Regions and Countries

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p. 2 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Level

Country Strategy and Program Update 2002-2004: Nepal

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II. Implementation of the Country Strategy and Program

A. Poverty Reduction

7. About 42 percent of the population lives below the national poverty line of NRs4,400 ($77) per capita per annum, which is based on minimum caloric intake, housing, and other nonfood standards (population, social, and environmental indicators are in Appendix 2). The Asian Development Bank’s (ADB’s) recent poverty analysis for Nepal shows that poverty incidence, intensity, and severity have not improved over the past quarter century, a finding mirrored in the country’s human development indicator scores, which are lower than those of other South Asian countries. Inequalities across ecological zones, geographic regions, and the rural-urban divide remain wide, as do those across gender, ethnic, and caste lines.

8. The poverty analysis confirmed that poverty is much more prevalent, intense, and severe in rural areas, where poverty incidence (44 percent) is almost double that of urban areas (23 percent). The incidence of poverty in the mid- and far western development regions and in the mountain districts¹ greatly exceeds the national average. Gender-based exclusion in the country is pervasive and deep, with discrimination against women reducing their physical survival, health and educational opportunities, ownership of assets, mobility, and overall cultural status. Unless these trends are reversed, or the current population growth rate of 2.4 percent is lowered, poverty in Nepal may worsen. The poverty analysis identified a number of factors that contribute to poverty in Nepal, including (i) slow overall economic growth and rapid population growth, (ii) weak Government redistributive and institutional capacity, (iii) lack of any significant spillover effects of nonagricultural growth on the rural poor, (iv) low productivity and slow growth of output in agriculture, and (v) weak social and economic infrastructure (health, education, drinking water, transport, energy, land ownership, and land quality) leading to inadequate access of poor households to the means to escape poverty. A poverty reduction strategy must improve performance in all these areas while directly improving poor households’ access to resources.

9. Based on the results of the poverty analysis, the Government finalized its Interim Poverty Reduction Strategy in June 2001. The strategy intends to (i) help set priorities for the remainder of the Ninth Five-Year Plan (1998-2002), (ii) provide a framework to coordinate the poverty reduction efforts of various funders, and (iii) eventually be refined as the Tenth Five-Year Plan. The poverty analysis and proposed approach to poverty reduction in Nepal were discussed at the High-Level Forum on Poverty Reduction on 26 February 2001. The Forum generally supported the findings of the poverty analysis, including the severity of poverty in Nepal, the strategy for poverty reduction, and constraints to the strategy’s implementation.

10. Priorities that emerged from the poverty analysis and the Forum included (i) broad-based growth by promoting employment and improving productivity, especially in agriculture, (ii) macroeconomic policies and reforms to support poverty reduction programs, (iii) social sector development, (iv) targeted programs for excluded groups, (v) improved public expenditure management, (vi) improved governance, and (vii) improved poverty assessment and monitoring. ADB’s CSP update has been prepared based on ADB’s 1999 Nepal Country Operational Strategy, the poverty analysis, and the views of the Forum, and seeks to focus on some of the key priorities identified. This CSP updates the country operational strategy and ADB’s realigned country program for 2002-2004. A poverty reduction partnership agreement reflecting the CSP’s key priorities will be signed with the Government by September 2001.

B. Thematic Priorities

1. Economic Growth

11. Achieving sustainable poverty reduction by generating jobs and increasing rural incomes through faster and broad-based economic growth remains a thematic priority. The poverty analysis and the Forum stressed the importance of improving the performance of agriculture, since it is the dominant sector, accounting for about 40 percent of GDP and about 73 percent of total employment. The sustainable growth of the sector will remain a prerequisite for economic development and poverty reduction. The Government is implementing its priority reform program, focusing on the macroeconomy and fiscal structure, private sector development, financial sector reform, decentralization, governance (including civil service reform), and other measures. ADB will support key elements of this program to contribute to improved sustainable economic growth.

2. Human Development

12. Nepal ranked 144th out of 174 countries in the United Nations Development Programme’s (UNDP’s) 2000 Human Development Report. The people in the poorest regions of the country also have the lowest access to education and basic health services, and highest rates of infant mortality and child malnutrition. Poverty prevents many parents from sending their children to school and thus undermines efforts to promote human development. The current literacy rate among individuals age 6 and above is 38 percent (52 percent for men and 24 percent for women). However, only 20 percent of the poor are literate compared to 60 percent of those in the higher-income groups. Human development has significant gender differences. While 32 percent of poor men are literate, the literacy rate of poor women is 9 percent. Illiteracy, malnutrition, and disease reduce development and employment opportunities, worsening poverty. The major challenge facing Nepal remains how to overcome the low levels of human development and high population growth rate. The quality of service delivery needs to be improved to increase the level of human capital. The Nepal program will continue to prioritize social development interventions to face these challenges.

