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Country Strategy and Program 2005-2009: Nepal
V. ADB's Assistance Program
A. Overall Assistance Level
90. An indicative ADF level of $350 million is programmed for 2005-2007, which corresponds to an average assistance program of $117 million per annum, including overprogramming. However, the proposed assistance level is subject to the annual performance-based allocation exercise and overall ADF resource availability. The actual level of assistance will, however, depend on the security situation. If the conflict is peacefully resolved, a higher level of external assistance will be required to (i) meet reconstruction and rehabilitation requirements, (ii) consolidate the gains of such peace by helping realize peace dividends quickly, and (iii) accelerate supporting reforms. The nonlending program focuses on institutional strengthening and capacity building to help construct more effective sector institutions and improve development impacts. The 2005-2007 nonlending program is expected to average about $4 million per annum. (The 2004 assistance program for lending and nonlending products is provided in Appendix 6.) ADB will also coordinate and harmonize with major development partners to further improve the effectiveness, efficiency, and impact of its lending and nonlending programs. ADB will continue to actively pursue cofinancing opportunities in its operations, particularly from grant and concessional sources.
B. ADB Assistance for the Strategic Priorities
91. The overarching objective of the CSP is to achieve sustained
poverty reduction by fostering more inclusive processes of broad-based
growth, social development, and good governance. ADB’s program during
2005–2007 will focus on helping the Government foster more inclusive
development by providing assistance to develop rural areas, improve
basic social services and infrastructure, empower women, promote
private sector development, and improve governance in the public
and private sectors. Special emphasis will be placed on project
design to ensure that the projects’ primary objectives are fully
in line with these priorities and are results oriented. ADB will
assist the Government to scale up good practices in poverty reduction
and to carry out realistic policy and institutional reforms.
92. The proposed 2005–2007 lending program consists of 11 firm
projects, totaling $350 million (Appendix 1, Table A1.10). (Concept
papers for the 2005 lending products are included in Appendix 4.)
All lending products are poverty intervention projects. For the
next 3 years, program lending assistance will constitute about a
third of overall lending. The higher level of program assistance
is warranted to support the Government's wide-ranging policy reform
effort, and to ensure that priority sector-specific poverty reduction
activities are adequately financed.
93. The 2005–2007 nonlending program comprises 26 TAs and five
economic, thematic, and sector work activities (Appendix 1, Table
A.1.11). The TA program includes 16 project preparatory TAs to support
project preparation and 10 institutional development TAs to support
institutional capacity building and managing for development results.
The economic, thematic, and sector work program forms the basis
of ADB’s support for policy reform, capacity building, and institutional
strengthening. The five planned studies will also help guide ADB
interventions in rural development, connectivity, infrastructure,
and regional development. (Concept papers for the 2005 nonlending
products are provided in Appendix 5.)
1. Promoting Broad-Based Economic Growth
a. Transport and Communications
94. The key focus will be on bringing excluded regions and social
groups into the economic mainstream by fostering connectivity between
all parts of the country and by facilitating trade between Nepal
and its neighbors. ADB will assist the Government in developing
connectivity by improving accessibility and reducing isolation within
the country and by promoting subregional connectivity with neighboring
countries through the development of roads, airports, and telecommunications
infrastructure.
95. In the road sector, the sector loan modality will be used more
frequently to assist in improving and completing the major road
networks. This will enable ADB support to be used in distressed
regions in line with evolving security conditions. The use of explosives
will be avoided where possible, and labor-intensive, environment-friendly
construction methods will be promoted. Better road linkages and
improved customs and transshipment facilities at the principal border
crossings will be supported to reduce transport costs and customs-processing
delays. Implementation of a road fund and other measures to bolster
road maintenance will be assisted, while the policy-making and regulatory
oversight capacities of the road transport authority will be developed.
96. Civil aviation is essential for Nepal, especially in remote
areas that are otherwise inaccessible by road. ADB’s reengagement
in the sector will be based on a careful assessment of progress
in policy, regulation, and institutions, and will take conflict-related
considerations into account. Building on this knowledge base, ADB
will assist in institutional capacity building and infrastructure
development, mainly improvement of Tribhuvan International Airport,
but also of priority regional airports and several short take-off
and landing airstrips. ADB will also support the Government in improving
the institutional framework for the civil aviation sector, through
restructuring and reforming the Civil Aviation Authority of Nepal
and Royal Nepal Airlines, and through improving the regulatory framework
for private participation in the subsector.
