The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) Program Information Documents (PID) Appraisal Stage | Date Prepared/Updated: 31-Oct-2018 | Report No: PIDA171537 Oct 18, 2018 Page 1 of 11 The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) BASIC INFORMATION OPS_TABLE_BASIC_DATA A. Basic Program Data Country Project ID Program Name Parent Project ID (if any) Nepal P167047 Nepal: Additional P160748 Financing for School Sector Development Program Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) SOUTH ASIA 25-Nov-2018 25-Mar-2019 Education Financing Instrument Borrower(s) Implementing Agency Program-for-Results Financing Ministry fo Finance Ministry of Education, Science and Technology Program Development Objective(s) The Program Development Objective is to improve the quality, equitable access, and efficiency of basic and secondary education in Nepal by supporting the Government's School Sector Development Program. COST & FINANCING SUMMARY (USD Millions) Government program Cost 23.96 Total Operation Cost 23.96 Total Program Cost 23.96 Total Financing 23.96 Financing Gap 0.00 FINANCING (USD Millions) Total Non-World Bank Group and Non-Client Government Financing 23.96 Trust Funds 23.96 Oct 18, 2018 Page 2 of 11 The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) B. Introduction and Context Introduction 1. The team seeks the approval of the Regional Vice President to provide an additional grant in the amount of US$23,958,000 through the Global Partnership for Education (GPE) Trust Fund for Nepal School Sector Development Program (SSDP, P160748, US$185 million), as well as a Level Two restructuring of the parent program to account for changes due to the Additional Financing (AF). The parent IDA program supports a five- year time slice of the Government’s School Sector Development Program (SSDP). It was approved by the Board on March 24, 2017; became effective on September 19, 2017; and is scheduled to close on July 15, 2021. The proposed GPE AF and a Level Two Restructuring are in response to a request from the Government of Nepal (GON) and an indicative GPE allocation1 to Nepal. The World Bank has been selected as the Grant Agent (GA) for processing and supervising the proposed grant through the consensus of the GON and the Local Education Group (LEG)2. 2. The proposed GPE AF would be for a three-year operation (2018–2021). It would maintain support for the Government’s SSDP to help the GON improve quality, equity, and efficiency within the education sector, and maximize the SSDP’s development impact during the ongoing federal transition. The AF is being explicitly designed to safeguard/boost education service delivery and set strong foundations for the decentralized education systems. This is being done through three channels: consensus-driven context-relevant design, impactful disbursement-linked results (DLRs), and adherence to GPE’s three eligibility requirements - having a credible education sector plan, commitment to financing the sector plan, and availability of critical data for sector monitoring and analysis. 3. Accordingly, AF will comprise of two parts: (a) Process/output-linked DLRs amounting to 60 percent of the total grant, and (b) Outcome-linked DLRs related to equity, quality, and efficiency amounting to 40 percent of the total grant (known as the variable part in GPE parlance, with outcome DLRs being ‘stretch’3 indicators). 4. The proposed AF will follow the Program for Results (PforR) instrument used in the parent IDA program. By doing so, it will continue to build on the existing momentum and results-focus by directly incentivizing the Government’s ownership and implementation of critical reforms and policies. It also offers more flexibility to tailor interventions to local contexts – which aligns well with the federal transition. The original Program Development Objective (PDO) of improving the quality, equitable access, and efficiency of basic and secondary education in Nepal by supporting the Government’s SSDP will remain unchanged. The AF will include 10 new DLRs and one new disbursement-linked indicator (DLI) within the existing program boundary – designed to enhance program’s development impact during the ongoing federal transition. The AF will be combined with a Level Two restructuring which includes a change in implementation arrangements to accommodate the new federal structure. 1 The GPE Board has approved a maximum country allocation of US$24.2 million, including US$15 million from the GPE multiplier fund for the 2018–2020 GPE Education Sector Program Implementation Grants (ESPIG) application for Nepal. 