Nepal - Country assistance strategy for the period 1999 - 2001

I 1Vd3N A~dl~llS dJU~lSISSV AJlUilOJ 79444 Acronyms ADB Asian Development Bank BPEP Basic and Primary Education Project CAS Country Assistance Strategy CBO Community Based Organization CRR Cash Reserve Ratio DANIDA Danish International Development Association DDC District Development Committee DFID Department for International Development ECG Environmental Coordination Group EDI Economic Development Institute ESW Economic and Sector Work GDP Gross Domestic Product GNP Gross National Product GTZ German Society for Technical Cooperation HNP Health, Nutrition and Population IDA International Development Association IFC International Finance Corporation LACI Loan Administration Change Initiative LIL Leaming and Innovation Loan MCH Maternal and Child Health Care MLD Ministry of Local Development NBL Nepal Bank Limited NEPAP Nepal Environment Policy and Action Plan NGO - Non Governmental Organization NIDC Nepal Industrial Development Corporation NORAD Norwegian Agency for Development Corporation NPC National Planning Commission NRB Nepal Rastra Bank NTC Nepal Telecommunications Corporation OED Operations Evaluation Department RBB Rastrya Banijya Bank PER Public Expenditure Review RNAC Royal Nepal Airlines Corporation SDC Swiss Development Cooperation UNDP United National Development Program VAT Value Added Tax VDC Village Development Committee WTO World Trade Organization WWF World Wildlife Fund FISCAL YEAR July 16 - July 15 CURRENCY EQUIVALENT US$1 =Nepali Rupees 67.93 (November 1998)  iooz-666 I • I 1'1d3N A~dl'EllS dJUElS!SSV AllUilOJ • The World Bank 1818 H. Street, N.W Washington, D.C. 20443, USA Telephone: 1202 4771234 Facsimile: 1 202 477 6391 www.worldbank.org Yak & Yeti Hotel Complex P.O. Box 798 Kathmandu, Nepal Telephone: ++9771226792/3 Facsimile: ++9771225112 www.worldbank.org.np Photographs: llicardo A. Castro Zita Lichtenberg World Bank Photo Library Vice President, South Asia Region Mieko Nishimizu Country Director, Nepal Hans M. Rothenbiihler Task Leader Peter Nicholas Contents I. COUNTRY CONTEXT A. Nepal's Political Economy 2 B. Economic Management 5 IL NEPAL'S UNREALIZED POTENTIAL 9 III. FOR.i"\1Ul...ATI:l\G AN ASSISTANCE STRATEGY 15 A. The Government's Development Strategy 16 B. CAS Consultations 16 C. Lessons from the Past 18 IV THE COUNTRY ASSISTANCE STRATEGY 21 A. Emphasis on Participation/Ownership and Donor Coordination 22 B. Governance 24 C. IDA Lending Levels 25 D. Implementing the Assistance Strategy 28 E.Risks 30 SECTOR ST&\TEGIES 31 Agriculture 32 Forestry and Land Management 33 Infrastructure 34 Power 35 Health and Population 36 Education 37 Financial Sector 38 Telecommunications 39  Summary L Economic development only began in the 1950s in beneficiaries, where they are most likely to be productively Nepal. Since then the Government has provided greatly used; and collective donor action to foster the stronger gov- increased access to primary education, a country-wide net- ernance needed to reduce waste and mismanagement. To work of health posts, a basic road network in the low-land these ends, we will support: (i) a greater reliance on local Terai and part of the hills, substantially expanded irrigation stakeholder and private sector participation in project prepa- and community forestry, and a basic electricity and telephone ration and implementation; and (li) closer cooperation network. Despite this, Nepal remains one of the world's among donors linking donor assistance to improved gov- poorest countries; in the rural areas, where 85 percent of ernance. At the same time we will continue to look for Nepalis live, population increase has outpaced agricultural major improvements in national economic and fiscal man- growth in recent years. agement, especially further privatization, a continued strengthening of the tax base, better allocation and man- u. More rapid progress in the fight against poverty has agement of public resources, and reform of the financial been hampered by ineffective and increasingly unstable gov- sector. ernments. There have been five governments since 1994, and two of the three major parties have split in the past 1v. The degree to which the government will be able to year. Corruption is perceived to be widespread, contribut- take such action will depend to a large extent on its political ing to misalJocation of government resources, delays in strength. Whether a stronger government will emerge will project implementation, difficulties in obtaining approval become apparent only after the next parliamentary elections, for private investments, and rapid turnover and perverse due within a year. Accordingly, we have developed three incentives for civil servants. And while macroeconomic scenarios for IDA involvement. (i) A low case of IDA management has generalJy been acceptable, the economy lending of $0-$150 million in FY99-01, in the event the has suffered from the lack of proper management of pub- recent efforts at turning around economic management and lic expenditures, stagnant real revenues, large and inefficient governance are not sustained, resulting in renewed budget- parastatals, and a weak financial sector. As a result Nepal ary slide, worsening of the security situation, and govern- has not been able to adequately exploit its assets -- fertile ment paralysis and inaction; (ii) a base case of IDA lending land in theTerai, access to generous donor aid, strong tour- of$200-$350 million, with the specific amounts within this ism appeal, and enormous, if partly seasonal, water re- range dependent on the degree to which reform moves be- sources and hydropower export potential. This dis- yond simple stabilization of economic management, e.g. couraging picture may be a factor in the recent emergence of increased revenues, productively prioritized and managed a low-intensity, but violent, Maoist insurgency. expenditures, and improved civil service effectiveness, in particular in delivering services in the field; and (iii) a high Ill. The CAS aims to help Nepal overcome these con- case of$400 million (or more, subject to an interim progress straints to development. lt was elaborated in a participa- review) in the event of major structural and governance re- tory process involving extensive consultations. Our strat- forms, including improved public resource management, egy has two new prongs: bringing resources closer to the civil service reform, privatization, and financial sector reform.  COUNTRY ASSISTANCE STRATEGY: NEPAL A. Nepal's Political 40-50% of the population still live below the poverty line. Economy The absolute number of poor people has been rising as the population has grown faster than the economy's capac- 1. r "ff s~ · :-:r I'\ \JODI .R'\ T)J'\'I • or"I ''\T ity to generate additional income. Over nine million are Until the 1950s, Nepal had virtually no modern social ser- now below the poverty line, most of them in rural areas. or significant economic vices, infrastructure, cash economy_ Many basic services are still underdeveloped, with for ex- linkages to the rest of the world. Since then, Nepal has ample only 6% of the population having access to sanita- made major strides, opening up the country and putting in tion (as against 30% in Bangladesh and India), and only place many of the basic elements of a modern Government 48% having access to safe water (as against 83% in and market economy, at least in the Kathmandu Valley. Bangladesh and 63% in India). Only in primary education And in the rest of the country, significant progress has enrollment for boys does Nepal outperform the South Asia been made in providing basic infrastructure and social ser- average. While notable progress is now being made in vices. With active support from a wide range of donors, improving provision of infrastructure and Government the Government has succeeded to: services through community-driven initiatives, there is little • Provide primary education for almost all boys and most 2 I girls, with now almost half of those over 6 years of age able to read; • Improve health conditions, for example halving the in- fant mortality rate; • Help increase effective irrigation coverage to 25% of cul- tivated land, raising yields on newly irrigated plots by four to five times, and more than doubling foodgrain production; • Secure access to piped water supply to 48% of house- holds, with an increasing number of rural water supply systems managed by user groups; • Increase the road network from 124 km in 1956 to 15,000 km (including rural roads) today, and the number of immediate prospect of the sustained and broad-based eco- households seryed by electricity from less than 1% in nomic growth necessary to significantly raise rural house- 1956 to 15% today; · hold incomes. The pressure of population growth on • Hand over 400,000 hectares of forest to user groups scarce and fragile land means that the benefits -of better comprising over 600,000 households, helping improve education or irrigation are often outweighed by more frag- sustainable access to fuelwood, fodder and timber, and mented land holdings and reduced availability of fodder, • Provide a basic telephone network, with 180,000 tele- biomass and firewood. And the social fabric of the coun- phone connections (mostly in Kathmanau, but cover- try is under serious strain, with social and political unrest, ing all 75 Districts). including political violence (notably a Maoist insurgency), oh the rise. In a vicious circle, the diminishing social con- 2. LPAL RI · 1 \l'\S 0'\.;I OJ' Tf'I POORI ' ST sensus makes it more difficult to find public acceptance for ( , , , ...,_TRlI ':>. Despite these achievements, an estimated necessary reform measures. BOX 1 Poverty In Nepal 1 • In 1995196 a detailed Living Standards Measurement Study was undertaken. It revealed that, even after decades of development effort, the number of poor people continues to grow, with about half the population still below the poverty line. But the study-along with two more qualitative 2 reports -else> provided insights Into why development efforts are not reaching the very poor (defined as the poorest quartile). • Much like the rest of the population, the very poor depend on agriculture for their livelihood. But their productivity is lower, because they farm land of poorer quality which is seldom irrigated, and have limited access to modem inputs and technology. The very·poor rarely H ever see extension or veterinary agents, and they have little access to credit at affordable rates-only 8% had loans outstanding with formal or semi-formal institutions, half the rate for other households. • The gender gap is still very large, although declining. The gap in literacy rates between men and women is 35% {with 54% of men literate as against 19% of women). Fortunately, there are signs that this gap is narrowing (with a gender gap of only 15% in the 10-14 age group), and that gains for poor girls are comparable to those for better-off girls. • Access to infrastructure Is limited for all Nepalis, but especially for the very poor. The rural poor live on average more than five hours away from the nearest dirt road, as compared to three hours for others. Only 3% of the very poor has access to electricity, as against a country-wide average of 15%. This reduces their productivity and employment opportunities. • The lack of transport infrastructure-rural roads in particular-constrains the potential for agricul- 3 ture, as It increases the cost of inputs and reduces the value of marketable output. Whether or not the road was a paved all-weather road made no significant dHference. • The very poor have much worse educational outcomes than others. Only 22% of the very poor are literate, as compared to 40".k for the others. A very poor child of primary school age has only 2/3 the probabillty of attending school as other children. A year of public schooling costs on average more than three months' per capita consumption for the very poor. Lack of parental education, the need to work, cost, and remoteness all reduce the probability that a child will be In school. Lack of education compounds the impact of lack of access to infrastructure in limiting employment opportunities for the very poor. • Additionally, the very poor seek health treatment less frequently when they are sick (only half, as against 70% for the rest of the population)--again, partly because of remoteness and partly because of cost-the average cost of treatment for an episode of illness Is equal to one-and-a-half month of per capita consumption for the very poor. In addition, limited access to safe water and sanitation adds to the health risks faced by the poor-only 40% of the very poor have access to (relatively) safe drinking water, as compared to 60% for others. Ill health further reduces the productivity of the very poor. • There are in practice no public safety nets for the poor. Remittances are Important, with one in five very poor hou~s receiving remittances, accounting for 27% of their Income, and so is seasonal migration, with again one in five households having a member who migrates. Its findings are analyzed in Nepal: Poverty at the Tum of the Twenty-First Century. By Action Aid & University of East Anglia and by Action Aid, Plan International Nepal, and New Era.  COUNTRY ASSISTANCE STRATEGY: NEPAL 3. r n \ y-1· r L\ ' , r \ r 1n1 ... ..-. - Another conse- grams and the institutional development necessary for du- quence of the severe pressures on Nepal's land is large-scale rable economic and social progress. migration. This migration takes two main forms: migra- tion from the hills to the Terai (both towns and rural areas); 5. '""' ·~ ·'' Corruption is a further major obstacle and migration to India (both permanent and temporary) to using Nepal's assets more productively. It is generally and to the Middle East, and the more developed East Asian perceived to be widespread, contributing to misallocation countries. Labor migration has two important benefits to of Government resources, severe delays in project imple- Nepal: it helps alleviate the pressures on land and the labor mentation, difficulties in obtaining approval for private in- market; and it brings workers' remittances to Nepal. To vestments, and rapid turnover and perverse incentives for date migration to Nepal's capital has not reached the scale seen in most other developing countries, but this partly reflects the gap between the skills needed for many jobs in Kathmandu and the low level of human capital in the rural areas. Indeed much of the migration to Nepal's towns is by Indian workers who have skills not availahle in Nepal. At the same time many children work, with an estimated 4 I one quarter of 5-14 year olds in some form of family or wage labor. 4. \f"TV\O') nr· ' ' ·s ' "" n ! , . ,. ] ,( ) Even under the best of circumstances, Nepal's development would present a formidable challenge given civil servants. Government salaries are very low, with senior the many constraints it faces, including its forbidding ter- civil servants' salaries of about US$1,000 a year, well below rain and tough climatic conditions, its landlocked position, executive pay in the private sector. Partly as a result, some ty of its society, which is barely emerging and the diversi_ politicians and civil servants feel the need to augment their from its feudal past. But there are other important factors. incomes through a range of corrupt practices. While most One is that implementation of development policies and corrupt officials may receive relatively small amounts from programs has been uneven, with good progress at some such abuses, a minority of people do, according to newspa- times in some sectors, but never the sort of sustained, per allegations, make considerable sums. Corruption is broad-based accomplishments needed to achieve a major reflected, it is claimed, in the large "fees" paid to obtain reduction in poverty. E ven where good policies or pro- certain Government jobs. At the same time fear of accu- grams have been adopted formally, they have often been sations of corruption makes many officials push decisions countermanded by politically motivated measures at cross- on procurement and other routine matters to the highest purposes with stated policies. And substantial volumes possible level, thereby delaying decision-making, often for o f foreign assistance, while contributing significantly to months . many of the development achievements referred to above, '\!'"'I ~-p~ #.