97. Nepal has an overall low level of telephone density and many
parts of the country have almost no access to modern sources of
information. ICT would be an effective means to provide rural and
remote areas with access to information and basic government services,
especially in conflict-affected regions with increasingly limited
options for physical mobility. In telecommunications, support will
be provided to help broaden access to communications in underserved
parts of rural Nepal and to develop more efficient links between
Nepal and its neighbors. Better access to ICT will also facilitate
access to basic public services by enabling use of e-government
technologies.
b. Agriculture and Rural Development
98. A distinct lack of opportunities for advancement in rural areas has contributed to conflict and endemic poverty. Boosting agricultural productivity and food security and diversifying economic opportunity are central to developing rural areas of Nepal, and are highlighted as poverty-reduction priorities in the Agricultural Perspective Plan and the Tenth Plan. ADB will assist the Government to achieve its agriculture and rural development objectives by (i) strengthening infrastructure and connectivity within rural areas; (ii) providing holistic support for sustainable, market-oriented agriculture, including a functional land market and livestock development; (iii) delivering assistance that can generate visible benefits to the lives of the rural population; and (iv) mainstreaming participation, gender, and ethnic-equality considerations in all projects. Support for a carefully supervised and monitored program of rural infrastructure development will include decentralized, labor-intensive provision of community infrastructure, primarily to improve transport and rural market access. Community livestock development will assist producers boost productivity and market orientation, particularly in the poorer and more remote hilly and mountainous regions. Drawing on evolving good practices, assistance in irrigation will help the low-cost and quick-impact development of groundwater sources. Further development of commercial agriculture will be supported by institutional reforms that will include (i) the restructuring of the relevant government agencies to transform government from supplying inputs to facilitating agribusiness activity, (ii) fostering public-private partnerships to deliver agricultural support services, and (iii) linking Nepal's rural areas with growing urban and export markets.
99. It is a challenge ensuring that agriculture and rural development projects can be effectively implemented in a rural setting affected by conflict. To mitigate conflict-related risks, ADB will support initiatives that (i) incorporate decentralized and participatory design and management, (ii) involve NGOs and CBOs in implementation, (iii) are transparent in design and implementation, (iv) deliver visible benefits as quickly as possible, and (v) are planned and formulated in a way that ensures that the bulk of project benefits are realized by excluded groups and the poor.
c. Finance and Private Enterprise Development
(including small and medium enterprises)
100. Nepal's financial sector is burdened by an overhang of nonperforming
assets, weak credit discipline, and political interference. The
combination of the conflict and the deteriorating financial health
of the two biggest government-controlled commercial banks has resulted
in a substantial reduction in access to banking services in rural
areas. Commercial banks find it difficult to increase their lending
operations as big borrowers usually default, and small and medium
enterprises either have poor access or face high transactions costs.
Moreover, large parts of rural Nepal have no effective access to
formal financial service institutions. ADB will assist the Government
to improve access to sound and sustainable financial services in
rural areas by helping restructure the Agricultural Development
Bank of Nepal and by helping strengthen community-based microfinance
institutions. In light of the important role that small and medium
enterprises play in generating employment for the poor, ADB will
continue to help the authorities in providing financial, regulatory,
and complementary business development support for such enterprises.
101. There is greater recognition in the Tenth Plan than previously
that the private sector must expand its operations across the entire
country, and that private investment can play a 27 valuable role
in infrastructure and service delivery. ADB assistance will help
foster the development of public-private partnerships in infrastructure
and social sector projects. Lending Projects Agriculture and Natural
Resources
d. Energy
102. Only one in every 20 households in rural Nepal has access
to electricity from the grid. ADB will help the Government expand
access to rural electricity by extending the integrated grid, fostering
cooperative-based development of rural electrification, strengthening
the distribution network of Nepal Electricity Authority (NEA), and
developing renewable energy— where economically viable and financially
sustainable—for remote off-grid power supply. The high cost of extending
distribution facilities in rural areas has discouraged NEA from
including the rural population in the national power system. ADB
assistance will help the Government continue to improve the financial
viability of NEA, while establishing a power sector financing structure
that makes more explicit any subsidies that arise in extending the
grid and other measures to promote electrification in rural areas.
e. Regional Development
103. While national development plans recognize that a disproportionately
larger share of the benefits of development has accrued to Kathmandu
Valley, geographic priority setting and the spatial focus of public
investment efforts remain poorly defined. Nepal's five development
regions have vast differences in development potential and opportunities.
ADB will assist the Government to establish the institutional capacity
for participatory regional planning, strategy formulation, and priority
setting to facilitate decentralization and to improve the coherence
of the public investment program.