3. Gender and Development

13. Rural women in Nepal are deprived and severely underprivileged. Nepal ranks 119th among 143 countries in UNDP's 1998 gender development index. The maternal mortality rate of 539 per 100,000 live births is one of the highest in the Asia and Pacific region. Nepal’s gender empowerment measure, which reflects women’s participation in economic, political, and professional spheres, was 0.191 in 1996, well below the average of 0.367 for developing countries.² Gender disparity persists in educational attainment, health status, and participation in decision making. Disadvantaged castes and ethnic communities show higher levels of gender disparities in all areas. The Government has tried to close the gender gap as well as to improve the status of women through various development programs and activities funded by bilateral and multilateral funders. However, the results of these efforts are likely to remain limited unless the gender bias in the social system is reduced, if not eliminated.

14. The CSP, based on the poverty analysis and the Forum’s identification of gender inequality as an acute problem, will continue to use an holistic approach to address systematically key constraints at the policy, institution, sector, and project levels. The gender strategy for Nepal includes (i) assistance to policy support, capacity building, and awareness raising; and (ii) gender analysis of proposed projects. ADB assistance will emphasize gender empowerment in the development process, consistent with ADB’s policy on gender and development.³ Interventions will enhance women’s economic opportunities and status in agriculture, rural microfinance, nonformal education, and water supply and sanitation projects. Mainstreaming of gender issues and gender sensitization will be promoted at all levels and, in particular, through policy-based lending such as the proposed governance reform program. The CSP will focus on stakeholder empowerment to reduce women’s poverty.

4. Good Governance

15. The Forum stressed improved governance as a key element in Nepal’s reform efforts. The Government’s priorities, in addition to restoring law and order, are tackling corruption and improving governance and civil service reform. The pervasive role of the Government must also be reduced and its responsibilities decentralized. The civil service suffers from institutional and human resource weaknesses, compounded by frequent disruptive political changes. The civil service must become service-oriented and implement the Government’s poverty reduction strategy in an environment free from political interference and the corruption that constrains delivery of essential services. Public financial management and resource mobilization need to be efficient and transparent, and to form an integrated system to link policy and planning to produce realistic budgets and development expenditure targets. The Government, with funding agency assistance, is introducing reforms in these areas, and ADB will continue to assist the Government governance reform program, including civil service reform and anticorruption efforts. ADB’s policy dialogue with the Government, and the design and implementation of its sectoral projects will address decentralization, which is needed to bring development and poverty reduction planning and implementation closer to the intended beneficiaries. More projects must be implemented at the local level, with the full participation of local officials, civil society, and local communities, to better target the poor and excluded groups and strengthen the decentralized agencies.

5. Private Sector Development

16. The Forum supported ADB’s previous focus on increasing the private sector’s involvement in the Government’s poverty reduction strategy. ADB’s private sector operations will therefore continue to promote an enabling environment for private sector activities through public sector operations, and generate opportunities for private sector participation in public sector projects. ADB will continue to support the Government’s efforts to establish transparent policies and basic mechanisms for corporate and financial governance, including for rural finance. Such efforts will require support for (i) streamlining legislative and regulatory frameworks; (ii) capacity building for regulation, supervision, and enforcement; and (iii) improve information disclosure and accounting and auditing standards.

6. Environmental Protection

17. Nepal’s natural resource base is under increasing pressure from high population growth and weak environmental custodianship.⁴ The loss of natural resources has aggravated poverty and limits Nepal’s economic growth potential. The Government recognizes the importance of sustainable environmental management and has an environmental policy and legal framework in place. But their implementation has not been effective. ADB will continue to help the Government strengthen environmental protection by focusing on urban and peri-urban environmental issues, including those affecting the Kathmandu Valley.

7. Regional Cooperation

18. ADB is building on bilateral partnerships such as the South Asia Association for Regional Cooperation to further enhance growth potential through regional cooperation among Bangladesh, Bhutan, India, and Nepal. The strategy is to proceed first with project-level initiatives involving bilateral and trilateral linkages. ADB aims to address constraints identified under past regional cooperation initiatives and to continue consultations with governments and other stakeholders on the modalities for pursuing economic cooperation under the South Asia Subregional Economic Cooperation initiative. Potential areas of cooperation include multimodal transport and communication, energy (particularly hydropower development), trade and investment, natural resource use and environmental management, and tourism. Nepal is convening the transport and tourism sector working groups.

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