71741 Interim Strategy Note for Nepal FY12-FY13 THE WORLD BANK GROUP Interim Strategy Note for Nepal FY12-FY13 THE WORLD BANK GROUP 2 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 3 THE WORLD BANK GROUP This joint IDA-IFC Interim Strategy Note (ISN) was prepared under the guidance of Ellen Goldstein (IDA Country Director from July 1, 2011) and Susan Goldmark (IDA Country Director till June 30, 2011), and Kyle Kelhofer (IFC Country Manager), by a team led by Rajashree Paralkar, Task Team Leader (IDA) and Gunjan Gulati (IFC) and co-led by Hiramani Ghimire (IDA) and Rajeev Gopal (IFC). The ISN Core Team included: Roshan Bajracharya, Dikshya Dawadi, Christine Kimes, Hisanobu Shishido, and Chaohua Zhang from IDA and Shamsher Singh and Junko Oikawa from IFC. Core team support was provided by Kalyan Nemkul and Kamla Devi Pariadhaven. The following country team members and other colleagues also made important contributions to the ISN: Gayatri Acharya, Farhad Ahmed, Afrah Alawi Al-Ahmadi, Preeti Arora, Saurav Dev Bhatta, Stephanie Borsboom, Saurabh Suresh Dani, Michael Haney, Andras Horvai, Vikram Menon, Diep Nguyen-Van Houtte, Ceren Ozer, Balakrishna Menon Parameswaran, Bigyan Pradhan, Claudia Sadoff, Silva Shrestha, Venkatesh Sundararaman, Rajib Upadhya, and Albertus Voetberg. From IFC – Taneem Ahad, Sushil Anand, Jennifer Isern, Bhanu Mehrotra, Albena Melin, Anupa Pant, Sudarshan Pareek, Rudmila Rahman, Sabin Shrestha, Rajesh Sinha, and Cheena Trikha. From MIGA - Paul Barbour. Consultants – Anil Chitrakar and Alema Siddiky. Special thanks are extended to the Government of Nepal counterpart team and World Bank Group development partners for their contributions. Designed and processed by: Print Communication, 4782746, Kathmandu Cover Photo: Mingma Sherpa Photo Credits: Kiran Pandey (Pages 2&3, 5, 6, 10, 11, 13, 22, 32, 35, 41, 47, 48, 56, 59, 60, 62 65, 104 & 105); Shruti Shrestha (Page 18); Laxmi Prasad Ngakhusi (Page 21); Bhim Ghimire (Page 30); Narendra Shrestha (Pages 42, 45, 51, 54 and 66); Bikash Karki (Page 36). Printer: Sama Printers, Kathmandu Interim Strategy Note for Nepal FY12-FY13 The last Interim Strategy Note for Nepal (Report No. 48297-NP) was discussed on June 4, 2009. CURRENCY EQUIVALENTS (Exchange Rate Effective as of August 3, 2011) Currency Unit = Nepali Rupee (NPR) US$1.00 = NPR 70.86 GOVERNMENT FISCAL YEAR July 16 – July 15 (fiscal year starting on July 16, 2011 is designated as FY11/12) WORLD BANK GROUP FISCAL YEAR July 1 – June 30 (fiscal year starting on July 1, 2011 is designated as FY12) IDA IFC Vice President (IDA)/Regional Director (IFC): Isabel Guerrero Thomas Davenport Country Director (IDA)/Country Manager (IFC): Ellen Goldstein Kyle Kelhofer Task Team Leader: Rajashree Paralkar Gunjan Gulati Co-Task Team Leader: Hiramani Ghimire Rajeev Gopal Interim Strategy Note for Nepal 5 6 Interim Strategy Note for Nepal ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities MFIs Microfinance Institutions ADB Asian Development Bank MDTF Multi-Donor Trust Fund AF Additional Financing MIGA Multilateral Investment Guarantee Agency AGEI Adolescent Girls’ Employment Initiative MOF Ministry of Finance AMP Aid Management Platform MTEF Medium-Term Expenditure Framework A2F Access to Finance NBF Nepal Business Forum CA Constituent Assembly NRB Nepal Rastra Bank CSO Civil Society Organization NICRP Nepal Investment Climate Reform Program CDD Community Driven Development NLTA Non-Lending Technical Assistance CIF Climate Investment Fund NOC Nepal Oil Corporation CMD Community Managed & Driven NPC National Planning Commission DFID UK Department for International Development NPPR Nepal Portfolio Performance Review DRM Disaster Risk Management PAF Poverty Alleviation Fund EVENT Enhanced Vocational Education and Training PFM Public Financial Management FDI Foreign Direct investment PPCR Pilot Program for Climate Resilience FPCR Food Price Crisis Response PPP Public Private Partnership FY Fiscal Year PRAN Program for Accountability in Nepal GAAP Governance Accountability Action Plan RSF Risk-Sharing Facilities GDP Gross Domestic Product RTI Right to Information GESI Gender Equality and Social Inclusion SAFANSI South Asia Food and Nutrition Security Initiative GFDRR Global Facility for Disaster Reduction & Recovery SARTI South Asia Regional Trade and Integration GON Government of Nepal SAWI South Asia Water Initiative GPF Governance Partnership Facility SEZ Special Economic Zone GSEA Gender and Social Exclusion Assessment SME Small and Medium Enterprises ICA Investment Climate Assessment SREP Scaling-Up Renewable Energy Program ICT Information Communication Technology SWAp(s) Sector Wide Approach(es) IDA International Development Association TEVT Technical Education and Vocational Training IFC International Finance Corporation UNDP United Nations Development Program ISN Interim Strategy Note UNMIN United Nations Mission in Nepal JICA Japan International Cooperation Agency WBG World Bank Group MDG(s) Millennium Development Goal(s) WDR World Development Report Interim Strategy Note for Nepal 7 Table of Contents EXECUTIVE SUMMARY 10 I. Country Context 14 A. Political Context 16 B. Economic Update and Outlook 17 C. Poverty, Social Development and the Millennium Development Goals 19 D. GON’s Development Strategy 21 II. Key highlights of the last ISN implementation and Lessons Learned 22 Iii. Proposed World Bank Group Strategic Priorities and Program, FY2012-2013 32 A. Proposed Pillars and Cross-Cutting Themes 39 Cross Cutting Theme 1: Strengthening Governance and Accountability 39 Cross Cutting Theme 2: Fostering Gender Equality and Social Inclusion 44 Pillar 1: Enhancing Connectivity and Productivity for Growth 46 Pillar 2: Reducing Vulnerabilities and Improving Resilience 50 Pillar 3: Promoting access to better quality services 52 B. World Bank Group Instruments of Engagement 57 C. Partnerships: Donor Harmonization and Aid Effectiveness 61 iV. Managing Risks 62 TABLES Table 1: Recent Macroeconomic Developments 20 Table 2: Selected Indicators in Social Sector 21 Table 3: IDA Selectivity Choices 34 Table 4: Donor Support for Peace Building, Justice and Security 38 Table 5: Nepal – Country Scenarios for FY12-13 67 BOXES Box 1: Development Results of the RAIDP and PAF 24 Box 2: The World Bank and Local Governance in Nepal 43 8 Interim Strategy Note for Nepal FIGURE Figure 1: Nepal ISN Strategic Areas and Outcomes 39 ATTACHMENTS Attachment A: Results of FY10-11 ISN 70 Attachment B: Program for Accountability in Nepal (PRAN) 74 Attachment C: IDA-IFC Areas of Collaboration 75 Attachment D: Official Development Assistance and Development Partner Coordination 76 Attachment E: Results Framework 81 ANNEXES Annex A1: Key Economic & Program Indicators - Change from Last ISN 86 Annex 2-1: Nepal at a Glance 87 Annex B2: Selected Indicators of Bank Portfolio Performance and Management 91 Annex B3: IDA Indicative Program Summary 92 Annex B3: (i) IFC Investment Operations Program 93 Annex B3: (ii) IFC Indicative Programme Summary 94 Annex B4: Indicative Program of Non-Lending Activities (IDA) 95 Annex B5: Social Indicators 96 Annex B6: Key Economic Indicators 97 Annex B7: Key Exposure Indicators 99 Annex B8: Operations Portfolio (IDA) 100 Annex B8: IFC - Committed and Disbursed Outstanding Investment Portfolio 102 Interim Strategy Note for Nepal 9 10 Interim Strategy Note for Nepal Interim Strategy Note for Nepal FY12-FY13 Executive Summary Interim Strategy Note for Nepal 11 Executive Summary Country context i. Nepal is passing through a momentous and prolonged political transition. This has two inter-related processes: the promulgation of a new Constitution and the completion of the ongoing peace process. The new Constitution is supposed to lead to a major restructuring of Nepal into a federal state. This process will involve challenges in terms of managing ethnic aspirations and maintaining political stability. The integration/rehabilitation of ex- Maoist combatants is one of the core issues of the peace process. ii. Political transition and attainment of peace has overshadowed economic issues. Real GDP growth in FY10 was 4.6 percent, with agriculture, construction, financial and other services, and consumption being the major sources of growth. International migration is a major safety valve; remittances are estimated to be equivalent to 25-30 percent of GDP. But remittances have failed to offset the effects of a high trade deficit and capital flight. FY11 GDP growth is estimated to be 3.5 percent due to poor performance in non-agricultural sectors, delayed budget implementation and tight credit conditions. Nepal maintained a policy of prudent fiscal management during FY10 and through mid-FY11, but expenditure quality remains an issue. iii. Notwithstanding the challenging political environment, the country has made significant progress in social development (ii) reducing vulnerabilities and improving resilience; and (iii) indicators. Many of the Millennium Development Goal (MDG) promoting access to better quality services. Its cross-cutting indicators have improved, and poverty levels are declining. Inclusion themes which permeate all operations are: (i) governance and and representation have received increased policy attention, but accountability, and (ii) gender equality and social inclusion. capacity building of marginalized communities remains challenging. vi. The 2011 World Development Report (WDR) on Conflict, National development strategy and the Security and Development provides valuable insights for this World Bank Group’s response ISN. Many of the principles of engagement proposed by the WDR iv. The Government’s development strategy is outlined in an are relevant for Nepal: enhancing political and economic inclusion, ‘approach paper’ for the Three Year Interim Plan (July 2010-June delivering early results to build public trust and confidence, focusing 2013). This plan has two major objectives - poverty alleviation on social accountability tools, applying community managed/driven and the establishment of sustainable peace through inclusive, (CMD) approaches, and strengthening institutions in a phased employment-centric growth. The proposed Interim Strategy Note approach. The ISN encompasses these principles. (ISN) focuses on agriculture, infrastructure, and social development which are basic priorities for Nepal and consistent with the Plan. Proposed program vii. The ISN concept served as an input to IDA’s 2011 South Asia v. The ISN will continue to pursue the overarching goal regional strategy which emphasizes selectivity based on client of supporting the Government of Nepal (GON) to build a demand, possibility to leverage results (particularly for MDGs), and peaceful, prosperous and just Nepal. The ISN’s three pillars opportunities for regional integration. In addition, criteria for Nepal include: (i) enhancing connectivity and productivity for growth; operations include: (i) government and broad political support; 12 Interim Strategy Note for Nepal pyramid, rural areas, infrastructure building, and improving access to finance for MSMEs; (ii) addressing climate change through mitigation and adaptation, including renewable energy and energy efficiency investments and projects which focus on cleaner technology; and (iii) supporting regional and global integration through intra- regional trade facilitation, South-South investments, transport and logistics, investment climate and inclusive business models. Instruments of engagement x.  The ISN incorporates a mix of sector investment loans and knowledge services. IDA’s primary instrument will be the Sector Investment Loans, using Additional Financings and emergency operations where needed. The knowledge services will largely be delivered on a programmatic basis and “just-in- time� support will be continued. Risk management xi.  Major risks to the proposed programs are associated with political uncertainties. Given the short time frame of the ISN, it does not propose large irreversible commitments. Attainment of results will be carefully monitored and corrective measures taken. If security risks increase in specific geographic areas, IDA will exit from those areas. (ii) IDA’s comparative advantage vis-à-vis other development xii. IDA will engage with political leaders on a regular basis partners; and (iii) evidence of effective implementation capacity. about development challenges so that all key parties are All proposed FY12/13 IDA Nepal operations build upon ongoing informed. Implementation of IDA’s access to information operations which are being implemented successfully. policy and ongoing geo-mapping initiatives will improve information flows about IDA’s interventions. Maintaining strong viii.  IDA will maintain its interventions in seven areas under relationships with other development partners will help to the three ISN pillars: (i) power, roads, and, agriculture; (ii) food collectively solve problems with the government. Closer links security/livelihood vulnerability; and (iii) education, health, and with civil society through new initiatives will help strengthen urban services. An eighth area of climate change and disaster the accountability of IDA-supported interventions. management will continue to be supported exclusively through trust funds. These interventions should contribute to increased xiii. The community-managed and driven (CMD) project access to social and infrastructure services. The important portfolio has shown robustness in the context of changing area of private sector development will be taken up by the IFC risks and an uncertain political situation. For the bulk of leading on improving access to finance and investment climate. our program, the track record on CMD operations shows that they can withstand quite serious conflict situations. These ix.  IFC’s program in Nepal will seek to design and implement operations will be maintained while the capacity of the state programs aligned with the three strategic pillars of IFC’s continues to be built. The ISN program will be flexible to regional South Asia Strategy which include: (i) promoting respond to the new challenges of implementing the proposed inclusive growth through emphasizing the base of the economic federal structure once this has been formally adopted. Interim Strategy Note for Nepal 13 14 Interim Strategy Note for Nepal Interim Strategy Note for Nepal FY12-FY13 Country Context Interim Strategy Note for Nepal 15 Country context 1.  Nepal is passing through a momentous and prolonged A.  Political Context political transition. In the past five years, Nepalis have 3.  Political instability has been the defining feature of witnessed the signing of a peace agreement between the Nepali state during the last two decades. Nepal has the Maoists and the state, a new Interim Constitution, the had 20 governments since the introduction of democracy election of a Constituent Assembly (which declared Nepal a in 1990. Inter-party and intra-party tensions have increased federal republic), four governments (three during FY10-11 among almost all parties because of growing factionalism. Interim Strategy Note period), and the rise of strong ethnic Given political uncertainties, actions of political parties and identity movements. The political compact around a new their leaders are often guided by short-term interests. Their Constitution that endorses the devolution of power, social willingness and ability to work towards longer-term benefits and political inclusion, democratic elections, and political which might require sacrifices now or at the expense of short- accountability represents an opportunity in this transition. A term interests is limited. new Prime Minister from the Unified Marxist Leninist (UML) party took office in February 2011 with the support of the 4.  Nepal is still emerging from a violent 10-year conflict Maoist party. However, inter and intra-party divisions make with some aftershocks. This has contributed to a progressive any government vulnerable. The major political parties are erosion of the effectiveness of some state institutions. For divided over core issues of the new Constitution including instance, poor law and order is a growing concern, particularly elections, systems of governance, and federalism. As a result, in certain geographic areas. Also, the conflict raised awareness the Constituent Assembly (CA) could not meet its extended that the Nepali state had been associated with exclusionary deadline of May 28, 2011 to pass the constitution. Now the political, social, and economic institutions that did not reflect deadline has been extended by three months to August 31, the country’s diversity. This has led to the rise of identity 20111. If a draft framework for the Constitution is ready during politics with an increasing demand for state recognition this time and the political parties agree on the Maoist ex- and greater accommodation of diverse social, cultural, and combatants re-integration into the Nepal Army, then a final ethnic identities. The Madhes Andolan of early 2007 led to possible extension of three months is likely. However, the the incorporation of the principle of federalism in the Interim Supreme Court has ruled that this must be the final extension. Constitution. One of the yet unresolved issues for the new constitution is the nature, form and degree of decentralization 2.  Given the extent of current transitions in Nepal, an of the state. These challenges need to be addressed as part interim strategy is being prepared, covering FY12 and of the country’s transition to peace and democracy. The CA FY132. Major milestones of the peace process are yet to be met provides an inclusive forum to negotiate these issues, but its and progress in constitution-writing has been slow. The new potential has not yet been fully utilized. Informal political Constitution is supposed to lead to a major restructuring of the forums and ‘street actions’ are popular as approaches to state as Nepal will adopt federalism as a fundamental principle resolving politically contested issues. Also, Nepal’s local of governance. Managing ethnic aspirations, including those government officials elected in 1999 were dismissed in 2002; of the Madhesis and Janajatis3 represents another challenge. the lack of elected local officials increases the challenge of In addition, elections both at national and local levels are making the state downwardly accountable to its citizens. supposed to be held after the Constitution is promulgated. The proposed interim strategy will set out some basic parameters 5.  Political transition and attainment of peace has of the World Bank Group (WBG) program but still retain the overshadowed economic issues. As a result, inadequate flexibility needed to deal with an uncertain and potentially attention has been given to issues of economic and other volatile birth of this new republic. If the situation stabilizes over reforms that could improve the investment climate, stimulate the next two years, it should be possible to prepare a Country growth and create more private sector jobs. Maintaining law Assistance Strategy (CAS) after this Interim Strategy Note (ISN). and order has been a fundamental challenge for improving the In the meantime, this ISN follows the previous two ISNs4. investment climate; 90 percent of firms interviewed for WBG’s 16 Interim Strategy Note for Nepal Investment Climate Assessment (ICA) cited poor law and order are currently food insecure; the impact of high food prices is as their key concern. While the political space to introduce most severe in economically-, geographically- and socially- difficult reform measures is very limited, some actions to marginalized communities. The country has also experienced a improve the current environment are underway. Economic series of droughts and erratic monsoons in food-insecure areas growth and increased private investment is dependent upon a which have reduced food availability and raised prices. The political settlement that promotes greater law and order. overall effect of rising or high food prices on the poor is therefore a function of location as well as prices. The urban poor are most B.  Economic Update and Outlook affected by high prices for staples and vegetables in urban 6.  Nepal’s economic growth has been adversely affected markets, while the rural poor – especially in remote, chronically by the political uncertainty. Real GDP growth was 4.6 percent food-insecure districts – are doubly impacted by high transport in FY10—following 4.9 percent in FY09 (see Table 1). Sources costs and grain prices. Recently improved production figures of growth include agriculture, construction, financial and other in both India and Nepal are likely to have a mitigating effect services, and consumption fueled by remittances. The remittance in the near term, but the government will have to continue its growth slowed to 11 percent (in NPR terms) from above 40 concerted effort to encourage a supply response and increase percent during the two previous years, and international reserves agricultural productivity to address chronic food insecurity in declined by about US$300 million to 6.5 months of imports. vulnerable regions. Official remittances, excluding informal flows and flows from India, remains about 20 percent of GDP. (When these flows are included, 9.  The impact of international fuel price increases has remittances are estimated to be equivalent to 25-30 percent of largely been on government finances in Nepal. The GDP). The trade deficit rose to 27 percent of GDP with surging government has not passed through all the increase of oil imports and sluggish exports, and the overall BOP balance turned import prices, except gasoline6, to consumers, and thus the to deficit in FY10 as official remittances could not offset the high impact appears as higher loss of Nepal Oil Corporation (NOC) trade deficit. Capital flight added to the BOP deficit. To address and their monthly losses have increased. To the extent there this situation, the Nepal Rastra Bank (NRB) controlled gold imports have been modest adjustments in retail prices of various oil (which was a major conduit for capital flight) and tightened the products, the poor have been affected--but modestly. This cap on real estate lending. is in part because the real poor in rural areas consume few oil products (mostly kerosene for lighting). The urban poor, 7.  Despite political uncertainties, Nepal maintained a however, consume more LPG7 for cooking and the impact on policy of prudent fiscal management during FY10 and them would need to be monitored. through mid-FY11. The rapid expansion of expenditures (20 percent of GDP in FY10) has been supported by a strong 10.  The joint Bank-Fund Debt Sustainability Analysis revenue performance (15 percent of GDP) and the availability of 2011 concludes that Nepal remains at moderate risk of foreign aid (2.5 percent) and domestic borrowing (2.5 of debt distress8. Nepal has successfully lowered its debt percent). But expenditure quality remains an issue because level from 43 to 35.4 percent of GDP from 2007 to 2011, and of limited implementation capacity, emerging public many indicators are well below the sustainability thresholds. financial management problems, and increasing transfers, Though debt dynamics are resilient to standard stress tests, some of which have limited transparency. The four-month debt indicators breach the thresholds under alternative delay in passage of the FY11 budget adversely affected the scenarios analyzing debt risks arising due to financial implementation speed of government projects. sector vulnerabilities and to state-owned enterprises (SOEs) contingent liabilities. External public debt stands at US$3.5 8.  Food prices in Nepal have risen rapidly, affecting the poor, billion (22 percent of GDP) in 2011. The largest share of this, especially in food-insecure areas. Food inflation remains at 86 percent, is owed to the World Bank (WB) and the Asian about 15-17 percent nationally . An estimated 3.5 million people 5 Development Bank (ADB). The remainder is owed to bilateral Interim Strategy Note for Nepal 17 Country context 18 Interim Strategy Note for Nepal donors, among which Japan is the main creditor accounting of inflation rate in India is likely to bring inflation down in for about 7 percent of total external public debt. The Nepal. The exchange rate is assumed to remain pegged to the domestic public debt stock stands at 13.4 percent of GDP. In Indian rupee at the current level over the projection period9. addition to the public debt, private external debt stands at 1.7 The current account is expected to remain in a slight deficit in percent of GDP and is comprised of trade credits. FY12 and FY13 at around 1.3-1.5 percent of GDP, from a deficit of 1.7 percent of GDP this fiscal year. Exports of goods and 11.  