~ ... 1.-r r'\.l'T\ '"T'[JL l\. L\\' ·_)T ]\ have created an environment o f generally weak Govern- 6. I ... CE"\.r m ent ownership. Traditio nal "top-down" development In 1990, multi-party democracy was established, assistance has also stifled beneficiary ownership of pro- and the new democratic Government gave increased mo-  WORLD BANK: COUNTRY ASSISTANCE STRATEGY I! !!!!!!!!I ... ·. - II mentum to the reform process, aiming at accelerating de- surgency. Even so, there is no guarantee of an end to the velopment, including deregulation and a closer link between political uncertainty and shifting coalitions caused by the development programs and public needs. The non-agri- political fragmentation. It thus remains to be seen if the cultural sector has grown at almost 7% a year for the last ten Government will be able to make durable progress in over- years, with industrial activity expanding to 19% of GDP. coming political inertia and politically motivated interfer- The financial sector was partially deregulated, and trade was ence in development plans. In any case, a new parliamen- liberalized, with exports of goods and services now consti- tary election is due within a year, and is currently expected tuting 22% of GDP. Growth accelerated, and for a while to be held in spring 1999; but whether that election will there was good progress in economic restructuring and produce a strong Government remains an open question. development. In the 1994 parliamentary election, no party won an overall majority. Since then, there have been a series of shifting coalitions, with no Government able to last BOX 2 more than a year and a half, and many much less. Political Growth and Poverty stability has been further compromised by deep splits within the major political groupings, with two of the three major Faster growth holds the key to poverty reduction parliamentary parties formally dividing earlier this year. This in NepJI. Projections undertaken in analyzing the Nepal Living Standards Measurement Study (see political instability has focused the attention of politicians Box 1) show a major difference for poverty reduc- on sh.o rt-term maneuvering and led to increasing tion between a growth rate of 4% for the next five years, and a growth rate half a percent higher. politicization of the administration. Development has The higher growth rates would, assuming a popu- suffered as key decisions have not been made on time or lation growth rate just below 2.5% and consump- not been adequately implemented, resulting in a fall in GDP tion growing in line with GDP, result In a reduction in the number of poor people of over half a mil- per capita in FY 1998 for the first time in a decade. lion. The lower growth rate would leave the num- ber of poor people unchanged. These projections 7. S0:\11' PRO,\flSil\iG RECE~T DEVELOP- assume constant ·inequality. If however, inequal- ity was to increase by one percentage point a year \JENTS. In April 1998 the fifth Government in less than in terms of the Glni coefficient, the number of poor four years was sworn in. The new Government started out people would be unchanged even under the higher on a promising note, with a major effort to improve rev- growth scenario. enue collection, notably by pushing through the introduc- tion of VAT in the face of very strong opposition. In addition, the Government is placing a new emphasis on reducing corruption, and there are so far fewer reports of high-level abuse. The Government is also making an in- B. Economic creased effort to control the Maoist insurgency that is threat- Management ening development efforts in a numb~r of Districts. In August the Government broadened its political base by 8. MACROECONOMIC ST\BILITY, BUT SLO\X including members from one of the former opposition GRO\VTH. Successive Governments have maintained parties. And in September it successfully held local elec- macroeconomic stability, but budgets have been consistently tions in a number of Districts where they had been post- unrealistic, and past allocations to politically-motivated poned because of the insecurity created by the Maoist in- projects have compromised adequate funding of priority  COUNTRY ASSISTAllCESTRATEGY: NEPAL programs. At the same time the pace of structural reform 10. \iF \1'. Pl' Bl IC '\Pf''\.l 'ffl RI \[\'\, \(,I 'vii Vr r in areas such as privatization and banking has faltered, and The management of both current and capital expenditures growth has fallen &om 5.5% in FY91 -94 and 4.4% in FY95- is weak, lowering the returns to private investment by sty- 96 to an estimated 4.0% in FY97 and 1.9% in FY98. mieing the growth of human capital and the provision of needed infrastructure. Public expenditure management suf- 9. RI SOl'RCL \IOB!l .l'.I \T!Ol\; Slow economic growth fers &om a lack of multi-year investment planning, although and a weak tax base have meant that debt-service has been successive budgets have promised this in recent years. As a rising faster than revenues, with debt-service now equal to result, there are now over one hundred more projects in the 25% of domestic revenues and subject to exchange rate development budget than at the time of the last CAS. With effects. Near-term prospects for a substantial reduction in more projects and fewer resources, budget availabilities per this burden are slim. Fiscal balance is being maintained by project have declined in real terms, with the capital budget program credits, but without real growth in revenues these suffering more than the recurrent (and within the recurrent budget wage and allowance expenditures rising at the ex- pense of operation and maintenance), forcing the RECENT FISCAL TRENDS (PERCENT OF GDP) 25 Government to resort to ad hoc funding cuts and delays in EXPENDITUR E 20 fund release. Such rationing has generally favored quick I- ~ 15 spenders rather than priority projects, and as a result, the 6 - I 0 IC ~ 10 social sectors and agriculture have had their allocations cut 5 disproportionately. 0 -. 1995 1996 1997 1998 1999 11. I'll'FFIClF'\J'I Pl 'Bl IC F'\J'ff.RPRISFS. Public enterprises, whose capital was equivalent to 25% of GDP, credits will themselves add to the debt-burden. Revenue are a major drag on growth and a drain on public resources, collection started to falter early last fiscal year, threatening consuming more than 7% of public revenues. To date Nepal's ability to finance vital services and investments, but sixteen public enterprises have been privatized and one recently collection rates have recovered and the revenue situ- closed. Further privatization or closure of key enterprises ation has improved. Nepal is trying to move away from a would help improve the economy's performance in several heavy dependence on import taxes to a more broad-based ways: breaking up public sector monopolies (such as tele- system relying more on domestic taxation of consump- communications) will open up new and profitable avenues tion, supplemented by low rates of customs duties and by for private investment and provide important signals to income tax at the central level, The new VAT is the corner- the private sector; removing price controls and subsidies stone of this effort. Implementation of the VAT has, will help eliminate remaining distortions in the economy, however, met concerted opposition, and the introduction and create a level playing field where the private sector can of VAT on retail sales for small businesses has been delayed. compete with public enterprises on equal terms. The pri- The VAT will also need to be complemented by efforts to vate sector in turn can bring in management skills and en- widen the tax base, rationalize other taxes (particularly in- trepreneurship, and help improve the quality and delivery come taxes and customs duties), simplify tax legislation of services. To create such an environment, the privatization and improve tax administration. program needs to be accelerated. To make the privatization process more meaningful, the Government will need to  WORLD BANK: COUNTRY ASSISTANCE STU"IEGY 1:1b h· I: /, c·i 1 ·(., i n 1 im ic l ndic:l!nrs /-'} ·r;-1 - f.'} ·1Jh' FY94 FY95 FY96 . FY97 FY98 GDP Growth (Real) 8.2 3.5 5.3 4.0 1.9 Consumer Prices/a 9.0 7.6 8.1 7.8 4.0 Gross Investment/GDP 22.4 23.4 22.9 21.4 20.5 National Saving/GDP 16.8 15.6 11.2 11.1 12.0 Government Revenue/GDP 9.8 11.2 11.3 10.8 11.1 Government Expenditure/GDP 16.9 17.8 18.7 18.1 19.4 of which Development Expenditure 10.6 9.0 10.0 9.5 10.1 Government Budget Balance/GDP -7.0 -6.6 -7.5 -7.2 -8.1 of which Domestic Borrowing 1.2 1.5 1.7 1.9 1.8 Exports/GDP 9.7 8.1 8.1 8.0 9.3 Imports/GDPlb 25.9 29.1 31.2 34.2 30.0 Current Account balance/GDP -5.6 -7.8 -11.7 -10.3 -8.5 Aid Disbursements (gross)/GDP 8.0 7.6 7.2 7.5 8.1 Foreign Exchange Reserves - ($ million) 866.0 868.0 816.0 849.0 969.0 -Months of lmports/c 8.0 6.7 5.9 5.2 6.9 Debt Service Ratio/d 6.5 7.3 7.7 5.6 5.5 Broad Money Growth 19.6 16.1 14.4 11.9 17.0 Domestic Credit Growth 17.0 24.8 22.7 13.0 13.2 I al Annual average. I I 7 b/ Includes imports of gold & silver - US$ 191.5 million in FY94, US$ 267.9 million in FY95. US$ 249.8 million in FY96, US$ 550.8 million in FY97, and US$ 258.8 million in FY98. cl In months of current year's imports of goods & services. di Ratio of principal & interest repayments to merchandise exports and services receipts. Source: Ministry of Finance, Nepal Rastra Bank and Central Bureau of Statistics focus on larger and potentially profitable enterprises, and problems, especially with the state of the two largest banks. not merely on loss-makers, and improve privatization pro- The central bank's regula10ry capacity is still weak and insuf- cedures. Moreover, change in ownership structure alone ficient to effectively regulate and supervise the banking in- (for example, through share issues) will help very little to stitutions, much less the larger number of financial and foster the management and entrepreneurial changes that leasing companies. And while the legal framework is gen- are needed to improve performance; and other alternatives erally adequate, operating incentives are seriously distorted to bring in capital, know-how and better management need by Government mandates reflecting concerns about access to be considered. For enterprises that will remain in the to credit in rural areas and the competitiveness of local public domain, increased autonomy, particularly in banks with foreign financial institutions. These mandates management, pricing, and employment decisions will be include requirements for priority sector lending, conditions essential. Such enterprises will need to be subjected to a on private banks opening new branches, and restrictions hard budget constraint. on entry of foreign banks into the market. Such weak- nesses could mask capital inadequacies and create systemic 12. \X'L \K I I""' \J\iCI \I, SECTOR. While a start was risks. In the Government-owned sector, liquidity problems made on liberalizing the financial sector during the last ten (resulting mostly from growing non-performing assets) years (recent NRB attempts to induce a reduction in interest have in the past affected the capacity of institutions to lend, rates are seen as a temporary measure), there remain serious in turn driving up real lending rates to borrowers and con-  COUNTRY ASSISTANCE STRATEGY: NEPAL straining the availability of credit to the private sector. While effective; administrative bottlenecks which are holding up majority ownership of the Nepal Bank Limited (one of foreign investment in the services sector need to be removed; the two public commercial banks) has been transferred to the Foreign Exchange Regulation Act will need to be the private sector, the bank's management is still controlled amended in order to reflect liberalization of the foreign by the Government. For the Rastriya Banijya Bank (RBB), exchange market; and a clear and transparent tax system which owns about 35% of banking system assets, restruc- needs to be developed. turing and divestiture has not so far been possible. A start in improving its viability has, however, been made by im- 14. IHU:XThR~ \I. hN\'IRC'N\11 1\JT Yl\:D \I \CRO proving loan recovery, with a concerted campaign to recover I { ( )T\f( )\fl(' PR< )SPI '.CT',. Economic growth is likely overdue payments. to rebound modestly to about 4% in FY99. A good monsoon and improved fertilizer availability will help a 13. I'ORLIGVTR \DJ· \"!\.D l'\:\'FST:\ffl\ T Nepal's recovery in agriculture to about 3%. Stronger domestic trade and foreign exchange regime is already quite liberal. demand, together with increased exports to India, a con- Nevertheless further improvements in trade and invest- tinuing pick-up in tourism and a somewhat expansionary ment policies can help stimulate exports, private sector ac- budget will in turn provide stimulus to non-agricultural tivity and economic growth. Nepal needs to improve its growth. The effect of the recession in East Asia on Nepal ~ competitiveness by ensuring duty"free imports for export- will be relatively small unless the global economy deterio- ers, technological upgrading, skill development, export and rates significantly. While tkinflow of tourists and remit- tourism promotion, as well as investments aimed at sup- tances from East Asia is likely to be affected, Nepal will plying the neighboring Indian market. Nepal also needs to benefit from cheaper imports. The virtual absence of non- work out appropriate administrative arrangements with concessional foreign borrowing, a closed capital account and India and undertake the necessary investments in transport an exchange rate pegged to the Indian rupee also provide improvements, in order to take advantage of recent bilat- some cushioning to Nepal against wide short-term exchange eral trade and transit agreements. Given its land-locked rate fluctuations. Nevertheless, with 70% of its imports loca:tion and small domestic market, Nepal is unlikely to coming from countries other than India, Nepal remains attract significant amounts of foreign investment in the vulnerable to fluctuations in the rupee exchange rate. In near future, except in areas where it has a comparative ad- the immediate future Nepal should benefit from the good vantage-power development, tourism, and possibly some growth prospects for India, particularly the expected re- services. To this end, the Government will need to clearly bound in agricultural production. This, together with a define its privatization policy (e.g. in telecommunications) favorable outlook for Nepal's agriculture itself and the usual and remove existing obstacles to foreign (and domestic) seasonal decline in prices, is likely to help bring the domes- investment. For example, the "one window" system for tic inflation rate back to single digit levels in the coming the approval of new industrial units needs to be made months.  