2 LEG comprises of civil society, international NGOs, development partners and GON. 3 Stretch indicator is defined as an action, strategy or policy in the three areas of equity, efficiency and learning outcomes that is deemed likely to lead to substantial progress in the medium term and hence to be transformational. The indicator can represent a result associated with a process, an output or an outcome. Oct 18, 2018 Page 3 of 11 The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) 5. Country-level GPE application process and partnership arrangements. The LEG members, with representation from development partners (DPs), international/nongovernmental organizations (NGOs), and different civil society organizations, meet periodically to discuss joint support to ongoing programs, including the Government’s SSDP. This group is leveraged for the preparation of the GPE grant. A GPE representative, LEG, and the GON jointly prepared a proposal for potential GPE funding. The World Bank, as the GA in collaboration with the Coordinating Agency (CA) and other DPs, will assume full fiduciary oversight and implementation support for the GPE grant. Country Context 6. Over the past decade, Nepal’s economy has performed reasonably well. Growth averaged 4.3 percent (at market prices) over 2005–2015. Although declining as a share in the economy, agriculture continues to play a large role, contributing 30 percent of value added. The service sector has grown in importance, accounting for half of the value added in recent years. Industry in general, and manufacturing has grown more slowly and its relative share in the economy is falling. Similarly, exports continue to struggle, while imports are fueled by remittances. However, remittance as a share of the gross domestic product (GDP) has recently been on a declining trend due to lower oil prices that have affected economic prospects in those countries with large Nepalese migrants. Inflation was in single digit for most of the past decade, with the peg of the Nepalese rupee to the Indian rupee providing a nominal anchor. Fiscal balances remained sustainable owing to strong revenue growth and modest spending. The incidence of poverty measured against the national poverty line fell by 19 percentage points between 2003/2004 and 2010/2011, and in 2010/2011,4 15 percent of the population was counted as poor. Most multidimensional indicators of poverty also showed improvements across regions in Nepal. However, these gains remain vulnerable to shocks and setbacks, as evidenced by the 2015 earthquakes which were followed by trade disruptions resulting in GDP growth of 0.6 percent in 2016, the lowest in 14 years. 7. Data released by the Central Bureau of Statistics (consisting of a revision of the FY2017 growth rate and an updated estimate for FY2018), show that growth has been strong despite the external shock from floods. In mid-August 2017, the worst flood in decades destroyed 64,000 ha of standing crop, contributing to an estimated reduction in the agriculture growth rate from 5 percent to 2.8 percent (in FY2017 and FY2018, respectively). This contributed to a reduction in overall GDP growth from 7.9 percent to 6.3 percent in FY2018. Government revenue continued to perform well. However, spending also picked up significantly in FY2017 compared to previous years. Nevertheless, ambitious expenditure targets envisioned in the budget have not been met and the quality of spending has not improved with 60 percent of the capital spending occurring in the last quarter. Also, spending pressures have increased in the first half of FY2018 due to fiscal transfers and spending on elections, capital goods, and federalism. High inflation in the past two years has moderated sharply due to moderating inflation in India and improving supply-side constraints. Inflation slowed to 4.2 percent (year- on-year) in December 2017 but increased to 6 percent (year-on-year) in March 2018 owing to a sharp uptick in vegetable prices. Meanwhile, credit growth slowed in early 2018 to 16.7 percent (year-on-year) compared to its peak of 31.9 percent in 2017, but deposits growth continued to decline, pushing up interest rates. On the external side, the cumulative effect of a sharp trade balance deterioration and a slow growth of remittances is placing significant pressure on the current account. 