Since July 2010, NRB has been adopting some strong services are assumed to grow at an average of 7 percent over measures to reduce risks to the financial system. The the ISN period. Remittances are expected to grow by around financial sector’s vulnerability rose during 2010 as many 12 percent annually. While import value growth is expected private banks continued to increase their exposure to the real to be around 8.5 and 9.5 percent in FY12 and FY13; slower estate sector at artificially inflated asset values associated with economic growth and slower remittances may slow down a real estate boom. NRB is strengthening its regulatory and such growth. Foreign direct investment (FDI) is expected to supervision capacity - which is particularly important given the finance only around 15 percent of the current account deficit. growing complexity of the sector. The officially announced The overall fiscal deficit (after grants) is projected to rise to level of non-performing assets of the banking system has now 3 percent of GDP in FY12 and FY13, with financing coming come down from 3.6 percent in 2009 to 2.5 percent in 2010. more from domestic than from foreign sources. Revenues The current interbank rate is about 10 percent and the 91-day are projected to be around 18 percent of GDP during the ISN treasury rate is 8-9 percent, well above historical averages. period. Grants are estimated to be 2.6 percent of GDP in FY11 Although NRB has taken some measures to minimize the and are expected to hover around this rate. Expenditures are risks, vulnerabilities remain. With the recent calming down around 20 percent of GDP in FY11 and are expected to rise of the boom, real estate transactions have largely halted and to 21 percent in FY12 as army integration costs, and interest asset prices have started to come down. However, financial rates on loans to cover NOC losses are expected to increase. In institutions that have high real estate exposure remain addition, about 1 percent of GDP is estimated to be NOC losses, vulnerable due to possible deterioration of asset quality. which are financed domestically and recorded as contingent liabilities. The primary deficit is estimated to be 1.7 percent of 12.  Economic outlook during the ISN period points to a GDP during the ISN period. Net domestic financing is likely to weaker growth performance. The baseline projections take increase to 2.6 percent of GDP in FY12. into account some financial sector weaknesses. GDP growth is expected to be sluggish during the ISN period. In FY11, growth C. Poverty, Social Development and is estimated to be 3.5 percent due to external shocks to oil and the Millennium Development Goals food prices, vulnerabilities in the banking sector and as last 14.  Poverty has multi-dimensional manifestations in years’ agricultural growth normalizes. Real GDP growth forecast Nepal. Nepal is the seventeenth poorest country in the for FY12 is around 3 percent in light of worsening structural world with an annual per capita income of US$49010. The economic weaknesses. Growth performance may strengthen proportion of poor people has declined substantially in recent slightly in FY13 to 3.4 percent as external price shocks fade, and years from 42 percent in 1995-96 to 31 percent in 2003-04 if financial sector vulnerabilities are addressed, and prudent (CBS 2005)11. More recent estimates show that since 2004, the fiscal and macro policies are followed. national poverty rate may have declined further12. Income disparity has, however, increased during the same period 13.  Inflation is around 9.5 percent in FY11, but is expected which is reflected in the Gini co-efficient going up from 0.34 to gradually decline to around 9 percent in FY12 and 8.3 in 1996 to 0.41 in 2003. The Human Development Index ranks percent in FY13. Nepal’s inflation rate is tightly linked to Nepal at 138 out of 169 countries in 2011, up from 136 out of the inflation in India, and is marginally higher, due to lower 159 countries in 2003 (i.e. an increase from the 14th percentile productivity in Nepal. Over the ISN period, expected slowdown to the 19th percentile). Interim Strategy Note for Nepal 19 Country context 15.  Progress on several social indicators has been maternal mortality, but the rate is still high at 380 per 100,000 impressive (see Table 2). Many of the Millennium live births14. However, the nutritional status of women and Development Goal (MDG) indicators have improved (primary children has not shown much improvement with chronic education, education gender parity, under-5 mortality). malnutrition affecting about half of the nation’s children. 16.  Notwithstanding the difficult and challenging political 18.  Despite the lower cultural and economic status environment, the country has made commendable strides traditionally accorded to women, gender relations in in primary education. The net primary enrollment rate is Nepal are undergoing significant changes. Women have more than 90 percent. Gender and social parity have been been officially recognized (in the Comprehensive Peace achieved in primary education. The Gender Parity Index for Agreement, the Interim Constitution and the Three Year secondary school net enrollment has also increased from 0.87 Interim Plan) as a social group similar to the Dalits, Madhesis, (2007) to 0.98 (2010). This improving trend is also true for Muslims and Janajatis. The issue of gender discrimination is different caste and ethnic groups. Nepal’s completion rates, thus coming to be understood as not just a welfare issue or however, are unsatisfactory though improving13. even a development issue but as a political issue that must be addressed as part of the process of state restructuring. 17. Health sector indicators have also improved. The The National Planning Commission (NPC) introduced the under-5 mortality rate has declined from 85 per 1000 in 2000 Gender Equality and Social Inclusion (GESI) framework into to 48 in 2009 and the infant mortality rate from 63 per 1000 the preparation of the Three Year Interim Plan (2007-10) which live births to 39 during the same period. At least one-third of systematically identifies the major barriers faced by these deliveries are now in the presence of trained health workers. groups. It also incorporates special measures and processes Nepal won the MDG Millennium award in 2010 for reducing into these programs to help overcome these barriers. The Recent Macroeconomic Table 1 Developments FY08 FY09 FY10 FY11 FY12 FY13 Actual Est Projected Real GDP Growth at market prices (%) 6.1 4.9 4.6 3.5 3 3.4 Inflation (%) 7.7 12.6 9.6 9.5 9.2 8.3 T-Bills (91 days) 4.2 5.8 6.5 7.7 Real interest rate (%) -3.48 -7.37 -4 -0.67 Investment (% of GDP) 21.9 21.4 20.2 18 21 21 Public 4 4.5 4.5 3.8 6.8 6.9 Private 17.8 16.9 15.7 14.2 14.2 14.2 Government Revenues (% of GDP) 12.9 14.2 15.2 15.4 15.3 15.7 Foreign Grants (% of GDP) 2.6 2.7 2.6 2.5 3.1 3.6 Current Spending (% of GDP) 11.2 12.9 12.9 12.8 13.5 13.5 Capital Spending (% of GDP) 6.2 6.9 7.2 7.3 7.5 8.2 Deficit after Grants (% of GDP) 2.1 3 2.5 2.1 3 2.9 Net Domestic Financing (% of GDP) 2 3 2.4 2.2 2.6 2.4 CA/GDP (%) 2.9 4.2 -2.4 -1.3 -1.5 -1.3 Remittance/GDP (%) 16.5 21.5 20.1 21.3 22.2 22.9 Trade Balance/GDP (%) -18 -21.5 -26.4 -25.5 -26.2 -26.9 Gross Off. Res. (In mnths of merchandise imports) 11.3 6 5.6 5.3 4.7 4.1 PEER (2000=100, +=appreciation) 105 104.7 109 113 GDP at market prices (in billions of U.S. dollars) 12.6 12.9 15.7 16.9 18.5 20.2 Source: NRB, MOF Economic Survey, and WB Staff Estimates 20 Interim Strategy Note for Nepal Selected Indicators in Table 2 Social Sector D. GON’s Development Strategy Indicators 1995-1996 Latest available 19.  The Government’s development strategy is outlined Headcount Poverty Rate 42% 31% (2003-04) in an ‘approach paper’ for the Three Year Interim Plan Gini coefficient 34.2 41.4 (2003-04) (July 2010-June 2013). This plan has two major objectives Net primary enrollment 67.5% 94.5% (2010) Gender Parity ratio in primary education 0.66 0.99 (2010) - poverty alleviation and the establishment of sustainable Under 5 mortality rate (per 1000) 118 48 (2009) peace through inclusive, employment-centric growth. IMR (per 1000 live births) 79 39 (2009) Full immunization coverage 43% 83% (2006) 20.  Given the transitory nature of Nepal’s government, Nepal’s basic development priorities have been identified government has enacted several laws and policies such as as those acceptable to all major political groups. Based on a system of reservations in the CA elections and the 2007 policies and programs under successive governments since Amendment to the Civil Service Act that included a 45 the political change in 2006, poverty alleviation, employment- percent reservation in state structures for those from excluded centric growth, agriculture, infrastructure building, and social groups and backward regions. Gender disparities in political development are basic priorities for Nepal. All of these priorities participation are decreasing both in elected and administrative require good governance and social inclusion which have government. Women now make up over 30 percent of the received policy emphasis (although still very weak in practice) representatives in parliament . Implementation of an inclusion 15 under all recent governments. Their annual budgets reflect this. policy of women in the civil service shows positive trends.16 The proposed ISN is consistent with these broad priorities. Interim Strategy Note for Nepal 21 22 Interim Strategy Note for Nepal Interim Strategy Note for Nepal FY12-FY13 Key highlights of the last ISN implementation and Lessons Learned Interim Strategy Note for Nepal 23 Key highlights of the last ISN implementation and Lessons Learned Development Results 21.  Overall, good progress has been made in the BOX 1 Development Results of the RAIDP and PAF implementation of the FY10-11 ISN. Despite challenging and uncertain operating environment and the prolonged The Rural Access Improvement and stalemate on the political front, there have been successes Decentralization Project (RAIDP) has improved in many areas and most projects are on track to achieve their access to markets, schools and health clinics in development objectives and ISN milestones at end-FY11 were remote and rural areas of the country. The project has rehabilitated and upgraded 540 kilometers of largely met (see Box 1 and Annex A). existing dry-season rural roads to all-season standard. It financed maintenance of about 3,500 kilometers 22.  Innovative approaches have been developed of rural roads, constructed 102 trail bridges, and in some projects to address fiduciary weaknesses developed small community infrastructure. A survey impacting project implementation. With support from of five completed roads found an increase of more the International Development Association (IDA), some than 20 percent in motorized and non-motorized trips during the first year of operations. Similarly, travel time institutions have demonstrated good skills for efficient for road users was cut from an average trip time of 2.6 procurement management; for example, the Department hours to 32 minutes. of Roads (DOR) has been a pioneer in the introduction of e-bidding, with the consequence that competition for The recently completed rigorous impact evaluation contracts has significantly improved. Preliminary analysis studies in mid-FY11 for the Poverty Alleviation shows that between FY08-09 and FY09-10, DOR made a Fund (PAF) show that this program has resulted in enhancing income and consumption levels. The net saving of roughly US$10 million per year. In the health evaluations indicate that 66 percent of households sector, implementation of the procurement improvement covered under PAF have obtained a minimum action plan resulted in better quality bid documents and income increase of 15 percent (in real terms) and bid evaluation reports, and in an increase in the number of have achieved an average increase in income bidders, increased competition and lower costs. For example, of 82.5 percent in real terms and 182 percent in the procurement of contraceptives attracted twice the nominal terms. PAF has covered 40 poorest districts, supporting 14,831 Community Organizations and number of bidders and led to a cost saving of US$137,250 405,000 poor households, and has benefitted more compared to the previous year. than 513,000 households. Of the total number of poor households supported currently, 57 percent 23. Progress in some other areas has been slow. are Dalit and Janajati. The estimated net program Agreements on the framework for a sector-wide approach impact on per capita consumption has also been in rural roads and water and sanitation have been deferred positive and in particular, growth has been higher for Dalit and Janajati and for the poorer segments of the due to local insecurity, weak country systems and lack of population, implying program’s ability to distribute clarity regarding local responsibilities. Key bills dealing with growth towards targeted groups. The impact on other the financial sector, power, economic zones and investment welfare indicators is also positive and significant: are pending in the CA. There has been limited progress on 10 percent points decrease in incidence of food strengthening core public sector institutions and systems, in insufficiency and 6 percent points increase in school particular on public procurement monitoring and financial enrolment rate for children aged 5-15. The program’s positive effect is also seen in access to services management. Key positions in the Oversight Agencies and (agriculture centers, community forest groups, farmers’ the Government (e.g., Auditor General, all five Commissioners groups) and women’s empowerment. of the Commission for Investigation of Abuse of Authority) remain unfilled because of the political stalemate. Efforts to reduce the 16 hour load shedding gap during the dry 24 Interim Strategy Note for Nepal season have been unsuccessful. Also, stand-alone technical 26.  Similarly, the introduction of the Governance and assistance operations have had very limited success. Accountability Action Plan (GAAP) process has been a requirement for all new projects. On-going projects Tools to Promote Accountability and with a substantial implementation period remaining were Conflict Sensitivity retrofitted with GAAPs to ensure governance sensitivity. The 24.  During the last ISN, the Bank committed to improving GAAP process starts with a detailed review of governance and accountability and conflict sensitivity in its operations corruption vulnerability challenges. A variety of measures through the introduction of a Peace Filter, Governance are then identified for each operation that aim to strengthen and Accountability Action Plan and social accountability the governance framework for project interventions, mechanisms. Progress on designing each of these diagnostic identify entry points for social accountability mechanisms, tools has been good; but implementation needs to be and establish transparency and right-to-information (RTI) strengthened. arrangements. An example of a good GAAP is “Governance, Peace and Security Assessment� developed by the roads 25. The last ISN committed to the use of a Peace Filter project team, which received an internal WB global award for to improve the peace and conflict sensitivity of IDA- delivering the most innovative and more broadly applicable supported operations in this difficult and unstable approach to addressing governance and anti-corruption operating environment. More specifically, the peace filter issues. Both the peace filter and the GAAP have led to an was intended to help task teams better understand the increasing focus on communications strategy and stakeholder operating environment at both national and local levels, as analysis for the program, including for advisory activities. well as possible drivers of conflict through a deeper analysis on institutions, stakeholders and benefit-sharing. Peace filter 27.  During the ISN period, IDA also put increasing analyses have been conducted for all new projects in the emphasis on promoting social accountability efforts as a current ISN period, as well as at the sector level, for energy, way of doing business. Social accountability mechanisms irrigation, natural resources and education. The filter was have been designed in all new projects and strengthened in revised during the ISN period to map it to the Operational some ongoing projects (and have been incorporated in the Risk Assessment Framework (ORAF) and customize it to the GAAPs). Given the lack of elected local government, local different project stages (identification, preparation, and citizens’ groups become even more important as partners implementation). Peace and conflict sensitivity training in monitoring program implementation and as demanders was also organized for WBG staff, government staff and of good governance. The scaling up of social accountability donor partners to enhance understanding and awareness of mechanisms in the lending program is being complemented conflict-related issues and how they can be addressed in the by the Program for Accountability in Nepal (PRAN – See Annex operational space. Findings from the peace filter analysis were B), which was launched in November 2010 with the goal of translated into the design of new operations. For instance, strengthening civil society organizations in the area of social the Kabeli Transmission Project incorporated a new rural accountability. electrification component to provide electricity to communities in the footprint of the new line, and the phasing of the Rani Process Improvements Jamara Kulariya Irrigation project was designed with local 28.  The principles underlying the strategy have been to Water User Associations to minimize conflict at the local level. keep the program simple and flexible. In order to keep our Implementation modalities for the rural roads project were program simple, the Additional Financing (AF) instrument has designed to increase job creation at the local level. been used effectively, sometimes combined with emergency Interim Strategy Note for Nepal 25 Key highlights of the last ISN implementation and Lessons Learned operations (Social Safety Nets, Power Development). For for conflict-affected groups and capacity building efforts. some other projects, a phased approach has been adopted In a parallel initiative, the ADB and IDA have partnered to (Rani Jamaya Kulariya Irrigation, Kabeli Transmission and jointly address the challenge of public procurement reform. proposed Kabeli Generation). Maintaining flexibility in our Similarly, nine development partners have formed a Public program has encouraged the teams to restructure some Financial Management (PFM) Donor Group to coordinate projects (Emergency Peace Support and Second Higher donor support for strengthening PFM systems and the Education) and quickly respond to government requests accountability role of civil society and a PFM Multi-Donor for new un-programmed projects that fit within the overall Trust Fund (MDTF) was activated in December 2010. IDA has strategic framework (Enhanced Vocational Education and also worked closely with a variety of development partners Training, PAF II AF). On the advisory side, a financial sector over the ISN period to support the government of Nepal in its contingency exercise was undertaken to respond to the efforts to secure global funding for climate change resilience emerging vulnerabilities in the sector. (PPCR), scaling up renewable energy sources (SREP), and food security and agriculture (GAFSP). The International Finance Donor Harmonization and Aid Corporation (IFC) works with various donors on its advisory Effectiveness projects such as climate resilience/mitigation, access to 29.  Donor harmonization and coordination has improved finance, investment climate reform and with lending agencies over the ISN period and new partnerships have been such as IDA, KfW, DEG and ADB for infrastructure and the forged (see Attachment D). Donor heads meet every financial sector projects. two weeks to discuss priorities and share information. A country-wide public consultation to inform our development Regional Integration and Global partner strategies was conducted jointly by the ADB, the UK Initiatives Department for International Development (DFID) and IDA. 30.  WBG is actively supporting Nepal’s participation in Coordination among development partners has focused regional and multilateral global initiatives. The Regional on leveraging the comparative advantages of each partner. Wildlife Program18, Strengthening Regional Cooperation Joint work on education and health sector-wide approaches for Wildlife Protection in Asia, is assisting participating (SWAps) intensified with a focus to improve development governments to build capacity, institutions and incentives results. In addition to IDA and DFID, a Joint Financing to collaborate in tackling illegal wildlife trade and other Agreement was signed by other SWAp partners for the health conservation threats to habitats in border areas. The Nepal- SWAp, including AusAID, GAVI17, UNFPA, USAID, and WHO. India Electricity Transmission and Trade Project will enable This will reduce transactions costs to all parties due to the power trade through imports into Nepal as needed, and single fiduciary framework (including a single audit) that is eventually, export of surplus power to India. In the non- being used. In the roads sector, programmatic analytical lending areas, IDA is channeling support to Nepal from the work is underway using a joint peer review process, with regional programs like the South Asia Water Initiative (SAWI) donors active in the sector, each taking the lead on an agreed and the South Asia Food and Nutrition Security Initiative priority theme for analysis. During 2010, the local donor (SAFANSI). IFC is enhancing regional integration through community in Nepal, coordinated by the United Nations (UN), investment activities, such as trade finance facilities for local collectively drafted a “Peace and Development Strategy� with banks and advisory activities, such as investment climate the goal of assessing the current status of the peace process, strengthening and trade facilitation. Nepal is also part of identifying peace and development linkages, and offering IFC’s SME Venture Fund global initiative which focuses on development community support in identified priority areas. eight high-risk IDA countries. In addition, IDA and IFC plan IDA works closely with the UN and bilateral contributors to to collaborate on two new tentative programs, IDA’s North the Nepal Peace Trust Fund, to ensure coordinated support Eastern Region Trade and Transport Facilitation Program 26 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 27 Key highlights of the last ISN implementation and Lessons Learned (NER T&T) and IFCs planned South Asia Regional Trade and IDA Portfolio Integration (SARTI) program. Trade facilitation work by 33.  As of end-June 2011, Nepal’s portfolio includes IFC includes assisting governments to build efficient trade 19 IDA operations (two of which are regional projects) logistics systems and services through targeted reforms and 9 active trust funds, with a net commitment value aimed at reducing the time and cost for the private sector to of US$1.3 billion19 and US$142.1 million, respectively. import and export. IFC’s trade logistics reform work relies on US$238 million was disbursed in FY11 out of Nepal’s opening a strong private sector partnership approach to identify issues undisbursed balance of US$711.76 million, representing and validate results. a disbursement ratio of 33.4 percent. Three projects (18 percent) found themselves in problem project status, 31.  At the global level, Nepal is the only country in the representing about 16 percent of net IDA commitments. world that has been selected to participate in two Climate Overall, the uncertainties of the transition, combined Investment Fund (CIF) Pilot Programs – the Scaling Up with generally low institutional capacity, weak systems of Renewable Energy Program (SREP) and the Pilot Program for governance and accountability, rugged topography, and Climate Resilience (PPCR). Both these CIF programs involve a diverse socio-cultural mosaic, all make implementation joint design and implementation by the ADB, IDA, and IFC, challenging. Physical security remains a concern in some as well as collaboration with other donors (such as DFID, areas. Continuous implementation support from the country Denmark, the United States) to ensure complementarity with office has facilitated the acceleration of implementation rates local programs. in the second half of the FY, which has made possible the strong disbursement performance in FY11. IDA-IFC collaboration 32.  Nepal has been selected as a pilot country to 34.  