COUNTRY ASSISTANCE STRATEGY: NEPAL 15. "'-1.I D FOR I• \STI .R (,ROW TH. There is little scope the highest in South Asia, are now the lowest. The in Nepal for improving the living standards of the poor green revolution has yet to have much impact, and per through redistribution. Agriculture is a key to poverty- capita production of staple foodgrains is actually declin- reducing growth in the near term, with power exports pro- ing. Many Nepalis in the hills still live more than a day's viding a longer-term prospect of substantially greater export walk from a road. Intensive cropping has reduced soil earnings and Government revenues. Fortunately there is nutrients, as inadequate Government fertilizer distribu- considerable potential for growth in both agriculture and tion and increased use of biomass for fuel and stall power. As discussed in paragraph 18 below, realizing that potential will require significant investments in human capi- tal, irrigation, forest management, and rural infrastructure (roads, power distribution, water supply, telecommunica- tions). But it will also require an economic environment conducive to private sector growth. 16. "'-I P \I 'S \')SJ ' TS. If overall economic.management and governance can be improved and population pressures 10 I eased, sustained income growth, especially also among the rural poor, is possible. Nepal does have a number of as- sets: agricultural land that could support much higher out- put, particularly in the Terai; people, especially women, ac- feeding has limited nutrient replacement. In Bangladesh customed to extremely hard work; access to quite generous nutrient use is three times higher. Irrigation is limited donor aid of some $20 per capita per year; a large and grow- by poor operation and maintenance of Government ing market in neighboring India that is now accessible on schemes and often low returns to private investments preferential terms; enormous, if seasonal, water resources because of highly fragmented land-holdings (even in giving it a massive hydropower export potential; and scen- the Terai less than a third of the land is effectively irri- ery and a cultural inheritance that make it a major tourist gated, of which only 20% is irrigated year-round). Com- destination. The challenge facing Nepal is to harness these mercial production of fruit and vegetables is hampered assets to sustain rapid and broadly-based growth, while by poor knowledge and lack of roads and telecommu- reducing the birth rate so that the growth is realized in nications in the hills. The problem is not lack of donor higher per capita income rather than an ever-increasing popu- assistance-over US$500 million has been committed lation density. for agricultural development since 1990. The problem is rather that the investment of many of these resources 17. 1'.I'Y CO'\J'i'I R\IVI'S TO GRO\VTH. Unfortu- has not been closely enough linked to stakeholder needs, nately the potential of the above assets has n-ot been real- and the policy framework has not been conducive to ized, for a number of reasons. high returns on investments. • Poor Productivity of Rural Labor. Labor pro- • Low Productivity of Agricultural Land. Agri - ductivity is low in the rural areas. Farming is still highly cultural output-in both volume and value terms-is labor-intensive, with very little mechanization and se- well below its potential. Paddy yields, which were once vere land fragmentation-householders may have to  WORLD BANK: COUNTRY ASSISTANCE STRATEGY construction and use of toilets). Over-exploitation of Government forests have made firewood and fodder extremely scarce in most areas. The time spent collecting water and firewood prevents women engaging in more productive activities, such as raising poultry or livestock. Once freed from these chores, rural women consistently say that skills training is one of their highest priorities (higher even than new or improved roads, which top many male villagers' list of priorities). • Low Returns on Public Investments. Overall returns on public investments have been disappointing. One reason is that Nepal has intrinsically high infrastructure investment costs because of its difficult terrain and late start in modern development. But adequate returns to public investment have also been hampered by slow and haphazard project implementa- tion, lack of consultation with beneficiaries on their I 11 needs, and little Government attention to-or com- munity participation in-operation and maintenance. walk hours just to visit highly dispersed but tiny land Nor is the situation improving. As mentioned in holdings. The pressure of a rapidJy growing popula- paragraphs 5-6 above, the unstable political situation tion severely exacerbates an already difficult situation, has detracted from the focus on development work, and without a much greater effort to reduce fertility other making strong decision-making difficult, and allegations progress may be nullified. The growing population un- of corruption surface regularly. At the same time, fortunately has few opportunities outside agriculture, Government officials are increasinglyi:ending to push with non-agricultural production still rudimentary, con- decision-making up to higher levels, where matters often tributing only 20% of rural household income. Adult languish for many weeks. Nonetheless, one bright spot literacy is very low: only 19% of women are literate, as is that the management of IDA projects has improved against 38% in India and 87% in Sri Lanka. This is a perceptibly due to increased attention on both sides. major obstacle to improving productivity, since women • Inadequate Government Services. Government do the majority of the productive work. Labor produc- services are, on paper, mostly adequate outside of the tivity is also hampered by the fact that outside of farm- social sectors. But actual outlays do not always corre- ing much time and effort-again mostly women's-is spond to the budget, with some projects suffering be- spent collecting domestic water and firewood from cause of last year's revenue shor.tfalls and diversion of sources often hours distant. Poorly-managed Govern- resources to unbudgeted expenditures. Even when ment water supply schemes mean that only 48% of the outlays are close to adequate, actual program delivery is population have sustained access to piped or other water hampered by low wages and morale among civil servants, supply system (although awareness of the benefits of insufficient incentives for Government employees to environmental sanitation is growing, with increased operate in the field, and corruption and political inter  COUNTRY ASSISTANCE STRATEGY: NEPAL &dU! ™™ • mr;;a:Q !!!! ference in the hiring of the whole range of public officials from central ministry staff right down to village school- teachers. Lack of knowledge among beneficiaries as to the services they are supposed to receive reduces public pressure on public officials. In the social sectors-health in particular-these problems are compounded by an inadequate allocation of funds, even on paper, and poor motivation and skills. Public health expenditures barely exceed 1% of GDP and education is less than 3%, as against a combined 10-15% in countries that have done better in human capital development. 18. RE \LI ZING "-iEP\L'S POTENTI\L. Our current strategy provides support for investments and initiatives designed to improve development effectiverress in these four areas. 12 • Improving Land Productivity. Agricultural out- put is growing only slowly, and a cornerstone of Gov- ernment policy is the Agricultural Perspective Plan sup- ported by the ADB and other donors, whjch focuses on irrigation and food crop development in the Terai, where the majority of the population lives, and on promotion of rugh value crops and sustainable natural resource better knowledge dissemination. The project will management in the rull areas. We are actively supporting emphasize decentraljzed extension services working with the Plan through our agriculture lending and-as im- farmer self-help groups. In rural transport we have an portantly-our roads and transport lending. ln FY98 extensive portfolio, with credits financing feeder, District we began financing a major Irrigation Sector Project, and strategic roads, thereby helping to reduce transport wruch promotes demand-driven irrigation schemes man- costs for both agricultural inputs and outputs. aged by water user groups-specifically it envisages re- • Raising Rural Labor Productivity. Human capi- habilitation and development of 40,000 hectares of tal is woefully low in rural areas. While education levels farmer-owned and managed irrigation schemes, have improved significantly with the support of a improvement and transfer to farmers of a further 20,000 number of IDA Cred its, quality remains poor and hectares of public irrigation, and development of a Water primary cycle completion rates are very low. The FY99 Resources Strategy. This focus on beneficiary involve- Education Project aims to address these shortcomings, ment should enable the project to overcome the poor in part through more decentralized management and long-term performance of many previous irrigation giving priority to education quality. Progress in projects. Also recently approved is a project promoting improving health standards-and most importantly user-oriented agricultural research and extension, and reducing fertility-is hampered by very low levels of  WORLD BANK : COUNTRY ASSISTANCE STRATEGY The Rural Water Supply Project has successfully pioneered user-group managed water supply schemes, greatly reducing the time women spend collecting water. The Hill Community Forestry Project has likewise helped promote forestry user groups, which have had great success in taking over the management of denuded or deteriorating Government forest land and turning it into productive and sustainable forest providing timber, fodder and fuelwood. The Land Resource Management Study and possible follow-up credit would support fur- ther measures to ensure natural resource sustainability. In all projects, we will aim to improve design and deliv- ery so as to better reach women and increasing, directly or indirectly through better education and health, their income-~arning potential. • Raising Returns on Public Investments. A major focus of our strategy has been on raising the I 13 efficiency of public investments. Our Public Expendi- ture Review is examining in detail ways in which the impact of Government investments can be improved, both through better allocation and release of public funds, and through improvements in the transparency and monitoring of public expenditures. A special em- Government spending (US$2 per capita, as against over phasis will be placed in .this study, and in a parallel study US$6 per capita in out-of-pocket expenditure). But in- of decentralization, on ways in which the returns to creased expenditures on their own are not the answer. Government investments can be raised through greater Absorptive capacity is weak, and strained by the large involvement and monitoring at the local level. Like- number of donors and NGOs operating in a piecemeal wise, IDA-supported projects are paying increasing at- and uncoordinated manner in the sector. The relatively tention to supervision and encouraging a greatly en- low level of human capital development is compounded hanced role for stakeholders and NGOs. Our irriga- by the fact that many people need to spend large tion, forestry, water supply and road projects are giving amounts of time in unnecessarily labor-intensive activi- substantially increased responsibility in design and ties, such as fetching potable water, wood, fuel and fod- implementation to beneficiary groups, supported as der. We are trying to reduce this wastage in a number of needed by local NGOs. Thus, for example, our FY99 ways. Our transport projects are reducing time and cost LIL for Rural Infrastructure envisages a greatly increased for moving goods, and bringing people closer to schools role for the Di stricts and close involvement of local and health centers. The planned assistance in the power NGOs, beneficiaries and the private sector, and the pro- sector will support rural power generation and distribu- posed FY99 Education Project emphasizes District level tion, bringing electricity for the first time to many areas. planning and implementation. We are also monitoring  COUNTRY ASSISTANCE STRATEGY: NEPAL procurement more vigilantly, backed by a move of su- tenance of our irrigation projects, and likewise empha- pervision resources to the field, and by decentralization sized stakeholder participation in the operation and main- of an increasing proportion of rusbursement decisions tenance of water supply, roads and forestry schemes. to the Nepal Field Office. The ongoing Public Expenruture Review will look closely • Improving Government Services. Government at ways to improve the allocation, flow and monitoring service delivery has, as noted above, been particularly of recurrent expenditures across all sectors. Increasing weak in Nepal. Here too we are supporting the transfer transparency and stakeholder awareness of the services of more responsibility to stakeholder groups and NGOs. they should be receiving will be especially important. Service delivery has been especially poor in the area of We also hope to work closely with the ADB in their operation and maintenance, with only 20% of our com- preparation of a Civil Service Reform study and pos- pleted irrigation projects rated by OED as likely to be sible subsequent program crerut. The study and crerut sustained (ways to improve O&M and cost-recovery are will focus on the crucial areas of civil service size, salaries, being developed under the ongoing Irrigation Sector incentives and transparency of operations. Measures to Project). For this reason we have greatly increased the restrain theft and corruption in Government services involvement of stakeholders in the operation and main- will be a key criterion of the level of future lenrung. 11 ABaieJiS aoueis1ssv uv Bu1ie1nwJO:I ·111  COUNTRY .ASSISTANCE STRATEGY: NEPAL A. The Government's Development Strategy 19. l Hl· Nll\l'I H Pl A 1\,, The Government's develop- ment strategy, as articulated in its Ninth Plan (which covers FY98-02, and was finalized in July 1998 after nearly two years of preparation), emphasizes eradication of Nepal's widespread poverty as its major development objective. To achieve this, the Ninth Plan recognizes the need to acceler- ate economic growth (from an average of 4.5% p.a. in the past decade to 6.0% p.a. over the Plan period and to over 7% in the following decade and a half) and slow down population growth (2.5% p.a. currently) to a rate consistent eliminating illiteracy (currently 52 percent for those over with reducing total fertility to the replacement level by 15), reducing the child mortality rate (currently 118 per thou- FY2017. The Plan also stresses the need for increasing em- sand) to 63 per thousand, and increasing average life ex- ployment opportunities for a rapidly expanding labor force, pectancy by 12 years-all by FY 2017; (ii) Its macro-eco- 16 accelerating social development and improving access to nomic framework (which calls for rapid improvements in basic infrastructure (both to raise living standards and fa- national savings, revenue mobilization and aid disburse- cilitate economic development), while reducing regional, ments) is unlikely to be fully realized; and (iii) It is also gender and ethnic disparities. To accelerate economic growth, doubtful whether the expenditure priorities envisaged in the Plan proposes harnessing the considerable growth po- the plan can be effectively implemented without a signifi- tential in agriculture, forestry, hydropower and tourism; cant improvement in the political environment. Thus, this undertaking much-needed investments in infrastructure and Plan runs the same risks as past Plans which have lacked a human resource development; and developing the base for clear Government commitment to their implementation inclustrialization through expanding trade and investment as well as the lack of well defined implementation strategies. opportunities with neighboring countries and at the re- gional level. The Plan highlights the enhanced role of the private sector in economic development, the need for a complementary role for the public sector as a facilitator and 8. CAS Consultations provider of social and economic infrastructure, and the importance of liberal and open market-oriented economic 21. ST \!.... EHOLDFR DlSC l'SSIO!