ADB, UK Support Nepal's Push to Improve Public Finances, Spur Recovery

MANILA, PHILIPPINES – The Asian Development Bank (ADB) and United Kingdom are supporting Nepal’s drive to improve public financial management practices needed to spur the country’s post-conflict economic recovery.

“Weak handling of public finances, particularly at the local government level, is hampering efforts to tackle development challenges such as high levels of poverty,” said Emil Bolongaita, Public Management Specialist with ADB’s South Asia Department. “This program will give Nepal’s officials the tools needed to manage finances more efficiently and transparently, promote accountability to the public, and reduce corruption risks.”

Nepal is South Asia’s weakest performing economy with per capita gross national income of just $540 in 2011. Political polarization coupled with governance issues have hindered its ability to grow strongly since the end of a decade-long civil conflict in 2006, and about a quarter of the population still lives below the national poverty line. Public financial management is plagued by budget setting weaknesses, ineffective audit systems, intimidation and collusion in public procurement, and accountability and oversight shortcomings.

Public financial management reforms are a high priority for Nepal’s government, and the ADB-assisted program will include new budget setting measures, more participatory planning processes, the introduction of performance-based grants for village development committees, and the piloting of a municipal administration revenue system that will help local governments raise their own revenues and improve tax compliance.

Accounting systems will be computerized, public auditing and oversight strengthened, and websites detailing local government revenues and spending should improve transparency and public accountability. Annual procurement plans will be developed to make the purchase of goods and services more transparent and efficient. ADB will also provide a capacity-building technical assistance grant of $500,000, which will help develop a diagnostic tool that can be used to assess corruption risks for public investment projects.

The program will run for three years with an estimated completion date of October 2015. ADB will provide a grant and technical assistance totaling $21.5 million for a program of reforms to help local governments improve their budget setting, risk management, and goods and services procurement systems. A cofinancing grant of $6.5 million from the Government of the United Kingdom will be administered by ADB.