Natural resource management in Nepal : 25 years of experience

SaotNo. 10330 Natura[ Resource Management in Nepal: 25 Years of Experience February 11, 1992 MICROFICHE COPY Operations Evaluation Department Report No. 10330-NEP Type: (IER) SFIER-YOUN/ X31752 / T9 053/ OEDD1 FOR OFFICIAL USE ONLY I~~-.---- y 'il< ¯lK- - 0'-- 4~ ~ ~~~11 iLý.- .~- ~ 1 k 3 0 W # ý53s<~ ~',--~ ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank ADBN Agriculture Development Bank of Nepal BA Bilateral agency BNP Basic Needs Program CBS Central Bureau of Statistics CEDA Centre for Economic Development and Administration CIDA Canadian International Development Agency DOI Department of Irrigation EEC European Economic Community EIA Environmental Impact Assessment EM Economic Memorandum ERL Environmental Resources Limited ESCAP Economic and Social Commission for Asia and the Pacific ESW Economic and sector work FAO Food and Agriculture Organization FD Forestry Department GNP Gross National Product GTZ Deutche Gesellschaft fur Techniche Zusammenarbeit GVS German Volunteer Services HMG His Majesty's Government (Nepal) HSC Himalayan Studies Centre ICIMOD International Center for integrated Mountain Development IDA Intemational Development Association IDRC international Development Research Centre IDS institute for Development Studies IFAD international Fund for Agricultural Development IFC International Finance Corporation ILO International Labour Organization IMF International Monetary Fund IUCN International Union for Conservation of Nature JICA Japanese International Cooperation Agency KfW Kreditanstat fuer Welderaufbau LRMP Land Resource Mapping Project LWS Lutheran World Service NAFP Nepal Australia Forestry Project NEA Nepal Electricity Authority NGO Non-Govemment Organization NNEPC Nepal National Education Planning Commission NPC National Planning Commission O&M Operation and maintenance ODA Overseas Development Association OED Operations Evaluation Department PCR Project Completion Report PPAR Project Performance Audit Report PPF Panchayat Protected Forest SAF Structural Adjustment Facility SAL Structural Adjustment Loan SAP Structural Adjustment Program SAR Staff Appraisal Report SATA Swiss Agency for Technical Assistance SCF Save the Children Fund SWC Soil and Water Conservation Department TCP Technical Cooperation Programme (FAO) UNDP UN Development Programme UNEP UN Environment Programme UNESCO UN Educational, Scientific and Cultural Organization UNFPA UN Population Fund UNICEF UN Children's Fund USAID US Agency for International Development VSO Volunteer Services Overseas WFP World Food Programme THE WORLD BANK FOR OFFICIAL USE ONLY Washington, D.C. 20433 U.S.A. Olke of Director-Ceeral Operatiw Evaluatkan February 11, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Natural Resource Management in Nepal: 25 Years of Experience Attached, for information, is a copy of a report entitled "Natural Resource Management in Nepal: 25 Years of Experience" prepared by the Operations Evaluation Department. Attachment This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY NATURAL RESOURCE MANAGEMENT IN NEPAL: 25 YEARS OF EXPERIENCE TABLE OF CONTENTS Paz* No. PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . .& EXECLCTIVE SUMMARY . .. .*.. . . . ... . ... .. .i I. INTRODUCTION . . . . . . . . . . . . . . . . . . 1 An Overview . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Nepalese Economy: A Brief Overview . . . . . . . . . . . . 2 Questions Examined by the Study . . . . . . . . . . . . . . . 3 The Evaluation Context . . . . * .. . . . . . . . . . . . . 4 Outline of the Study . . . . . * . . . . . . . . . . . . . . . 6 II. THE DEVELOPMENT LITERATURE . . . . . . . . . . . . . . . . . . 7 Physical Changes in Resources . . . . . . . . . . . . . . . . 7 Socio-Economic Causes and Consequences of Change . . . . . . . 9 Public Administration . . . . . . . . . . . . . . . . . . . . 10 Policies and Issues in Resource Use . . . . . . . . . . . . . 11 Relevance of the Literature . . . . . . ....... . . . 15 III. THE SCOPE AND EXTENT OF EXTERNAL AID . . . . . . . . . . . . . 17 Introduction . . . . . . . . . . . . . . . . . . . . . . . 17 Development Assistance at the Project Level . . . . . . . . . 17 Donors Perceptions of Their Role and Strategy . . . . . . .*. 21 The Resource Management Problem: Changes in Perception . . . . 24 Policy Influence . . . . . . . . . . . . . . . . . . . . . . . 26 Shortfalls in Performance * *. . . . .. .. . . . . . 27 The Learning Process . . . . . . . . . . . . . . . . . . . .. 29 The Net Effect of Foreign Aid . . . . . . . . . . . . . . . . 29 IV. BANK OPERATIONS 1963-89 . . . . . . . . . . . . . . . . . . . 31 Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . 31 Common Issues in Project Performance . . . . . . . . . . . . . 36 Preliminary Conclusions . . . . . . . . . . . . . . . . . . . 38 V. THE ROLE OF SECTOR WORK . . . . . . . . . . . . . . . . 45 Issues Raised in Sector Work . . . . . . . . . . . . . . . . . 45 Policy Recommendations . . . . . . . . . . . . . . . . . . . 50 Evolution of Sector Work . . . . . . . . . . . . . . . . . . . 52 Sector Work and Resource Management: 1965-85 . . . . . . . . . 53 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Pae No. VI. COUNTRY STRATEGIES . . . . . . . . . . . . . . . . . . . . . . 57 Macroeconomics and Resource Management in Nepal . . . . . . 57 Macroeconomic Management and Resources Use . . . . . . . . . . 58 Sources of Growth and Productivity . . . . . . . . . . . . . . 59 The Donors and Resource Management . . . . . . . . . . . . . . 60 The Policy Framework . * . . . . . . . . . . . . . . . . . . 61 Recent Changes and Trends . . . . . . . . . . . . . . . .. . . 62 Poverty, Population and the Environment . . . . . . . . . . . 62 Structural Adjustment . . . . .. ... ..... . .. . . . 63 VII. SCOPE FOR CHANGE - FINDINGS AND LESSONS . . . . . . . . . . . 65 The Bank as a Catalyst and Constraint in the Learning Process . . . . . . . . . . . . . . . . . . . . . 65 Opportunities: A More Strategic Approach? . . . . . . . . . . 67 Costs and Benefits of a More Strategic Approach . . . . . . . 68 What Could Have Been Done Differently? . . . . . . . . . . . . 69 Actions to be Taken . . . . . . . . . . . . . . . . . . . . . 70 Annexes: 1. Table A-1: Projects by Year, by Sector, and by Donor . . . . . . . . . . . . . . . . . . 73 Table A-2: Aid Commitments by Sector . . . . . . . 87 Table A-3: Aid Commitments of Major Donors, by Sector . . . . . . . . . . . . . . . . .. . . . 88 Table A-4: Aid Commitments to Nepal by Sector . . . 90 2. The Continuing Dilemma of Cause and Effect: An Example . . . . . . . . . . . . . . . . . . . 91 3. Bilateral Assistance . . . . . . . . . . . . . . . . 93 4. AID: Natural Resource Management . . . . . . . . 97 5. ADB: A Case Study of Bank Operations . . . . . . . 107 Boxes: 2.1 Forest and Watershed Management: A Legislative Failure . . . . . . . . 12 5.1 Causes of Resource Degradation . . . . . . . . . . . 47 5.2 Public Administration . . . . . . . . . . . . . . . 48 5.3 The Land Tenure Illusion . . . . . . . . . . . . . . 53 5.4 Decentralization Frustated . . . . . . . . . . . . . 54 6.1 Planning and Environment . . . . . . . . . . . . . . 59 7.1 The Persistent Information Dilemma . . . . . . . . . 66 Figures: 3.1 Aid Commitments to Nepal: 1966-89, by Sector . . * . . . . . . . . . . . . . . . . 18 3.2 Aid Commitments to Nepal: 1966-89, Totals . . . . . . . . . . . . . . . . . . . . .18 4.1 World Bank Commitments: 1966-89, by Sector . . . . . 32 Tables: 3.1 .*id Commitments: 1966-89, by Sector . . . . . . . 33 3.2 Aid Commitments: 1966-89, Total . . . . . . . . . . 33 4.1 Nepal: Bank Lending, 1969-89 . . . . . . . . . . . . 40 5.1 Bank Economic and Sector Work . . . . . . . . . . . 55 References . . . . . . . . . . . .. . 115 NATURAL RESOURCE MANAGEMENT IN NEPAL: 25 YEARS OF EXPERIENCE PREFACE The effects of economic development on the natural environment are a subject of growing concern. While the effects themselves are often easily identified--pollution, erosion, and sedimentation, for example--their main causes are much harder to establish. This makes it difficult to devise actions to arrest or contain these effects. Evaluation studies offer an important source of facts about the changes in the environment that are associated with different styles of economic development. The present study draws on the Bank's audits of completed lending operations, impact evaluation reports, and other evaluation studies, including work by the Operations Evaluation Department (OED) on sustainability (see "Sustainability of Projects: First Review of Experience", in Evaluation Results for 1988, World Bank, 1989). The study is part of a larger OED program of work whose first phase reviewed renewable resource management issues in some 14 countries (see Renewable Resource Management in Agriculture, World Bank, 1989). The second phase of the program, still in progress, consists of in-depth country studies. Nepal was selected as the first of these in-depth studies because of the severity of its environmental problems, which call for urgent action. The study has two main goals: (1) to evaluate the instruments used in Nepal (e.g., projects, policies, institutional reforms) to manage natural resources, drawing out recommendations for the Bank in assisting Nepal to manage these resources better; (2) to provide general lessons for designing and implementing studies of the relationship between development and environmental change. The study evaluates the Bank's operational effectiveness, completed lending operations, sector work in all its forms, and the recommendations offered to government agencies on macroeconomic policies. It also analyzes the development strategies pursued and advocated by different parties--government and other donors, as well as the Bank. This gives the conclusions richness and breadth. Though it is important to note the difficulties that were posed by data limitat.ons (see below), the study offers a well-defined framework of analysis and a good sense of priorities for future action. It is hoped that its insights and recommendations will provide a basis for reassessing the concepts and strategies underlying sectoral and macroeconomic decision making in Nepal, including assumptions about the sources of growth and areas of comparative advantage. Nonetheless, the limitations of the analysis, detailed in Chapter 1, should be noted. Some key relationships were diffic,ilt to define in analytical terms. Others that could be so defined remained difficult to quantify, given the paucity of available data. And, given their complexity and their multi-dimensional - ii - character, it was not possible to distinguish all determinants of performance in the management of Nepal's natural resources. To master the art of analyzing relaticnships between economic development and environmental change will require more experience, pursued through further case studies. The study was undertaken by OED staff and local and international consultants. The report has benefitted from comments and reviews by Bank operational staff and managers. To date, OED has not received any official comments from the Government of Nepal. NATURAL RESOURCE MANAGEMENT IN NEPAL: 25 YEARS OF EXPERIENCE EXECUTIVE SUMARY Purpose and Scope of the Study and, as such, are a profound obstacle to development. 1. This report reviews the extent of the Bank contribution and the 3. This repott addresses several means it selected to assist Nepal in questions related to the management the management, allocation and use of of natural resources and the environ- its renewable natural resources in ment--which involve both physical and agriculture. In 1989, the World Bank natural capital. First, how aware Operations Evaluation Department vere the Bank and others of Nepal's (OED) produced a study that evaluated resource management problems? The the effect of Bank agriculture and literature was reviewed to determine forestry projects and programs on the how management problems were con- environment in 12 countries. This ceived, how concepts and strategies current case study of Nepal is a evolved over time, and what recommen- follow-up, and assesses the impact of dations were made to solve some or the Bank and other donors on the all the problems (see Chapter 2). management of the country's renewable resources from 1965-1989. 4. Second, what did other donors do? To elicit this answer, field 2. Nepal was chosen because it is trips were made and documents from among the world's poorest and its UNDP, bilateral and multilateral problems the most intractable-- donors were carefully reviewed, along although not unlike difficulties with abundant secondary materials elsewhere. Due to the geologic con- (see Chapter 3). dition of its mountains, erosion is severe and the topography hampers the 5. Third, how was Bank thinking development of transport, communica- translated into operations, sector tions and an efficient market econo- work, macroeconomic strategy and my. The population is growing rap- institutional reform? In addressing idly--at 2.7 percent annually--of this question, Bank lending and expe- which over 90 percent are employed in rience with completed operations were agriculture and forestry. Because studied (see Chapter 4). This, in almost all its natural resources are turn, along with a review of Economi,- already used in some manner, the and Sector Work (ESW), provided the capacity to generate off-farm jobs basis for assessing projects and and accelerate economic growth is programs and the effect of Bank ad- severely limited. Further, due to vice (see Chapter 5). With respect its feudal system and recent emer- to ESW, it was important to determine gence from isolation (as late as the how the problem was conceived, how it 1950s), its institutions are weak, was reported to senior management, - iv - sAnd how the Bank introduced it into evaluate the relative merits of ma- the policy dialogue. Finally, it croeconomic and Aectoral instruments assessed both oper4tions and sector used to generate an expansion or an work, to determine which environmen- improvement of Nepal's natural capi- tal and natural resource management tal. issuev were incorporated into macro- economic strategies and policies (see 9. Third, the review is often un- Chapter 6). able to isolate the effects of dif- ferent variables over resource use 6. Fourth, what were the major -nd users. In some cases, the rela- lessons and findings over the years tionship between development and and did these help the Bank and Gov- resource degradation is clear: for ornment of Nepal (GON) develop more example, it is possible to determine effective strategies to avoid perva- how much an increase in the amount sive resource degradation? The les- that --zr be cut (of forest) further sons, as they are presented in this derlotes the resource. But in oth- report, are multidimensional--relat- era, the relationship is more complex ing to concepts, operations, policies and calculating the impact of each and institutions. variable is impossible. This is particularly true with many sectoral Limitations of the Study and macroeconomic policies (as dis- tinct from environmental policies), 7. There are at least three impor- where the effects appear to be unre- tant limitations to this study. lated or far from the natural re- First, some key relationships were source involved. difficult to define in analytical terms. Althugh a good deal of the Magnitude and Complexity of the Prob- literature describes the way in which len development activities affected the country's natural capital, it, along 10. Resource degradation in Nepal is with ESW, shed little light on how to continuous and complex. As time deal with analytical questions. passes, problems such as persistent However, this limitation does not soil erosion, high rates of sedimen- invalidate or diminish the importance tation, increased flooding and de- of the findings; on the contrary, it cline in water quality intensify. strengthens the recommendation that While a substantial amount of erosion further research be carried out. is due to geologic factors, a great deal is the result of developments 8. Second, while it would have been population growth and density, migra- useful to quantify several of the tion to fragile areas, livestock cause-effect relationships that il- numbers in relation to the carrying lustrate when and how natural re- capacity of the land, and the level sources were overused or depleted, and magnitude of poverty are all this requires survey data and field implicated. In addition, policies investigations; but for the most and projects have exacerbated the part, data did not exist. For exam- degradation. Thus, environmental and ple, there was none on how a tax resource management issues are inex- increase on agricultural land affect- tricably linked to the country's ed land use patterns. As a result, economic development. the review could not quantitatively -v - 11. This review and other OED stud- Knowledge about the Problem ies demonstrate that six important forms of capital participate in the 14. The evolution of thinking at the development process--human, natural, intellectual and operational levels institutional, cultural, physical and is Instructive. The literature first financial; also, that sustainable assessed the nature and magnitude of development means attaining a balance Nepal's natural resource degradation across the various forms of capital process as early as 1959. While it over space and time. was important in that it provided a diagnosis, it offered little in the 12. In Nepal, several factors pre- way of lessons or solutions to the vent that balance from being achiev- problems. Unfortunately, the find- ed, but primarily, it is because most ings were never incorporated into the forms of capital are limited. Also, decision making process, and it is accumulation of physical and finan- hoped this study will reverse the cial capital has been pursued more situation. aggressively than the others, and this may reduce the chance of achiew- 15. At the operations level, it ing higher growth rates and attaining appears that the first to act in the sustainable development. As indicat- environmental arena were bilateral ed later, these have been severely donors who developed programs in soil constrained by the lack of human, conservatior, land management, affor- natural and institutional capital. estation and livestock rationaliza- And, as natural capital deteriorates, tion. In most cases, however, these the possibility of devising viable were limited in scope and neve- in- strategies and options diminishes. serted into a donor/government de- velopment strategy. 13. For these reasons, environmental concerns must be incorporated into 16. The first four or five "National decision making at all levels. It is Development Plans of Nepal" gave neither advisable nor acceptable to little priority to environmental and take only a partial view of resource resource degradation. Nature was not degradation in Nepal, relegating conceived as a form of capital and in concerns to either the project or the government view, did not need to sector alone. Concepts like "sources be expanded or conserved. Thus, of growth" or "comparative advan- public sector allocations were meager tage"--which often define the nature by comparison to investments in other and extent of donor interventions and activities. Rather, most went to the instruments chosen for develop- expand infrastructure (roads, tele- ment--must be modified to accommodate communications) and to develop ar- Nepal's realities. Resource degrada- rangements for financing. tion problems are, and should be, a profound concern of macroeconomic and 17. The Bank focused on the problems sectoral policies. Further, macro- much later than other donors; and, economic planning and policy formula- when it began to address them, the tion--even monetary and trade poli- problems were not stated explicitly. cies that are seen as removed from The first reports that addressed natural capital--need important re- issues such as soil erosion and land alignments. And in this area, the degradation were produced at the Bank can make a major contribution. sector level, demonstrating the Bank - vi - strength on technical matters at the Perhaps the most rigorous assessment time; and, eventually, some ESW find- appeared in the Bank's Social Sector ings were incorpor9ted in rural de- Strategy review in 1989. velopment and forestry projects: for example, to control erosion, projects 20. This latest assessment goes well considered now technological packages beyond a strict ardlysis of the is- and cultural practices. In the early aues that surround natural capital. stage, however, the goal was not the F:st, because 95 percent of the management of natural capital but r_ ation depends directly on the increased productivity (output per -, forest and water for its live- unit of lane.). lihood, it was necessary to determine how various forms of capital were 18. Country economic work did not allocated. Further, the review was give much prominence to these prob- concerned with the issue of how in- lems. More recently genuine attempts come-earning activities affected the were made to incorporate natural management of natural resources. resource management iosues into coun- try strategies and action programs. 21. Second, it is widely agreed that At present, however, much more needs resources have been badly managed due to be done, particularly in the area to ill-conceived or poorly implement- of improving macroeconomic instru- ed policies. The main issue appears ments such as structural adjustment, to have been regulation or non-regu- public investment and expenditure lation of entitlement to land and reviews, national environmental ac- forest resources (little attention tion plans, and the like. It is has been given to water resources); important to note that OED experience and the discussion has centered on finds the pattern is not unique to how alternative arrangements--specif- Nepal. ically common lands, open access, private and state ownership- -influ- Resource Management Issues enced the rate of resource use. 19. Institutional and human capital. 22. For a long period, several as- One point of convergence among na- pects of Nepal's institutional struc- tional plans, donor efforts and the ture were not identified and there- academic literature (which has been fore not incorporated into decision highly critical of both government makers' discussions. For example, policy and foreign aid) is that the the use of price, subsidy, tax, user primary obet.,.le to change (in the charges and trade policies as instru- use of renew-e resources) is rooted ments of resource management were in the country's institutions. Fur- recognized in the 1960s and 1970s, ther, that significant progress can but did not become part of the policy only be achieved by strengthening agenda until the 1980s. :n addition, human capital--starting with trans- little persuasive evidence was assem- forming institutions. This position bled over the years about the advan- was first clarified in 1956 by the tages and disadvantages of indigenous Nepal National Commission on Educa- management systems, the impact of tion Planning and reiterated in gov- land, forest and water legislation on ernment five-year plans and donor resource use, and the effect of ma- programming documents (including Bank croeconoL Ic incentives on user behav- ESW since 1965) over three decades. ior. - vii - 23. Potdation. yoverty and Natra- capital intensive. Aware of the JJg. For some time, mounting popu- problem--although it was never ex- lation pressure on natural resources plicitly stated in the 1960s and has been seen as a major direct cause 1970s--the Bank primarily financed of environmental degradation in Ne- infrastructure projects during this pal. (Novertheless, family planning period (e.g., water supply, severage, has been largely ineffective.) And, roads and irrigation). The basic since the early 1970s, deepening assumption was that physical and rural poverty has also been linked to financial capital were the limiting over-use of resources, as well as to constraints--at this stage in Nepal's migration to the Terai. development--and that other forms of capital would normally adjust. How- 24. Once the connection between ever, experience demonstrates that poverty and resource degradation was adjustment never occurred and many of made, decision makers created a the infrastructure projects began to broader framework for discussions fail due t- the lack of institutional about renewable resource management and human capital. that stretched beyond the boundaries of individual sectors (e.g. across 27. Until recent years, these find- agriculture, forestry, energy and ings did not change fundamentally water supply). In &ddition, concern Bank views at the macro level -r grew with regard to developing off- alter the criteria for selecting farm employment, and this, in turn, development instruments. In fact, related to efforts in education, only the more recent country economic industry, urban infrastructure, tran- reports emphasized that the main sport, communications and population source of growth (as well as the and health programs. selection of instruments for develop- ment) depends on human, natural and Development Instrumentst An Assess- institutional capital. mnt 28. Policy dialogue with Nepal (at 25. Since the issue of resource the national and sector level) rarely degradation was first recognized at addressed natural resource management the micro level, the most obvious issues in a comprehensive manner. instrument of intervention was the Moreover, it is unclear that Nepalese project. Thus, several projects were authorities had this dialogue with used to directly tackle one or two other donors. natural resource management issues. Within these projects, attempts were Foreign Aid and Resource Management made to promote reforestation poli- cies (through conditionality). How- 29. Between 1966 and 1989, donors ever, this review found that some committed more than $4.5 billion Bank-financed operations performed (1988 dollars) in grants and loans to poorly in several basic areas and Nepal for about 800 projects related that projects were inadequate instru- to renewable resources. Of the to- ments for policy change. tal, 40 percent was for renewable resources, 47 percent was for infra- 26. The less-than-satisfactory per- structure and 13 percent was for formance was particularly noticeable social sectors. However, the distri- in projects that were not physical bution changed dramatically over the - viii - periodt infrastructure declined from strategic context that aimed to re- 90 percent to 25 percent, and agri- move constraints systematically. And culture, forestry apd rural develop- last, they lacked resolve to stand ment increased from 5 percent to 55 by their aid conditions, or simply percent. There was little change in not to lend if conditions were unmet. the proportion earmarked for institu- tional development and population Possible Strategies and Action programs. The total effort has been widely criticizd in academic litera- 32. The experience with this case ture with observers noting that aid study suggests several important supported hundreds of tncoordinated elements to be considered when formu- projects with limited sustained re- lating future strategy and projects. sults. Also, that the demando of First, it would be of great assis- competing projects on Nepal's scarce tance to the GON if the Bank, in the management and financial resources, near future, helped the government did the country a huge disservice. prepare a Consultative Group Meeting for the agricultural/rural sector 30. Donors generally recognized which would seek the participation of their efforts were less than satis- all donors and relevant NGOs. The factory, particularly with regard to key questions that could be addressed changing policies and strengthening are: what do we know about the prob- central and decentralized agencies. lem, what are the most effective According to some critics, until the instruments to deal with the problem, late 1980s, change was slow to mate- what are the appropriate roles of rialize due to government intransi- different donors in conceptualizing, gence and failure of donors to bring studying, implementing and evaluating convincing arguments in policy dia- Nepal's resource management problems, logue, or to use conditionality or and what kind of strategy should be the threat of withholding aid, ef fec- developed, both for the short and tively, when pressing their argu- long term? The main benefit from ments. Both these explanations are such a meeting would be to arrive at controversial, since these observers a general consensus of what can be concluded the imperative for donors done, who will do it and what the to provide aid (to improve condi- process would involve. tions) was greater than the govern- ment's to receive, in which case 33. Second, such macroeconomic in- donors had no alternative. struments as structural adjustment, public expenditure and investment 31. Other observers claim the reviews have to be carefully assessed donors' inabilicy to win acceptance in light of the findings of this of what they considered "appropriate" study. The issue of natural resource institutional prerequisites was due management, as a key ingredient in to three possible factors. First, development, should define the nature donors did not understand the culture and scope of those instruments. In and attitudes of power groups, senior particular, traditional definitions civil servants and resource users of what constitutes sources of growth whose decisions affected the way and comparative advantages require resources were used. Second, donors substantial modification to incorpo- were unable or unwilling to coordi- rate a more expanded notion of oppor- nate their efforts within a more tunity cost and economic prices. The -ix - economic prices that guide the devel- and adjustment policies should be opment process must explicitly con- rapidly consolidated. To this end, sider the external effects of poli- the two previous recommendations cies over space and time. Spatial would provide the first stage of the and inter-temporal externalities process. At present, macroeconomic cannot be overlooked in this particu- policies (which deal mainly with lar case, and these externalities issues of growth) and sector policies will be over and above the tradition- (which focus on sustainable develop- al accounting of "marginal costs." ment) are often conceived separately, One way to incorporate environmental increasing the risk that they contra- concerns into macro policy is to dict each other in fundamental ways. modify Nepal's national accounting For example, when only growth is system so it thus reflects changes in considered, activities that are crit- resource allocation and use. At ical to sustainable development are present, it does not and thus pres- often overlooked. As a result, these ents a false sense of progress for policies have had little effect on the economy. In addition, public the rate at which Nepal's natural investment and expenditure alloca- resources have been degraded. Thus, tions, while assessing the merits of it would be important that country individual projects, will also re- sector strategies reconcile short- quire a broader portfolio perspec- and long-term goals. Finally, sever- tive. One additional criterion for al lending instruments require sig- the selection of the final investment nificant alteration, so that donors packages should be the extent to will not continue allocating scarce which it contributes to the sustaina- resources for short-term gains; and, bility of Nepal's development. as a result, attempts to bring about sustainable development will fail. 34. Third, efforts already underway to formulate macroeconomic strategy NATURAL RESOURCE MANAGEMENT IN NEPAL? 25 YEARS OF EXPERIENCE CHAPTER 1: INTRODUCTION A. An Overview 1.01 This is a study of the Bank's contribution to developwant and institutional change in the area of natural resource management in Nepal. It examines the micro and macro interrelationships that determine how natural resources are used. In particular, it emphasizes institutional questions, through a detailed review of Bank and non-Bank experience, supported by field work. Although there is much more awareness now about the impact of development on the environment, it is expected this report will advance the understanding of various aspects of the problem. 1.02 Because of its broad scope and complexity, the review is limited, to some extent, in its ability to answer many of the questions it raises. The lack of reliable information and data compounded the problem, since it was not possible to quantify key relationships nor the expected effects of various economic interventions. Nonetheless, the study draw some important findings and lessons, and lists issues that are central to further sector work and socioeconomic research. 1.03 There is no doubt the Bank currently has a better understanding of the nature and scope of resource management issues and constraints in Nepal (as of most of its client countries). It is also true that the evolution of Bank thinking has been very similar to that of many other donors and intellectuals. Resource management and environmental issues in general, are much more important now than even a decade ago. Therefore, this study attempts not only to point out the errors of the past, but to signal what the Bank can effectively do in the future. The hope is that the review of experience will lead to a systematic understanding of operational and policy options for Nepal as well as for other developing countries grappling with similar issues. 1.04 As a result of the review and field visits, it was found that Nepal's resource management problems are intricately related to its development process. For this reason, the review stresses that macroeconomic variables such as population growth, migration, demo.graphic factors, generation of income and employment, and poverty are central to an understanding of why very little has been accomplished in resource management in Nepal. Changes in access, allocation and use of natural resources depend on micro as well as macro economic aggregates that are beyond the simple analysis of a project or policy. Thus, the report focuses not only on the experience drawn from individual projects, but also on country reports, investment reviews and on general growth and development propositions made by the Bank during the 25-year period (1963-1989). 1.05 This macro orientation will, however, create new complexities. One is the assessment of the relationship between the natural system and the economic - 2 - environment. The reason rests mainly on the fact that macro aggregates affect natural resource use indirectly. 1.06 With the benefit of hindsight it may seem that the Bank and other donors missed opportunities to improve the management of natural resources in Nepal. Whether things could have been done differently is less certain, considering the constraints within which the Bank had to work (such as a weakened natural resource base and highly inadequate public institutions). Thus, this case study explores the specific constraints over the 1963-89 period to assess the degree to which they presented major obstacles. 1.07 Nepal was selected for the case study for various reasons. First, degradation of resources is proceeding rapidly and the links between poverty, the nature of economic incentives, institutional weaknesses in government, and the destruction of land, water, and forests is more starkiy visible than in countries where environmental damage is not, or not yet, so severe. In addition, it is typical of many of the world's poorest countries, where management of resources is essential to economic development - yet those resources are highly constrained: for example, 90 percent of Nepal's GDP is from agrieviture and the same percent of the population live off the sector; yet the soil (which is the basis for agricultural development) is very poor. The country was also selected because it provides the opportunity to assess the results of frontier development (where virgin, often highly unstable land is drawn into use). As in other countries where this is occurring, several key factors (such as migration, population growth and cultural patterns) cannot be controlled--particularly, where national/local institutions are weak. 1.08 By broadening the context to all resource-relevant sectors, by reviewing the literature on government decision-making, resource degradation and external aid, and by examining the activities of various external assistance agencies that affect resource management, the study aims to provide insights into (a) the problems that were and are likely to remain outside Bank control, and (b) those over which the Bank might have had some influence. B. The Nepalese Economy: A Brief Overview 1.09 Nepal is a country of 147,000 square kilometers (km) with a population of 18 million. Since it emerged from relative isolation in the early 1950s, it has embarked on a series of broad-based development programs supported by increasing flows of external assistance. Nevertheless, development policies have been largely ineffective, economic growth has declined and poverty is pervasive. For example, in 1988, per capita income was about $180, little higher--in real terms--than in 1961. The failure is rooted, at least partially, in four areas. First, as Nepal remains at an early stage of development, its management and administrative systems are extremely veak. Second, its soil is unstable, so erosion is severe. Third, the country is mountainous and landlocked, which makes transport, communications and marketing difficult. Fourth, the economy is -3- dominated by agriculture, which accounts for 90 percent of employment and 90 percent of gross domestic product (GDP); thus there is little potential for diversification. Finally, -opulation is growing rapidly, by 2.7 percent a year. 1.10 Of the 12 countries examined in the earlier study, Nepal was judged to have the weakest resource management. As a result, its resouxces have been devastated--despite the fact that since the late 1950s, a wide array of donors (including the Bank) have swamped the government with technical and financial assistance. However, although they saw little chanc3 for substantial improvement, it is possible that the various donors felt they had to be involved in the country, even if to simply minimize the extent of the damage (to natural resources). C. Questions Examined by the Study 1.11 Phase I of the study offered various explanations for the Bank's limited effectiveness in dealing with major resource management issues. These include the following: (a) Bank documents on which operational decisions were based (particularly grey-cover reports, staff appraisal reports ESAR] on projects and economic and sector work (ESW]), did not adequately reflect the wide range of insights within the Bank on the highly complex issues of environmental management. Also ESW documents (guidirg the Bank's approach on the loan portfolio, conditionality, policy dialogue and dealings with other donors), frequently did not draw on the Bank's own historical record. Rather, they appeared to be unaware of, or did not cite, the relevant literature. In addition, they often ignored the activities of other donors and sometimes overlooked major political, social, geological and other natural phenomena that had far-reaching environmental effects. Most important, these documents contained little systematic assessment of transactions among policy makers, bureaucrats, and resource users, which could have reduced some obstacles to improving they way renewable resources were used. (b) With regard to renewable resource imanagement, policy recommendations often lacked a clear environmental focus. First, they did not provide a mechanism by which environmental considerations could be brought into operations. Further, they did not determine whether or how the Bank should help get environmental issues addressed on a scale essential for sustainable development. In addition, neither the government nor Bank project staff was provided with sectoral, intersectoral, regional and macroeconomic methods and guidelines for assessing constraints, priorities and options for strategy, policy and -4- action. Finally, the relatively small amount of Bank lending and limited nature of the policy dialogue (which, until the 1980s, did not include resource management on the agenda), did not do much to promote effective management of natural resources beyond the project level. 1.12 To explore Bank activities over this period (1963-89), the report focuses on the following issues: (a) Did the Bank approach to policy (as evidenced in the policy dialogut) achieve positive changes in the selection and design of projects, in order to improve resource management? (b) Could Bank management have been provided with more information on options, enabling it to choose a different approach to operatiors? (c) Would other approaches have been acceptable to the borrowing country? (d) What future options are open to the Bank? D. The Evaluation Context 1.13 When assessing the impact of aid on the environment, several key factors need to be explored. These include the changing concerns of donors over the 25-year period and how they were translated into policy and operations, the scope of Bank activities in Nepal, and the strategies the Bank developed to improve resource management. 1.14 The 1963-89 period was marked by major changes in global thinking about key issues in economic development. For example, in the mid-1960s, the environment was not discussed by the Bank or other donors. Inequity and poverty were recognized as symptoms of underdevelopment at that time, but the major thrust was growth. But by the early 1970s, the environment and poverty emerged as additional criteria by which the Bank judged its performance, although major emphasis was placed on the issue of poverty. Throughout the 1980s, the environment became a more dominant theme in Bank operations; and the evolution of these criteria influenced what the Bank did in each of the three decades. Thus, it is important to determine if the Bank learned how to use its experience when designing new projects and policies. 1.15 Second, the review attempts to clarify the value of the relationship between what the Bank determined were high priority resource management issues, and its policy dialogue, lending program and conditionality. -5- 1.16 Third, the scale of Bank operations in Nepal was directly related to its limited capacity to develop a strategic approach tc resource management (due to the constraints described earlier). In this regard, the Bank was a very minor player in the mid 1960s, entering a situation where a number of bilateral donors had developed substantial activities over the previous 10-15 years. However, by the late 1970s, its position was totally changed, due to major lpan commitments in highways, power, irrigation, rural development and water supply. 1.17 A fourth concern involves the issue of how environmental or resource management questions have been handled by donors in general, and the Bank in particular, and how aid has helped or hindered overall economic development. While the first study focused primarily on agriculture and forestry, this review was expanded to incorporate other sectors that were direct users of renewable resources, such as water supply and hydro-electricity. Road building was also included in the study because of the potential damage it could create as well as because of its importance in opening up opportunities for exploitation of resources. Further, in a situation where opportunities for sustainable expansion appear limited, sectors such as education, health, industry and urban services, which generate off-farm employment and favor rural outmigration, were also considered an integral part of resource management. Because these sectors involve the entire economy, resource management strategy is virtually synonymous with country-wide strategy. 