\,S. The process of policies. formulating the CAS has provided a good opportunity to review how we can make a more decisive contribution to 20. l'\IPI J''\II''\:T\TION PROSPLCTS. Although the further the objective of combating poverty. The Country desirability of its broad objectives is beyond doubt, the Director and members of the Regional Management Team Plan suffers from a number of weaknesses: (i) Its key tar- and Country Team had extensive consultations with village gets are very ambitious, unless institutional impediments user groups, Government officials at all levels, NGOs (both which have hampered progress of reforms in the past can Kathmandu and field -based), the private sector, academics, be effectively addressed. For example, the Plan envisages senior officials from recent governments, and journalists.  ------ !!I ~ "I BOX 3 Dec en traliza ti on and the Poor With funding from the Strategic Compact, a number of studies were commissioned to take a closer look at how the poor participate in the development process. The studies looked at the legal framework for decentralization and the changes brought about by the Decentrali· zation Bill; the use of central Government grants to VDCs; and corruption In rural public works. The main conclusions from these studies Members of the Country Team, including the Country Di- are: • The current legal framework for decen· rector, participated in the Village Immersion Program, which tralizatlon (the 1997 Act and the 1998 covered villages in both the Terai and the hills. Altogether, Decentralization Bill), potentially gives close to one thousand Nepalis, ranging from bonded la- more voice to the poor In local decisions, by making ward (neighborhood) borers and village farmers to university professors and high committees eiected bodies, increasing Government officials, participated in these exchanges of the role of village and municipal councils, view. Translators and facilitators supported the process; and emphasizing the participation of local people In the preparation and simultaneous translation was arranged for the large public Implementation of District development CAS discussions. In addition, a Poverty Report-based on a plans. Living Standards Measurement Study is close to completion • But these instruments do not per se ensure that the views of the poor are (see Box 1), and a number of studies have been conducted represented. There is a need to raise on the impact of decentralization on the poor with fund- awareness among the poor of the ing from the Strategic Compact (see Box 3). existence of programs and ol·mecha- nlsms to Influence the allocation of resources. \S CO'\JSCLTATIONS. 22. CONCJ ,USIONS OPTHE C1 • Women, even those of higher social These consultations reinforced our convictions that cor- status, often have as little awareness of, and participation in, development ruption is a key problem (the solution of which calls for programs as the most disadvantaged increased transparency and community participation), and' men. that local ownership is crucial to success (although it also • Where the poor are Informed about projects, and have mechanisms to check led us to a new understanding of the need to avoid local that they receive their share - for elites running projects for their own benefit, a need that example, in rural public works programs emphasizes the importance of widespread participation). where project expenditures are known to all and payments take place in public In our rural consultations especially, stakeholders were - the implementation record improves adamant that if they had more control, Government and and corruption. diminishes. donor money could be used much more productively; cor- • Donors can help decentralized programs reach the poor by supporting awareness ruption would be reduced, project design improved, op- measures, capacity building and eration and maintenance made a priority, and Government transparency. _,,,  COUNTRY ASSISTANCE STRATEGY: NEPAL - &MU IJ!l staff performance enhanced. Our consultations also brought home again an awareness of the critical role women play in sustainable development and the dismal conditions that most women still have to endure: low literacy, health hazards still associated with pregnancy, and a lack of op- portunities to participate in any activities outside of agricul- ture or housekeeping. C. Lessons from the Past 23. \ID '\Jen l.'SED Ell LC Tl\ ~',L\. Aid has been much higher per capita in Nepal than in most other South Asian countries, with a plethora of donors quite eager to 18 I provide financial assistance for Nepal's development (see Page 41 and42 for a summary of areas of donor support) . But, as discussed in paragraph 17 above, the potential of donor assistance has not been fully realized. Although aid has had some successes, the question can be asked as to whether the quite significant aid volumes should not have istries that did not have the capacity or internal incentives to produced more results, particularly among the most disad- implement the projects effectively; (iii) were ill-coordinated, vantaged-the rural population that still represent the over- with donors sometimes competing rather than cooperat- whelming majority of Nepal's people. Lately, there is a ing in aid aJlocations; and above all (iv) did not have mecha- growing recognition among many, if not all, donors that nisms and local ownership to ensure adequate, sustainable the past approach to development aid simply cannot go on operation and maintenance. Part of the problem has been since, even when there are results, their sustainability is often that donors have been slow in developing a common in- far from certain. sistence on good governance at the central level as a condi- tion for continued high levels of lending. Indeed, as men- 24. \vL.'\f...: GOVl'R1\.\1EN1 O\V"NERSHIP. Govern- tioned in paragraph 22 above, our rural CAS consultations ment ownership of many programs has been weak, and confirmed that stakeholders believed strongly that if they the degree of consistency and coordination among donor- had more control development assistance could be much assisted programs has varied widely. In this context the more productively used. major lesson we have learnt since the last CAS is that do- nor-aided projects have relied too heavily on the "top- 25. LESSONS I RO\[ ID \'SI XISTI'\.G PORTfOUO. down" development model, supporting projects which: In the past, IDA's portfolio suffered from a large number (i) were designed from Kathmandu and failed to adequately of problem projects, with many examples of slow and meet villagers' needs; (ii) were executed by centralized min- poor quality implementation. After analyzing the causes  WORLD BANK: COUNTRY ASSISTANCE STRATEGY decentralized to the Nepal Field Office. And borrowers are being trained in procurement policies. • We are placing a very high priority on sound financial management. All IDA-financed projects must now have a financial management assessment. This helps ensure that the implementing agency has a good financial man- agement system, with project management reports fur- nished on a trimesterly basis, and audit reports within 6 months @.f the end of the fiscal year. • A Country Profile of Financial Accountability has been carried out, with major recommendations for improv- ing the financial management system at various levels in Nepal. These measures have helped ensure that by the end of FY98 only two out of 14 projects were rated unsatisfactory for both development objectives and implementation per- formance, down from seven in FY96. And disbursement I 19 performance has improved from 14% in FY95 to over 20% in FY98. 1 26. 1.0( '\I O\X"Jl'RSI llP. At the local level, the poor of this poor implementation performance we have taken a performance of so many Government projects and pro- number of remedial steps. grams also results more from lack of ownership than lack of money. However, opportunities have emerged for much • The Finance Ministry and we are now jointly monitor- greater responsiveness to local needs with the advent of a ing IDA-supported projects. Staff from the Financial democratic Government in 1991 and a slow, but promising, Comptroller General's and Auditor General's Offices shift in donors' aid paradigms. One of the new democratic (which we are helping to strengthen through a series of Government's first initiatives was to introduce two decen- three IDF grants) must now be present during project tralization Acts, aimed at increasing village self-governance preparation to ensure that a sound financial manage- and control of development projects. In areas such as for- ment system would be included for all projects. estry, water supply and irrigation, community commitment • We are, as mentioned before, increasingly involving ben- to locally-managed projects has grown to a point where eficiaries and NGOs in IDA-supported projects at all they are proving self-sustaining. A study on corruption in stages of design and implementation, thus helping- rural public works has confirmed the validity of these views: as in the Rural Water Supply Project-to avoid past prob- when villagers were informed of the rules of the program, lems of inappropriate design and insufficient attention all payments were made in public, and there were mecha- to operation and maintenance. nisms to address complaints, corruption was reduced • More supervision resources have been moved to the significantly and implementation performance greatly im- field, with much procurement and disbursement work proved. Indeed, many IDA-supported projects are already  COUNTRY ASSISTANCE STRATEGY: NEPAL benefiting from increased local involvement, particularly in • Improved public sector management-again this is a forestry, irrigation, roads and rural water supply. In other key theme (see e.g. paragraphs 18 and 34-35). sectors-telecommunications, urban water supply, power- • Social-fund type interventions to build rural infrastruc- we are moving towards a much greater reliance on the pri- ture-a more decentralized, community-driven approach vate sector. Of course Government involvement in overall is being pioneered in the Rural Infrastructure LIL (see project and program management is still essential, and this paragraphs 18 and 29). aspect cannot be neglected if the decentralization initiatives • Integration of the critical role of India into the Bank's are to succeed. At the same time, strengthening of private assistance strategy-we are participating in the South sector activities in infrastructure, industry and finance re- Asian Sub-regional Growth Quadrangle initiatives and mains a major task. carrying out an India-Nepal trade study (paragraph 47) and seek to support better integration of Nepal's power 27. ( H'D l l '\,DIN(;<.,. The Bank's Operations Evaluation system with the Northern and Eastern Indian grids Department has prepared a Country Assistance Note for (paragraph 12 of Sector Strategies). Nepal, which is scheduled to be circulated to the Executive • Clear delineation of areas of focus-the CAS sets out Directors prior to Board discussion of this CA'S: The Coun- the criteria for future support (paragraphs 38-44 and try Assistance Note shares the general diagnoses of this Table 2). 20 CAS, and notes the need for: 1 It should, however, also be noted that the portfolio at end FY98 was very mature (only four projects were ap- • A greater policy focus in our activities - this is a central proved in the four fiscal years FY95-98). theme of this CAS (see e.g. paragraphs 36-37 below).  COUNTRY ASSISTANCE STRATEGY: NEPAL A. Emphasis on Districts which are working with local stakeholders and the Participation/Ownership private sector to improve the productivity of resource use: and Donor Coordination • The new Local Self-Governance Bill is an important sig- 28. TV<) ')RO'\/, STR 'T1 'C 1 In line with these find- nal of the government's renewed commitment to giv- ings, we have developed a strategy with two key new prongs: ing more power to the Districts. It would allow District bringing resources closer to the beneficiaries, where they are Development Committees to set up their own sector most likely to be productively used; and collective donor management units, replacing the concerned central line action to foster the stronger governance needed to reduce agency (although the national Government would still waste and mismanagement. To these ends we will sup- have the right to depute staff to these District manage- port: (i) greater reliance on local stakeholder and private ment units). sector participation in project preparation and implementa- tion; and (ii) closer cooperation among donors to bring about the stronger governance which is needed to reduce waste and mismanagement, linking improved governance and donor lending levels. 22 29. :\L1 fL\SI">O' ., ., .. --·"'" 1 T r -.