4Poverty data were last updated in 2010. The World Bank will be collaborating with the Central Bureau of Statistics to update national poverty estimates using the Annual Household Survey data (2013/14–2016/17) and prepare the next Nepal Living Standard Survey. Oct 18, 2018 Page 4 of 11 The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) 8. A new government, backed by a historic majority in Parliament, took up office on February 15, 2018. This followed elections for all three tiers (local, state, and federal) of the state architecture defined by the new constitution, marking a protracted but successful conclusion of a political transition that began with the signing of the Comprehensive Peace Agreement in November 2006. State governments largely mirror the coalition at the center. At the subnational level, funds, functions, and functionaries hitherto managed by the central, district, and village authorities are moving to the seven new states and 753 local governments (LGs) for which new legislation, institutions, and administrative procedures are being formalized as constitutionally prescribed. Meanwhile, the central-level authority is being streamlined with a focus on oversight. These exercises at state restructuring are expected to result in improved outreach and service delivery but will likely take time before they become fully operational Sectoral and Institutional Context 9. While Nepal has made impressive gains in education access, learning levels remain low and unequal. Net enrolment rate (NER) at the primary level increased from 81 to 95 percent between 2004 and 2017. In secondary, NER increased from 48 to 54 percent between 2007 and 2017.5 Nepal has also achieved gender parity in basic and secondary education. However, learning levels are low and unequal. National Assessment of Student Achievement (NASA) show that in Grades 3, 5, and 8 fewer than 20 percent of students master basic competencies in problem solving and reasoning. Moreover, there is strong inequality in learning outcomes across districts and by socioeconomic status, ethnicity, and language spoken.6 10. Education is a priority for GON. Education continues to be a priority sector for the GON. Historically, Nepal has allocated more than 12 percent of total government budget on education (for FY2018/19, this number was at 10 percent).7 In absolute terms, education budget has doubled since 2012/13.8 Provisions under the new constitution guarantee the right to free education up to the secondary level for all, along with emphasis on gender and social inclusion in education access.9 11. GON’s SSDP – implemented by Ministry of Education, Science, and Technology (MoEST) with financing from GON and DPs - is focused on improving quality, equity, and efficiency in the school sector. The SSDP is expected to contribute to the Sustainable Development Goal (SDG) targets for education with a focus of three results areas: • Results Area 1: Improved teaching-learning and student learning outcomes • Results Area 2: Improved equitable access to basic and secondary education • Results Area 3: Strengthened education system, sector planning, management, and governance 12. The transition to federalism presents a historic opportunity for transforming the education system to ensure learning for all. The Local Government Operations Act of October 2017 places planning, monitoring, and managing basic and secondary education under the jurisdiction of the new LGs. These include creating education plans, teacher redeployment, and conducting examinations at the basic level among others. The 2015/16 5 UIS Education Database. 6 World Bank. 2016. Moving Up the Ladder: Poverty Reduction and Economic Mobility in Nepal, Synthesis Report. World Bank, Washington, DC. 7 Ministry of Finance, Red Book FY18/19. 8 Ministry of Finance, Red Book FY12/13; FY18/19. 9 Constitution of Nepal 2015 - Articles 38, 39, 42, and 287. Oct 18, 2018 Page 5 of 11 The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) Education Sector Analysis (ESA)10 identified the introduction of a federal system as a major imperative for increasing equity, quality, and efficiency in the education sector. These findings were echoed by a World Bank study11 that showed strong support for federalism at the frontlines. Over 80 percent of the surveyed head teachers believed that the LGs would be more accountable to the local community and provide more support to improve quality. These findings underline the strong as yet untapped potential for improving accountability and service delivery by bridging the gap between the Government, schools, and the community. 13. However, the effectiveness of federal transition in improving education service delivery depends on how well LGs are equipped in terms of accountability and capacity. First, there is the risk of short- to medium- term disruptions to education service delivery as systems get reconfigured. These disruptions could have long term consequences for students. Second, implementing national-level programs across a large number of governments at different tiers entails substantial risks of technical and political misalignments. The impact federal transition on SSDP will therefore depend on how LGs operate in terms of (a) incentives and accountability structures and (b) technical and managerial capacity. It is imperative that strong foundations for LG accountability and capacity are put in place early in the federal transition. 