To address project implementation problems, implement an enhanced joint strategy to leverage IDA targeted restructurings and partial cancellations are and IFC resources and realize synergies. Building upon being undertaken and have contributed to improved co-located offices and staff, IFC and IDA work together closely, performance. Intensive implementation support through particularly in the areas of financial sector, i.e., e-payments, continuous dialogue by field-based teams has moved projects infrastructure, hydropower, climate change, and business out of problem status in the past. Such pro-activity has enabling environment (see Annex C). In hydropower, IFC and contributed to improve project quality in this difficult operating IDA are working together to support the Kabeli hydropower environment. During the past years, the Nepal Country Office project (37MW). The IDA-IFC joint work on climate change has strengthened its technical capacity to implement analytical ensures an approach that reinforces both public sector activities and operations (64 percent of Nepal task team leaders and private sector involvement through the PPCR and are field-based). In addition to the annual Nepal Portfolio SREP. IDA’s assistance on macroeconomics, financial sector, Performance Review (NPPR), semi-annual portfolio review and governance fronts facilitates IFC’s investments and meetings chaired by the line ministry are also conducted. Joint advisory work, especially the support for investment climate portfolio reviews with the ADB are under discussion at the reform. IFC’s investment climate work, in turn, reinforces sector level to enhance coordination, reduce transaction costs better public service delivery for businesses by creating for the Government, and promote cross-agency learning. stronger institutional mechanisms to support private sector development through the Nepal Business Forum (NBF). IFC IFC Portfolio would also continue to complement other ongoing donor 35.  IFC’s committed investment portfolio in Nepal stood support on Public Private Partnerships (PPP) and to provide at US$28 million as of June 30, 2011, consisting of power, the WBG a unique capability to focus on Nepal’s private sector transport, banking, microfinance, tourism, and trade development. finance lines. IFC invested in 11 projects (for US$29 million 28 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 29 Key highlights of the last ISN implementation and Lessons Learned 30 Interim Strategy Note for Nepal in total) in FY09 and FY10 and six projects (for around US$12.6 the overall growth environment, despite the difficulties. million in total) in FY11. IFC activity after being low during IFC sees this post-conflict period as a strategic time to FY2002-07, picked up after the peace agreement was signed assist the country and is working with the Government, in November 2006 and IFC re-opened its office in January development partners and the private sector to leverage 2008. This led to IFC’s investment of US$10 million in a local opportunities for private sector-led growth. Through its airline in August 2008. Nepal Investment Climate Reform Program (NICRP), it has embarked on a three-pronged approach of reforming 36.  On the investment side, IFC has prioritized on financial the regulatory environment, creating and supporting sector and infrastructure in Nepal. IFC’s investments include the NBF and assisting with the establishment of Special shares in two hydropower projects and, most recently, Economic Zones (SEZs). The three year NICRP is funded expansion of a hydropower project, an airline expansion, and through contribution by DFID-Nepal (US$7.25 million) investment in a Nepali microfinance institution which were and South Asia Enterprise Development Facility2 (SEDF2) IFC’s first support to the sectors in ten years. In addition, IFC core budget (US$750,000). IFC’s financial markets advisory has supported technology companies and trade finance in work – Access to Finance (A2F) – focuses on financial a number of commercial banks. However, investments in infrastructure, sustainable energy financing (SEF), SME Nepal, including for IFC, are constrained by a challenging lending, microfinance, credit information bureaus, secured regulatory and legal framework for foreign investment, transaction registries, e-payment and support to long-term poor governance and accounting practices, weakness in the lending institutions. Under its Sustainable Business Advisory domestic banking sector together with lack of a swap market (SBA), IFC is providing support to enhance the ability of for the Nepali Rupee, poor implementation of property rights, SMEs and farmers to increase revenues and expand access and heightened political uncertainty. In addition, country’s to markets by strengthening their management capacity logistical limitations, absence of supporting infrastructure and (financial literacy, business acumen) and technical skills the relatively smaller size of projects constrain investments, (farmer productivity). Currently, IFC is executing the Poultry especially in the manufacturing sector. Domestic supply side Supply Chain Strengthening project which works with SME constraints, especially the lack of reliable power supply and farms and two lead firms in the poultry sector. IFC is also high cost of credit, have also accentuated the sluggishness in a partner in the two climate change projects, PPCR and private investment. Indeed, in the five years to 2009, net FDI SREP in partnership with IDA and ADB. IFC is working with in Nepal averaged only 0.1 percent of GDP as compared to an local financial institutions to set up a new locally managed average of 1.9 percent for low-income developing countries. fund by end FY12 to support the SMEs in Nepal. This would Regulatory constraints such as inadequacy or absence of be part of SME Ventures, a new IFC Fund that provides a competitive bidding to award infrastructure projects and combination of investment products and advisory services the lack of an adequate framework and limited capacity to to entrepreneurs. Due to constraints noted above, IFC’s PPP conceive, implement and monitor PPPs have limited IFC’s PPP transactions advisory work in Nepal has been limited. transaction advisory work in Nepal. MIGA Portfolio 37.  On the advisory services side, IFC is engaged broadly 38.  MIGA’s gross exposure in Nepal is US$29.4 million, in four areas, including investment climate, access to all in the hydro-power sector. MIGA has not underwritten finance, sustainable business advisory and PPP advisory any new investments since 2001, but is seeking new services. On the investment climate, IFC is working towards investments to support. MIGA financially supports FIAS with creating new jobs, attracting investment and improving their investment climate work in Nepal. Interim Strategy Note for Nepal 31 32 Interim Strategy Note for Nepal Interim Strategy Note for Nepal FY12-FY13 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 Interim Strategy Note for Nepal 33 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 39.  The World Bank Group will continue to be more 40.  Based on the country needs and the underlying selective in terms of its interventions in the context of the economic situation, IFC proposes to be selective in its underlying political climate, IDA’s comparative advantage engagements. IFC will continue to place emphasis on vis-à-vis other development partners, constraints on infrastructure, financial and transportation sector. Within administrative budget and resource (IDA) availability. infrastructure, the focus will remain on hydropower and Additionally, the ISN proposes to maintain other principles renewable energy. In hydropower, IFC will initially continue underlying the previous ISN: aligning the strategy with broad to consider medium sized (10-50 MW) projects for the country priorities, harmonizing with donors, building on domestic market while large export oriented projects will IDA and IFC’s comparative advantage, designing community be supported over the long run once the transmission line based interventions where possible, and keeping the program networks are available and can support export of power. simple and flexible. Regarding selectivity, IDA will disengage Sectors like telecommunication are likely to be engaged in from lending in some sectors (see Table 3). The ADB, IDA and after evaluating individual opportunity. In the financial sector, DFID have agreed on those subsectors where all are active, IFC aims to focus on improving access to trade finance and one takes the lead or some of us withdraw. This process is explore possibility of extending credit lines to local banks. being extended to the UN and other bilateral agencies as Supporting commercial banks with equity investments can well. At this stage, the ISN does not foresee development also be considered thereafter. On PPP, IFC will look forward policy credits. IDA will also not be engaged in peace to initially supporting project implementation through operations involving security sector reform or any financial transaction advisory services and subsequently providing packages for ex-combatants. The important area of private funding if required. However, it would be important to sector development will be taken up by the IFC leading on leverage this with core strengths of the donor partners to improving access to finance and investment climate. The develop a framework for undertaking PPPs. On the non- Bank and IFC expect to work together on power development lending activities, IFC’s Sustainable Business Advisory (SBA) and agriculture. And, the IMF is likely to play a larger role in will continue to adopt the lead firm approach. In addition, the financial sector and macro-economic management. This IFC’s advisory work will continue to be based on cost sharing strategy would maintain IDA’s interventions in the following mechanism which further adds to IFC’s selectivity in the 7 areas, down from 13 areas during the last ISN: power, roads, country. agriculture, education, health, urban, and food and livelihood vulnerability. An eighth area of climate change and disaster 41.  The 2011 World Development Report (WDR) on management will be supported through trust funds that have Conflict, Security and Development provides valuable already been mobilized under the CIF and Global Facility for insights and lessons for working in fragile states. As a Disaster Risk Reduction (GFDRR). country still emerging out of a violent conflict, Nepal could IDA Selectivity Table 3 Choices FY10-11 ISN Activity Projects/AAA Comments Proposed Strategy GON Economic reform TA operation Closed Not continued No stand-alone TA operation; ongoing WB analytical support Financial Sector TA operation Closed/to be closed Not to be continued IMF/IFC + WB monitoring + contingency support option Telecommunication Closed Not continued ADB Judicial Reform IDF Closed Not continued DFID Private Sector Dev. ICA No project anticipated IFC leading with WB analytical support Avian Influenza To be closed Not to be continued UNICEF Peace Support To be closed in FY12 Not to be continued Bilateral donors, UN, EU, WB EVENT Project (training) Rural Water & Sanitation To be closed in FY13 Agreed exit strategy needed 34 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 35 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 36 Interim Strategy Note for Nepal adopt much of the WDR framework. Having said this, it is community level institutions and strengthen its outreach important to note upfront that although Nepal went through to vulnerable communities for delivering basic services and a decade-long conflict, it is not a standard post-conflict/ livelihood support. fragile country that experienced a substantial breakdown in institutions. Even as the conflict was ongoing, the basic 44.  At the portfolio level, IDA will explore opportunities Nepali public sector apparatus continued to function, to build specific linkages with other sector-specific CMD the macro-situation never spun out of control, and social projects to help meet the development objectives of the indicators and poverty conditions actually improved. overall program. During the last ISN period, the country team adopted a portfolio-wide approach to manage the 42.  Nevertheless, many of the principles of engagement CMD portfolio by using AFs and SWAps, which allowed proposed by the WDR are relevant for Nepal: enhancing the program to concentrate on developing a relatively political and economic inclusion, delivering early results narrow range of higher quality programs and then ensuring to build public trust and confidence, focusing on social sustained support. Nevertheless, in communities with accountability tools, applying community-driven approaches, multiple interventions, there is insufficient coordination and strengthening institutions in a phased approach. The across projects. This calls for a more integrated approach ISN encompasses all these principles with governance and to community engagement across multiple projects to accountability and gender equality and social inclusion encourage synergies. In a way, this collaboration has already being cross-cutting themes. The three-year capacity building started with the ongoing Power Development Project which program, PRAN, aims to enable practitioners from both civil supports micro-hydropower and is working with the PAF at society and government to promote improved governance the field level to explore ways to increase the daytime use of and public service delivery through the application of electricity for income-generating activities. We see similar social accountability approaches and tools. PRAN is initially opportunities to increase linkages with other CMD projects focusing on promoting social accountability in three priority which are delivering roads, irrigation, health, education, and areas: public financial management, municipal governance, social protection. The ongoing geo-coding of projects will and public service delivery where some early gains can be further strengthen these linkages. achieved. 45.  Nepal’s transition from conflict to peace has program 43.  Community-managed/driven (CMD) development implications for all development partners. On the program will continue to be an effective mechanism for IDA to side, the WDR’s top three priorities include citizen security, deliver services in this fragile context. Nearly half of IDA’s justice, and jobs. The WDR notes that “electricity, literally investment program in Nepal is delivered through various the most “visible� of all results, can be critical for progress in forms of CMD programs. These mechanisms have been security and job creation� 20. Improving the power situation resilient despite weak governance in the central and local is one of the key focus areas of the ISN as discussed under state institutions, a contentious political transition, a history pillar 1. In Nepal, delivery of basic services and infrastructure of prolonged insurgency in the rural areas, and the challenges has been repeatedly cited as the key “peace dividend� of remoteness arising from Nepal’s difficult terrain. The CMD that citizens want. WBG will continue to engage in the mechanisms have been found to be robust, well-targeted delivery of education, health, roads, power, etc. which are and are successfully delivering services to communities. so important to the poor communities. Migration is one of This ISN continues to build on the success of CMD programs the key conduits for job creation in Nepal – about one-third (see Box 1), both in terms of delivering quick results and of the male workforce works outside the country and about for contributing towards peace-building activities. In this 300,000 people migrate per year. The Enhanced Vocational context, the ongoing multi-sectoral PAF will be the key and Training Project (EVENT) will focus on training youth, with instrument of engagement and will continue to support Interim Strategy Note for Nepal 37 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 a focus on disadvantaged communities and women. Support 47.  The ISN concept served as an input to IDA’s 2011 to the agriculture sector will help create jobs and improve South Asia regional strategy. The strategy focuses on incomes in the rural areas. With IDA’s increasing focus on selectivity based on client demand, possibility to leverage selectivity and comparative disadvantage in the areas of results (especially in terms of MDGs), and opportunities for security and justice, these are being supported by other regional integration. Cross-cutting issues such as governance, donors as outlined in Table 4. The ongoing IDA-supported inclusion, and gender equality will be emphasized in all IDA Peace Support Project will close in FY12. Once the constitution operations. For Nepal, this means that IDA will engage in has been enacted and greater clarity is achieved, other areas for delivering transformative projects in power, trade development partners might increase their support in these and transport, advisory services support on climate change two areas, at the local as well as at the national level. Given adaptation programs, nutrition, and roads. Results-based that social exclusion was one of the root causes of conflict in operations such as bridge repair and skills development will Nepal, IDA’s engagement to promote social inclusion across its also be supported. entire program can be seen as a contributing factor towards promoting social justice. 48.  IFC’s program in Nepal will seek to design and implement programs aligned with the three strategic 46.  Implementation of the peace filter and the GAAP will pillars of IFC’s regional South Asia Strategy which include: continue. While recognized as a useful tool, the peace filter (i) promoting inclusive growth through emphasizing the base is being revised to reduce overlap with the GAAP tool and to of the economic pyramid, rural areas, infrastructure building, enhance conflict sensitivity. The GAAP experience over the and improving access to finance for MSMEs; (ii) addressing previous ISN period has improved awareness of governance climate change through mitigation and adaptation, including risks, mitigation possibilities and the definition of actions to renewable energy and energy efficiency investments be taken when these risks materialize. The broad interests and and projects which focus on cleaner technology; and (iii) various initiatives among development partners on conflict supporting regional and global integration through intra- and governance analysis for operations will be shared and regional trade facilitation, South-South investments, transport coordinated wherever possible. and logistics, investment climate and inclusive business models. These strategic pillars are inter-related and consistent with those proposed in the ISN. Donor Support for Peace Table 4 Building, Justice, and Security Donors Peace-building1/ Justice, Security, and 49.  Together with its advisory business, IFC aims to create Human Rights positive impact on private sector development through: (i) (US$ million) (US$ million) financial sector and infrastructure development; (ii) improved Asian Development Bank 4.5 - Canada 6.7 4.4 access to finance, including for MSMEs; (iii) reduction of the Denmark 0.3 10.7 private sector’s carbon and environmental footprint; and European Union 12.2 1.7 (iv) regional and global integration. In the financial sector, Finland 7.3 - IFC aims to focus on facilitating improved access to trade Germany 9.0 - Norway 9.6 - finance and explore the possibility of extending credit lines Switzerland - - for hydropower sector to local banks to meet both short- United Kingdom 4.0 9.3 term and long-term commitments. IFC will also explore USAID - 41.0 supporting commercial banks with equity investments. United Nations - 0.8 World Bank Group 28.5 - Within infrastructure, IFC is focusing on renewable energy Total 82.1 67.9 and hydropower. IFC will continue to look at medium-sized 1/ Including army re-integration, rehabilitation of the conflict-affected, elections, etc. power projects (10-50MW) for the domestic market and 38 Interim Strategy Note for Nepal large export-oriented projects over the long run and will from the previous ISN. Governance used to be a separate seek to complement IDA’s support for transmission wherever pillar but now is a cross-cutting theme to reflect that it is there is role for the private sector. IFC will also work towards being mainstreamed in all our projects. Gender equality improving access to climate-resilient technologies and and social inclusion considerations also permeate all of our reducing market barriers that prevent the private sector from operations. Enhancing connectivity and productivity reflects playing a key role in building climate-resilient communities. our commitment to address some key bottlenecks to growth. On the advisory side, the ongoing projects (noted in the Nepal’s vulnerability to food insecurity, climate change and portfolio section) are expected to continue. disasters is increasing, requiring some immediate action and access to better quality services such as education and health A. Proposed Pillars and remain key needs (see Figure 1). Cross-Cutting Themes 50.  The ISN will continue to pursue the overarching goal Cross Cutting Theme 1: Strengthening of supporting the GON to build a peaceful, prosperous Governance and Accountability and just Nepal. This ISN proposes two cross-cutting themes: (i) governance and accountability, and (ii) gender equality 51.  Nepal’s current transition to peace and democracy has and social inclusion. The three pillars include: (i) enhancing been marked by political instability. Coalition governments connectivity and productivity for growth; (ii) reducing of the recent past have had to struggle to show ‘unity of vulnerabilities and improving resilience and (iii) promoting purpose’ in the functioning of key state institutions. This access to better quality services. This marks a small change has contributed to weakening of the legislative branch, with Nepal ISN Strategic Figure 1 Areas and Outcomes Pillar 1: Enhancing Pillar 2: Reducing Pillar 3: Promoting Connectivity & Vulnerabilities & Access to Better Productivity for Growth Improving Resilience Quality Service Increased access to Reduced food Improved access to electricity and improved insecurity among secondary and reliability of power supply poor households higher education Improved access to all Reduced negative Enhanced quality and season road impact of climate relevance of education change through sustainable energy and carbon finance Increased agriculture Decreased malnutrition productivity among pregnant women Enhanced access to Improved coverage of micro finance fully immunized children Cross Cutting Theme: Strengthening Cross Cutting Theme: Fostering Governance & Accountability Gender Equality & Social Inclusion Interim Strategy Note for Nepal 39 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 implications for the timely passage of laws and the budget, had a presence, such as public financial management, as well as its ability to perform key oversight functions. procurement, and social accountability, will be actively Frequent changes of government with concomitant rotations pursued. at lower levels have weakened certain ministries’ financial management and procurement capacity. In addition, key 54.  Depending on progress in the new constitution, institutions of accountability (i.e. Auditor General, CIAA) are Nepal will face a significant challenge of restructuring under-resourced with vacant leadership positions. the state within a federal set-up. The restructuring will have to be accomplished gradually within a well-conceived 52.  Governance in Nepal has grown weaker. Three transition management plan. IDA will engage in this area, priorities for governance reform include: (i) a political but the specific form of engagement will be based on the settlement to promulgate the Constitution and ensure peace, needs identified by the Government as it proceeds with the (ii) the strengthening of state and non-state institutions at restructuring agenda. all levels, and (iii) assurance of the effective delivery of public services. But this is a long-term agenda and will take time. 55.  Governance and accountability cut across all three It is only after the passage of the new Constitution that the ISN pillars and will be mainstreamed throughout IDA’s restructuring of state institutions could start in earnest. The program. In addition, IDA and IFC will support specific strategy to support these changes would involve creating interventions to improve the overall governance in Nepal. internal demand for institutional change, identifying In this regard, the key areas of focus for IDA will be: (i) opportunities to work with particular organizations offering strengthening institutional capacity in public financial potential for positive change, and promoting inclusive public management and procurement within the government policies. The ISN will support some immediate activities in agencies, and (ii) promoting social accountability. A PFM the shorter term to show quick results and create momentum. MDTF has been launched to improve program effectiveness For example, state-society relations need more attention, and and accountability. It aims to support strengthening (i) public the provision of basic services should improve. Checks against financial management systems; (ii) demand-side initiatives corruption and dissipation of public resources for vain and from citizens to monitor government; and (iii) third-party unproductive activities are long overdue. results monitoring. Strengthened government systems are a prerequisite for some bilateral development partners to put 53.  