Countries and Regions

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p. 5 of 20 BACK | NEXT I. Country Performance Assessment A. Economic Performance Assessment B. Poverty Assessment C. Assessment of Socio-Environmental Performance D. Governance: Sound Development Management E. Implementation Assessment II. Country Operational Strategy III. Sector Strategies IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Nepal : I. Country Performance Assessment

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D. Governance: Sound Development Management

27. Continuing institutional and human resource weaknesses constrain the emergence of a strong and efficient development administration in Nepal. The situation has been compounded by frequent political changes from which the civil service has not been adequately protected. The key issues in governance that need to be addressed in Nepal are civil service reform to improve efficiency and accountability, decentralization, and capacity building to strengthen policy formulation and implementation capability. Progress in these areas has been slow and limited, and strong political will is needed to improve the situation. Although the size of Nepal's public sector is not large, a broad consensus exists among both Nepalese and the donor community that its productivity is low.

28. Nepal has many of the formal prerequisites of modern, democratic governance. With the implementation of the Agriculture Perspective Plan (APP) and emphasis on district and village development committees, the Government has also enhanced decentralization and people's participation in development activities. For example, the Local Governance Bill was passed by Parliament in September 1998. The Civil Service Act was amended in 1998 to overcome existing problems.

29. However, effective implementation of other elements of governance is weak and often lacks efficiency, transparency, and accountability in the administrative system. Allegations of corruption at many levels continue, and corruption is a key constraint to effective delivery of essential services. Inadequate governance and the unsustainable financial performance of public agencies and state-owned enterprises are a major drain on limited public resources. While the Government has a policy of promoting investment to develop a robust market economy, basic institutions essential to the effective functioning of a market economy either do not exist or do not operate effectively. Distrust among various institutions is a major constraint to private sector investment. The ineffective performance of the financial system and regulatory agencies is also a cause for concern. Weaknesses in financial management include chronic delays in accounting, low revenue collection, lack of follow-up of audit recommendations, limited skills, particularly in district treasuries, and limited attention to implementation capacity. Public service performance has in the past suffered from the excessive number of ministries, inadequate remuneration of civil servants and resulting corruption, poor record keeping, excessive staff transfers, and interpretation of rules and regulations to serve vested interests of senior officials and politicians.

30. Recently, the donor community has expressed concern to the Government about the politicization of the bureaucracy, and the non-implementation of many of the important recommendations of the 1992 Administrative Reform Commission. The main reasons for the inability to implement these recommendations were (i) lack of political commitment and support for civil service reform, (ii) resistance of public service personnel to change, (iii) lack of strong leadership for managing change, and (iv) lack of appropriate mechanisms for initiating and monitoring reforms in the civil service. Previous governments indicated their intention to proceed with a comprehensive civil service reform but initiated limited concrete action in this regard. The current Government has indicated its strong commitment to introduce meaningful civil service and governance reforms. It has already reduced the number of ministries, and has indicated that it will also introduce governance reforms in the area of anti-corruption and reducing political interference in the civil service. Success of this effort will depend on the degree of consensus that can be built by the political leadership, as well as its own resolve. As regards decentralization, many laws moving in this direction have been enacted. However, significant progress in extending local autonomy has yet to be achieved, with decision-making remaining very much centralized. There is substantial scope for devolution of power and authority from the center, which requires effective compliance with legal provisions. At the same time, considerable efforts are needed to strengthen the capacity for policy, program, and project formulation and implementation, at both the central and local levels.

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