Nepal - Policies and prospects for accelerated growth

Report No. 3577-NEP F 1 EU p Nepal: Policies and Prospects FlLrcopy for Accelerated Growth October 15, 1981 South Asia Programs Department FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Before October, 1975: US$1 = Nepalese Rupees (Rs) 10.56 Rs 1 = US$0.094 Rs 139.1 = Indian Rupees (IRs) 100 From October, 1975 - US$1 = Rs 12.50 March, 1978: Rs 1 = US$0.080 Rs 139.1 = IRs 100 From March, 1978 - US$1 = Rs 12.00 September, 1981: Rs 1 - US$0.083 Rs 145.1 = IRs 100 After September, 1981: US$1 = Rs 13.20 Rs 1 = US$0.076 Rs 145.1 = IRs 100 Fiscal Year Nepal Fiscal Year - July 16 to July 15 This report is based on the findings of a mission which visited Nepal in March/April 1981, composed of Rene Vandendries (Chief of Mission), Hassan Fazel, Jane Loos, John Tillman, and Peter Wright.  FOR OFFICIAL USE ONLY NEPAL: POLICIES AND PROSPECTS FOR ACCELERATED GROWTH Table of Contents Page No. List of Tables in the Text Country Data Glossary and Acronyms Maps SUMMARY AND CONCLUSIONS *............................. ............... i-iv I. REVIEW OF PAST ECONOMIC PERFORMANCE AND OF THE SIXTH PLAN .. 1 A. Background .......... ................................ I B. A Review of the Past ...... ........... ... . . . ............... 2 C. The Sixth Plan ... . .... ................... 8 II. DEVELOPMENT ADMINISTRATION . ......... ..... . ... ........ . 11 A. Growth of the Public Sector 11 B. The Administrative Environment ....................... 12 C. Planning and Budgeting ................ ............. . . 15 D. Local Administration , ...... .... . . ...... .......... . . . 16 E. The Parastatal Sector ...................... ........... 17 F. Conclusion . .............. .... .......... ............ 19 III. PROSPECTS FOR INCREASING DOMESTIC RESOURCE MOBILIZATION .... 21 A. Introduction ................. ..... . ........... 21 B. Review of the Present Revenue System ..... ............. 22 C. Measures and Scope for Further Resource Mobilization .. 23 D. Conclusion ...... ... ...... ......... ............................ 29 IV. A STRATEGY FOR DEVELOPMENT . ....... ...... ..*................ 30 A. Introduction .... **............................. *........ 30 B. Proposed Development Spending Program for the Sixth Plan ............ .................. ........................... 30 C. Macro-Economic Outlook ............................................ 41 D. External Assistance Needs ..................... a........ 46 STATISTICAL APPENDIX This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization,  LIST OF TABLES IN THE TEXT Tables Page No. I-1 Sectoral Composition of Public Development Spending 3 1-2 Estimated Growth Rates of Development Spending 5 I-3 Selected Public Finance Indicators 7 III-1 Composition of Government Revenues 22 III-2 Potential Additional Public Sector Resource Mobilization 29 IV-1 Government Development Spending 39 IV-2 National Production and Expenditure, 1979/80-1984/85 43 IV-3 Government Budget, 1979/80-1984/85 44 IV-4 Balance of Payments, 1979/80-1984/85 45 IV-5 Distribution of Total Aid Disbursements, 1977/78 47 IV-6 Aid Pipeline, 1980/81-1984/85 49  Page 1 of 2 pages COUNTRY DATA - NEPAL AREA POPULATION DENSITY 140,797 sq. km. 14.3 million (1979/80) 102 per sq. km. Rate of Growth: 2.2% (from 1970 to 1979) a/ 332 per sq. km. agriculutural land POPULATION CHARACTERISTICS (1979) HEALTH Crude Btrth Rate (per '000) 42 Population