The long road to promoting a sustainable peace lies more of their funds through the government. This will be in strengthening the overarching governance framework complemented by the PRAN initiative. in Nepal—facilitating citizen voice, eliminating centuries of discrimination and bias among groups in society, building 56.  IDA will also work with the Government to improve political and administrative institutions and processes, the quality of governance in all of its projects and and promoting transparency. Necessary elements include programs. Major tools for this will include the GAAP, effective institutions of accountability, sound systems of political economy analysis of change and reform, institutional public sector financial management, procurement, and assessments of selected programs, and the peace filter. auditing, systematic performance monitoring and impact Effective M&E systems and results management will evaluation, and fair and accessible dispute resolution also be supported. In view of Nepal’s poor performance and legal services. These are long term changes, and it is in implementing public policies, IDA will work with the unlikely that there will be substantial improvements in the government to put some standards of good governance above areas within the time frame of the proposed ISN. But into practice. These include non-lending technical assistance maintaining the momentum and engagement and realizing (NLTA) for RTI, anti-corruption, social accountability, and incremental improvements in areas where IDA has already inclusion. 40 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 41 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 42 Interim Strategy Note for Nepal 57.  These efforts will be complemented by IFC’s Regulatory Reform project (NICRP) and access to finance BOX 2 The World Bank and Local Governance in Nepal initiatives which aim to encourage good corporate governance; improve productivity, competitiveness and While broad agreement to move Nepal to a federal system enhance investment and trade activity along with a broader exists, tremendous uncertainty about timelines, the shape set of regulatory issues. IFC continues to work to raise of federalism, the number of states and boundaries, awareness and encourage improved practices by bringing intergovernmental structures, and how “transition� will be rolled out institutionally and politically remains. This transition is still together listed companies, banks and stock exchanges. Better underway and is a source of potential unrest and instability. corporate governance in the private sector, followed by IFC investments has a powerful demonstration effect. Once key decisions have been finalized, implementation needs will be substantial. This will include restructuring intergovernmental relations, establishing new institutions 58.  IDA will provide support to improve municipal at different levels of government, reforming the ways in governance, including municipal services, through its which services are managed by the local public sector, Emerging Towns Project. In addition, IDA-funded activities and establishing modalities to absorb citizen voices in the at the local level will be better linked to local government planning, management and oversight of public resources at the local level. This change will be incremental, perhaps in plans and programs. Our local government strategy will be fits and starts, and subject to episodic reversals. Postponing defined after government actions are taken (see Box 2). action for that perfect order to emerge is not an option. In the interim, the government and its development partners need to work with the shifting political and socio-economic 59.  IDA is continuing to help strengthen governance and trends to outline a working strategy on decentralization and accountability in the financial sector. NRB’s liberal bank localization, while not losing sight of the longer-term vision licensing policy and limited supervision capacity encouraged of federalism and state restructuring. banks’ lending to the real estate and risk taking behaviors. The move to federalism and a new system of local Due to the NRB’s past actions to curb speculative lending governance provides both a challenge as well as an and to the banks’ own liquidity shortages (as credits rose opportunity for IDA’s operations in Nepal. Our operations will faster than deposits), lending into the real estate has slowed, be affected in the medium to long term. While our current lowering asset prices as well. Financial institutions that have program interfaces with the local state in numerous ways – through our support to community development programs taken risks and have high real estate exposure may now face and support currently being designed for a few small urban deteriorating portfolio quality. IDA will continue to assist NRB local governments, given the uncertainty of how transition to by maintaining a close policy dialogue to enhance forward- a federal structure will take place, we will continue to focus attention on developing linkages between our projects and looking supervision and to establish a framework for bank local government wherever possible. resolution, as needed. IFC complements this by promoting corporate governance among banks. At the same time, IDA will take a proactive role in providing strategic support to policy and institutional reforms on federalism through “just-in-time� support to policy makers 60.  Finally, it is important that public investment on the transition agenda including sharing experiences on programs are appropriately prioritized and efficiently intergovernmental transfer systems and technical and capacity implemented. Effective use of the Medium-Term building support to ministries and sectors to enable them Expenditure Framework (MTEF) is essential, for which to plan and manage this institutional transition. Modeling institutional scenarios for the new state and supporting sectors continued NLTA support will be provided. And, strengthening to design strategies and approaches to decentralization that the oversight of these projects by independent, professional will lead to more effective service delivery will be critical government agencies is critical. aspects of IDA support to Nepal during the ISN period. Interim Strategy Note for Nepal 43 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 Cross Cutting Theme 2: Fostering Gender equitable access to all its citizens irrespective of their Equality and Social Inclusion. income level, gender, location, caste and ethnicity. In the backdrop of these developments and the gaps that currently 61.  The government has placed gender and social exist, there is substantial scope for IDA’s engagement to inclusion as a priority area on its development agenda. actively promote gender and social equality as well as Since the promulgation of the Interim Constitution in 2007, a inclusive development in Nepal through its operations and number of laws and policies have been enacted to promote advisory activities. Inclusive development will not only help social inclusion in the country. Despite these positive sustain poverty reduction, but also help address one of the developments, there is still a significant gap between policies root causes of the conflict in Nepal. Fostering trust between and their actual implementation on the ground. High-caste Nepal’s diverse21 and excluded groups will be a critical hill Hindu males continue to dominate Nepal’s political building block to restore the legitimacy of the state. and administrative apparatus despite the diversity that the CA embodies. Similarly, the hitherto-marginalized groups 64.  IFC plans to work with both microfinance banks continue to experience discriminatory practices in terms of and wholesale microfinance institutions (MFI) and on access to resources and services like in health and education e-payments to improve access to credit and to scale-up as a result of which the prevalence of poverty is higher among operations to hilly regions and to increase the outreach these groups. Furthermore, women across the board are to under-banked and underserved populations. Support more underprivileged than their male counterparts. Women to MFIs will also help improve access to finance for women as migrant workers joining overseas jobs has doubled (in the last majority of their clients are women. Advisory service projects three years) to an estimated 70 per day in the fiscal year 2009- will involve new product development, strengthening risk 10. 147,000 Nepali migrant women have been documented management capacity and launching mobile banking as as working overseas; unfortunately harassment and abuse of a delivery channel. In addition, IFC plans to help increase these women is common. investment and create jobs though economic zones to be set up across the country by the Ministry of Industry. 62.  The recently completed “Peace and Development International evidence suggests that more than half of the Strategy� by a group of development partners in Nepal new jobs created in SEZs generally go to women. also notes the importance of gender equality and social inclusion in programs and projects. Over the last few 65.  Preliminary results from an ongoing internal IDA years, donors have provided targeted support for poor and review of the gender portfolio indicate that while gender socially excluded groups and made efforts to promote greater considerations are an important component of community diversity in their own programs. Many innovative programs, development and human development projects, they are such as the PAF (supported by GON, IDA and IFAD), have not so in others. Even then, in most projects, women are reached out particularly to women and dalits. The report, viewed only as project beneficiaries and little effort is made to “Unequal Citizens: Gender, Caste, and Ethnic Exclusion in address the structural barriers that prevent them from accessing Nepal�, prepared by IDA in partnership with the NPC, DFID, services and/or exercising effective participation and decision- and the ADB, has been key in influencing government and making roles. In addition, the initial findings also suggest donor agencies’ policies and strategies on social inclusion. significant gaps between government policies, awareness of This is consistent with IDA’s commitment to gender equality those policies within both IDA and the government, and the at the corporate level. capacity of the government to implement those policies. 63.  The post-conflict environment offers an opportunity 66.  IDA will help the government implement its for Nepal to actively promote social inclusion and commitments as well as enhance its capacity to address 44 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 45 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 the social development challenges in Nepal. More 68.  IDA will continue to provide its support to improve specifically, IDA in collaboration with other development energy access and reliability of power supply during the partners and civil society organizations, will engage with ISN period. Poor reliability and access to power are the most government counterparts to develop the capacity of serious infrastructure bottlenecks to growth. The power key sectoral ministries and implementing agencies by sector was cited by the ICA survey business respondents as raising awareness of Gender Equality and Social Inclusion their most critical constraint after law and order concerns. (GESI) policies. This will be largely through information Increasing access to electricity in a timely and cost-effective dissemination, and encouraging compliance with manner is one of the most significant development existing laws through its policy advisory role and specific challenges facing Nepal today. The total grid-connected operations. The simultaneous support to the government generation capacity amounts to a meager 683MW as and incorporation of GESI framework into IDA’s own compared with the annual peak demand of 900 MW which is operations may help to ensure that GESI strategies become reached in the winter; this is why Nepalis face load-shedding embedded as part of Nepal’s national systems in the future. up to 16 hours a day in the dry season. IDA will continue IDA will incorporate gender and social inclusion agenda in to provide financing through the components of the three future lending and monitor gender impact during project ongoing projects – Power Development, Kabeli Transmission, implementation. On the analytical side, the ongoing Poverty and Second Poverty Alleviation Fund – directly aligned with Assessment will pay particular attention to gender issues. this energy outcome measure. It will focus on increasing electricity service coverage in rural areas through micro- Pillar 1: Enhancing Connectivity and hydro schemes through a community-based program which Productivity for Growth. has proven to be effective. In addition, IDA will continue to support rehabilitation of existing generation capacity through 67.  The first pillar of the strategy aims at supporting the ongoing Power Development Project. GON’s efforts to improve connectivity and productivity for growth in some key sectors. Creating an enabling 69.  Ironically, Nepal has one of the largest untapped environment for inclusive growth can create jobs and reduce hydropower resources in the world – an estimated 83,000 poverty, thus alleviating one of the root causes of conflict. MW of hydropower potential and is surrounded by two This is important but very difficult to achieve under current of the fastest growing, energy-hungry countries in the circumstances. Since the most important impediments to world. And yet, no large hydropower projects have been increased investment and growth – political instability, delayed constructed to date. Significant private sector participation conclusion of the peace process and poor law and order in generation could be mobilized, but given the current conditions – depend on the political leadership’s actions, political uncertainties, private investors would need high risk we have focused on those areas where the WBG can make premia and so sizeable investments may not be expected in a difference even under such conditions. These include: (i) the near future without guarantees or government support. alleviating infrastructure bottlenecks in energy and roads; (ii) In the immediate term, IDA, along with IFC, will provide improving agricultural productivity through better irrigation support to the proposed 37MW Kabeli ‘A’ Hydroelectric Project. schemes and (iii) establishing a better enabling environment IDA is also supporting cross-border domestic transmission through advisory activities, public-private dialogue, and direct linkages through the Nepal-India Electricity Transmission and investments to support private sector activities and access to Trade Project. Being a land-linked country, Nepal will benefit finance. Underlying these activities is the need to maintain from increased transmission interconnections with India as fiscal and financial sector stability. IDA will continue an active these lines will enable power trade through imports into monitoring program and provide advice as requested on key Nepal and, eventually, when sufficient generation capacity macroeconomic and financial sector issues. is built in Nepal, through export of surplus power to India. 46 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 47 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 48 Interim Strategy Note for Nepal IFC has existing investments in private hydropower projects road networks to increase access and reduce travel time. – representing 16 percent of installed capacity – and plans The projects focus on rehabilitation and upgrade of existing to expand its hydropower portfolio in Nepal. IFC will also roads and construction of new roads and small bridges both invest in the 30MW Nyadi Hydropower Project during the in the targeted rural and non-rural areas. In addition, further ISN period. The WBG is working closely with the ADB and support will be provided for bridge repair and maintenance other development partners active in the power sector. through the proposed Results-Based Bridges Project. Also, IDA In the foreseeable future, however, power shortages will plans a regional investment operation to complement the continue to hamper economic development in Nepal. So ADB’s efforts to improve Northeast trade and transportation IDA is also promoting alternative energy activities such as linkages through Bangladesh. On the analytical front, the micro-hydropower and biogas through scaling-up of on- ongoing multi-donor Road Sector Assessment study will be going renewable energy initiatives. In the context of SREP, completed. IFC expects to support small hydropower projects through credit lines to local banks. In addition, IDA will continue to 72.  Improving irrigation schemes is crucial to increasing implement various non-lending activities funded by ESMAP agricultural productivity. Nepal is a predominantly agrarian and other trust funds, and IFC plans to explore the regulatory economy characterized by low productivity with inefficient impediments to increased private sector investments in irrigation systems. Given that productive agriculture hydropower in Nepal. is a crucial element of inclusive growth, enhancing the efficiency of irrigation systems will continue to be critical 70.  IDA will support selected interventions that will have to increase agricultural productivity, incomes, and rural long lasting effect on increasing access to road network livelihoods. Studies have shown that poverty incidence is in Nepal. Poor physical connectivity has been another much lower in irrigated than rain-fed areas and that access to major challenge to Nepal’s development efforts. Its road irrigation reduces the severity of poverty. IDA will continue density is one of the lowest in South Asia . There also exist 22 to support development of traditional farmer irrigation geographical disparities in the availability of roads23. Over systems owned and managed by the communities (e.g. one-third (36 percent) of the people in the hills are more than water users’ associations) through its ongoing Agriculture four hours away from an all-weather road. In addition, 15 out Commercialization and Trade and Irrigation and Water Resource of 75 district headquarters are yet to be connected by a road. Management projects. In addition, IDA will also focus on The quality of the road network is also poor – 60 percent agricultural commercialization that should help the country of the road network, including most rural roads, cannot move into new growth areas such as commercially viable provide all-weather connectivity, and roads to the nation’s agriculture commodities, value addition and export-oriented production/consumption centers are grossly inadequate agriculture. More concretely, it should help farmers take and unable to support even the current level of economic advantage of the rapidly growing demands of neighboring activities. Maintenance is a seriously neglected issue. The countries—and export what consumers demand24. IDA- existence of many gaps on completed roads, coupled with supported Rani Jamaya Kulariya (RJK) Irrigation project will the poor quality of existing bridges on them, further limits the help improve the performance of the irrigation systems and prospect of providing universal physical access. strengthen community-based irrigation management in targeted areas. IFC’s advisory services will complement the 71.  The Government has formulated a priority investment work done by IDA and other donors via the SME Venture Fund plan with an objective to improve investment efficiency and investment climate work. in the roads sector. Two ongoing IDA-supported projects, Road Sector Development and Rural Access Improvement and 73.  The WBG will work to promote increased access to Decentralization, will contribute towards improving all season financial services--particularly important in this country Interim Strategy Note for Nepal 49 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 with so many remote and relatively inaccessible areas. 75.  IFC-facilitated NBF is promoting dialogue between Financial sector connectivity is important for promoting the private sector and key government actors to promote growth. IFC, with IDA, is supporting the development of sustainable reforms in critical sectors. This initiative financial infrastructure critical to enhancing creditors’ rights, has shown long-lasting results in other countries and is reducing risks, and improving access to credit services. IFC particularly appropriate given Nepal’s fractious transitional expects to extend advisory services to help improve financial status. Through the NBF, private participants identify business infrastructure, expand and improve SME portfolios, and impediments, and public sector representatives commit to help expand financing for sustainable energy. IFC plans to taking necessary actions to alleviate them. Already, a number strengthen the capacity of commercial banks to scale-up of sensitive issues including VAT administration and industrial their SME portfolio. In addition, based on demand, IFC seeks relationships are being analyzed. Discussions are ongoing to continue to provide advisory and technical assistance to regarding easing the entry of new firms and enabling the build a payment framework including electronic banking exit of old, obsolete firms while encouraging labor mobility guidelines, enhance capacity of the Credit Information so that workers can move easily to more productive jobs. Center Ltd (CICL) to cover MFIs, and assist in strengthening Going forward, some of the NBF recommendations might be the legal and regulatory framework for a functional movable supported by IFC/IDA, depending on government’s request. collateral registry. These activities will directly contribute to the overall outcome of improving access to finance. This will 76.  The activities under the first pillar of this ISN are be done through support to financial institutions which is expected to contribute to four key outcomes to support expected to create and expand business opportunities. IFC GON’s connectivity and productivity agenda: (i) increased plans to expand micro-finance services through technical access to electricity and improved reliability of power assistance and will explore opportunities to offer lines of supply; (ii) improved access to all-season roads; (iii) increased credit. The WBG is working together to assist NRB with an agriculture productivity; and (iv) enhanced access to improved payments system and regulatory framework that microfinance. includes the introduction of mobile banking and other delivery mechanisms to increase the access of more remote Pillar 2: Reducing Vulnerabilities and Improving communities to more efficient, safer and cheaper payment Resilience systems. In addition, an IDA/FIRST Financial Sector Monitoring Report will be prepared. 77.  The second pillar of the strategy is targeted towards reducing food insecurity and improving resilience from 74.  The WBG is working to improve the enabling exogenous shocks like climate change effects and natural environment for private sector growth. IFC is taking the disasters. Three and a half million people are considered leadership role in: (i) advisory activities related to private sector moderately to severely food insecure in Nepal. Moreover, development and (ii) catalytic investments in the private sector. Nepal is highly susceptible to climate change risks and ranks IDA is leading on public sector investments and regulatory 11th in the world in terms of vulnerability to earthquakes. framework issues needed to leverage opportunities for private The countries most vulnerable to climate change are sector-led growth. In response to government’s interest and characterized by high levels of poverty, exposure to climate- request for support, IFC could provide PPP transaction advisory related events, weak capacity for risk management, and support. In this context, it would also be important to leverage reliance on flood and drought prone agricultural land. Climate the core strengths of other donor partners in developing the change is expected to intensify Nepal’s already pronounced framework and strengthening GON’s capacity for undertaking climate variability and increase the frequency of climate PPPs. Successfully structured PPP projects may further benefit extremes such as droughts and floods. from IFC’s funding. 