2. Fostering Inclusive Social Development
104. While the Government has shown a long-standing commitment
to boosting access to social services, significant disparities in
access and quality of social services remain. These contribute to
marked regional variations in human development and to the nonincome
dimensions of poverty. Improving the skills base, and enhancing
access to other social services of the rural poor in general, and
of women, underemployed youth, and socially excluded groups will
help improve their living standards, enhance their employment potential,
and reverse perceptions of urban bias and neglect.
a. Education
105. Significant challenges remain in increasing equity in access
and in improving the quality and efficiency of education at all
levels. The adult literacy rate is still only about 43%, and some
20% of eligible children are not enrolled in primary school. Among
out-of-school children, the largest proportions are girls and children
from poor and disadvantaged families living in remote areas. ADB
will provide holistic support to the sector by combining investment
with assistance for improvement in policies, planning, and management.
Building upon past experience and ongoing assistance in primary
and secondary education, ADB proposes to support policybased, sector-wide
approaches to foster comprehensive development of the education
sector. ADB will also assist the Government to improve the earnings
potential of unemployed youth, women, the poor, and disadvantaged
groups by improving access to and quality of the country’s skills
development programs. These interventions will help foster inclusive
development by increasing the productivity of the poor, making the
labor force more mobile, reinforcing tolerance, and directly contributing
to increased youth employment.
b. Water Supply, Sanitation, and Urban Development
106. Water supply coverage is estimated at around 72%, while sanitation coverage is estimated at around 28%. Building on the lessons learned from four previous rural water supply and sanitation projects, a sector-wide assistance approach is proposed to (i) expand the coverage of improved water supply and sanitation facilities to underserved populations, especially to poor and remote areas; and (ii) improve health and hygiene practices related to waterborne and sanitation-related diseases. ADB will help strengthen the capacity of local governments and other entities to provide water and sanitation by scaling up community-based, demand-driven approaches to the provision of rural water supplies.
107. The conflict and vast differences in economic opportunity
have forced large segments of the rural population to migrate to
urban areas. The rapid growth of the urban population has caused
severe drinking water shortages and haphazard provision of basic
infrastructure in Kathmandu and secondary towns. ADB assistance
in the sector will continue to focus on integrated urban infrastructure
improvement, including water supply and sanitation, solid waste
management, drainage, road rehabilitation, and traffic management.
Water supply improvements in Kathmandu Valley will be undertaken
in tandem with the Melamchi Water Supply Project.
c. Social Protection
108. Social protection initiatives may be supported as components
within existing ADBassisted projects in agriculture and rural development
and in the social sectors, with help to strengthen institutions
to design effective social protection policies. Empowerment efforts,
aimed at strengthening the voice of women and disadvantaged castes,
will be a key thrust of ADB support for strengthening the Government’s
commitment to social protection. Other options for weaving quick-impact
social assistance into sector lending operations include labor-intensive
public works for off-season employment in developing village infrastructure,
and programs that provide incentives for ultra-poor families to
improve their food security, affordability of health services, and
their ability to send their children to school. Requiring a certain
portion of the labor under ADB-assisted projects from the local
areas, especially when projects include remote and poor regions
where most of the excluded are part of the labor force, can also
be an effective means of promoting inclusive development.
3. Promoting Good Governance
109. Recognizing that conflict and political instability pose serious risks to reform and
development, ADB will focus its support for good governance on building the capacity of key
public institutions, especially at the local level, to deliver essential services, thereby improving
the quality and inclusiveness of the public service and helping combat corruption. Progress in
these areas will help address those factors that cause conflict and long-standing poverty in the first place. A clear government commitment to secure and sustain consistent staffing will
underpin ADB assistance to build capacity in the public sector.
110. ADB will continue to support the Government’s civil service reform program, building on
the achievements of the Governance Reform Program. Civil service reform will focus on critical
institutional constraints that cut across the civil service as a whole. To promote inclusion and
participation in the civil service, ADB will assist the Government to develop and implement
affirmative action measures and programs for women and other disadvantaged groups. To
enhance the development of a professional and efficient civil service, ADB will build on earlier
assistance to establish a results-based performance management and pay system. A
computerized personnel information system installed in the Ministry of General Administration
will be improved to become a comprehensive human resource management system.
111. ADB will support government initiatives to strengthen the legislative and institutional
framework for corruption control and capacity building in anticorruption institutions. ADB will
continue to support the National Vigilance Center in fully institutionalizing technical audits of
infrastructure projects so as to improve the quality of development projects and combat
corruption during project implementation. ADB will work in close cooperation with the
Government and development partners to support the implementation of the Government’s
anticorruption strategy and action plan.