14. As the nuts and bolts of the new federal structure are being finalized, this AF can help GON set this transition on an optimal trajectory. This AF will be used to build capacity and help safeguard and boost interventions linked to learning and equity. This will strengthen the foundations, outreach, and evidence-base for SSDP full restructuring which is planned for mid-2019. Given that some details of federal transition are still being defined, it is currently premature to fully restructure SSDP. However, an AF at this time is opportune to safeguard and boost service delivery, maximize readiness, and minimize risks before moving towards full restructuring. PforR Program Scope 15. The Parent IDA Program supports a five-year time slice (2017–2021) of the Government’s SSDP, focusing on key result areas: (a) improved quality of education, (b) increased equitable access, and (c) improved operational efficiency. The Parent IDA program uses the PforR instrument to provide funding to the Government based on achievement of agreed DLIs (see table 1). Table 1. Parent IDA Program PforR Scope Program Supported by PforR Item Government Program (Parent IDA program) Title School Sector Development Plan (SSD Plan) School Sector Development Program (SSDP) Implementation Period FY2016/17–FY2022/23 FY2016/17–FY2020/21 Geographic scope Nationwide Nationwide 10 Through the support of a GPE Education Sector Program Development Grant. 11 A study on risks and opportunities associated with federal transition in education sector was conducted in November 2017. Oct 18, 2018 Page 6 of 11 The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) Program Supported by PforR Item Government Program (Parent IDA program) Objective Purpose: To improve equity, quality, PDO: To improve the quality, equitable efficiency, governance, and management of access, and efficiency of basic and the education sector secondary education in Nepal by supporting the Government’s School Sector Development Program. Activities or outputs • Covers all levels of school • Same as the Government education: basic education (one year of Program, excluding reconstruction of ECED/pre-primary - Grade 8) and schools in 31 earthquake-affected secondary education (Grades 9-12). districts and with a particular focus on • Finances both the recurrent enhanced teaching-learning through (salaries and remuneration of teachers and revision of curriculum, reforms in administrative staff and central and field- assessment and examination system, level organization and management costs) provision of block grants to unaided and the development expenditures schools and performance grants to covering all MOE activities related to the community schools, and improved school sector, excluding teacher pension teacher redeployment and TST and non–school-based technical and • Reduced disparity in access vocational education. and participation through targeted • Development expenditures programs including OOSC scheme at include school grants, student scholarships, basic level and pro-poor scholarship at textbooks and learning materials, the secondary level infrastructure, curriculum and material • Strengthened education development, information and system through enhanced fiduciary communication technology (ICT), teacher management system, GMS, and EMIS professional development, teacher qualifications upgrading, and capacity strengthening activities. Program expenditure US$11.312 billion (FY2016/17– US$6.461 billion (FY2016/17– FY2022/23) including reconstruction of FY2020/21) schools in 31 earthquake-affected districts Financiers GON, World Bank, ADB, Australia, EU, GON, World Bank, ADB, EU, Finland, GPE, REACH MDTF, JICA, Finland, GPE, REACH MDTF, JICA, Norway, UNICEF, USAID, WFP, and Norway, UNICEF national and international NGOs Note: EU = European Union; JICA = Japan International Cooperation Agency; NGO = Nongovernmental Organization; REACH MDTF = Results in Education for All Children Multi-Donor Trust Fund; UNICEF = United Nations Children’s Fund; USAID = United States Agency for International Development; and WFP = World Food Programme. 16. The proposed AF will not include a change in the original PDO or the three results areas. The program boundary and the results area will remain unchanged. The AF will entail adding selected new DLRs and introducing a new DLI within the existing program boundary. The proposed AF will be for a three-year operation (2018–2021) and the design will be aligned with SSDP Program Result Framework (PRF) targets and GPE strategic goals of quality, equity, and efficiency. Moreover, it would be directly tied to activities related to LGs in quality service delivery with a view to protect and enhance education service delivery during the ongoing federal transition. Oct 18, 2018 Page 7 of 11 The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) 