1.18 In the case of Nepal, the links beteen development and the management of renewable resources are sufficiently strong to render the strategies for both to be essentially one and the same. Factors relating to fiscal performance, judged by indicators such as inflation, foreign exchange reserves, balance of payments, private share of gross investment, savings, budget deficit or government revenue as percent of GDP, were considered outside the realm of resource management. For this reason, the Bank did not assess their impact on the environment. Nevertheless, this review identifies the relationships and describes where management of natural resources is conditioned by policies that affect these indicators, or vice versa. 1.19 Much of the review focuses on the context in which Bank projects and policies evolved, rather than on projecis, themselves. For example, it will examine what kinds of activities other donors and the government were carrying out in Nepal--since the Bank was not operating in isolation. It will also assess whose interests these various activities (with respect to natural resources) served. And it will explore the context to determine why, although there was a substantial amount of experience to draw upon, the Bank chose to ignore it. 1.20 Finally, it is important to note that the effect of donor assistance on the environment and resource management has been widely studied. There are various opinions and differing agendas among donors and interest groups that are assisting the country. No single report, however penetrating or imaginative, reflects the diversity of perspectives. For this reason, by examining 25 years of experience, the report will raise some of the more relevant questions and contribute to the debate on renewable resource management and development. -6- E. Outline of the Study 1.21 Chapter 2 reviews the literature while Chapter 3 examines the scope of aid, along with the perceptions and role of other donors. Chapter 4 reviews the nature of Bank lending and the experience with completed operations. Chapter 5 reviews the interplay between lending and policy at the sector level to determine the extent of ESW and its influence in policy making. Chapter 6 assesses the Bank's ability to incorporate environmental concerns into macroeconomic policy and countrywide institutional reforms. Chapter 7 outlines the principal findings and lessons. CHAPTER 2: THE DEVE.OPHENT LITERATURE 2.01 This chapter reviews the literature to show how renewable resource issues were viewed from the early 1950s through the late 1980s. Particular attention is given to the literature produced before 1980 because it provided the background for most of the resource management decisions made by donors and the Nepalese government between 1965 and the present. 2.02 The literature from the 1960s and 19709 deals with changes in the physical state of renewable resources, their social and economic consequences, policies introduced to promote change, and effects of foreign aid on government decisions regarding resource management policy. More recent literature was widely reviewed in two comprehensive environmental studies (ERL 1989 and IUCN 1989). A. Physical Changes in Resources 2.03 Although deforestation and erosion in Nepal were mentioned as early as 1949, environmental issues were not yet a major concern. Instead, the general view in the early 1950s was that the ciuntry was rich in natural resources, particularly timber and minerals, which were waiting to be exploited. However, by 1954, the first explicit statement appeared about the cycle of deforestation/ erosion/reduced soil fertility/reduced water supply/climatic change and flooding, particularly in relation to the region known as the Hill. The theme continued to dominate the literature of the 1960s and early 1970s. In addition, there was increasing concern that population growth was stimulating environmental degradation. Studies observed that marginal lands were being cultivated, yields were declining and forests were being cut at an alarming rate as the demand for fuelwood and animal fodder increased. To make matters worse, dung was being used as fuel rather than as a fertilizer, which reduced the quality of the soil even further. Soil erosion was said to have increased siltation and downstream flooding in India and Bangladesh. 2.04 These views were later summarized as the "theory of Himalayan environmental degradation" (Ives and Messerli, 1989). The cycle was described in the following way: (a) Strong external support provided health care and malaria control in the 1950s, and, as a result, the rate of population growth increased from 1.4 percent to 2.6 percent annually, which was sufficient to double the population every 27 years. (b) Because more than 90 percent of the population was rural and oriented to subsistence production, rapid population growth increased the demand for fuelwood, timber, fodder, and land for grazing and food production. (c) The result was massive deforestation, so much that forest reserves were reportedly reduced by 50 percent between 1950 and - 8 - 1980 and were in danger of being completely exhausted by the year 2000. (World Bank 1983) (d) A vicious cycle in the Hill had developed where, as erosion accelerated, soil fertility declined, village water supplies were disrupted, agricultural production decreased, the greater load of sediment in rivers led to the siltation of reservoirs, water courses became unstable, and the increased run-off during the monsoon season caused catastrophic flooding in the plains. 2.05 These themes were still promirent in the literature of the late 1970s and 1980s. In addition, studies during the latter period pointed to the fact that the cycle had spread to the Terai (a valley surrounded by mountains). But, by the mid-1980s, the theory (for both the Hill and Terai) was increasingly challenged, largely by the International Center for Integrated Mountain Development in Nepal (ICIMOD). The Center observed that first, it was unclear where, exactly, degradation was most acute or most likely to intensify. Second, the causes were increasingly questioned: Some stressed it was due to human activity, while others argued it was the result of natural, geologic factors. The Center also claimed that the process of deforestation in the Hill had been underway for 200 years and thus was not a new phenomenon, and that the relationship between erosion and declining productivity had not been proved. 2.06 In addition, critics insisted that to link Hill farming in Nepal with flooding and siltation in the Ganges basin was misleading. In their view, even if Nepal were completely reforested, there would be no appreciable change in siltation and downstream flooding for centuries to come: Silt loads in riverbeds were heavy, long before the cycle of land degradation, landslides occurred frequently even in forest areas that had not been disturbed by human activity, and erosion was a natural, geological phenomenon. Further, there was no evidence that dung was burned because fuelwood was in short supply. 2.07 In the final analysis, the whole debate highlighted the uncertainty about the causes and consequences of degradation. In recent years, geologic erosion has been generally viewed as inevitable, accounting for 70-90 percent of total erosion. 2.08 Based on this review it appears that the literature: (a) did not distinguish which aspects of environmental degradation were man-made or occurred due to "natural" forces; (b) saw declining agricultural productivity as the result of expanding production on to marginal lands, did not search for other contributing factors and ignored soil conditions on the original, cultivated land (on which the bulk of production occurred); - 9 - (c) focused on the amount of forest land placed into agricultural production, with no discussion of the amount turned into shrub land; (d) emphasized erosion and forest degradation (due to cutting forests) without questioning, until the late 1980s, how this affected forest soils and thus existing and potential forest yields; (e) overlooked the increased pressure on public non-forest lands that were used for grazing, as livestock herds grew and forest fodder supplies decreased; (f) acknowledged the relationship between poverty and resource degradation. B. Socio-Economic Causes and Consequences of Change 2.09 Most of the literature since the 1960s identified population pressure as a major cause of environmental degradation in Nepal. Since the mid-1970s, poverty has iocreasingly been recognized as both a cause and consequence of resource degradation: For example, several studies analyzed the cultural, economic, and institutional underpinnings of deepening poverty in the rural areas, particularly in the Hill. 2.10 The literature on the interrelationship between population, poverty, and migration dates from the early 1970s. Before that, literature conveyed the general impression that Nepal was rich in resources and had a food surplus in the Hill, although not in the Kathmandu valley. Therefore, there was little justification, except for geopolitical reasons, to promote migration from the Hill to the Terai. However migration occurred anyway, because the bulk of investment flowed into the Terai and Kathmandu valley, converting these two regions into significant food surplus areas. Thus, it appears the migration stemmed from a government position to de-emphasize Hill development, a policy generally supported by foreign aid. 2.11 In the 1970s, issues concerning the deteriorating food/population ratios and resource degradation due to population pressure were explicitly introduced in the literature. Studies called for policies to reduce birth-rates nationwide and accelerate migration from the Hill (to alleviate pressure on the resources there). At the same time, many believed the Hill should be a key concern (as it had been largely neglected). Arguments supporting this position pointed to (a) deepening poverty, which was exacerbating resource depletion, with detrimental downstream effects, (b) equity considerations, (c) opportunities for generating a sustainable increase in productivity and (d) recognition that migration would only be a "temporary palliative" (Eckholm 1975). In spite of earlier recommendations for "a massive attack on population [growth]" (Rana - 10 - 1976), the literature of the 1980s was pessimistic about such an approach because of Nepal's cultural and administrative constraints. 2.12 In considering the social and economic consequences of resource degradation, the literature focused on the problems of declining food self- sufficiency, more intensive use of land and water for food production, and the negative effects on income distribution. One of the earliest references (1965) pointed to the fact that domestic food production was not keeping pace with population growth. Over the past 25 years, increasingly sophisticated studies assessed regional and national deficits in food production and projected future shortfalls. The literature of the early 1970s warned of an impending food crisis and called for more intensive use of technological advances to increase food production. This approach, which entailed double cropping of wheat and the introduction of high-yielding varieties, had already been demonstrated in the Kathmandu valley in the 1960s. Since the 1970s, the thrust in the technical literature was on introducing modern production packages that added labor- intensive or labor-saving technology, cut-and-carry livestock feeding, use of dung as manure, and mechanization to reduce reliance on oxen. Moreover, all these items were to be supported by irrigation, research, extension, credit, expanded distribution of fertilizer, and marketing services. 2.13 Since the early 1980s, questions were raised about the environmental, economic, and distributional consequences of more intensive food production. For example, although the use of inputs rose, yields did not improve much because extension services, along with the distribution of seeds and fertilizer, were inadequate. Further, although double cropping was carried out on 80 percent of the cultivated land, there was no commensurate reduction in the number of livestock. The result is that grazing pressure on the fringe of forests increased. 2.14 Increasing attention was also given to the distributional consequences of resource degradation. Although measurements were inconclusive, some studies claimed that real wages in agriculture declined, poverty increased, and income distribution worsened since the 1960s. A study by Kumar and Hotchkiss (1988) found that deforestation had diverted 40 percent of labor from agriculture to fuelvood collection. As a result, productivity declined, incomes decreased and nutrition of children suffered as women spent less time preparing food. C. Public Administration 2.15 The inability of the Nepalese administration to formulate and implement policies and carry out development projects has been widely recognized in the literature since the 1950s. Many problems were listed by various writers: For example, due to the rapid turnover of senior decision-makers, policies and projects were carried out ineffectually. Staff morale was low. Career prospects for mid-level staff were limited. Job security was uncertain. Internal jealousies poisoned performance. Decision-making was too centralized, and - 11 - coordination was weak. Many senior officiale reputedly knew little about the realities of rural Nepal, where 95 percent of the people live. 2.16 A few observers recommended courses of action to make public administration more effective (although in general, constructive suggestions were notably absent). During the 1970., several emphasized the need to strengthen the decentralization process, particularly the panchayat (village-level organiza- tions) system. However, a number of analysts believed this was a failure because, when it was tried, it did not allow for popular participation in decision-making and merely reinforced the power of the local elites. The literature of the 1980s reiterated virtually all the deficiencies identified earlier and argued that institutional change at the national level was required to promote efficient and equitable growth and create policies that would respond to the needs of various users of resources. D. Policies and Issues in Resource Use 2.17 The main issue that has attracted attention over the past three decades is land use (it is noteworthy how little attention appears to have been given to water). Studies discussed how the different types of land ownership--public, private, commonly held and open access--have influenced resource use. The literature of the 1970s presented conflicting views on whether communally owned lands were well managed. Some authors argued the system discouraged investment needed to raise productivity. Others claimed communal control and allocation of rights to fooder, fuelwood, grazing, and cropping were efficient, sustainable and equitable. Government-Owned Land 2.18 References to inefficient and unsustainable use of government-owned forest and grasslands were noted in the mid-1970s. The Private Forest Nationalization Act of 1957 was blamed for causing deforestation and the cycle of resource destruction that followed (see Box 2.1). Some studies claimed that by destroying private and communal property arrangements and replacing them with ineffective state management, the government had provided open access to resources and incentives that might have encouraged users to protect resources were thus removed. Open access, it was said, further skewed distribution in favor of the rich because they were the ones best able to take advantage of the situation. 2.19 Others argued that since government management was ineffective, the communal use of pastures and forests simply continued as before. In some parts of the country, informal arrangements for the use of forests by local people had developed. In remote areas, where a large part of the rural population resided, people were barely aware of the law or its potential ramifications, so they were unlikmly to change their system of managing resources. - 12 - ial2.1 F ndWat~rahed Mangmwnt ALagiaive Fallure The Priv#te Fore'tNi ~*lonAct of 1957was intend~d to ensure proper management and conservation förestafor the benfit O the enti ö i.n areas that were suffcoently ~ccessible for the govemment to make ta presenlce felt the vtlagera wer. phited from outting the forest. in practice, the govemment had no mneans of enforcing the rd thus, tradihl systems of managIng common lands were replaoed by a de facto Sregim. Further, off icials in coliuslon with powerfivested interests, both local and xternal, granted t eI*S. Urkde< eìJh altouriwstnce theiagers had nu InCentiveto prot~ct foreste. The not result~rapid .as the converse 0f what th. Forest Act was eupposed to acomplish. in areas outside the rongo of government interventIon the traditionai relatively austainable, communal management systems were retalned. A numbe fÌlawe e passad to Cutb délaretation between 1960 and 1970 but with little effect1 A forestry taskforc ir 1974oncludeathat the mountain region (40% of the country),which ln 196 *ontelned 1.0 million ha of ~ldtertd5l(30% 0 total:fort)a Was under-utllized. The 4ill countty (30% of the country), with 1.8 millkor>ha 0o foretod lafd In-1906(30% of totalforest) was the problem area in need of masulve reforestation. Inihe Terlgad Shwealiua*0% ol the Ocuntry,with 2 iion ha or 40% of the forest area In 186), the task force recomnmnded extmnding $gkficuture to all suitable solts and retalnng forests on poorer solls, particularly In the älwalks -wicfl countå for almost half thé ara. Theo recommendations provided the forest policy framework dr he:Fbfth Pan (1975-. nd the Soil and Water Conservatlon Department (SWC) was established to carry them Out. O C nt inud to ignore the basio flaw In the 1957 act-that tocel people were not Involved in et ing and Implemntlng fornst management. In:1976, the Nglona fdreatry Plan statd expickly that community Involvement was essential for sound forest man~agement .gilehon tI put this Int effect was paed In 197w and subsequently reinforced by the Forest onraidn Act 187 Cnd the Naional Forest Plan of 1989. The 1987 Act contained a provision to lease forost lands to people below the povety line with the govemment providing the necessaly Investment capital. lemenation , thit leglatoin has been slow. D'pite thOs fforts, data on Change ln land use for some distdcts between 1977 and 1984 show a not ecinforet,shru, and cultvated area and not expansion of grassands. In fac;:there Is some evso ience that both the 1978 legislation and the program of titaing had adverse effects on forestse. Fr Okample, under the incentves proilded In the legilatin to promote plantations, people were permtted to cut down trees they had planted. This provisiont was provd as a loophole that allowed large oreas to be out regardtess of whether the troes hud been planted, ln addition, clearing of forest for expansion of agricutture was viewed as a way of obtaning titte to the land. To control floods, indslides anld erosron, the goveement passed the éolI and Watershed Conservation Act of 1982, uinder whcOh It acquired wie power w to regulato land use and punish those who did not comply with the 'egulations. However, there is little evidence that any anctions have been applled. ~ ForMst Act, 1 ~; ost Proction At, 1967; Fore t Potection Rules, 1970 Forest Sales Ruls, 1970. F ä ää don'forested tabd-Iadd that i at lesat 10% coered by forest - 38% of the eowttty is forested. With a deftnition ör at resa 5o% treeoverthe prot is reed to 29%. Fan¢~htyat n ules~ Panes Purotected Forat Rules and4 Leasebold Foirest Ruiles. 2.20 Most comentators agreed that the government should repeal the 1957 law, since it was not improving resource use. Beyond this, the literature presented little persuasive evidence on (a) the advantages and disadvantages of indigenous management systems, (b) the impact of the 1957 law and subsequent forest and land acti on efficiency, sustainability and equity and (c) the opportunities for improving the management of resources. - 13 - Land Tenure 2.21 Private land-tenure arrangements have also been a significant topic of study since the early 1960s. At that time, it was claimed that Nepal had one of the worst land tenure systems in Asia and that it seriously hindered agricultural efficiency. Moreover, studies referred to the ineffectiveness of the 1957 Land Act and the 1964 Land Reform Act. Efforts to promote equity and efficiency by reducing the size of large farms, controlling rents, and improving security for tenants are said to have been wholly ineffective because of Nepal's power structure and public administration. Scholars have argued that, paradoxically, the implementation (or non-implementation) of the Land Reform Act transformed tenants into wage earners rather than landowners. However, throughout this period, the literature unequivocally accepted the fact that land reform was essential for improving resource management: It would provide incentives to the vast majority of the rural poor by changing traditional landlord-tenant arrangements and by enabling small farmers to obtain access to credit, modern inputs, extension services, and education, which formerly were available only to the large land owners. Macroeconomic Policies 2.22 The use of price, subsidy, tax, and trade policies as instruments of resource management received little attention in the literature until the 1980s. Studies in the 1970s referred to the need to stabilize agricultural prices, so as to promote efficient production. In addition, they argued that water charges should be imposed to provide revenues to the agencies responsible for the operation and maintenance of water supplies and irrigation and to reduce wasteful use. 2.23 With regard to subsidies, literature of the 1980s generally criticized (a) the fertilizer subsidy, which was thought to benefit mainly Kathmandu valley farmers and traders engaged in smuggling fertilizer to the higher-priced Indian markets, (b) subsidized credit, which again was thought to benefit large farmers, and (c) the fixed procurement price for food grains, which was paid to a few large producers and mainly benefitted urban consumers and traders smuggling grain to India. 2.24 Regarding taxes, in the 1950s, observers noted that resources were used inefficiently or inadequately because no tax was imposed on 50 percent of the land. Since then, most of the literature has proposed tax reform to mobilize additional government revenues. However, it does not refer to resource taxes and user fees, such as stumpage, finhing licenses or electricity charges; and the question of imposing them was not seriously considered because, for cultural and administrative reasons, they would have been difficult to collect. 2.25 With respect to trade policies, since the mid-1960s, some scholars have advocated using Nepal's comparative advantage by producing more crops and hydroelectric power for export. However, in the 1980s, others argued such a policy would adversely affect food supplies, nutrition and income distribution. In addition, a recent study suggested that government efforts to control imports - 14 - and exports and manipulate exchange rates benefitted small-scale industry to the detriment of agriculture. Another claimed it was virtually impossible to use fiscal and monetary instriments to influence the decisions of those who use resources because Nepal has 7,000 inaccessible villages that exist largely outside the market economy. A further factor, said to exacerbate the unmanageable nature of the economy in general and natural resources in particular, is the open border with India which facilitates Indian migration into the Terai and "leakages" through contraband export of food and fertilizers. Moreover, it renders exchange rate policy ineffective as an instrument for promoting resource management. Other Important Issues 2.26 The literature contains important insights with respect to population policy, environmental policy, trade-offs in frontier development and institutions. Regarding population policy, it was pointed out as early as 1970 (Bernstein) that Nepal needed to decrease its birth rate and increase its food production, in order to continue to have a food surplus (the relationship noted was between population and agricultural productivity). In 1976, Rana made an explicit connection between population growth and the environment: "If deterioration of the environment (was) due to the increasing population pressure on limited land resources, then this can be checked by simply taking the population pressure off the land." Finally, in 1980, Poffenberger suggested the scale of the government family planning program should be expanded if it was to make the difference. Overall, however, while the literature acknowledged the population problem, little research was done to determine how population growth and migration patterns affected the use of natural resources. 2.27 With regard to environmental policy, the literature contains few ideas that have significant operational implications. Some called for "environmental- oriented policies" but no major effort was actually implemented. Despite naming "environmental enhancement" an objective of national policy, the means to articulate that goal and the relationship with other objectives was never addressed: For example, changes in the overall incentive structure (e.g., assigning property rights, using taxes or subsidies, revising interest rates) were introduced--but this occurred at the project and program level rather than at the macroeconomic level. In fact, two forestry studies identified the problem, pointing out that successful reforestation required accompanying policies, mainly to restrict livestock and also to control burning and lopping for fuel and fodder (Bosken, et.al. 1977; Shreatha and Evans, 1984). To resolve the problem, most of the literature recommended non-market based instruments, such as land reform, which are difficult to implement, particularly in the short term. 2.28 With respect to frontier development, the literature has concentrated on the dilemma about whether to develop the Hill region or the Terai. Because the Hill was densely populated, food supplies became scarce and the decision was made to promote settlement in the Terai (in the 1960s), which, with its favorable soil and climate, was seen as the place to achieve dramatic increases in agricultural output. Thus, by the 1970s, most national investment had been - 15 - directed to promoting resettlement in this area. However, by the 1970s, observers had noted that the settlement projects were not producing results: Migration was occurring more dlowly than had been expected and services were not being created. At the same time, the environment was deteriorating rapidly in the Hill and, according to critiques in the literature, the policy of allocating funds al to the Terai had been misguided: Food deficits in the Hill were becoming more severe, population was continuing to expand and land productivity was declining. Thus, the focus shifted over the two decades from increasing agricultural productivity to conserving the land. Thus, a dilemma developed: Expand the Terai by increasing investment and, hopefully, productivity and/or strengthen institutions in the Hill to prevent further environmental degradation. In the latter strategy (for the Hill) the issue was to consider land and vegetation as investment rather than consumption goods. As such, it was essential to preserve the land's productive capacity. However the type of investment, policies and institutional reforms needed to maintain, or even improve, the natural resource base were complex and would require a relatively long time to obtain economic returns. On the other hand, it was thought that short-term gains could be achieved in resource-based activities such as forest industries. Unfortunately, the literature never resolved the dilemma. 2.29 Finally, with regard to ii.stitutions, the literature focused mainly on the government's ability to conduct the process of economic development. As resource management activities often require public intervention, the literature is full of analyses of public administration; the main conclusion was that it was often inefficient and ineffective. In fact, some suggested that a major obstacle was the Nepalese officials' lack of knowledge about rural Nepal (e.g., Pant, 1965; Hagen, 1971; IDS, 1983). Part of the literature also focused on inter-institutional arrangements at all levels, as well as on the effectiveness of marketing arrangements, economic incentives and other forms of social organization (the role of the panchayat). Another major theme was (and still is) poverty and the failure of rural development programs to benefit the poor, since the incentive structure has not promoted sustainable growth and productivity. E. Relevance of the Literature 2.30 The literature of the last three decades raised the issue of resource degradation, its social and economic consequences, and the policy distortions causing the problem. In recent years, there has been an tncreasing divergence of views on the nature of the degradation and its consequences. 2.31 A central theme in the literature has been the conversion of forests into cultivated land; yet several major questions on forests, in general, have been largely overlooked. For example, what is the quality of the remaining stock? Can the conversion occur without destroying the forest cover (used as fodder)? What were the effects of terracing on agricultural productivity? What are the consequences of converting forests to shrub or grass cover? Little attention has been given to the issue of how grazing lands in the public domain - 16 - are and should be managed. The poverty resulting from resource degradation has been readily recognized, but little analytical work has been done to show how each reinforces the other. 2.32 Overall, the literature has assumed that more intensive agriculture througl the use of modern inputs, such as high-yielding seeds and chemical fertilizers, is necessary. However, until the late 1980s, little attention was given to the existing and potential difficulties in adopting the new technologies, such as transport costs, and the uncertainties governing the supply and quality of inputs, markets, land tenure, credit, and extension services. Many questions were not adequately addressed, such as, were the technological packages being advocated sustainable? How did they affect the expansion of grazing on to marginal lands? 2.33 Also, no systematic evaluation of indigenous land management systems for communally held forest and grazing lands was carried out in order to clarify how they worked, how they wers compatible with sustainable development, and how they changed after the 1957 Forest Nationalization Act. 2.34 As a broad generalization, it may be concluded that while the literature of the 1960s and 1970s contained good descriptions of the cause of land degradation, it provided the Bank with few recommendations that would have had operational significance. In the area of policy and its relation to the behavior of resource users, again, the literature of the early years was not particularly helpful. Aside from observing that changes were needed on property rights, taxes, user charges, price subsidies and the allocation of public expenditures among sectors and regions, little emerged on what actions were both viable and prerequisites to change. CHAPTER 3: THE SCOPE AND EXTENT OF EXTERNAL AID A. Introduction 3.01 This chapter provides an overview of the aid provided by various donors (other than the World Bank) to Nepal over the past 25 years. It examines the nature and extent of the assistance, donor strategies, their influence on resource management policies, and constraint. to their effectiveness. 3.02 It is essential to review donor approaches and strategies to determine the major differences and similarities in relation to the Bank; moreover, without a clear understanding of their activities, the picture would be incomplete. Second, a review of donor lending strategies will shed light on the policy dialogue, the extent of sectoral and national leadership, the nature of interactions with the GON and the scope of conditionality and structural reforms. 3.03 The main inputs to this report included the following: UNDP planning and programming reports; two assessment papers, one by USAID and another by the Asian Development Bank (ADB); studies done in Nepal and in research centers and universities; material from personal interviews in the field and at the World Bank and several reports from the Consultetive Group for Nepal. 3.04 The chapter is organized around six major themes. To assess the extent of the different donor involvement, the first part deals with budgetary allocations into different types of operations (in Nepal). This is followed by a general review of donor perceptions of their role and operational strategies, which are in turn, assessed by focusing or their influence. The next section presents a list of aid activities and the extent to which they were related to the management of renewable resources. Finally, the last two sections deal vith feedback, learning processes and the overall role of aid in the country. Despite its length, the chapter is far from complete, since a detailed analysis of the role of each donor is far beyond the scope of this study. B. Development Assistance at the Prolect Level 3.05 In the early years of bilateral assistance, the four major donors in Nepal were India, the United States, China and the USSR., It was claimed that their motives were largely strategic, political (to increase their influence on Nepal's domestic policies) and economic--to ensure that aid was tied to the purchase of donor goods and services (Poudyal 1982). The donors competed for influence and Nepal found it advantageous to foster the competition (Mihaly 1965). Switzerland, which was also among the early donors, was considered to be motivated by enlightened self-interest and humanitarian concerns, while Britain was viewed as largely concerned with maintaining a satisfactory image in the area from which its army drew Gurkha recruits. There seems little reason to doubt such criteria were relevant to aid decisions. - 18 - Table 3.1: Aid Connitments to Nepal Related to Renewable Resources by Sector, 1966-69 (in 1988 US$ million) SECTOR Years Education Infrastructure Renewable Population Other Total Resources 1966-69 35.1 554.1 30.8 2.2 1.1 623.3 1970-73 4.1 171.3 88.3 28.0 14.6 306.4 1974-77 43.8 424.4 374.7 44.1 7.0 894.1 1978-81 11.4 266.7 199.1 5.3 0.4 483.0 1982-85 132.4 536.9 648.9 57.4 27.7 1,403.4 1986-89 61.1 258.7 530.4 0.0 127.4 977.6 Total 287.9 2,212.1 1,872.2 137.0 178.2 4,687.8 Percentage 6 47 40 3 4 100 Number of Projects 171 196 336 40 28 771 Percentage 22 25 44 5 4 100 Source: Anpx Yb'la 4.1 Note: Table A-1 in Annex A identifies 20 sectors which for the purpose of presentation have been suimrized into five: . Education all projects on institutional support, research, extension, surveys, studies, resource inventories, university support and, technical assistance related to renewable resources; . Infrastructure transport, hydroelectricity, water supply and sanitation; . Renewable Resources crops, horticulture, livestock resettlement, irrigation, rural development, watershed management, parks and environment; . Population family planning and population education; . Other fisheries, tourism, non-infrastructure health, mining and Structural Adjustment Loans. Table 3.2: Aid Commitments to Nepal Related to Renewable Resources - Totals, 1966-89 Commitments Projects 1988 US$ Million z No. 2 Bilaterals 2,251.5 48 314 41 Maltilaterals 2,404.8 51 403 52 NGOs 31.4 1 54 7 Total 4,687.7 100 771 100 World Bank 1,083.7 23 41 5 Source: Annex Table A-1 - 19 - 3.06 From 1965 to 1989, donors committed more than $4.5 billion in aid to Nepal for nearly 800 projects related to renewable resources.!' These projects were supported by 16 multilateral and 28 bilateral agencies and more than 50 non- governmental organizations (NGOs)11 (see Table 3.1). Bank commitments accounted for $1.08 billion (or 23 percent of the total), through 41 IDA credits between 1969 and 1989 (see Table 3.2). Together, multilateral agencies contributed 51 percent, bilateral agencies 48 percent, and NGOs 1 percent. All agencies centered on agriculture, forestry, and rural development. These sectors accounted for 60 percent of the projects and 50 percent of the financial commitments. 3.07 Overall, 87 percent of the aid was for infrastructure, agriculture, forestry and rural development. Within the total for infrastructure, 55 percent was allocated to transport and 37 percent to hydroelectric power. Within the total for agriculture, forestry and rural development, 53 percent was allocated to general agricultural development, 28 percent to irrigation, 10 percent to forestry, and 3 percent to livestock (see Figure 2.1). In the "software" area, 6 percent of the aid was to strengthen institutions (e.g. through training, research and studies) and 3 percent was for population programs. 3.08 Most of the aid was given by a few donors, but the sources of aid changed markedly over the years. In the early 1960s, USAID accounted for 90 percent of funding and the United Nations (UN) accounted for 5 percent, with eight to ten other donors making up the balance. By the late 1980s, USAID's share had declined to 5 percent, and the UN continued at 5 percent. The remaining 90 percent was largely provided by the World Bank (20 percent), Japan (20 percent), the ADB (10 percent) and the Federal Republic of Germany (10 percent), while 29 percent came from 30-35 bilateral and multilateral donors and 1 percent from 50-60 NGOs. 3.09 Donors have focused on particular areas. For example, 40 percent of support for strengthening institutions was provided by USAID and the Bank; 60 percent of the aid for infrastructure came from India, the ADB and the Bank; 53 percent of the aid for agriculture, forestry and rural development came from the ADB and the Bank; and 97 percent of the support for population programs was provided by USAID and the United Nations Fund for Population Activities (UNFPA). 3.10 The level of aid commitments has fluctuated from year to year, influenced by the timing of a few large projects. The tre.id has been upwards, with aid running at $200-300 million (in constant 1988 dollars) a year during the late 1980s compared with about half that level during the early 1970rs. The structure of the aid portfolio has also changed. For example, in the 1960s, infrastructure accounted for 90 percent of aid, but by the late 1980s, its share had declined to 25 percent. Over the same period, aid for agriculture, forestry 1I Sectors excluded are teleconmmnications, industry, urban, hydrocarbon energy, and primary, secondary and university education. V Information was available on only ten agencies with 42 projects (see Annex Table A-1). Figure 3.1s The Allocation of Aid Commitments to Nepal between 1966 and 1989, by Sector Mateeecr9it 10W37.010 Othw (S.m0 Infrastruture (47.0%) 0 Twasport Cas.Ol Population (3.0%) Other (4.0%) a asa-at Devlmet (MO Education (6.0%) Renewable Resources (40.0%) amrce owrvat (s.ol LIVestoc (3.010 Forestry CID.0 - 21 - and rural development increased from 5 percent to 55 percent of the total. However, there was little change in the share given to institutional development and population programs. 3.11 NGO efforts have been numerous and varied widely, both geographically and in focus. Their combined budget for 150-200 projects is currently about $10 million a year. Evidence from 20 percent of the NGOs operating in the country suggests a strong orientation toward support for community-based action for managing drinking water supplies, access tracks tnd bridges, small-scale irrigation, intensive agriculture, forestry, soil conservation, and training (see Annex Table A-1). C. Donors Perceptions of Their Role and Strategy 3.12 A review of donor perceptions reveals some important similarities within three areas--projects, sector strategies and institutional development and coordination. Projects 3.13 Projects directly related to the management of natural resources appeared in the late 1970's and early 1980's, reflecting the priorities given to the subject. Several donors had been financing natural resource expansion and some maintenance, but with very little emphasis on resource management as it has evolved: For example, although projects were funded for forestry and irrigation development, these included little on forest and water management. This emphasis (or lack of it) was reflected both in the definition of objectives as well as the choice of instruments. (Resource conservation and management objectives or advocating public participation came much later.) Project components were uniform and traditional across donors, focusing mainly on expansion and productivity increase. Natural resources and their conservation were not seen as major sources of economic growth--despite the fact that food production and exports were based on the exploitation and use of various renewable and non- renewable resources. Differences among donors were min.r, and mainly involved the scale or composition of the lending program. 3.14 The approach to resource management reflected the views of the time. In this respect, the ADB experience is instructive. It financed 34 projects in agriculture and forestry, for a total of nearly $500 million, and its lending pattern reflected the basic strategy of the past two decades, which was to increase funds to agriculture. The portfolio of projects was diverse, touching almost all areas of the rural sector--a practice common among other donors, including the Bank--which reflected, to a large extent, a lack of understanding about the main sources of sustainable development. 3.15 Thus, despite the fact that the ADB recognized that natural resource management was a priority, why did they continue to lend to so many sectors? It - 22 - was only later that the ADB and other donors realized that proper management of natural resources required looking beyond a single natural resource (say, the forest) to the entire economy--since many variables directly affected project performance. In particular, experience and assessments of these earlier projects pointed to the need for broader approach to resource management: For example, while some projects achieved high rates of reforestation, the rates at which forests were being cut down were even highert 3.16 The most important macroeconomic variables that constrained various projects' capacity to manage the natural resources were (a) population growth and its pressure on the natural resource base, (b) uncoordinated migratory patterns toward certain regions of the country, (c) poverty and its effect on allocative decisions between consumption and investment, (d) lower than acceptable productivity in most economic activities, (e) declining or negative rates of income growth, and (f) rising unemployment in several pockets of the rural sector. 