Countries and Regions

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p. 2 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2004-2006: Nepal

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II. Implementation of the Country Strategy and Program

A. Progress Under the Poverty Partnership Agreement

8. To formalize a sustainable partnership defining short-, medium-, and long-term priorities and targets for reducing poverty and achieving millennium development goals, a poverty reduction partnership agreement (PPA) was signed by the Government and ADB (in Kathmandu, on 21 October 2001). The implementation of the PPA is still in the initial stage, and progress toward PPA targets in the areas of broad-based growth and social development cannot yet be assessed. However, owing largely to the insurgency, macroeconomic indicators are currently lagging. Nonetheless, the Government has taken encouraging steps, including the announcement of the Economic Reform Program, in October 2002; the finalization of the Tenth Plan as the Government’s poverty reduction strategy, in December 2002; and (to implement and monitor the progress of core elements of the Tenth Plan) the approval of the Immediate Action Plan (IAP), in June 2002. Key actions taken under the 2002 IAP were the prioritization of public expenditure, introduction of anticorruption measures, and improvement of service delivery (for example, through transferring the management of school and health posts to local communities).

B. Progress in the Country Strategy and Program Focus Areas

1. Gender and Socially Inclusive Development

9. Poverty in Nepal remains concentrated among the rural poor, women, and various disadvantaged caste-based and ethnic groups. These groups lack sufficient productive opportunities and have limited access to basic social services, infrastructure, and safety nets. As highlighted in the poverty reduction strategy of the Tenth Plan, overcoming low levels of human development—by mainstreaming in the development process women, the very poor, and deprived communities, castes, and regions—remains the major challenge facing Nepal. There has been some progress in gender mainstreaming, as it is now understood that improving the status of women (particularly in rural areas, where large numbers are severely underprivileged) is critical to increasing human capital. While literacy levels and life expectancy among women have improved,¹ the extent to which women have a voice and influence in the public domain remains quite limited. Women hold no more than 8% of national civil service and elected government positions and still have little representation in program and expenditure decisions made at local levels. Progress to address caste- and ethnicity-based exclusion remains limited, though recognition of these problems in the Tenth Plan is encouraging. The 2004–2006 Country Strategy and Program (CSP) will target assistance to ensure that project benefits accrue in large part to these disadvantaged groups and promote their greater local involvement in the development process, which will improve access to resources and ensure more inclusiveness and accountability in the delivery of basic social services.

2. Governance

10. The Government has made some important progress in governance reform, including, as part of its rightsizing strategy, approval of the elimination of 7,518 vacant positions (September 2002), freezing of the creation of new civil service posts (from FY2003), and freezing of new recruitment in vacant non-gazetted positions. To enhance the accountability and transparency of the civil service, the Ministry of General Administration (MOGA) has completed the computerization of civil service personnel records, including the development of a "post" management system that enables the Government to link approved posts to personnel occupying the positions. Following the April 2002 enactment of four anticorruption bills,² the Commission for Investigation of Abuse of Authority began investigating several bureaucrats and ex-ministers. MOGA also began, from July 2002, implementing a key provision of the newAnticorruption Act, requiring all public servants to declare property and income; and the Government approved, in January 2003, a comprehensive anticorruption strategy.

11. Progress in decentralization has been mixed. While the Decentralization Implementation Plan was approved (January 2002) and devolution of responsibility for key services (primary education, primary health care, and agricultural extension) was initiated, the then Government’s July 2002 decision not to extend the terms of locally elected bodies set back these decentralization efforts. Service delivery and development works have suffered since this lapse and from the results of worsening security conditions, namely restrictions on social mobilization and constrained government access to local areas. Under the Government’s implementation of the 2002 IAP, however, and with the transfer of primary schools and subhealth posts to local management committees and the allocation of a full budget for district level agricultural extension services to district development committees, some progress in devolving authority has been initiated.

12. Progress in fiscal management includes the introduction of various revenue mobilization measures, such as a voluntary disclosure of income scheme, special fees on imports, and income tax. The Government also cut or amalgamated 160 low-priority development projects and prioritized the remaining projects, through the medium-term expenditure framework, to contain spending. The Government has decided to liquidate or privatize nine public enterprises and prepare a medium-term public enterprise reform strategy, to reduce budgetary transfers to and contingent liabilities of troubled public enterprises. The 2004–2006 CSP will continue to support the Government’s governance reform, decentralization, and fiscal reform programs, to bring development planning and implementation closer to intended beneficiaries.

