Page 133 0035
On-going Economic Sector Work and Technical Assistance
Public Finance Management Review Governance Note Gap Analysis Nepal Access to Finance Country Environment Analysis E-procurement
Name: BAJRACHARYA, Roshan Title: Sr. Economist Unit: SASPR Tel.: 5770-110
Name: SUBRAMANIAN, P.K. Title: Lead Financial Management
Specialist Unit SARFM Tel.: 202-473-7168
Name: NISHIDA, Jane Title: Sr. Environmental
Institutions Specialist Unit: SASES Tel.: 458-9562
Task Team Leaders
BAJRACHARY A, Roshan MENON, Vikram SUBRAMANIAN, P.K. SHRESTHA, Sabin NISHIDA, Jana T. HASAN, S.M. Quamrul
Name: MENON, Vikram Title: Public Sector Management
Specialist Unit: SASPR Tel.: 5785-293
Name: SHRESTHA, Sabin Title: Sr. Financial Management
Specialist Unit: SASFP Tel.: 5770-117
Name: HASAN, Shawkat M.Q. Title: Procurement Specialist Unit: SARPS Tel.: 202-473-5992
June 2007 Briefing Note tor the New World Bank Country Director for Nepal Page 134 of} 35
On-going Grants
Grant
IDF Grant for Office of the Attorney General Institutional Strengthening
IDF Grant for Improving Nepal's Public Finance through Pension Reform and Capacity Building
DFID Grant for Financial Sector T A Project PHRD Grant for the Preparation of Agriculture
Commercialization and Trade Project Japanese Grant for the Implementation of the Community
School Support Project Advance for Preparation of Proposed Road Sector
Development Project
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
UPRETY, Kishor Sr. Counsel LEGMS 202-458-0146
BAJRACHARYA, Roshan Sr. Economist SASPR 5770-110
SELLEN, Daniel Sr. Agric. Economist SASSD 5785-153
Name: JOSHI, Rajendra Dhoj Title: Sr. Education Specialist Unit: SASHD Tel.: 5770-139
Name: Title: Unit: Tel.:
JOSHI, Surendra Sr. Transport Specialist SASSD 5770-125
Task Team Leaders and Local Contacts
UPRETY, Kishor
PALACIOS, RobertlBAJRACHARY A, Roshan
SHRESTHA, Sabin SELLEN, DaniellRANJITKAR, Shyam
JOSHI, Rajendra
KILPATRICK, Marianne/JOSHI, Surendra
Name: Title: Unit: Tel.:
Name: Title:
Unit: Tel.:
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
PALACIOS, Robert Sr. Economist SASHD 202-473-9787
SHRESTHA, Sabin Sr. Financial Management Specialist SASFP 5770-117
RANJITKAR, Shyam Sr. Irrigation Engineer SASSD 5770-105
KILPATRICK, Marianne Sr. Transport Specialist SASEI 202-458-7580
June 2007 Briefing Note fOr the New World Bank Country Director fOr Nepal
OTHER KEY NEPAL COUNTRY TEAM MEMBERS
Name: Title: Unit: Tel.:
Disbursements
Name: Title: Unit: Tel.:
Name: Title: Unit: Tel.:
IMAMURA, Hiroko Sr. Counsel LEGMS 202-458-9092
J1'
UPRETY, Kishore Sr. Counsel LEGMS 202-458-0146
ALBERT-Loth/Agnes Sr. Finance Officer LOAG2 202-473-3337
BARAL, Kiran Sr. Procurement Officer SARPS (procurement Hub) 5785-609 (Delhi, India)
Name: Title: Unit: Tel.:
Page 135 oU 35
DIAMANTE, EUen Finance Assistant LOAG2 202-458-4114
