ADB Extends $100M in Grants to Help Reduce Poverty in Nepal's Remote Areas

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is extending $100 million in grants to help reduce poverty in isolated areas of Nepal to ensure more inclusive and sustainable economic growth.

The Rural Reconstruction and Rehabilitation Sector Development Program will also receive a $10 million loan from the OPEC Fund for International Development, the multilateral financing facility of the Organization of Petroleum Exporting Countries (OPEC) that channels aid to developing countries. The loan will be managed by ADB.

Through its support, ADB will provide much needed resources to promote good governance and poverty reduction by improving the policy environment for inclusive growth and reconstructing and rehabilitating rural infrastructure in remote areas of Nepal.

The assistance package is made up of a $50 million program grant from ADB, and a project grant, which will be funded by another $50 million grant from the Bank, the loan from OPEC Fund for International Development, $15.7 million from the government of Nepal, and $2.7 million from beneficiaries.

“We will focus on reducing rural poverty in hill, mountain and lowland districts in Nepal where isolation and hardship are common,” said Jiangfeng Zhang, Natural Resources Economist of ADB’s South Asia Department. “It will focus on immediate post-conflict development priorities for accelerating poverty reduction and inclusive development to enhance the delivery of public services and improve access of rural residents to economic opportunities and social services.”

Nepal is the poorest country in South Asia with an annual gross domestic product per capita of about $300 as of 2005. With economic liberalization in the 1990s, the country achieved an annual growth rate of 4.7%, but economic contraction set in during the early 2000s largely due to the armed conflict that engulfed the entire country and severely affected tourism and other industries. Nepal underwent dramatic political changes in 2006 when a new interim coalition government was formed, which eventually led to a peace accord.

The country has made progress in combating poverty and improving the standard of living even in a conflict environment. However, progress has remained uneven, with remote districts having fewer economic opportunities and poorer service delivery. Political and administrative reforms have been inadequate to improve service delivery, transparency, accountability and inclusiveness. Nepal, with a Gini coefficient of 47.3% in 2003, has the highest rate of inequality in Asia. The Gini coefficient is a commonly used measurement of inequality, with zero reflecting complete equality and 100% indicating complete inequality.

The program grant will assist the government in achieving three key outputs – enhanced poverty reduction and inclusive development, improved and inclusive governance and decentralization, and stronger support for rural infrastructure development. The outputs are designed to address the core goals of reducing exclusion and poverty, which are the underlying causes of conflict, and remain central to achieving lasting peace.

The project grant will improve connectivity, enhance economic and employment opportunities and increase access of rural communities to market and social services. Its outputs include improved rural roads; developed and improved community-based supplementary rural infrastructure; enhanced equity, employment and income opportunities for the poor and disadvantaged; stronger institutional capacity of concerned government agencies and communities; and improved project management.