36172-064: Strengthening Subnational Public Management | Asian Development Bank

Nepal: Strengthening Subnational Public Management

Sovereign (Public) Project | 36172-064 Status: Closed

The Constitution of Nepal has introduced fiscal federalism, giving powers to all three levels of government to enact laws, prepare budgets, impose taxes, and collect own-source revenues. A critical aspect of fiscal decentralization is that the provincial and local governments have revenue-raising powers through taxation. To improve the subnational revenue mobilization, the government needs to undertake a thorough assessment of (i) the revenue generation potential of subnational governments; (ii) appropriate tax policies, including the design of acts, codes, and procedural manuals for local government taxes based on the ability to pay the principle; and (iii) requirements to expand tax administration systems that are based on information and communication technology (such as a municipal administration and revenue system) to streamline tax administration and collection, and link such systems with broader governance, PFM, and anticorruption objectives.

 
Project Name Strengthening Subnational Public Management
Project Number 36172-064
Country Nepal
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 9150-NEP: Strengthening Subnational Public Management
Technical Assistance Special Fund US$ 500,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Gender Equity and Mainstreaming
Governance and capacity development
Knowledge solutions
Partnerships
Sector / Subsector

Public sector management / Decentralization - Public administration - Public expenditure and fiscal management

Gender Equity and Mainstreaming Some gender elements
Description

The Constitution of Nepal has introduced fiscal federalism, giving powers to all three levels of government to enact laws, prepare budgets, impose taxes, and collect own-source revenues. A critical aspect of fiscal decentralization is that the provincial and local governments have revenue-raising powers through taxation. To improve the subnational revenue mobilization, the government needs to undertake a thorough assessment of (i) the revenue generation potential of subnational governments; (ii) appropriate tax policies, including the design of acts, codes, and procedural manuals for local government taxes based on the ability to pay the principle; and (iii) requirements to expand tax administration systems that are based on information and communication technology (such as a municipal administration and revenue system) to streamline tax administration and collection, and link such systems with broader governance, PFM, and anticorruption objectives.

The new Constitution also recognizes the need to address the vertical and horizontal imbalances among federal, provincial, and local levels of government. A permanent constitutional body, the National Natural Resources and Fiscal Commission, has been proposed to determine the appropriate levels of fiscal transfers and revenue distribution among the three government tiers, and recommend equalization grants. It is critical to assist the government to (i) establish the commission with a clear institutional structure, function, and mandate; and (ii) provide the necessary technical and capacity building support, specifically in relation to principles of intergovernmental fiscal transfers, including the design of a devolution formula.

Another important dimension of fiscal decentralization is the establishment of a suitable framework and mechanism for onlending to subnational governments. To maintain overall fiscal discipline, the framework must have clear terms and conditions; enforceable rules, regulations, and procedures for onlending to subnational governments and repayment; and obligations and responsibilities between the central and subnational governments.

For improving transparency in PFM and reducing fiduciary risks at the subnational level, there is a need to strengthen (i) integrated financial management; (ii) accounting and reporting systems; (iii) electronic government procurement (e-GP) system, including the nationwide roll-out; and (iv) internal, external, and technical audit systems by building on and deepening the reforms of SPMP I.

Project Rationale and Linkage to Country/Regional Strategy In light of the above, the rationale for the PATA stems from the need to carry out a comprehensive assessment of PFM issues at the subnational government level to identify policy options for (i) addressing the weaknesses and revitalizing the institutions designed under SPMP, and (ii) providing institutional development and capacity building support to the government to successfully manage the transition to fiscal federalism.
Impact Capacity and readiness of the government to adopt fiscal federalism enhanced (the Constitution of Nepal 2015; Government of Nepal''s Thirteenth Plan, FY2014- FY2016; Good Governance Act of 2008; and Ministry of Finance budget for FY2017)
Project Outcome
Description of Outcome Framework for strengthening fiscal federalism at the subnational level developed and presented to the government
Progress Toward Outcome Completed.
Implementation Progress
Description of Project Outputs

Policy options for improving revenue mobilization assessed and identified

Policy options for revenue sharing among different tiers of the government assessed and identified