-r,-, T\ " " ,,. '..,. '' '' We are thus proposing a strat- egy which would both put much more emphasis on local/ private project implementation and social inclusion at that critical level, while at the same time working more system- atically to strengthen the central Government's crucial responsibility for monitoring and evaluation. We would focus a greater proportion of our financing-through LILs and regular credits-on those Districts which are starting to work with stakeholders and the private sector to manage resources in an efficient and transparent manner. While there is a danger that this strategy will favor the better-off Districts-an initial analysis showed that the Districts mak- ing progress on decentralization were on average slightly • We have begun to see results from the Government's above the median-the expected effect is that it introduces and donors' efforts to strengthen District level absorp- competition between Districts for donor resources, hope- tive capacity. These efforts have been supported in twenty fully raising the capacity of all. Stakeholder involvement in Districts by the UNDP Participatory District Develop- the design, implementation and operation/maintenance ment Program (with support in a further twenty Districts of District projects would be a key criterion in this alloca- now being provided by the Local Governance Program), tion process. So too would community cost-sharing as a by similar District institution-building initiatives sup- sign of genuine beneficiary commitment. There are good ported by DANIDA, NORAD and SNV, and by sector- reasons for choosing this moment to accelerate support for specific initiatives such as those in rural infrastructure  WORLD BANK: COUNTRY ASSISTANCE STRATEGY • 11!!1 ! backed by IDA1 , ADB, SDC, GTZ and WWF. We will make an effort in new projects-and in the • UNCDF is proposing to set up a District Development supervision of existing projects-to ensure that the Gov- Fund to provide program support to Districts where ernment makes better use of available media, especially ra- institutional strengthening is well underway, and, if suc- dio, to educate people as to what services they should be cessful, we should consider providing additional sup- receiving. We will also use the District Information Centers port as needed using IDA's larger resource availabilities. being established under the Participatory District Develop- We would earmark a substantial proportion of our sup- ment and Local Governance Programs. Thus, for example, port for Districts where there is a demonstrated interest we will ensure that farmers are aware that they should be and capacity among local officials and stakeholders to receiving visits from agricultural and veterinary extension become involved in improving the quality of social sec- agents, rather than traveling long distances themselves to tor service delivery. visit the agents' offices. On-site advice and care of crops • We are preparing a test for this new approach through a and livestock could make a significant impact on agricul- LIL which will support demand-driven, labor-based tural productivity compared with academic discussions in a road maintenance in those Districts-and only those District office. We will also prepare a regular newsletter in Districts-which have proven capable of handling such Nepali and English describing IDA-supported initiatives a decentralized approach. Beneficiaries will be closely and the services they should be delivering, as well as giving involved in design, construction and maintenance. This other donors and NGOs an opportunity to contribute news 23 is the first stage of a longer-term effort to move man- of innovative projects or programs. A forum for com- agement of rural infrastructure to the District level. ment and discussion on the effectiveness of current devel- opment programs will also be provided. At the same time we will work to ensure greater transparency in the flow of 30. I~VOl "''-1"" 101 \"'()\ff"-. Similarly,itisessen- funds and greater cost awareness at the local level, with the tial to increase the participation of women in development use of public boards indicating the planned flow of funds activities. Women continue to be mostly employed in agri- under project sub-components. culture, as opportunities in the off-farm sector are almost 32. f'\.n r~.- ........... Rl"'1'.T ,,...... . 1 Donors' effectiveness non-existent. The dismally low level of female literacy and the health hazards associated with pregnancies constitute needs to improve through more cooperation and less com- an additional barrier to women's opportunities. Yet, few petition. We an~· UNDP have taken an active role in overall agricultural programs are designed to reach women, and and sector-specific aid coordination, jointly chairing regular the number of female teachers and health workers remains donor meetings in Kathmandu. And at the next Aid Group very low. Decentralization initiatives may increase the po- meeting we plan to have an extended session on how do- tential for women to participate, if they are accompanied by nors' rural development aid can collectively support the complementary programs to draw women into the imple- major elements of the Agriculture Perspective Plan, which mentation of project activities. is the cornerstone of future rural income growth. This will be a test case of the donor community's willingness to 31. IP'\ 'l'IJI. "'';SI''""'\ nc~ ''I "'TCF work together to help improve aid effectiveness. We will ~I ,TIO'\. If this new approach is to work beneficiaries also try and encourage joint or concurrent missions with need to be informed of the services that they are supposed key donors to help ensure better harmonization in policy to receive, and better able to monitor the flow of funds. guidance and project design. But ultimately the key is the  COUNTRY ASSISTANCE STRATEGY : NEPAL the Government's own control over donor aid. Our Public importance of greater local responsibility for project design, Expenditure Review will provide the analytical basis for implementation and operation was one of the strongest Government to rationalize their donor assistance requests, messages at our rural CAS discussions (see paragraphs 21 - while also helping the Government to channel and leverage 22). its own limited public expenditure resources to maximum effect. On economic issues we have coordinated closely with the IMF and theADB, for example in our joint work with the Government in 1995-96 on a draft Policy Framework B. Governance Paper. 34. l\IPRO\'l'\.(, GOV! R'\i\!L'\JT l\IPI J',\11 t\T \ 'I!( )t\ ( \P \ClT'r For this approach to work the central Government will need to make significant improvements in its capacity to manage resource flows efficiently and moni- tor their use effectively. At present the central Government interferes too much in some areas (teacher hiring for ex- ample), and too little in others (for example ensuring that 24 health workers, agricultural extension agents and veterinar- ians actually go out into the field). At the more general policy level, too, the central Government has often made local/ private sector involvement more difficult, with exces- sive control by parastatals over areas such as sugar produc- 33. C,, rn R7'.\CI. TO\'. '\il.R~HIP. Donorassistancehas tion and forest product marketing. We will thus work with not only shielded Nepal from underlying structural prob- other donors to link our collective lending much more lems, but it has also tended to substitute for the creation closely to improved governance within each sector. Already of national capacity to plan and implement development in education we are collaborating with most key donors on programs. In many sectors donors have major-and some- a common core program, whose financing would be linked times inconsistent-roles in managing public expenditures. to Government progress in improving educational quality. The Finance Ministry and the National Planning Commis- Indeed our goal more generally is to match the overall level sion are aware of the damaging effect this has on the integ- of donor aid in each sector to the government's ability to rity and sustainability of the development process, and carry out its fiduciary responsibilities and ensure the quality want to take steps consistent with our Partnership for De- of the investments or services it provides. We will work velopment strategy to ensure that the Government as a closely with the donor community to achieve this sector- whole takes greater responsibility for shaping and manag- by-sector, but where we cannot reach a common under- ing the development process. In the current country envi- standing we will lead by example by conditioning our own ronment, as described above, this will not be an easy en- lending envelope on improved governance (see Table 2 and deavor, but it deserves our full support since it goes to the CAS Program Matrix). heart of.the institutional challenges Nepal faces today. A move to greater local project and program management is 35. '\.I '-:T STI .PS O.'\ GO\'I .R,'\. \.'\CI -\'\.D CORRL"P one important step in ensuring that Nepal and not its do- Tl< )t\. The challenges of improving governance and nors control the key development decisions. Indeed, the  - - WORLD BANK: COUNTRY ASSISTANCE STRATEGY iii&¥&! !!! 11111!1 I II reducing corruption were discussed with the Government Beyond this pessimistic scenario, we propose an approach and other stakeholders during CAS preparation. which will remain flexible and, to some extent, even op- portunistic: we must be ready to seize opportunities for • The Government has recently requested the Bank for constructive cooperation and action where circumstances assistance in tackling the problem of corruption in do- arise which make reform possible or even promising. If nor-assisted projects, which they see as resulting inter the momentum for reform accelerates after the elections, alia in implementation delays and shortcomings in the we will work with the Government on a more systematic quality of project execution. This request received con- and longer-term reform and development agenda that we siderable publicity in Nepal. We are now working with could suppo.rt in a major way. The degree to which the the Government to define the measures which should Government will be able to take action on a reform agenda be taken and the ways we can assist in their implementa- will depend to a large extent on its political strength. The tion in order to initiate serious efforts at remedial ac- basic scenarios described below reflect this uncertainty, and tion. a reassessment of our strategy may be called for after the • We will also support improvement in the central elections. In the meantime we envisage three lending Government's overall capacity when and to the extent scenarios (summarized in Table 2). the political situation allows, in response to the Government's request for assistance on the broader gov- 37. P \R\\ILTl RS FOR 13 \J\.I, \SSJST\ T\..Clc. The 25 ernance issues. We will coordinate closely with ADB's key parameters determining the level and nature of our work on civil service strengthening, focusing on specific future assistance will be: weaknesses in fiscal and public expenditure management, such as deficiencies in the tax administration which af- • Progress in administrative management, measured by: fect revenues. We plan to address such institutional (a) implementation of administrative decentralization issues through our lending and ESW The Public Ex- measures; (b) initiation and implementation of mea- penditure Review-the cornerstone of our ESW-will sures against corruption; and (c) civil service reform, start- focus not just on the allocation of resources, but also ing simply with compliance with existing.rules and regu- on how Government resources as a whole can be more lations (such as those concerning staff transfers) and effectively managed. In addition, we have ongoing stud- with existing obligations under projects (such as those ies which pay close attention to institutional issues in relating to the regularization of teachers or health work- health, education, power, land resource management and ers recruited under Bank-financed projects) and proceed- rural development. ing to long-standing key issues (e.g, incentives for field work, numbers and remuneration of civil servants) . • Progress in overall economic management, measured C. I DA Lending Levels by: (a) sustained turning around of budget manage- ment, both in terms of revenue collection and 36. UNKI:--.JG LEl\DING TO PROGRESS or RE- prioritization of expenditures; (b) cooperation. in the FORMS. Given the political and economic uncertainties, execution of the PER and implementation of its rec- we are proposing a Low Case which starts at zero lending. ommendations; (c) creation of a competitive private sec- This would-if conditions should again deteriorate - drive tor environment, including further privatization; and home the message that business as we have had it in the (d) implementation of critical reforms to strengthen the past cannot continue and that serious action is needed. financial sector.  COUNTRY ASSISTANCE STRATEGY: NEPAL I. LOW CASE where there is support for tangible Government reform addressing some of the issues listed above, notwithstand- 38. ( _{lr!'Rl This assumes renewed deterioration in ing the lack of progress on the overall reform agenda and economic management and governance: renewed budget- the deterioration of the country's macro-economic situa- ary slide, deterioration of the security situation, continued tion which define the Low Case. Potential examples of Government inertia and inaction, delaying important deci- operations deserving our support even under such dire sions on assistance strategy and/ or project issues. Specifi- circumstances are highly decentralized initiatives that can cally, the Low Case envisages: have a substantial impact on poverty despite a weak central Government. A case in point could be a second rural water • No sustained recovery in revenues, and an increasing supply project, which would support community-managed budget deficit. water supply schemes and free up women's time for pro- • Continued poor management of public expenditures, ductive activities. Other possibilities include community- with a further increase in the number of projects in the public investment program and a resulting failure to adequately fund donor-assisted and ot:11er priority projects. 26 I • No progress on financial sector reform, privatization or civil service reform. • Only slow progress in decentralization and improve- ments in District level project and program implemen- tation. • Continued strong indications of high levels of corrup- tion and misuse of funds without serious attempts at remedial action. • Little or no .improvement in efficiency of the central Government. 39. \. SIST \ '\JCI ClPTIO'\JS If all these conditions ap- plied, the country's development path would not be sus- tainable. Further lending would simply add to the country's debt burden, and we would need to look to non-lending services to help Nepal's decision makers face the reality of driven projects for health, rural roads or irrigation, maybe the drastic reforms that are needed. A slightly less pessi- in the form ofLILs which develop procedures for effective mistic scenario is one in which the country is in danger of delivery of assistance at the local level. ESW as a basis for sliding towards a full-blown Low Case, although with lim- further dialogue with the Government on necessary reform ited progress being made on some of the above param- measures would continue, as would project preparation eters. Under these circumstances we would maintain a small where feasible to ensure that we could swiftly restart our amount of lending-up to $150 million in FY99-01 - financial support once conditions improved.  