per physician 35,253 Crude Death Rate (per '000) 20 Population per hospital bed 6,294 Infant Mortality (per '000 live births) 150 (1977) INCOME DISTRIBUTION DISTRIBUTION OF LAND OWNERSHIP % of national income, highest quintile 59% % owned by top 10% of owners lowest quintile 5% % owned by smallest 10% of owners ACCESS TO PIPED WATER (1975) ACCESS TO ELECTRICITY (1975) % of population - urban 81% % of population - 3.0 - rural 5% NUTRITION EDUCATION (1975-1976) Calorie intake as % of requirements 91% Adult literacy rate X 19% a/ Per capital protein intake 48 Primary school enrollment % 69% (grams per day) GNP PER CAPITA IN 1980: US$140 GROSS DOMESTIC PRODUCT IN 1980 ANNUAL RATE OF GROWTH, 1960-1979 a/ (%, constant prices) US$ Mln. % GDP at Market Prices 1,989 100.0 3.1 Gross Domestic Investment 268 13.5 Gross Domestic Saving 148 7.4 Current Account Balance (exc. official grants) -72 -3.6 Exports of Goods, NFS 241 12.1 Imports of Goods, NFS 361 18.1 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1979/80 Value Added Value Added Labor Force b/ Per Worker US$ Mln. % Mln. - a/ US$ Agriculture 1,065 57 6.9 93 155 Tndustry c/ 251 14 0.1 2 1,696 Services 543 29 0.4 5 1,468 Total/Average 1,859 100 7.4 100 251 GOVERNMENT FINANCE CENTRAL GOVERNMENT Rs. Mln. % of GDP 1976/77 1977/78 1978/79 1979/80 1979/80 Current Receipts 1,302.2 1,559.3 1,791.6 1,852.9 7.8 Current Expenditures 784.1 815.0 982.1 1,078.9 4.5 Current Surplus 518.1 744.3 809.5 774.0 3.2 Capital Expenditure 1,486.4 1,792.9 61.5 2,346.6 9.6 External Assistance (Net) 538.1 830.7 989.4 2,293.2 5.5 Note: All conversions to US dollars in this table are at the average exchange rate prevailing during the period covered. a/ World Development Report 1981. b/ Total labor force; unemployed are allocated to sector of their normal occupation. c/ Includes mining, manufacturing, construction and utilities. .. not available  Page 2 of 2 pages MONEY, CREDIT AND PRICES 1976 1977 1978 1979 1980 1981 (mid-April) a/ (Million Rs outstanding mid-July) Money and QuLasi Money 2,524 3,223 3,772 4,512 5,285 6,097 Bank Credit to Government 480 750 966 1,129 1,258 1,254 Bank Credit to Public Enterprise 567 511 869 1,080 1,131 1,190 Bank Credit to Private Sector 716 864 1,072 1,332 1,917 2,382 Money and Quasi Money as % of GDP 14.5 18.7 19.3 21.1 22.1 ... General Price Index (1974/75 = 100) 99.3 102.0 113.3 117.3 128.7 146.4 (March) Annual Percentage Changes in: General Price Index -0.7 2.7 11.2 3.5 9.8 12.4 b/ Bank Credit to Government 67.8 66.3 28.9 16.9 11.4 -6.2 c/ Bank Credit to Public Enterprises -0.4 -9.9 70.1 24.3 4.7 3.0 c/ Bank Credit to Private Sector -8.6 20.7 24.1 24.3 43.9 28.8 c/ TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS 1979/80 d/ UJS$ Mm.- % 1977/78 1978/79 1979/80 (Millions us$) Exports, f.o.b. e/ 88.8 108.5 95.1 Agricultural products 67.2 70.7 Imports, c.i.f. e/ 209.7 244.7 294.3 Manufactures 27.9 29.3 Trade Balance 120.9 -135.2 -199.2 Total 95.1 100.0 Services, net 47.6 65.6 91.6 of which: Tourism 3(0.2 41.8 54.0 EXTERNAL DEBT, DECEMBER 31, 1980 US$ Mln. Transfers, net 25.1 30.1 36.1 of which: Private Remit. 