17. The AF entails adding selected new DLRs and introducing a new DLI within the existing program boundary (see table 2). The AF comprises two parts: (a) a fixed part (60 percent of the total grant) based on the country’s compliance with the three eligibility requirements—having a credible education sector plan, commitment to financing the sector plan, and availability of critical data for sector monitoring and analysis—and (b) a variable part (40 percent of the total grant) conditional on achieving the targets for three pre-identified ‘stretch’ indicators associated with equity, quality and efficiency in the education sector. Table 2. Summary of Changes to DLIs under the AF Number of DLRs GPE Focus Area DLIs Status under AF by GPE Tranche under Variable Part 2 non-stretch DLI 1: Strengthened governance, fiduciary management, indicators/DLRs data systems, and institutional capacity for results-based 5 new DLRs added 3 stretch program implementation Efficiency indicators/DLRs DLI 2: Improved access to basic and retention in 2 stretch 2 new DLRs addeda Equity secondary schools indicators/DLRs DLI 3: National Curriculum Framework (NCF) revised and No change implemented DLI 4: Assessment and examination system reforms No change undertaken to improve teaching and learning DLI 5: Improved School Management and Accountability No change System DLI 6: Improved Teacher Management and No change Accountability DLI 7: Reading proficiencies and habits strengthened in 3 stretch New DLI (3 new DLRs) Learning early gradesb indicators/DLRs Note: a. These DLRs would offer additional incentives to existing DLRs under the broader government program, specifically to the GO N’s SSDP DLRs 6.2, 6.3, and 6.5 b. Proposed DLRs under the new DLI 7 would offer additional incentives to existing DLR 1.5b and enriches DLRs (1.3, 1.4, and 1.5a) under the broader government program. 18. The AF will be combined with a restructuring to reflect a change in implementation arrangements. While the MOEST will continue to lead SSDP implementation as the executing agency, CEHRD will be the main implementing agency. A SSDP Steering Committee (SC) chaired by the MOEST Secretary will be maintained to oversee the coordination, monitoring and verification of implementation progress of SSDP activities. The SSDP Program Implementation Committee (PIC) established under CEHRD will take over the main functions of supporting program implementation previously assumed by the SSDP Implementing Committee. While transitional arrangements for a Financial and Budget Management Support Committee (FBMSC) are not yet finalized, financial management, budgeting, audit reports and reporting on DLI achievement will be handled by the MOEST’s Development Assistance Coordination Section (DACS) previously known as the Foreign Coordination Section (FCS). 19. The AF and restructuring are proposed as there is urgent need to safeguard service delivery and set foundations for a strong LG-level governance structure. This will also help maximize available financing to GoN under current GPE window. Transitional arrangements are still being finalized; the full restructuring will be done after the program’s midterm review to re-define the SSDP implementation arrangements structure in line with the new federal structure. Oct 18, 2018 Page 8 of 11 The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) C. Program Development Objective 20. The Program Development Objective is to improve the quality, equitable access, and efficiency of basic and secondary education in Nepal by supporting the Government's School Sector Development Program. The AF will not include a change in the original PDO. D. Environmental and Social Effects 21. Considering the unchanged objective, scope, and activities of the AF, the environmental and social impact remains the same as in the parent IDA program. The Environmental and Social Systems Assessment (ESSA) conducted for the parent program had assessed the authority and organization capacity of the key implementing agency, that is, then the DOE and identified gaps and the opportunities to strengthen the system. Although the environmental and social impacts are low, the ESSA identified systemic gaps with regard to institutional mechanisms and arrangements for implementation, budgeting, coordination, and monitoring and enhancing of institutional capacity through training and better guidelines. The ESSA identified action plans for improving environmental and social management of the program. These included updating the Environmental Management Framework (EMF) and Social Management Framework (SMF)/Vulnerable Community Development Framework (VCDF) used in the predecessor SSRP, establishment of environmental and social due diligence procedure, grievance redressal mechanism, monitoring, evaluation, and provision of