The proposed TA will support the Government in developing a long-term economic vision for Nepal aimed at higher and inclusive economic growth and forging a national consensus on such vision so that Nepal's economic policies and reform agendas going forward will be focused, coherent and within the framework of the long-term development vision. The TA will comprise 3 components:
- An review of Nepal's existing policies and development strategies and plans at the macro and key sectoral levels, and their performance against the present and emerging socioeconomic challenges.
- Development of strategy and policy options for achieving higher, sustainable and inclusive economic growth and generating employment opportunities. In this context, a thorough and focused assessment will be made as to the reforms required to create enabling conditions for the private sector at policy, institutional, legal and regulatory levels. The impact of reforms in areas related to public resource and fiscal management, financial and capital market sector development, trade and investment, and good governance, vis- -vis private sector development will be examined.
- Development of a long-term economic vision by organizing a high-level economic summit, which will guide and inform the formulation of the next (starting FY2014) and other future medium-term development plans of the country.
|Project Rationale and Linkage to Country/Regional Strategy
Nepal has been undergoing a historic peace process following the end of the decade-long civil in April 2006. The peace process has, however, been protracted given the complex and challenging tasks of reconciliation between the parties to the conflict, reconstruction of damaged infrastructure, rehabilitation of the conflict victims including the demobilization of the former Maoist combatants, and framing a new constitution that promises a new social and political order and a more inclusive and prosperous Nepali society. While the peace process has achieved substantial progress, the constitution drafting process a key milestone--has been particularly challenging given the task of building consensus in the 601-member diverse constituent assembly represented by some 25 political parties on the complex and divisive issues of federalism, form of governance and electoral system.
Despite the conflict and the protracted peace process, Nepal has been able to maintain reasonable macroeconomic stability. The country's economic reform and development agenda during this period have, however, been overshadowed by its preoccupation with the post-conflict political transition, preventing the realization of the country's potential for stronger economic growth which is estimated at 6 7% given its natural resource endowments, strategic geographic location and young population. Economic growth has, however, slowed to an average of 3.5% per annum since the conflict began, compared to about 5% in the previous years.
Nepal has been following planned economic development since the launch of the First Five-Year Plan (FYP) in 1956 followed by a series of such medium-term plans. Among these plans, the Tenth FYP (FY2003 2007) is considered the most significant and strategic in terms of candid recognition of the country's development challenges and the underlying causes of the civil conflict, and a focused vision for reducing poverty. Considered as the country's poverty reduction strategy, it included Medium Term Expenditure Framework to focus and prioritize investments contributing to poverty reduction. The period that followed the Tenth FYP was, however, marked by political uncertainties associated with the protracted peace process. The planning cycle was truncated to three-year plans since FY2008. While these three-year interim plans (TYIP: FY2008 2010 and FY2011 2013) continued to focus on addressing poverty reduction and social exclusion, they lacked a clear longer-term strategic framework, understandably so given the prevailing political uncertainties.
There is an expectation that the constitution building and peace process is nearing conclusion as early as the end of May 2012. With political stability going forward, there is a wide recognition within the Government that stronger and inclusive economic growth is critical for sustaining the hard-earned peace and establishing lasting stability. The Government is, therefore, making efforts to bring the country's economic development agenda to the forefront. The Nepal Investment Board was established in November 2011, and the Immediate Action Plan for Economic Progress and Prosperity and the Action Plan for Good Governance were announced in January 2012. They are aimed at strengthening governance and promoting both public and private investments for improving public service delivery and accelerating economic growth. With a new constitution expected to be in place in the near future marking a new era for the country, the Government envisages the need for a new long-term economic development vision, policies and priorities to respond to the people's aspirations for economic progress. In this regard, the Government sees the need to build a broad consensus on these directions at the political level. Further, given that the current TYIP will conclude in July 2013, the Government is considering to prepare the next plan based on the proposed long-term economic vision. Such vision and consensus will be critical for the country to realize its true potential for stronger economic growth and fulfill the aspirations of its people for economic progress and prosperity in the new era.
The Government, whose capacity is streched by the tasks invovled in the peace process, needs support for developing a long-term economic development vision based on the views and priorities of key stakeholders, including the political parties, the private sector, civil society and the academia. In order to build consensus on the country's economic development agenda against the backdrop of divergent views with different political, ethnic and social dimenstions, the Government intends to organize a high-level economic summit (the Summit) as early as September 2012 inviting internationally reknowned development economists and practitioners to interact with key political leaders and other stakeholders on Nepal's development opportunities and appropriate strategies and policies including reform measures to attain them.