3.17 Most donors' initial response to these constraints was to design a large spread of projects dealing not only with the narrow questions of resource management but with questions of poverty, productivity, and the like. Thus forestry programs were accompanied by operations in livestock, small scale industries and infrastructure. At the same time, donors designed projects Vith multiple components, as evidenced by traditional rural development projects. However, evaluation (of these projects) shows that both strategies were unable to achieve the resource management goals or such objectives as solving the fuelwood crises, decreasing the rate of resource depletion (the forest), slowing down the deterioration of the land (soil erosion), and preventing major downstream effects (sedimentation). 3.18 The primary reason for the failure of both strategies was a lack of awareness of the important relationship between the expansion and conservation of Nepal's "natural capital" and institutions, and the weakness of the institutions, themselves. Most donors eventually recognized that as they developed more programs for resource management, the limited capacity of the country's existing institutions became a critical obstacle. To correct this, several approaches were tried. Some proposed a more active and effective role for the public sector, some for the private sector and, the most popular, for local communities. Because these programs are still relatively new, it is difficult to determine their capacity to sustain themselves. However, donor experience shows that approaches to institutional development are less effective than expected. Thus, there is a great need to find the proper balance between different forms of natural capital (land, forests and vegetation) and alternative institutions (such as incentive structures and organizational arrangements). 3.19 Because many projects have not yielded expected results, donors have moved from one strategy to another. However, in some cases, this has been counter productive since the proper use and maintenance of natural capital may require a long period before results materialize. Thus, donors are now increasingly cautious about trying innovations. But, as traditional ways of addressing resource management issues are also ineffective, caution has created - 23 - a vicious circle. As a result, environmental problems deepen and will require even more radical solutions. 3.20 Another important finding is that individual projects--as instrument of developments--have proven too small to correct the enormous environmental problems: For example, projects designed to produce fuelvood (or even several of them) cannot decrease the gap between demand and supply. In addition, when supply and demand depend essentially on the performance of other sectors in the economy (e.g. the energy sector), these projects become very marginal to the solutions. 3.21 Nevertheless, in the 1960. and 1970s, projects were used to formulate and implement policies. Thus, one finds, for example, subsidies and free seedlings for farmers who adopted soil conservation practices. While in some cases the approach succeeded, in the majority, projects proved a poor vehicle for policy formulation and implementation. Within this cor :ext, donors found it necessary to review strategies at the sector and macro economic levels. Sectors 3.22 Several themes run through donor evaluations. These include conceptualizing the resource management problem, formulating strategies at the sector level, changing strategies, defining priorities (of themes as well as instruments), assessing the role played by different actors in the economy (public and private sector), and determining the effectiveness of policies. 3.23 The first attempts to deal with resource management in a more systematic and comprehensive way occurred in the early 1980s. For exampla, in 1981, the ADB undertook a more comprehensive discussion of the depletion and deterioration of renewable resources in Nepal. For its part, USAID focused intently on one specific subsector (i.e. forestry) as a cost-effective way to achieve higher returns to policy formulation. However, the problem many faced was that development objectives had become more numerous and complex. Thus, with regard to formulating policy in the forestry sector, policy makers had to include not only objectives related to forestry management, but also to equity (e.g. benefitting the poor), organizations (e.g. village level participation), institutions (e.g. efficient incentive structures and legal framework) and the entire economy (e.g. growth, trade and employment). 3.24 Another approach was to prepare studies, either within the project or through overall sector work which became the basis for further projects. Still others became involved in developing national plans (e.g. USAID with the forestry master plan); however, these were not well implemented. 3.25 Based on the review of existing literature and donor reports, all donors faced severe problems in policy implementation. Just as the project approach failed to yield proper results, policy formulation at the national level became complex and slow. One reason was the lack of government commitment. In addition, resource management policies were not fully integrated with those at the macroeconomic level; in some cases, they had less priority than adjustment - 24 - operations. As a result, several donors moved from strict policy formulation in the resource management context to a structural adjustment policy mode. Again, there was a new awareness that resolving resource management issues was beyond the management of an individual physical resource (that is, forestry resources cannot be managed independently of the economic environment). Institutions and Institutional Coordination 3.26 The review of a large number of operations demonstrated that Nepal's institutional infrastructure was too small and weak to deal effectively with its environmental problems. The large number of donor-financed operations designed to allocate, manage and use natural resources, placed a major strain on local and national institutions, whether public agencies, community groups, private organizations (both market and non-market) or the regulatory framework. Worse still, the institutional demands became increasingly complex as proposed changes were often linked to equity issues among potential users and beneficiaries (for example, assigning property rights). Some of the changes in resource use have both spatial and temporal effects (e.g. upstream and downstream users of a resource or present or future generations). Further, in several instances, those causing the environmental damage were far from the locale where the damage occurred. Elsewhere, equity concerns also cut across traditional sectoral boundaries. 3.27 The complexity of the problems required a major effort in donor coordination. Recognizing they would not be effective when operating alone, some successfully collaborated in sponsoring sectoral studies and negotiating for policy changes as conditions for multi-donor assistance. One example involved USAID's assistance for the preparation of the Forestry Master Plan; subsequently, two other donors, the ADB and FINNIDA, joined the effort and translated it into operations in that sector. 3.28 The complexities of the institutional framework affected all donors profoundly, and they are addressing them directly. The ADB's response is instructive, in that they now consider various factors as part of their agriculture sector strategy, issued in 1982. The ten components--the bulk of which are institutional in nature--include land use and environmental planning and monitoring; community involvement in local resources management; public education programs with greater emphasis on irrigation development; massive afforestation and reforestation; increased efforts to control encroachment; full support for population planning; land tenure reform; pricing and trade reforms; and capacity strengthening. D. The Resource Management Problem: Changes in Perception 3.29 Donor perceptions about the nature and scope of resource management problems in Nepal have changed over time and these can be charted through the concepts that underlie projects, types of objectives pursued, nature of economic - 25 - instruments and scope of policies. As demonstrated below, project objectives, etc. have become more comprehensive and complex. 3.30 The.ADB carried out ESW since 1969, and its experience in Nepal was very similar to that of the Bank (ADB 1989). The issue of resource management as an obstacle to d6velopment was introduced into ADB's ESW in 1975, became steadily more important, and was assigned top priority in 1982 (a classification retained in all subsequent reports). During this time, reports noted the difficulties encountered when attempting comprehensive solutions to resource management problems. Recommendations called for institutional reforms and changes in policies governing incentives, prices, subsidies, agricultural support servides and land tenure. 3.31 During the 1970s, these recommendations included (a) greater attention to operations and maintenance in irrigation, (b) reforestation, (c) increased community participation and (d) upgrading of the government's technical and managerial capability. However, its ESW documents did not discuss how such recommendations might be implemented. When its study on agriculture sector strategy was completed in 1982, the ADB was able to raise its sector policy dialogue with the government to a more meaningful level. Nevertheless, throughout the 1980s it was unable to formulate strategic or tactical options to deal more effectively with resource management issues (ADB 1989). Since 1985, however, grant support has been designated for (a) developing sector and subsector master plans for forestry, irrigation, fertilizer e, horticulture and agricultural research, which are more comprehensive than earlier sector work; (b) organizing a consultative meeting of government agencies and external donors on resource management strategy; and (c) conducting a study of options for implementing the recommendations of the Brundtland Commission on the environment. 3.32 USAID was one of the first to focus on rural development (Village Development Project, 1952-1963) and forestry (Fe istry Inventory Project, 1958- 1970). However, because the Nepalese government was apparently not interested in environmental issues, USAID withdrew from projects directly associated with natural resources in the 1970s, except for one project for cereal production. Further, it concentrated on population, health and education. In fact, this shift to sectors that are indirectly connected to agriculture and forestry may well have constituted the most appropriate resource management strategy because these are critical determinants of resource use in Nepal. In 1980, however, USAID re-established its priority for direct involvement in natural resource management projects after the Nepalese government switched its policy of centralized control to devolving management of forest resources to local authorities. 3.33 Mainly because its budget was progressively reduced over the past decade, USAID's support for natural resource management concentrated on investment in agriculture and forestry through two large projects. One is for integrated rural development, and the other for integrated watershed management. Through the 1980s, the two projects focused on integrating community forestry and livestock management activities into the government's agricultural technology development and extension programs and developing community-level approaches to - 26 - watershed management. The principal lessons from USAID experience with these projects were (a) to scale down field activities that cannot be adequately managed by the limited staff resources available; and (b) to avoid making a solo effort to bring about policy changes through loan conditionality and policy dialogue, and (c) to avoid projects that require technically sophisticated approaches. 3.34 More recently, USAID took a more focused approach to generating government support for the policy changes the agency considers appropriate. For example, it is contributing to multidonor efforts to establish a policy and legislative framework favoring local and private management of forest resources. Further, through its projects, it is emphasizing the need to improve training facilities to strengthen the government's institutional capability to plan and implement forestry and resource management programs. Greater emphasis is also being given to community-level activities to promote reforestation through communal or private commercial enterprises and on-farm resource conservation practices (Siew Tuan Chew 1989). 3.35 It appears that none of the multilateral and bilateral agencies attempted any systematic, in-depth analyses of the constraints and options for reversing the degradation of resources within the two or three decades reviewed. Based on the available material and interviews, they apparently did not expect that such analyses would provide practical insights for designing and implementing their operations in such a way as to play a role in the larger resource management area. The same may be said of the NG0s, which have had highly divergent agendas, and which although coordinated by the Social Services National Coordination Council, have also not demonstrated a strategic approach. Since there is no agreed strategy for dealing with environmental issues, government and donor agencies have been left on their own, free to experiment. E. Policy Influence 3.36 Over three decades, donors have sought to influence resource management policy through their projects, policy dialogue, and conditionality. Yet, none are likely to claim success. Some might argue the government is responsible for the failure, since it makes the final decisions. But the issue is more complex and the questions to be answered are: (a) What was the nature and extent of their influence? (b) In what way did donors fail to deal with factors that reduced their influence? 3.37 The evidence suggests that, despite the rhetoric, aid prcgrame continued and constant pressure (on the government) for reform went unheeded. One view is that, for the donors, "change had a lower priority than maintenance of the status quo, which they all found to their advantage for different reasons" (Gaige 1975, 200). In fact, the literature of the late 1970s and 1980s stresses this themei it concludes that while donors ideutified the changes needed and adopted them as objectives, they did nothing to bring them about. Thus, they - 27 - were accused of being instruments of the Nepalese elite--which had a vested interest in obstructing change (Misra and Sharma 1983; Pant and Jain 1978). 3.38 A different position is that Nepal's development path has been distorted by ill-conceived externally funded programs. According to several analysts, since foreign aid began in the late 1950s, the government allowed it to determine Nepal's development policies and strategies, and thus influence the allocation of resources (Pant 1983). Externally funded projects greatly affect how government resources are allocated, since it has to meet at least part of the local costs. Thus, it has been argued that large capital projects, particularly those favored by multilateral agencies, have used more of the government's scarce funds than small projects or social services that might have done more to make development more equitable and sustainable. It is also asserted that foreign aid diverted attention from long-term development issues as donors and ministries alike adopted a "project mentality" (Stiller and Yadav 1979). Further, donors tended to be more concerned with disbursement of funds than with development. Moreover, although government concurrence improved the country's chance of getting assistance, results were a "cavalcade of concepts"--such as regional development, integrated rural development, or basic needs--that obscured rather than clarified Nepal's development strategy (IDS 1983). In fact, integrated rural development projects continued to be a dominant element in aid programs into the 1980., despite widespread criticism that they allowed local leaders to accumulate wealth because they "fit" with the donors' preferences (Bergeret 1985). 3.39 As far back as 1960, the Far Eastern Economic Review raised the question of whether Nepal was suffering from "foreign aid indigestion." In fact, since that time the country's progressive dependence on foreign aid has been a matter of growing concern. Scholars repeatedly argued that continued external assistance obscured the need to develop the positive attitudes, institutions and policies required for self-sustained progress: For example, it led to an unquestioning faith in western technology and expertise and a growing sense of national helplessness (Misra and Sharma 1983). 3.40 There can be little doubt that within sectors, government decision makers were influenced by donors' program interests with respect to the choice of infrastructure, rural development, etc. As these are strong criticisme, it is important to determine how donors responded. F. Shortfalls in Performance 3.41 Since 1960, reviews of donor experience in providing financial and technical assistance to Nepal have invariably concluded that aid has done little to improve the management of the country's renewable resources. First, they argued that donors failed to set appropriate priorities or sequences for assistance. They point to the fact that in the mid-1950s, the Nepal National Education Planning Commission (NNEPC) assigned top priority to education, - 28 - followed by health. However, apart from providing finance, donors for two decades formed no consensus about these priorities. Moreover, they failed to coordinate efforts--which, in turn, led to conflicting strategies and procedures and wasteful duplication of effort. 3.42 The issue of donor coordination is widely debated and is certainly not restricted to Nepal. Donors priorities frequently vary, particularly with changes of administration in the donor country. In theory, the inefficiencies resulting from the lack of coordination need to be minimized by the government's budgeting and planning process. But, in practice, Nepalese authorities have not been able to do this. 3.43 Another problem--the issue of foreign aid overloading Nepal's capacity- -was identified by 1966, although there were only 10 multilateral and bilateral donors at that time (compared with 44 in 1989). However, donors understood that the amount of human and institutional, as well as financial capital needed to significantly strengthen Nepal's economic progress was so big that it could only be addressed by massively mobilizing indigenous capacity. 3.44 An additional reason why aid has done little to improve the management of natural resources is that donors have not understood the traditions and attitudes of the distinct groups in Nepal whose decisions affect the way resources are used. In 1965, Mihaly asserted that donors were laboring under two false premises: (a) that the country was in the grip of a "revolution of rising expectations" where the masses were ready and eager for economic and social change; and (b) that "the government was able and willing to administer development projects of considerable complexity and that the government's existing defects as an administrative body could be easily remedied through training." Foreign aid has also been blamed for sabotaging the very reforms-- such as administrative upgrading, decentralization, land tenure and taxation-- that repeatedly were recomended as being essential for the success of donor projects. 3.45 Fifteen years after this critique, Stiller and Yadav (1979) concluded that the effectiveness of foreign aid was limited most of all by "donor agencies' failure to relate (to] Nepal's political and administrative structures". In the 1970s, a number of observers argued that donor attempts at administrative reform were inappropriate. For example, the new institutions that donors wanted to build, ostensibly to meet western performance criteria, would not have been compatible with Nepal's social structures. In 1983, the recommendation was made that aid should be reoriented to strengthen indigenous institutions (Pant). 3.46 At the micro level, donors were considered guilty, together with many Nepalese administrators, of not understanding the processes by which rural society was transformed. Aid planners were criticized for being simplistic since they did not take proper account of the conflicting views of groups with widely different interests -- such as landlords versus tenants, small versus large farmers, or traders versus cultivators. Significantly, donors wholly overlooked the critical role of women in improving the management of land and forest resources: The fact that the depletion of resources was making women's tasks - 29 - more arduous was not mentioned until 1979. Yet even then, no relevant policy recommendations were made to deal with the problem. In the early 1980s, it was noted that women were not influencing decisions on resource management in aid programs largely because they did not participate in political activities. G. The Learning Process 3.47 It is claimed there is not much evidence that either donors or recipients in Nepal learned much from their collective experience in developing natural resources. For example, as early as the 1950s, aid agencies recognized the importance of community participation and better data. Thus, USAID created two projects that began to address these needs. The USAID Village Development project was designed to assist rural people and to initiate community participation in the transfer of technology. The Forest Inventory project made a start on improving the data concerning Nepal's forest resources. However, now, more than 30 years later, the deficiencies in both areas remain acute--largely because there has been no serious and sustained follow-through that could have led to significant damage. 3.48 For its part, in 1970, the Nepalese government became concerned about the degree to which efforts were being dispersed and the confusion this was causing among the bureaucracy. Thus, it asked the Bank to set up a Consultative Group (GC), which held its first meeting in 1976 consisting of six donors. It met every two years until 1987 and annually since; and by 1989, 11 donors had joined. Based on the effort since its formation, it appears a significant change in approach will take considerable time. For example, in the early 1980s, seven integrated rural development projects were underway, financed by six donors. All six had different design criteria, which caused confusion and control problems for the government's executing agencies (Pant 1983). However, in 1989 five donors provided support for the Forestry Master Plan, which may signal a move toward greater cooperation. 3.49 The issue of coordinating aid is complex and intensifies where public administration is weak. Thus, it was up to the donors to take the lead in formulating a framework and achieving consensus. However, this did not occur until the mid-1980s. Since then, such coordination has significantly improved and Bank leadership seems more attuned to the issues. H. The Net Effect of Foreign Aid 3.50 Critics in the development community have debated whether Nepal's social and economic development was positively served by external aid at least a decade before IDA's first credit was approved in 1969. For example, in 1965 Mihaly strongly criticized aid effectiveness and other studies pointed out that - 30 - conflicting advice from donors confused policy makers and was counterproductive. Because the view that evolved stressed the need for coordination among donors-- and not of donors by the government--it is hardly surprising that ministries "sustained their autonomy by playing the agencies off, one against the other" (Thompson and Warburton 1985b, 219). 3.51 Due to the pu7sistence of such problems, various questions need to be answered. How much worsewould resource degradation be--as well as how much more inefficient or inequitable would the use of resources be--without aid, particularly without Bank aid? And, how much better might results have been if the Bank and other donors had used a different approach? CHAPTER 4: BANK OPERATIONS 1963-89 4.01 When the Bank's first economic mission visited Nepal in 1963, 98 percent of the population was rural. In such a setting, every aspect of Bank operations could be said to relate either directly or indirectly to the management of renewable resources. The first International Development Association (IDA) credit to Nepal was approved in 1969 and over the next 20 years, it provided US$900 million to support 53 projects with a total cost of $1.4 billion. Of these, 13 (for cottage industry, telecommunications, industry, education, and municipal development) were indirectly related to resource management; and the remaining 42 had a direct effect on resource use. By 1989, 30 projects had been completed of which 13 had been audited. Further, in the late 1980s, the Bank provided two structural adjustment credits totalling US$110 million. 4.02 This chapter examines the composition and size of the loan portfolio and the use of policy dialogue and conditionality to achieve greater efficiency, equity and sustainability in the management of renewable resources. It will attempt to determine the lessons learned over the 25 years and if these were translated into new approaches. A. Loan Portfolio 4.03 in a country that depends heavily on renewable resources for its economic growth, it is impossible to distinguish those projects that influence resource management from those that do not. For this reason, the report will review most Bank-supported projects. 4.04 Projects that directly affect resource use are in agriculture, forestry, hydroelectricity, and water supply (26 projects totalling US$422 million) as well as transport and tourism (5 projects totalling US$104 million). Those that address productivity, migration, and employment opportunities for the rural population--for example, education, health, population, industry, and municipal development projects (16 projects totalling US$308 million)--influence the way resources are used and thus also have a direct impact on resource management. The remaining operations--two structural adjustment loans (SALs) and three technical assistance projects, supported by US$133 million in.credits--may be expected to affect resource management by upgrading public administration, imposing policy conditionality, and influencing the selection and design of projects (see Figure 4.1). Irrigation Development 4.05 The major line of lending, amounting to 20 percent of the loan portfolio, was for irrigation in the Terai. These projects were designed to assist about 120,000 families by improving the distribution and use of water on 98,000 ha of land, expanding surface and tubewell irrigation on 45,000 ha and improving drainage. Results have been unsatisfactory: Costs have been high, - 32 - ligure 4.1: World Bank Commitments to Nepal Related to Renewable Resources, by Sector, 1966-89 (1988 US$ million) Other 22.5 1 Transport 139.7 Irrioation 267.3 Agriculture 82.7 Rural Development 54.0 Forestry 75.7 Institutional 136.6 Hea 1l12 83.1 HydroolectricItY 222.1 - 33 - designs have been inappropriate and canals have silted heavily because of sediment loads in Himalayan rivers and poor operation and maintenance. 4.06 The recently audited Sunsari Morang Irrigation and Drainage project illustrates Nepal's limited capacity to implement development. Although the command area was 66,000 ha, the irrigation infrastructure, built in the 1960s with assistance from the Indian Government, operated on only 35,000 ha; and, even that was plagued by intake blockages and sedimentation. In 1978, a Bank- supported rehabilitation and improvement project was initiated to restore the canal system over the full 66,000 he and to improve distribution on an 18,000 ha first-stage development area. The latter target was subsequently reduced to 9,750 ha because of increased costs resulting from a major redesign needed to cope with unforeseen river transfer and sediment control problems. Unfortunate- ly, the redesign proved inadequate; the devices installed failed to significantly reduce sedimentation in the main canal and distributaries, and the capacity of the water delivery system has declined since the project was completed. The audit attributes the failure of the original design to inadequate engineering preparation and premature lending, and the failure of the redesign to a limitation imposed by the need to confine the civil works improvements to a cost set at appraisal. Consequently, the second stage of the project (approved in 1987) will again have to resolve the problem of sedimentation control. 4.07 However, two other audited projects, Birganj and Bhairawa-Lumbini, were generally successful--increasing agricultural yields and production. The audit reports claimed the projects also produced indirect benefits by reducing ponding and flooding, and possibly reducing the incidence of malaria and typhoid that were endemic in the Terai. The final audited project, Babai (Irrigation] Engineering, was discontinued because an international water rights iseue could not be resolved. Rural Development 4.08 Rural development projects focused on eight Hill districts. Their main objective was to encourage crop and livestock production within a sound conservation context, thereby leading to improved welfare and greater food self- sufficiency for about 500,000 rural people. These projects provided support for agricultural extension, veterinary services, small-scale irrigation, erosion control, access tracks, production inputs, and marketing. They aimed to expand irrigation by 1,800 ha, improve small-scale irrigation on 4,000 ha, promote reforestation of 8,500 ha, and improve cropping, grazing and forest management. However, they were organizationally too complex for effective management (as they involved many components and agencies), too ambitious in scope and objectives, and emphasized physical infrastructure for staffing and maintenance rather than human resources. Thus, the results were disappointing: The projects did not do enough to raise incomes and reduce migration and resource degradation. 4.09 The single land settlement project was intended to demonstrate the advantages of organized resettlement of Hill people in the Terai, based on sustainable agriculture. It was conceived in response to heavy population pressure and environmental degradation in the Hill, and was designed to settle - 34 - 7,900 families on 18,900 ha of forest land between 1974 and 1979. However, the project vas closed after only 40 percent of the area and 35 percent of the settlement targets were reached and after 43 percent of the budget had been spent. It failed mainly because of institutional weaknesses and because of a change in government policy in the early years of project implementation, toward preserving forests. Under this policy, the state decided not to join in projects which required land clearing; and, at the same time, it did nothing to address spontaneous settlement which accounted for 95 percent of deforestation. Had the project been successful, it could have been the first in a strong line of lending. But, due to its failure, the Bank provided no further support for land clearing and settlement projects in the Terai. 4.10 Agricultural projects in research, extension, and marketing aimed to increase the productivity of about 500,000 families nationwide by offering training and improving facilities to strengthen services provided by weak institutions. Nothing in the documents reviewed suggests these projects had any adverse effects on the environment. Forestry 4.11 The forestry project approved in 1980 aimed to strengthen the forestry department (FD) by providing training to foresters and users that would, in turn, encourage more efficient consumption of fuelwood. In addition, the project would introduce community forestry activities to 340 village panchayats in the Hill as a step toward reforesting the severely degraded national forest estate. It was conceived as the first phase of a three-phase, 15-year program that aimed to reach 935 panchayats in order to reforest 63,000 ha of depleted forest land and rehabilitate 108,000 ha of degraded forests. The first phase was expected to directly benefit 290,000 families (or 1.9 million people) through increased crop and livestock production. The second forestry project had similar objectives with regard to forests of 270 panchayats in eastern Terai, where it would attempt reforestation of 26,000 ha of degraded forest land and rehabilitation of 35,000 ha of natural forest. 4.12 While these projects were modest in relation to what was needed, they were ambitious in relation to the expertise available to implement them. However, the project approach to the common-property management problem--which was to support village-level control of reforestation activities (over centralized control)--had particular merit. Further, the experience gained from these projects laid the groundwork for the first attempt to address the Hill forestry issue on a large scale- -which ultimately materialized as the Hill Community Forestry Project, launched in 1989. The objective of this project is to transfer management of 400,000 ha of forest used by the Hill population from the FD to community user groups. In addition, 56,000 ha of plantations are to be established by these groups and 30,000 ha of existing plantations are to be converted to community management. These efforts will be supported by a network of nurseries, training of 7,700 FD administration and extension staff, expanded extension services, credit, forestry research and monitoring and evaluation. - 35 - ' 4.13 The first structural adjustment loan (SAL), which was fully disbursed in 1988, contained conditions designed to create "an appropriate policy environment" (World Bank, 1989c, 9). This included removing ceilings on the area that could be transferred from state forests to the jurisdiction of panchayats, reducing controls over the use of private forests, passing legislation to enable panchaysts to retain all revenues from the sale of forest products from their lands, and, within panchayate, granting entitlement to forest committees (and eventually user groups) to control forest revenues. Progress on these conditions has been slow and it has been recognized it will be necessary to refocus much of the FD's program away from policing towards extension. The recent adoption of the Forestry Master Plan is seen as a promising start towards the needed change. Infrastructure 4.14 As might be expected, environmental issues arose when infrastructure projects were designed and also when they were audited. Of the five highway projects, two addressed environmental concerns. In the Third Highway Project, which included construction of 15 km of road through the Royal Karnali Wildlife Reserve, provisions were made for strictly controlling entry at the gates of the reserve. In the case of the Arun III Access Road Project, an environmental impact assessment was carried out as part of the overall assessment of resettlement concerns, upper watershed management needs, downstream effects, impact on tourism, and control of fuelwood extraction during construction. Eight alignment options were considered and the one selected as the most environmental- ly sound was 50 km longer and substantially more costly than the others. 4.15 No environmental issues were raised when the two hydro-electric power projects were appraised; however, one of them--the Kulekhani project--encountered major geological difficulties during construction. To resolve them, subprojects were undertaken to protect the watershed, supported with grants from other donors. The Kulekhani audit concluded that watershed management should have been an integral part of the project. Thus, in preparation for the Arun III hydropower project, a major effort is being made to plnce it in an intersectoral system. 4.16 Environmental concerns were not raised in the appraisal reports for the three water supply and sewerage projects, the two audit reports of the completed projects, or the project documents on the four industrial and petroleum exploration projects. However, experience shows that all encountered environmen- tal problems and constraints, such as pollution of the water supply. Other Lending 4.17 Components from the two SALs (1987 and 1989) related to resource management were concerned with improving resource use and productivity by increasing production incentives, enhancing the supply and reliability of services and inputs and strengthening key public sector support agencies. Specific areas of attention were (a) agriculture, including fertilizers, seeds, foodgrain marketing and distribution, agricultural research, and a new irrigation strategy; (b) macroeconomic management, including changes in tax procedures, - 36 - I control of public expenditures, and reform in trade policy; and (c) financial sector reform. If the government carries out these reforms, they could have far- reaching effects on renewable resources by improving economic management and efficiency in the public sector over the long run. 4.18 Apart from the conditionality governing forestry, specific attention has also been given to the availability of agricultural inputs and the management of state irrigation systems. With regard to the former, the objective is to privatize distribution of fertilizers and seeds and maintain fertilizer prices at parity with India. With regard to the latter, goals include privatizing smaller irrigation schemes, and improving and expanding (a) farmer participation in operation and maintenance (O&M), (b) cost recovery through water charges to enable adequate O&M by the Department of Irrigation (DOI), and (c) coordination between DOI and agricultural service agencies. 4.19 In the remaining projects, which were principally in the social sectors, no resource management issues were raised during appraisal or audit. 4.20 With regard to the SALs, the question is: How did the Bank combine conditionality, policy dialogue and its project portfolio with the work of other donors to contribute to the better management of renewable resources? An answer may be found through monitoring and evaluating the second SAL (launched in late 1989) which affects the management of irrigation. B. Common Issues in Proiect Performance 4.21 On the basis of project records, regardless of whether they attained quantitative objectives, the design and implementation of Bank-supported projects in Nepal were generally environmentally sound. Moreover, since the 1970s, increasing attention was paid to resource management issues in infrastructure and agricultural projects. 4.22 Some aspects of performance were already addressed in the section on Bank- financed operations. This next section identifies common determinants of performance in Nepal, which cut across projects and sectors. In addition, the section assesses the extent to which problems related to resource management have been satisfactorily resolved. 4.23 Of the total portfolio, 22 projects have been evaluated and 19 have been rated either satisfactory or unsatisfactory by OED. Out of the 19, eight projects (more than 40 percent) were unsatisfactory. These projects were in agriculture and in the water and sewerage sectors. It is interesting to note that all the water and sewerage projects were rated as unsatisfactory, while in agriculture, some performed satisfactorily. 4.24 While it is not surprising to find severe development problems in a country such as Nepal, it is striking that almost all projects have suffered from - 37 - time and cost overruns. Although particular causes vary, two factors are always involved: The institutional apparatus has been weak (both in nature and scope) and government commitment at the policy and implementation level has been inadequate. 4.25 While the Bank was aware that severe deficiencies in these areas profoundly constrained project performance, nothing in the information review suggests that specific steps were taken to address the issues--procedures remained the same and sequences continued to fail (in water and sewerage)--except in an ex-post manner by canceling parts of a loan or redesigning a particular project when implementation ground to a halt. 4.26 OED experience suggests that Nepal is not the only case where these conditions were not addressed. Thus, the pattern of severe time and cost overruns need to be studied and specific actions to deal with it will require integration into project design and implementation. To this end, the Bank should distinguish the array of situations routinely encountered and act accordingly with regard to establishing specific guidelines and procedures. If those patterns are not identified and responses are not established, procedures for designing projects in such countries as Nepal--which are not flexible enough to deal with the difficult conditions that prevail there--are bound to fail. 4.27 Technical assistance has been used to help Nepal lift the institutional constraints and expand its institutional resources. However, the projects designed to promote such assistance have not been very successful either. The problem is that in order for various resources to be used efficiently, institutions must be performing well, and the obstacles to good performance cannot be overcome in the time and space required. Thus, it is fundamental to determine the most effective way to expand Nepal's institutional resources. Could actions be taken in the short term to alleviate the situation? If not, what options would have the least negative impact on the other forms of capital? OED information is not extensive or comprehensive enough to answer such questions. 4.28 The review found a pattern of success with regard to projects designed to expand physical capital such as telecommunications and roads. From an institutional point of view, these projects are simpler to implement than those that entail a wider array of natural, human and institutional capital (and where performance is routinely unsatisfactory). However, over time, problems arose. This suggests that continued expansion of physical capital in the Nepalese economy depends on a framework in which much is inadequate. Thus, as operation and maintenance is weak, irrigation infrastructure will deteriorate and will need to be rehabilitated. But, rehabilitation requires substantial human resources and these are in short supply in Nepal. These experiences have already been documented in some of the evaluation reports, even where projects had been rated satisfactory. 4.29 Finally, Bank financed operations have been less than successful in dealing with the human and natural environment. For example, the Bank repeatedly considered development in the Terai a key element in the country's growth; but - 38 - failure to establish settlement projects there is thwarting Nepal's advocated macroeconomic objectives. The evaluation of the settlement project (financed by the Bank) showed that the project faced a host of problems related to environmen- tal degradation and lack of government commitment, very large overhead costs, and inappropriate changes in the policy environment. 