budget for capacity building/training, and so on. 22. The change in the institutional arrangement has created new challenges on the already inadequate capacity of the Program on the implementation of environmental and social safeguard activities. The newly formed CEHRD will have a monitoring unit at the federal level, which will monitor the safeguard activities of the SSDP. At the provincial level, the Education Unit of the Ministry of Social Development will be responsible for technical backstopping and development of standard and tools and roster including safeguard compliance. At the district level, the EDCU will provide on-demand technical backstopping support to LGs and facilitate implementation of policies at the local and school levels. These central and subnational level institutional units will have dedicated unit/staff for the implementation and compliance monitoring of environment and social safeguard procedures. 23. Although some aspects of environmental and disaster related requirements interlinked with civil constructions are included in the preparation of the School Improvement Plan (SIP), it was noted that subnational governments largely are not aware of the environmental and social safeguards requirements of the SSDP. The capacity of the LGs appears to be inadequate both in terms of human resource and knowledge to address the safeguard issues. As addressed in Section V: Key Risks, an effective communication strategy and capacity building of the subnational government staffs with adequate budget for monitoring are critical for the effective implementation of safeguard provisions. 24. To ensure effective implementation of the EMF and SMF/VDCF in the program and for refinement in the AF, the following measures are recommended: (a) revision of the EMF and SMF/VDCF to reflect the change in implementation arrangement; (b) translation of the executive summaries of the two frameworks in the Nepali language; (c) a dedicated technical person, preferably an environmental specialist in the CEHRD, assigned to monitor the construction activities; (d) periodic monitoring from the CEHRD and other concerned agencies Oct 18, 2018 Page 9 of 11 The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) (EDCUs); and (e) training of officials from the CEHRD, EDCUs, LGs and representatives from SMC to deal with issues related to the environment. E. Financing 25. Nepal’s school education sector has been based on a strong partnership between the Government and DPs. The SSDP is expected to contribute to the Sustainable Development Goal (SDG) targets for education. It is currently supported by a US$478 million financing from 14 DPs12, while the GON contributes US$5,739 million. DPs’ support for the Government SSDP follows a results-based approach. The joint financing partners (JFPs) subscribe to a common set of 10 DLIs - nearly 40 percent of which are tied to quality-related indicators. The World Bank, as in the past, will continue to play a critical role in collaborating with the partners in strengthening and using the country systems. The World Bank will work as the GA for processing the proposed grant and supervising the implementation phase of the grant through a mutual consensus of the GON and the LEG. Program Financing Table (US$, millions) Source Original Program AF Total Total program Cost 6,461 — 6,461 Financing Sources Government 5,739 — 5,739 IDA/World Bank 185 — 185 Other JFP/Non-JFP 293 — 293 Original Financing Gap 247 — GPE AF 23.961 23.96 Revised Financing Gap 223 Source: SSDP PforR PAD for the original program financing. 1Reflects the AF amount after deducing 1% GA fees. . CONTACT POINT World Bank Name : Shwetlena Sabarwal Designation : Senior Economist Role : Team Leader(ADM Responsible) Telephone No : 458-8345 Email : ssabarwal@worldbank.org Name : Mohan Prasad Aryal Designation : Senior Operations Officer Role : Team Leader Telephone No : 5770+6135 / Email : maryal@worldbank.org 12JFPs include the ADB, the European Union (EU), Finland, Japan International Cooperation Agency (JICA), Norway, United Nations Children’s Fund (UNICEF), and the GPE/ Results in Education for All Children (REACH). The non-joint financing DPs include USAID, World Food Program, UNDP, UNESCO, and others. Oct 18, 2018 Page 10 of 11 The World Bank Nepal: Additional Financing for School Sector Development Program (P167047) Borrower/Client/Recipient Borrower : Ministry fo Finance Contact : Shreekrishna Nepal Title : Joint Secretary Telephone No : 977-14211360 Email : sknepal40@mof.gov.np Implementing Agencies Implementing Ministry of Education, Science and Agency : Technology Contact : Baikuntha Prasad Aryal Title : Joint Secretary Telephone No : 977-9851138744 Email : baikunthaparyal@gmail.com FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects Oct 18, 2018 Page 11 of 11