Regions and Countries

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p. 3 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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III. Portfolio Management Issues

A. Portfolio Performance Implementation

19. Since ADB started lending to Nepal in 1969, it has received 94 public sector loans for $1.9 billion. By the end of 2000, 73 loans were closed and 21 (including 5 not yet effective) ongoing. In 2000, ADB approved four loans for $173.3 million in the agriculture, social, and financial subsectors. Nine technical assistance (TA) grants (including two supplementary TAs) totaling $7.3 million were approved. In 1997-2000, Nepal’s disbursement performance (21.8, 28.0, 21.2, and 37.0) exceeded the ADB-wide Asian Development Fund (ADF) average (17.9, 20.1, 18.8, and 20.2). Four private sector projects are active. The net amount of active loans as of 31 December 2000 was $653.8 million, with a cumulative total of $314.2 million in contracts awarded (48 percent of the net loan amount) and $291.8 million disbursed (45 percent). In 2000, contract awards amounted to $50.8 million and disbursements to $91.4 million, or 95 and 94 percent of the respective targets. (Portfolio performance indicators are in Appendix 3.)

20. Transfers of key project staff are less frequent, leading to greater continuity in project implementation. Submission of audited accounts is generally satisfactory. The involvement of local groups and communities and greater attention paid to gender issues in development in ADB-supported projects have improved project impact. ADB thus emphasizes greater consultation with stakeholders and their participation in project formulation and implementation. The Government has also supported efforts to increase the participation and targeting of excluded groups, including women, in project activities.

21. In July-August 2000, the Nepal Resident Mission (NRM) led the first Joint Country Portfolio Performance Review of the development portfolio financed by ADB and the World Bank. During the Mission, a joint seminar highlighted generic portfolio performance issues and discussed measures to improve portfolio management. A joint memorandum of understanding summarized five key areas including (i) expediting recruitment of project implementation consultants, (ii) expediting procurement, (iii) strengthening project management (particularly staff recruitment, transfer and incentives), (iv) improving in financial management and governance, and (v) enhancing portfolio and project monitoring and evaluation with key performance indicators. The Joint Portfolio Review Mission also noted that projects must be properly designed to ensure quality at entry and minimize potential implementation problems such as construction quality and sustainability. The Government agreed to a time-bound action plan to improve portfolio performance. On 11 December 2000, NRM and the World Bank jointly reviewed the progress of the action plan and noted good progress in its implementation, and improvement in overall performance of ADB and World Bank portfolios. Four projects, or 19 percent of the projects in the ADB portfolio, are considered at risk (partially satisfactory or unsatisfactory), which is an improvement over past performance.

22. However, the Government’s generally limited capability to deliver needed services, especially to the poor, was highlighted in the poverty analysis and at the Forum. The limited impact of development investments in reducing poverty levels are a result of, among other reasons, (i) the weak institutional capacity of Government agencies; (ii) poor governance; (iii) lack of implementation of the decentralization policy; and (iv) lack of involvement of civil society, the private sector, and beneficiaries in service delivery. The Government needs to eliminate these constraints to use development resources more effectively.

B. Counterpart Funding

23. In recent years, shortage of counterpart funds has not been a problem in ADB operations in Nepal. In FY2001, no project received insufficient budgetary allocation. However, the low level of domestic savings continues to significantly constrain overall development efforts, and the Government must allocate adequate funds for operation and maintenance. ADB country portfolio review missions and policy dialogue for new projects are addressing this issue. ADB’s program in Nepal includes a large proportion of agriculture and social infrastructure projects that have small foreign exchange components, so a high percentage of local cost financing is warranted, particularly for projects that address poverty, human development, gender, and environmental concerns.

C. Monitoring and Evaluation

24. Project monitoring and evaluation need to be strengthened, particularly for projects with many subprojects scattered across remote districts. Poor quality of civil works, especially in remote areas, can adversely affect sustainability of development impacts. The National Planning Commission and executing agencies must improve their monitoring of development initiatives to ensure the sustainability of poverty reduction investments. In particular, the commission and agencies need to be proactive in monitoring project implementation and the performance of project managers. ADB’s policy dialogue with the Government and the Country Portfolio Review Mission will continue to emphasize this point. Out of 37 postevaluated projects, 19 were generally successful (51 percent), 10 partially successful (27 percent), and 8 not successful (22 percent).

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