Nepal - Fiscal restructuring and public resource management in the nineties (Vol. 1 of 2) : Executive summary, economic liberalization, and fiscal restructuring

Report No. 12281-NEP Nepal Fiscal Restructuring and Public Resource Management in the Nir.eties (In Two Volumes) Volume I Executive Summary, and Economic Liberalization and Fiscal Restructuring March 17, 1994 South Asia Country Department I Country Operations, Industry and Finance Division FOR OFFICIAL USE ONLY H cpr tUL. .i.:''C i 2::-' 1 3c'}RU: EA1- I I Document of the World Bank 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  CORmICM 3OUXVAL33TS Starting in November 30, 1985, the Nepali Rupee began floating with respect to a basket of currencies in which the Indian Rupee has high weight. A two-tier exchange rate with partial convertibility was introd,.-ed in early 19592. In February 1993, a unified market determined exchange rate system was adopted and de facto convertibility of all current account transactions was achieved in July 1993. The exchange rate in February 1994 was: US$1 = Rs.49.0 FISCAL YE3R (VY) July 16 - July 15 For example, FY90 covers: July 16, 1989 to July 15, 1990  FOR OFFICIAL USE ONLY TITLE : NEPAL: FISCAL RESTRUCTURING AND PUBLIC RESOURCE MANAGEMENT IN THE NINETIES COUNTRlY NEPAL REGION SOUTH ASIA SECTOR : COUNTRY ECONOMIC REPORT : TYPE CLASSIFICATICN MM/YY LANGUAGE 12281-NEP CEM Restricted 03/94 English PUB DATE : March 17, 1994 ABSTRACT Faced with low economic growth and lack of progress in improving widespread poverty durinq the past decades, the Government of Nepal is cognizant of the need to address more effectively the pressing development challenges facing the country, particularly stagnant agriculture, population pressure. limited access to social services and shortages in electricity. The Government's approach to development stresses the promotion of private sector expansion; in addition, it seeks to revamp fiscal management so as to use public resources more effectively, emphasizing allocations for human resource development and family planning, rural infrastructure and agriculture to help generate rural income, and for electricity to overcome domestic power shortages and generate surpluses for exports. The Government was also faced with immediate challenges to improve a weak fiscal structure which undermined the use of public resources; restructure the administrative and regulatory machinery; and take initiatives to manage the macroeconomic situation and preserve external stability in the face of liberalization policies in neighboring countries as well as the various changes in the world economy. The report argues that the Government has made encouraging progress in its reform efforts, especially in liberalizing trade, industrial and exchange rate policies and in creating an environment more conducive to private sector development than in the past. However, the report points out that fiscal and public resource management have remained difficult, and that the situation would come under even more pressure, if the proposed expenditure plans of the Government were to be implemented without substantive progress in fiscal restructuring. The report stresses that recent fiscal reforms initiated by the Government in the FY94 budget to begin improving public resource management need to be intensified, particularly in the areas of (i) tax restructuring and revenue mobilization, (ii) expenditure pruning and prioritization, and (-ii) institutional reforms to improve the performance of development management institutions and enhance the effectiveness of public expenditure programs. This docment has a resticted distnbWon and may be used by recipients only in the perfomance of their Ioficial duties. Its contents may not othewise be disclosed without World Bank authonzation.  ABBRNVZATIONS _AD ACRONYMS ADB - Asian Development Bank ADB/N - Agricultural Development Bank of Nepal AGO - Auditor General's Office AIC - Agricultural Inputs Corpor-tion ARC - Administrative Reforra Comnission BAU - Business-As-Usual BOP - Balance of Payments BPE - Basic and Primary Education BPEP - Basic and Primary Education Project CBPASS - Commercial Bank Problem Analysis and Strategy Study CEM - Country Economic Memarandum CPR - Contraceptive Prevalence Rate CTEVT - Council for Technical Education and Vocational Training DANIDA - Danish International Development Agency DDC - Dairy Development Corporation DOI - Department of Irrigation DOR - Department of Roads DTOs - District Treasury Offices DNPWC - Department of National Parks and Wildlife Conservation DSCWM - Department of Soil Conservation and Watershed Management DWSS - Department of Water ,Supply and Sanitation EP - Eighth Plan BPI - Expanded Program for Immunization ESAF - Enhanced Structural Adjustment Facility FCGO - Financial Controller General's Office FGF - Fully Government Funded FP/MCH - Family Planning and Maternity and Child Health FY - Fiscal Year GDP - Gross Domestic Product HC - Health Centers HFP - Health and Family Planning HMG - His Majesty's Government HPs - Health Posts HPP - Health and Population Program HRD - Human Resource Development HS - Higher Secondary IDA - International Development Association IIMI - International Irrigation Management Institute ILC - Irrigation Line of Credit IMC - Irrigation Management Center ISP - Irrigation Sector Project  LRMP - Land Resources Mapping Project MCH - Maternity and Child Health MGA - Ministry of General Administration MOF - Ministry of Finance MOH - Ministry of Health MPE - Manufacturing Public Enterprises MRCU - Maintenance and Rehabilitation Coordination Unit NARC - Nepal Agricultural Research Council NEA - Nepal Electricity Authority NGO - Non-Governmental Organization NPC - National Planning Commission NWSC - Nepal Water and Sewerage Corporation OECD - Organization f-ur Economic Cooperation and Development OGL - Open General License O&M - Operations and Maintenance PBPM - Program Budgeting and Project Monitoring pH - Public Enterprise PEDP - Primary Education Development Project PEE - Primary Education Project PFP - Policy Framework Paper PHC - Public Health Center PME - Public Manufacturing Enterprises PPAD - Perspective Plan for Agricultural Development RNAC - Royal Nepal Airline Corporation ROR - Rate of Returns SAL - Structural Adjustment Facility SFYP - Seventh Five Year Plan SMD - System Management Division STW - Shallow Tubewells TA/D2 - Travel And Daily Allowance T&D - Transmiss 'n and Distribution T&T - Trade and Transit TVE - Technical and Vocational Education UNDP - United Nations Development Program UNICEF - United Nations Children's Education Fund UPE - Universal Primary Education VAT - Value-Added Tax  NXP-AL FISCAL RBSTRUCTURING AND PUBLIC RESOURCE MANAGEMENT IN TEE NINBTIBS VOL= U: EXECUTIVE SWMOARY, PROqSRhS REPORT AND RIVOI AGENDA CONTHEITS Rum Executive Summary . . . . . . . . . . . . . . . . . . . i-xvii Chapter 1 RECENT ECONOMIC PERFORMANCE AND PROGRESS IN POLICY REWORKS A. Introduction . . . . . . . . . . . . . . . . . . . . 1 B. Economic Growth Performance and Agricultural Policies 2 e Economic Growth Performance . . . . . . . . . . 2