4.30 Other problem areas were river pollution from sewerage systems and increasing sedimentation in irrigation systems. In the first case, the three water and sewerage projects reveal that pollution was severe and the country was far from finding solutions. Also, in the rehabilitation of irrigation infrastructure, projects did not succeed in decreasing the existing rates of sedimentation. This is due to several factors, including design problems, water management and inadequate operation and maintenance systems. As the solution to resource management issues demanded substantial human and institutional capital, discrete interventions at the project level did little to assist Nepal to move in the right direction. The evidence suggests that program lending may provide some new avenues, because it allows for more flexibility (in managing sectors and the macroeconomy) and in establishing appropriate economic incentives. C. Preliminary Conclusions 4.31 Three phases may be identified in the evolution of Bank operations: (a) During the 1965-1975 period, because of the limited scale of lending, the Bank was not in a position to press for changes in resource management contained in ESW. Nor was it Bank policy at tat time to emphasize the macro context in dealing with borrowing countries. Further, within the area of macro management, the environment was not a significant Bank agenda item, although it was highlighted in Nepal ESW. (b) During the 1976-1985 period, the Bank emerged as a major donor in Nepal with an extensive and diversified project portfolio. Thus, it was in a better position to conduct policy dialogue on broad resource management issues arising from ESW. Further, during that time it became Bank-wide policy to stress the macro context for lending, poverty, and the environment--all critical issues in Nepal. (c) During the post-1985 period, the Bank, in association with the IMF, complemented on-going project lending with structural adjustment lending, which was aimed exclusively at achieving changes in macro-economic management (including management of renewable resources). - 39 - Evolution of Project Lending and Policy Dialoguel:1969-85 4.32 A key question is whether Bank lending (see Table 4.1) reflects the elements of resource management strategy which emerged from ESW over 25 years. A second, critical question is what did the Bank feel qualified to address through projects in the area it had been unable to influence through policy dialogue- -notably the development of human and institutional capital as a prerequisite to improve the management of natural resources. The importance of these types of capital was acknowledged as far back as 1956 (NNEPC, 1956), and early Bank documents subscribed to this position. Between 1976 and 1989, eight education and technical assistance projects (US$76 million in loans) were undertaken. While this could be interpreted as a significant effort to address the major constraint to better resource management, it is by no means clear that this line of lending was seen as part of a strategy specifically created to deal with the problem. 4.33 Similarly, in other sectors, no strategy (with regard to projects) emerges that reflects ESW's evolving perceptions of the key resource management issues. Although a significant effort was put into ESW before the Bank began lending to Nepal, and it established many elements of a strategy, the four or five projects in the early 1970s that addressed irrigation, water supply and settlement (which represented just 5 percent of total aid commitments between 1969 and 1973) clearly did not constitute an overall plan with regard to resource management and development. Further, it was not until the mid 1970s that a Bank- wide position was adopted on broader development questions beyond a project-by- project approach. However, by the late 1970s this position was well-articulated. Moreover, by this time, the Bank was a major player in Nepal--one with considerable credibility, at least with most of the donors, as a result of its diverse multi-sectoral experience around the world. Thus, at the time, the Bank could have focused its project and policy dialogue operations within a broader context to address nationwide issues in resource management. 4.34 The design of the lending program between 1975 and 1985 does not suggest that any particular area was seen as a prerequisite for achieving change in resource management beyond the project level. Nor does the record on policy dialogue and conditionality during this period suggest that the Bank was particularly convincing in making the case for changes recommended in ESW. Since then, a number of new and proposed projects represent a significant move towards addressing resource management on a broader front--strengthening of the National Planning Commission (1988), community forestry (1989), integrated watershed management planning associated with preparations for the Arun III hydro-electric dam, proposed modifications in the structure of irrigation lending and renewed emphasis on education. 4.35 There is little doubt that in selecting projects, within and among sectors, the Bank gave scant attention to tactical questions of how to improve resource management in a broader sense. For example, in trying to determine the most efficient use of water, it require to consider more carefully the relative merits of high-cost, large- and medium-scale irrigation in the Terai compared to - 40 - Table 4.1: Nepal - Bank Lending, 1969-89 Credit Amount Total Project Cosi Evaluation Approval ($million) ($million) Status Sector/Category Project Name Year Appraisal Actual Appraisal Actual Agriculture R & A Agr./Proc. Grain Storage (Cr.1062) 1980 6.2 3.4 8.0 7.2 Agr./Proc. Hill Food Prod.(Cr.1101) 1981 8.0 4.2 * 9.7 n.a. Agr./Proo. Cash Crop Dev. (Cr.1339) 1983 6.0 4.6 7.4 n.a. A Area Development Rural Development (Cr.0617) 1976 8.0 8.0 11.0 13.0 Area Development Second Rural Dev. (Cr.0939) 1979 11.0 6.4 13.5 n.a. Area Development Rasuwa-Nuwakot (Cr.1727) 1986 19.1 2.0 * 23.5 n.a. Forestry Comm.Forest Dev.(Cr.1008) 1980 17.0 17.0 24.8 n.a. Forestry Second Forestry (Cr.1400) 1983 18.0 2.4 * 24.0 n.a. Forestry Hill Comm. Forestry (Cr.2028) 1989 30.5 n.a. 45.4 n.a. A Irrigation & Drain. Sirganj Irrigation (Cr.0373) 1973 6.0 6.0 10.0 11.0 A Irrigation & Drain. Bhairawa-Lumbinl Cr.0654) 1976 9.0 9.0 14.0 18.0 Irrigation & Drain. Narayani Irrigation (Cr.0856) 1978 14.0 14.0 17.0 n.a. R & A Irrigation & Drain. Sunsearl Morang I (Cr.0812) 1978 30.0 30.0 37.5 n.a. Irrigation & Drain. Mahakall Irrigation (Cr.1055) 1980 16.0 16.0 19.5 n.a. R Irrigation & Drain. Babal Irrigalton (Cr.1093) 1981 3.5 3.5 3.6 3.5 Irrigation & Drain. Bhairawa-Lumbini (Cr.1346) 1983 16.0 13.2 * 19.4 n.a. Irrigation & Drain. Nqrayani III (Cr.1715) 1986 24.5 1.7 * 35.5 n.a. Irrigation & Drain. Sunsari Morang II (Cr.1814) 1987 40.0 5.4 * 49.9 n.a. Irrigation & Drain. Mahakall Irrigation II (Cr.1924) 1988 41.3 4.2 * 46.7 n.a. Res. & Ext. Agr.Ext.& Res. (Cr.1100) 1981 17.5 11.2 * 20.9 n.a. Res. & Ext. Agr.Extension (Cr.1570) 1985 7.2 1.8 * 8.5 n.a. A Settlement Settlement (Cr.0505) 1974 6.0 2.9 12.0 5.0 Water Supply & Sewerage A Water Supply I (Cr.470-1) 1974 11.8 10.7 5.0 8.0 A Water Supply II (Cr.0704) 1977 8.0 7.3 5.0 8.0 R Water Supply III (Cr.1059) 1980 27.0 27.0 33.3 33.6 Transportation A Highway Highway I (Cr.0223) 1970 2.5 2.2 3.0 5.0 R Highway Highway II (Cr.0730) 1977 17.0 17.0 20.0 19.0 Highway Highway III (Cr.1515) 1984 47.5 16.6 * 116.0 n.a. Highway Road Flo-d Rehab.(Cr.1922) 1988 15.5 1.6 * 18.5 n.a. Highway Arun III Aco.Rd. (Cr.2029) 1989 32.8 n.a. n.a. A Tourism Kathmandu tour. (Cr.0291) 1972 4.2 3.2 7.0 5.0 Energy Petroleum Exporat. (Cr.1260) 1982 9.2 5.5 * 10.9 n.a. - 41 - Credit Amount Total Project Cost Evaluation Approval ($million) ($mIlllor,) Status Sector/Category Project Name Year Appraisal Actual Appraisal Actual Power A Kuleakhani Hydro. (Cr0600-1) 1975 40.8 40.8 68.0 123.0 Kamaell Prep. (Cr.1452) 1984 11.0 9.8 * 14.6 n.e. Marayangol Hydr. (Cr.1478) 1984 107.0 53.8 * 323.3 n.a. Education A First Education (Cr.0772) 1978 5.7 4.7 7.8 6.5 Second Education (Cr.1198) 1981 14.3 8.1 * 17.5 n.a. Primary Education (Cr.1463 1984 12.8 5.5 * 16.7 n.a. Agrie.Manpower (Cr.1534) 1984 8.4 2.1 * 14.3 n.e. Engineering Educ. (Cr.2D44) 1989 11.4 n.a. 26.0 n.a. Telecommunications A Telecommunicat I (Cr.0166) 1969 1.8 1.8 4.0 5.0 R Telecommunicat 11 (Cr.0397) 1973 5.5 5.5 7.9 n.a. R Telecommunicat III (Cr.0799) 1978 14.5 14.5 25.6 n.a. Telecommunicat IV (Cr.1668) 1985 22.0 5.8 * 65.3 n.a. Industrial Dev. & Finance R NIDC (0r.0705) 1977 4.0 3.3 2.0 1.0 R Cottage & Sm.Ind. (CrA1191) 1981 6.5 6.5 7.4 n.e. Industrial Dav. (Cr.1335) 1984 7.5 3.9 * 12.0 n.a. 11 Cottage & Sm.Ind. (Cr.1696) 1986 10.0 3.3 * 17.2 n.e. Urban Municipal Dev. & H. Cr.1988) 1989 41.5 15.3 * 37.0 n.e. Technical Assistance A TechAssist. I (Cr.0659) 1976 3.0 3.0 3.0 3.0 Tech.Asulst 11 (Cr.1379) 1983 6.0 5.0 * 6.0 n.e. tech.Assat Ill (Cr.1902) 1988 14.4 2.5 * 12.0 n.e. Structural Adj. Lending First SAL (CrA 769) 1987 50.0 50.0 50.0 50.0 Second SAL (Cr.2046) 1989 60.0 15.4 60.0 n.e. Emergency Relief Earthiq.Emerg.Sch.(Cr.2D47) 1989 22-8 n.e. 30.2 n.e. TOTAL 1011.2 510.6 1548.3 324.8 * Incomplete project disbursed amount as of 2190. A Project performan audit report (PPAF0 completed by OED. R Project completion report (PCR) reviewed but not audited by OED. n.s. Not avallable. - 42 - smaller and possibly less costly irrigation schemes in the Hill, but it did not. Although the projects themselves appear to have done no actual environmental damage, the record suggests they did little to slow the process of resource degradation. Apr rently the overall context was not seen as an area the Bank should or could address. 4.36 As stated earlier, the largest, most dynamic and effective line of lending appears to have been for irrigation projects in the Terai. The second most important area of lending in the rural sector was for forestry: The first forestry project in 198 was conceived as a large-scale line of lending aimed at reforesting 4,000 ha of land and rehabilitating 7,000 ha of forest per year for 15 years, which represonts about 10 percent of the level estimated to be required in the 1990s. The 1989 Hill Community Forestry project is an even more ambitious attempt to use project lending as a vehicle for change in sector policy. However, although such projects are important, it is not clear this emphasis reflects ESW priorities and recommendations. 4.37 Although the extension projects were also large scale, aimed at covering the whole of the Terai and about 5 percent of the Hill districts, their effect on the management of resources is likely to be indirect and gradual, and in the Hill, minimal. Similarly, Bank-assisted rural development projects in the Hill reached only about 5 percent of the population and area; and the Terai settlement project, designed to deal with the consequences of uncontrolled spontaneous settlement (involving 5,000-10,000 families annually), settled only 300 families each year. 4.38 The history of the Terai settlement project illustrates what occurs when the Bank has no broad agenda to deal with resource management issues. The rationale for the project was sound--to halt the expansion of spontaneous settlement in the forested lowlands, which was destroying natural resources and creating major resource management problems--and an issue on which the Bank had extensive experience in other countries. It therefore made eminent sense for the Bank to assist the government in resolving the problem (which had been extensively documented in ESW). A project was begun in 1974 but because the government did not want to be associated with schemes that converted forest land to agriculture, it withdrew from the settlement issue and ignored the flood of spontaneous colonization. And, since neither the Bank nor government had a carefully wowked out plan for settlement in the Terai, which could have led to a major line of lending, the project was discontinued, apparently without alternatives being considered. Afterwards, the subject was a closed chapter. Structural Adiustment Era Post 1985 4.39 SALs were introduced in Nepal in 1986 as a vehicle to transfer capital and technical resources and appear to have transformed the policy dialogue. As a result of SAL 1, the Bank obtained a significant degree of consensus among the major donors on priorities and conditions for institutional change. In addition, it has achieved change in the budgetary, industrial, trade, agricultural and forestry areas, all of which have critical implications for resource management over the medium and long term (World Bank, 1991). Thus, the expectation of an - 43 - extended structural adjustment period (10-20 years), enables the Bank and other donors to work with the government to evolve a nation-vide strategy for resource management involving a mutually reinforcing program of project lending and policy change. It also offers the Bank a new opportunity to take advantage of lessons learned over 20 years from project experience and neglect of ESW recommendations- -lessons that had previously gone unheeded due to institutional constraints. - 45 - CHAPTER 5: THE ROLE OF SECTOR WORK A. Issues Raised in Sector Work 5.01 In 1963, resource degradation in Nepal was not considered an urgent problem; nor was poverty viewed as a contributory factor. The focus was on growth and opportunities to export timber, plywood, pulp and paper to India. Irrigation and tourism also appeared to offer a large potential. Government policy focused on developing the Terai lowlands--to the neglect of agriculture and forestry in the Hill. 5.02 However, during this early period, Bank ESW recognized it was important to control erosion and also improve food production through measures that would avoid unnecessary destruction of forests. Also, selective reforestation was needed to offset the uncontrolled cutting and burning of trees for fuel and fodder in the Hill and compensate for the forest lands lost to agriculture in the Terai. In addition, ESW stressed the need to upgrade and expand irrigation in both the Hill and Terai, and to ensure sustainability of irrigation schemes by improving their operation and maintenance. Improving the transport system was another priority: Better road and air transport, it was stated, was essential for effective, market-oriented development in agriculture, forestry and tourism. It would also help achieve economies in public and private investment, and spread the benefits of decentralization more equitably. In addition, it would help reduce the cost of living and improve food distribution in remote areas. 5.03 However, Bank actions on all of these fronts were severely hampered by the government's limited capacity to implement projects. In the late sixties, sector reports drew attention to the fact that, although domestic revenues covered current expenditure, all development investment was obtained through aid and it was insufficient. In addition, the report acknowledged other constraints in development policy and planning, including the lack of coordination among donors. 5.04 During the 1970s, resource management issues were broadened and became increasingly important in Bank analyses. For example, Bank attention was drawn to the enormous potential of hydroelectric power (83,000 MW) in Nepal, which, through large-scale projects, could be developed for export to India. At the same time, the severe degradation of Nepal's natural resources was becoming more and more evident. Population in the Hill region had begun to increase rapidly in the 1950s; and by the 1970s, population in the entire country was growing at 2.7 percent annually and putting severe pressure on land and water. Cropping was expanded to steep marginal land, while migration to the Terai was increasing. The pressure led to more widespread and uncontrolled destruction of forests for fuelwood, forage and pasture land. Rural people spent more time collecting fuel and fodder to the detriment of more productive work. The dwindling supply of fuelwood threatened to create a situation in which animal manure, which had been used as organic fertilizer, would be increasingly used as fuel. Further, reduced supplies of forest forage resulted in overgrazing of Hill pastures, which further damaged trees and prevented the regeneration of perennial grasses, leading to progressive reduction in livestock productivity. The intensified usa of marginal - 46 - lands accelerated soil erosion and reduced water-holding capacity. Consequently, yields declined. Natural processes related to unstable soils, intense rains, and torrential river flows were exacerbated, damaging Hill irrigation structures and silting reservoirs, irrigation canals and riverbeds. Floods became more frequent and agricultural production suffered. Wells dried up in the dry season, forcing villagers to spend more time collecting water. 5.05 It was stated in agricultural sector reviews that the high-cost development in the Terai, and the subsequent neglect of agriculture and forestry in the Hill, led to a decline in per capita rural incomes, faster environmental degradation and increased migration from the Hill. In addition, that the government was unable to manage the flow of migrants to the Terai, specify the areas suitable for settlement, organize logging concessions, or provide incentives and enforce regulations for the timely extraction of timber. The result was that farmers settled in some areas unsuited to agriculture, marketable timber was destroyed (at the rate of 20-30 million board feet a year), forest land that should have been reserved as shelter belts or sources of fuelwood were cleared unnecessarily, and milling was inefficient due to the uncertainties governing raw material supplies and markets. 5.06 The policy of promoting natural regeneration of logged-over or cleared forests on land which proved unsuitable for sustained agriculture was implemented far too slowly: Plantations of fast-growing species were not established speedily enough to meet the demand for timber and fuelwood. At the same time, existing irrigation systems were poorly managed: The emphasis was on supplying supplementary water during the monsoon season rather than on establishing two- season cropping. Hence, water losses were extensive. In addition, the erratic supply of water for crops, insecurity of tenure, and the widespread distortion of land rental arrangements were not conducive to sound, long-term management of soil and forest resources. 5.07 By the mid-1970s, the Bank had recognized that Nepal's renewable resources were critical to development. Strategic questions were raised about how to deal on a large scale with: (a) soil erosion, reforestation, and the expansion, operation and maintenance of irrigation in the Hill; (b) land tenure, forest destruction, uncontrolled spontaneous settlement and a perceived need for massive reforestation in the Terai; (c) incentives, research, extension, and credit as a way to expand production by increasing yields rather than by extending the area cultivated; (d) access to remote Hill communities where capital and operating costs for roads with low traffic density were prohibitive; and (e) an effective population control program. 5.08 From the mid-1970s onward, the Bank maintained its position at the sector level that environmental degradation was a development issue of the highest priority. The view was expressed in increasingly strident terms-- stagnation, crisis, catastrophe. It reiterated concerns that unless programs began to match the scale of the problem, "environmental destruction would doom agricultural potential and reduce hydro power potential" (World Bank 1978, ii). Again, experience demonstrates that the lending program did not deal with causes - 47 - (say, of migzation) but rather with its symptoms, which included the rapid settlement in the Terai. 5.09 Solutions would also require improving public administration, but this was hampered by a lack of technical expertise. For more than two decades, the Bank had pointed out that Nepal's public administration was ineffective and not enough information was available to frame effective policies and action. Thus, it was difficult to introduce policies to deal with land tenure, public investment, cost recovery, taxes, subsidies, and prices as tools for managing the exploitation of renewable resources. 5.10 Nevertheless, ESW noted the problems needed to be addressed: How to stem a migratory flow of 40,000-50,000 people a year from the Hill to the Terai? How to deal with the destruction of forests in the Terai (up to 100,000 hectares, annually) when only 8 percent of the settlers were involved in organized resettlement programs? 9How to address the degradation of soil, water, pasture, and forest resources in the Hill (affecting the welfare of nearly 6 million people in 3,500 villages) on a scale that would make a significant contribution to development? Whether to seek reforestation through natural regeneration or plantations? How to make fuller use of the irrigation infrastructure? And how to provide road access to 60 percent of the rural population? 5.11 In the 1980s, the Bank increased both the breadth and depth of its ESW and studies on constraints to Nepal's development. ESW missions, which until that time had averaged about one every two years, increased to two a year and focused on education, energy, urbanization, health, population, and public administration. In 1981, the Bank initiated a series of special studies, totalling 14 in eight years, on such topics as agricultural efficiency, rural development experience, income distribution, family planning, child nutrition, and women in development. As a result, a number of resource management issues were brought into sharper focus (see Boxes 5.1, 5.2). The perverse effects of the 1957 Forest Nationalzation Act on forest management were widely documented. The tudies noted that the importance of livestock to rural comMunities, because of the 0o01munies' weligious belefs, social status concems, and food andnergjy needs, was resulting in larger herds and consequently sedous overgrating. An estimated 30 tons of soil per tiectare per year were being ost because of trampling, compared with 8 tons if the same land had teon under forest The fuelwood cris wasacceeating deforestation, divertig labor from agricultural putsuits .fid food preparation to wood Coliectiot . studies found that the se of animal dung and otheR agricural residue as fuetwood rather than as org fertilizer (8 million tons annually) would reduce total grain output by an estimated 1 million tons annual In addition, xtractUon of wood at more than twice the sustainable production rate would lead to total destOtion of forests by the year 2000; Implicitly this deforestation was linked to flood damage in the Qangetto plain, averaging about $700 million annually4 Family planning was recognized to be largely Ineffective. Seven prent of women of reproductive age used contraceptives, and the vast majority of the populailon consideted a familyof elx acceptable and even desirable. - 48 - Bam 5.2 Pui A Mtl Deftllncies in public administration were re-examined in 1985 and 1989. The onCiuelone reinforced earlier perceptions. The feudal system of power which concentrated deciSon-maidng at the top, posed the main constraint ft had given form to a pobic adminlotration In which the elite cadre of Managers. precluded career achievement. in which there was no pesonnel planning, and in whion performance was not the basis for promotion. The result was poor decIsion-makIng In program and project implementation, strong do facto resatance to decentralization and coordination; and Inadequate mobilization olocal resources and initiative. D00cions on resource ali0eatIon wer, made without setting priorities, resuting In overconnitment of fldO and undedunk".g because of low disbursemient The studies con0dlued tht despit thei od recommendations for change made since 1968, the major structural deficiencies remain' (World Bank 1989a) 5.12 By the late 1980s, ESW gave considerably greater emphasis to the magnitude of the resource management problem, its intersectoral linkages and the difficulties in coming to gripe with issues of sustainable development on a national scale. The problem of poverty-driven resource degradation was analyzed in detail. 5.13 The Bank estimated that the basic needs program for the poor would reach only 1 percent of the target group; even if modified, for various reasons, it could not reach more than 3 percent. For example, to give the poor access to resources, credit was made available to rural areas, with 16 percent interest rates. However, only one tenth ultimately went to small farmers, and the bulk was used by agro-business. If they borrowed at all, the poor paid interest of 45-75 percent to 75 percent. In a similar fashion, most agricultural services provided benefits to medium and large farmers, particularly those located in the more accessible Terai, although in the Hill, 75 percent of farms were smaller than 1 hectare, and in the Terai, 35 percent of the population was landless. Neither group, which together accounted for 50 percent of the country's population, was reached by agricultural programs; therefore, the scope for reducing poverty by redistributing wealth was limited. 5.14 Witk regard to population growth, it was estimated that without a significant defrease, which was considered unlikely, between 1990 and 2010, the Hill will have to accommodate an additional 600,000 people (7 percent increase), the Terai rural areas 6 million people (75 percent increase), and urban centers 5.6 million people (350 percent increase). By the year 2005, 10,000 persons will be entering the work force each week and off-farm employment will have to be created to alleviate pressure on renewable resources. However, possibilities are severely limited by the lack of education, health services, transport infrastruc- ture, markets and marketing systems. Finally, the scope for using economic policy instruments is restricted by the fact that only 30 percent of current production goes through the cash economy. 5.15 Because of lack of education, potential health benefits of water-supply investments were unmet; and the poor were unable to capitalize on expenditures in agricultural extension and irrigation to increase employment and production in agriculture and forestry. Further, insufficient capital was invested in human - 49- resources, physical infrastructure, and marketing institutions. Moreover, the decision-making process affecting resource allocation and producer incentives and regulations, did not improve. Only 25 percent of the population in the Hill gained access to roads, thus restricting the use of modern inputs and limiting production to subsistence levels. As a result, Nepal has been unable to promote enough high-value production from the land and forests to generate off-farm income. 5.16 The Bank estimated that if farmers were given access to credit, extension, inputs, and markets, agricultural yields could be increased by 50 percent in the Hill and by 100 percent in the Terai on a sustainable basis. However, the government was unable to provide the resources needed and encourage initiative at the local level. For example, between 1982 and 1987, only 5 percent of water users paid for irrigation, and this revenue covered only 7 percent of operation and maintenance costs. 5.17 Although these shortfalls were enormous, recent ESW considered it was still possible to expand per capita output and promote equity on a sustainable basis by improving the natural resource base; and it speculated on what this might entail. First, it recognized that resource degradation in Nepal is firmly linked to rural poverty; however, unlike most developing countries, no resource frontier existed, nor was there much scope for reducing poverty through redistribution of wealth (since per capita income ie so low). Moreover, since much of the population is outside the market economy s.nd distortions in pricing, tariffs, exchange rate, etc. are not severe, corrections in these macro policies offer little prospect for improving output or equity. 5.18 Thus, ESW presented various strategy options that focus on the following: (a) The education sector, especially primary, secondary, and vocational education, is seen as the key to increased farm and off-farm productivity, and to the success of any efforts to reduce fertility and expand off-farm employment. (b) The population problem calls for a Chinese-type solution;- any strategy ought to systematically explore avenues for moving progressively toward such a solution. (c) The agricultural sector must increase productivity and move to high-value, labor-intensive products. (d) The industry and service sectors must generate greater off-farm employment, which requires more urban infrastructure. 5.19 The tactical issues raised in ESW focused on such aspects as public administration, programs for women, afforestation, primary health care, V Use of penalties for exceeding a predetermined limit on family size. - 50 - extension, credit, tourism, tenancy and roads. Its recommendations were useful in that they identified some of the principal gaps in knowledge and indicated where additional insights would be gained through more studies or action-oriented research. They implied that ESW should concentrate on the constraints to sustainable development--for example, the difficulty in replicating successful integrated rural development, the obstacles to assigning property rights and lack of opportunity for increasing the economic and social contribution of women. 5.20 This new agenda was reinforced since 1988 by a series of Bank initiatives aimed specifically at the environment. These included an environmental orientation paper (World Bank 1988b), an extensive study of sustainable development focused mainly on the Hill region (ERL, 1989), and an overview of environmental programs (World Bank 1989e). In 1990, work was begun on an environmental strategy paper directed towards developing a more explicit and comprehensive approach to resource management. B. Policy Recommendations 5.21 During the early 1960s, the Bank's policy recommendations focused on training in the puolic sector; extensive data collection about natural resources, infrastructure, and the social sectors; cadastral surveys and administrative reorganization, which in the case of resources, focused on the operation and maintenance of irrigation facilities. These were reiterated over the years, along with others, that were added. 5.22 Also in this early period, the Bank believed there was substantial potential to develop timber, tourism, and irrigation and its recommendations focused on expanding transport and communications--to move the process along. The highway system was to be expanded from 500 km to 4,000 km, and panchayats were to be mobilized for constructing and maintaining local feeder roads. In addition, ten commercial airports were needed to provide access to remote centers in the Hill. Further, improved transport would be essential to the decentralization needed to achieve economies of scale in Kathmandu. 5.23 Further, ESW recommended that priority be given to improving the efficiency of investments in irrigation infrastructure (e.g. better operation and maintenance), expanding tubewell irrigation in the Terai, and creating the capacity to prepare, implement, monitor and evaluate projects. Further, it suggested that studies be carried out to identify areas with highest potential for agriculture and forestry in both the Hill and Terai. In 1974 these recommendations were repeated and others added--such as for expanding traditional cropa, increasing settlement in the Terai, improving integration of timber extraction, improving communications between the Hill and Terai, and creating a natural resource committee to assemble data and identify priority areas for protection and development. - 51 - 5.24 Since 1974, Bank policy for the Hill emphasized the need to build more roads, extend public irrigation, improve water management, and undertake reforestation for fuelwood and fodder. In the Terai, the Bank stressed extension and upgrading of irrigation, reforestation with fast-growing tree plantations, and integration of access roads, settlement, and logging. Specific recommendations aimed at halting the deterioration of Hill agriculture, improving the use of irrigation infrastructure capacity, protecting forests, and intensifying and diversifying Terai agriculture. It also recognized that a great deal more village involvement was needed if changes were to be made on a meaningful scale. 5.25 These recommendations were reiterated in proposals made in 1978-79; and, during the same period, the Bank suggested incentives for production and resource conservation through pricing, taxes, and credit measures and making land tenure more secure. Further, the Bank proposed improving efforts to stem deterioration in the Hill through rotational use of forests and native pasture, reforestation, and the development of fodder reserves. It was suggested that 1.4 million ha be targeted for reforestation by 1990, 270,000 ha of Terai forest be converted to plantations for fuel and industrial use, and settlements be completed on 250,000 ha of Terai forest lands suited to agriculture. Once again, the Bank identified administrative weakness as the pervasive constraint that had to be removed by upgrading staff, improving staff incentives, strengthening coordination, and modernizing management methods (World Bank 1978). 5.26 By the early 1980s, as a result of much more diversified sector work, the Bank began to focus on what might be termed the underlying causes of natural resource degradation in Nepal: Poverty, population growth, the refusal to include women in development activities (e.g. such as selecting which varieties of trees to grow for fuelwood), the lack of education, urbanization, and the energy shortage. To reduce population growth, recommendations were made to strengthen the family planning program by training staff (particularly to increase the number of female extension workers), to promote greater community participation, and to facilitate more NGO involvement. In addition, the Bank proposed that rural extension and credit programs be reoriented to bring more women into the market economy. Education, not just extension, was identified as the essential element for getting improved technology and management practices adopted in agriculture. 5.27 In the past, strip development had led to wasteful use of agricultural lands and low-density settlement in urban areas, and to poor urban services. Given this experience and the possibility that the urban population would double in two decades, the Bank recommended strengthening urban planning and zoning for high-density settlement, increasing urban infrastructure, and upgrading the quality and quantity of urban services. 5.28 In the energy sector, it was suggested that priority should be given to increasing the supply of fuelwood. For this purpose, it was necessary to transfer public forests to panchayats, improve forest management to increase the supply of fuelwood, accelerate reforestation from 5,000 ha per year to 100,000 ha per year by 1990, and increase the distribution of fuel-efficient stoves ($1 - 52 - million a year was allocated to the program). The Bank also suggested the government prepare the basis for a massive expansion of hydro-electric power production for export to India. As a prerequisite, a long-term trade agreement to supply part of India's growing needs, estimated at 5,000 MW a year, would have to be negotiated. 5.29 In the late 1980s, the prescriptions and constraints remained basically unchanged although the Bank explicitly named the obstacles to managing natural resources. For example, the Bank estimated that the annual rate of reforestation for fuelwood was still only 5-10 percent of the rate required to ensure sustainable supplies. Attempts to selectively reduce herds in the Hill region, introduce rotational grazing, encourage stall feeding based on fodder trees, rest depleted pastures, improve multiple cropping to reduce erosion and develop alternative opportunities for marginal farmers were all still unsuccessful. 5.30 Against these shortcomings, the Bank recommended ways to improve the management of fertilizer imports, stocks and distribution, and,to implement a rational pricing policy. Liberalization of foodgrain pricing was also suggested to provide incentives to producers and to eliminate contraband shipments to India. On irrigation, the Bank favored changing the strategy to reduce the emphasis on big schemes, and instead emphasize groundwater development, mobilize local farmers in construction, and privatize operation and maintenance. 5.31 The report by Environmental Resources Limited (ERL, 1989) called for action on four fronts: (a) reducing pressure on Hill resources by facilitating migration to rural areas in the Terai, urbanization, and non-agricultural rural employment; (b) increasing efficiency in the use of Hill resources by ensuring that public decision-making is decentralized so that local people participate more fully, and by privatizing several services in rural areas; (c) promoting tourism through improved management plans, incentives to local people to develop the sector, and encouragement of foreign investment; and (d) improving planning, development, and operation and maintenance of infrastructure. C. Evolution of Sector Work 5.32 ESW undertaken in Nepal over the past 25 years reflects the changing perceptions of the Bank on environment/development issues. Although the problems of deforestation and erosion were recognized in the late 1960s, the poverty/environment issue was not viewed as a central theme. The main preoccupations were food and exports, thus emphasis was placed on development of unused land, water and forest resources, particularly in the Terai. By the early 1970s, the seriousness of resource degradation and its consequences for sustainable development were highlighted. At the same time, on a Bank-wide basis, major emphasis was placed on poverty and rural development. The result was a change in focus towards forestry and agriculture in the Hill. In the late 1970s and 1980s, there was growing concern with the environment and a sharper - 53 - definition of the links between poverty, rural population growth and resource degradation. In the late 1980s, the relative importance of institutional and policy variables, as determinants of development importance, were given greater emphasis; e.g. on-farm water management versus irrigation infrastructure, user groups in forestry, and the role of education. 5.33 One ESW perception that did not change over two and a half decades was the limited institutional environment within which Bank operations were to be carried out. This led to reiteration of recommendations for change throughout the period--decentralization, agrarian reform, user participation, education, upgraded planning and public administration, and mobilization of domestic human and financial capital. D. Sector Work and Resource Management: 1965-85 5.34 ESW documents on Nepal contain little strategic thinking on the range of viable options for dealing with the issues enunciated. Perhaps the best illustration is on the subject of land tenure (see Box 5.3). Besides noting that certain problems need to be addressed, documents offer few precise options for strengthening the extremely weak institutional structure, revising land tenure arrangements or mobilizing community initiatives. oa r$: The Land TiueO I*I:Iu.o An opiiort cormmonly shared by developmenlt spedatists is thaet*rural develorment la a difficult propoeltIon witutgnificant change Inthe stucture of lmndowneship' (New ra 1989 10). The Lands Act of 1957 called for~ compeesive. far-reaching land reform~ with) proviatorh for triaxinmum size of holdings, rental Oelngs, abolition of feudal tenure, guarantee of tenancy, land deeopment, coslidation of mini Iioldings, and cnseration) of sol and forest resources. Because of the slow progress on the cadastral survey anid the Collection of records, the L.and Aeform Act of 1964 was passed to speed up the process. The oblef innovation to thti law was the setting of Initefnd owvnerstip (17 he per farm family.in the Teral and 4.1 ha in the hilts) and tenancy (2.6? fha in the Teral and 1,$ te 1i) the tills). The record concerning the implementation of these laws ovrthe last 30 years suggests why the foregoing quotatin is stinl valid.MAlhough feudal tenure was aboished arid rent ceilings were partially applied, no steps were taken to Ilentify propertis exceeding 4.1 hel or tenanoles exceeding 1.5 ha. Efforts to encourage the conuservation of resources have also bee. insignificant. 5.35 Since 1981, the Bank prepared a series of discussion papers about resource management in an environment characterized by limited institutions. And, vith the introduction of structural adjustment programs in the latter part of the decade, some of the options presented (in these papers) could be translated into policies. 5.36 Moreover, the incentive to delve more deeply into the underlying causes of resource degradation and the constraints to change became stronger. A 1989 review of the social sectors identified rural poverty as one of the root causes of the current crisis. The review draws attention to the fact that education is - 54 - a prerequisite for a three-pronged approach to alleviate poverty through reduced population growth, higher agricultural productivity, and increased off-farm employment opportunities. Such an analysis places the resource management debate in a much wider context than just focusing on aspects such as reforestation, fertilizer use, high-yielding varieties, extension, or roads which tended to define Bank policy earlier. 