50 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 51 Proposed World Bank Group Strategic Priorities and Program, FY2012-2013 78.  IDA will remain committed to reducing food response and earthquake safety. During FY12-14, the GFDRR insecurity among poor households. The prevalence of will provide training to government counterparts and other hunger varies substantially across the fifteen sub-regions stakeholders on seismic resistant building designs and other of Nepal. The highest prevalence of hunger can be found disaster risk reduction initiatives. in the Far and Mid-Western Hill and Mountain regions. The hunger indices in these parts of the country point to an 80.  Nepal ranks 4th in the world in terms of vulnerability extremely alarming situation. IDA will continue its activities to climate change26. The poor who are generally most related to improving nutritional impact through increasing exposed to natural hazards and most dependent on agriculture production in food insecure areas, promoting subsistence agriculture will be the most vulnerable to various CMD activities, including small-scale irrigation, to climate change impacts. At the regional level, the Bank reduce vulnerabilities, implementing cash transfer systems, through its ongoing multi-donor funded SAWI will focus on and strengthening safety net programs that help to improve strengthening water resources management within and the livelihood options among rural households. IDA through between the countries of South Asia, with an emphasis on its ongoing Social Safety Nets Project, and Poverty Alleviation regional cooperation and adaptation to climate change. In Fund II Project, will support these activities. This also includes addition, as implementing agencies of the CIF, ADB, IDA, co-financing support from the Food Price Crisis Response Trust and IFC will jointly support programs for climate resilience, Fund (FPCR TF) and the Global Agriculture and Food Security such as the PPCR, focusing on climate proofing vulnerable Program (GAFSP). Specific interventions under the program infrastructure, mainly hydropower stations. In addition, IFC is include provision of a short-term program for vulnerable planning to promote sustainable energy finance with a few districts through the food/cash for work program which financial institutions which are primarily focusing on energy would improve food consumption amongst vulnerable efficiency products. This is expected to help participating groups, including women. In addition, IDA’s proposed Poverty companies improve operational efficiency, reduce cost and Alleviation Fund III project will further continue the focus on lower their carbon footprint. these issues. Under PPCR, IFC aims to enhance agricultural productivity through capacity building of ‘seed’ supply chain 81.  The activities under the second pillar are expected members and providing better access to finance – this is to contribute to the following outcomes: (i) reduced food expected to be completed by FY16. insecurity among poor households; and (ii) reduced negative impact of climate change through sustainable energy and 79.  IDA will be actively engaged in disaster risk carbon finance. management activities. A combination of rough topography, steep slopes, active seismic zone and intense Pillar 3: Promoting access to better quality services impact of monsoon rains makes Nepal extremely vulnerable to disaster impacts. IDA has been actively engaged in Disaster 82.  The third pillar of the ISN aims to improve the quality Risk Management (DRM) through the GFDRR. Through grant of and access to services, especially to the poorest and funding from GFDRR, IDA is engaged in assessing the risks of excluded sections of the society. Although Nepal has made GLOFs25, co-financing an earthquake school safety program, great strides to improve human development indicators, and developing a detailed hazard risk and vulnerability much more needs to be done to improve the quality of and assessment. The GFDRR also identified Nepal as one of the access to services, especially to the poorest and excluded 21 priority countries globally and is funding the preparation sections of the society and in remote areas. of a Country Disaster Risk Management proposal. The proposal focuses on immediate priorities for Nepal: floods 83.  Nepal continues its commitment to education sector management, institutional strengthening, emergency reforms which have been instrumental in helping it 52 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 53 54 Interim Strategy Note for Nepal achieve significant positive outcomes in education. The For All Fast Track Initiative is supporting quality enhancement country has invested significant amounts of resources into of basic education. the system and has had tremendous success in enhancing access to basic education, and improving overall governance 85.  At the higher education level, Nepal has not been as structures with a strong emphasis on the roles of critical successful and improving quality and relevance of higher stakeholders. The country is progressing well towards closing education remains challenging. Implementation of many the gap in the net enrolment ratio at the primary education higher education initiatives have been stalled due to poor level. The disparities across gender, regions, poverty quintiles internal efficiencies, high level of dropout and repeaters. In and ethnic groups have also been narrowed. However, addition, there are weak linkages to the higher secondary increasing access to secondary school education (grades 9-12) education systems, thus imposing enormous burdens between remains a major challenge as evidenced by the disturbingly higher secondary and higher education. The government low net enrollment rate of 24 percent at this level. More than has begun to consider some far-reaching policy reforms half of primary level students do not enter secondary schools, to improve the functioning of the Technical Education and and only one-half of them complete secondary schooling. In Vocational Training (TEVT) system and reduce fragmentation addition, fewer girls than boys join secondary schools and, in provision, quality assurance, and certification. Another among those who do join, fewer complete the 10th grade27. challenge is to make TEVT access more inclusive. A draft new Experience in Nepal indicates that girls who do not go to government policy on TEVT is currently being formulated and school are more at risk of trafficking, early marriages and aims to strengthen coordination, not only within and across sexual violence. Research has shown the positive impact government and private institutions, but also help harmonize that girls’ school continuation into secondary level can have donor support to the subsector. IDA through its ongoing on their status in the family, maternal and newborn health, Second Higher Education and recently approved Enhanced nutrition, early marriage, and on the general economic, Vocational Education and Training (EVENT) projects is focusing health and nutritional status of the family. Scholarships and on improving quality and relevance of higher education incentives have long been used internationally as a means through systemic reforms, incentives to selected institutions to provide girls education and retaining them in school. and providing technical and vocational training that will Although the government is committed to expanding the enhance the skilled labor market in Nepal. In this regard, IDA scholarship schemes to girls at secondary education level, the will monitor students’ pass rates at bachelor’s level, enrollment coverage of these schemes is very limited. The Government is in relevant subjects (for instance, science and technology) planning on additional expansion of the scholarship program and the employment rate of vocational training graduates to provide universal scholarships to girls in grades 1-8 and is to measure the progress. IDA, through the EVENT project is seeking IDA’s assistance to expand the scholarships programs working closely with other development partners to support to all girls in grades 9-10 in districts with lowest enrollment. the implementation of the new TEVT policy. In addition, the IDA will support this through the proposed School Sector Bank-supported Adolescent Girls Employment Initiative (AGEI) Reform Project Additional Financing. supports occupational skill training, life skills training and business skills training for adolescent girls aged 16-24 years to 84.  While student enrolment numbers have increased, assist them to enter into gainful employment. there is a pressing need to improve the quality of basic education. As a first step, the government has initiated 86.  Nepal continues to do very well in the a National Assessment of Student Achievements (NASA) implementation of its micronutrient programs but the according to international standards. This will establish an progress in addressing chronic malnutrition has been important baseline on learning outcomes in the country. The less impressive. Progress in the area of nutrition indicates first NASA is expected to be fielded by December 2011. IDA- that Nepal is not on track to achieve the related MDG targets financed School Sector Reform Project along with the Education by 201528. In spite of the less than successful attempts in Interim Strategy Note for Nepal 55 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 56 Interim Strategy Note for Nepal the past, there is currently significant momentum to re- peace impact of the portfolio. A stock-taking of the peace introduce a multi-sectoral approach to promote Food and filter in 2011 found that there was substantial duplication Nutrition Security in Nepal. Significant investments will be with the GAAP tool, and that there was not substantial team needed to reduce the prevalence of underweight children input into the conflict analysis process. As a result, the peace aged 6-59 months from the 2010 level of 38.6 and to reduce filter approach is being revisited to enhance its effectiveness the proportion of stunted children aged 6-59 months from 49 as a conflict analysis and peace building tool. Under the percent in 2010. During the ISN period, IDA’s key interventions revised approach, joint GON-IDA project team members will to address the issue of chronic malnutrition are through work together at key milestones (post concept note, appraisal, the ongoing health sector SWAp Second Health Nutrition periodically during implementation) to jointly identify and Population and HIV/AIDS and Social Safety Net Projects. drivers of conflict, potential connectors, and opportunities The SWAp focuses on improving the nutritional status of for modifying project activities and/or implementation children and pregnant women. The government has recently arrangements to build social cohesion at the local level. announced new nutrition program for the first 1,000 days of Joint findings could then be explored in depth as part of the life (including pregnancy) and IDA will support this initiative preparation process, and then regularly monitored during through the proposed First 1000 Days Project. On the advisory implementation, in order to continually make adjustments side, the Bank will continue its dialogue on Nutrition Policy. during the life of a project as the local environment evolves. In this process, teams will keep in mind that 87.  The activities under the third pillar are expected to development operations have the potential to both create contribute to the following outcomes: (i) improved access and exacerbate conflict, as well as to promote the peace to secondary and higher education; (ii) enhanced quality and build social capital. This approach is being discussed and relevance of education; (iii) decreased malnutrition with the government and development partners, with the among pregnant women and; (iv) improved coverage of fully goal of better coordinating conflict analysis in development immunized children within the poorest quintile. operations. The possibility of developing conflict sensitivity training for civil servants through the Administrative Staff B. World Bank Group Instruments of College is also under discussion. Engagement 88.  The ISN proposes to use a mix of lending and advisory 90.  Fostering gender equity and social inclusion will be services instruments to support the program. IDA’s actively pursued and monitored. The Bank is currently primary instrument will be the Sector Investment Loans reviewing its existing portfolio from a gender perspective (SILs), using AFs and emergency operations where needed. to draw lessons, identify gaps, and highlight good practices If a results-based instrument is approved by the Board, we and the most effective entry points for addressing gender will also explore using this instrument in Nepal. Responding considerations in its operations. Moreover, the Bank will to the government’s demand for more targeted and timely coordinate among different sectors and integrate gender and advisory support, the non-lending program will be delivered social inclusion considerations into existing analytical work on a more programmatic basis with intermediate short undertaken by the Bank such as the poverty assessment. outputs. “Just-in-time� support to the client will be continued. Similarly, the Bank will actively seek funding for additional As in the last ISN, GAAPs will be developed for all projects; analytical work especially on gender and migration, and however more attention will be paid to strengthening the improving justice for the poor, preferably with other monitoring arrangements of GAAP implementation. development partners active in these fields. 89.  IDA proposes to continue to assess all new projects 91.  IDA resources under the FY12-13 ISN are estimated from a peace perspective to maximize the potential pro- at SDR 268.3 million (US$403 million equivalent). The ISN Interim Strategy Note for Nepal 57 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 covers the first two years of IDA16. The estimates for FY12-13 ISN’s proposed strategic thrusts: (i) economic and financial are indicative only and can change depending on: (i) total IDA sector key issues and results monitoring, (ii) strengthening resources available, (ii) the country’s performance rating, (iii) governance and accountability, (iii) enhancing connectivity the number of IDA eligible countries, (iv) the performance and and productivity for growth, (iv) poverty, gender, and social assistance terms of other IDA-eligible countries, and (v) the inclusion, and (v) reducing vulnerabilities and improving terms of IDA’s assistance to Nepal (grants or credits), which are resilience. Each of the clusters is expected to include a determined annually and based on the risk of debt distress. combination of just-in-time policy notes, core diagnostic work IDA allocations are made in SDRs, and the US dollar equivalent and NLTA support led by field-based staff and international is dependent upon the prevailing exchange rate. staff. A key deliverable during the ISN period will be the completion of the Poverty Assessment (one of the key pieces 92.  An indicative IDA pipeline has been agreed with the of core diagnostic work) based on NLSS III data. Several government. Activities were selected based on the following thematic notes will also be prepared building on NLSS III. criteria: consistency with the government priorities, broad Majority of the other proposed AAA is currently ongoing - political support, IDA’s comparative advantage, and evidence largely funded by trust funds - and will continue over the of implementation capacity. All proposed projects build on ISN period (e.g., PFM reform, governance reform NLTA, water or scale-up ongoing projects which have been effective in the resource and climate change, forest sector governance, past (see Annex B3). nutrition policy issues, disaster risk management, etc.). In many of these areas, the WBG is already working with other 93.  Consultations with GON and development partners development partners – for example SAWI, PFM reform, roads have confirmed the value added of the WBG’s analytical sector assessment, GSEA, GESI, ICRP and SARTI. Finally, several work in Nepal. Although the Conflict WDR does not explicitly of the products that have been completed recently or will refer to analytical work in fragile states, it provides some be completed in the next few months will be disseminated useful principles to think about analytical work in a politically appropriately through a combination of workshops, uncertain environment, as well as offers some valuable publications (including in Nepali) and press releases. thoughts on how to do it in practice. It implies that stand- alone big reports are unlikely to be very useful in the context 94.  IFC seeks to effectively leverage its investment of a fragile state. These reports typically take a couple of and advisory services to support the country program. years to be produced, which feels even longer in an uncertain IFC’s investment instruments currently include senior and environment. This is consistent with GON requests that the subordinated loans, long and short-term credit lines, trade Bank prepares fewer large multi-year reports and instead finance lines and guarantees, and minority equity stake in tailors the non-lending program to their country-specific companies – all in hard currencies. IFC aims to continue priorities and just-in-time requests. Another insight offered to provide long-term and counter-cyclical financing for by the WDR is that credibility needs to be built with all the companies that are unable to access financing at appropriate relevant counterparts and there is a need to reach out to a terms, with special attention to providing risk capital to broad spectrum of stakeholders, so as to understand their small businesses under the SME Ventures program. IFC’s concerns, and come up with practical ways to address them. additionality in Nepal comes through providing longer tenor A strong field-based presence is required to be responsive financing than is available in the market, patient equity and to reach out to non-traditional counterparts. Keeping capital, crisis response products such as liquidity facilities, these principles in mind, an indicative analytical and advisory global and regional expertise and experience, and technical program (AAA) is presented in Annex B4. It is clustered assistance to enhance areas such as corporate governance under five main programmatic themes consistent with the and management of environmental and social risks. IFC aims to continue to respond to client needs through facilities 58 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 59 Proposed World Bank Group Strategic Priorities and Program FY2012-2013 60 Interim Strategy Note for Nepal such as SME Venture Fund, Infraventures, transaction C. Partnerships: Donor Harmonization advice for PPPs, and risk-sharing facilities (RSF), as well as and Aid Effectiveness to crisis situations through special initiatives such as bank 96.  The WBG will further improve coordination of its recapitalization fund and Global Trade Liquidity Program. As interventions with other development partners and local currency financing is essential for companies and sectors contribute to discussions around division of labor, that generate local currency revenues, including large scale sector selectivity and aid effectiveness. The MOF began infrastructure hydropower-projects, IFC plans to continue its rolling out its Aid Management Platform (AMP) to all local effort in partnership with IDA, with the GON to create such development partners, including India and China in February instruments. IFC’s advisory services engagement areas are 2011. Plans are also underway to engage non-resident expected to remain largely intact. MIGA will continue to donors in this exercise, and to enable the AMP to accept support the proposed pillars of the ISN through the provision geo-spatial data codes that could be used to generate maps of long term political risk insurance to investors, with a focus showing locations of development programs. A complete on infrastructure projects and south-south investments. overview of donor-supported projects, both on and off budget, is expected by end August, with partial data available 95.  The World Bank Institute (WBI) is also exploring as of this writing. In advance of completion of the AMP data, areas of collaboration in Nepal. Their overall approach WBG, ADB and DFID have held informal consultations to is to prioritize, be selective, and share global and regional discuss how the respective country programs can be adjusted experiences that may be of relevance to Nepal. The primary to be complementary and to build on each institution’s focus is expected to be on supporting the governance comparative advantages. Recent consultations with the UN and accountability theme of the ISN. This would include Country Team also focused on comparative advantages and collaboration with the PRAN and project teams to promote where the UN could usefully focus, given its strong local field regional learning and capacity development related to presence. These consultations have resulted in shifts in sector social accountability and RTI. In addition, building on the support on the part of IDA, DFID, the ADB, and the UN, based Nepal Country Team effort to geo-code project interventions on better information and better appreciation of respective supported by IDA, WBI is also exploring the possibility of mandates/competences. IDA will continue to participate providing support to development partners to geo-code in the annual NPPR process, and support the government’s their project interventions as well, with the goal of facilitating efforts to transform this mechanism into a broader aid division of labor discussions and promoting synergies within effectiveness tool for all donors. The 2010 NPPR Action Plan and across sectors. A pilot in Nepal to facilitate the use of ICT (focused on actions to improve country systems performance) and crowd-sourcing for improved governance and service was approved by the Cabinet, and a tracking mechanism delivery is also under discussion. The WBI regional and global reporting to the Prime Minister has been put in place. In 2011, teams will support South-South knowledge exchange as per the MOF is seeking to expand the NPPR focus beyond country demand from Nepal, and connect Nepal to regional and cross- systems to incorporate elements of mutual accountability for regional experiences. both government and development partners. Interim Strategy Note for Nepal 61 62 Interim Strategy Note for Nepal Interim Strategy Note for Nepal FY12-FY13 Managing Risks Interim Strategy Note for Nepal 63 Managing Risks 97.  Overall country risks depend on what happens in recent months is likely to put downward pressure on on the political front -- sustained peace/consolidation revenue mobilization and, as planned expenditures are versus political disintegration or stalemate. There are rising rapidly, could potentially make fiscal management wide variations in possible outcomes as reflected in Table difficult. Other fiscal risks are associated with financial 5. Scenario B assumes continued stalemate and slow losses of the two state-owned enterprises (NOC and Nepal movement forward regarded by many analysts as the most Electricity Authority), army integration, and the potential likely scenario. Given the short time frame of the ISN, and costs of addressing financial sector weaknesses. While IDA the continued uncertainties of this prolonged transition/ will not directly support the government to enhance revenue new constitution/new government, we are not proposing mobilization during the ISN period, it will continue to support large irreversible commitments from which we might have improvements in expenditure planning, prioritization and difficulty exiting if the political/policy context became efficiency through the NLTA on MTEF. untenable for the Bank. We also do not anticipate the ability to do fast-disbursing policy reform-based Development Policy 100.  The country’s transitional issues and political instability Credits. The investment climate is unlikely to improve in the have sidelined the drive against corruption. Despite strong short term and while IFC continues to undertake small steps anti-corruption legislation, the high-powered CIAA has not towards improving the investment climate, its contribution been able to function effectively. However, some opportunities may be limited by the political environment. Finally, are emerging. The RTI Act and the recently ratified United engaging in decentralization/fiscal federalism discussions will Nations Convention Against Corruption are two examples. no doubt be particularly challenging. The Judiciary has also started playing an active role in dealing with corruption cases, especially those involving high-profile 98.  