Nepal - Country assistance strategy : Chairman's concluding remarks

NEPAL: COUNTRY ASSISTANCE STRATEGY CHAIRMAN'S CONCLUDING REMARKS Meeting of the Executive Directors November 18,2003 The Executive Directors discussed the Country Assistance Strategy for Nepal and appreciatedits open andfrank assessmentof the severechallengesfacing the country. Directors welcomed the continued progress beingmade in the implementation of the wide range of reforms, particularly in the areas of governance,public expenditure management and improving service delivery. Nevertheless,Directorsnoted with concern the continuedfragile security situation, political uncertainty, the breakdownof democratic processes, andhow these pose formidable challenges to implementing the Poverty Reduction Strategy (PRS). Directors urged the Government to continueto address these concernsespeciallywith regard to negotiating a resolution to the civil conflict and restoring democraticprocesses in the country. They stressed that failure to address these problems will directly limit Nepal's ability to reduce povertyand undermnine the case for programmaticsupport. Directors were generally supportive of the CAS,and its results orientation and its linkage to performance. Theywelcomed the Bank's intensive engagement in the country, and noted the strong focus on governance and stressed that greater attention begiven to issues of corruption and the inability to provide basic services in rural and remote parts of the country. Some Directors however, expressed concern about the proposed level of supportgiven the range of the base case and about the appropriateness of the PRSC instrument given the country's circumstances, particularly on the fiduciary capacity side. Theysuggested that there was still a need to err on the side of caution, especially withregard to non-investment lending. Directors also urged that a mechanism be put in place that would consistently and objectively evaluate implementationprogress that is taking place on the ground. Some Directors stressed the need for more quantitative intermediate monitoring indicators and benchmarks as the country's own PRS policy framework evolved and deepened. They emphasizedthat more workneeds to bedone in terms of strengtheningcapacity-especially with regard to monitoring and evaluation, absorption capacity as well as overall debt sustainability. Directors welcomed the ongoinganalytical work on social and gender issues with a view to a deeperunderstanding of the institutionalunderpinnings of caste, ethnic and gender- based economic andsocialexclusionin Nepal. Directors noted the substantial risks associated with the proposed strategy, with some suggesting that the risks associated with the insurgency, political situationand overall implementationmay have beenunderestimatedin the document. Nevertheless,there was general consensus that it was even a greater risk for the internationalcommunity to withdraw support to Nepal entirely and risk the potential of a serious breakdown of state institutions. In this connection, Directors also noted the need for an appropriate division of labor between the Bank and the ADB. Finally, Directors noted the broadening ownership of the Government to the reform efforts and moreimportantlyleadershipwith regardto the donor coordinationefforts.