5.37 For a long period, there was not much scope for improving the management of natural resources. On the one hand, ESW identified the issues but did not reco,mmend radical reforms and instead addressed intractable problems on a piece meal basis. In addition, it contained little about how to implement policies that would promote change. On the other, the Nepalese government was not interested in adopting new strategies. For example, it was opposed to loans, in contrast to grante, for population control (until the late 1970s the same situation applied to education); and, in practice, though not in theory, it was against decentralization (see Box 5.4). Box S.4: D Frraed The princip.e of mobillzing local inItiatIv. and encouraging local paticipatlon in decislon-making on 1evelopment was formlized in the Panchayet Development and Land TaxAct of 195, which prompted the setting up of 75 district panchayats, the central government appointed a panchsyat devolopment officer (PDO) for h district to superi.e developmen1t actvitIes. However, because of confilcts between the chief district officers (CDO), zonal commissions, and PDOs, the system dId not take effect. Accordingly, the 1965 Act was amended In 1971 to delineate responsblitles, and PD06 were charged with preparing and implementing district development plans. But the POs continued to be ineffectlve in coordinating line agences. in response, the DIstrict Administration Plan was Introduced In 1974 under whlch all district offices of line agenoles were brought under the control of the CDOs and POs were abolkshed, However, Ministrd0s refused to entrust supervsion and coordination to the CDOs. Qn view of the perslstent difficulties in integrating central government gatvitles with the percelved needsin the dlstrict9, the govemment created the Integrated Panchayat Development Design In 1978 to make operatlonal a oca participatory planning process by whih programs Implemented by line agencoes would respond to the xpressed needsB of the people. The plan was adminstered by an InterminIsteral committee chalred by the Prime Minister, whlch supeNsedn a chain of coordlnating commfttees at all leves. Howevor, the difficules perssted. To remedy.the situaton the gov.efment created the Ministry of Panchayat and Local Development in 1980 to evtliz th p.t.cipatory planning process. The CDOs were assigned to malntaln !Ow and order, and the post of o development officer (LDO) was created to coordlnate development programs. This intiative also provedi Ineffectve and paved the way for another attempt-the Decentrallzation Act in 1982, .hch be .operaflonal ln 1984. It empowered the panchayats to conduct aI distriot-level development works, including formulation, implementtilon, and evaluaton of local projects,withln an approved dIstrict plan. Despite the strong powere vested In the panchayats, the scheme continues to falt far short of expectatons. Thre Is no ploulbig expertise at the district and village lovels; the role of planners assigned to each district Is restufcted to one of compitng demandsom the village panchayats, presentIng the array to the district panchayat for review od ~pprov~I, and fonarding the approved plan to the relevant lIne agencies. Of more serous concern In imnplementng the scheme ls the positIon taken by line agency staff that it Is unnecessary to seek clearance from the LDO on final project or program decisions. Those adminIstrative deficiences are exemplified by the InabilIty 4of agncies such ts the S011 and Water Conservatlon Department (SWC), Agricufturl inputs Commission (AID), and Foresty Department (FD) to respond to expressed local priortles In irrigation, Input supply, and forestry, - 55 - Table 5.1t Nepal Development, Environment, and External Aid Bank Economic and Sector Work 'i (1964-89) Year Report Title Type k/ 1964 EM The Economy 1965 SR National Transport System 1969 EM Current Economic Position and Prospects 1973 EM Economic Situation and Prospects 1974 SR Nepal Industries Development Corporation SR Agricultural Sector Surveyt The General Report 1975 EM A Review of Major Issues Related to Developwent Prospects 1976 EM Review of the Economic Situation 1977 SR Sector Memorandum Telecommunications 1978 SR Forestry Sector Review EM Country Economic Memorandum 1979 SR Agricultural Sector Review EM Development Performance and Prospects 1981 SR Education Sector Memorandum EM Policies and Prospects for Accelerated Growth DP The Determinants of Fertility and Child Survival in the Nepal Terai DP Prevalence and Correlates of Childhood Malnutrition in the Terai Region of Nepal DP Fertility Attitudes and Behavior in the Nepal Terai DP Farmer Education and Farm Efficiency in Nepal DP Community Forestry Development and Training Project: Case Studies 1982 DP Characteristics and Determinants of Child Nutritional Status DP in Nepal DP Women and the Subsistence Sector: Economic Participation and DP Household Decision-Making in Nepal SR Economic Self-Sufficiency and the Effects of Economic SR Development on Village Housing in Nepal SR Edunation and Agricultural Efficiency in Nepal Report on Population Strategy Agricultural Sector Memorandum Urban Sector Memorandum 1983 EM Recent Development and Selected Issues in Trade Promotion SR Issues and Options in the Energy Sector - 56 - Year Report Title Type k 1984 SR Strategy for Development of Hill Agriculture: A Review 1985 DP Participation in Schooling: Determinants and Learning DP Outcomes in Nepal EM Childhood Malnutrition and Schooling in the Terai Region SR of Nepal Prospects for Economic Adjustment and Growth Public Administration Training Needs Assessment 1987 EM Financial Stability with Economic Growth 1988 EM Policies for Improving Growth and Alleviating Poverty SR Power Subsector Review 1989 DP Assisting Poor Rural Areas through Groundwater Irrigation: Exploratory Proposals for East India, Bangladesh and Nepal SR Improving Poverty Alleviation through Groundwater Irrigation: Exploratory Proposals for East India, Bangladesh and Nepal SR Agricultural Sector Review SR Social Sector Strategy Review 1990 SR Maintaining Structural Reforms and Managing Public Resources (mission undertaken in 1989) 1 There are several other Bank reports that deal with Nepal together with other countries. Also several internal documents on Nepal are not classed as ESW. A number of these documents are listed in the Reference section. EM - Economic Memorandum and Report; SR - Sector Report; DP - Discussion Paper - 57 - CHAPTER 6: COUNTRY STRATEGIES 6.01 This chapter examines: (a) how the Bank perceived environmental and development issues in Nepal at the macroeconomic level; (b) how these perceptions evolved over the 25-year period; and (c) how changed perceptions were reflected in policy recommendations. The review relies mainly on the National Plans for Economic Development of Nepal, Country Economic Memorandums, Country Economic Reports, and other Bank macroeconomic reports on such issues as poverty, donor assistance and development prospects in general. Within this context, important aspects of the overall macroeconomic framework are also discussed. A. Macroeconomics and Resource Management in Nepal 6.02 The incorporation of environmental concerns into the macroeconomic framework occurred slowly, despite the fact that, as stated in Chapter 2, they were clearly identified in the !Iterature several decades ago. Within the Bank, sectoral reports were the first to acknowledge the need to make the link. However, most macroeconomic reports did not acknowledge natural resource management issues until the mid 1980s, and have had a great difficulty (and still do) incorporating them in the planning and policy formulation process. Even in the early 1980s, the assessment of "sources of growth" for the economy as a whole and for the agricultural sector, in particular, were never linked to the nature and extent of Nepal's natural capital. Growth was said to depend mainly on expanding "physical" and "financial capital," in the hope that other forms of capital would adjust to that expansion process. But, as the Bank now recognizes, the Nepalese economy was not able to adjust and, perhaps will not in the immediate future: The economy was unable to achieve a proper balance across all forms of capital involved in development (i.e., human, natural, institutional, cultural, physical and financial). Further, within the country, discussions about the links among these various forms or about their "optimal" composition, never materialized. 6.03 Another characteristic of most macroeconomic reports was their emphasis* on the short-term: The main aggregates of the analyses were income, employment, balance of payments and fiscal resources. As a result, the approach used to assess development performance--or to define the extent to wbich the economy was doing better--was also of a very short-term nature. Consequently, long-term issues and constraints were addressed much less comprehensively. More specifically, the economic prices used to evaluate investments and policy changes did not consider the full meaning of opportunity costs. Spatial externalities (e.g. upstream and downstream effects) and inter-temporal externalities (e.g. benefits and costs to future generations) of those policies and programs were never formally evaluated. As a result, the yardstick for assessing economic performance was based on a set of traditional indicators of economic efficiency, with little regard for whether the proposed development strategies were sustainable. 6.n4 No attempt was made to measure the impact of sustainable macroeconomic policies on rent seeking, land use, access to and use of natural resources or on - 58 - the change in the physical use rate of resources. For example, fiscal policies recommended increases in land taxes--to increase revenues--without studying the effect this would have on resource use. Similarly, when identifying the agricultural sector potential at the macro level, the Bank failed to associate productivity with natural resource use (see Chapter 5 for details) until the beginning of this decade. Productivity increases were expected to come only from technological change, marketing and distribution, and other traditional activities. 6.05 A major concern of fiscal policy was the nature of expenditure needed to meet development objectives in agriculture and forestry. However, the relationship between fiscal policy (e.g. taxes, subsidies, concessions and stumpage fees) and resource use was never studied in detail since it was seen as a minor factor to resource use. The one policy instrument explicitly used to allocate resources was the public investment program. While this was an adequate instrument to develop or promote productive or service activities, it was inaeequate to determine, or induce, an optimal level of natural resource use. 6.06 As is known now understood, macroeconomic policies are not neutral with regard to access, use and management of natural resources in Nepal. And, as noted by the latest economic reports, low rates of economic growth seem to be deep-rooted structural problems. B. Macroeconomic Management and Resources Use 6.07 Monetary and fiscal policies for improving natural resource allocation and use were seen as separate entities from the macroeconomic management of Nepal--although the links were identified in the early 1970s (based on experience with several projects). For example, in order to deal with operation and maintenance problems in irrigation and other sectors, and with the fiscal instruments that go with them (e.g. increase in water tariffs), policies, or added conditionality, became part and parcel of Bank-financed operations. The organizational complexities these generated within a rather weak government administration were significant. Further, projects proved to be inefficient vehicles for macroeconomic policy change, and as a result, several of the conditionalities were never met. Because the projects were difficult to implement, several cross subsidies and other distortions were created, and time and cost overruns became common. The inadequacies imposed by a fragile institutional infrastructure compounded the problems, and led to further delays and inefficiencies. Thus, the only vehicle left was structural adjustment, a subject treated later in this chapter. 6.08 Macroeconomic planning and the conceptualization of economic devalopment have been centralized in Nepal, carried out by the National Planning Commission (see Box 6.1). However, these exercises are completely detached from the agencies that implement projects and programs. Several country reports pointed out that both centralization and full decentralization weakened the - 59 - ministries' ability to carry out development programs; also, that extreme centralization creates severe inefficiencies, since development targets are driven from outside rather than as an outgrowth of sectoral planning and development activities. This leads to a preliminary conclusion that ministerial capacity to plan and implement resource management as well as capacity at the grass roots level need to be reinforced, since both are central to managing natural resources. Bcc .1: Pladwirg and El virtrnert: As with other planning docurments ridwide, Nepal's fie-year plans since 1965 have had progressively longer lists Of environmental proction and resource managemnt obectives. in 1965 Nepal' Third Plan gave top priority to increasing agricultural production; the second priority was ?effectively impleMenting the land reform program' (Govemmnt of Nepal 1965, 1). The Importance of decehtralization as a tool for mobilizing local initiative and resources and for implementing plans was reiterated from the. Second Plan. The government recognized that soil erosion inthe hills had become a major problem. in their6utthPlan (1970.75), first priority was given to transport, and second priorit to agrIllture. Accelerated migrationrom the hiis to the Teral was recognized to be the rest of population growth and resource deradatior i the hills, and the cause of uncontrolled forett destrucilori in the Teral. Te Fifth Plan (1975-80) restored agdiulture to top priory. Wide-ranging provisions tWerO Included in the plan for controlling overgrazing, resettlement, and deforestation, and for protecting watersheds, conserving Wdie, promoting tourism, and accelerating land reform. All of these objectives were retained In the Sbcth Plan (1980.85) which added population control, reforestation, off-farm employment generation, soil conservation, and en.ironmental educationto its ist of priorities. Th Seventh Plan (1985.90) accorded top prioriy to promoting agriculmure and combating resource degradation. The earlier positions on resource nilagemmnt were reiteratod. in iddition, the piar called for the 1ormUlation of a national environmental act, pollution control, integration of agency approaches to address eVi In daI more effeclively, and measures to mitigate tesource degradation resulting from tourism. 6.09 In the 1970s and early 1980s, resource management problems were seen basically as sectoral problems. The integrated view and framework was simply lacking. Thus,4policy and investment strategy discussions took place vithin a narrow sectoral framework (e.g. irrigation and forestry), without focusing on larger and more appropriate aggregates for resource management and use (e.g. watershed management, regions). C. Sources of Growth and Productivity 6.10 In the 1970s, Bank and Government reports emphasized productivity in its most traditional sense. Some resource management issues were identified but as separate entities from those related to productivity. Most Bank reports did not spell out the means to attain the goals and mainly focused on traditional - 60 - aggregates such as balance of payments and fiscal deficits. But, even on those grounds, the analysis was very limited. 6.11 For a long time the Bank assumed that the key condition or source of growth was the expansion of physical capital. Thus, a large part of the budget was allocated to roads and transport projects--for which the Bank thought there was an adequate level of institutional absorptive capacity. In fact, institutional capital was not seen as a constraint to expanding physical capital, except in agriculture (where there was a severe lack of national and local institutions). To correct the situation, a larger share of the development budget was earmarked for irrigation projects (with physical capital as the most intensive factor) than for natural resource management activities. Other areas to sustain agricultural development (e.g. land management) had lower priority for both the Bank and other donors. 6.12 With regard to macroeconomic performance, economic reports repeatedly stated that Nepal's general economic stagnation was mainly due to low performance in agriculture, partially the result of rural poverty. However, accompanying analyses did not deepen Bank understanding of the poverty process, although, it pointed to ways and means to increase the transfer of financial resources to the government. Further, they did not identify where, at the national level resources for agriculture should be allocated. And the task of allocation was not made easier because sector work was weak. D. The Donors and Resource Management 6.13 Bank reports describe foreign aid and the role of donors at the macroeconomic level mainly as instruments to "close the financial gap" of Nepal, more than as important instruments of development. Discussions at this level raised very few questions with regard to donor policies, to differences in approach and to the role of the so-called policy dialogue. Further, although it was never stated that investments should or would complement each other, the principle was assumed--incorrectly. This incoherence clearly affected operations designed to manage the rural resource base. One example is forestry, where reforestation programs were promoted at exactly the same time as exploitation programs were financed. 6.14 One issue discussed at the macro level was that of program aid and where projects would fit (within that program). Still, program aid was seen more as part :if a financial package than a different developme t instrument. 6.15 It was not until the mid and late 1980s that two central issues were raised with regard to donor coordination and institutional development. Bank reports recognized thatt (a) much more coordination had to take plce and (b) the donor community had greatly influenced policies and investments while the government had played a passive role. The reports also claimed there were too many projects (1300 projects active in 1987 alone), thus highlighting the - 61 - contradiction between the assessment that Nepal had little capacity to implement projects and the number being promoted. At the same time, none of the reports discussed the nature of donor assistance, or the composition of the portfolio for a coordinated approach to projects and programs affecting natural resources. E. The Policy Framework 6.16 In the 1960s and 1970s, the major priorities were neither related to managing natural resources nor to investigating resource management problems such as deforestation, sedimentation or soil erosion. Instead, the priorities were to carry out studies about raising agricultural productivity, alleviating poverty, integrating Nepal with the sub-continent and improving data gathering as well as the performance of public enterprise systems and public sector administration. As studies represent a key instrument with which to discuss and formulate policy, it is clear that resource management issues ranked somewhere at the bottom. 6.17 Repeatedly, strategies developed were based largely on sectoral analysis, and less on the underlying forces determining growth or development in general. Distinctions were made about development of physical resources and development of human resources, without relating them to the whole and focused only on three forms of capitalt physical, financial and human. In fact, very little was done to study the role of natural, cultural and institutional capital, although reports had acknowledged that a lack of the latter imposed serious constraints. 6.18 Several country reports, even when compared with the National Plans for the Development of Nepal, contributed very little to policy formation. In fact, most macroeconomic reports were a summary of those plans. The value added by the Bank was in the study of financial sector issues and constraints, and in the analysis of major macroeconomic variables. And while macro reports did contribute to the understanding of pricing policies, benefits and costs of certain programs, and investment priorities and programs, the discussion always ignored several dimensions of the less traditional forms of capital. 6.19 In the early 1980s, there was increasitS concern about the negative effect of a weak public administration on economic performance. This focus touched on the functional role of the state rather than on where and when the state needed -uo intervene (in the economy). Had the focus been on the latter, it would have been impossible to gloss over important environmental externalities (over space and time). 6.20 Finally, reports were not oriented to discuss long-term issues and policies until the mid and late 1980s. One exception was the economis report of 1979. Instead, most of the macroeconomic analysis focused on the short term and, thus, could not accommodate comprehensive discussions about issues such as resource conservation and management. - 62 - F. Recent Changes and Trends 6.21 The 1985 report on Nepal Prospects for Economic Adjustment and Growth represent a change in the way development effectiveness was assessed. Although it continued the pattern of producing short-term analyses of macroeconomic indicators and developing short-term development strategies, the report added a series of more complex and delicate long-term challenges. However, the analysis of performance at the sector level was rather disappointing. For example, in analyzing agricultural sector performance, the report noted the need for increases in productivity, but it did not focus on the root causes of the problems (i.e. the fragile natural resource base). Further, the report did not explicitly consider land as an investment good (an asset) and, therefore, contained no practical recommendations on how to maintain the land and conserve the soil, vegetation and forests. 6.22 A 1989 report had similar shortcomings, although it also had some important warnings about soil erosion, deforestation, and other environmental problems. Its most important achievement was the way it conceived the changes in Nepal's comparative advantage in agricultures It claimed the slow pace in agricultural growth was not due to marketing, technology and the traditional indicators of performance but to the absence of land ownership, small land holdings, inadequate and declining forage base, declining soil fertility (due to environmental degradation) and adverse erratic weather. Also, the report pointed out that in the Terai, siltation and floods were gradually eroding the productivity base and soil erosion had driven farmers to use additional lands which, in turn, accentuated the degradation process. This significant change in approach was not translated into specific recommendations. G. Poverty, Population and the Environment 6.23 In 1990, the Bank made a genuine attempt to explain the relationship between poverty and the environment. Although the report was very brief it made clear that poverty is both the cause and effect of environmental degradation. As such, it represented a crucial step for understanding the social dynamics of resource conservation and use, and the problems related to Nepal's limited capacity to develop. But, as with previous reports, it was short on policy recommendations and action programs. It also failed to discuss the connection between capital accumulation by the poor and the nature of natural capital. As usual, the Bank looked to physical and financial capital--the forms most difficult for the poor to accumulate. However, experience in Nepal and in other countries (for example, with social forestry and agriculture) demonstrates that natural capital can be easily accumulated by the poorest strata of the population (including the landless). One example is the social forestry program in Nepal and in neighboring countries, where tree planting represents a major form of capital accumulation for the poor. Similarly, fish culture has helped farmers, landless, and women to earn substantial income. - 63 - 6.24 The connections between poverty and the resource degradation process need to be studied in detail. Nepal represents a laboratory in this regard, and the Bank should encourage the Government to study this relationship. 6.25 Most country economic reports did not explain in any detail the relationship between population growth and natural resource management (see specifically the Report on Population Strategy, 1982). When the subject was raised, it was presented as a Malthusian truism that the larger the rate of growth, the more severe the pressure on fragile natural resources. However, very little analysis was done to clarify issues, constraints and options for Nepal. The only explicit instrument advocated by the Bank was settlement in the Terai. But, as several recent reports demonstrated, this was not easy to implement. Frontier development carries a series of problems and constraints, often very difficult to predict ex-ante. This was also noted in several OED audits, impact evaluation reports and special studies. Thus, the subject need to be explored further before the Bank and other donors propose new development strategies. H. Structural Adiustment 6.26 This report has reviewed the nature and scope of two structural adjustment operations, drawing upon two appraisal reports and the audit of the first adjustment operation. It paid particular attention to the "letter of development policy" and the "policy matrix" contained in the appraisal reports. However, this section focuses on the second adjustment operation, since it is more recent. 6.27 First, no actions were proposed that were directly relevant to managing natural resources at the macroeconomic level. Rather, most were related to monetary, fiscal and trade policies, with the aim of accelerating growth in its strictest sense (increase GDP per-capita). Second, in the agricultural sector, two broad areas were--fertilizer policies and irrigation development--seen as the basic ingredieats of adjustment. With regard to fertilizers, emphaois was on increasing supply, market liberalization and pricing policies. With regard to irrigation, emphasis was on government collaboration, community participation and issues related to operation and maintenance. None dealt with management of natural resources in the rural sector. Even in the case of irrigation development, issues such as water allocation and management did not arise-- although critical in Nepal. 6.28 The two adjustment operations did not directly incorporate environmental concerns into macroeconomic policy formulation or procedures. In fact, it is possible to argue that some policies they establish may be ineffective in the long run, as natural resource management is glossed over in the decision making process: For example, to increase productivity the SAL introduced a fertilizer scheme--to enrich a depleted soil. But the decline in soil fertility may be due to factors that go well beyond the loss of soil nutrients. Thus, one may hypothesize that replacing nutrients is a short-term - 64 - palliative fot more complex and long-term agricultural constraints. However, in the case of irrigation, the actions related to water rights, operation and maintenance of infrastructure and community participation are more linked to better management of water resources in irrigated areas--although resource management was not explicitly addressed. This situation calls for careful monitoring of structural adjustment operations to assess their impact on the allocation and use of natural resources such as land, water, forest and vegetation. 6.29 Given what has been stated in several macroeconomic and sector reports (including the report entitled "Strategy for Development of Hill Agriculture: A Review), and the previous discussions on sources of growth and comparative advantage, the adjustment operations appear, on face value, somewhat detached from the underlying constraints in Nepal's economy. Again, the policy on fertilizers may illustrate the point: In particular, the appraisal report of the second adjustment operation stated that agricultural growth is too low (i.e. 1.9 percent per annum), and the rate represented a true average for more than a decade. The report continued to stress that "the general poor performance is attributable to various factors, including Nepal's natural resource endowment, its institutional weaknesses and inappropriate policies (para.48, Second Structural Adjustment Program. June 5, 1989)". It proposed a strategy that relied on fertilizer as a way to increase output on a per hectare basis; however, even if output is increased, it might not be sustainable in the long-term. Second, the issue is represented as related to "resource endowment," with very little said about the nature and status of natural capital in Nepal. Third, investments or reforms in the area of institutional capital, as they directly affect the productivity of natural capital, did not appear in the adjustment operation. Finally, the evaluation of the first operation used a criterion which completely ignored natural resource management issues and constraints. Instead, the underlying framework continued to be economic prices that appear to be far from the real opportunity cost for the Nepalese economy, both in terms of spatial and intertemporal externalities. 6.30 In sum, the Bank needs to improve its adjustment operations, if natural resource issues and constraints are to be an integral part of macroeconomic policy. Also, what appears to be a net gain in conceptualizing those issues at the macro level--as portrayed by the latest economic reports--looks like a move in the opposite direction when reviewing the policy matrix of adjustment operations. - 65 - CHAPTER 7: SCOPE FOR CHANGE - FINDINGS AND LESSONS 7.01 The goal of the first six chapter was to determine if the Bank had opportunities to modify its operations over the past 25 years and thus improve Nepal's management of natural resources. In this regard, the proposition advanced in Phase I of the study ("Renewable Resource Management in Agriculture) that "the structure and size of the Bank's loan portfolio, conditionality, and the nature of the policy dialogue ... did not do much to promote the effective management of natural resources beyond the project level," holds with regard to Nepal as well as with the others 11 countries reviewed. 7.02 This study (Phase II) finds that: (a) The Bank approach to policy on resource management has achieved limited results; (b) Sufficient information was available to enable the Bank to formulate different alternatives; (c) If the Bank had adopted a different approach--to sector and country economic wo:k and studies, to the policy dialogue and to the structure of the loan portfolio--it might have achieved greater change. A. The Bank as a Catalyst and Constraint in the Learning Process 7.03 It is maintained that in Nepal, more so than in many larger and more edvanced developing countries, the Bank was a major source of ideas on resource development and management: Its reports were an important part of the development literature and were widely quoted. However, the documents used in policy dialogue (mainly grey-cover reports) minimized the discussion of contentious issues pertaining to natural resources management; therefore, they missed an opportunity to promote debate on how to transform resource strategies into operations. By not taking account of the findings of other donors (an element thoroughly documented in the internal CPPs), the Bank appeared insensitive to the context of aid and development. 7.04 The literature on Nepal has severely criticized the vay decisions were made and policies formulated in the country, and how little foreign aid has done to bring about change. Criticisms were often harsh: For example, donors duplicated or canceled out each other's efforts, or that the proliferation of projects and conflicting advice led to greater inefficiency in the use of the country's scarce managerial, technical and capital resources. Moreover, that the Nepalese system was unable to absorb a large volume of aid--and that donors, who even noted this in their reports, continued to lend regardless (see Chapter 3). 7.05 In general, the literature contained few suggestions about operational approaches that might have been more effective. Nevertheless, it made some valid - 66 - points which the Bank could have examined. Indeed, if Bank documents had reflected the richness of the debate on resource degradation, resource management, institutions and aid, it could have done much to focus research and data collection where they were needed. 7.06 Further, by treating complexities fully, it might have developed strategies that went beyond the project-by-project approach. Such was the experience of the International Center for Integrated Mountain Development (ICIMOD), which carried out research ov,r the past decade on the links between population growth, poverty, policy and physical change in resources. Because it followed a more focused and comprehensive approach, it generated significant interest and even consensus about various operations and strategies. 7.07 The greatest obstacles to improving resource managoment in Nepal are that little is known about the behavior of natural and institutional systems and their interactions, that agriculture and forestry have minimal potential, and that severe constraints exist to generate employment within and outside the renewable resource sectors. The limited effectiveness of Bank operations testifies to the enormity of the problems (see Box 7.1). 7.08 With regard to Bank projects, the risks described in the President's reports did not express the major problems that could prevent economic development objectives from being achieved (such as poverty alleviation and sustainability). On the contrary, they implied that all uncertainties had been carefully weighed and could be managed by contingencies built into the project Boot i he Persaettaimadan Dilemma L Mack of informtion on which to base resource managonient deciei6ns and decis(an of d6nore on where. they can make the best contribution to development has been .ecojnized ince.aid was officially .iIated In Nepal in the early 1950s. USAJD responded tothis need with its forest inve,tory 0rojectIni1958, whh h9wever, was discontinued in 1970. Te Banks first econoni missioni 1984 idenified thelack of data as a bottleneck. Since thattinme $230 million (1088$) its aid have beeni lited to ttengthenIng goerment liSitichi thrOugh training, technical assistance, special studies, research, and surveys, However situdies based on the existing data base tend to confuse rather than clarify the state of resurce degradation in Nepal and the chariges that are taking place. The Bank.el, s an influential source for the Nepalese developmeht Ilterature, has perpetuated soMe of the commonly accepted.myths. For example, when Bank documets present data that show a yield reduction of 1 illliot torS of grain per yea due to tnereased burning of duho, or project complete deforestation by the year 2000, whether those data are estabished or quoted by the Bank, the development community takes notice; the data are given credence and widely requoted as authoritative. Despite all the resources committed to, strengthening goverment Institutions, the decsion-making process in Nepalese policy formulation and Implementation is still viewed by many as an area of mystery little'ls known of local-level institutions and how they may be strengthened to nprove resource use and development; the Cadastral survey Initiated In the 1960s appears to be bogged down and in spite of the excellent resource survey carried out under LAMP between 1978 and 1981, there Is minimal information on the dynaio of change iri the state Of resources that could clarify the te of resource degradation, its economic consequences, and the immediate causes, As a.result, by selecting the appropite facts and figures from the array of data available one could provide evidence of almost any level f eodisaster dsrd - 67 - design. For example, when describing the risks in the Hill Community Forestry Project, the report noted that "Local bureaucracies and user groups may face conflict of interest for the use and management of forest resources--and this risk would be avoided by clearly defining user groups' role and functions, their benefits from participation, and technical and financial support for their forestry development activities" (World Bank 1989c, 4). Such confidence that risks can be controlled--particularly in view of the record--was surprising. Thus, a much more candid assessment of the obstacles and history of constraints encountered by the Bank or other donors was, and still is, essential. Such an evaluation would not necessarily have concluded that a certain lending program be discontinued; rather, it would have highlighted broader resource management issues that needed to be addressed. B. Opportunities: A More Strategic Approach? 7.09 The Bank did not develop an operational strategy to approach resource management questions and thus, to progressively establish the preconditions for change on a national scale. With hindsight, it is possible the Bank felt it was not possible to address resource management beyond projects in agriculture, forestry, hydroelectricity, water supply and highways. However, in the most recent years, the prospects for developing a new approach have improved--largely because the government has been willing to treat structural reforms in a systematic way. 7.10 Prior to the introduction of structural adjustment lending, what the Bank did through lending, conditionality and policy dialogue cannot be construed as a strategy. While it tried to address issues such as population control, institutional change at the central government level and policy change, it was frustrated, particularly when implementing projects in rural development, resettlement and education. But by not having develope a strategy at the macro level, it missed an important opportunity to generate consensus or create an environment for finding operational solutions. 7.11 If the Bank adopts an approach that focuses on long-term objectives, more staff time, and different types of staff, are often needed. Resource management projects often demand more resources to prepare and supervise, more specialists for monitoring and evaluation and, more resources for economic and sector work. Experience shows that this level of resources far exceeds the acceptable level of staff-week coefficients for a country with a loan volume averaging only $35 million per year at that time. In 1982, the need for such resources (for monitoring) was explicitly recognized (in CPP). However, given the amount of resources allotted to ESW and project preparation, appraisal, supervision and completion was limited, it was not sufficient. Therefore, it would not have been feasible to follow the long-term, more resource-intensive strategy. - 68 - 7.12 This review revealed that, by the late 1970s, the Bank was in a position to develop a strategy to promote institutional development (because sector reports by this time had already pointed out the nature and magni.ude of resource management problems). Such effort would have required more economic and sector work, increasing attention to intersectoral issues, and more explIcit treatment of cause/effect relationships. Within such a context, several questions would have emerged and, presumably, been answered: What to do, Xhy approaches and recommendations from the mid-1950s were not implemented and how to start a new. 7.13 To develop various strategies, the Bank needed to draw the government, the scientific community, and donor organizations into a more constructive dialogue. Also, it needed to change its own lending program in order to give higher priority to building human and institutional capital as a crucial condition ,o managing the environment. To accomplish this, it would have had to set performance criteria and undertake monitoring and evaluation to track activities in key sectors impinging on renewable resource use. With this accomplished, it could have assessed the balance among the various types of capital operating in the development process (e.g. human, natural, institutional, cultural, physical, financial) and determined how projects would have contributed to attaining the correct balance. C. Costs and Benefits of a More Strateaic Approach 7.14 When considering the short-run, tangible benefits against the risks associated with somewhat intangible long-run benefits, there are powerful arguments to focus only on the former. As the Bank discussed the viability of long term goals, controversial questions arose about increased operating costs (i.e. resource management projects would have required longer and thus more costly, gestation periods), as well as about the pressures to lend and the Bank's views on conditionality or donor coordination. 7.15 Further, the nature and size of lending targets mediate-'d against adopting long-term strategies, which, by definition require t.at various conditions be met (such as policy and institutional reforms): Given the government's reluctance to undertake such changes and the Bank's desire to continue lending, the strategies did not materialize. 7.16 This raises the added question of using conditionality and withholding aid to pressure governments to do what they would otherwise not do. - 69 - D. What Could Have Been Done Differently? 7.17 Any change in approach would have required answers to. twc relevant issues. The first involves the "portfolio effect" of public investment plans (that is, how projects complemented other Bank or non-Bank projects and how shortfalls elsewhere affected project results). Second, did the Bank portfolio help achieve an overall objective--in this case, sustainable development of resources with equity and efficiency implications? As this objective is different than one solely concerned with growth, it would have required revising the criteria for selecting investments. 7.18 These issues were not addressed because sustainable development was not the principal objective of the Bank agenda. It can also be argued that obstacles were so pervasive that no effective strategy could have been developed through policy dialogue or restructuring the lending program. 7.19 If the environmental constraints to Nepal's development had been discussed more explicitly from the mid-1970s onwards, resource management might have improved more noticeably. Key gaps in information concerning the physical, economic, social and institutional factors affecting the environment might have been filled more systematically. The central importance of the links between poverty and resource degradation would have been recognized earlier. As a result, greater attenti. - would have been given to primary and secondary education, health, population, industry and incentives to increase productivity in agriculture. More effective use might have been made of technical and economic assistance in a joint government/donor learning process. And, finally, the fundamental preconditions for change might have been identified, which, in turn, might have led to a proper sequencing of projects, so as to establish the basis for others. Or it might have meant that Bank lending, and perhaps that of other donors, would have been coordinated more closely so as to have an impact nationwide. 7.20 To introduce environmental concerns at the national level and attempt to get them addressed would have increased costs. But, assuming the amount of lending remained unchanged, an alternative would have been to direct resources to activities that focused more intensively on resource management. Moreover, if the Bank had tried to pursue a long-term strategy, it could have sought extra funds from other donors (as it now does for environmental activities around the world). The fact that technical assistance projects (totaling about $17 million) suggests that resources are there. However, the front-end costs to develop a resource management strategy would and could have been borne by the Bank. 7.21 Accepting that a different approach could have evolvqd and been funded, perhaps the most controversial question is whether it would have been accepted by the government. Here the critical element would have been the Bank's resolve in negotiations. The Country Department strongly believes there has been no lack of resolve--rather, it was simply up against a brick wall. Clearly, any approach that is viewed by key decision-makers (in a country) ar threatening their interests has little chance of success. However, an approach that is sensitive - 70 - to the conflict of vested interests and is accompanied by solid analytical arguments could provoke constructive dialogue rather than outright rejection. Further, one might expect that if the Bank were supporting an approach developed through extensive debate with the government, Nepalese scholars and other donor3, the government would probably have negotiated, if confronted by a firm decision not to lend. E. Actions to be Taken 7.22 The experience with this case study suggests several important elements to be considered when formulating future strategy and projects. First, it woula be of great assistance to the GON if the Bank, in the near future, helped the government prepare a Consultative Group Meeting for the agricultural/rural sector which would seek the participation of all donors and relevant NGOs. The key questions that could be addressed are what do we know about the problem, what are the most effective instruments to deal with the problem, what are the appropriate roles of different donors in conceptualizing, studying, implementing and evaluating Nepal's resource management problems, and what kind of strategy should be developed, both for the short and long term. The main benefit from such a meeting would be to arrive at a general consensus of what can be done, who will do it and what the process would involve. 