3. Agriculture and Rural Development

13. While agriculture sector performance depends largely on weather conditions, agricultural activity started to be adversely affected by the insurgency, though prospects for the sector have improved since the cease-fire. However, prior to the effects of the conflict, various agricultural policy reforms, including the involvement of the private sector in service delivery, positively impacted agricultural performance. However, the results of these policy reforms remain fragile and are not homogenous countrywide. In line with the overall framework of the Agricultural Perspective Plan (APP), the Tenth Plan highlights the importance of agricultural and rural growth for poverty reduction and aims to raise agricultural production by 4.1% per annum, through the commercialization of agriculture, promotion of agribusiness, diversification of production, improvement in irrigation facilities, and expansion of rural roads and rural credit. Assistance under the 2004–2006 CSP will help the Government achieve its agricultural and rural poverty reduction objectives, through support for strengthening market orientation; broad community participation at the grassroots level; and decentralization in the areas of agribusiness, basic social infrastructure, rural access roads, communications, financial services, and remote area tourism. Given the predominance of rural poverty, particularly in western Nepal and other insurgency-affected areas, the 2004–2006 assistance program will help the Government pursue rural development activities in geographically and socially deprived communities.

4. Energy

While the Government has taken a number of steps to improve the long-term financial sustainability of the power sector—including adjusting power tariffs, introducing a semiautomatic tariff increase that will keep pace with inflation, passing legislation that will limit electricity theft, and developing an action plan that will reduce municipal arrears at the Nepal Electricity Authority (NEA)—implementation remains problematic.³ However, there has been recent progress with the reorganization of NEA. In line with the 2001 Hydropower Policy, NEA has been reorganized into four core business units: (i) generation, (ii) transmission, (iii) distribution, and (iv) engineering services. NEA recently established 18 performance-based distribution centers. Covering 70% of NEA’s distribution activities, these centers were designed to reduce distribution losses and increase revenue collection. While progress in rural electrification remains slow, NEA's Board recently approved regulations to promote electricity distribution through cooperatives and user groups. These regulations are targeted at increasing community contribution and access to rural electrification.⁴

5. Education

15. Progress in the education sector is reflected in higher enrollment rates for girls and boys and physical access to primary education. However, considerable efforts are needed to reach students from disadvantaged castes and ethnic groups, through policy reform that advocates increased sensitivity to issues of cultural diversity and gender and improvement in the quality of public education. To make school management effective, monitorable, and accountable to communities, the Government approved, as a first step, the transfer of 100 primary schools to their respective local school management committees and agreed to channel funds for primary education through district development committees, which began in FY2003. Since teacher capacity is a weak link in the Government’s efforts to improve the quality of education, the Government, with ADB assistance, has taken initial steps to restructure and integrate scattered teacher training institutions and strengthen their capacity to provide improved teacher education for the school sector as a whole. However, the challenges related to meeting the millennium development goals remain enormous, with core needs being teacher education and supervision; improved school management; strengthening institutional capacity for planning, management, and delivery; and policy reform aimed specifically at the problem of social exclusion.

6. Regional Cooperation

16. Nepal has assumed an active role in the South Asian Subregional Economic Cooperation (SASEC) program, which is supported by ADB and designed to promote subregional cooperation among Bangladesh, Bhutan, India, and Nepal. SASEC has made significant progress during the past 2 years. The four countries involved have established development action programs for priority subregional projects in the energy, transport, environment, tourism, and trade and investment sectors. Nepal chairs the tourism working group of SASEC. Potential areas for cooperation are being identified, and those with direct relevance to Nepal include improvement of hydropower resources for subregional development, development of rural electrification using the Bangladesh cooperative model, improvement of cross-border access to India and Bangladesh, and development of a subregional tourism master plan. Nepal is also actively engaged in bilateral programs with India.

C. Highlights in the Coordination of External Funding and Partnership Agreements

17. Significant progress has continued in Nepal, under the Government’s leadership, in the areas of aid coordination and collaboration. Development partners joined in a concerted effort to assist the Government in the design and effective implementation of the 2002 IAP. Wellcoordinated support from development partners also contributed to the Government’s finalization of its poverty reduction strategy, the Tenth Five-Year Plan, after broad consultation with civil society.⁵

18. Concerning specific project and program levels, in 2003, the Danish International Development Agency agreed to provide $30.0 million in cofinancing for the first phase of an ADB-assisted secondary education support program, and the Swiss Agency for Development and Cooperation provided about $470,000 in grant funding for public awareness and monitoring of the Governance Reform Program. The United Kingdom’s Department for International Development agreed, in principle, to provide a technical assistance fund to complement a public enterprise reform program assisted by ADB.

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