Countries and Regions

	Table of Contents
p. 7 of 20 BACK | NEXT I. Country Performance 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

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II. Country Operational Strategy

A. The COS

42. A Country Operational Strategy (1999 COS) was adopted in 1999 to guide ADB's operations during the next 3-5 years. The overarching objective of the strategy is to achieve a sustainable reduction in poverty through (i) generation of productive employment opportunities and increased rural incomes resulting from faster and broad-based economic growth, (ii) equitable improvements in basic social services to enhance human development resulting in reduction of population growth, and (iii) protection and improvement of the environment to sustain gains. A major difficulty in achieving these objectives is the lack of efficiency, predictability, transparency, and accountability in key development and market institutions. Thus, building effective institutions needed to implement socioeconomic development in a market economy is the strategic approach of the 1999 COS.

43. The 1999 COS emphasizes that to maximize and sustain the development impact of investments, capacity building must take precedence over levels of assistance. The importance of learning from past mistakes and successes by development partners is also highlighted. A clear demonstration of strong stakeholder support for proposed ADB interventions will be a prerequisite for future interventions, as will be the formulation of long-term institutional development strategies, with clearly identified road maps for sector development. Five divisions have completed road maps for their concerned sectors, and for sectors without road maps, sector strategies are being prepared. Improved Government and ADB monitoring and supervision will be needed in implementing these road maps as a criterion in annual country programming. The ADB will take necessary measures to ensure satisfactory compliance with loan covenants during project implementation.

44. Continued ADB support to particular sectors/subsectors will require demonstrated progress in strengthening the sectoral policy and institutional environment. To the extent possible, longer-term technical assistance (cluster TAs) will support the policy and institutional reforms needed to create such an environment. To effectively use ADB's limited concessional resources, a sharper focus on fewer sectors/subsectors has been introduced. The country program focuses on up to 10 sectors/subsectors including (i) agriculture, (ii) irrigation, (iii) roads, (iv) power, (v) finance, (vi) basic education (including secondary and nonformal education), (vii) ecotourism, (viii) water supply and sanitation¹⁵, (ix) environmental improvement, and (x) watershed rehabilitation and management.

45. Promising results have been shown in previous ADB projects involving NGOs and community groups in project implementation. Increasing cooperation and consultation with local groups are also potentially important in improving the effectiveness of project identification and design activities. However, it is also important to recognize the limited capacity and capabilities of local groups. A long gestation period may be necessary for these groups to be viable and sustainable. ADB policy documents¹⁶ specify modalities for further collaboration with NGOs in ADB operations, including programming, country-level work, lending and TA activities, and policy and institutional development. These policies are consistent with the Government's approach to implementing the Ninth Plan.

B. Progress in Implementation

46. In implementing the1999 COS, ADB will place much more emphasis on project design issues, economic and sector work, improved donor coordination and subregional cooperation. In line with ADB's policy, future lending to Nepal will be linked to progress in addressing the major country performance issues that will improve the environment for private and public investments to generate and sustain development impact. Five key areas including (i) human development, (ii) fiscal performance, (iii) civil service reform, (iv) governance, and (v) portfolio performance have been identified and performance standards established accordingly for further monitoring and evaluation of achievements. These key areas are essential to develop effective institutions to ensure sustained development impacts. The progress and achievement in these areas will guide the annual indicative planning figure (IPF).

47. Average performance in these key areas would be consistent with an IPF in the range of $70-80 million at the current level of ADF availability (excluding overprogramming). Poor performance would result in a lower IPF or even no lending in a year. Good performance would indicate achievement of a policy and institutional environment conducive to the generation and sustainability of the desired development impact from higher ADB investment. However, actual lending levels will depend on Nepal's achievements in the key performance areas and also in meeting the criteria for intervention and sector involvement. The TA program is envisaged to be about $4-5 million annually.

48. During the 2000 Country Programming Mission, ADB discussed with the Government the detailed set of quantitative and qualitative indicators for possible use in the performance assessment. The Mission and the Government undertook a preliminary performance assessment, and NRM subsequently began regular follow-up assessment meetings with the Government. The latest performance assessment in July 2000 in the five key areas concluded that recent performance has been at an average level consistent with the average annual IPF of around $80 million. In future, progress reports will be prepared jointly by ADB and the Government and included in the annual Nepal Country Assistance Plan. ADB and the Government also agreed during the Mission that, in line with the COS emphasis on building effective institutions, the Government will prioritize action to strengthen institutions in its various programs, including using ADB advisory technical assistance (ADTA) for this purpose.

C. Poverty Partnership Agreement

49. ADB's new Poverty Reduction Strategy¹⁷ identifies poverty reduction as the overarching goal of the institution. Accordingly, the strategic objectives of economic growth, human development, sound environmental management, and improving the status of women will all be pursued in ways that contribute most effectively to poverty reduction. The strategy also sets out the specific measures through which the new strategic orientation and goal rationalization will be implemented. ADB and the Government will enter into a Poverty Reduction Partnership Agreement-an agreement that will outline the actions that both sides will take to address poverty in the country-by the end of 2000.

50. In view of the fact that the World Bank and International Monetary Fund, as well as other donors, also require poverty reduction strategic partnerships with the Government, ADB has discussed with the Government and the World Bank and International Monetary Fund the need to coordinate these efforts and assist the Government in preparing a single comprehensive poverty reduction strategy. After completing the ongoing poverty situation analysis, and discussion with a broad range of stakeholders at a Public Forum, the Government will formulate its Poverty Reduction Plan (strategy). The Poverty Reduction Plan will help set priorities for the remainder of the Ninth Five-Year Plan (1998-2002), and will provide an overall framework to coordinate the poverty reduction efforts of the various donors. A country-specific Poverty Reduction Strategy based on the Government's Poverty Reduction Plan will then be prepared by ADB. The ADB's Poverty Reduction Strategy will differ from the Government's Poverty Plan by incorporating key elements of the COS including a focus on fewer sectors than the Government's Plan, criteria for sector intervention, and performance-based allocation. The ADB Poverty Reduction Strategy will essentially update the COS as necessary to better address poverty reduction in the Nepal portfolio, and to identify more core poverty interventions. This is a longer term process that will also be further examined during forthcoming programming missions. The Poverty Partnership Agreement will operationalize ADB's Poverty Reduction Strategy in the form of an annual agreement outlining a three-year rolling agreement (analogous to the Country Assistance Plan) between the Government and ADB.

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