Increasing vulnerabilities in the financial sector politicians. To address corruption issues at the national level, have prompted NRB to take measures to prevent further IDA is providing support (together with other development escalation, including preparation of a contingency plan . 29 partners) towards strengthening the government’s PFM systems. Because the real estate prices have started to come down, Civil society organizations are also being strengthened as part financial institutions that have high real estate exposure of IDA’s program to promote social accountability. Effective are increasingly vulnerable due to possible deterioration of implementation of the monitoring tools, including GAAPs, will asset quality. The IDA team, in coordination with the IMF, is continue to address corruption risks in IDA-supported projects. continuing to discuss measures that are needed to be taken to reduce future risks. If the financial sector deteriorates, 101.  In the past, new governments have rotated some IFC could scale up its advisory services program and also high and mid-level staff. IDA’s response to these risks is provide financing to deserving clients. Its SME Venture Fund, to engage with political leaders on a regular basis about designed for quick disbursement, could provide credit and development challenges, the need for political leadership on advice to SMEs. IFC could also provide trade facilitation policy questions, and our proposed development projects, support via the Global Trade Finance Program, and short term so that all key parties are informed, whether they participate liquidity support to commercial banks and the corporate in future coalition governments or not. IDA program has sector. Finally, IFC could explore equity support for banks. received the endorsement of major political leaders as well as key development partners. By improving information 99.  Good revenue performance experienced over the flows, this dialogue helps to reduce mistrust and facilitate last four years might be at risk. Revenue growth was support for ISN initiatives. IDA also has strong relationships substantially aided by high and increasing remittance flows. with other development partners so that when problems A significant portion of incremental revenue has been due are identified, a unified approach is presented. Finally, IDA is to tariff and VAT revenues levied on remittance-induced strengthening links with civil society through new initiatives imports. However, the slowing down of remittance growth such as the PRAN. Greater political instability however, might 64 Interim Strategy Note for Nepal Interim Strategy Note for Nepal 65 Managing Risks 66 Interim Strategy Note for Nepal affect implementation of more sensitive operations – such now well established in Nepal and are likely to remain an as the Cross-Border Transmission line to India. The Nepal important part of development strategy in the country. program will continue to make use of COSO workshops as 30 So that part of the program has a reasonable chance of a risk reduction/quality enhancing tool for identifying risks, successful outcomes even under a worst case scenario. formulating actions, and achieving results. The community portfolio includes a good framework for mitigating governance and fiduciary risk at the community 102.  The CMD project portfolio has shown robustness in level. There is significant community participation in decision- the context of changing risks and an uncertain political making and good knowledge of the project investments. situation. These projects were resilient during the earlier Most of the investments show evidence of significant conflict and are at the heart of IDA program today. For the community contributions, either in terms of co-financing or bulk of the program, the track record on CMD operations donated labor. And most of the communities demonstrate shows that these operations can withstand quite serious high awareness of financial entitlements and detailed record- conflict situations. Community-based mechanisms are keeping of financial intakes and expenditures. Nepal – Country Table 5 Scenarios for FY12-13 Scenarios Drivers Outcomes WBG response A. Resolution: l Pressure from below (people’s l High level of political l Engagement on longer- Promulgation of the new pressure) understanding on the term development issues, constitution; l Civil society engagement new political order including programs to Agreement on federalism model; l Mass protests against poor l Increased certainty and support implementation Conclusion of the peace process; governance stability of government of constitutional Integration of armies; l Measures to promote provisions Resolution of property issues; healing from wounds of l Support to a decentralized Free and fair local and national war underway approach to governance elections B. Stalemate: l CA members unable to pass l ‘Business as usual- l Continued engagement Further extension of the CA by 3 constitution muddling through’ in community driven and months; no party or coalition strong l Political understanding on l Some protest actions, selected ring-fenced programs enough to impose resolution army integration still discussed limited violence l Strong external l Agreement on rotational l Unstable coalition monitoring of results, government leadership governments strengthening social through coalition reached for accountability the short-term horizon l Private sector engagement by IFC at the current low, but steady level C. Breakdown and violence: l Political deadlock l CA dissolved; Cabinet l Stop programs where Failed democracy l No agreement on most CA dissolved there is high risk of theme papers l Power vacuum (with no physical harm to occur l No progress in army constitutional measures l Rethink WBG engagement integration available to tackle the and adjust portfolio and l Rise in activities of various situation) staffing levels to changing increasingly violent ethnic l Extra-constitutional rule conditions groups, armed political groups, imposed thugs and paramilitary groups l Mass protests and riots l Continued capital flight out of l Re-emergence of violent Nepal conflict Interim Strategy Note for Nepal 67 End Notes 1 Based on Nepali calendar. 2 This is consistent with OP 2.30, along with BP 2.11 and OP 2.30 and the Guidelines to Staff for CAS Products dated October 2010. 3 Indigenous people of Nepal. The law defines the term “Janajati� as a community having its own language, tradi- tional rites and customs, distinct cultural identity, distinct social structure, and written or unwritten history. 4 The last CAS had covered the period FY04-06 and the most recent ISN expired on June 30, 2011. 5 Food inflation in the first nine months of the GON fiscal year is 20 percent and is expected to stay in that range until the harvest season (September 2011). 6 Gasoline share is 15-17 percent in total import volume of petroleum products. 7 Liquefied Petroleum Gas. 8 Draft Joint Bank-Fund Debt Sustainability Analysis, July 2011 9 However, the depreciation of the Indian rupee relative the US dollar will affect the exchange rate between the Nepali rupee and the US dollar. 10 Based on World Bank’s Atlas methodology. World Development Indicators Database, July 1, 2011. 11 These estimates are based on the national poverty line. 12 The third Nepal Living Standards Survey (NLSS) is underway and will provide updated poverty figures. 13 Of every 100 students who enter grade 1, only 78 reach grade 5, and only 62 reach grade 8. 14 World Development Indicators, World Bank. 15 Elected from diverse caste, ethnic and regional groups. 16 14 of the 28 new civil servants appointed to Foreign Affairs Services this year are women, compared to a total of 6 women in its history thus far. 17 The Global Alliance for Vaccines and Immunization. 18 Includes Nepal, Bangladesh and Bhutan in South Asia (approved) and Laos and Vietnam in East Asia (under preparation). 19 Includes only the country IDA share for the two regional projects. 20 2011 World Development Report, Chapter 4, page 128. 21 The 2001 Nepal Census recorded 103 different caste/ethnic groups. 22 121km/1,000 sq km against Bangladesh’s 2,080km/1,000 sq km. 23 For example, the southern Tarai area contains more than three-fifths of all roads. 24 E.g., coffee, tea, ginger, and cardamom. 25 Glacial lake outburst floods. 26 According to the 2011 Climate Change Vulnerability Index released by global risks advisory firm Maplecroft. 27 34 percent compared to 38 percent for boys. 28 MDG targets are to lower the prevalence of underweight children aged 6-59 months to 29 and to reduce the proportion of stunted children aged 6-59 months to 30 by 2015. 29 The contingency plan was prepared by NRB in 2010 with IDA’s assistance. 30 Committee of Sponsoring Organizations. 68 Interim Strategy Note for Nepal Interim Strategy Note for Nepal FY12-FY13 ATTACHMENTS THE WORLD BANK GROUP Interim Strategy Note for Nepal 69 Attachment A Results of FY10-11 ISN Sectors ISN Results Indicators Progress as of June 2011 Pillar 1: Promoting Capable State Structures and Systems and Fostering Accountable Institutions Public > Production of financial statements > The implementation has been delayed. The government is Financial for FY11 according to internationally aiming to have the financial statement for FY12 (on a pilot basis) Management accepted accounting principles prepared according to IPSAS. (IPSAS-based) for public sector > The piloting has been completed in both the districts > Completed piloting of a single (Bhaktapur and Lalitpur) during FY09-FY10. The roll out has treasury account in two districts now been made in 22 districts. This will be supported through PFM MDTF for full roll out. Procurement > Implementation of OECD/DAC > Implementation has now begun. PPMO has started interacting indicators for public procurement with stakeholders. Draft report is expected by end-July 2011. monitoring It is expected to be finalized before the closing date of the IDF > Issuance of standard bidding Grant that is, by September 30, 2011. documents (works and goods) for > Completed and the standard bidding documents are available NCP by PPMO in PPMO website. Governance > Endorsement by Cabinet of a set of > Redrafted the regulations, new regulations endorsed. regulations to implement the Right > GAAP prepared for 15 new projects. to Information (RTI) Act, 2007 > Social Accountability (SA) mechanisms introduced in all new > Inclusion of Governance and projects. Accountability Action Plans (GAAPs) > Social audits 83.2% in FY 2009; target exceeded. A new status in all new IDA operations plus five of report will be available in Nov 2011. ongoing projects > IFC and MoF organized a PPP workshop on Dec 9th, 2010. The > Introduction of Social Accountability workshop was supported by WB, PPIF, DEVCO and WBI. (demand-side) in new operations and five ongoing projects > Social Audits increase from 68 percent to 80 percent non-private grade 1 to 8 schools > Preparation of a framework to govern Private Participation in Public Services (PPP) for GON consideration Pillar 2 : Laying the Foundation for Sustainable Economic Growth Macro/Public > Medium-term expenditure > MTEF agreed and delivered. Expenditure framework agreed for FY11 > The SEZ act has been further improved and nine chapters of Management > Improved SEZ Law submitted to the regulation drafted. Constituent Assembly Private Sector > Public-Private Policy Dialogue > The 1st round of meetings of NBF working group has been Development initiated through IFC’s ICRP completed with 35 recommendations out of which 9 has > 50 hotels participating in local hotel already been implemented and 4 others have been addressed in booking portal (IFC) the current budget. Eastern Regional Business forum has been established to set up task forces on SEZ, Power and Security. The forum made 15 recommendations out of which 5 has been implemented and 1 has been addressed by the current budget. > 65 hotels registered in the website. The project is successfully closed. 70 Interim Strategy Note for Nepal Sectors ISN Results Indicators Progress as of June 2011 Pillar 2 : Laying the Foundation for Sustainable Economic Growth Financial > At least one bank offers energy > IFC signed MoU with Clean Energy Development Bank (CEDBL) Sector efficiency credits to private sector on May 2010. Strategy and portfolio assessment completed for CEDBL in Sep 2010. Market Potential Study on EE/RE for Industries and FIs completed in June 2011. First phase of training on SEF for bankers completed with CEDBL and remaining portfolio development activities underway. > IFC conducted Energy Auditor training for energy service companies to develop pipeline of EE investments and a market scoping study to identify business cases for EE/RE in the Nepali market in Feb 2011, pilot audits for FI pipeline development underway. Irrigation > Rehabilitation of 8,000 hectares of > The rehabilitation of 58 farmer-managed irrigation schemes has small-scale irrigation commenced, with a total command area of about 11,700 ha. Out of these, the works at ten schemes, commanding 1,900 ha, have already been completed. Energy > Increased availability of power > IFC has committed US$6.5mn for 4.3MW refurbishment and generation capacity by 100 MW upgradation of an existing plant from 5.1MW to 9 MW. IFC is working on disbursing the committed US$6.5mn loan, which is expected to be partially disbursed in FY12. In addition, IFC is working on financing additional 30-50MW of hydropower capacity for FY12. Roads > 250 km of strategic roads upgraded > 265.5 km of strategic roads completed as of December 2010. with an increase of 5 percent of the The DOR survey also shows that where road upgrading works population within 20 mins walking have been substantially completed there had been a 35% distance to core strategic roads in decrease in travel time to economic centers for residents of the the RSDP project area. project area. This will be verified by an ongoing survey. > 270 km of rural roads improved to > Upgrading of 598 km of rural roads completed. Increase in all weather standard equivalent, population served will be verified through an ongoing survey representing an increase of 5 (Results of the survey expected in September 2011) percent of the rural population > Maintenance budget for FY 2010/2011 has increased from last within 4 hours walking in the hills year and consolidation of SRN maintenance funds to be fully and 2 percent within 2 hours of channeled through Roads Board Nepal has taken place. walking in the low lands in the > Agreement to move to SWAp has been deferred due to RAIDP project districts capacity constraints and high country risks. A pooled funding > Funding in budget sufficient for 500 arrangement for trail bridges is in operation. km of road maintenance per year (FY10/11) > Agreement on the framework for sector wide approach in rural roads Interim Strategy Note for Nepal 71 Attachment A Results of FY10-11 ISN Sectors ISN Results Indicators Progress as of June 2011 Pillar 2 : Laying the Foundation for Sustainable Economic Growth SME > Credit Bureau equipped with the > Credit Information Bureau: Financial bids opened in May 2011 necessary hardware and software to under an IDA project exceeded NRB project budget. Alternative carry out its functions (IFC) options being explored by IFC to support credit bureau. > SME lending strategy approved by Secured Transactions Registry (STR)- MOU signed between three commercial banks (IFC) MoF and CICL in Oct 2010; Stakeholders workshop conducted in Mar 2011 by IFC/WB experts to finalize amendments to the Regulations and Act; REO and RFP documents finalized in Apr 2011 and pending with MoF and NRB for the next steps. IFC may consider exploring alternative options to support STR. > BOK adopted SME strategy in 2009; Cooperation Agreement with NIC Bank signed in May 2011; Discussion with additional bank to be carried out in FY 2012. Climate > Completion of hydro-economic > The final draft report completed. Change model of the Ganges River > Done. Priorities clarified. A new department in the Ministry > Clarification of Nepal’s climate of Environment called Climate Change Division has been change priorities in context of established. Its focus is to build Global Mountain Alliance regional climate change conference to highlight the effect of climate change on mountain in FY10 communities. > GON Action Plan available on > Action Plan completed. protecting tigers habitat Pillar 3: Enhancing Equitable Access to Services & Social Inclusion Education > NLSS completed > Survey fieldwork completed in Feb, 2011. Data analysis > Increase in community managed ongoing. Poverty assessment report to be completed in FY12. schools from 8,000 to 12,000 > Current Number is 11,400 > Completion of training of 1000 girls > As of March 2011, training has been completed for 810 girls in in vocational skills and life skills vocational and life skills. > Net enrollment increases from 92 > Net enrollment (grade 1-5) is 94.5%. Net enrollment (grade 1-8) percent to 94 percent (grades 1-5) is 86%. A new report on the update will be out by Aug 2011. and from 73 percent to 86 percent > Accreditation system established, 1 institution accredited (Bal (grades 1-8) as verified through EMIS Kumari College in Chitwan). Three (3) institutions completed > Establishment of an accreditation quality assurance cycle. Four other institutions completed self system for higher education study report (SSR) and ready for peer review. > 4000 students from 1st and 2nd > 2000 students from 1st and 2nd income quintile have income quintile benefit from benefitted from financial aid to attend higher secondary and financial aid to attend higher post secondary education. Data entry of new (3rd) cohort secondary and post-secondary complete for selection of 2,346 students in academic year education 2010/2011. * 3000 beneficiary-students were selected and their names were published in national dailies. Health > 35 percent of pregnant women > 35.2% of pregnant women received at least four antenatal visits receive at least four antenatal visits > Share of deliveries by trained health workers increased to 36%. (29 percent in 2006) > Share of women with knowledge of at least one method of HIV > Share of deliveries by trained health infection in women increased to 88% workers increased from 31.7 percent in 2009 to 42 percent > Share of women with knowledge of at least one method of HIV infection in women increases from 56 percent in 2006 to 72 percent 72 Interim Strategy Note for Nepal Sectors ISN Results Indicators Progress as of June 2011 Pillar 3: Enhancing Equitable Access to Services & Social Inclusion > Share of under-five malnourished > Share of under-five malnourished children decreases to 45%. children decreases from 49 percent in > Contraceptive Prevalence rate for modern methods increased to 2006 to 35 percent 65.35% (As of May 2011). > Contraceptive Prevalence rate for > 4600 surgeries for uterine pro-lapse last yr. modern methods increases from 44 > Share of children under 12 months immunized with DPT3 percent in 2006 to 48 percent in 2011 increased to 89%. > 6000 surgeries for uterine pro-lapse per year > Share of children under 12 months immunized with DPT3 increases from 79 percent in 2008 to 90 percent Social > Endorsement by Cabinet of a Social > The NPC led inter-ministerial team submitted a draft social Protection Protection Strategy, including the protection framework for 10 years to the NPC in 2011. framework for a set of principles and > As of June 2011, 23,965 additional HHs have gained access to information base on targeting social electricity. programs for poor and vulnerable > By the end of Mar 2011, 20,503 families will have benefited from groups biogas plants. 7036 more families will benefit from such plants > 20,000 more rural households in 2011. benefiting from modern electricity through sustainable community based micro-hydro schemes: (Baseline: 20,586 HH) > 21,000 more rural families using biogas Water and > 69,000 more rural households > As of May 31 2011, about 69,859 more households have Sanitation benefiting from community managed benefitted from water supply within 15 minutes walking rural water systems and 65,000 more distance (Baseline: 101,658) and 73,572 more households have from sanitation systems household latrines (Baseline: 55,504). Interim Strategy Note for Nepal 73 Attachment B Program for Accountability in Nepal (PRAN) PRAN is a three year US$3 million project funded by the Component 1: to build up and work through a National State and Peace Building Fund (Oct 2009 – Sept 2010), Capacity Building Institute. This will provide training and supplemented by US$1m in funds from a Multi-Donor capacity building to both CSO and GoN actors, mentoring and Trust Fund in Nepal. Its objective is to develop the capacity coaching visits and scholarships, and special programs for of civil society and government actors to promote social targeted audiences (e.g. journalists). A project working with accountability in Nepal through provision of practical training, CSPO and GoN actors might value using such services. action learning, and networking opportunities. Its three focal areas are Public Financial Management, Urban Governance, Component 2: to make grants to CSOs to practice what they and Public Service Delivery. have learnt in Component 1, or to deepen and further pilot their own work in social accountability. PRAN has helped to The background is IDA’s commitment to the two themes of set up a completely independent Grant making Committee Demand for Good Governance and Social Accountability which will decide on grants under this component. Again an which together recognize that a special effort has to be made IDA project working with CSOs may see value in encouraging to listen to the poor and marginalized groups affected by IDA them to apply to this Committee for funds. projects; to empower people to demand accountability from the government and other power holders; and to underline Component 3: to build a National Centre for Social governments’ obligation not only to listen to its citizens, but Accountability to be the knowledge centre for this topic and also report on and account for their activities to the citizens. have information about the relevant mechanisms, trainers, The background in Nepal is that while there is considerable and experiences, in Nepal. It is also untended to encourage institutional (government and legislative) attention to issues and develop networks and coalitions among Nepali CSOs who of social exclusion and citizen participation, in reality these are interested in the same topic. An IDA project may see ways fine and far sighted policies are often sidelined or not fully in which its partners can benefit from such ideas. implemented. Component 4: for monitoring, impact evaluation, and learning, PRAN seeks to promote and encourage IDA and GoN to use and also to be the source of funding for special studies, such their own funds to advance demand for good governance as, for example, the research on the Political Economy of Social programming with CSOs, as is being done in, for example, Accountability in Nepal. The findings of this and any future the Poverty Alleviation Fund, and the Rural Water Supply and studies may be of relevance and use to Task Team Leaders, and sanitation project. While its main work is with Nepali CSOs the PRAN will ensure that they are circulated to all staff. and government actors to promote and support work on social accountability, it also offers WB projects opportunities The Nepal Country Office has recruited a team to manage the for coordination and collaboration with PRAN in incorporating PRAN program, including a social accountability Adviser to social accountability mechanisms in their project design. Its coordinate the program. Apart from coordinating the PRAN main components are: activities, the team is also supporting World Bank task teams in Nepal in better understanding and incorporating social accountability mechanisms in their operations. 