112. ADB will continue to support the development of a public service for local government
and the setting up of a local government service commission. Enactment of a new Local Service
Act will grant authority and autonomy to local governments to employ and develop their public
service work force, an arrangement that will ultimately bolster long-run institutional capacity. The
Act, in addition to enabling the transfer of civil servants to local governments, will contribute to
further rightsizing in the civil service. In all sectors, ADB will promote greater local governance
and community participation in the design and implementation of projects and programs. ADB
will also provide support to assess progress made in fiscal devolution. Based on this
assessment, ADB will provide policy reform as well as financial and capacity-building support to
enhance the fiscal management capacity of local governments, in close consultation and
coordination with other development partners.
C. External Funding Coordination and Partnership Arrangements
113. The Tenth Plan and the Foreign Aid Policy of 2002 have established a broad framework
for aid coordination. The Foreign Aid Policy seeks external assistance to concentrate in areas
that build on past strengths in delivering development results. Well-coordinated support from the
development partners was instrumental in the successful preparation of the Government’s
Tenth Plan through wide consultations with key stakeholders in Nepalese society. A national
action plan for harmonization of development activities was endorsed by the 2004 Nepal
Development Forum to improve aid effectiveness and better align aid with the national
strategies and priorities set out in the Tenth Plan.
114. Due to the ongoing decentralization of aid management responsibilities to country offices
by several development partners, including ADB, opportunities for the Government to
coordinate external assistance, and for the development partners to coordinate among
themselves, have substantially improved in recent years. Under the auspices of the Nepal
Donor Group, there are 12 thematic subgroups and working groups, several of which are
cochaired by the Government. ADB is the cochair of the agriculture and rural development
group and the energy group. These groups meet regularly to exchange experience, review best
practices, and coordinate ongoing and future programs. ADB also participates in the Reform
and Development Group that is chaired by the Government and that comprises a select group
of development partners actively supporting the Government’s reform agenda. The Reform and
Development Group meets regularly to review implementation progress and to help the
Government formulate its reform agenda, including the IAP.
115. ADB maintains close coordination with all major development partners, aimed at further
improvement of the effectiveness, efficiency, and impact of its lending and nonlending programs
in Nepal. ADB makes maximum effort to coordinate with its development partners during the
preparation of CSPs and country strategy and program updates (CSPUs), and at different
stages of project processing. As a result, cofinancing has been obtained for a number of ADB
projects from the Danish International Development Agency (DANIDA) under the first phase of
the ADB-assisted Secondary Education Support Program; consulting inputs to help prepare the
ongoing Community-based Water Supply and Sanitation Project from the United Kingdom’s
Department for International Development (DFID); TA support for the Governance Reform
Program from the Swiss Agency for Development and Cooperation (SDC); and support for
capacity-building interventions under the Governance Reform Program from the United Nations
Development Programme. DFID has provided TA support for the ongoing Public Sector
Management Program and an agriculture and natural resource expert in NRM. A number of
ongoing projects in the energy and water supply sectors have also received assistance from
JBIC and the Japan International Cooperation Agency. In the past year, formal action plans
have been agreed on with DFID and the Deutsche Gesellschaft für Technische
Zusammenarbeit (GTZ) to guide cooperation more effectively. NRM has also initiated a
bimonthly harmonization series with the World Bank’s resident office to improve coordination
and collaboration.
116. In conjunction with its lending program, ADB will continue to actively pursue cofinancing
from grant and concessional loan sources. While continued efforts will be made to mobilize
cofinancing, core components of large projects, and especially those relating to engineering
design, will be financed directly by ADB to ensure coherence, timeliness, and technical
soundness. Close coordination is being maintained through regular contact and dialogue with
the major development partners, and a special effort is being made to involve development
partners early on in the identification stage of new projects. For example, SDC and GTZ have agreed, in principle, to cofinance the planned Decentralized Rural Infrastructure and Livelihood
Project. NRM has also initiated quarterly meetings of key development partners to share
experience on working in the conflict environment and discuss effective project implementation
modalities.
D. Indicative Internal Resource Requirements
117. The conflict has made it difficult to plan and supervise projects. An assessment of
indicative staff resources required to ensure adequate delivery of the program for the next 3
years suggests that such delivery needs greater staff resources than currently available. An
analysis of ADB’s operations during 2002 and 2003 shows that staff resources devoted to
supervising each project have fallen and are 20% below the ADB average. Staff intensity (i.e.,
days supervising projects) fell to 22 days per project in 2002 from 23 days in 2001 (the ADB
average is 25.5 days). While more transfer of supervision responsibilities to NRM is desirable,
commensurate expansion of staff resources is also required to ease the supervision constraint.
Adequate increase in monitoring and supervision resources, including staff, is a prerequisite for
success in managing for results. NRM’s added regional cooperation responsibilities following
signing of the ADB-SAARC memorandum of understanding in April 2004 will also require
additional staff resources.
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