WORLD BANK : COUNTRY ASSISTANCE STRATEGY II. BASE CASE • Progress in restructuring RBB and preparation of its cijvestiture, completing the privatization of NBL, im- 40. ( RITFRI \. This covers a broad range of situations proving banking regulations, and progress in improv- and correspondjng leniling scenarios. The political uncer- ing NRB's supervisory and regulatory capacity. tainty makes it very hard to predjct the will for reform, and • Progress in telecommunications reform, incluiling in- whether it can be acted upon and maintained, and this makes troduction of competition. a range necessary. At the lower end of the range, the Base • Introduction of new measures to reduce corruption. Case assumes stabilization of the situation by the Government, and thus no further deterioration in economic and administrative management, but also no major turn- 42. \SSIST \ 1\JCL' OPTI01'.S. Our leniling levels under around. Specifically, lendjng at the lower end of the range the Base Case would depend on how much progress is would require: achieved on this reform agenda. At the lower end, with stabilization of the situation to lay the basis for more pro- • A continued reversal of the recent sharp decline in real active reform, an amount in the order of US$200 million revenues, with domestic revenues as a share of GDP for FY99-01 is envisaged, to build some reform momen- remaining at or above 11 %, and domestic borrowing tum and encourage, both at the level of Government and below 2% of GDP, and satisfactory implementation of public opinion, more energetic action. As elements of the 27 VAT. above reform agenda materialize, the 3-year envelope would • Improved management of public expenditures, with increase up to a maximum of US$350 million. no further increase in the number of projects in the public investment program, and adequate fuocljng for donor-assisted and other priority projects. Ill. HIGH CASE 4 3. ( RIT [ RI \. For this scenario, we would need to see a 41. Bl' YOND ST \BII 17 \TIOl\. If, beyond stabiliza- major reform agenda, clearly defined, and a:decisive start on tion, a maybe modest, but clear reform effort can be started, implementation action, translating into the following steps, this would be reflected in steps such as: over and above those mentioned in paragraph 41 above: • Tangible progress in decentralization and local self-gov- • An increase in revenues to over 11.5% of GDP, and a ernment, with greater local involvement in the manage- fall in domestic borrowing to below 1% of GDP. ment of development programs. • Elimination of unbudgeted expendjtures except where • Action on improving central Government administra- justified by unforeseeable circumstances. tive performance, such as stricter enforcement of rota- • Privatization of 7-8 public enterprises, and tangible tion rules. progress in privatizing the larger public enterprises such • Privatization of three public enterprises, and improve- as the telephone company and the airline. ment of the efficiency and transparency of privatization • Divestiture of RBB, and build-up of strong NRB su- procedures and decision-making processes. pervisory and regulatory capacity. • Introduction of three-year rolling investment program, • Civil service reform, with marked improvements in and full funding of core programs and projects. terms of turnover, more rapid decision making, and  COUNTRY ASSISTANCE STRATEGY: NEPAL - -~ improved service delivery in the field. continue to shield Nepal from the full extent of its economic • Significant decentralization, with widespread, substan- mismanagement, merely postponing-and deepening- tial improvements in the implementation capacity at the the eventual inevitable crisis, until the situation finally DDC and VDC levels. deteriorates to the point where circumstances force painful emergency adjustments on Nepal. To preclude this 44. \SSIS T \'\.Cl, ( >PTIOi\"i. Implementation of such possibility, we will call upon other donors to share in our strategy, ensuring that it is fully credible and effective. 46. 1 11\1'.S fffT\' ·1 i '\.. Tiil' "i'IR.'\Tl .GY ''\.DID" PORJ''Ol '. ) The strategy of focusing on ownership, development results and governance can only be credible if we show a willingness to suspend lending where goals are not being met. We have already moved a long way in estab- lishing tougher standards (see paragraph 25 above). These efforts will continue, with a renewed focus on realistic su- pervision assessments which will provide early warnings on project failures. The Bank will continue to work in 28 partnership with the Government in pursuing results-ori- ented portfolio management and in developing an action plan to ensure that sound financial management is in place for all projects, so that the Lo:).n Administration Change Initiative (LACI) can be implemented successfully in Nepal. a reform package would increase the country's absorptive 47. ShCTOR WR;\Tl 'Gll S, Bl '\.(l"",['JU...S AP< I capacity, thus ju.srifying a gradual further increase in assis- I .C 0'\.0\flC l. 'iH'TOR '\'OP k The sector strategies tance, bringing the total to of the order of$400 million for which emerge from this assistance framework, and the FY99-01 or more, depending on the outcome of a mid- benchmarks for measuring sectoral progress are described term progress review. in the following chapter. We will continue to develop our economic and sector work, both as a basis for the policy dialogue with Government and civil society more generally and for future operations. A major Public Expenditure D. Implementing the Review is aimed at improving the allocation and-as im- Assistance Strategy portantly-the management and control of public re- sources. It is hoped that it will-in conjunction with the 45. ST \l,IJ I OLDER 'iLPPORT. It is important to com- support of the ADB and other donors for civil service municate our analysis and strategy not only to the reform and decentralization initiatives by the Government- Government but also to the public as a whole, so that all lay the basis for significantly better service delivery by the stakeholders realize how serious the situation is. It is also Government and, subseguently, for more productive yearly vital that our strategy be supported by the donor commu- joint reviews of budgetary priorities. Our economic reports nity as a whole. There is a danger that external aid will will continue to provide the basis for dialogue on accelerat-  WORLD BANK: COUNTRY ASSISTANCE STRATEGY ing the pace of economic reforms and improving the policy markets, as well as reforming and restructuring its financial framework. A study on Indo-Nepal trade should provide sector. In infrastructure, IFC's strategy remains to support a better understanding of the linkages between the econo- privately financed small- and medium- sized hydropower mies of Nepal and India and their implications for Nepal's plants. IFC is also interested in supporting the telecom- economic policy management, as well as identify ways for munications sector, once the.Government provides a sound Nepal to take better advantage of the huge market of its regulatory environment and fully opens up the sector to major trading partner. Other studies already under way or private participation. In both cases, co-ordination with yet to be launched should help improve the linkages IDA is crucial. IFC is further planning to continue its insti- between sectoral policies and overall development strategy, tution-building role through the development of viable as well as provide a rational basis for possible assistance financial firms which benefit from the expertise of strong operations. These include studies focusing on the causes foreign partners. Aside from its planned investment in the and effects of poverty, Terai rural development leasing sector, IFC is seeking out further investments in opportunities, education and health reform, land resource project finance and small enterprise lending. While of management, the financial sector and energy development. somewhat lower priority, IFC will also consider industrial and tourism projects, which would contribute to economic 48. ROI J OF I ~DI EDI plans to offer a series oflearning development and foreign exchange earnings. activities with the aim of creating national capacity and in- 29 digenous skills to formulate and implement the country's development agenda. These activities would support the overall strategy in the areas of building institutional capac- E. Risks ity for local management of projects, governance, and eco- nomic management. To help create local capacity in project 50. RISI'- 'i I \C FD BY Tl ff '\!I"\\ 'i I'R \T FC \ Our selection, bidding, negotiation, and award of Government strategy faces a number of risks which could arise either contracts/ concessions, training activities in project appraisal from the internal or external environment: and management are envisaged. In the area of governance and anti-corruption, EDI will conduct a Service Delivery (a) Increased political instability and uncertainty. A weak Survey in a targeted sector. Training may also be designed and unstable Government distracted by tactical political to provide grassroots management training for poor maneuvering and the corresponding need to please many women, and for Government officials in linkages between constituencies would make implementation of reform dif- growth and poverty, fiscal decentralization, and micro finance. ficult. And there is a risk that political blockage and inaction EDI will also continue to support increased involvement would produce increasing social unrest which could further of stakeholders in the operation and maintenance of irri- complicate the political situation, and even compromise gation projects, and will in addition look for opportunities security, impeding Government and donor operations and to provide such support in rural water supply, roads, and other economic activities. The wide range of lending op- forestry schemes, in close coordination with the sector man- tions will allow us to respond flexibly to any such develop- agement units. ments, matching our lending and other support to ab- sorptive capacity, measured in terms of prospects for re- 49. IFC'S STRATE(,\. IFC has been actively participating form and development results. and plans to further increase its role in helping Nepal estab- lish a strong physical infrastructure and well-fuoctioning  COUNTRY ASSISTANCE STRATEGY: NEPAL (b) Economic dislocation and lack of donor coordination. Nepal's trade and other relations with India would adversely In case implementation of the strategy should require sub- affect prospects for exports, private investment and eco- stantially lower new lending commitments by IDA, and nomic growth in Nepal. We will carefully monitor devel- other donors follow this approach, the reduction in re- opments in these areas and support ongoing efforts among source transfers could have a substantial impact on Nepal's the countries in the region to strengthen their cooperation. balance of payments and its formal economy, if this were to happen abruptly. This negative impact would occur long 51. THESE RISKSARE SIGNIFICANT. But we believe before a turnaround in the implementation of reforms that the strategy presented in this CAS holds out the hope and renewed assistance and aid effectiveness would start to that the many millions still in poverty in Nepal will be produce the development results and economic growth empowered to help themselves. which are the objectives of the strategy. The donor com- 1 munity as a whole would therefore need to implement this The Pilot Labor-Based Road Rehabilitation and Mainte- approach in measured steps while monitoring carefully how nance component of the ongoing Road Maintenance and Nepal's economic parameters evolve and if the reforms to Rehabilitation Project. be supported through the strategy start taking place and producing Table 2: Lending Triggers 30 results. Successful CAS imple• SCENARIO LENDING LEVEL TRIGGERS (FY99-01) mentation will thus require much Low Case $0-150m • No sustained revenue recovery and a rising budget deficit more donor coordination of • Poor expenditure management, inadequate funding for priority projects assistance than in the past. This • No action in financial sector and civil service reforms and privatization will also be necessary because, in • Continued strong indications of high levels of corruption and misuse of funds without serious attempts at remedial the absence of such coordination, action • Slow decentralization efforts the approach of linking IDA's Base Case $200m-$350m • Domestic revenues as share of GDP at or above 11.0%. financial support to progress in • Satisfactory implementation of VAT • Domestic borrowing below 2% of GDP reforms cannot be effective. Given • No increase in number of projects under public investment program the growing recognition among • Three year rolling investment program, and full funding of priority projects and programs donors that radical changes are • Privatization of three enterprises, improvement of needed to enhance aid privatization procedures, and introduction of competition in telecommunications effectiveness, our continued ef- • Good progress in RBB restructuring and preparation of its divestiture. forts at donor consultation and • Tangible progress in decentralization, and local self government, with greater local involvement in the coordination should mitigate management of development programs • Improved central Government administrative performance, these risks. e.g. stricter enforcement of rotation rules • New measures to reduce corruption High Case $400m (or more*)• Revenues over 11 .5% of GDP and borrowing below 1% (c) External risks. The inevitable • No unbudgeted expenditures • Privatization of 7+ enterprises and tangible progress in linkage of Nepal's economy to privatizing the larger public enterprises such as the telephone company and the airline India is a major exogenous factor • Divestiture of RBB and strong build-up of NRB supervisory affecting Nepal's development and regulatory capabilities. • Civil service reform , with marked improvements in terms of and thereby implementation of turnover, more rapid decision making, and improved service delivery in the field . the CAS. A significant reversal of • Decentralization , with widespread, substantial improvements in implementation capacity at DOC and the steady improvement' in voe level. • Subject to midterm progress review.  - COUNTRY ASSISTANCE STRATEGY: NEPAL • • _ x w .u 32£ . .. ££ && _ ,,.JiJii Agriculture the grass roots level in setting our priorities; (b) carrying out critical Economic and Sector Work to support our lend- 1. With the number of rural poor increasing in Nepal, and ing, including a major water resources strategy, which will 80% of the labor force in agriculture, faster agricultural tie into our work on regional integration; (c) ensuring growth is crucial. Achieving this goal has been constrained projects are better prepared at entry, better targeted, imple- by: a rural socio-economic system that has significant feu- mented and coordinated, and take into account the lessons dal characteristics, including an archaic land tenure and labor learned from previous IDA financed and other donor in- system (instances of bonded labor are prevalent); topogra- vestments; (d) greatly increasing the role oflocal and District phy and location which make trade and infrastructure in- stakeholders in project preparation, implementation and vestment and maintenance costs extremely high. Aside operation and maintenance; and (e) closer donor coordina- from the Terai, there are few areas suited to large scale agri- ti on. cultural development, although there is some potential in the hills for intensive horticulture. 2. The main lessons from 25 years of agricultural lending are that project and program development is slow, and that 32 I sustainability has suffered from poor quality at entry and insufficient emphasis on policy reforms, stakeholder par- ticipation, and monitorable indicators. Policy dialogue has been sporadic except in the irrigation sector where we have had substantive discussions in the context of the FY98 Irrigation Sector Project. The sector has been over-central- ized, making area development projects particularly prob- lematic. Recently, however, the Government and donors 4. Future lending will have a strong policy orientation, and are looking much more to a decentralized approach through will emphasize quality at entry, with up-front policy reforms local communities and governments. as necessary. Areas of possible lending intervention in- clude groundwater development in the Terai, rural water 3. Our strategy will focus on support for implementation supply (based on the successful experience of the ongoing of the Agriculture Perspective Plan, including the priori- project), and rural/ area development projects (using LILs tized agricultural investment program now being prepared. and APLs) in the Terai and hills, to be implemented by Within the APP framework, we will likely focus in particu- VDCs and DDCs to capitalize on the current decentraliza- lar on irrigation and food crop development in the Terai, tion policy of the client. Our Economic and Sector Work where the majority of the population lives, and on promo- will focus on subsidies on capital investments and on the tion of high value crops (including for agro-industries) operation and maintenance needs of public irrigation sys- and sustainable natural resource management in the hill tems. Other critical topics include public expenditure trends areas. Rural infrastructure development (roads, telecom- and effectiveness, public sector management, land tenure munications and market development especially) will closely and related social issues, off-farm employment and agro- complement our activities in both regions. We will empha- marketing opportunities. size: (a) being more cli'ent oriented and demand driven at  WORLD BANK: COUNTRY ASSISTANCE STRATEGY Forestry and Land management in Nepal. The review identified the urgent Management need for support to the sector, for as natural capital deterio- rates, the possibility of devising viable strategies dimin- 5. Forestry is crucial not only in terms of timber produc- ishes. The need for an integrated approach linked to policy tion, but also to the sustainability of agriculture and rural changes substantiated by a systematic economic analysis of life through the provision of fuelwood, biomass and fod- the costs and benefits of sustainable and biodiversity der. The Bank, along with other donors, has played a key friendly management practices was also identified. Future role in reviving community forestry and reversing the de- Bank lending will take these lessons to heart. As a first step forestation in the hills. In 1992, the World Bank under- we are preparing a Land Resource Management Study in took a review of25 years of experience of natural resource preparation for a follow-up project, which will take a more integrated approach to the forestry sector as a whole. 