74 Interim Strategy Note for Nepal Attachment C IDA-IFC Areas of Collaboration Sectors Activity Joint ISN exercise Implementing a joint IDA-IFC ISN for FY10-11; preparing a new joint ISN for FY12-13. Hydropower IDA and IFC are jointly preparing the Kabeli ‘A’ Hydroelectric Project – a first in Nepal. IDA and IFC teams are also working in close coordination to provide financing support through IFC’s sub- national finance group for the Nepal-India Electricity Transmission and Trade project. Coordinated approach IFC infrastructure team and IDA water resources/energy team are adopting a coordinated approach on water resources for the sectors’ development in Nepal. Financial sector IDA and IFC are collaborating on financial infrastructure reform and access to finance (such as e-payments that include mobile banking/ microfinance) in Nepal. Climate Change IDA and IFC (along with ADB), are implementing two Climate Investment Fund (CIF) pilot programs- SREP and PPCR. Once approved, IFC plans to help manage the US$30 million funds expected to be provided to Nepal’s private sector. Private Sector IDA and IFC are collaborating to execute IFC led Investment Climate Reform Program in Nepal. A Development Memorandum of Understanding has been signed in October 2010 between the two country office staff in Nepal. Trade and Transport IDA and IFC plan to collaborate on two new tentative programs: IDA’s North Eastern Regional Trade and Transport Facilitation Program (NERTTP) and IFC’s planned new South Asia Regional Trade and Integration (SARTI) program. This would complement IDA’s work on trade and transport facilitation through IFC’s work on trade facilitation. Agribusiness IFC’s agribusiness advisory services will complement the work done by IDA and other donors via the SME Venture Fund. Interim Strategy Note for Nepal 75 Attachment D Official Development Assistance and Development Partner Coordination As noted in the Nepal Country Evaluation carried out for the increased, suggesting that DPs shifted more aid through non Joint Evaluation of the Paris Declaration (Phase II 2010), a state modalities. Since the peace settlement in 2006, ODA history of aid dependence and fragmented external support through government has steadily increased, although other has characterized the DP relationship with Nepal. The mixed modalities have been retained, reflecting concerns over GoN record of aid effectiveness was a focus of discussion at capacity and a growing concern over corruption. The increase early NDFs (Nepal Development Forum), and the Foreign in ODA through government systems appears to be largely Aid Policy (2002) was an effort to provide a structure for due to the increase in multilateral support and support from aid management. Since 2007, the Three Year Interim Plans DPs participating in pooled sector programmes. (TYIP) have set aid management policy in the context of Paris Declaration Principles. Total ODA and ODA through Government System Nepal has been receiving foreign aid as a source of financing 60 for socio-economic development since the mid-fifties. Up 50 through the 1990’s, foreign assistance remained around 5-6% of GDP, financing about 25-30% of total government 40 expenditure and about 60% of the development budget. The 30 Rs. in Billion past 10 years have seen a reduction in dependency (from 24% in 2000 to 17% in 2009), reflecting strong domestic revenue 20 collection efforts. However, external assistance as a share of the development budget continues to be significant. 10 The past decade has seen a doubling of total official 0 2006/07 2007/08 2008/09 2002/03 2004/05 2009/10 2003/04 2005/06 development assistance (ODA), with a slight increase in the 2000/01 2001/02 proportion of ODA channelled through GoN systems. At moments of political crisis (e.g., intensification of the armed Nepal Fiscal Year conflict in 2001/02 and the king taking power in 2005), ODA channelled through government dipped, while total ODA ODA Thru Government System Total ODA Source: OECD Website and MOF, 2010 Nepal Fiscal Year (NPR bn) 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Total Government Revenue 48.89 50.45 56.23 62.33 70.12 72.28 87.71 107.62 143.47 61% 63% 67% 70% 68% 65% 66% 67% 65% Total Foreign Aid 18.80 14.38 15.89 18.91 23.66 22.04 25.85 29.30 36.35 24% 18% 19% 21% 23% 20% 19% 18% 17% Internal Loan & Cash Balances 12.14 15.24 11.89 8.20 8.78 16.56 20.04 24.43 39.84 15% 19% 14% 9% 9% 15% 15% 15% 18% Total Public Expenditure 79.84 80.07 84.01 89.44 102.56 110.90 133.60 161.35 219.66 100% 100% 100% 100% 100% 100% 100% 100% 100% Source: Economic Survey, 2009/10, MoF 76 Interim Strategy Note for Nepal Looking at ODA trends from the perspective of the contributing DPs, the two development banks have dominated aid throughout the decade. Amongst the bilaterals, DFID and India have grown in significance, whilst Japan has reduced its level of aid (in particular aid channeled through government systems). On-budget ODA disbursements by the 10 largest DPs is shown in the following table: Development Partners 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 (NPR bn) World Bank 4.16 3.20 1.67 3.80 5.29 4.51 4.16 5.34 8.74 8.33 ADB 7.30 4.06 1.63 3.36 2.88 3.32 5.32 6.00 6.91 6.96 Japan 3.28 3.03 3.75 4.23 3.50 3.59 2.63 2.55 2.79 1.57 UK 0.05 0.13 0.22 0.52 0.57 0.43 1.10 1.75 1.18 1.45 India 0.03 0.00 0.82 0.07 0.49 0.12 2.60 1.21 1.82 1.12 Korea 0.02 0.04 0.00 0.00 0.00 0.00 0.00 0.00 0.28 0.96 Germany 1.43 0.70 2.93 2.84 4.10 2.76 0.59 2.11 0.80 0.74 UNDP 0.01 0.00 0.00 0.01 0.72 0.56 0.55 0.45 0.26 0.72 Denmark 0.28 0.81 1.24 1.16 0.80 0.49 0.43 1.33 0.61 0.66 IFAD 0.14 0.11 0.14 0.11 0.14 0.11 0.14 0.24 0.36 0.46 Others 2.41 2.40 3.48 2.80 5.14 6.30 8.44 8.56 13.34 18.20 Total 19.13 14.49 15.88 18.90 23.66 22.20 25.97 29.54 37.09 41.17 Source: MOF, 2010a and FCGO Changes in the relative DP rank over the past decade, based on share of on-budget disbursements, are presented below: 2000/01 2004/05 2009/10 DP (NPR bn) Amount % DP Amount % DP Amount % ADB 7.30 44.3% World Bank 5.29 31.9% World Bank 8.33 42.9% World Bank 4.16 25.3% Germany 4.10 24.7% ADB 6.96 35.8% Japan 3.28 19.9% Japan 3.50 21.1% Japan 1.57 8.1% Germany 1.43 8.7% ADB 2.88 17.4% UK 1.45 7.5% Denmark 0.28 1.7% Denmark 0.80 4.8% India 1.12 5.8% Total for Top 5 16.46 100% 16.58 100% 19.43 100% Source: MOF, 2010a A review of sectoral trends in ODA over the past decade reveals a steady increase in DP support to health, education and overall social services (68% of disbursements combined), coinciding with a decline in funding of the economic sectors - agriculture, irrigation, forestry, transport, power and communications (23% of disbursements combined). This indicates a major investment by DPs in human development, notably through the two sector programs in health and education, and relative neglect of productive infrastructure. Interim Strategy Note for Nepal 77 Attachment D Official Development Assistance and Development Partner Coordination Year 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 Sectors (NPR bn) Amt. Amt. Amt. Amt. Amt. Amt. Amt. Amt. Amt. % Agriculture, Irrigation 3.77 3.29 2.18 2.43 2.60 2.40 3.72 3.86 2.29 6% and Forestry Transport, Power 9.24 5.91 7.77 7.57 9.86 7.14 6.66 6.71 6.30 17% and Communication Industry and Commerce 0.02 0.37 0.40 0.15 0.12 0.11 0.12 0.08 0.16 0% All Social Services 5.76 4.69 5.32 8.73 10.75 11.16 15.18 18.19 24.70 68% Of which: Education 1.93 1.88 2.03 2.43 4.66 4.62 5.05 6.89 8.75 24% and: Heath 0.64 0.38 0.65 0.52 1.10 1.95 3.28 4.34 5.36 15% Others 0.01 0.14 0.21 0.04 0.33 1.30 0.17 0.46 2.91 8% Total 18.80 14.38 15.89 18.91 23.66 22.10 25.85 29.30 100% 36.35 Source: MOF, 2010a Currently, there are some 50 bilateral and multilateral Bank, USAID, United Kingdom, United Nations, and the European Development Partners (DPs) and over 100 international non- Union (in descending order of importance). These 6 DPs account governmental organizations (INGOs) operating in Nepal. The for about 78% of funding available to Nepal (see Table 1 below). MoF is designated by the GoN to lead aid coordination and At the sector level, the proportion of approved (undisbursed) management, with the Foreign Aid Coordination Division (FACD) funding for agriculture, energy, and health remains largely of the MoF entrusted to look after all matters relating to DP- unchanged from previous years (7%, 15%, and 14%, respectively), provided external resources. FACD is in the process of rolling out while undisbursed funds available for education have declined a web-based Aid Management Platform (AMP) to capture data (from 24% to 14%). Additional analysis of on and off-budget on external assistance to Nepal. The initial focus is on collecting projects will be carried out in the final month of the FY (15 June information related to DP-supported programs, both on and off – 15 July) to enable a more refined understanding of funding budget, with the intent to expand coverage to INGO spending in composition and availability (see Table 2 below). the next phase. This database is expected to contribute to better transparency and predictability through: (i) rolling three-year The Paris Country Evaluation Report (2010) concluded that, while projections on disbursements for all projects, updated on an aid effectiveness has taken center stage as the conventional annual basis; (ii) regular reporting on actual disbursements both wisdom, adoption of Paris Declaration Principles remains low. for on and off-budget projects; and (iii) geo-referencing of project The authors find that the political context has been the most activities to enable mapping across donors and across sectors. significant factor influencing DP behavior. During the conflict, it was not feasible to increase the level of alignment, and what As this is the first year of data entry in the AMP and the process harmonization existed was focused on humanitarian and peace is not yet complete, analysis of stocks and flows can only be related responses. Since the peace agreement, some DPs have considered indicative at this stage. Overall, about US$3.3 billion reinforced their support to GoN whilst others have continued to in ODA is available for disbursement in the future, of which follow more unilateral approaches. A comparison of the findings US$2.6 billion (78%) will be channeled through the budget. of the two Paris Declaration surveys undertaken in 2008 and 2011 The largest donors, in terms of approved funds ready for (2007 and 2010 data, respectively) is presented below, showing disbursement, include the Asian Development Bank, the World overall performance against the PD indicators by DPs in Nepal. Indicators 2008 Results 2010 Results OECD Target 2010 Aid on Budget (average per donor) 46% 58% 85% Coordinated Technical Assistance 15% 48% 50% Using Country Public Financial Management System 68% 63% 76% Using Country Procurement System 56% 35% N/A Parallel Project Implementation Units (number) 106 68 64 In-year predictability 47% 55% 65% Programme-based approaches 23% 31% 66% Joint missions 23% 33% 40% Joint country analytic work 28% 63% 66% 78 Interim Strategy Note for Nepal Table D-1 - Official Development Assistance by DP (USD) Donor (nbr projects) 1/ Actual Actual Undisbursed FY11 FY12 FY13 FY14 Commitments Disbursement Balance Actual Planned Planned Planned Disbursemt Disbursemt Disbursemt Disbursemt Asian Development Bank (63) 1,241,658,231 385,925,324 855,732,907 354,172,355 232,614,500 154,072,500 102,596,500 World Bank Group (25) 1,128,017,588 324,780,740 803,236,848 67,780,783 262,242,347 214,545,689 114,139,066 USAID (11) 442,000,000 63,970,000 378,030,000 30,800,000 - - - United Kingdom (29) 338,164,296 123,585,997 214,578,299 24,245,989 52,178,904 19,405,220 13,220,955 United Nations (32) 174,645,807 18,945,218 155,700,589 9,281,475 5,098,018 130,000 - European Union (44) 140,691,510 1,157,681 139,533,829 - - - - Germany (18) 350,230,906 255,588,585 94,642,320 1,776,389 9,770,115 3,663,793 - Japan (11) 142,234,700 59,497,922 82,736,778 36,356,802 6,052,589 - - OPEC (6) 72,700,000 3,322,000 69,378,000 - 12,969,000 11,445,000 712,000 Finland (9) 81,121,437 17,527,642 63,593,795 14,658,990 16,344,864 16,999,539 12,927,855 India (7) 61,035,274 - 61,035,274 - - - - Norway (9) 92,714,886 36,112,458 56,602,428 15,990,441 12,598,659 5,558,232 - Korea (3) 55,680,000 4,332,028 51,347,972 1,824,576 - - - Denmark (17) 121,605,116 79,688,335 41,916,781 13,381,178 12,795,328 5,128,714 - Australia (5) 43,627,432 10,044,277 33,583,155 2,794,268 9,887,157 9,887,157 4,298,764 Switzerland (26) 161,380,660 128,842,788 32,537,872 20,498,311 5,328,648 4,430,855 2,857,010 China (2) 21,960,325 - 21,960,325 - - - - GFATM (3) 42,423,453 20,635,324 21,788,129 15,479,746 - - - Canada (6) 23,616,438 3,799,995 19,816,443 2,597,882 3,800,000 - - Saudi Arabia (1) 15,420,000 - 15,420,000 - - - - Netherlands (17) 15,393,902 - 15,393,902 - - - - GAVI (1) 14,540,690 - 14,540,690 - - - - Govt Agency/Ministry (4) 7,737,513 - 7,737,513 - - - - Nordic Development Fund (1) 6,762,468 - 6,762,468 - - - - KOWEIT (1) TOTAL (289) 4,795,362,632 1,537,756,314 3,257,606,318 611,639,185 641,680,128 445,266,699 250,752,151 1/ AMP data entry is still on-going for a number of donors, so amounts are subject to change. ADB calendar year disbursement data is in the process of conversion to Nepali fiscal year. Interim Strategy Note for Nepal 79 80 Table D-2 - Official Development Assistance by Sector (USD) Sector / Sub-Sector (nbr projects) 1/ Actual Actual Undisbursed FY11 FY12 FY13 FY14 Commitments Disbursements Balance Actual Planned Planned Planned ON BUDGET Agriculture, forestry, fishing (20) 264,397,123 76,547,273 187,849,850 38,617,059 44,396,154 44,112,601 10,433,276 Fuel and energy (19) 676,271,351 294,299,994 381,971,357 (1,369,693) 105,952,349 95,041,410 10,101,029 Interim Strategy Note for Nepal Transport (12) 393,145,493 198,337,884 194,807,609 65,070,107 48,806,033 32,528,294 18,863,430 Other Economic Sectors (24) 608,141,454 192,834,205 415,307,249 114,590,712 53,203,084 41,148,258 56,616,092 Education (11) 495,556,978 141,171,132 354,385,846 92,137,661 127,659,480 53,506,203 48,513,554 Attachment D Environmental Protection (15) 84,019,009 40,632,612 43,386,397 29,838,444 2,741,209 3,778,295 2,018,920 General Public Service (10) 396,234,606 162,051,457 234,183,149 57,581,715 63,317,508 39,584,344 11,000,709 Health (12) 398,931,818 38,702,029 360,229,789 20,282,877 52,273,125 45,905,883 38,839,288 Housing and Community Amenities (2) 151,172,980 64,849,698 86,323,281 64,357,739 38,600,209 17,079,000 - Public Order and Safety (7) 157,499,556 59,017,441 98,482,115 8,603,856 36,256,072 12,447,353 8,000,000 Recreation, Broadcasting, Culture (2) 9,020,000 42,000 8,978,000 42,000 1,674,000 6,857,000 - Social Protection (12) 25,324,334 12,070,762 13,253,572 4,649,657 3,047,047 682,853 571,330 Water supply (7) 292,668,508 81,824,992 210,843,516 47,558,968 49,434,725 40,997,552 33,894,523 Unallocated (1) 1,500,000 - 1,500,000 - - - - TOTAL ON BUDGET (154) 3,953,883,209 1,362,381,479 2,591,501,730 541,961,100 627,360,995 433,669,046 238,852,151 Off Budget Projects (138) 841,479,423 175,374,835 666,104,588 69,678,085 14,319,134 11,597,653 11,900,000 TOTAL ON AND OFF BUDGET (289) 4,795,362,632 1,537,756,314 3,257,606,318 611,639,185 641,680,128 445,266,699 250,752,151 1/ AMP data (including sector attributions) still in process of validation; disbursement estimates still being entered by DPs. Official Development Assistance and Development Partner Coordination Attachment E Results Framework Country Strategic ISN Activities World Bank Group Program Areas & Key Issues (ongoing/planned) Cross Cutting Theme 1: Strengthening Governance and Accountability Strengthening > Roll out of Treasury System Account (TSA) in at least 50% of the Trust Fund Financing: public financial district Multi Donor Trust Fund (MDTF) management and > Implementation of international standards in public sector IDF on PPMO procurement accounting Emerging Towns Project > Strengthen audit practice and enhance quality of audits > Support the implementation of government roll out of e-bidding > E-bidding operational in at least 2 municipalities Promote Social > Training and capacity building on SA provided both to Trust Fund Financing: Accountability (SA) government and CSOs Program for Accountability in > 5 SA resource centers established at district level Nepal (PRAN) > Mid-term impact evaluations conducted for SA pilot projects and 4 studies completed and disseminated Improving > Public Private Dialogue (PPD) to have resulted in 50 Lending/Technical Assistance: Regulatory Reform procedures improved or eliminated by GON out of 200 reform IFC Investment Climate Reform and Corporate recommendations proposed Program Governance > SEZ component to have facilitated private sector participation in managing/developing zones as well as an investment in zones leading to the creation of 4000 new jobs by 2014. Improving fiscal > Revised systems and norms for intergovernmental fiscal transfers Lending/Technical Assistance: and financing to municipalities adopted and implemented by the Ministry of Emerging Towns Project frameworks for local Local Development service delivery > Revised systems and norms adopted and implemented for urban infrastructure financing by the Town Development Fund Cross Cutting Theme 2: Fostering Gender Equality and Social Inclusion Operationalize > Incorporate gender and social inclusion considerations and Planned Analytical Work/ TA: gender and social strategies in all new operations Social Inclusion and Gender NLTA inclusion framework > Regularly monitor gender impact during project implementation into Bank operations and portfolio reviews and lending portfolios Actively promote > Strengthen the capacity of country systems to implement gender Planned Analytical Work/ TA: gender and and social inclusion concerns, policies and frameworks Social Inclusion and Gender NLTA social equality as > Enable capacity-building of the Ministry of Women, Children and well as inclusive Social Welfare to allow it to effectively assume its responsibility development in of planning, programming and managing development activities Nepal related to gender Strengthen > Facilitate broad consultation process to explore the relationship Planned Analytical Work/ TA: government’s between natural resource usage, development interventions and Indigenous People NLTA capacity to better indigenous groups. address the issues of > Assist in developing policies, approaches, and operational IPs, natural resource recommendations that are sensitive to the needs and rights of management and Indigenous People development Strengthen Bank’s > Integrate gender and social inclusion issues in the Nepal Living Planned Analytical Work/ TA: core diagnostics on Standards Survey III and Poverty Assessment NLSS III, National Poverty Gender and Social Assessment, Thematic Notes Inclusion Interim Strategy Note for Nepal 81 Attachment E PILLARS Country Strategic Outcomes/Outputs by the end Indicators World Bank Group Program Areas & Key Issues of the ISN Period Baseline (2011)31 Target (2013) (ongoing/planned) Pillar 1: Enhancing Connectivity & Productivity for Growth Energy Outcome 1: Increased access to Ongoing Lending: > Poor reliability electricity and improved reliability Power Development (FY03) and low access to of power supply in the targeted Poverty Alleviation Fund II (FY07) power areas as measured by: Kabeli Transmission* (FY11) • Number of households with access 44,59532 HH 80,74233 HH Nepal-India Electricity Transmission to electricity generated by micro- and Trade* (FY11) hydro schemes Planned Lending*: • MW of existing generation capacity 0 53MW Kabeli ‘A’ Hydroelectric (Jointly with rehabilitated IFC) (FY12) • Cross border transmission 0% tower 40% tower IFC’s Hydropower Credit Line construction underway foundation foundation Planned Analytical Work/TA: completed IFC’s Hydropower Sector Study IFC’s Sustainable Energy Financing (FM Advisory) Roads Outcome 2: Improved access to all Ongoing Lending: > Lowest road season road in the Bank supported Road Sector Development (FY08) density in South areas as measured by: Rural Access Improvement & Asia Decentralization (FY04) > Inadequate road • Road constructed and upgraded ** Rural: 664 km Rural: 1305 Planned Lending*: network and poor Non-rural:285 km km Results Based Bridges (FY12) road maintenance • Road rehabilitated and maintained Rural: 2,225 km Non-rural: 297 Planned Analytical Work/TA: (including backlog maintenance)34 Non-rural: 800 km+130 km Road Sector Assessment ** km backlog+386 Rural: 4,500 km periodic km Number of trail bridges constructed 143 Non-rural: 1000 km backlog+750 km periodic 317 Agriculture/ Outcome 3: Increased agriculture Ongoing Lending: Irrigation productivity as measured by Agriculture Commercialization and > Low agriculture • Percent increase in productivity of Potato: 10 MT/ha Potato: 14 MT/ Trade (FY08) productivity selected crops Paddy: 2.9 MT/ha ha Irrigation and Water Resource > Inefficient Paddy: 3.5 Management (FY08) irrigation system MT/ha RJK Irrigation* (FY12, FY13) Planned Lending*: • Number of irrigation schemes and Schemes: 16 Schemes: 105 Third Poverty Alleviation Fund (FY13) areas rehabilitated Areas: 2,067 ha Areas: 17,180 Pilot Program for Climate Resilience ha (Jointly with IFC) PSD/Access to Outcome 4: Enhanced access to Ongoing Lending: Finance micro finance as measured by: Financial Sector TA* (FY03) > Inadequate • Number of borrowers access credit 95,000 114,156 IFC offer credit and trade lines and access to financial from Micro Finance Institution (99% women) (99% women) investment in bank equity services in the (MFI) Ongoing Non-Lending: rural areas IFC investment in MFI Planned Analytical Work/TA: Financial Sector Monitoring (FIRST) 31 Most recent available data as of June, 2011 32 Includes 41,000 from Power project+3,595 from PAF II 33 Includes 74,000 from Power project + 6,742 from PAF II 34 500 kms of periodic maintenance and 1000 km backlog of road maintenance undertaken each year. 82 Interim Strategy Note for Nepal PILLARS Country Strategic Outcomes/Outputs by the end Indicators World Bank Group Program Areas & Key Issues of the ISN Period Baseline (2011)31 Target (2013) (ongoing/planned) Pillar 2: Reducing Vulnerabilities and Improving Resilience Vulnerability/ Outcome 5: Reduced food Ongoing Lending: Climate change insecurity among poor households Social Safety Nets Project (FY09) and Disaster as measured by: Second Poverty Alleviation Fund Reduction • Percent of targeted households 91% 95% (FY08) > Moderate to reporting increased ability to meet Peace Support Project* (FY07) severely food their food needs Planned Lending*: insecure and Third Poverty Alleviation Fund (FY13) food deficit at the • Number of districts implementing 0 10 Global Agriculture and Food Security national level improved cash transfer systems Program TF > Weak cash transfer Ongoing Analytical Work/TA: systems and not Global Fund for Disaster Risk responsive to the Reduction vulnerable • Number of rural household Total: 258,000 Total: 460,000 Planned Analytical Work/TA: > Many rural beneficiaries with increased access Of which female: Of which Social Inclusion, Gender and poor have been to livelihood improvement options, 159,960 female: Indigenous People excluded from of which female beneficiaries 230,00035 Ongoing Trust Fund : mainstream Pilot Program for Climate Resilience development (Jointly with IFC) with few options IFC Sustainable Energy Finance to improve their South Asian Water Initiative livelihoods Strategic Environmental and Social > Vulnerable to climate change Outcome 6: Reduced negative Assessment effects- flood and impact of climate change through Food Price Crisis Response droughts; sustainable energy and carbon Global Fund for Disaster Risk finance as measured by: 2,000 tons Reduction • Green House Gas (GHG) emission 0 per year reduced per year Pillar 3: Promoting Access to Better Quality Service Education Outcome 7: Improved access to Ongoing Lending: > Low quality secondary and higher education as Second Higher Education Project > Low enrolment at measured by: (FY06) secondary level, • Increase in net enrolment rate for 23.9% 25% School Sector Reform (FY10) in particular for students in grade 9-12 Enhanced Vocational Education and disadvantaged • Increase in share of enrolment Girls: 42% Girls: 43.4% Training* (FY11) groups and from disadvantaged groups in Dalits & Dalatis & Planned Lending *: women participating higher education educationally educationally School Sector Reform Additional > Relevance: school institutions disadvantaged disadvantaged Financing (FY12) curriculum not Janajatis: 12.8% Janajatis: 13.2% Ongoing Trust Fund: relevant for job Outcome 8: Enhanced quality disadvantaged Adolescents Girls Employment creation and relevance of education as Janajatis: 13.2% Initiative measured by: • Number of market relevant 0 10 programs delivered at the Bachelor’s and Master’s levels • Completion of student learning Initiated Completed assessment (NASA) for grade 8 • Employment of project-supported 0 80% graduates for at least 6 months This is out of total target of 460,000 35 *Not expected to contribute to ISN outcomes Interim Strategy Note for Nepal 83 Attachment E PILLARS Country Strategic Outcomes/Outputs by the end Indicators World Bank Group Program Areas & Key Issues of the ISN Period Baseline (2011)31 Target (2013) (ongoing/planned) Pillar 3: Promoting Access to Better Quality Service Health Outcome 9: Decreased Ongoing Lending: malnutrition among pregnant Second HNP and HIV/AIDS (FY10) > Chronic women within the poorest quintile Planned Lending*: malnutrition of as measured by First 1000 days (FY12) children and • Increase in iron and folic acid (IFA) 70.5% 72% Ongoing Analytical Work/TA: pregnant women supplement Nutrition Policy Dialogue Outcome 10: Improved coverage of fully immunized children within the poorest quintile as measured by • Percentage of fully immunized 82.6% 84% children ** * Not expected to contribute to ISN outcomes ** IDA Core Indicator 84 Interim Strategy Note for Nepal Interim Strategy Note for Nepal FY12-FY13 Annexes THE WORLD BANK GROUP Interim Strategy Note for Nepal 85 Annex A1 Key Economic & Program Indicators-Change from last ISN Forecast in last ISN Actual Estimated Economy (CY) FY08 * FY08 FY09 FY10 FY11 FY12 FY13 Growth rates (%) Real GDP /a 4.5 5.3 4.4 4.6 3.5 3.0 3.4 Exports f.o.b. (y/y percent change in US $) 12.8 5.4 0.5 -6.1 8.5 7.0 7.0 Imports f.o.b. (y/y percent change in US $) 10.8 11.2 14.1 36.5 6.5 8.5 9.5 Inflation (period average %) 6 7.7 12.6 9.6 9.5 9.2 8.3 National accounts (% GDP) Current account balance 2.9 2.9 4.2 -2.4 -1.3 -1.5 -1.3 Gross investment/e 19.8 30.3 31.5 35.8 34.5 31.7 31.3 Public finance (% GDP)/a Fiscal balance -3.2 -2.1 -3.1 -2.5 -2.1 -3.0 -3.0 Foreign financing 1.5 2.6 2.7 2.6 2.6 2.7 2.6 International reserves (in months of imports) 7.9 11.3 6 5.6 5.3 4.7 4.1 Program (Bank’s FY) FY08 FY08 FY09 FY10 FY11 FY12 FY13 Lending ($ million) 210 210 140.14 352.5 289 202 202 Gross disbursements ($ million) 100 80.62 176 127 238 225 235 /a.GDP at market price Source:Central Bureau of Statistics (CBS)-2011 and Nepal Rastra Bank (NRB) * Last ISN **Source:CBS and NRB 86 Interim Strategy Note for Nepal Annex 2-1 Nepal at a Glance POVERTY and SOCIAL South Low- Nepal Asia income 2009 Population, mid-year (millions) 29.3 1,568 846 GNI per capita (Atlas method, US$) 440 1,082 512 GNI (Atlas method, US$ billions) 13.0 1,697 433 Development diamond* Average annual growth, 2003-09 Life expectancy Population (%) 1.9 1.5 2.2 Labor force (%) 3.1 2.2 2.6 GNI Gross Most recent estimate (latest year available, 2003-09) per primary capita enrollment Poverty (% of population below national poverty line) 31 .. .. Urban population (% of total population) 18 30 29 Life expectancy at birth (years) 67 64 57 Infant mortality (per 1,000 live births) 39 55 76 Access to improved water Child malnutrition (% of children under 5) 39 41 28 Access to an improved water source (% of population) 88 87 64 Nepal Low income group Literacy (% of population age 15+) 58 61 66 Gross primary enrollment (% of school-age population) .. 