18.3 25.5 29.6 Public Debt, inc. guaranteed 176.7 Indian Excise Fund 25.1 3.0 3.1 Non-Guaranteed Private Debt Current Account Balance -48.2 -39.7 -71.7 Total Outstanding & Disbursed 176.7 (exc. grants) Official Grants 23.9 42.9 63.2 Official Capital, net 22.7 36.0 48.1 Private Capital, net -10.4 9.7 -37.4 DEBT SERVICE RATIO for 1979/80 f/ Change in Reserves 12.0 -48.9 -2.2 Public Debt, inc. guaranteed 1.5 (- Increase) Gross Reserves (mid-July) 140.6 179.8 187.0 Net Reserves 131.6 151.0 153.2 IBRD/IDA LENDING, (July 1981)(Millions US$) ILBPD IDA Fuel and Related Materials Imports of which: Petroleum 18.6 16.7 30.2 Outstanding & Disbursed 96.3 Exports of which: Petroleum -- -- -- Undisbursed --- 200.3 Outstanding, incl. undisbursed 296.6 RATE OF EXCHANGE From October 1975 Through October 1975 through March 20, 1978 Since March 20, 1978 US$1.00 = NRs 10.56 US1.00 = NRs 12.5 US$1.00 = NRs 12.00 NR 1.00 = US$ 0.095 NR 1.00 = US$ 0.08 NR 1.00 = USS 0.083 a/ Estimate. b/ March 1981 vs. March 1980. c/ April 1981 vs. April 1980. d/ Customs basis. e/ Payments basis. f/ Ratio of Debt Service to Exports of Goods and Non-Factor Services. not applicable South Asia Programs Department September 1981  GLOSSARY AND ACRONYMS ADBN - Agricultural Development Bank of Nepal ADB - Asian Development Bank AIC - Agricultural Inputs Corporation AMD - Administrative Management Department CDO - Chief District Officer CEDA - Centre for Economic Development and Administration HMG - His Majesty's Government LDO - Local Development Officer NFC - Nepal Food Corporation O&M - Operations and Maintenance OPEC - Organization of Petroleum Exporting Countries Panchayat - Three tiered system of political and developmental organizations; local or village panchayats, made up of nine wards each, serve about 800 families; district panchayats are made up of representatives from the village panchayats from within the administrative district; national panchayat or national parliament is made up of 112 directly elected representatives from each district plus 28 appointed members. PSC - Public Service Commission PDLT - Panchayat Development and Land Tax RNAC - Royal Nepal Airlines Corporation Sajha - Local cooperatives, serving on average three to four local panchayats, which provide credit, sale of agricultural inputs and basic consumer goods, and marketing facilities and which act as the local agent for AIC. Terai - An extension of the Gangetic Plains of India, accounting for about 17% of total area of Nepal UNDP - United Nations Development Programme UNFPA - United Nations Fund for Population Activities USAID - United States Agency for International Development   IBRD 157782 '._ 80 82- NJ E PA LB SEPTEMBER 1981 ._ ~~~~~~~~~~~~~~~NEPAL C H I N A INDIA o Roads (EHisting): I N FRASTRUCTURE I3 1NDIA / ,I,. -\ et. \_ SE ,, ' p,r'' f uz \ SIMITOT Roadsi(Exsting);-.-~ 'Railways 30'- 'u ~~~~~ 4 Primary All-weather Highways '-'-o---.-- Ropeway~~~~~~~~~~~~~~Prmay Al-eaherHihwys opwa F ' Local Access (Feeder) Roads 4' International Airport BTJTANU 0~~~~A iRoads (Under Construction), 4 Other Developed Airports aororn >181 '-' = = Primary All-weather Highways + Principal STOL AirportsaryAllweaherHigWOY + ri-cipl SOL irprt Local Access (Feeder) Roads t !Regional Headquarters 1\i}/ O .. .Road Feasibility Study 'District Headquarters Ko,.o.,uoori . to0 iii: s^U'>c^ 0; S < 0 \ X A. Urban Water Supply Systems o|OtherTTownso udtres t> \@ Li4 tF\ j ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~FIHydroelectric Plants ItrainlBudre 69 ~~~~~~~~ \.J" UTrA ~~~~~~~~~~~~~~~~Main Transmisson Lines (Existing) '-MorRvs A ttUXiESW;= E t oTIFQlWoT / / 5 i Mairn Transmission Lines (Under Construction) 0~~~~~~~~~~~~~ F >. t 9 tN5Ao . /01 fHl + a'' Am HMI \ALi A;