6. The study is: • Examining the costs and benefits of existing forest use from three perspectives, individual and community, na- tional, and global, with a particular focus on their im- I 33 pact on biodiversity and the sustainability of agricul- tural production systems; • Examining the causes of the divergence between private and public costs and suggesting measures to reduce this divergence through the introduction of more sustain- able practices or management systems, or making changes in policy, institutions, or regulations, in the light of known social or political constraints; • Prioritizing areas for change, recommending different sub-regional strategies according to the management pro- grams and environmental or other constraints predomi- nant in each of the physiographic regions of Nepal; • Identifying ways in which IDA support could facilitate the implementation of necessary changes and introduce innovative programs and financing mechanisms for the management of a range of forest products. • Follow-on IDA and GEF projects will emphasize the mainstreaming of biodiversity conservation using innovative funding mechanisms, such as the develop- ment of a Biodiversity Trust Fund.  - COUNTRY ASSISTANCE STRATEGY: NEPAL - Infrastructure its resources and efforts in managing the strategic net- work with improved financial and administrative man- 7. Better infrastructure is a precondition for broad-based agement practices. growth in Nepal. Without a more comprehensive all- • Supporting beneficiaries, NGO participation and pri- weather road network access to agricultural inputs and ready vate sector involvement. As part of the strategy oflocal marketing of crops and produce will be impossible, and Government capacity building, IDA's operations in roads access to education, health care and modern agricultural tech- and rural infrastructure will pursue the approach of in- niques will continue to b~ greatly constrained. Without creased beneficiary and NGO participation during project more hill roads horticulture cannot grow. We will thus preparation and implementation. Private sector involve- focus on: ment will be actively encouraged in the construction and maintenance of infrastructure and other feasible areas, 8. More efficient infrastructure spending, along the lines of inter alia following up on the recommendations of the the recent transport-sector Priority Investment Plan, which recent FIAS report on foreign direct investment. was completed in February 1997 with IDA assistance and 9. Our lending will support these objectives, and at the identified priority projects for sustainable dev.ldopment of same time invest in selected priority infrastructure projects the strategic and rural transport network for 1997-2006. that will bring maximum impact on poverty reduction. The 34 IDA will support balanced investment in rehabilitation and proposed operations include (1) Road Maintenance and maintenance of existing assets, complemented with cost- Development Project, which will focus on the strategic net- effective and environmentally sound construction and main- work and DOR; (2) Rural Infrastructure Projects, which tenance of priority feeder roads and Dist;rict roads, and an will concentrate on local governance and District roads us- emphasis on a balanced approach between investments in ing an adaptable program lending approach; (3) Public strategic and in feeder roads to realize the potential of pre- Expenditure Review, which will assist the implementation vious road investments. • Decentralization and local Government capacity build- ing. While the Government has embraced decentraliza- tion for local development, there is a lack of capacity for planning and managing rural infrastructure development in the District and village development committees, as well as in the central Ministry of Local Development (MLD) . Our operations in rural infrastructure will em- phasize building up the capacity of local governments, and assisting MLD to strengthen its role in monitoring and providing policy guidance to the develbpment ac- tivities oflocal Government. • Capacity building at the central agencies. In the roads sector IDA will continue to assist in to improving the planning and monitoring capability of the Department of Roads (DOR), and encourage DOR to concentrate  WORLD BANK: COUNTRY ASSISTANCE STRATEGY of the strategy and expenditure prioritization. The success ity of electricity supply; develop small hydropower projects of this operational support depends on the Government's both for connection to the national grid and to meet de- commitment to pushing through institutional and policy mand in isolated areas, and District-level projects under reforms. decentralization schemes to meet demand in hilly and remote areas; (iii) utilize indigenous labor, skills and 10. Our lending in the urban infrastructure and urban envi- resources to complement foreign investment and ronment sector will depend on the outcome of the re- technology; (iv) develop electric vehicles, including three- structuring of the largely unsuccessful Urban Water Supply wheelers, to reduce pollution and petroleum imports; and and Sanitation Project, which now is to support handing (v) rationalize tariffs. Government priorities also now over management of the water utility in the Kathmandu include biogas, solar and other forms of alternative energy. Valley to the private sector. In addition, under the Public Expenditure Review exercise, which is on-going, an Urban 12. Especially given Nepal's unhealthy dependence on aid D evelopment Sector Review will form the basis for deter- as a source of Government revenues and foreign exchange, mining the extent of our future involvement in the urban hydropower development will be a crucial long-term com- sector. Such an involvement could possibly follow a city ponent of sustained growth. The Government's strategy assistance strategy approach, based on individual cities' com- has been to seek donor support for hydropower projects mitment to address urban problems. In the urban envi- while creating a policy and regulatory framework which will 35 ronment sub-sector, the Government's strategy is to avoid increasingly encourage private finance to invest in the sec- adding to the numerous donors already involved. We are tor. Significant progress has been made, with 285 MW of discussing working with ADB to provide some overarching generating capacity in the pipeline (including the ADE-sup- assistance in setting the policy framework for multi-donor ported 144 MW Kali Gandaki project and the IFC-sup- assistance in the urban sector, including the urban environ- ment. Power 11. Only 15% of Nepal's population currently has_electric- ity, and the Government wants to exploit Nepal's vast hy- dro-electric potential, estimated at about 43,000 MW, of which only about 260 MW has so far been developed. To this end the Government's 1992 Hydropower D evelop- ment Policy encourages private sector investment, both domestic and foreign, in all areas of the power sector, to overcome public sector capacity constraints. It also aims to: (i) expand transmission and distribution systems, includ- ing rural electrification to assist in agricultural production and cottage industries; (ii) improve the quality and reliabil-  COUNTRY ASSISTANCE STRATEGY: NEPAL __ag ported 60 MW Khimti Khola and 36MW Upper Bhote Koshi projects). This additional capacity will be enough to double domestic power production by 2002 and meet pro- jected domestic demand in that year. IDA also hopes to present to the Board soon a project supporting: (i) ex- panded transmission and distribution, and better inter- connections with the Eastern India and Northern India grids so as to increase power exchange; (ii) a Power Devel- opment Fund, which will serve as a catalyst for long-term private investment in small and medium size projects that have passed through an extensive screening and ranking exercise, including environmental and social criteria. The Government is at the same time beginning to explore the ning, provision, and financing of health care. The IDA- options for private sector finance for large hydropower proj- supported Population and Family Health Project has been ects for export purposes. hampered by slow decision-making and staff changes, al- though it has picked up momentum since the extended 36 13. We will integrate our initiatives in the power sector into Mid-Term Review in 1997. Despite almost universal knowl- an overall approach to water resource use through the de- edge of family planning methods, only 31 percent of mar- velopment of an overall water resource strategy as part of ried women use a modern method, partly as a consequence the Irrigation Sector Credit. This will allow assessment of of a lack of timely counseling. And the ability to meet the optimum joint use of water projects for both irrigation future demand is threatened by increasing supply con- and drinking water and power. We also hope to help de- straints. Public expenditure in health represents merely velop, through an Energy Sector Strategy, a more coherent two dollars per capita annually, the quality of service is poor, approach to implementing structural changes in Nepal's and the sector suffers from over-centralized planning, bud- power sector, developing rural energy supply, and advanc- geting and implementation, slow decision-making, high ing the export of hydropower. turnover of managers and service providers, lack of essen- tial drugs in many health posts, widespread absenteeism in the remoter areas, lack of program ownership by the local communities; and little involvement of the NGOs and the Health and Population private sector in the planning, delivery and financing of HNP services. While the poor, especially those in remote 14. The challenge of Nepal's health and population prob- areas, often have to turn to unqualified providers for essen- lems is enormous. Health indicators are among the worst tial care, the relatively better-off often rely on hospitals that in the world, and mortality remains high despite some re- may lack appropriate quality control. Cost-recovery thus cent declines. As worryingly, population growth remains has particular potential in the tertiary se~t0r if quality can be high, threatening the gains from other developmental ef- improved. forts. Donor-supported efforts to improve health and fam- ily planning standards have suffered from the absence of a 15. Given this context, the vision for the sector for the near well- coordina~ed and cost-effective approach to the plan- future needs to be realistic and simple-cost-effective de-  WORLD BANK: COUNTRY ASSISTANCE STQTEGY livery of the most essential health services, with special private and non-governmental mechanisms. Finally, Nepal's attention to the poor and under-served populations. The health sector has had both the opportunity and the burden goal would be to ensure a package of affordable, sustain- of extensive collaboration with Nepal's foreign partners. able and prioritized interventions, based on burden of dis- Improving the efficiency and effectiveness of foreign assis- ease, reproductive and child health needs, nutrition, equity tance to the health sector will require that continuous ef- 37 and quality of care considerations. We will focus on: (i) a forts be undertaken to move toward sector wide approaches clear policy framework to pursue the above goal, backed by to such assistance, and to the donor's increasingly working unambiguous political commitment; (ii) increased empha- in a more consortium like manner sis on decentralized / private sector management of health service delivery, along with improvements in administra- tive and planning capacities at the central level; (iii) resource mobilization and utilization much beyond the current lev- Education els if absorptive capacity justifies, and effective donor coor- dination; and (iv) consolidating critical components of pri- 16. Nepal has come further in improving education than in mary health care and building a functional first level referral improving health conditions. Gross enrollment rates are care system at the District level under the public sector, with very high, and ac,cess to schools is impressive (almost 90% adaptations to specific local needs-with Government play- of school-age children can reach schools within 30 min- ing a facilitating and regulatory role for the private sector utes) given the remoteness of much of the population. with respect to specialized tertiary care. Public-private part- IDA's support under Primary Education Project, Earthquake nership will be especially important in the urban areas. In Schools Rehabilitation Project and Basic and Primary Edu- the Kathmandu Valley and major industrial municipalities cation Project (BPEP) has contributed significantly to this and VDCs of the Terai, the opportunities for promoting end. Education quality, however, is often poor. Participa- collaboration between the public, private, and non-gov- tion rates are low, retention poor, and sector management ernmental sectors are already considerable and will become is weak, particularly for implementing the much needed larger over time. The public sector will be able to focus a decentralization of the financing and management of larger share of its efforts on the finance and regulation of schooling. In fact since the early 1970s, the central health services that will be increasingly provided through Government has assumed many ·p owers and responsibili-  COUNTRY ASSISTANCE STRATEGY: NEPAL ties once exercised by District and local educational sessment, better use of instructional materials, recurrent authorities. Some consequences are weak administrative teacher training and more effective academic supervision capacity at the District level, shortage of qualified personnel, and teacher support mechanism. The project would aim to and a lack of community ownership of schools and an raise the net enrollment ratio from less than 70% to 90% unnecessarily high burden on the Government budget. by 2003. Educationally and socially disadvantaged groups Large subsidies to higher education add to the budgetary which have low rates of participation and poor retention, burden. Teacher absenteeism is high, reflecting low especially girls, would be targeted for project interventions. accountability of the system due to weak management and The project aims to increase the primary cycle completion supervision of schools as well as the lack of effective rate now about 40% to close to 75% by 2003. community involvement. Many professional functions such as curriculum renewal, teacher training, and design of non- 19. We are also supporting two higher education projects formal education programs have been performed by the and we are currently reviewing overall needs in the educa- donor-supported BPEP. tion sector. One of the issues we are studying is the rapidly increasing demand for secondary education as primary en- 17. Due to poor quality of education in Government rollments and completions accelerate. We recognize that schools, parents who have the means are increasingly send- the problem is particularly acute at the higher secondary 38 ing their children to private schools, and this trend is in- level and for private schools where the absence of regula- creasing every year. Although primarily an urban phenom- tion is especially worrisome. We will consider supporting enon, private schools are opening in semi-urban and some reform and investment in the secondary education sector, rural areas as well. Many teachers in Government schools particularly the higher secondary level, if our analysis con- also send their children to private schools. Private enroll- firms sufficient commitment for reform and willingness to ment at the primary level is around 8% but it is more than implement cost-effective strategies that ensure a supply of 30% at the secondary level where there has been much less qualified graduates to the job market. Government involvement. 