7.23 Second, such macroeconomic instruments as structural adjustment, public expenditure and investment reviews have to be carefully assessed in light of the findings of this study. The issue of natural resource management, as a key ingredient in development, should define the nature and scope of those instruments. In particular, traditional definitions of what constitutes sources of growth and comparative advantages require substantial modification to incorporate a more expanded notion of opportunity cost and economic prices. The economic prices that guide the development process must explicitly consider the external effects of policies over space and time. Spatial and inter-temporal externalities cannot be overlooked in this particular case, and these externalities will be over and above the traditional accounting of "marginal costs." One way to incorporate environmental concerns into macro policy is to modify Nepal's national accounting system so it thus reflects -hanges in resource allocation and use. At present, it does not and thus presents a false sense of progress for the economy. In addition, public investment and expenditure allocatinns, while assessing the merits of individual projects, also will require a broader portfolio perspective. One additional criterion for the selection of the final investment packages should be the extent to which it contributes to the sustainability of Nepal's development. 7.24 Third, the efforts that have already begun in the area of macroeconomic strategy formulation and adjustment should be rapidly consolidated. The two previous recommendations would provide the first stage of that consolidation. In addition, the Bank should seriously consider new instruments of lending to accommodate a resource management program that yields results over a long period. - 71 - However, without a significant change, the tendency will remain to allocate scarce resources to ameliorate short term issues and constraints. As reported by several evaluation documents, policies at the project and sector levels conflict with those at the macroeconomic level. Because they were designed under a different set of criteria (to maximize economic growth versus to achieve sustainable development), they have been unable to decrease the rate at which natural resources have been and continue to be degraded. 73 - ANNEX 1 Page 1 of 18 Table A-1: Projects Related to Renewable Resources, by Year, by Sector, and Donor, 1966-1989!V Ar Sitr Bilateral Proect 000 us$ 000 US$ Donor (Nominal) f1988 $) 1966 Agriculture USSR Agricultural Tools Factory 750 2,553 Environment UK Natural Resources 23 78 Health India Drinking Water Supply Scheme 351 1,193 Horticulture ICM New Horticulture Scheme 58 196 Irrigation ICM Dev. of Irrigation, Drinking water 132 450 Transportation ICM Kosi Area Road 1,241 4,223 Transportation India Kosi Area Road Transportation USSR Simra-Janakpur Road Construction 1,500 5,106 1967 Development Swiss Village Development Project Irrigation India Minor Irrigation 505 1,664 Transportation ICM East-West Highway 9,060 29,882 Transportation India East-West Highway: Eastern Sector 105,050 346,474 1968 Agriculture FRG Rural Advisory 4,310 13,787 Horticulture India New Horticulture Scheme 47 151 Hydroelectric ICM Trisuti Hydet Project and Desitting Tank 1,714 5,484 Hydroelectric India Trisuti Hydro Project 17,029 54,476 Institutional USAID Local Currency Budget - Family Planning 677 2,166 Transportation China Naubise/Pokhara Highway 4,200 13,436 1969 Agriculture FRG Gandaki Anchal Agric. Development Project 4,880 14,968 Agriculture UK LudLe Agriculture Centre 2,371 7,272 Agriculture UK Pakhribas Agriculture Centre 4,425 13,572 Irrigation USAID Groundwater Investigation 1,306 4,006 Transportation UK East West Highway (Central Section) 12,092 37,088 Transportation USAID Western Hill Road 8,758 26,861 1970 Education New Zealand Rural Youth Development Programme 2 5 Tourism FRG Tourism Master Plan 217 633 1971 Agriculture Japan Janakpur Agriculture Development Project 2,232 6,175 Forestry Australia Forestry Project 84 232 Forestry UK Newal Parasi Forestry Project 440 1,217 Health Swiss Parasite Control Scheme 115 318 Transportation Canada-CIDA Twin Otters 1,159 3,206 Transportation UK Nawat Parasi Survey 151 417 1972 Agriculture FFHC Rural Youth Development Programme 39 102 Agriculture Korea Sericulture Development Project 94 248 Agriculture OCTA Agriculture Survey Agriculture OCTA Janakpur Zone Agric. Development Project 180 475 Agriculture Swiss Dairy Development Cooperation 18 47 Fisheries FFHC Construction of Fish Hatchery 158 418 Institutional Canada-IORC Development Planning 260 686 Irrigation India Tinao Irrigation and Water Supply 74 195 Transportation ICM East-West Highway 27,724 73,106 Transportation India East-West Highway: Central Sector 11,711 30,882 Transportation India Kathmandu-Trisuti Road 97 256 Transportation USSR Simra-Janakpur Road Maintenance 328 864 - 74 - ANNEX I Page 2 of 18 1973 Agriculture New Zealand BaLaju Dairy Project 535 1,351 Agriculture UK Grain Storage 958 2,418 Education FRG Radio Equip to Strengthen Agrin Info Sys Health USAID Local Currency Budget - Malaria Control 453 1,143 Hydroelectric Japan Hydro-power Development Study Mission Institutional USAID Administration & Management 65 164 Population USAID Population & Family Planning 11,111 28,037 Transportation China Ring Road 2,500 6,308 Transportation ICM Kamla Bridge 2,433 6,138 Transportation India Kamta Bridge 122 308 Transportation UK Road Construction Training Unit 648 1,636 1974 Agriculture Canada-CIDA Second Agriculture Credit 25 59 Agriculture FRG Fertilizer Supplies 30,252 71,610 Energy Canada-CIDA Gubar Gas Plants 27 64 Environment New Zealand Sagarmatha National Park 151 358 Environment Swiss Torrent Control and Land Use Development 50 118 Fisheries FFHC Provision of Fish Pituitary Glands 6 14 Forestry USSR Rosin and Turpentine Factory 11 26 Horticulttre Netherlands Potato Production Hydroelectric 1CM Devighat Hydroelectric Project 4,425 10,475 Institutional USAID Inst. of Agriculture & Animal Science 5,501 13,022 Institutional USAID Pr.ject Development & Support 256 607 Irrigation ICM Minor Irrigation Project 6 15 Livestock FFHC Supply of Duck Egg Incubator & Generator 56 132 Livestock FRG Duck Egg Incubator and Generator 3 6 Livestock New Zealand Artificial Insemination 8 Is Transportation ICM Kathmandu-Trisulf Road 843 1,996 Transportation Swiss Lamosangu-Jiri Road Construction 18,487 43,762 Transportation UK Dharan/Dhankuta Road Project 55,633 131,692 1975 Agriculture Ccnada-IDRC Resettlement and Transmigration Study 46 100 Crops USAID Integrated Cereals Production 10,950 23,758 Development Canada-CIDA Integrated Rural Development 9 20 Development Swiss Integrated Hill Development Project(1&2) 10,250 22,239 Education UK Gorkha Reintegration Scheme 2,165 4,696 Forestry USAID Forestry & Ecology 9 20 Health FRG-GVS Community Water Supply and Sanitation 37 79 Health UK Dharan Town Wat4r Supply 62 134 Hydroelectric Canada-CIDA Power Systems Study 123 267 Hydroelectric FRG Kankei Study 1,560 3,393 Hydroelectric ICH Gandaki Irrigation & Power Project 160 347 Irrigation India Gandaki Irrigation & Power Project 639 1,386 1976 Agriculture Netherlands Fertilizer Supply (1) Development UK Kosi Hills Rural Development 11,386 22,479 Education AYCDA Technical Cooperation 41 80 Environment Netherlands Soil Surveys Forestry Netherlands Forest Surveys Health Canada-CIDA Coammunity Health Water Supply 1 2 Health Swiss Community water Supply and Sanitation 5,462 10,784 Health Swiss Rural Drinking Water Supply 100 197 Horticulture Netherlands Plant Sreeding Horticulture Netherlands Vegetable Growing Hydroelectric Austria Hydroelectric Power Station 257 507 Transportation ICM Candaki Project 30 59 - 75 - ANNEX 1 Page 3 of 18 1977 Agriculture Austria Volunteers 10 19 Agriculture Canad-CIDA Fertilizer and Agricultural Chemicals 815 1,515 Agriculture Canada-CIDA Supply of Rapeseed Oil 854 1,587 Agriculture FRG Four Seed Processing Units 516 959 Agriculture Japan Agricultural Warehouses 625 1,162 Agriculture Japan increase of Food Production 43,569 80,995 Agriculture Swiss Buffalo Cheese Factory Pauwa 1,374 2,555 Development Canada-CIDA Karnali-bheri Integrated Rural Dev. (1) 1,821 3,385 Development EEC Sagermathe Integrated Rural Development 275 511 Education Swiss Res. Centre for Applied Science & Tech. Health UK Malaria Eradication Project 2,858 5,313 Horticulture Swiss National Potato Development Programme 5,496 10,217 Hydroelectric Japan Hydro-power Station 386 717 Hydroelectric Swiss Balaju Yantra Shat 60 112 Institutional Canada-CIDA Land Resources Mapping Project (1) 8.500 15,801 Institutional EEC Agriculture Credit Training Institute 260 483 Transportation Canada-CIDA Road Dept. Support Services 19 35 1978 Agriculture FFHC Strengthening Agriculture Info. Service 32 56 Agriculture UK Agric. Project Services Centre (APROSC) 54 93 Agriculture USAID Seed Production & Input Storage 4,031 7,023 Development USAID Rural Area Development 2,900 5,053 Education France Geophysical Research 360 627 Energy Swiss Energy Research and Development 16 28 Energy UK Diesel Electricity Generators 4,386 7,641 Environment FRG Reorganization of Himalayan Headwaters 100 174 Forestry UK Silvaculture Trials 206 358 Hydroelectric Canada-CIDA Sunkosi Remedial Work 152 265 hydroelectric Canada-CIDA Water and Energy Resource Development 30,754 53,581 Hydroelectric EEC Kutekhani Hydroelectric Project 3,000 5,227 Hydroelectric India Devighat Hydro Project 53,763 93,669 Hydroelectric Japan Kutekhani Hydroelectric Project 4,545 7,919 Irrigation FFHC Chaur Jahari Irrigation Project 35 61 Irrigation UK Chatra Canal 326 568 Tourism Canada-IDRC Economic Inpact of Tourism Study 34 59 Transportation China Gorkha-Narayangarh Highway 6,000 10,454 Transportation India laprovement of Kosi Area Road 1,211 2,110 Transportation Japan Transportation lIprovement 25 44 Watershed FRG Bagmati River - Multi-Purpose Project 1,200 2,091 Watershed FRG Tinao Watershed Project 6,112 10,649 Watershed Swiss Tineu Watershed Project (1) 794 1,384 1979 Agriculture Canada-IDRC Agricultural Docunentation Centre (1) 169 274 Agriculture FRG * GVS Rural Youth Programme 7 12 Energy Japan Exploration of Natural Gas 50 81 Environment Austria Ecology Project in High Mountains 18 30 Forestry Australia Nepal-Australia Forestry Project (2) S,261 5,295 Forestry Australia Separmatha Forestry Project 466 757 Forestry UK Forestry Research Project 5,418 8,797 Forestry USAID Forestry Training 17 27 Health Netherlands Camunit) Water Supply and Sanitation 443 719 Health New Zealand National Parks Hospital 19 31 Hydroelectric UK Micro-Hydels 55 90 Irrigation Netherlands Terrace Irrigation Programme 2,460 3,994 Population USAID Population Policy Development 2,000 3,247 Tourism Austria Tourism Training 6 10 Transportation FRG - GVS Suspension Bridge Programne 6 in Transportation ICM Dolalghat-Dhankuta Road 60 98 Transportation UK Dubf Briage 614 998 Transportation USAID Trail Suspension Bridges 3,000 4.871 Watershed FRO - GVS Soilt Conservation and Management 14 23 - 76 - ANNEX 1 Page 4 of 18 1980 Agriculture EEC Hitt and Mountain Crop Study 205 306 Agriculture Netherlands Fertilizer Supply (2) Agriculture USAID Agricultural Resource Inventory 2,400 3,578 Developmnt Canade-IDRC Mustang DeveLopment Survey 92 137 Development FRG Dhading District Development Project 16,561 24,693 Demepment USAID Rural Area Development (Rapti) 26,700 39,811 Education NetherLinds Karnati Technical School Environment FRG Solid Waste Mpt and Res Nobilization 10,215 15,231 Health USAID Integrated Rural Health & Family Planning 22,050 32,877 Hydrooelctric Yugoslavia Hydroelectric Power Plant 1,800 2,684 Institutional Swiss Agricultural Project Analysis 1,328 1,980 Livestock Australia Nepat-Australia Livestock Development 1,128 1,682 Transportation India Dutalghat-Dhankute Road 194 289 Transportation Swiss Local Bridge Support Programe 444 663 Watershed USAID Landslides and Soil Stabilization 2,375 3,541 Watershed USAID Resource Conservation & Utilization 27,498 41,000 1981 Agriculture FRS Manpower Development 8,772 11.977 Agriculture Netherlands Innovative Rural Org. in Agrarian Reform 43 59 Agriculture UK - VSD Dept. of Agriculture 16 22 Development Netherlands Karnati-8herf Integrated Rural Dev. 70 96 Education Swiss Jifri Technical School 1,200 1,638 Forestry UK - VSO Community Forestry 28 38 Forestry UK - VS0 Forest Survey and Research Project 38 52 Health UK - VSO Community Water Supply Project 76 104 Health USAID Malaria Control 4,028 5,500 Horticulture Siss Vegetable Seed Development Project 1,975 2.697 Hydrotectric India Poncheshuar Hydro Project 5,376 7,341 Inetitutionst Australia Aid Administration and Project Planning 92 126 Institutional USAID PVD Co-financing 1,419 1,938 Irrigation China Pokhare Water Conservation/Irrigation 28,000 38,232 irrigation FRO - GVS Irrigation Study 11 16 Tranportation China gerhabise-miterf Sangh Bridge Transportation India East-West Highway: Eastern Sector 31,040 42,383 Transportation Japan Poad Construction Machinery 1,205 1,645 Transportation Netherlands Trail Suspension Bridge Project 3,973 5,425 Watershed Netherlands Tinau Watershed Project 7 10 1982 Agriculture EEC Fortilizer Supply Project 7,095 8,847 Agrliutture FRO * OVS Agriculture and Fodder Development Agr' utture FRO * OVS Farm Mechanization and Training 8 10 Agriculture Notherlands Production Credit for Rural woman 720 898 Development FRO Int. Centre for Integrated Mountain Dev. 3,649 4,550 Enviroment Wiss Int. Centre for Intograted Mountain Dev. 1,028 1,282 Forestry EEC Forestry Development Project 535 667 Neatth EEC Rural Water Supply and Sanitation 4,953 6,176 Health Japan Rural Water Supply 4,252 5.302 Horticulture FRO Horticultural Cash Crops 2,330 2,905 Norticulture Netherlands Herbs Production and Processing .. .. Hydroelectric FRO Nrsyangdi Hydroelectric Power Project 117 145 Hydroelectric Japan Improvemnt of Power System 8,512 10,614 Institutonat UwID WINROC PVD Co-finencing 4,150 5,175 Livestock FRO Paten Livestock Farm Project Support 231 288 Population Netherlands Population Education . . Transportation Australia Transfer of Airways Facilities 2,056 2,564 Matershed iC Soft and Water Conservation in Watershed 4,200 5,237 - 77 - ANNEX 1 Page 5 of 18 1983 Agriculture Australia Rural Save Grain Programme 981 1,149 Agriculture Canada-IDKC Agricultural Development Research (1) 50 59 Agriculture Canada-IDRC Agricultural Documentation Centre (2) 86 101 Agriculture Canada-IDRC Agricultural Library Enhancement 53 62 Agriculture FRG Cereal Seeds Production Project 12,824 15,015 Agriculture FRG - GVS Seed Processing Agriculture Japan Fertilizer Information Exchange 1 1 Agriculture Netherlands Increased Crop Production and Income 2,740 3,208 Agriculture Netherlands Ministry of Agrinulture 34 40 Agriculture Netherlands National Farm Nanaement 34 40 Agriculture UK - VSO Ministry of Food and Agriculture Development Netherlands Action Research on P&rticipatory Dev. 32 37 Development Netherlands Assistance to Integraed Rural Dev. 54 63 Energy France Advisory Services and Energy Planning 4 5 Energy Japan Energy Programe 35 41 Energy Japan Rural Electrification 1,322 1,548 Forestry Canada-IDRC Farm Forestry (1) 270 316 Forestry FRG National Remote Sensing Centre 810 948 Forestry Netherlands Community Forestry 52 61 Forestry UK - VSO Ministry of Forests & Soil Conservation Health UK - VSO Water Supply Programe. Horticulture Netherlands Cultivation of Medicinal Plants 17 20 Irrigation FRG River Control Section Transportation UK Roads Remedial Works Unit 20,815 24,371 Watershed Swiss Tinau Watershed Project (2) 1,170 1,370 1984 Agriculture Finland Production Credit for Rural Women 12,030 13,622 Development UK - VSO Kosi Hitts Area Development Project Energy FRG Improvement of Traditional Watermills 270 306 Fisheries Canado-IDRC Inland Fisheries 352 398 Forestry EEC Forestry Development Project 3,213 3.638 Forestry Fintend Hitt Forest Development Programe 2,430 2,752 Health India Drinking Water Scheme 421 477 Health UK Eastern Region Water Supplies 8,099 9,171 Hydroelectric Swiss Small Hydel Plant at Salleri/Chialsa 1,014 1,148 Institutional Canada-CIDA Land Resources Mapping Project (2) 1,382 1,565 Irrigation Netherlands Irrigation Repair Project 17 19 Irrigation Netherlands Small Farmers, Irrigation Project 58 66 Livestock UK * VSO Livestock Development Other Canade-IDRC Prospects for Urbanization (1) 16 18 Population Japan Family Planning Programe 1,512 1,712 Transportation Cwade-CIDA Civil Aviation Maintenance Support 2,439 2,762 1985 Agriculture Canad-IDRC Agricultural Development Research (2) 250 273 Agriculture Canads*IDRC Glossary of Important Plants & Animals 59 64 Agriculture UK - VSO Production Credit for Rural Women 32 35 Agriculture USAID Agricultural Research 10,000 10,930 Crops Canada-IDRC Grain Legumes 280 306 Development Swiss Integrated Hill Development Project (3) 8,500 9,291 Forestry UK National Tree Seed Project 231 252 Institutional USAID Inst. of Agriculture & Animal Science 4,100 4,481 Irrigation USAID Irrigation Management 2,150 2,350 Transportation Swiss Lamosangu-JIri Road Maintenance 2,870 3,137 Watershed EEC Bagmati Watershed Project 5,500 6,012 Watershed Netherlands Begnas Tal/Rupa Ta Watershed Ngt. 8 9 - 78 - ANNEX 1 Page 6 of 18 1986 Agriculture Japan Construction of Food Storage Facilities 7,724 8,228 Agrtculture Japan Increase of Food Production (3) 14,483 15.429 Development Canada-CIDA Kernati-Sheri Integrated Rural Dev. (2) 16,016 17,C62 Energy Finland Pokhare Rural Electrification Project (1) 4,959 5,283 Environment Swiss Conservation Strategy 150 160 Forestry Australia Nepat-Australia Forestry Project (3) 5,540 5,902 Forestry Finland Master Plan for the Forestry Sector 1,224 1,304 Horticulture Japan Horticulture Development 2,010 2,141 Hydroelectric Japan Arun III Hydro-power Project 1,190 1,268 Hydroetectric Japan Reinforcement of Power Distribution 3,379 3,600 Institutional Canada-CIDA Development Support Communications 194 207 Irrigation France Solar Punps for Irrigation 83 88 Irrigation Swiss Narayani Irrigation 7,500 7,990 Transportation Canada-CIDA Civil Aviation 4,553 4,850 1987 Agriculture FRG Small Farmers Development 4,986 5,151 Agriculture Netherleds Beekeeping Training and Extension 760 785 Development EEC Rural Development Project 2,406 2,486 Development Japan Lumbini Integrated Rural Development 60 62 Development USAID Rapti Development Project 18,800 19,422 Education EEC Mountain Risk Engineeping Training 353 365 Envirowent Canada-CIDA National Conservation Strategy 163 168 Envirorvient Canada-CIDA Seismic survey 9,512 9,827 Environment FRG Snow and Glacier Hydrology 1,232 1,273 Forestry Canada-CIDA Farm Forestry (2) 262 271 Forestry USAID Institute of Forestry 8,700 8,988 Forestry USAID Nepal Coppice Reforestation 2,125 2,195 Health Swiss Community Water Supply and Sanitation 1,924 1,988 Horticulture Swiss Vegetable and Vegetable Seed Production 3,200 3,306 Hydroelectric Swiss Salteri Chiase Smalt Hydel Project 700 723 Irrigation EEC Medium Scale Irrigation 445 460 Irrigation Netherlands Mechi Hit Irrigation and Related Dev. 2,044 2,112 Livestock FRO Livestock Development 1,792 1,851 Transportation China Arniko Highway Maintenance 223 230 Transportation China Pokhara-Bagtung Highway 1,200 1,240 Transportation Japan Sindhuli Road Construction Project 1,510 1,560 Transpo t,tfon Swiss Suspension Bridge Project 3,570 3,688 Watershed Finland Integrated Watershed Management 4,449 4,596 1988 Crops Canada- IDRC Hilt Crops 485 485 Crops Canada-IDRC Oilseeds 414 414 Environment Swiss Int. Centre for Integrated Mtn. Dev. 800 800 Environment USAID Support for Biological Diversity 200 200 Forestry FRG Forest Development in 3 Districts 2,850 2,850 Forestry USAID Forestry Development 7,000 7,000 Horticulture Swiss National Potato Development Programme 1,800 1,800 Hydroelectric FRG Arun III Hydroelectric Power 133,950 133,950 Institutional USAID PVO Co-financing 900 900 Livestock Canada-IDRC Goat Production Systems 805 805 Watershed Canada-IDRC Soil Fertility and Erosion Study 239 239 1989 Development FRG Gorkha District Development 285 273 Forestry Finland Forestry Institutional Strengthening 9,554 9,168 Hydroelectric FRG Masterplan for Small Hydro Plants 228 219 - 79 - ANNEX I Page 7 of 18 IgUr Sgcg MultiLateral Project '000 USS '000 USS Dgnor (Nominal) (1988) 1966 Irrigation UNDP Irrigation Development in the Teral 515 1,752 1968 Fisheries UNDP Intend Fisheries Development 69 220 Fisheries WFP Establishment of Fish Farms in Rapti 279 891 Institutional ADS First Advisors to ADB/N (TA) 35 112 Transportation ADS Air Transport System Development (TA) 66 211 1969 Agriculture UNDP Agriculture Development Planning 440 1,351 Forestry UNDP Forest Development 854 2,620 Health WHO Water Supply & Sewage 60 184 Institutional ADS Second Advisors to ADB/N (TA) 69 212 Transportation ADS Air Transport Development 6,010 18,433 Transportation ADB Air Transport Development (TA) 350 1,073 Transportation UNDP Transport Economist 35 107 1970 Agriculture ADS Agricultural Credit (TA) 146 426 Agriculture ADS Agriculture Credit 2,400 6,997 Agriculture ADS Jute Development 2,000 5,831 Crops UNDP High-Yielding Crops 1,361 3,970 Development FAD Rural Youth Development Programme 36 105 Environment UNDP Wildlife Management Health UNICEF Rural Water Supply 2,049 5975 Irrigation ADS Kanka Irrigation (TA) 215 627 Livestock WFP Mixed Feed for Cattle 280 816 Transportation World Bank Highway Project 2,500 7,289 1971 Agriculture UNDP Agriculture Statistics 47 130 Crops UNDP Cash Crops Development 372 1,028 Development ADS Chitwan Valley Development (TA) 242 669 Health UNICEF Comunity Water Supply (1) 53 147 Irrigation ADS Kankai Irrigation 4,500 12,448 Watershed UNOP Torrent and Erosion Control 174 480 1972 Agriculture WFP Resettlement from Over-Crowded Hill Area 1,314 3,465 Environment UNDP National Parks and Wildlife Conservation 1,117 2,945 Forestry FAO Forest Settlement 30 79 Hydroelectric ADS Gandak-Hetauda 2,700 7,120 Hydroelectric ADS Gandak-Hetaude Power (TA) 40 105 Institutional FAO Country Perspective Study 15 40 Institutional UNDP Co-operative Management and Training 13 34 Institutional UNDP Natural Resources Development 306 808 Institutional UNDP River Law Advisor 6 15 Irrigation ADS Chitwan Valley Development 8,000 21,095 Tourism World Bank Kathmandu Tourism Project 4,200 11,075 Transportation ADS Hetauda-Narayangarh Road 10,100 26,633 1973 Fisheries FAD Construction of Fish Hatchery 52 131 Fisheries UNDP Integrated Fisheries 1,056 2,666 Hydroelectric UNDP Dev. of Power in KarnaLi River Basin 48 121 Institutional UNDP Water Resources 69 175 Irrigation World Bank Birganj Irrigation Project 6,000 15,140 Transportation UNDP Ropeways Development 322 811 - 80 - ANNEX I Page 8 of 18 1974 Agriculture ADB Second Agricultural Credit (TA) 140 331 Agriculture ADS Second Agriculture Credit 3,000 7.101 Agriculture UNDP Milt Agriculture Development 1,411 3,339 Agriculture WFP Dairy Development at Biratnager 381 903 Agriculture World Bank Settlement Project 6,000 14,203 Crops UNDP Cotton Development 2,338 5,534 Health World Bank Water Supoly & Sewerage Project 11,800 27,932 Institutional UNDP Nutrition Data 56 133 Population UNFPA Family Planning & Maternal Child Health 4,199 9,940 1975 Agriculture ADB Jute Development (2) 530 1,150 Agriculture ADS Jute Development (TA) 90 195 Fisheries UNDP Fisheries Fellowships 50 109 Hydroelectric ADS Second Power 3,800 8,245 Hydroelectric ADB Second Power (TA) 230 499 Hydroelectric UNDP Kulekhani Hydroelectric Power 6,100 13,235 Hydroelectric UNDP Phewa Tal Dam Feasibility Study 103 223 Hydroelectric World Bank Kutekhani Hydroelectric Project 40,800 88,524 Institutional UNDP Topographical Survey Branch 45 98 Institutional UNDP Water Legislation Fellowships 13 27 Irrigation ADS Dhangarht Groundwater Dev. (TA) 200 434 Population UNFPA Family Planning in Integrated Health 219 476 Population UNFPA FP/MCH & Integrated Community Health 87 188 Population UNFPA Support to Family Planning and MCH 15,027 32,605 Transportation UNDP Suspension Bridge Study 631 1,369 1976 Agriculture FAO Agriculture Inputs Corporation 1,234 2,436 Development World Bank Rural Development Project 8,000 15,794 Education ADB Vocational Education (TA) 95 183 Health UNDP Support to Nepal Malaria Eradication Org. 840 1,658 Hydroelectric UNCDF Phewa Tat Dam Reconstruction 2,651 5,234 Institutional Woeld Bank Technical Assistance 1 3,000 5,923 Irrigation World Bank Bhairawa-Lumbini Groundwater Project 9,000 17,768 Livestock WFP Dev. of Milk Procurement & Marketing 1,583 3,126 Population UNFPA Population Educ. in the Organized Sector 342 675 Transportation ADD Hetauda-Naroyangarh Road (2) 4,800 9,476 Watershed UNDP Integrated Watershed Management 1,608 3,175 Watershed UNDP Watershed Management 1,255 2,477 1977 Agriculture ADS Third Agricultural Credit 6,000 11,154 Agriculture UNDP Grain Storage Development 453 841 Agriculture WFP Hetaude Dairy 38 71 Agriculture WFP National Dairy Development 3,363 6,252 Development ADS Sagarmatha IRD (TA) 330 613 Development UNDP Integrated Rural Development Project 539 1,002 Development UNFPA Small Farmers' Dev. - Women's Group 840 1,562 Forestry ADB Forestry Training (TA) 50 93 Forestry ADS Sagarmatha Forestry Development 4,900 9,109 Forestry ADS Sagarmathe Forestry Development (TA) 36 66 Forestry FAD Mountain Forest Mgt. for Comamnity Dev. 29 53 Health World Bank Second Water Supply & Sewerage Project 8,000 14,872 Horticulture FA0 Field Training in Vegetable seed Prodn. 7 13 Hydroelectric UNDP Gondaki River Basin Power Study 1,547 2,876 Hydroelectric UDP Phews Tat Dam Reconstruction 16 30 institutional ADS Agric. Credit Training Institute (TA) 280 521 - 81 - * ANNEX 1 Page 9 of 18 Institutional UNESCO Int*L Centre for Integrated Mtn. Dev. 945 1,757 Institutional UNFPA Law and Population Programme 7 13 Irrigation ADB Chitwan Vattey Development 5,000 9,295 Irrigation ADS Kanket Irrigation (2) 3,40b 6,321 Irrigation ADB Sitka Irrigation & Rural Dev. (TA) 620 1,153 Irrigation UNDP Mahakati Irrigation 165 307 Irrigation UNDP Major Irrigation 1,100 2,046 Irrigation UNDP Sitka Irrigation Mapping Phase 121 224 Livestock ADB Livestock Development (TA) 850 1,580 Population UNFPA Family Planning Research & Evaluation 24 46 Population UNFPA Support to FP/MCH Training Division 72 135 Transportation UFP Construction of Hilt Traits 3,877 7,207 Transportation UFP Construction of Mule Trails 9 Jeep Track 4,566 8,488 Transportation World Bank Second Highway Project 17.000 31,603 1978 Agriculture FAD Small Farmers Training 44 77 Agriculture UNDP Foodgrain Wholesale Market 174 303 Crops UNOP Groundnut Fellowships Crops UNDP Oilseed Development Development ADD Integrated Rural Development 14,000 24,392 Development ADB IRD (TA) 200 348 Development ADD Second IRD (TA) 350 610 Development FA0 Development of Home Economics Programe 369 643 Institutional FA0 Nepal Food Organization Study 16 28 Irrigation UNDP Sitka Irrigation 620 1,080 Irrigation World Bank Narayani Zone Irrigation Development 14,000 24,392 Irrigation World Bank Sunsari-Morang Irrigatio.. & Drainage 30,000 52,268 Livestock ADS Livestock Devetopmre.t (TA) 230 401 Other UNDP Mineral Exploration 1,935 3,372 Population ESCAP Country Monograph on Population 15 26 Population UNFPA Pop. Educ. through Pancheyats, Co-op's 421 734 Tourism UNDP Tourism Training Fellowships 97 169 Transportation ADD Second Tribhuven International Airport 11,000 19,165 Transportation UFP Construction of Feeder Roads 4,086 7,119 Transportation WFP Construction of Jiri Road 6,302 10,979 1979 Agriculture ADD Fourth Agricultural Credit (TA) 95 154 Agriculture FAO Fertilizer Distribution Improvement 92 149 Agricultvre UFP Resettlement in the Terai 9,987 16,216 Development World Bank Second Rural Development Project 11,000 17,861 Energy UNIDO Petroleum Refinery 7 12 Fisheries ADD Aquaculture Development (TA) 150 244 Health ADD Malaria Control (TA) 80 130 Hydroelectric ADD Mulghat Hydropower (TA) 920 1,694 Hydroelectric ADS Third Power 18,600 30,201 Hydroelectric ADD Third Power (TA) 624 1,013 Hydroelectric UNCDF Rural Electrification 3,437 5,581 Irrigation ADD Hill Irrigation (Western Region) (TA) 350 568 Irrigation UNCDF Khutfya River Irrigation (1) 1,977 3,210 Livestock ADD Livestock Development 12,280 19,939 Livestock ADB Second Livestock Development (TA) 170 276 Population ESCAP Training in Population Information 3 5 Population UNFPA Contraceptive Users Survey 68 110 Population UNFPA Population Education through Co-op's 736 1,195 Tourism UNDP Eastern and Far Western Tourism Survey 11 17 - 82 - ANNEX I Page 10 of 18 1960 Agriculture ADS Agricultural Sector Strategy Study (TA) 245 365 Agriculture ADB Fourth Agricultural Credit 15,000 22,365 Agriculture ADB Fourth Agricultural Credit (TA) 1,100 1,640 Agriculture ADS Smalt Farmers Group Development (TA) 98 146 Agriculture FA0 Training on Agric. Project Analysis 1,269 1,892 Agriculture UNFPA Implementing/Monitoring Women's Projects 98 146 Agriculture UNIDO Fertilizer Plant 23 34 Agriculture World Bank Grain Storage Project 6,200 9,244 Crops ADB Crop Intensification Program 90 134 Development ADB Conmand Area Development (TA) 350 522 Development UNDP Technical Assist. to Mahakati Hilt IRD 1,501 2,238 Fisheries ADB Aquaculture Development 11,800 17,594 Fisheries ADB Aquaculture Development (TA) 1,670 2,490 Fisheries FA0 Increased Employ./Income - Cage Culture 89 133 Forestry FAD Orgbnization Dev. in the Min. of Forests 29 43 Forestry World Bank Comunity Forestry Dev. & Training 17,000 25,348 Health UNCDF Comunity Water Supply & Sanitation 1,993 2,972 Health World Bank Third Water Supply & Sewerage Project 27,000 40,258 Hydroelectric UNOP Asssistance to Eastern Electricity Corp. 640 954 Hydroelectric UNOP Mulghat Hydro-power Study 920 1,372 Hydroelectric UNOP Third Power Project 624 930 Institutional FAD Development of Management Info. System 47 70 Institutional FAD Strengthening Agric. Credit Planning 209 312 Institutional UNDP Strengthening the Topo. Survey Branch 1,126 1,679 Institutional UNFPA Info., Educ. & Com. for Family Planning 675 1,007 Irrigation ADD Hitt Irrigation (TA) 900 1,342 Irrigation ADD Hitt Irrigation (Western Region) 11,700 17,445 Irrigation UNCDF Marchawar Lift Irrigation (1) 1,999 2,981 Irrigation World Bank Babai Irrigation Engineering Project 3,500 5,219 Irrigation World Bank Mahakai Irrigation Project 16,000 23,857 Livestock UNDP Livestock Development 700 1,044 Population UNDP Population Dynamics, Planning Teaching 496 739 Population UNFPA Assistance to FP/MCH Project 135 202 Population UNFPA Family Planning Services Delivery Sys. 5,902 8,800 Population UNFPA Population Educ. - Ag. Ext. for Women 24 36 Population UNFPA Population Educ. - Ministry of Agric. 563 840 Population UNFPA Population Educ. - Ministry of Educ. 234 348 Population UNFPA Strengthening Family Planning PersonneL 3,216 4,796 Population UNFPA Teaching Improvement in Family Planr.ing 673 1,003 Population UNFPA Trad. Med. Pract. in Family Planning 19 28 Transportation UNDP Road Feasibility Studies 707 1,054 1981 Agriculture FA0 Crop Forecasting and Early Warning (2) 236 322 Agriculture FAD Dev. of Home & Village Industries, Jute 30 41 Agriculture FAD Small Farmers Development 27 36 Agriculture FAD Tech. Assist. on Food Security 146 199 Agriculture UNDP Agriculture Extension 725 990 Agriculture UNDP Hill Food Production 720 983 Agriculture UNDP Smell Farmers Development Programme 96 131 Agriculture UNDP Technical Assistance to ADS/N 1,048 1,431 Agriculture World Bank Agric. Extension & Research Project 17,500 23,895 Agriculture World Bank Hit Food Production Project 8,000 10,923 Crops ADD Crop Intensification Program 4,000 5,462 Crops FAD Rural Save Grain Programme 460 628 - 83 - ANNEX 1 Page 11 of 18 Dev*lopment ADO Command Area Development 13,500 18,433 Development ADB Command Area Development (TA) 1,200 1,638 Development ADB Second Command Area Development (TA) 445 608 Development FA0 Intro. of Improved Indigenous Machines 107 146 Development UNOP Education for Rural Development, Setf (1) 1,734 2,368 Education ADS Science Education (TA) 155 212 Education UNFPA Population Educ. in Non-FormaL Adult Ed. 770 1,052 Fisheries UNDP Aquaculture Development 1,058 1,445 Forestry ADS Pulp and Paper (TA) 200 273 Forestry UNDP Community Forestry 2,074 3,692 Health UNDP Drinking Water and Sanitation Training 592 808 Norticulture FA0 Vegetable Seed Production 3,109 4,245 Hydroelectric ADO Fourth Power 19,400 26,489 Hydroelectric ADS Fourth Power - Part 8 (TA) 150 205 Hydroelectric ADS Fourth Power (TA) 1,000 1,365 Hydroelectric ADB Mini Hydropower Project 8,300 11,333 Hydroelectric ADS Mint Hydropower (TA) -o 1,024 Hydroelectric ADB Power Development Study (TA) 45 61 Hydroelectric UNDP Assistance to Small Hydro Power Dept. 820 1,120 Hydroelectric UNDP Tr0ining Engineers for Hydroelectric 2,942 4,017 Irrigation UNDP Plan for Median Irrigation 1,253 1,711 Irrigation UNDP Second Hill Irrigation Projer.t 474 647 Irrigation UNDP Technical Assistance to N rfgation 891 1,217 Livestock FA0 Artificial Insemination & Breeding Dev. 24 33 Population FA0 Broadcasting Population Education 14 19 Population UNCHS Training in Human Settlements 16 22 Population UNFPA Family Planning Educ. at Day Care Ctrs. 107 146 Population UNFPA Population Education Programme 717 979 Population UNFPA Population Educ. - Small Farmers Dev. 580 792 Population UNFPA Population Ed. through Cottage Industry 728 994 Transportation ADB Feeder Roads Improvement (TA) 250 341 Transportation UNOP Reinforcement of Civil Aviation Dept. (2) 3,033 4,141 Watershed UNDP Integrated Watershed Management (2) 979 1,337 1982 Agriculture FAD Development & Promotion of Jute Sector 68 85 Agriculture FAD Increased Crop Prodn. through Fertilizer 2,526 3,150 Agriculture UNDP Fruit Processing 160 200 Agriculture UNOP National Census of Agriculture 555 692 Agriculture UNDP National Farm Management Study 621 774 Agriculture UNDP Technical Assistance to Nepal Food Corp. 807 1,006 Crops UNDP Medicinal and Aromatic Plants 554 691 Development UNICEF Small Farm Family Programme 1,991 2,483 Energy World Bank Petroleum Exploration Promotion 9,200 11,472 Forestry ADS Hill Forest Development (TA) 150 187 Forestry ADB Paper Milt Technical Services 4,000 4,988 Health ADS Water Supply/Sanitation Profile (TA) 50 62 Health ',IBP Water Supply vnd Sewage Study 766 955 Health UNICEF Water and ;rrvrenmental Sanitation 7,835 9,770 Hydroelectric ADS Form.lotion of Fifth Power (TA) 50 62 Hydroelectric UNDP Fourth Power Project 640 798 Irrigation ADB Second Hill Irrigation 20,000 24,939 Irrigation ADB Second Hill Irrigation (TA) 530 661 Irrigation ADB Second Hill Irrigation (TA) 1,370 1,708 Irrigation UNDP Intensive Public Works Scheme 1,500 1,870 Irrigation World Bank Second Bhairawa-Lumbini Groundwater 16,000 19,951 - 84 - ANNEX 1 Page 12 of 18 Population ESCAP Fertility and Famity Structure Survey 8 10 Transportation WFP Construction of Naudanda*Bent Road 989 1,233 1983 Agriculture ADS Hitl Agriculture Development (TA) 230 269 Agriculture ADO Rural Cooperatives (TA) 250 293 Agriculture FA lImproving Acidic Soils by L1he AppLic. 122 143 Agricultur FAD Strengthening Monitoring & Evaluation 199 233 Agriculture FA0 Training in Milk Plant & Maintenance 24 28 Agriculture World Bank Cash Crop Developi-.t 6,000 7,025 Crops ADS Second Crop Intensification Program 15,000 17,563 Crops FAD Emargeny Seed Procurement 250 293 Education ADB Technical Schools (TA) 150 176 Education UNFPA Training of Planners for Integrated Dev. 180 211 Energy UNESCO Field Trial on Solar Energy Water Purps 5 6 Forestry ADB Hitt Forest Development 16,700 19,553 Forestry ADB Hitt Forest Development (TA) 250 293 Forestry World Bank Second Forestry Project 18,000 21,075 Health ADB Rural Water Supply/Sanitation (TA) 150 176 Hydroelectric ADB Fifth Power 20,000 23,417 Institutional FAD Dev. of Master Plan for Improved Food 20 23 Institutional UNDP Improving Logistics of Dev. Efforts 265 310 Institutional UNDP Prograom Support Services 673 788 Institutional UNFPA Capability for Demographic Analysis 701 821 Institutional World Bank Technical Assistance 2 6,000 7,025 Irrigation ADS Eastern Terat Irrigation (TA) 560 656 Irrigation ADS Kankai Diversion Structure Remedial 3,500 4.098 Irrigation UNDP Training of Water Resources Engineers 1,000 1,171 Population UNFPA Collection & Dissemination of Pop. Info. 8 9 Population UNFPA Comunity Based Family Planning 77 90 Population UNFPA Family Planning Resources in ICHSDP 1,446 1,693 Population UNFPA Population Education through MPLD 170 199 Population UNFPA Population Educ. Integrated with Dev. 158 185 Population UNFPA Support to Nat' Comisaon on Pop. 185 217 Transportation ADS Feeder Roads 17,500 20,490 Transportation ADS Feeder Roads (TA) 150 176 Transportation UNDP Air Transport Support 054 5,917 1984 Agriculture ADS Cotton Development (TA) 240 272 Agriculture ADB Hitt Agriculture Development 17,800 20,156 Agriculture UNESCO Study on Food Dependency 3 3 Agriculture World Bank Agricultural Manpower Development 8,400 9,512 Crops FA0 Rural Save Grain Programe (2) 1,200 1,359 Crops UNDP Cotton Development Study 100 113 Development ADS Chitwan Valley Development (3) 5,200 5,888 Development FAD People's Participation in Rural Nepal 124 140 Development UNCHS Approp. Tech. Low-Cost Infrastructure 99 112 Fisheries ADS Second Aquaculture Development (TA) 145 164 Forestry FAD Technical Assistance to Teral Forestry 1,664 1,884 Health ADS Rural Water Supply Sector 9,600 10,871 Health ADS Rural Water Supply Sector (TA) 200 226 Hydroelectric ADS Sixth Power 28,100 31,819 Hydroelectric World Bank Karneli Preparation Phase 1 11,000 12,456 Hydroelectric World Bank Marsyangdi Hydroelectic Power Project 107,000 121,161 Institutional UNOP Strengthening Plan Implementation 70 79 Institutional UNESCO Development Planning Seminar 9 10 - 85 - ANNEX 1 Page 13 of 18 Irrigation UNDP Rehabilitation of Flood Affected Hills 500 566 Irrigation UNOP Technical Assist. to Second Hitt Irrig. 1,385 1,568 Irrigation UFP Small Scale Irrigation Works 3,639 4,121 Livestock ADB Second Livestock Development (TA) 250 283 Population UNFPA Int'l Inst. for Population Studies 10 11 Transportation Worid Bank Third Highway Project 47,500 53,787 1985 Agriculture ADB Cotton Development 14,000 15,302 Agriculture ADS Cotton Development (TA) 1,400 1,530 Agriculture ADS Second Small Farmers Group Dev. (TA) 100 109 Agriculture FAO Crop Forecasting and Early Warning (1) 636 695 Agriculture World Bank Second Agricultural Extension Project 7,200 7,870 Development ADS Seti Zone Rural Development 20,000 21,860 Forestry ADS Forestry Development (TA) 1,100 1,202 Forestry ADS Third Forestry Development 10,000 10,930 Forestry ADS Third Forestry Development (TA) 300 328 Horticulture ADS Hill Fruit Dovelopment (TA) 250 273 Irrigation ADS East Rapti Irrigation (TA) 350 383 Livestock ADS Second Livestock Development 14,000 15,302 Livestock ADB Second Livestock Development 1,600 1,749 Watershed FAO Shivapuri Watershed Mgt./Fuetwood Plant. 1,327 1,450 1986 Agriculture ADS Tea Development (TA) 200 213 Agriculture FA0 Planning Assistance to the Min. of Agric. 218 232 Agricsiture IFAD Production Credit for Rural Women 6,000 6,392 Agriculture UNICEF Production Credit for Rural Women 139 148 Crops ADS Third Crop Intensification Program (TA) 75 80 Crops UNMP Cotton Production and Processing 1,436 1,530 Development IFAD Command Area Development Project 11,250 11,985 Development IFAD Sagarmathe Rural Development Project 13,000 13,849 Development IFAD Small Farmer Development Project 28,100 29,935 Development World Bank Rasuwa-Nuwakot Rural Development Phase 2 19,100 20,347 Education UNESCO Man and the Biosphere Programme 20 21 Environment UNDP Nat'l Parks and Protected Area Mgt. 531 566 Fisheries ADB Second Aquaculture Development 11,000 11,718 Fisheries ADS Second Aquaculture Development (TA) 960 1,023 Transportation World Bank Road Flood Rehabilitation Project 15,500 15,500 1989 Forestry World Bank Hill Comunity Forestry Project 30,500 29,268 Institutional World Bank Second Structural Adjustment Credit 60,000 57,577 Transportation World Bank Arun III Access Road 32,800 31,475 - 86 - ANNEX 1 Page 14 of 18 ynr Stctor gw.roIct '000 USS '000 USS Dglor (Nominal) (1988) 1966 Forestry UIN Butwat Forestry and SofL Conservation 298 1,014 Hydroelectric UMN Tinau HydeL Project, Butwal 2,941 10,011 1973 Forestry UIN Butwal Pywood Factory 1975 Development UN Baudha-Bahunipati FamiLy Welfare Project 68 147 Health UN Drinking Water Projects 1976 Energy UIN Bio-gas Plants Forestry UIN Forestry and SoiL Conservation Hydroelectric WMN Small Turbines and Rural Electrification 1980 Development UMN Nawalparasi Hills Development Project Education WIN Karnali Technical School 1981 Hydroelectric UMN AndhikhoLa Project 7,620 10,404 Transportation Care Trail Suspension Bridge Project 2,147 2,932 1982 Development ActionAid Manichur Community Development 500 623 Development WMN Rural Development Contre Development WMN Surkhet Project Population IPPF Family Planning Programme 517 645 1983 Health ActionAid Drinking Water Programme 1984 Agriculture Care Small Farmers Comnunity Project (Eastern) 1,126 1,275 Watershed Care Begnas Tal, Rupa Tat Watershed Mgt. 1,147 1,299 1985 Agriculture Care Small Farmers Community Project (Rapti) 935 1,022 1986 Agricultue Plan Agriculture Credit 100 107 Agriculture SCF/USA Agriculture Programme 21 22 Development LUS Community Development Project 237 252 Development LUS Village Development Project 64 68 Development LUS Women's Development Project 64 68 Development Plan Community Development Programme 2 2 Development SCF/USA Resource Conservation 23 25 Health LWS Water Resources Development Project 217 231 Hydroelectric WIN Tatopani Project 1987 AgricuLture ActionAid Agriculture Sector Development ActionAid Income Generation Health Helvetas Community Water Supply and Sanitation 70 72 Health SAP Bartung Drinking Water Project 10 11 Health SAP Bisankhu Narayan Drinking water Project 2 2 Health SAP Dharapani Aklebar Drinking Water Project 3 3 Health SAP Dhungakharke Drinking Water Project 9 10 Health SAP Drinking Water for Bakebari 1 1 Health SAP Gunadi Water Supply Scheme 4 4 Health SAP Kaindanda Drinking Water Project 4 4 Health SAP Sundare Dhara Drinking Water Project 3 3 Health SAP Taukhat Drinking Water Project 9 10 - 87 - AINE..1 Page 15 at 18 Horticulture SAP Vegetable Cultivation Project 4 4 Irrigation ActionAid Irrigation Prograea Irrigation SAP Chunt Khola Irrigation Project 8 8 Irrigation SAP Surms Khola Bhandar Irrigation Canal 1 1 Livestock SAP Piggery Farming 8 8 Livestock SAP Piggery Project for Underprivileged 5 5 Transportation SAP RCC Cuivert Bridge on Yagyamati River 6 6 198 Forestry ActionAid Forest Nursery Livestock ActionAid Livestock Development 1989 Development WN Tamakoshi Sews Semiti 21 20 Education WN Non Format Education Service Centre 5 5 Forestry WN Agro-Forestry Advisory Service 17 16 Irrigation tiN Andhikhos Irrigation Project 1,070 1,027 s' Projects related to renewable resources Include all except telecommunications, urban, industry and primary, secondary and university education. The data base covering the period 1966-89 Is incomplete since the annual Inventory assembled by the UNDP only dates from 1972. Data on projects initiated prior to that year were obtained directly from the donors, but were not all complete. In addition, not all projects initiated in 1989 were included The commitment figures for each project show the total for the year in which the commitment was made and is not distributed over the period of disbursement, this leads to both a source of underestimation i.e. project addJons made later and not recorded, and a source of overestimation i.e. where the commitment was not fully disbursed at the date of project completion. - 88 - Page 16 of 18 Table A-2: Aid Commitments to Nepal Related to Renewable Resources, by Sector 1966-89 (In 1988 US$ million) Renewable Year Education Infrastructure Resources Population Other Total Percent 1966 0.0 20.5 6.0 0.0 0.0 26.6 1 1967 0.0 376.4 1.7 0.0 0.0 378.0 8 1968 13.9 73.6 0.2 2? 