Policy options for establishing borrowing arrangements for the provincial governments assessed and identified

Policy options for improving expenditure allocations assessed and identified

Policy options for improving transparency in PFM and reducing fiduciary risks assessed and identified

Status of Implementation Progress (Outputs, Activities, and Issues)

The consulting firm, Ernst & Young LLP (India) commenced work on 6 Jan 2017 and were mobilized on January 30. The inception mission was conducted during 30 January-3 February 2017. The inception work of the firm on mapping of govenrment and donor programs and rescoping of PATA design was presented on 23 March 2017 to key government agencies and donor partners along with a workshop held on 30 March 2017. The draft final report on assessments for key building blocks of fiscal federalism and PFM and governance framework in the context of federal system was presented to the Government through a dissemination seminar on 30 October 2017 and revised version of the report for submitted in January 2018, waiting for final comments and confirmation.

A minor change in implementation arrangements was approved for the recruitment of a national senior federal fiscal system expert - the consultant, Mr. Khadka commenced work on 3 March 2017. He provided support for two key legislations on intergovernmental fiscal arrangements and model tax laws.

Additional national PFM expert was recruited in January 2018 to develop a PFM manual for local governments.

Final set of capacity building activities are planned for GON officials in March 2018. Two day training will be provided by Ernst and Young experts to GON officials in Kathmandu during 9-11 March 2018 on PATA recommendations and international best practices. This will be followed by an international study visit for 21 GON officials to National Institute of Public Finance and Policy (NIPFP) in India during 20-24 March 2018 to study international experiences in fiscal federalism and decentralization.

Geographical Location Nation-wide
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design Consultations with government agencies and development partners have been conducted.
During Project Implementation Consultations with government agencies and development partners are ongoing.
Business Opportunities
Consulting Services A consulting firm will be recruited to provide 21 person-months of international consultants and 15 person-months of national consultants, including (i) tax specialists and a team leader, (ii) intergovernmental fiscal transfer specialists, (iii) public sector budget specialists, (iv) capital market specialists, (v) internal and external audit specialists, (vi) technical audit specialists, and (vii) information and communication technology, and management information system specialists. A change management specialist will be recruited as an international individual consultant for 3 person-months. The consultants will be recruited using quality and cost-based selection method with a quality cost ratio of 90:10 at an expected cost of $450,000. The consultant outputs are assessment reports with policy recommendations and capacity building support. Stakeholder consultation workshops will be held at least quarterly to present findings and solicit feedback. The expected cost of the workshops and training is $40,000.
Procurement not applicable
Responsible ADB Officer Akin, Cigdem
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Ministry of Finance
Mr. Surya Prasad Pokharel, Under Secretary, Ministry of Finance
[email protected]
The Government of Nepal Singha Durbar Kathmandu, Nepal
Timetable
Concept Clearance 16 May 2016
Fact Finding 24 Jan 2016 to 28 Jan 2016
MRM -
Approval 04 Aug 2016
Last Review Mission -
Last PDS Update 09 Mar 2018

TA 9150-NEP

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
04 Aug 2016 01 Sep 2016 01 Sep 2016 31 Jan 2018 30 Apr 2018 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
500,000.00 0.00 0.00 0.00 0.00 0.00 500,000.00 04 Aug 2016 462,760.03

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Safeguard Documents See also: Safeguards

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Evaluation Documents See also: Independent Evaluation

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Related Publications

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Tenders

Tender Title Type Status Posting Date Deadline
National Public Financial Management Expert Individual - Consulting Closed 12 Jan 2018 18 Jan 2018

Contracts Awarded

Contract Title Approval Number Contract Date Contractor Contractor Address Executing Agency Contract Description Total Contract Amount (US$) Contract Amount Financed by ADB (US$)
Policy and Advisory Technical Assistance 9150 06 Jan 2017 Ernst and Young LLP (India) (India) 6Th Floor, Ht House 18-20 Kasturba Ghandi New Delhi 110001 India Ministry of Finance 374,220.00

Procurement Plan

None currently available.