World Bank Strategy For Nepal Underpins Homegrown Reforms

WASHINGTON D.C., November 18, 2003—Ambitious poverty reduction targets, identified by Nepal in a homegrown development plan, found support today when the World Bank discussed its new Country Assistance Strategy (CAS) for the country and approved a US$70 million Poverty Reduction Support Credit (PRSC-1) to help it implement its Poverty Reduction Strategy.

The key target in Nepal’s recently completed Poverty Reduction Strategy (PRS) is the reduction of the overall poverty ratio from about 40 percent to 30 percent by the end of 2007. The strategy, which is embodied in Nepal’s Tenth Five-Year Plan, breaks significantly with previous plans in recognizing social exclusion as a fundamental development challenge. The strategy also explicitly recognizes the country’s constrained fiscal situation and weak implementation capacity and proposes a realistic approach to manage these constraints through a Medium-term Expenditure Framework and an Immediate Action Plan focused on achievable implementation targets. The PRS is built around four pillars: (i) broad-based economic growth; (ii) social sector development; (iii) social inclusion; and (iv) good governance. These are rooted in turn in the strategy’s explicit emphasis on decentralization, the rationalization of central government functions, and transparency.

The World Bank’s new assistance strategy builds on the achievements under the 1998 CAS which set out to facilitate the beginnings of determined reform efforts. The new CAS supports a strong Nepali-led reform process that is significant in its scope and depth. 

Despite the instability and uncertainty linked to political conflict and a violent insurgency, important and often innovative reforms have emerged in Nepal, particularly over the past two years. The reform process is picking up momentum as illustrated by a number of tangible examples:

 

·         To prevent a possible financial sector crisis, an important initial step toward reform was taken by putting two ailing commercial banks under external management teams;

·         A Medium-term Expenditure Framework (MTEF) was introduced to rationalize the development budget and instill the discipline of a hard budget constraint;

·         Responding to the urgent need to improve public service delivery, primary education and primary health care facilities are being transferred to community management;

·         To ensure implementation of priority reforms, an Immediate Action Plan (IAP) has been extremely effective; and

·         A highly visible anti-corruption drive has been started by the Commission for Investigation of Abuse of Authority (CIAA).

The World Bank has worked to support and encourage these reform dynamics as they have emerged and the new CAS explicitly underpins key elements under each of the four PRS pillars. The CAS clearly identifies its goals and has established 26 specific outcomes as the key targets for the FY04-FY07 period of support and assistance.

"The Bank's Executive Directors are very supportive of Nepal's Poverty Reduction Strategy and encouraged by progress achieved in the implementation of reforms so far," says Kenichi Ohashi, World Bank Country Director for Nepal. "This does not mean that Nepal’s development partners have overlooked the real risks that exist in a country where conflict has severely undermined the prospects for development and the quality of life of all the country’s citizens," he added. "Failure to achieve a negotiated resolution to the conflict, restore democratic institutions based on participation and accountability, and strengthen protection of human rights will pose serious risks to economic development efforts and severely limit the ability to achieve the PRS objectives."

It is expected that the proposed program of financial assistance from the World Bank would be anchored each year in further Poverty Reduction Support Credits akin to the US$70 million package approved today and designed to support implementation of the Nepal’s own Poverty Reduction Strategy. In addition, this assistance would be complemented by an average of three investment or sectoral operations each year to support key programs in the areas of focus like education, health, financial sector reform, and infrastructure. This lending would be accompanied by a strong analytical program, with a particular focus on helping the Government of Nepal to prioritize future policy reform areas. Given the country’s low income level, it qualifies for a portion of the International Development Association (IDA) assistance on a grant basis. IDA grant funds are likely to be used for social sector projects in health, education or rural water.

The private sector arm of the Bank, the International Finance Corporation (IFC), will focus on providing technical assistance for small and medium enterprises (SMEs) through the South Asia Enterprise Development Facility (SEDF), while the Multilateral Investment Guarantee Agency (MIGA) will continue to support foreign direct investments into Nepal as they present themselves.

The US$70 million PRSC-1 approved today is based on the Nepal PRS, linked to Bank's CAS objectives, and built on appropriate structural, social, and fiduciary analysis. Its design reflects the findings of several pieces of analytical work completed by the Bank in the last few years including an Investment Climate Assessment (2000), a Trade and Competitiveness Study (2003), a Public Expenditure Review (1999), a Country Financial Accountability Assessment (2002), a Country Procurement Assessment Report (2002), a Poverty Assessment (1999), and a Demographic and Health Survey report (2001).

The credit aims to support Nepal’s reform champions in implementing far-reaching reforms that could revive growth, improve service delivery, promote social inclusion and improve governance. The credit will also contribute to maintaining a sound macro framework and protecting high priority programs by filling part of Nepal’s financing gap. The amount will be disbursed in a single tranche upon credit effectiveness and is envisioned as the first slice of a multiyear program of support for implementation of the PRS.

For more information on the World Bank’s activities in Nepal, visit:

http://www.worldbank.org/np

 

For more information on the Nepal Poverty Reduction Strategy Credit, visit:

http://web.worldbank.org/external/projects/main?pagePK=104231&piPK=73230&theSitePK=40941&menuPK=228424&Projectid=P074685

 

For the radio broadcast version of this announcement, visit:

http://lnweb18.worldbank.org/sar/sa.nsf/Countries/Nepal/147D646E2F8275BB85256DE1007FA01E?OpenDocument