1.1 90.9 2 1969 21.2 83.6 22.9 0.0 0.0 127.7 3 1970 0.7 13.3 18.7 0.0 0.0 32.7 1 1971 0.1 3.8 22.2 0.0 0.3 26.5 1 1972 1.7 139.0 28.5 0.0 11.5 180.7 4 1973 1.5 15.3 18.9 28.0 2.8 66.5 1 1974 13.8 215.9 103.8 9.9 0.0 343.4 7 1975 5.2 116.3 49.2 33.3 0.0 204.0 4 1976 6.2 26.3 67.3 0.7 1.7 102.0 2 1977 18.7 65.9 154.5 0.2 5.3 244.7 5 1978 2.1 221.5 130.8 0.8 0.0 355.2 8 1979 9.3 45.2 68.3 4.6 0.4 127.7 3 1980 14.2 51.2 237.9 48.7 20.2 372.1 8 1981 55.2 113.0 91.5 4.0 6.9 270.6 6 1982 15.2 49.2 78.7 0.7 0.0 143.7 3 1983 12.2 76.1 92.3 2.4 0.0 183.1 4 1984 11.3 244.3 58.9 1.7 0.6 316.8 7 1965 24.4 3.1 89.7 0.0 0.0 117.1 2 1986 2.8 59.6 174.4 0.0 18.1 254.9 5 1987 32.6 10.3 17(..J 0.0 51.7 273.8 6 1988 16.3 157.5 146.2 0.0 0.0 319.9 7 1989 9.4 31.5 30.6 0.0 57.6 129.0 3 Total 288.0 2,212.4 1,872.5 137.2 178.2 4,687.6 101 Percent 6 47 39 2 3 100 - 89 - Page 17 of 18 Table A-3: Aid Commitments of Major Donors Related to Renewable Resources, by Sector 1966-89 (In 1988 US$ million) Renewable Sector Education Infrastructure Reources Population US$ %V US$ US$ % US$ % FRG 38.5 13 137.9 6 163.6 9 0.0 0 Inida 0.0 0 579.9 26 3.4 0 0.0 0 UK 34.8 12 213.3 10 27.1 1 0.0 0 USAID 51.0 18 31.7 1 155.4 8 66.3 48 Total 124.3 43 962.8 43 349.5 18 66.3 48 MuNiateals ADB 7.5 3 303.7 14 569.5 30 0.0 0 UNDP 25.1 9 36.4 2 61.8 3 0.7 1 UNFPA 3.1 1 0.0 0 1.7 0 67.5 49 World Bank 68.3 24 456.3 21 438.4 23 0.0 0 Total 104.3 37 796.4 37 1,071.4 56 68.2 50 V This is the percentage of the total aid commitment to education and Institutional strengthening (related to renewable resources) by Bilaterals, Multilaterals, and NGOs. - 90 - ANNgX I Page 18 of 18 Table A-4: Aid Commitments to Nepal Related to Renewable Resources, by Sector 1966-89 (in 1988 US$ million) Commitments Projects 1988 US$ Million % No. % Land Agriculture 634 34 123 37 Forestry 192 10 43 13 Irrigation 529 28 69 21 Livestock 51 3 25 7 Resource Conservation Y 108 6 29 9 Rural Development 358 19 47 14 Total 1,872 100 336 101 Infrastructure Health V 152 7 43 22 Hydroelectric 818 37 61 31 Transport 1,212 55 77 39 Other 30 1 15 8 Total Z212 100 196 100 ' Includes watershed and environmental projects. & Water supply and sanitation. - 91 - ANNEX 2 Page 1 of 2 THE CONTINUING DILEMMA OF CAUSE AND EFFECT: AN EXAMPLE The discussion of cause and effect relationships Determining the correlation between yield decline and the role of government gives an indication of the and erosion, reduced soil fertility, expansion of controversial nature of the issues. In order to examine agriculture on to marginal land, or increases in double some of the hypotheses a comparative analysis (New cropping Is further complicated when fertilizer use is Era 1989) was undertaken for this study, on change in Introduced Into the equation. Yield data for Nuwakot resource use In #o hill districts. The first was and Lamjung over the period 1968-1988 show no Nuwakot, an area with good road access, proximity to significant differences in trend between the two districts urban markets, and extensive public development for the six crops reported, which is surprising in view projects supported by foreign aid. The second, of differences in fertilizer use. At the beginning of the Laming, an area which was much less accessible, period, fertilizer application in both districts was more distant from markets, and had few development negligible. However, over the next 20 years fertilizer projects. For each district an effort was made to use in Lamjung grew to 12 kg per ha, and in Nuwakot establish change in the state of the land, forest, and it grew to ten times that level. The fact that there has other resources over the past 10-20 years, and change been no corresponding increase in yields in Lamjung in population, income, employment and migration over suggest some aecline in soil fertility in that district, the same period. Estimates of the area under where little expansion of agricultural land has occurred. cultivation and changes between the 1960s and 1980s The fact that there has been no yield response in show differences between districts and inconsistencies Nuwakot, given the increase in the level of fertilizer use, according to source (see Table 1). may be attributable to the expansion of agriculture on to marginal lands. Table 1: Estimales of Change in Cropped Area, The population/food/resource degradation 1960s to 1970s syndrome has high priority on the development agenda in Nepal. As with the other cause/effect relationships, a % Cdata on this Issue from Nuwakot and Lamjung are source in C Inconclusive. The principal indicators of population pressure are shown in Table 2. The data might lead Nuwakot Lamjung one to expect that resource degradation should be significantly higher in Lamjung than Nuwakot. However, DFAMS 1968-1987 4.0 4.5 the production and yield data do not support this CBS 1961-1981 6.5 2.0 Implication. The data also suggest that the pressure of population on resources is increasing faster in Nuwakot -- that is, 18% over the decade 1971-81, compared with 10% in Lamjung. Again the yield and Agricultural output In both districts has increased production statistics suggest no differences in trends markedly since 1968. The Increase is attributed to an between the two districts. Nor can the situation be expansion In the gross area cropped and the explained by a transfer of labor into off-farm activities, conversion of large areas to double and even triple which would take pressure off land, water and forest cropping. Data on changes in productivity are wholly resources. The change in occupational patterns over inconclusive in correlating yield declines with the ten year period was insignificant in both districts; expansion of crops onto marginal lands, with multiple agricultural employment changed from 97% to 95.5% cropping or with reduction in soil fertility on traditionally of the work force in Nuwakot and in Lamjung from cropped lands. There are wide year to year 98.5% to 97%. These percentages suggest that the fluctuations due to weather, and yield statistics on impact of efforts to promote cottage Industries and foodgrains and potatoes show no significant trend. In decentralize manufacturing in the two districts has been fact, taking 1968 as the base year, the figures for both minimal. districts over the 1968 - 88 period suggest slightly higher yields in wheat, no change in rice, and slight Ninety percent of the emigration from Nuwakot declines in maize, millet and barley. If 1978 is taken as and LamJung between 1961 and 1981 may be the base year, there is no indication of a decline in assumed to have been to the Terai. Migration data on yield over the decade. the two districts show converse trends; the emigraticn - 92 - ANNEX 2 Page 2 of 2 rate in Nuwakot declined from 1.5% per year in the made an effort to extend credit and to give preference 1960s to 1% per year In the 1970s, while the rate for to more remote areas. For example, between 1975 Lamjung increased from 1.4% to 1.8%. Of a total and 1988 the ADBN expanded lending In Nuwakot from population in the two districts about 140,000 moved $4 to $23 per farm household, (a six-fold Increase), out over the 20-year period. Despite the government's compared with a rise from $1 to $13 (a 13-fold efforts to first promote settlement through new Increase) in the more remote Lamjung district. agencies and projects, and then restrain settlement by a moratorium, migration appears to have been Extension services for watershed conservation, dominated by spontaneous processes wholly outside forestry and irrigation have been less than successful. the influence of these policies. Population in the Teral In Nuwakot, over the 1976-1988 period, the SWC has been growing at a rate of 4% annually since 1970, created on average 30 ha in plantations annually, 6 ha and no appreciable change has been registered In in watershed protection works, 10 ha in irrigation recent years. protection works, and 5 km of trail and road protection. Farmers' increased demand for assistance in Evidence of the relationship between government maintaining Irrigation canals and In terracing went services and technology change l generally wholly unmet. Recent plantations by the Forestry encouraging. Adoption of chemical fertilizers and Department (FD) have averaged 450 ha/year in improved seed varieties has been rapid over the past Nuwakot and 120 haA u; In Laijung. 20 years. Although their use was minimal in the 1960s, by 1988 fertilizer use in Lamjung had Increased to 12 The confused statistics on change in land kg per cultivated ha and In Nuwakot it had grown to ownership over the 1971 to 1981 period preclude any 125 kg per cultivated ha.. Thus, despite the analysis of the contribution this may have had to deficiencies perceived by farmers and outside analysts change In production, technology, migration or change alike in the operation of credit, extension, integrated in the state of renewable resources. Considering the rural development (IRD) and the Agricultural Inputs inconclusive nature of the data and the Inconsistencies Commission (AIC), success in terms of adoption of a inherent In it, further evidence Is hardly needed to technology promoted by the government has been justify the importance of data collection for policy- considerable. The record on credit suggests that the making. Agricultural Development Bank of Nepal (ADBN) had Table 2: Population Growth and Density In Nuwakot and Lamjung Disricts, 1971 - 1981 Population Growth and Density Nuwakot Lamjung Nepal 1971 1981 1971 1981 1971 1981 Growth (%) 0.6' 1.6b 0.7' 2.1a 2.7b Density on agricultural land 380 450 1,0300 1,130c 510 660 (capitalsq.km) Annual rate 1960-1971 b Annual rate 1972-1981 o Population denaity Is caloulated on the basis of data from the sample agricultural census taken in 1971 and people in 1981. If the density for LamJung in 1981 Is calculated on the basis of the LRMP data, the estimate is reduced from 1,130 to 510 people per cultivated hectare. The discrepancy between LRMP data and census data for 1981 I + 100 for LamJung but only - 14 for Nuwakot. Comparisons with countrywide averages for 1971 suggest that the 1,030 capita/ha estimate is also questionable. - 93 - ANNEX 3 Page 1 of 3 BILATERAL ASSISTANCE Australia counterbalance to India's dominant influence. Thus, Australia has been involved in civil aviation, livestock Nepal's reasons for seeking aid coincided with China's development, and most importantly in forestry. Its reasons for giving It (Baldya, 1984). China's aid has forestry efforts began in 1965, with some ad hoc been earmarked for certain projects agreed to by both projects which included reforestation and technical parties and so the annual amount of aid has been a support to the Forestry Department. Its ongoing function of the size and schedule of projects Nepal-Australia Forestry Project began in the 1970s undertaken. China's involvement in Nepal has been and is involved with reforestation and institutional characterized by shifting projects--stopping some development at both the district level and the user before completion ano starting new ones, sometimes group level. at Nepal's request, sometimes at India's request, and often without reason. Austria China's main thrusts have been in road building and Austria's most Important project has been a hydro-electricity. About half of Chinese assistance has hydro-electric power station at Namche Bazar in the gone to the construction of highways strategic for Khumbu. Ives and Messerli (1989) use this project to China. Chinese road building projects used exemplify the problem of entrenchment of aid projects- labor-intensive methods and this led to jobs for both the Nepalls and the Austrians were convinced of Nepalese contractors and workers during the the project's inappropriateness, but nothing could be construction phase. China has also been involved in done to stop it. Ives and Messerli imply that the need agricultural processing, helping Nepal build mills for for electricity in the khumbu was perceived by the sugar, cotton and paper. Except for the Pokhara water Austrian Aid Agency, not by the Sherpas. project which involves irrigation, China's involvement in agricultural production has been minimal. All of China's projects have been Nturn key", with little scope Canada for transferring skills to the Nepalls. Canada's dominant aid agency is the Canadian International Development Ageicy (CIDA). CIDA has tried to match its capabilities with the needs of Nepal. EEC CIDA's goal is to help Nepal develop sustainable levels The EEC has been heavily involved in supplying of food and energy production, to train its human commercial fertilizer. It has also supported rural resources, and to ensure the survival of its environment development, forestry, health, hydro-electricity and and people. It is attempting to meet these objectives watershed management. through four major efforts involving Integrated rural development, mapping Nepal's land resources, developing strategies and planning capabilities for Finland water and energy resources, and improving rural Since mid-1980s, its involvement has been mainly in transportation via Twin Otter aircraft. A smaller the forestry sector. It has also had projects involving Canadian aid agency is the International Development credit for rural women, rural electrification and Research Center (IDRC). It has been involved in watershed management. building up research and Information capability, cropping systems, goat production systems, tree planting on private lands, fisheries and population. France France has been involved in aviation development, assisting Royal Nepal Airlines and providing STOL China aircraft and helicopters. its involvement in renewable ChIna's main purpose in providing aid to Nepal was resources has been modest, with projects in political-to reduce India's influence. Also, China saw geophysical research, solar irrigation pumps and Nepal as a trade source for foodgrains to Tibet. Nepal energy planning. also saw China as a trade source, and as a - 94 - ANNEX 3 Page 2 of 3 Germany (FRG) wait for Nepal to come up with projects for which India German assistance began . .ie early 1960s. has a comparative advantage. According to the German Amb ;ndor (1971), the German government had decideJ not to transfer ready-made schemes from Germany to Nepal, but Japan rather to choose a few projects with a view to a long Japan's assistance In agriculture began In 1966 when term process of give and take. It was Germany's the Rapti Experimental and Model Farm began In the opinion that agriculture should not remain a traditional Chitwan District. Its main purpose was to demonstrate Institution but rather move towards an efficient modem and disseminate Improved seeds, tools and machinery. system. This farm was merged (early 1970s) Into the Janakpur Agricultural Development Project, which involved The German aid program has been consistently strong Irrigation ar 1 extension. During the 1970s, Japanese on agriculture, rural development and energy, with GTZ assistance centered around agriculture, health and supporting the former through technical assistance and power. Japan assisted agricultural development In the KFW supporting the latter through grant assistance. Janakpur Zone and provided about 1/3 of the fertilizer The German technical assistance program gives which came to Nepal from external sources. The particular attention to human resource development. Japanese approach was not to single out an area for In project design, decentralization is strongly concentration but rather to respond to HMG requests. encouraged. Korea Israel Korea has been assisting Nepal in sericulture Israel was not prompted by strategic considerations development since 1972, by providing silk testing like India and China, rather it was seeking diplomatic equipment and production facilities. support In the non-aligned world and the UN. Israel's main fields of assistance were In agriculture, resettlement and construction. IsraelI-assisted Netherlands resettlement projects have been relatively successful The Netherlands' aid up to the early 1970s was in the because Israel sent skilled administrators which the fields of dairy development and education. Since then, Nepalese government lacked. In agriculture, Israel the main lines of assistance for the Netherlands have provided local farmers with improved seeds and been agriculture, Irrigation, and transportation Instruction. It also provided fish breeding stock and (suspension bridges). In 1985, the Netherlands nursery stock for fruit trees and reforestation. In recent decided to shift program emphasis from bridge years, Israel's involvement has been minlmtl. building to ecological programs. The current criteria for projects supported by the Netherlands are community awareness, environmental awareness and India the participation of women. India's motives for aid to Nepal were largely strategic and political-the "exclusion of Chinese Influence" (Mihaly, 1965, pg.8W). India's aid began in the early New Zealand 1950s with the recognition of the Importance of New Zealand has been involved in dairy and livestock Infrastructure for Nepal's development. Much of its aid development. it has also been Involved in helping over the next two decades went to building roads and Nepal set up national parks. air-fields and to communications, all of which contributed to India's security requirements. Hydro-electricity and Irrigation also became dominant Switzerland lines of assistance. To bring about social change, "The unique features of Swiss aid have been its India delved into rural development (including concentration in modest projects and the emphasis on horticultural and livestock improvement), education and rural and remote areas! (Baldya, 1984, pg.92). The health. By the early 1970s, the number of Indian Swiss began assistance to Nepal in 1955 by building projects In Nepal began to decrease. By the late 1970s, cheese plants, and a dairy in Kathmandu. In 1965, India's emphasis was shift- Ing to industrialization. Mihaly described Swiss assistance as follows: the Because its Involvement In Nepal had decreased, the Swiss `were motivated by a combination of enilghtened Indian Cooperation Mission was terminated In 1981. self-interest and humanitarian impulses (pg.94). Unlike India's current strategy Is to take a passive role and the US and India, they had no intention of making a - 95 - ANNEX 3 Page 3 of 3 nation-wide impact, but rather viewed their projects as the 1970s. Its main line of assistance has been road demonstrations which they hoped would spark a chain building. From the mid-1960s on, agriculture and reaction. forestry sectors have also been dominant lines of support. The strong emphasis on agricultural and Unlike other donors, Vie Swiss considered an forestry research is justified as a sound investment for improvement in hill agriculture essential, because most the future, although its success is heavily dependent of the people lived in the hills and the growing on technical assistance inputs. This implies support shortage of land was leading to serious food and for research is likely to continue indefinitely. The same employment problems. In 1957, buffalo breeding and is true forroad mL.ntenance. Support for Irrigation has a model farm were started at JirI. Over the early 1960s, been limited and was discontinued because of research and demonstration were expanded to include disappointing results from the sole project (Chatra grain, vegetables and tree fruits. In 1964, the Jri Canal). The UK has also supported one Integrated project assumed a multi-purpose nature with broad rural development project. programs in agri-extension, forestry, cottage industries, etc. Since the mid-1960s, the main areas of Swiss involvement have been in dairy development, USSR integrated hill development, environment, drinking The aim of the USSR's assistance to Nepal was to water, horticulture, small-scale hydro-electricity, strengthen the economy of a non-aligned country suspension bridges and the Lamosangu-Jiri road. (Mihaly, 1965). Soviet aid began in 1956, peaked during the early 1960s, and has shown a low profile since 1973. Since 1965, the Soviet Union has been UK involved in industrialization, transportation and power. The main motivation behind the UK assistance has Like China, it was contributing to Nepal's import been to keep the Gurkhas contented and to pacify substitution program, attempting to lessen Nepal's resentment against their recruitment. To woo the dependence on India. Industrialization included a articulate group who was opposing reciultment was sugar mill, agricultural tools factory and turpentine plant likely the reason the UK started to provide longer-term (a cigarette factory was already completed). The graduate scholarships in Britain (Poudyal, 1982). A Soviet Union has not been involved in the agricultural strong feature of the UK program has been its produc- tion sector, nor in providing education and concentration in the Western, Central and Eastern health. zones, which are the areas from which the British army Other bilateral donors who have provided assistance to draws its Gurkha recruits. Nepal Include Burma, Denmark, Greece, Malaysia, Pakistan, Poland, Saudi Arabia, Singapore, Spain, UK assistance to Nepal began in a small way In the Sweden, and Yugoslavia early 1950s, and began to Increase at the beginning of - 97 - ANNEX 4 Page 1 of 9 AGENCY FOR INTERNATIONAL DEVELOPMENT NATURAL RESOURCE MANAGEMENT - EXPERIENCE IN NEPAL koduclon Nepal's situation is complicated by three factors. First, like many low income developing countries, Since 1980, USAID/Nepal has sponsored two Nepal's resource degradation problems are closely tied large-scale projects--the RAPTI Development Project to unrelenting pressure exerted on limited arable land (Phase I and II) and the Resource Conservation and by a large and rapidly growing population, 90 percent Utilization (RCU) Project-that were designed to of whom are almost solely dependent on agriculture for address environmental concerns related to agricultural their livelihood. Over the past three decades, the high production and watershed management in the hilly population growth rate has consistently outpaced the regions of the country. Subsequently, USAID/Nepal's growth of the agricultural sector. Therefore, any long- support for natural resource management activities term effort to improve the management of Nepal's expanded to include five other projects. These naturil resources must be accompanied by programs projects cover a range of activities aimed at addressing to increase agricultural productivity and to curb institution-building issues related to reforestation and population growth. resource conservation activities. Investments in the eight projects total approximately US$77.0 million. The Second, until the late 1970s, GON development RAPTI I and RCU projects have been completed, the policies did not emphasize NRM issues. From the remaining seven projects are still underway. In 1950s through the early 1970s, GON concentrated on addition to these projects, USAID/Nepal has set aside the development of power, transport and a special fund (Support for Biological Diversity) for communication facilities and agricultural production In activities related to wildlife conservation. (See Project the Kathmandu Valley and in the lowlands region List, pages 8 and 9 of this Annex). (teral). The GON strategy was to increase foodcrop production in the lowland region through adoption of This paper reviews the issues concerning natural higher yielding varieties and through investments in resource management that emerged during irrigation facilities. In forestry, the GON claimed implementation of the RAPTI I and RCUP projects ownership over forest resources and established a which might be useful for other small AID missions that government-owned, forest-products industry. are just starting to integrate NRM issues In their development program. it also Illustrates how However, in the late 1970s, the GON became USAID/Nepal is currently participating in multi-donor increasingly committed to promoting economic strategies in addressing policy-related and institution- development in other parts of the country. It also building issues that cannot be adequately resolved by became aware of the environmental degradation a single donor or the host country acting alone. associated with clearing extensive tracts of forests for agricultural activity and the overcutting and overgrazing The information used in this study was drawn of forests and shrubland adjacent to farming areas. In primarily from documents on USAID/Nepal's activities, many localities, the forest cover necessary to maintain i.e,. Congressional Presentations, Country ecological balance had either been destroyed or been Development Strategy Statements, Project Papers, degraded to the point where natural regeneration was evaluation reports and studies undertaken during the not occurring. Moreover, it also became clear that it design or implementation stages of the projects. was virtjally impossible to enforce forest protection laws through legislation alone. The GON began to NRM Issues and the Development Context in Nepal take steps to reverse the trend by supporting donor- funded reforestation and resource conservation Natural resource management (NRM) in Nepal projects and by addressing related policy issues. In revolves around conserving land, forest and water short, the incorporation of NRM issues into the GON's resources to maintain their ecological functions while and donor sponsored development activities is a intensifying agricultural and forestry production. recent effort. Serious attempts to deal with NRM Significant losses and damage to forest cover and Issues began only in the 1980s. Therefore, NRM topsoils underscore the urgency for developing strategies and activities being implemented in Nepal practical resource conservation measures. are still experimental efforts. - 98 - ANNEX 4 Page 2 of 9 Third, the country's mountainous terrain, significant project implemented during this period--integrated variation in geographic characteristics, and disperted Cer6als Production Project--successfully developed settlement pattern present formidable challenges for high-yielding maize and wheat varieties and a *block Implementing development projects with infrastructure productionO extension approach to adapt and and service delivery components. The construction disseminate the seeds and technical package to and operations and maintenance costs associated with farming ccrrmunities. transportation and service networks in Nepal can be very high, especially in Isolated regions of the country. In response to ')N's policy shift in the late Similarly, NRM approaches that r6ly on substantial 1970s, the mission 0 to design two large projects- Investments in engineering works (dams, river training -Rapti Rural Development (RAPTI) and Resource structures, fences and other physical barriers to protect Conservation and Utilization (RCU). The two projects forest lands or prevent land slips, etc.) can be very constitute USAID/Nepal's biggest investments In costly to implement and maintain. Therefore, the cost- addressing specific technical and institution-building effectiveness of approaches to improve NRM In Nepal issues related to improving NRM in Nepal. These will need to be considered carefully by the GON and cover forest and watershed management on public donor community. lands, improving livestock management, and conimunity-level reforestation and water management Overview of USAID Suppoit activities. In line with AID's mandate in the 1970s to concentrate development assistance on the poor, USAID/Nepal supported the GON's early efforts to USAID/Nepal located the two projects In the "Middle develop forest resources by funding two projects in Hills', where most poor farmers in Nepal live. In 1958. The first project (Forest Inventory and support of the GON's poilcy of devolving responsibility Management) helped the GON set up a forest and to local government and farmer organizations to soils resources inventory based on data from aerial implement its rural development program, the two photography and trained Nepalese foresters and projects have emphasized implementation approaches rangers in silviculture and forest management. that encourage Involvement of panchavats (district and Following the GON's plan to establish a government village administrative unit In Nepal) and small farmer forestry enterprise, the second project (Forest Products organizations. Development) provided technical assistance that established a sawmill to process timber culled from Since 1985, the mission has funded the second public forests. Although the sawmill proved to be phase of the Rapti project and five other, smaller financially viable, its future as a public enterprise projects with NPM components. The NRM activities became an Issue toward the end of the project. The range from research and extension programs to mission was concerned that weaknesses in the promote local resource conservation to technical management of the sawmill as a public enterprise assistance to strengthen the GON's higher education, might eventually undermine its future development. research and planning institutions dealing with forestry USAID/Nepal recommended that the GON consider issues. In collaboration with the GON and other turning the sawmill into a private enterprise. However, donors, the mission has also supported studies used the mission had little effect on the GON's intention to to formulate the Masterplan for the forestry sector. develop parastatals for the forest prc .ts industry. USAID/Nepal's most recent project-the Forestry Development Project-will provide assistance for The mission launched no new projects in the implementing some aspects of the Forestry Masterplan. forestry sector in the 1970s. The mission reasoned that its past experience indicated that it could not Except for small feeder roads and bridge-cum-trail influence GON policy-making and did not approve of construction to link farming communities to the national the GON's apparent lack of concern for the road network, the mission did not invest in capital environmental impact of its development activities. development activities. Therefore, it decided not to address 'problems of controlling irrigation, the wasting of forest resources, The following section discusses the specific NRM and soil erosion." (page 61, Development Assistance issues addressed by USAID/Nepal. Program FY 1975, AID, Department of State, 1974). Instead, the mission's development program Isues Addressed by USAID Pr-cts emphasized support to the GON's agricultural and rural development program and health, population and Integrating Forestry with Agricultural Production education projects. The major agricultural research Activities - RAPTI Approaches - 99 - ANNEX 4 Page 3 of 9 The Rapti I project was designed as the first phase The community forestry program will encourage of a 15-20 year integrated rural development project In Individuals and groups to plant trees on both private support of the GON's regional development program. and public lands. The program will stock existing GON It covered five districts In the Rapti Zone, a remote hilly nurseries in each district with seedlings of tree species area. The original project design had five components: that can produce fodder and other products useful to local road-building, social services, employment- farmers. Private nurseries will be given similar generation, crop varietal research and technical assistance. Technical assistance will be provided to assistance to help district and village panchayats establish a local Institutional framework to strengthen develop the capacity to plan and implement local district-level GON forestry offices and organize development activities. participants. During project implementation, it became clear that Pilot activities will Include organizing interested the original multi-sectoral project design was too farmers into groups which will interplant trees with food complex ftr effective management by USAID and the crops (I.e., using an agroforestry system known in Asia GON. St no activities (e.g., social services) were as taunaa) on land leased from the government. The never Implamented. Following the recommendations tenants will cultivate the land undt. technical guidance of the mid-term evaluation in 1983, and the final from GON extension staff (to be trained under the evaluation in 1985, the project's objectives were project). The tenants will have exclusive rights to the narrowed to focus only on completing road food crops they wish to grow on the land. However, construction and developing appropriate agricultural they will harvest fodder, fuel and timber in accordance production technologies and local institution-buiding. with a management plan mutually agreed upon by the user group and the district forest office. Both evaluation reports also criticized the design of the project for inadequate attention to deforestation Extension services set up under the communal problems In the Rapti zone. They pointed out that as forestry program will provide tree seedlings for farmers in other heavily populated hilly regions in Nepal, forests to grow on their own land. The objective is to provide in the Rapti zone were degraded from overcutting by the farm household with its own source of tree farmers and overgrazing by their animals. In many products, to replace or at least augment those normally cases, the forests were no longer able to regenerate obtained from nearby forests. Extension activities will themselves. However, because the forests were an be targeted especially on women farmers, since they important--and often the sole--source of fuetwood, are primarily responsible for tending livestock and fodder and building material for farmers, steps to gathering fuelwood and other tree products for restore the forests could not be based on prohibiting household uses. Farmers will also be encouraged to farmers from using them. Rather, the evaluation plant trees on their farms in configurations that will form reports recommended that the RAPTI project vegetative barriers to curb soil erosion. Applied enc4urage farmer Involvement in reforestation research supported by the project will concentrate on activities and develop strategies to modify local site-specific testing of tree species and agroforestry husbandry practices. The objective would be to practices that will generate products for multiple introduce livestock and forest management practices purposes (fodder, fuelwood, mulch, medicinal use, that can allow farmers to harvest forest products on a etc). sustainable basis. These recommendations were adopted toward the end of the project and At the national level, the mission is sponsoring incorporated into the design of the second phase of slIvicultural research under the Nepal Coppice the Rapti project, RAPTI II. RAPTI II includes a Reforestation Project. The project will develop pruning livestock component and a community forestry and propagation techniques for certain tree specles program. suitable for intercropping and reforestation purposes. Watershed Management - RCUP Appoaches Under the livestock component, research and extension activities will focus on introducing better- The Resource Conservation and Utilization Project quality livestock and management practices. The (RCUP) was designed to develop approaches to husbandry practices will include stall-feeding and restore degraded watersheds. Project Implementation selective culling of animals: controlling grazing on began in 1981 and ended in 1988. The project lands that are being reforested; and growing grass and supported a range of conservation and development other cover crops that can be used as fodder. activities in three districts (Gorkha, Mustang and - 100 - ANNEX 4 Page 4 of 9 Myagdi) located In two major watersheds (the However, as with other failed integrated rural catchment areas of the Kall Ghandaki and the Daraundi development projects In Nepal and in other developing rivers). At the national level, it helped establish the countries, the ROUP experience indicated that without National Commission for Conservation of Natural effective and well-coordinated Institutional support, Resources and sponsored a staff training program in implementing an "integrated approach" over a large watershed and natural resources management for the area is a difficult, If not impossible task. In the case or GON's Forestry Institute and the Ministry of Forestry the RCUP, it was virtually impossible to coordinate the and Soli Conservation. In 1988, supoort for the field activities of the many line ministries involved in Forestry Institute was expanded as a follow-on project project Implementation (nine different departments and that concentrates on developing the training curriculum agencies from four separate GON ministries). of the Institute of Forestry. Moreover, during RCUP implementation, the government ministries were in the process of adjusting Three evaluations were conducted during project to 6he GON's 1982 Decentralization Act, which implementation, in 1983, 1985 and 1988. The devolved responsibility for Implementing the evaluations focussed on management and technical government's development program to district-level Issues that emerged during project implementation. offices of line ministries. Implementation of the RCUP Thc recommendations of the evaluation teams were field program was one of numerous local development adopted during the last two years of RCUP activities that the district agencies were expected to mplementatioi and provided the basis for designing handle with their limited financial and staff resources. two follow-on projects, the Forestry Institute and the Consequently, they were ill-equipped to support Nepal Coppice Reforestation projects. Insights from RCUP's field activities and to co-ordinate their ROUP's experience also provided information for the activities. GON concerning forestry development and policy issues. The issues identified from the RCUP Although the RCUP's training program addressed experience are summarized below. the issue of institutional weakness, it did not produce trainees until toward the end of the project. Implementing an Integrated Approach to Watershed Neverthele^, the RCUP's training program was an Management - Institutlonal Constraints Important first step in addressing a major institutional-building issue, I. e., building a local The RCUP's strategy was to use an "integrated capacity to implement the GON's resource approach" to design and implement conservation conservation program. activities which would not only protect the resource base but also complement existing farming activities. The 1985 evaluation team alerted the GON and This approach was necessary because most hill slopes USAID/Nepal that a separate, and more substantial In the project area were intensively used for agriculture. Institution-building project would be necessary. This Each hill slope typically supports three different project would expand the training program already agricultural activities: foodcrop cultivation on bottom started under RCUP to strengthen the Forestry Institute. land and terraced slopes; pasture production on The objective would be to establish a broader-based steeper slopes, and harvesting fodder, fuelwood and training Institution that, in addition to conventional lumber form forests and other natural vegetation. forestry, could cover other aspects of natural resource Measures to restore degraded forests, curb soil management. In 1987, USAID/Nepal and other donors erosion, control grazing and develop wate. resources sponsored a project to convert the Forestry Institute on the hill slope could affect more than one activity in into a natural resource management institute. the hill-farming system. For example, measures to USAID/Nepal is funding a faculty training program and protect pastures by regulating animal grazing may teaching curriculum for the Institute. require providing farmers with an altemative means to shelter and feed animals. Failure to do so may result Developing a Calchment Approactf in farmers being forced to cut more fodder an-i trees to feed their animals, and thereby, exacerbating the To overcome its institutional limitations, and in deforestation problem. In short, implementation of response to evaluation recommendations to narrow its integrated watershed management in the RCUP project locus, the RCUP adopted a more practical approach to area required introducing a host of inter-related watershed management. This approach had three key interventions to protect forest, soil and water resources elements. First, project activities were kept as well as to modify, if necessary, existing agricultural manageable by focussing on problems within the practices. Immediate catchment area of a river, rather than the - 101 - ANNEX 4 Page 5 of 9 larger watershed. (Previous RCUP activles were Second, equity issues related to the Impact of spread thinly over the whole watershed, and therefore community forestry prolects alerted the GON and tried to do too many things over too large an area.) donors to the inadequacies of using the district-level Second, representatives of village panchayats and panchaval as the orimary vehicle to and implement farmers' associations 'helped in identifying the community-level reforestation activities. The interests problems and in organizing farmers to Implement of intended beneficlarles of reforestation activities-local project activities. Third, and most important, simple farming communities, Including women--were often and low-cost technologies emphasizing the use of ignored or Inadequately represented in the forest vegetation and local materials were introduced to curb restoration and management plans drawn up by district soil erosion, control animal grazing and conserve water nanchavt. Consequently, in many cases, farmers resources within small catchment areas. They included were understandably skeptical about the benefits of planting trees and grass strips to create vegetative their participation, and volunteered their labor simply to barriers to control river erosion and to stabilize gullies appease the panchayat authorities. and slopes prone to landslips; introducing fodder crops and stall-feeding practices to reduce livestock This unexpected farmer response has raised grazing on pastures; and building small-scale Irrigation concern that it would be difficult to generate sufficient facilities. According to the criteria used by the final voluntary labor to meet the estimated labor evaluation study team to assess the technologies, a requirements of a nationwide campaign to restore significant number of these are technically appropriate, community forests. The basic assumption of the cost- effective and require minimum maintenance by GON's forestry policy is that local communities will be the local communities. (USAIL)/Kathmandu, 1988). willing to contribute the labor needed for reforestation activities. Moreover, the communities, rather than the Because they are site-specific, the technologies government, will be responsible for the subsequent Introduced by RCUP might not be universally upkeep of restored forests. Therefore, other measures- applicable. However, the prolect demonstrated that a -besidesvesting management authority toOanchayats- watershed management program could start with would be needed to generate more meaningful low-cost, small-scale conservation activities to address community participation. specific problems in a catchment area and to encourage local community participation. The same In the past few years, the GON and the donor strategy is being employed under a new USAID/Nepal community have responded by sponsoring pilot project co-financed with CARE (Natural Resources activities to encourage a more equitable representation Management Project). The project will introduce of farmer and women's Interests in reforestation resource conservation technologies to two remote activities. The activities will focus on organizing areas, the Mustang and Solukhumbu districts. farmers and women into groups Involved In !he planning and implementation of reforestation activities. As an economic return for their labor, the groups will Forestry Policy implemenlation issues be given a share of harvested products. The community forestry and livestock management In the past decade, as reforestation projects were components of USAID/Nepal's RAPTI II project are implemented, issues concerning the GON's forestry providing technical assistance to help with the policy, community response, and the future formation of such groups. development of the Nepal forestry sector emerged. In particular, two Issues have raised questions concerning in addition to the above project-level interventions, the implementation of the GON's reforestation program. donors began to collaborate on sponsoring a series of studies to examine specific policy constraints on First, the investments in reforestation activities forestry development In Nepal. For example, have to make a significant economic impact. Although USAID/Nepal funded two studies that recommended many reforestation projects have been Implemented, policy changes to encourage private sector the actual area restored-approximately 50,000 investments in the forestry sector. The studies hectares-Is only a fraction of the 2 million hectares of subsequently provided the basis for the Finnish aid forests used by farming communities that need tc be agency, FINNIDA, and the Asian Development Bank to restored and properly managed for production fund a project that formulated a Masterplan for the purposes. This finding Indicated that more Investments future development of the forestry sector. The in community forest projects will be required. Masterplan was approved by the GON in 1988. - 102 - ANNEX 4 Page 6 of 9 By approving the Forestry Masterplan, the GON Inadequacies in its existing forestry development policy reiterated its commitment to decentralize responsibility and to invest In a long-term program to integrate for the management of public forests not only to local reforestation and other resource conservation activities government bodies (the panchayats) but also to Into the government's development program. Toward organized farmer groups and private firms.!' District this end, USAID/Nepal found that its efforts were and village panchavats will still be responsible for ineffective when it acted alone. However, it succeeded planning local reforestation activities and organizing when, over several years, it collaborated with other local communities to restore and subsequently, to donors in spnsoring forestry policy studies and in harvest public forests. However, legislation will be negotiating for policy changes as conditions for Introduced to permit panchavats to lease portions of multi-donor assistance for new forestry projects. Other forests under their jurisdiction to small, organized small USAID missions could use a similar approach to farmer groups. These farmer groups (i.e., luser- Introduce NRM Issues In the policy dialogue process. groups) will use their own resources to restore and manage the leased forests on a self-sustaining basis. However, a program to promote NPM need not The groups will have legally protected claims to a start with policy reform or new institution-building share of the forest products. Legislation will also be projects. Instead, missions could follow USAID/Nepal's Introduced to permit private firms to lease public strategy by integrating resource conservation activities forests to establish forest enterprises. Into existing agricultural and rural development projects. The activities could concentrate on The GON plans to change major policies that have developing low-cost, simple technologies that can be impeded the growth of market-based forestry undertaken by farmers individually or on a communal development. Inefficient parastatal forestry enterprises basis to improve livestock management, replant forests will be privatized or dismantled. Restrictions on the and curb soil erosion on hill slopes and catchment Internal trade and transport of forest products will be areas. Apart from teaching farmers to conserve forest eliminated. The policy changes will be adopted as and soil resources, the objective would be to increase conditions for the World Bank's support of the GON's production of livestock and tree products without Structural Adjustment Program, and for a multi-donor compromising on food crop production. The success project to assist with the implementation of the Forestry of these approaches allowed USAID/Nepal to make a Masterplan. credible argument in favor of sustaining future forestry development by providing incentives (i.e., economic Under the multi-donor project, USAID/Nepal will returns for their labor in the form of use of the forests provide technical assistance through the Forestry and a share of forest products) to draw the support of Development Project to strengthen the capacity of the farmers' groups and private enterprises. Ministry of Forest and Soil Conservation in three areas: * staff training for forestry policy Implementation and The RAPTI and RCUP also caution against the planning activities temptation to start an NRM program with *big fixes" i.e., * formulate legislation for the transfer of forest la- ge-scale efforts to develop or Introduce technically management authority to panchayats, farmer sophisticated interventions. Both projects groups and private firms demonstrated that implementation of large-scale * develop a program to encourage local production projects Involving technologies that far exceed host of fuel-efficient stoves. country capabilities can quickly turn into a management nightmare. More important, both projects Conclusion demonstrated that technically sophisticated solutions are not always required. With the benefit of USAID/Nepal's experience In identifying and USAID/Nepal's experience, other missions could addressing NRM issues offers several insights pertinent consider starting NRM activities that are based on to other AID missions in planning strategies to smaller-scale strategies than those originally adopted incorporate natural resource management in their by the RAPTI and RCUP. For example, initial support development portfolios. could concentrate on projects to fund farm-level or community-level conservation activities that could be The most important lesson concerns generating undertaken with minimum technical assistance and government support for policy changes and related subsequently managed on a self-sustaining basis. Institution-building activities to facilitate nationwide Research, policy and institution-building issues arising Implementation of NRM activities. In Nepal, the central from project-level experience could be separately dealt issue has been to draw government attentiun to with In subsequent projects. - 103 - ANNEX 4 Page 7 of 9 Finally, problems with the implementation of the direction by agreeing to Introduce legislation and GON's decentralized forest management program economic incentives to encourage the formation of clearly Indicate that the process of planning natural farmers' groups that will be responsible for forest resource management activities should not stop at the restoration and maintenance. Although pilot activities level of local government authorities. The key lesson so far have yielded promising results, the effectiveness is that affected communities should be actively of this measure in drawing genuine community support involved in the planning of reforestation activities as for reforestation will not be known for sometime. well as the subsequent maintenance of restored Nevertheless, the GON has set an example that could forests. The GON is taking an important step in this be followed elsewhere. 11 Remaining forest lands (inaccessible forests, wildiands, habitats of endangered wildlife, tourist sites and tracts of government forests set aside for fuelwood plantations) will be retained as protected forest reserves - 105 - ANNEX 4 Page 8 of 9 REFERENCES Agency for International Development, Washington, D. C., Congressional Presentation, Fiscal Year 1989. Agency for International Development, Washington, D.C., 1988. Nepal Action Plan, FY 1987-90. Development Assistance Program - Nepal, FY 1975. Department of State, June 1974. Nepal Country Development Strategy Statement, Nepal - FY 81, January 1979, USAID/Kathmandu. Country Development Strategy Statement, Nepal - FY 82, January 1980, USAID/Kathmandu. Country Development Strategy Statement, Nepal - FY 83, January 1981, USAID/Kathmandu. Country Development Strategy Statement, Nepal - FY 84, January 1982, USAID/Kathmandu. Development Strategy Statement, Nepal - FY 85, January 1983, USAID/Kathmandu. Ministry of Forests and Soil Conservation, His Majesty's Government of Nepal, 1988. Masterplan for the Forestry Sector - Nepal. Prepared by Masterplan for the Forestry Sector Project, Government of Nepal, Asian Development Bank and FINNIDA (Finnish Aid Agency). Regional Inspector-general for Audit, Karachi. 1983. Audit Report of the ResourceConservationand Utilization Project In Nepal. Regional Inspector-General for Investigations and Inspections, Singapore. 1986. Audit of the USAID/Nepal's Rapti Zone Rural Area Development Project. Shen S.Y. et al. 1986 Visit of the U.S. Team on Muiti-Purpose Poplar to Nepal (sic). Argonne National Laboratory, Argonne, Illinois 60439. USAID/Kathmandl Project History and Analysis Report - Forest Inventory and Management F '. Report submitted to Department of State, April 13 1965. USAID/Kathmandu. Project History and Analysis Report - Forest Products Development. Report submitted to Department of State June 15, 1965. USAID/Kathmandu. 1976. Project Paper - Integrated Cereals. USAID/Kathmandu 1979. Mid-term Evaluation Report - The Integrated Cereals Project. USAID/Kathmandu. 1980. Rapti Zone Rural Area Development - Project Paper. USAID/Kathmandu. 1977. Resource Conservation and Utilization - Project Paper. USAID/Kathmandu. 1981. Integrated Cereals Project - Project Paper Amendment. - 106 - ANNEX 4 Page 9 of 9 USAID/Kathmandu. 1981. PVO Co-Financing - Project Paper. USAID/Kathmandu. 1983. Rapti Zone Rural Area Development Project, Mid-Term Evaluation Report. USAID/Kathmandu. 1983. Special Evaluation of the Resources Conservation and Utilization Project. USAID/Kathmandu. 1984. Agricultural Research and Production - Project Paper. USAID/Kathmandu. 1985. Mid-Term Evaluation of the Resources Conservation and Utilization Project. USAID/Kathmandu. 1985. Rapti Zone Rural Area Development - Final Evaluation Report. USAID/Kathmandu. 1985. Irrigation Managememt - Project Paper. USAID/Kathmandu. 1987. Project Agreement - Nepal Coppice Reforestation. USAID/<athmandu. 1987. Forestry Development - Project identification Paper. USAID/Kathmandu. 1987. Rapti Development Project (Rapti ii) - Project Paper. USAID/Kathmandu. 1988. Agricultural Research and Production Project - Mid-Term Evaluation. USAID/Kathmandu. 1988. Resource Conservation and Utilization Project - Final Evaluation Report. USAID/Kathrnandu. 1989. Project Assistance Completion Report for the Rapti Rural Area Development Project. - 107 - ANNEX 5 Page 1 of 7 ASIAN DEVELOPMENT BANK A CASE STUDY OF BANK OPERATIONS WITH RELEVANCE TO RENEWABLE RESOURCE MANAGEMENT IN NEPAL Background and Objectives but not priority concerns. The reports echoed the prevailing view of government and donors that the The objective of this case study is to establish the main constraints to agricultural development were the nature and extent of resource management Issues in scarcity of fiscal, technical and administrative Nepal which have been identified by the Bank; assess resources, and the difficulties of transportation and the degree to which the lending program and policy communication. dialogue have addressed these issues; and evaluate the extent to which analytical work, project design and it was not until the third economic mission in 1975 Implementation have over time been Influenced by the that resource management concerns were specifically dialogue. The Study represents a special effort to included in the Bank's diagnosis of Nepal's economic collaborate with the Operations Evaluation Department situation. The heavy population pressure in the Hills of the World Bank in an analysis of the factors which was viewed as the cause of high intensities of determine how natural resources are used In cultivation, the expansion of cropping Into fragile, development. One part of this analysis Involves an marginal lands, and overgrazing of open access areas. examination of how the World Bank, the ADB and in the Teral, the area under forests was reported as similar donors have handled renewable resource shrinking by three percent annually, and leading to management issues in their operations since 1965. Increased erosion and flooding. The report, however, did not Include any policy or prolect recommendations Introduction to address these issues. In terms of development strategy, emphasis was given to transport, hydropower The Bank's first economic mission to Nepal was in development and manpower improvement, panilcularly November 1969. Since that time through 1989, the with regard to public administration. Bank sent ten economic or sector missions. Between 1970 and March 1989, the Bank provided 34 agriculture The three succeeding economic reports (issued and forestry loans with a total value of US$428.7 between May 1977 and June 1981) began to give million. These loans, which include irrigation andrural resource degradation and management Issues much development projects, account for 60 percent of the more prominence. The May 1977 report estimated Bank's loan portfolio in Nepal. As of 31 December that, in the previous decade, about 40 percent of the 1988, 13 agriculture and forestry projects were Teral forests had been cut down with adverse impacts completed, of which 8 have been post-evaluated. on grain yields and soil fertility. The deforestation and the increased use of dung for fuel were described as Issues Raised in Economic Reports factors behind the depletion of soil nutrients, especially in remote Hill areas. The report also lamented related The earliest economic reports of the Bank (In problems in the irrigation subsector-rapid siltation and December 1969 and March 1970) found litle to be complex administrative requirements of large projects. concerned about regarding degradation of resources In economic reports Issued in January 1979 and June or intensification of resource use. The first report 1981, the Bank continued to call attention to resource limited its discussion of renewable resources to a brief degradation problems, and noted that government description of the development potential of Nepal's efforts were insufficient to cope with the magnitude of rivers, agricultural land and forests. The second the problem. Administrative weaknesses were again economic report noted the outmigration from Hill areas, cited, including the fact that actual performance In key the Increasing Incidence of Illegal settlements In forest areas, fertilizer consumption and Irrigated area areas and the difficulties of coordinating government generated, remained well below government targets. agencies In charge of forestry, land survey, revenue and resettlement, but these were not treated as issues The Nepal Agricultural Sector Strategy Study of major importance. Operation and maintenance of issued in December 1982 recognized the gravity of Irrigation schemes were viewed as emerging problems, Nepal's environmental and resource management - 108 - ANNEX 5 Page 2 of 7 problems, and gave highest priority to reversing the forests to cropland had accelerated as a result of alarming trends in land use, agricultural productivity government energy pricing policies and the and degradation of forest resources. The following centralization of forest management. It estimated that paragraphs taken from the study describe in forest losses were occurring at the rate of 100,000 ha compelling terms the links between rising population per year compared with government reforestation pressure and resource degradation, stagnant targets of 175,000 ha for the entire current five-year agricultural productivity and the Increasing frequency of plan period (1985/86-1989/90). flooding In the lowlands: These reports made similar urgent calls for A rapid expansion In human population has remedial action, but, at the same time, noted that weak resulted in the utilization of marginal land for Institutional capacities constituted a formidable cultivation, including areas of low fertility, poor soil constraint, and that a comprehensive solution would type, unfavorable slope or too high altitude. entail reforms In the regulatory framework for resource Forest areas have been encroached upon, and exploitation, In the incentives enjoyed by private users trees have been overcut to meet the demand for of the resource, In land tenure arrangements, In additional fuelwood which Is the main source of subsidies and prices, and In the delivery of vital energy in the Hills for both cooking and heating. agricultural support services. In the following section, Brushwood has been exploited for more fodder to the Bank's recommendations for policy revisions as feed a growing livestock herd and further stripped well as for project action are discussed. for fuetwood. Pastures have been overgrazed. All these practices have taken vegetation off the Policy Recommendations of the Bank fragile slopes, accelerating the process of soil erosion. The water retaining capacity of the The Bank provided increasingly specific policy natural vegetation has thus been reduced, and recommendations as it became more aware of the run-off has Increased In both volume and velocity. severity of the crisis and better informed of the it Is estimated that Nepal Is losing 1.7 mm of soil underlying causes. In the early 1970s, policy from its surface every year. Sediments carried by recommendations were expressed in very general rivers and streams from the Hills are causing river terms. Reports called for more attention to operation beds In the Teral to rise by 15 to 30 cm annually. and maintenance of irrigation facilities, greater effort at This has led to more frequent flooding and afforestation, and upgrading of technical and meandering of rivers resulting In substantial managerial resources. However, such advice was not damage to dwellings and farmlands in the Teral. discussed in more operational terms, and therefore easily went unheeded. By the mid-1970s, the Bank's Widespread erosion not only negatively affects recommendations took on more specificity, but were crop production on a macro level but also affects still limited in scope. The 1977 economic report called the entire ecosystem in the Hills since severe, for establishment of communal forest plantations prolonged erosion leads to landslides and around centers of population, stocked with fast complete loss of arable land. Thus, in order to growing species. it also noted that large Irrigation maintain or increase total crop production, even systems often suffered from problems with siltation and more unstable land is brought Into cultivation, and complex administrative requirements. The Report the struggle for survival goes on, becoming more suggested that, instead of large irrigation projects, and more unfavorable to man as it progresses. funding priority be given to smaller, short gestation projects in view of the shortage of technical, financial The analyses of the manifold factors behind the and administrative capacities in Nepal. A study to crisis were reiterated In the economic reports that decide on abandonment or rehabilitation of followed. Warnings were voiced in increasingly uneconomic Irrigation systems was also desperate tones. The July 1984 economic report recommended. In the 1979 report, the Bank urged the stated that, If trends continue, all forests In Nepal would government to make a stronger effort for forest be depleted well before the end of the century. The conservation and reforestation In order to reduce soil March 1987 economic report announced that Nepal erosion, and Included suggestions for local community had reached the limits of arable land, meaning that any participation in order to "help the people help further expansion of cultivated area would only magnify themselves.M the severity of soil erosion, downstream sedimentation and ecological damage. The 1988 Orerational Strategy The 1981 economic report was the first attempt at of the Bank for Nepal argued that the conversion of a more comprehensive discussion of the crisis of - 109 - ANNEX 5 Page 3 of 7 renewable resources in Nepal. The report echoed the be provided for Irrigation development especially past calls for reforestation and protection, but also shallow tubewells, for strengthening delivery of key supported 1specific agricultural and livestock programs inputs such as credit and fertilizer, for reforestation, and for the Hills, cottage Industries to provide for institutional strengthening. non-agricultural sources of income and employment, mini-hydropower projectsto provide powerfor Irrigation The recommendations of the 1982 study on the and rural industries, and biogas to meet the fuel needs issue of renewable resource management were of the people.' Increased use of fertilizer was also repeatedly endorsed In subsequent economic reports. advocated as a measure to arrest declining soil fertility. Some of these reports proposed additional measures The report therefore laid part of the groundwork for the or amplified the earlier recommendations. The July emphasis on sound resource management found In 1984 report, for example, proposed measures to the 1982 Agriculture Sector Study. prumote fuelwood conservation by the household sector such as the introduction of improved stoves and The Bank's Operational Program for 1982-84 the substitution of fuelwood by biogas. The March (prepared in 1981) gave highest priority to two sectors, 1987 economic report emphasized reliance on private agriculture and power. The Report cited the need for sector initiatives through adjustment of energy pricing, Increased agricultural productivity and for prevention of reforms of management and incentives to permit local further deterioration of ecological balances. Program communities to directly gain from improved (in addition to project) lending was recommended for conservation. The 1988 Operational Strategy for Nepal priority activities such as reforestation, minor Irrigation proposed continued Bank support for government and crop Intensification (fertilizer supply). In the forest plantations, but endorsed shifts in management following year, the Bank's Operational Program control of certain forest areas to local government units (1983-85) was modified to de-emphasize energy and organized user groups. Similar recommendations Investments and Instead accord priority to forestry, were made for the irrigation sector, where active together with food production. beneficiary involvement in system management was felt to be essential for effective and sustainable operation The 1982 Agriculture Sector Study formulated a and maintenance. The rationale for greater reliance on broad strategy for achieving agricultural growth and the private sector was that government resources alone reversing the trend of environmental deterioration. The would be unable to meet the demands for Irrigation key components of the strategy Included: expansion or even forest conservation, and that any * establishment of land use and environmental meaningful solution to Nepal's environmental crisis planning and monitoring; would need to rely on contributions from local community involvement in local resource communities. management; * public education programs on environmental In addition to economic and sector reports, the objectives and goals; Bank's views on resource management issues and greater emphasis on irrigation development; policies were also reflected in post-evaluation reports. * massive afforestation and reforestation, especially By the end of March 1989, eight projects or programs marginal unproductive lands under cultivation; in the agriculture sector had been post-evaluated. Increased effort to control encroachment of forest They consisted of four credit projects, one crop lands; intensification (fertilizer supply) program, one * full support for population planning; large-scale Irrigation project, one forestry project and * land tenure reform; one jute development project. In addition, a special * pricing and trade reforms; and study of Bank operations In the agricultural credit * programs to strengthen institutional capacities of subsector was prepared In 1988. All but two of the planning and implementing agencies. projects were rated as generally successful, implying that Bank assistance in the agriculture sector, as The 1982 Study laid the rationale for assigning represented by the eight projects, was considered to highest priority o agriculture in the Bank's assistance be largely appropriate and beneficial. In terms of program. In the Bank's various Operational Program lessons for renewable resource management, one documents, the lending strategy from 1983 to 1987 post-evaluation report, the 1987 post-evaluation of the was clearly focused on agriculture, with objectives of Sagarnath Forestry Development Project, increasing food production, enhancing agricultural recommended that future forestry projects adopt a productivity and diversifying agricultural products. The mixed plantation/community forestry approach for the Operational Program specified that assistance would Teral, with strong emphasis on beneficiary group - 110 - ANNEX 5 Page 4 of 7 Involvement and participation. The 1988 special study budget resources and active involvement of organized of Bank support for agricultural credit In Nepal likewise user groups. In the mid-1980's, there was growing noted that an effective group formation process would awareness of the tradition of farmer-managed irrigation be essential to any development Intervention based on in Nepal; field surveys, Including one covering the group management of a resource or technology. The command area of the Bank-financed East Rapti Study observed that when group organization was left Irrigation Project, revealed that local groups operating to the farmers' own Initiatives, external assistance their own schemes accounted for a very large efforts were bound to encounter difficulties. The 1988 proportion of the Irrigated area in Nepal. Recent evaluation report for the Kankal irrigation project noted estimates are that farmer-managed schemes cover high operational costs and maintenance requirements over 60 percent of total Irrigated area In Nepal. This related to rapid siltation, a problem common to most of understanding led the Bank to finance an Irrigation the large gravity systems In Nepal. The Report called sector project In 1988 to expand and Improve Irrigation for Improvements in system management, which would schemes under farmer management. This focus on require sustained and adequate O&M funding, and for farmer schemes would enable government to focus appropriate design of river structures to cope with the scarce management and technical resources on Instability and high sediment load of Nepal's rivers. activities beyond the capacity of farmer groups, and would, over time, help to reduce the dependence on Project Design and Implemeration government subsidies for Irrigation 0&M. From 1970 to March 1989, the Bank provided a The Bank financed two of the ten Integrated rural total of 34 loans for agricultural and forestry projects In development projects (IRDP) Implemented in Nepal. Nepal with a total investment of US$428.7 million. The first, the Sagarmatha IRDP, was approved In 1978; Over the years, there has been a significant shift in the second, the Setl Zone IRDP, was approved In 1985. Bank lending In favor of agriculture projects. During Both projects encountered difficulties common to the the first decade of operations (1969-78), agriculture other IRDP in Nepal-complex multi- component projects accounted for 37 percent of total Bank landing designs, substantial coordination requirements in areas to Nepal. From 1979-88, agriculture's share Increased where transport and communication were poorly to 67 percent. Bank lending assistance for agriculture developed, and weak project management resulting In covered 7 subsectors: Irrigation (11 loans), rural serious Implementation delays. This experience led the development (2 loans), agricultural Inputs and support Bank to conclude (in the 1988 Operational Strategy for services (9 loans), fisheries (2 loans), livestock (2 Nepal) that future Bank-financed IRDP projects, if any, loans), industrial and fruit crops (5 loans), and forestry should be simpler in design, fewer In components, and (3 loans). Forty-four Bank-financed technical focused on production activities and institutional assistance operations In these agriculture-related development rather than on building Infrastructure. subsectors, with a total value of US$8.6 million, were initiated over the period from 1968-March 1989. Since 1970, the Bank has financed five agricultural credit projects with loans totalling US$50.4 million; it The Bank's irrigation projects In the 1970's were has also provided nine Bank-financed or for large surface Irrigation systems In the Teral where Bank-administered Institution building tec::. grants most of the potential for Irrigation remained. These representing US$2.6 million for the Agricultural projects, however, were beset by delays and cost Development Bank of Nepal, the country's premier Increases caused largely by inadequate design and agricultural financing institution. The objectives of the poor project management Weak motivation and poor projects were to Increase agricultural production, technical skills of government staff proved to be improve small farmer incomes and facilitate the transfer serious constraints in projects managed by the of modem technology to the agricultural sector. The irrigation department. As a result, In the early 1980's, loans financed a broad range of Investments-tractors, Bank assistance shifted to smaller Irrigation projects in tillers, warehouses, cold storage facilities, shallow well the Hills and to improvement of an existing large irrigation, livestock, water turbines, blogas plants and scheme In the Teral through command area fertilizers. The biogas plants and turbines which help development. The rationale was that such projects to reduce reliance on scarce forest resources were would have a shorter gestation period and would not introduced with the Fourth Agricultural Credit Project require complex project administration arrangements. (approved In December 1980), after the need for A key lesson from these projects was that adequate alternative sources of energy and soil nutrients became and sustainable O&M was critical to project success, more evident. A principal component of the credit and this entailed clear O&M procedures, sufficient projects was shallow well irrigation which permitted - 111 - ANNEX 5 Page 5 of 7 thousands of small farmers to take advantage of the necessitated project reformulation four years after loan considerable groundwater potential in the Teral. In approval. By the time the loan closed in 1986, the order to make tubewell Irrigation accessible even to planted area exceeded the reformulated target, but was farmers with very limited holdings, the Agricultural only a third of that originally planned. The second Development Bank of Nepal recently made credit project, approved in 1983, aimed at Hill afforestatlon available also for group purchase and ownership of and forest protection; it was beset by start-up problems tubewells. and in 1987 had achieved only 15% of targeis. The third project was designed as an extension of the first Since 1981, three loans have been provided for project. The Bank has thus far been cautious about Importation of fertilizers. These loans have also been supporting more innovative programs such as those supplemented by technical assistance grants to Involving community forest development or private strengthen management at the Agriculture Inputs leasing of forests. One of the most significant Corporation, the agency responsible for procurement contributions in the sector was the Bank's 1985 and marketing of agricultural inputs at the wholesale technical assistance grant, co-financed with the level. Potential benefits from the first two projects were Government of Finland, for the preparation of a master somewhat affected by rigid pricing policies and a plan for forestry development. The master plan is limited distribution network. These constraints are expected to proeide an agenda for policy and being addressed under the Agriculture Program Loan institutional development to complement Investment approved in 1988. The Hill Agricultural Development programs in the sector. Project, approved in 1984, was focused on improving food production In four Hill districts in the Central in summary, out of the total Bank lending to the region. The loan financed Irrigation and transport agricultural sector, one-third has been for irrigation development, provision of agricultural and horticultural projects, another third has financed fertilizer imports support services, and credit for inputs. and agricultural credit progrAms, and the remainder is distributed between rural development, fisheries, The Bank has financed two aquaculture projects to livestock, forestry and cash crop development projects. develop marginal agricultural lands; the first was The distribution of lending among the agricultural approved in 1980, the other in 1986. Uvestock subsectors in the 1980s shifted from the pattern of the development projects In 1979 and 1985 financed a 1970s. The share of rural development projects national program to improve animal health and nutrition dropped from 20.7 percent in the 1970s to only 5.5 throughout Nepal, as well as production and marketing percent in this decade. Over the same period, the services in selected districts. The experience from the share of livestock projects likewise shrank from 18.2 livestock projects indicates that sector strategy should percent to 3.9 percent. The share of Irrigation projects aim to increase sources of feeds and fodder through did not change markedly. In contrast, agricultural judicious range management by local user groups, and Inputs and support services achieved the largest to provide incentives for reducing the stock of increase, capturing 36.3 percent of Bank agriculture unproductive animals. sector lending in the 1980s, compared with only 16.3 percent in the previous decade. This was achieved Bank support to cash crop development was mainly through the three successive loans for fertilizer limited to three projects- the first for jute, the second imports, beginning in 1981. for cotton and the third for fruit growing in the Hills. Each of the projects financed crop-specific research The Bank's Role and extension, support services, improvements in marketing, and some processing. The Hill Fruit it was not until the mid-1970s that resource Project, approved in 1987, was designed to raise management issues were recognized in the Bank's incomes in Hill districts through environmentally sound economic reports, and policy recommendations were activitles. offered to the government. At that time, however, these recommendations were expressed only in very Three forestry projects were financed by the Bank general terms which did not permit easy since 1977, with the most recent approval in 1985. operationalization. This was due, in part, to the lack of Bank support in the sector was mainly for comprehensive information on the nature of the plantation development administered by the problem, to the fact that Bank economic missions did Department of Forests. The first project, the Sagarnath not include specific expertise to analyze resource Forest Development Project, suffered from management Issues, and to inexperience in dealing implementatIon delays and design shortcomings which with resource management problems In countries like - 112 - ANNEX 5 Page 6 of 7 Nepal where options were limited by Institutional hectares compared with the estimated annual loss of weaknesses and Infrastructure deficiencies. 100,000 hectares of forests. The three Bank-assisted forestry projects, which have a total planting target of With the release of the 1982 Agriculture Sector about 20,000 hectares, therefore address only a small Strategy Study, a comprehensive analysis of the sector fraction of the needY situation, including resource management issues, became available to the government and to Nepal' s Two recent technical assistance grants from the donors. The Study was produced by a Bank are intended to alleviate part of the planning and multidisciplinary team of Bank staff and consultants Implementation constraints discussed above. One with expertise in 'ural institutions, agronomy, livestock, grant, which would fund a high-level consultative forestry, aquaculture, Irrigation, geohydrology and meeting and an Information dissemination program, economics. The Study generated many specific seeks to develop consensus among key institutions, recommendations, and enabled the Bank to raise its Including NGOs and donors, on a strategy for meeting sector policy dialogue with the government to a more natural resource management needs and on their meaningful level. The Bank urged the government to respective roles in implementing the strategy. The take a number of immediate steps, including several grant would also provide consultants services and follow-up studies. However, the Report did not include training to strengthen the capacities of different a long-range strategic plan for solving resource agencies. The other grant will finance a Nepal country degradation problems. study, one of seven country studies to help implement the key recommendations of the Brundtland In the early 1980s, guided by the 1982 study and commission, to formulate an implementation plan for by the experience from the first decade of project moving toward sustainable development through implementation, Bank lending began to follow a appropriate economic policies. different pattern from that of the 1970s. Lines of lending were established in three key Beginning In 1985, the Bank adopted a more subsectors--forestry, small-scale hill Irrigation and promising pattern of assistance with a grant for the fertilizer; the line of lending for agricultural credit preparation of a master plan for forestry development. Initiated during the 1970s was also continued. The forestry master plan was the first effort at Assistance for large-scale Teral irrigation projects was formulating a comprehensive sector strategy, curtailed until 1987, influenced in part by design consisting of specific Investment programs, a problems and Implementation delays in the two consistent policy framework and development of on-going Teral projects. In the mid-1980s, follow-on supporting institutions and capacities. The master projects were approved for aquaculture and livestock plan provided the government with a basis for development, In order to expand the impact of earlier coordinating the future contributions of its many assistance and to continue Institutional development donors including the ADB, and for implementing a efforts. coherent package of policy and institutional reforms, both of which had been difficult to achieve in Nepal. Until the latter part of the 1980s, however, Bank This approach, which shifts perspective from the assistance did not address in operational or tactical limited project-focus to a broader and longer-term terms how resource management could be improved sectoral orientation, is now also being applied in the on a meaningful scale (I. e., on a scale that could Irrigation subsector. Similarly, in 1989, the Bank significantly slow down or reverse resource agreed to serve as executing agency for a degradation trends). Economic and sector studies UNDP-financed fertilizer sector strategy study, as well produced by the Bank and other extemal assistance as to provide a technical assistance grant for a agencies succeeded in describing the magnitude of the comprehensive study of the national agricultural crisis, but did not attempt to formulate comprehensive, research system. These efforts at sector-wide review, strategic measures to deal with the problem. As such, master planning and strategy formulation are expected the assistance of the Bank and other donors in the to lead to recommendations that are operationally area of renewable resource management was limited in relevant, to investment programs that are in proportion scale and impact. This is evident, for example, in the to need, to early agreement with government on forestry sector where the total government planting essential policies, and to donor contributions that are effort in the past 25 years is estimated at about 60,000 consistent and complementary. 1' The first forestry project, completed in 1986, reported 4,150 hectares planted; the two ongoing Bank-financed forestry projects together have a total planting target of about 15,600 hectares. - 113 - ANNEX5 Page 7 of 7 NEPAL ADB Loans in the Agriculture and Forestry Sectos March 1989 (US$ Million) Year of Sector Poe NAmount IRRIGATION 1 Kankal Irrigation 1971 4.50 2 Chitwan Valley Development 1972 8.00 3 Kankai Irrigation (Supplementary and Ext.) 1977 3.40 4 Chitwan Valley Development (Supplementary) 1977 5.00 5 HIll Irrigation 1980 11.70 6 Command Area Development 1981 13.50 7 Second Hill Irrigation 1982 20.00 8 Kankal Diversion Structure 1983 3.50 9 ChItwan Valley Development (2nd Supplem.) 1984 5.20 10 East Rapti Irrigation 1987 30.40 11 Irrigation Sector 1988 36.30 Subtotal 141.50 RURAL 1 Integrated Rural Development 1978 14.00 DEVELOPMENT 2 Setl Zone Rural Development 1985 20.00 Subtotal 34.00 AGRICULTURAL 1 Agricultural Credit wi 1970 2.40 INPUTS AND 2 Second Agricultural Credit 1974 3.00 SUPPORT 3 Third Agricultural Credit 1977 6.00 SERVICES 4 Fourth Agricultural Credit 1980 15.00 5 Crop Intensification Program 1981 4.00 6 Second Crop Intensification Program 1983 15.00 7 HIll Agriculture Development 1984 17.80 8 Fifth Agricultural Credit 1987 24.00 9 Agriculture Program Loan 1988 55.00 Subtotal 142.20 FISHERIES 1 Aquaculture Development 1980 11.80 2 Second Aquaculture Development 1986 11.00 Subtotal 22.80 LIVESTOCK 1 ivestock Development 1979 12.28 2 Second Livestock Development 1985 14.00 Subtotal 26.28 INDUSTRIAL 1 Jute Development 1970 2.00 AND FRUIT 2 Jute Development 1970 2.00 CROPS 3 Jute Development (Supplementary) 1975 0.53 4 Cotton Development 1985 14.00 5 Hill Fruit Development 1987 11.79 Subtotal 30.32 FORESTRY 1 Sagamath Forestry Development 1977 4.90 2 Hill Forest Development 1983 16.70 3 Third Forestry Development 1985 10.00 Subtotal 31.61 SECTOR TOTAL 428.70 - 115 - REFERENCES Adhikary, S. 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