Countries and Regions

	Table of Contents
p. 6 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

---

E. Implementation Assessment

1. The Portfolio

31. Asian Development Bank (ADB) operations in Nepal began in 1968. As of 31 December 1999, ADB had provided 90 loans for a total amount of about $1.6 billion (excluding $59 million for five loans and equity investments to the private sector). ADB assistance has mainly focused on the agriculture sector (48 percent), energy (23 percent), transport and communications (14 percent) and social infrastructure (8 percent). A total of 212 technical assistance projects (TA) (131 advisory and 81 project preparatory) for $90.0 million have been provided over the same period. The sectoral focus of TAs has been agriculture (55 percent), energy (10 percent), and social infrastructure (10 percent).

32. As of 31 December 1999, there were 20 ongoing ADB projects in Nepal with a net loan amount of $530.9 million. A cumulative total of $332.4 million in contracts (61 percent of the net loan amount) has been awarded and $293.2 million (or 54 percent of the net loan amount) disbursed as of 31 December 1999. Contract awards and disbursements in 1999 amounted to $27.8 million and $70.5 million respectively. The disbursement ratio excluding program loans was 23.0 in 1999 compared to 24.7 in 1998. This compared favorably to the ADB-wide ratio of 17.6 and 19.8 respectively. The sectoral distribution of ongoing loans was agriculture (37 percent), energy (38 percent), transport and communications (11 percent), and social infrastructure (14 percent). Details of the ongoing loans are provided in Appendix 2.

33. As of 30 June 2000, 70 out of the 90 public sector loans in Nepal have been closed and 35 loans or 50 percent of the total have been postevaluated. These postevaluated projects were approved during the period 1970 to 1988 and were completed by 1996. Of the 35 postevaluated projects in Nepal, Project/Program Performance Audit Reports (PPARs) rated 19 projects (54 percent) generally successful, 8 projects (23 percent) partly successful, and 8 projects (23 percent) unsuccessful (Table 1). The performance of ADB-financed projects in Nepal compares unfavorably with Bank-wide performance and other South Asian⁹ countries, but is somewhat better than the performance of Group A countries¹⁰. While the percent of projects rated generally successful is on par with South Asia as a whole, the share of unsuccessful projects is much higher. Of the 10 most recently postevaluated projects, only 2 were considered generally successful, 5 were partly successful, and 3 were rated unsuccessful.

34. The 1999 Country Synthesis of Evaluation Findings¹¹ undertaken by the Operations Evaluation Office highlights a number of lessons learned. The study concludes that (i) projects must be better prepared at the design stage; (ii) local communities must be involved in project preparation from the outset; (iii) project formulation must consider operation and maintenance requirements after construction; (iv) the institutional capacity of executing agencies must be carefully assessed during project preparation; (v) project design should include effective benefit monitoring and evaluation systems; (vi) to maximize project impacts on poverty alleviation, the project design must specifically include measures to target the poor; and (vii) greater staff resources are needed for ADB review missions to ensure adequate supervision of project implementation, particularly in remote areas.

2. Issues in Project Implementation

35. Nepal's portfolio disbursement ratio with program loans during the period 1997 to 1999 improved and exceeded the ADB-wide ADF average in all three years. The performance in these years was 21.8, 28.0 and 21.2 compared to the ADB-wide ADF average of 17.9, 20.1, and 18.8 respectively. As of 31 December 1999 implementation progress on 19 of the 20 ongoing loans was rated satisfactory in the respective Project Performance Reports. One loan was rated partially satisfactory.

36. In general, ADB's experience in Nepal shows that inappropriate project design, an inadequate policy and institutional environment, lack of ownership, and insufficient monitoring and supervision are major causes of unsuccessful projects. In addition, political instability, inefficient administration, policy distortion, and institutional weaknesses continue to hamper private sector development and adversely affect the effectiveness of development inputs to generate and sustain longer-term development impact. Poor governance and corruption are of major concern to all segments of society. ADB assistance has contributed to an expansion of the country's physical assets and some development of human resources, but many of the outputs from past investments have not been sustainable, and the overall development impact has been limited. Issues such as frequent transfer of project staff, inadequate staffing of some projects, inadequate allocation of counterpart funds, lack of compliance with loan covenants, inadequate budgetary provision for operation and maintenance budgets, and poor project implementation and impact continue to limit the development impact of the portfolio, although improvements are being made in some of these areas.

37. On the positive side, there is increasing evidence in ADB-supported projects that the involvement of local groups and communities can help achieve the desired impact of development assistance¹² in such areas as rural water supply and sanitation, farmer-managed small-scale irrigation, and labor-intensive rural road construction, as seen in ADB investments formulated in the past few years¹³. Greater consultation with stakeholders and their participation at the local level during the formulation and implementation of development assistance are crucial to enhancing ownership and sustaining the favorable impact of investments.

38. The 1999 Country Portfolio Review Mission (CPRM) held in November 1999 reviewed progress achieved by the Government in implementing the 1998 CPRM Action Plan and noted four critical actions that were outstanding, relating to (i) a resurgence in premature transfer of key project personnel, (ii) inadequate staffing of some loan and TA projects, (iii) inadequate allocation of counterpart funds for two projects, and (iv) preparation of a public works manual. Other issues raised concerned the need for cancellation of loan savings (spring-cleaning), and slow implementation of public works projects. General issues considered, in addition to those mentioned in para. 35 included (i) delays in recruitment and fielding of consultants, (ii) non-compliance with key loan covenants, (iii) lack of compliance with ADB procurement guidelines, (iv) inadequate provision of operation and maintenance requirements, (v) a lack of ownership of TAs and loans, and (vi) the need for more frequent and comprehensive ADB review missions. The Nepal Resident Mission (NRM) has been following up on the implementation of the Action Plan of the 1999 CPRM. Of a total of 17 actions, 4 were completed, 7 are in process, two are not yet due, and 4 were not complied with¹⁴. Otherwise, implementation of the Action Plan has been satisfactory.

39. The 1999 CPRM was joined by World Bank officials as observers, and it proposed that in view of the many common implementation issues that have adversely affected the portfolios of both agencies, a joint country portfolio review be conducted in 2000. The joint mission will place less demands on Government staff resources, and would allow both multilateral institutions to develop complementary efforts and provide consistent advice to the Government and EAs regarding needed policy reforms and structural changes to improve portfolio performance. The Government and World Bank agreed to this approach and a joint review mission was conducted from 31 July to 11 August 2000.

40. Another important ADB initiative to improve project implementation is an advisory TA for strengthening project implementation practices. The TA will develop a comprehensive guide and reference for project personnel to use when implementing projects, in the form of public works directives. The directives will be combined with training and the introduction of improved methods to strengthen overall capability. Modern project management methods will be introduced on computerized systems, as will new concepts in contracting.

41. Improvements in portfolio performance over the past few years are also a result of the close interaction between NRM and the Government on implementation issues. The monthly meetings held at NRM with project managers have been an effective means of pursuing outstanding issues with the Government, and monitoring progress in implementing the action plans of loan review missions.

____________________

Back D. Governance: Sound Development Management	Next II. Country Operational Strategy