108 104 Male .. 110 107 Female .. 105 100 Key Economic Ratios and Long-Term Trends 1989 1999 2008 2009 GDP (US$ billions) 3.5 5.0 12.6 12.5 Gross capital formation/GDP 21.5 20.5 31.8 29.7 Exports of goods and services/GDP 11.1 22.8 12.1 15.7 Gross domestic savings/GDP 10.3 13.6 11.2 8.0 Gross national savings/GDP 13.5 27.2 29.5 28.9 Domestic Current account balance/GDP -7.6 4.3 2.9 4.3 Interest payments/GDP 0.8 0.6 0.3 0.3 Total debt/GDP 38.5 60.0 29.2 29.4 Total debt service/exports 16.1 6.8 4.1 3.8 Present value of debt/GDP .. .. .. 21.8 Present value of debt/exports .. .. .. 59.2 1989-99 1999-09 2008 2009 2009-13 (average annual growth) GDP 4.9 3.7 5.3 4.7 .. GDP per capita 2.4 1.6 3.4 2.8 .. Exports of goods and services .. 0.5 -3.4 38.4 .. Interim Strategy Note for Nepal 87 Annex 2-1 Nepal at a Glance (con’t) Structure of the Economy 1989 1999 2008 2009 (% of GDP) Agriculture 50.4 41.3 33.7 33.8 Growth of capital and GDP (%) Industry 16.5 21.8 16.7 15.9 30 Manufacturing 5.7 9.5 7.4 7.0 20 Services 33.1 36.9 49.6 50.2 10 0 Household final consumption expenditure 79.7 77.5 78.8 80.9 -10 04 05 06 07 08 09 General gov’t final consumption expenditure 10.0 8.9 10.0 11.1 GCF GDP Imports of goods and services 22.3 29.7 32.7 37.4 1989-99 1999-09 2008 2009 Growth of exports and imports (%) (average annual growth) 50 Agriculture 2.4 3.3 4.7 2.2 40 Industry 7.5 3.0 1.9 1.8 30 Manufacturing 10.2 1.2 0.2 -0.5 20 10 Services 6.3 4.1 7.1 5.9 0 -10 04 05 06 07 08 09 Household final consumption expenditure .. 3.6 3.3 5.5 Exports Imports General gov’t final consumption expenditure .. 6.4 6.8 19.3 Gross capital formation .. 6.8 20.4 -3.1 Imports of goods and services .. 4.6 7.5 20.2 Note: 2009 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 88 Interim Strategy Note for Nepal Annex A2-2 Nepal at a Glance (con’t) Prices and Government Finance 1989 1999 2008 2009 Inflation (%) Domestic prices 15 (% change) Consumer prices 8.3 11.4 7.7 13.2 10 Implicit GDP deflator 1.3 8.9 6.7 12.1 5 0 Government finance 04 05 06 07 08 09 (% of GDP, includes current grants) Current revenue 8.7 11.5 15.8 24.3 GDP deflator CPI Current budget balance -2.0 2.1 3.9 7.6 Overall surplus/deficit -11.5 -3.9 -2.8 -4.3 Trade 1989 1999 2008 2009 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 163 763 913 576 Food .. 55 202 165 4,000 Pulses .. 53 32 6 Manufactures .. 199 613 357 3,000 Total imports (cif ) 636 1,390 3,414 2,290 2,000 Food 73 112 244 158 1,000 Fuel and energy 44 219 413 253 Capital goods 190 266 370 408 0 03 04 05 06 07 08 09 Export price index (2000=100) .. .. .. .. Exports Imports Import price index (2000=100) .. .. .. .. Terms of trade (2000=100) .. .. .. .. Balance of Payments 1989 1999 2008 2009 (US$ millions) Exports of goods and services 384 1,107 1,603 1,597 Current account Imports of goods and services 748 1,584 4,234 4,456 balance to GDP (%) Resource balance -363 -477 -2,631 -2,859 5 4 Net income -13 25 122 153 Net current transfers 107 671 2,812 3,245 3 2 Current account balance -269 218 364 539 1 0 Financing items (net) 260 -63 92 -48 -1 03 04 05 06 07 08 09 Changes in net reserves 9 -155 -456 -491 Memo: Reserves including gold (US$ millions) 218 797 2,143 2,221 Conversion rate (DEC, local/US$) 25.3 68.0 64.9 76.6 Interim Strategy Note for Nepal 89 Annex A2-2 Nepal at a Glance (con’t) External Debt and Resource Flows 1989 1999 2008 2009 (US$ millions) Total debt outstanding and disbursed 1,356 3,020 3,685 3,683 IBRD 0 0 0 0 Composition of 2009 debt (US$ mill.) IDA 572 1,147 1,507 1,483 349 4 Total debt service 62 108 162 177 44 IBRD 0 0 0 0 IDA 6 22 50 51 Composition of net resource flows Official grants 170 148 710 763 Official creditors 221 111 -23 -13 Private creditors -9 -13 -1 -1 1483 Foreign direct investment (net inflows) 0 4 1 38 76 Portfolio equity (net inflows) 0 0 0 0 1727 A- IBRD E - Bilateral World Bank program B - IDA D- Other multilateral F - Private C - IMF G - Short - term Commitments 193 85 17 156 Disbursements 110 48 31 7 Principal repayments 2 14 39 41 Net flows 108 34 -8 -33 Interest payments 4 8 12 11 Net transfers 104 25 -20 -44 Note: This table was produced from the Development Economics LDB database. 90 Interim Strategy Note for Nepal Annex B2 Nepal Selected Indicators* of Bank Portfolio Performance and Management of June 30, 2011 Indicator 2008 2009 2010 2011 Portfolio Assessment Number of Projects Under Implementation a 16 16 15 17 Average Implementation Period (years) b 3.0 3.4 3.5 3.9 Percent of Problem Projects by Number a, c 6.3 18.8 20.0 18.0 Percent of Problem Projects by Amount a, c 6.6 15.2 22.0 16.0 Percent of Projects at Risk by Number a, d 25.0 31.3 73.3 41.0 Percent of Projects at Risk by Amount a, d 19.8 35.4 69.8 44.0 Disbursement Ratio (%) e 25.7 31.1 24.6 33.4 Portfolio Management CPPR during the year (yes/no) yes yes yes yes Supervision Resources (total US$) 1,636 1,901 2,050 2,163 Average Supervision (US$/project) 102 112 108 103 Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 73 5 Proj Eval by OED by Amt (US$ millions) 1,538.0 136.9 % of OED Projects Rated U or HU by Number 37.5 60.0 % of OED Projects Rated U or HU by Amt 27.6 48.1 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank’s country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank’s portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. Note: This table was produced from the Development Economics LDB database. Interim Strategy Note for Nepal 91 Annex B3 Ida - Indicative Lending Program Summary1 Fiscal year Project Name US$(M) 2011 2 Road Sector Development Project AF 75.0 Enhanced Vocational Education and Training Project 50.0 Poverty Alleviation Fund AF 65.0 Emerging Towns Project 25.0 Kabeli Transmission Project 38.0 Strengthening Regional Cooperation for Wildlife Protection in Asia 3.0 Cross-Border Transmission Project 3 33.0 Total FY11 Actual 289.0 2012 Rani Jamara Kulariya Irrigation Project - Phase 1 Kabeli "A" Hydroelectric Project School Sector Reform Project AF First 1000 Days Results-Based Bridges Project 2013 Agriculture Commercialization and Trade AF Poverty Alleviation Fund III Emerging Towns Expansion Rani Jamara Kulariya Irrigation- Phase 2 North-East Trade and Transport Facilitation4 Recipient-Executed Trust Funds 2012 PPCR - Building Resilience to Climate-Related Hazards PPCR - Enhancing Climate Resilience of Endangered Species Global Agriculture and Food Security Program (GAFSP) Scaling Up Renewable Energy Social Protection Pilot Program 1 The IDA envelope for the ISN period (FY12-13) of SDR 268.3 million is indicative. Actual allocations in these years will depend on (i) total IDA resources available, (ii) the country’s performance rating; (iii) the performance and assistance terms of other IDA borrowers; (iv) the terms of IDA’s assistance to Nepal (grants or credits), and (v) the number of IDA-eligible countries. US$ equivalent is depend- ent on prevailing exchange rate. 2 Actual. 3 Country portion of the regional project. 4 Regional project. 92 Interim Strategy Note for Nepal (I) IFC Investment Operations Program 2008 2009 2010 2011* Original Commitments (US$m) IFC’s Own Accounts only 0.44 15 14 12.6 Participants -- -- -- -- IFC and Participants 0.44 15 14 12.6 Original Commitments by Sector (%)- IFC Accounts only Electric Power 47 Finance & Insurance 100 35 53 98 Transportation & Warerhousing 65 Collective Investment Vehicles 2 Total 100 100 100 100 Original Commitments by Investment Instrument (%) - IFC Accounts only Equity 2 2 Guarantee 100 33 51 98 Loan 65 47 Total 100 100 100 98 * Data as of June 30, 2011 Interim Strategy Note for Nepal 93 Annex B3 (ii) IFC - Indicative Program Summary Sector/ Business Line Project Name/Details Access to finance/ > FM advisory with WB on financial infrastructure relating to e-payments, credit information Financial inclusion (AS) bureaus, secured transaction registries > Microfinance (MF) advisory service projects involving new product development, enhancing capacity in deposit mobilization, risk management, human resource and MIS > Sustainable Energy Financing (SEF) involving developing banks’ portfolio for SEF by supporting banks’ investments for on-lending to energy efficient (EE) projects > SME Banking involving SME department restructuring of a commercial bank in order to enhance staff capacity and quality of SME portfolio Financial Sector (IS) > Credit and trade lines to local banks ; supporting commercial banks by equity investments > Support MF banks/institutions to scale up their operations to under-banked and underserved regions Investment Climate (AS) > IFC and IDA collaborating to execute IFC led Nepal Investment Climate Reform Program (NICRP) focusing on Regulatory Reform, supporting the Nepal Business Forum; and assisting with the establishment of Special Economic Zones. > South Asia Regional Trade and Integration (SARTI) Sustainable Business > Poultry Supply Chain Strengthening Project working with SME farms and two lead firms in the Advisory (SBA) poultry sector > Two Climate Investment Fund (CIF) pilot programs with IDA & ADB- Pilot Program for Climate Resilience (PPCR) and Scaling-up Renewable Energy (SREP). > SME Ventures Fund: A new IFC Fund that provides a combination of investment products and advisory services to SME entrepreneurs Infrastructure (IS) > Planned support for small hydropower projects through credit line to selected local banks > Kabeli Hydroelectic Generation: IFC and IDA plan to contribute to the 37MW project > Nyadi Hydropower Project: IFC to invest in the 30MW project > SREP: IFC to co-design and implement the project with ADB and WB * This table includes activities in addition to the results framework because of longer time periods expected for these projects to generate results than the ISN two year period 94 Interim Strategy Note for Nepal Annex B4 Indicative Non-Lending Activities1 (IDA) Task Completion FY Recent Completions Public Expenditure Review FY10 Social Impact Assessment of Rural Energy FY10 Migration and Remittances FY10 Annual MTEF FY10 Revitalizing Agriculture FY10 South-South Exchange Trust Fund Peace Building FY10 Fiscal Federalism FY10 Information Infrastructure for Connectivity FY10 Local Governance Strategy FY11 Annual MTEF FY11 Investment Climate Assessment FY11 Social Protection Programmatic TA FY11 Gender and Social Inclusion FY11 Support to Municipalities FY11 Input to Road Sector Assessment FY11 Analysis of Fiscal Space FY11 Nutrition Dialogue FY11 Underway/Planned – AAA Programmatic Area 1: Economic & Financial Key Issues and Results Monitoring Economic Updates FY12-FY13 Financial Sector Monitoring (FIRST) FY12-FY13 ISN Portfolio Monitoring and Geo-coding FY12 Annual MTEF FY12-FY13 Programmatic Area 2: Strengthening Governance and Accountability Governance Issues (GPF) FY12 PFM Strengthening (MDTF) FY13 Social Accountability (PRAN-TF) FY13 Programmatic Area 3: Enhancing Connectivity and Productivity for Growth Road Sector Assessment FY12 NLSS Thematic Notes FY12-FY13 ESMAP NLTA FY12 Programmatic Area 4: Poverty, Gender and Social Inclusion Poverty Assessment FY12 NLSS Thematic Notes FY12-FY13 Gender, Social Inclusion and Indigenous People (TF) FY12 Programmatic Area 5: Reducing Vulnerabilities and Improving Resilience Water Resource and Climate Change (SAWI) FY12 Disaster Reduction NLTA (GFDRR) FY13 Nutrition NLTA (SAFANSI TF) FY13 Strategic Environmental and Social Assessment FY12 Includes activities funded from Bank Budget and Bank-Executed Trust Funds. 1 Interim Strategy Note for Nepal 95 Annex B5 Social Indicators Latest single year Same region/income group South Low- 1980-85 1990-95 2002-08 Asia income POPULATION Total population, mid-year (millions) 17.0 21.6 28.8 1,545.1 976.2 Growth rate (% annual average for period) 2.4 2.5 2.0 1.5 2.1 Urban population (% of population) 7.4 10.9 17.2 29.5 28.7 Total fertility rate (births per woman) 5.6 4.7 2.9 2.9 4.0 POVERTY (% of population) National headcount index .. .. 30.9 .. .. Urban headcount index .. .. 9.6 .. .. Rural headcount index .. .. 34.6 .. .. INCOME GNI per capita (US$) 160 200 400 963 523 Consumer price index (2000=100) 20 58 127 127 132 Food price insex (2000=100) 24 71 104 - - INCOME/CONSUMPTION DISTRIBUTION Share of income or consumption Gini index .. .. 47.3 .. .. Lowest quintile (% of income or consumption) .. .. 6.1 .. .. Highest quintile (% of income or consumption) .. .. 54.2 .. .. SOCIAL INDICATORS Public expenditure Health (% of GDP) .. .. 2.0 1.1 2.3 Education (% of GDP) 2.3 2.8 3.8 2.9 3.4 Social security and welfare (% of GDP) .. .. .. 0.0 0.0 Net primary school enrollment rate (% of age group) Total .. 62 79 86 80 Male .. 82 84 88 82 Female 41 73 84 78 Access to an improved water source (% of population) Total .. 78 89 87 67 Urban .. 96 94 94 86 Rural .. 76 88 84 60 Immunization rate (% of children ages 12-23 months) Measles 34 56 79 75 78 DPT 32 54 82 71 80 Child malnutrition (% under 5 years) .. .. 39 41 27 Life expectancy at birth (years) Total 51 57 67 64 59 Male 51 57 66 63 58 Female 51 58 67 65 60 Mortality Infant (per 1,000 live births) 117 83 41 58 76 Under 5 (per 1,000) 171 117 51 76 118 Adult (15-59) Male (per 1,000 population) 376 350 199 246 295 Female (per 1,000 population) 395 376 175 173 254 Maternal (modeled, per 100,000 live births) .. .. 830 500 790 Births attended by skilled health staff (%) .. 7 19 42 44 Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. World Development Indicators database, World Bank - 23 April 2010. 96 Interim Strategy Note for Nepal Annex B6 Key Economic Indicators Actual Estimate Projected Indicator FY07 FY08 FY09 FY10 FY11 FY 12 FY 13 Real GDP ( annual percent change) 3.3 5.3 4.4 4.6 3.5 3 3.4 National accounts (% of GDP at current market prices) Gross domestic product 100 100 100 100 100 100 100 Agriculturea 32.5 31.7 33.0 35.0 35.7 35 35.1 Industrya 16.6 16.8 15.8 15.0 14.6 14.7 14.5 Servicesa 50.9 51.5 51.2 50.1 49.8 50.3 50.4 Total Consumption 90.2 90.2 90.6 92.6 93.3 93 93 Gross domestic fixed investment 21.1 21.9 21.4 20.2 18.0 21 21 Government investment 3.4 4.0 4.5 4.5 3.8 6.8 6.9 Private investment 17.7 17.8 16.9 15.7 14.2 14.2 14.2 Current account ( % of GDP) -1.4 2.7 4.2 -2.4 -1.3 -1.5 -1.3 share of Exports, f.o.b. 8.4 7.6 7.0 5.4 5.4 5.3 5.2 share of Imports, f.o.b. 26.2 26.7 28.1 31.4 31.0 30.8 30.9 Savings (% of nominal GDP) Gross domestic savings 9.8 9.8 9.4 7.4 6.7 7 7 Gross national savings 28.6 33.2 35.9 32.3 30.9 30.3 29.9 Memorandum items Gross domestic product at market prices/a 10.3 12.6 12.9 15.7 16.9 18.5 20.2 (in billion US$) Gross domestic product per capita (US$) 372 444 446 536 566 609 653 Real annual growth rates (%, calculated from 2000/01 prices) Gross domestic product at market prices/b 3.4 6.1 4.4 4.6 3.5 3 3.4 Gross domestic product per capita /b 1.2 3.8 2.1 2.3 1.2 0.7 1.1 Balance of Payments (in millions of U.S. dollars) Exports (GNFS) /b 1,434.8 1,513.0 1,587.3 1,535.6 1,613.8 1,716.6 1,825.9 Merchandise FOB 872.3 953.1 904.1 848.8 921.0 985.4 1,054.4 Imports (GNFS) /b -3,540.6 -3,938.8 -4,429.9 -5,833.6 -6,160.0 -6,865.4 -7,500.2 Merchandise FOB -2,701.6 -3,352.2 -3,611.1 -4,926.7 -5,246.9 -5,692.9 -6,233.7 Net current transfers 1,829.9 2,811.7 3,226.5 3,797.5 4,165.4 4,515.1 4,992.7 (including official current transfers) Current account balance -12.8 364.2 535.9 -378.0 -220.6 -268.6 -267.8 Net private foreign direct 5.6 4.3 23.7 38.3 84.0 70.0 50.0 investment /e Memorandum items GDP at current market prices 10,324.7 12,550.0 12,852.1 15,709.6 16,900.0 18,500.0 20,200.0 Interim Strategy Note for Nepal 97 Annex B6 Key Economic Indicators (con’t) Actual Estimate Projected Indicator FY07 FY08 FY09 FY10 FY11 FY 12 FY 13 Annual growth rates Merchandise exports 2.6 5.4 4.9 -3.3 5.1 6.4 6.4 (FOB) 9.3 -5.1 -6.1 8.5 7.0 7.0 Merchandise imports 13.9 11.2 12.5 31.7 5.6 11.5 9.2 (FOB) 24.1 7.7 36.4 6.5 8.5 8.5 9.5 Public finance (as % of GDP at current market prices) /c Total revenue 11.9 12.9 14.2 15.2 15.4 15.3 15.7 Total expenditure 15.9 17.4 19.8 20.2 20.1 21.0 21.7 Current expenditures 10.6 11.2 12.9 12.9 12.8 13.5 13.5 Capital expenditures and net lending 5.3 6.2 6.9 7.2 7.3 7.5 8.2 Overall deficit before grant -4.0 -4.6 -5.7 -5.0 -4.7 -5.7 -6.0 Overall deficit after grants -1.8 -2.1 -3.0 -2.5 -2.1 -3.0 -2.9 Domestic financing 1.5 2.0 3.0 2.4 2.2 2.6 2.4 Foreign financing 2.5 2.6 2.7 2.6 2.5 3.1 3.6 Monetary indicators M2/GDP (at current market prices) 54.3 60.7 63.8 61.5 59.4 58.1 - Growth of M2 (%) 14.0 25.2 27.3 14.1 9.6 10.1 - Private sector credit growth / 75.8 77.7 78.8 77.2 74.9 73.2 - total credit growth (%) Price indices( 2000 =100) Real effective exchange rate - - (end of period, y/y percent change) 5.6 -3.7 3.1 6.3 2.7 Consumer price index 6.4 7.7 12.6 9.6 9.5 9.2 8.3 (% growth rate) a. GDP components are estimated at factor cost. b. “GNFS� denotes “goods and nonfactor services.� c. Fiscal year ends in mid-July. Data here refers to central government operations as contained in the budget. Source:Central Bureau of Statistics (CBS)-2011; Nepal Rastra Bank (NRB); staff estimates and projections. 98 Interim Strategy Note for Nepal Annex B7 Key Exposure Indicators Actual Projected Indicator FY07 FY08 FY09 FY10 FY11 FY 12 FY 13 Total debt outstanding and 3,777 3,789 3,810 3,912 3,898 3,803 3,672 disbursed (TDO) (US$m)a Net disbursements (US$m)a 62 -23 -16 38 8 -49 -96 Total debt service (TDS) (US$m) a 147 162 177 198 207 217 228 Debt and debt service indicators (%) TDO/(XGS and remittances)b 32 26 24 21 19 17 15 TDO/GDP 37 30 30 25 23 21 18 TDS/(XGS and remittances)b 1 1 1 1 1 1 1 Concessional/TDO 86 87 87 85 86 86 86 IBRD exposure indicators (%) IBRD DS/public DS .. .. .. .. .. Preferred creditor DS/public DS (%)c 75 77 78 81 80 83 85 IBRD DS/XGS .. .. .. .. .. IBRD TDO (US$m) .. .. .. .. .. Share of IBRD portfolio (%) .. .. .. .. .. IDA TDO (US$m) 1,559 1,537 1,490 1,463 1,467 1,453 1,429 IFC (US$m) Loans 32.6 28.1 33.0 27.5 20.6 Equity and quasi-equity 1.8 1.3 0.9 0.4 0.2 a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short-term capital. b. “XGS� denotes exports of goods and services, including workers’ remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. Interim Strategy Note for Nepal 99 100 Annex B8 Operations Portfolio (IBRD/IDA and Grants) As of July 6, 2011 Closed Projects 81 Interim Strategy Note for Nepal IBRD/IDA * Total Disbursed (Active) 605.82 of which has been repaid 0.00 Total Disbursed (Closed) 482.45 of which has been repaid 290.64 Total Disbursed (Active + Closed) 892.52 of which has been repaid 290.64 Total Undisbursed (Active) 884.65 Total Undisbursed (Closed) 0.00 Total Undisbursed (Active + Closed) 884.65 Last PSR Difference Between Active Projects Supervision Rating Original Amount Expected and Actual in US$ Millions Disbursementsa/ Development Implementation Project ID Project Name Objectives Progress Fiscal Year ‘IDA^ GRANT ‘Cancel. Undisb. Orig. Frm Rev’d P087140 Agriculture Commercialization and Trade S S 2009 20.0 18.3 2.8 P100342 Avian Flu S MS 2007 18.2 2.2 2.6 4.3 2.0 P104015 Enhanced Vocational Education & Training 2011 50.0 50.9 P099296 Irrig & Water Res Mgmt Proj MS MU 2008 64.3 43.2 19.4 15.3 P071291 NP Financial Sector Technical Assistance MU MU 2003 16.0 6.5 0.7 5.3 P113002 NP Social Safety Nets Project S S 2009 64.5 17.4 (26.7) 2.4 P105860 Poverty Alleviation Fund II HS S 2008 192.5 0.0 94.9 (2.4) P043311 Power Development Project MS U 2003 164.8 0.8 123.6 21.0 57.9 P112893 Kabeli Transmission Project 2011 38.0 38.1 P110762 Peace Support Project MS MS 2008 50.0 27.3 27.7 11.7 P095977 Road Sector Development Project S S 2008 117.6 66.5 (10.2) 6.9 P083923 Rural Access Improve. & Decentralization MS MS 2005 77.0 46.9 2.5 4.9 P071285 Rural Water Supply & Sanitation Project MS MS 2004 52.3 8.7 (17.3) P120265 Emerging Towns Project 2011 25.0 25.5 P113441 School Sector Reform Program MU MU 2010 130.0 88.3 12.2 P117417 Second HNP and HIV/AIDS Project S S 2010 129.2 110.1 8.0 P090967 Second Higher Education Project MU MU 2007 60.0 42.6 8.0 Last PSR Difference Between Active Projects Supervision Rating Original Amount Expected and Actual in US$ Millions Disbursementsa/ Development Implementation Project ID Project Name Objectives Progress Fiscal Year ‘IDA^ GRANT ‘Cancel. Undisb. Orig. Frm Rev’d P118179 Rani Jamara Kulariya Irrigation Project 2012 43.0 43.0 P121210 Strengthening Regional Coop For 2011 3.00 3.0 Wildlife Protection in Asia * P115767 Nepal-India Electricity Transmission 2011 33.00 33.0 and Trade Project* TF056440 CDCF: Nepal biogas Support Program S S 2006 7.0 5.0 2.0 TF058031 NEPAL: Biogas Support Program IV Project S S 2007 5.0 3.2 1.8 TF092561 IDF-NEPAL: Strengthening MU U 2008 0.3 0.1 0.2 Institutional Capacity of the TF093397 Pro Poor Targeted Secondary School Stipend MU MU 2009 1.9 1.6 0.3 TF094724 NEPAL: FCPF Readiness Grant 2009 0.2 0.2 - NEPAL: FCPF Preparation Grant 3.2 3.2 - TF096287 NEPAL’ Adolescent Girls Employment Initiative 2010 2.1 1.7 0.4 TF090264 NEPAL Micro Hydro Project 2.0 2.0 - TF098235 EFA-FTI School Sector Reform Project MS MS 2010 120.0 90.0 30.0 TF099675 IDF: Strengthening Institutional 0.5 0.5 - Capacity of the Dept of National Parks & Wildlife Conservation for the Effective Mgmt of Protected Areas 2011 Overall Result 1,348.3 142.1 9.5 884.7 54.5 101.0 * regional projects ^ country portion of regional IDA Interim Strategy Note for Nepal 101 102 Annex B8 (IFC) Committed and Disbursed Outstanding Investment Portfolio As of 6/30/2011 (In USD Millions) Interim Strategy Note for Nepal Committed Disbursed Outstanding **Quasi **Quasi FY Approval Company Loan Equity Equity *GT/RM Participant Loan Equity Equity *GT/RM Participant 1996/ 1997/ 1998/ 1999/ 2000/ 2001 Himal Power 2.2 - - - - 2.2 - - - - 1998 Bhote Koshi 1.5 - - 1.0 1.4 1.5 - - 1.0 1.4 1998 Jomsom Resort 4.0 - - - - 4.0 - - - - 2008/ 2009/ 2010/ 2011 Bank of Kathmandu - - - 2.2 - - - - 2.2 - 2009 Buddha Air Nepal 8.8 - - - - 8.8 - - - - 2009 Smartchoice - 0.4 - - - - - - - - 2009/ 2010/ 2011 Himalayan Bank - - - 0.2 - - - - 0.2 - 2009/ 2010/ 2011 NIC Bank - - - 0.02 - - - - 0.02 - 2010 Butwal Power co 6.5 - - - - - - - - - 2010 Nirdhan MFB - 0.3 - - - - 0.2 - - - 2011 Laxmi Bank Ltd - - - 0.7 - - - - 0.7 - 2010/ 2011 NIBL Nepal - - - 0.03 - - - - 0.03 - 2011 Ventures Nepal - 0.3 - - - - - - - - Total Portfolio: 23.0 0.9 0.0 4.2 1.4 16.5 0.2 0.0 4.2 1.4 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. Interim Strategy Note for Nepal 103 104 Interim Strategy Note for Nepal The World Bank Nepal Office P.O. Box 798 Yak and Yeti Hotel Complex Durbar Marg, Kathmandu, Nepal Tel.: 4226792, 4226793 Fax: 4225112 Website: www.worldbank.org/np Public Information Center 1st Floor, West Wing Lal Durbar Convention Center Yak and Yeti Hotel Complex, Durbar Marg, Kathmandu, NEPAL Fax: (+9771) 4238546 Email: nepalpic@worldbank.org THE WORLD BANK GROUP