18. The proposed second Basic and Primary Education Project would introduce more decentralized implementa- Financial Sector tion arrangements, supporting implementation of the Government's plans to devolve responsibility for the man- 20. As mentioned in paragraph 12 of the main text, there agement and financing of schooling with the intention of are very serious problems in the financial sector, with the raising overall accountability of Government schools. We two largest banks in poor condition. The Bank has been envisage: (i) the progressive introduction of"bottom-up" working with the Government in reforming the financial planning, budgeting and monitoring by local bodies, who sector since 1990, but its continuing weakness shows that would have responsibility for implementing comprehen- our strategy has not been fully successful. Consequently sive school improvement plans; (ii) priority setting and our future work will focus on those areas in which our supervision of implementation at the District level with expertise, and/ or lack of other donors interest will provide particular focus on teacher rationalization and school map- the biggest return from our investment in terms of time ping to sustain the program; and (iii) improvements in and money effort. Specifically we will focus on four core classroom processes and practices through continuous as- areas: . - - - WORLD BANK: COUNTRY ASSISTANCE STRATEGY l!l II completing the studies for RBB, implementing the study's recommendations, retaining a financial advisor for the sale and commissioning an independent portfolio review. IFC's investment and lending activities will complement this ap- proach by strengthening tl:re capacity of the private sector to intermediate capital. Given the very limited availability of domestic term finance, IFC will initially focus on leasing and project finance companies. The success of such com- panies will however depend on the introduction of ad- equate regulation as well as the reduction of distortions in the domestic financial market. IFC is also supporting the necessary changes in leasing regulation to make leasing a • h~lp the Government restructure and privatize the two viable financing instrument. commercial banks, RBB and NBL. Such assistance should result in the exit of the Government from all commer- cial banking activities, an efficient operation of private commercial banks without lending or branching restric- Telecommunications 39 tions, • support NRB's Regulatory and Supervisory Department 22. Nepal's telecommunications coverage is low, reflecting to reach the required levels of technical capacity, admin- in part the small size of the urban population. Fewer than istrative autonomy and staff numbers to reduce sys- one in a hundred people have a telephone, one of the low- temic risks in the financial sector, est ratios in the world, and main telephone line growth has • create a simple and uniform legal framework for the failed to meet demand for basic services, particularly in semi operations of Nepal's financial system; and urban and rural areas. TheNepal Telecommunications Cor- • establish private financial institutions, using IFC's ca- poration (NTC) has been a monopoly provider of basic pacity to take corporate risk and to bring in strong tech- services; while line.installation costs have been remarkably nical partners to achieve a transfer of know-how. low, the monopoly has not been conducive to commercial 21. We would implement this strategy through two credits, operations and C:.onsumer orientation. Recently, however, supported by an ongoing PHRD grant. The first could the Government established a regulatory agency, the Nepal support strengthening of financial regulation and infra- Telecommunica- structure and could be funded by a LIL, which can be pro- tions Authority, cessed very quickly. The speed of processing will depend and has taken ini- on the Government's actions in completing project prepa- tiatives to priva- ration, implementing financial policy reform measures and tize NTC and in- taking actions to privatize NBL. The second part of the troduce competi- reform program would support the restructuring and tion in basic, cellu- privatization o fRBB and would be financed by a Financial lar and other ser- Sector Development Credit. Processing of this project vices by private would be contingent on progress in implementing the LIL, operators. - - COUNTRY ASSISTANCE STRATEGY: NEPAL !M.XM~3--L.~. HUMM !!!!!! !!11!1 !!!!!L .& i !!I - EM 23. To date IDA-supported projects in the telecommunica- (iii) advise on conversion ofNTC under the Company Act tions sector have had unusually few implementation and eventual privatization; and (iv) expand the availability problems, with very successful donor cooperation. We aim of rural telecommunications, with the aim of providing to build on this successful record through a proposed telephone connections in the majority of the 2,500 villages Telecommunications Sector Reform Credit, which would currently without service. We hope to work closely with continue to support public sector intervention in the rural NGOs and community groups in the provision of rural areas, but would help move urban telecommunications services, and to develop the provision of telephone ser- services to the private sector. To this end we would support vices as a local income generator. Already at a CAS meeting the Government's efforts to: (i) ensure the efficient opera- on the telecommunications sector, NGOs have expressed tion ofNTA and of a frequency management and moni- an interest in collaborating in extending, operating and toring system; (ii) introduce competition, including facili- maintaining rural access. tating interconnection between public/ private networks; 40 Nepal: CAS Program Matrix . . . - - - - Performance Benchmarks I Diagnosis Strategy Overall !DA-Assisted Initiatives Instruments Other Donors Public Expenditure Improve prioritization and Introduce three year rolling Rational criteria for selection of PER Review DFID (UK) Poor prioritization and manage- manageme nt of public funds expenditure & full funding of core investment program ; ensure ment of public expend itures ; core projects & progranis ; priority funding for core investment priority projects/programs often reduce number of projects in and recurrent expenditures. underfunded PIP ; eliminate unbudgeted expenditures . Health and Family Planning Provide essential health/ By 2004 : lower infant mortality Good supervision , training and Population and Health WHO , UNICEF, UNFPA, High infant mortality (75 per family planning services & to 60 per thousand ; reduce career development for MCH Project; Rural Water Supply UNCD , UNDP, USAID , UK, thousand ); low contraceptive safe water supply through total fertility rate to 4.2; workers ; increase contraceptive Project . EU , Japan , Norway, Germany, prevalence rate (30%) , and high public/private/CBO sectors ; improve sustainable access to prevalence rate to 36% by 2004; India, China , Switzerland , total fertility rate (4.6); low life improve peripheral health safe water by 15 percentage 900 user -group managed rural INGOs. expectancy (55 years); low facilities - PHCs , HPs/SHPs , points . water schemes by March 2002. access to safe water (44%). District hospitals ; enhance institutional capacity of, and devolve adequate authority to , DHOs for implementation of essential preventative & curative health services . Education Increase quality of, and By 2004; increase net enrollment Basic & Primary Education ADB , UNICEF, NORAD, UK, Literacy level at 48% for those access to , education , By 2004 : increase primary rate from 68% to 80%; increase 11 ; possible Secondary Denmark. over 6 years old ; boy's net especially for girls & women: cycle completion rate from literacy rate from 48% to 55%; Education Project if ongoing primary school enrollment 80%, introduce demand-driven 41 % to 70%; decrease primary 100% gross enrollment for girls and study makes good case ; but girls only 58% ; quality is low vocational education where school completion from 11 .8 disadvantaged children in each possible LIL for vocational and repetition rates are high . feasible ; improve instructional years to 9.5 years ; one female BPEP District ; increase average education delivery ; improve educational teacher in each school ; scores for grades 3 & 5 from 50% facilities and , where quality increase overall percentage of to 70%; increase pass rate for can be maintained, increase female teachers from 19% to grades 4 & 5 from 70% to 80%. accommodation to facilitate 30%. higher enrollment. Rural Development Increase agricultural Increase area under year-round Irrigation & Research & ADB , UK, FAO , USAID, I Agriculture yields lowest in South productivity/yields and on/off Increase agricultural output irrigation by 40 ,000 hectares in Extension Projects ; Forest Japan, IFAD , OPEC Fund , Asia; only 20% of arable land farm employment to reduce growth to 5% a year from its NISP Districts, and increase yields irrigated year-round ; high levels poverty while ensuring current level below 3%. by 15-20% & incomes by 20% by Management Study; future lending in irrigation, land Kuwait Fund , Sweden , Germany, Switzerland , I .. of rural underemployment; sustainable management of Increase yields of paddy, 2004; develop location specific resource management and Australia, Denmark, Finland , localized deforestation and natural resources . wheat & maize by 15% by agricultural techniques to increase biodiversity ; Rural Water Saudi Fund , INGOs. biodiversity loss. 2004 from their current levels yields ; increase beneficiary Supply Projects ; support for of 2.3 , 1.4 & 1. 7 tons/hectare. participation . Increase number of ADB dialogue ; Water Increase area under year-round irrigation from 350,000 extension worker field days & farmer classes by 20% by 2004. Resource & Terai Develop- ment Strategy Studies & I hectares to 450,000 hectares Implement a sustainable financing study for PER of role of by 2004. Improve input quality mechanism for biodiversity public sector in rural control & agricultural technolo- conservation . development. gies and practices . Extend the community forestry activities to cover 45% of the rural population by 2004. I I l~I  ltl Nepal: GAS Program Matrix I ~--- Performance Benchmarks - - - - . Diagnosis Strategy Overall !DA-Assisted Initiatives Instruments Other Donors Infrastructure Improve road maintenance Balance between recurrent and 300 km labor-based feeder roads LIL for Rural Infrastruc- ADB , UK, Sweden , Low road density 0.1 km per sq . and rehabilitation ; also km ; problems created by invest in new infrastruc- capital expenditures in accord with roads Priority Investment constructed ; DDCs able to plan and manage 700 km of District road ture ; Road Maintenance II ; Urban Water and Sanitation Japan, India, China, Germany. I difficult geography com- ture ; including low-cost Plan ; 56% of strategic maintenance and upgradation and Rehabilitation ; Multi Modal pounded by inadequate road labor-based roads , where highways network in good or other rural infrastructure ; eight Transit Project. -c I .. maintenance; poor manage- required ; improve quality medium condition ; adoption of Districts with sustainable District- ment of urban water supply in and increase quantity of labor-base technology in managed maintenance by 2005. Kathmandu ; inadequate sewer water to consumers . District road construction ; Private sector managed Kathmandu I connections and water supply increased reporting of outputs water supply in the Kathmandu valley in the Kathmandu Valley. achieved against budget to 6Mm' and 4Mm' outside of the categories; 10% increase in valley by 2004. sewer connections ; unac- counted water reduced from 35% to 25%. Financial Sector Improve efficiency and Comprehensive financial Divestiture of Rastriya Banijya Bank; PHRD Grant; Financial ADB , USAID, Weak central bank regulatory stability of financial sector . sector reform introduced, reduce NPA to 10%; reduce the Sector Credit Germany, Denmark. capacity ; burdensome Improve accounting and including for rural banking . number of loss-making rural branches ; Government mandates ; auditing standards and improve internal management of major banking system dominated by practices to international banks ; inefficient state-owned banks . standards . Telecommunications Increase rural telephone Increase rural connections to NTA/MOIC regulatory capacity Telecommunicatio ns Sector Denmark, Finland, Low level of rural telephone connections ; adequate almost all 4,000 VDCs ; strengthened ; NTC made ready for Reform Project Japan. connections ; lack of private interconnection provision ; adequate interconnection privatization ; cellular & other special sector participation and license second operator to provision; license second service providers licensed ; ensure competition . compete with NTC and operator to compete with NTC ; timely submission of financial introduce private sector decrease the number of staff statements. competition in telecommu- per 1,000 working lines from nications. 25 to 15 by 2002. Power Increase domestic power Increase power generation to Act as catalyst for 200 MW of new Power Development ADB , USAID, UNDP, Low level of access to supply and facilitate 550 MW by 2004; increase private-sector power generation ; 420 Project Japan, Finland, electricity (only 15% of private sector export where rural connections to 50 ,000; circuit km of power transmission and Germany, Canada, population , co mpared to 34% feasible ; enhance energy conservation 2,800 km of distribution lines Norway. SA average); huge hydropower measures ; establish clear constructed . export potential framework for private sector investment. Gl :n )> "U I 0 0 m (/) Gi ""' ~ :n 0 (/) ~ m • The World Bank 1818 H. Street, N.W Washington, D.C. 20443, USA Telephone: 12024771234 Facsimile: 1202 477 6391 www.worldbank.org Yak & Yeti Hotel Complex P.O. Box 798 Kathmandu, Nepal Telephone: ++9711 226792/3 Facsimile: ++9771 225112 www.worldbank.org.np ~;.,