Document o f The World Bank FOR OFFICIAL USE ONLY Report No: 50157-NP PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT I THE AMOUNT OF N SDR 46.1 M I L L I O N (US$71.50 M I L L I O N EQUIVALENT) AND A PROPOSED GRANT N I THE AMOUNT OF SDR 37.7 M I L L I O N (US$58.5 M I L L I O N EQUIVALENT) TO NEPAL FOR A SCHOOL SECTOR REFORM PROGRAM August 26,2009 Human Development Sector Unit Nepal Country Management Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the perfonnance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective August 1,2009) NRs 1 =US$0.012 US$1 = NRs 77.600 FISCAL YEAR July 15 -July 14 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AIN Association o f International Non-Government Organizations ASIP Annual Strategic Implementation Plan AWPB Annual Work Plan and Budget BPEP Basic and Primary Education Project CAS Continuous Assessment System CBO Community Based Organization CD Core Document CBS Central Bureau o f Statistics CDC Curriculum Development Center CLC Community Literacy Center CoRC Convention of the Rights o f the Child CFAA Country Financial Accountability Assessment COC Code o f Conduct CPAR Country Procurement Assessment Report CSSP Community School Support Project DEC District Education Committee DE0 District Education Office DEP District Education Plans DFID Department for International Development DOE Department o f Education DP Development Partners DPV Discounted Present Value EA Environmental Assessment EC European Commission ECED Early Childhood Education and Development EFA Education for All EMIS Educational Management Information System EMP Environmental Management Plan FACS Foreign Aid Coordination Section FCGO Financial Comptroller General's Office FMIS Financial Management Information System FMR Financial Monitoring Reports FTI Fast Track Initiative GAAP Governance and Accountability Action Plan GDP Gross Domestic Product FOR OFFICIAL USE ONLY GER Gross Enrolment Rate GON Government o f Nepal HSEB Higher Secondary Education Board ICB International Competitive Bidding ICR Implementation Completion Results Report IDA International Development Association INGO International Non-Government Organization IP Indigenous People IRR Internal Rate o f Return JAR Joint Annual Review JEMC Janak Educational Materials Centre JFA Joint Financing Arrangement JICA Japanese International Cooperation Agency KPI Key Performance Indicators MDG Millennium Development Goal MOF Ministry o f Finance MOLD Ministry o f Local Development NCB National Competitive Bidding NCED National Center for Education Development NEGSIF National Environmental Guidelines for School Improvement and Facility Management NER Net Enrolment Rate NCED National Council for Education Development NFEC Non-Formal Education Center NGO N o n Government Organization NLSS Nepal Living Standard Survey NPA National Plan o f Action NPC National Planning Commission NRs Nepalese Rupees N B R Nepal Rastra Bank OAG Office o f Auditor General OCE Office o f the Controller o f Examinations PAD Project Appraisal Document PCF Per Capita Financing PIU Program Implementation Unit PMIS Program Management Information System PRSC Poverty Reduction Strategy Credit PTA Parent Teacher Association PWD People with Disabilities RC Resource Center SIL Specific Investment Loan SIP School Improvement Plan SLC School Leaving Certificate SMC School Management Committee SSR School Sector Reform SSRP School Sector Reform Program SWAP Sector Wide Approach TEVT Technical Education and Vocational Training TSC Teacher Service Commission UNESCO UnitedNations Educational, Scientific and Cultural Organization UNICEF The UnitedNations Children's Fund This document has a restricted distribution and m a y b e used by recipients only in the performance of their official duties. I t s contents may n o t be otherwise disclosed without W o r l d B a n k authorization. VCDF Vulnerable Communities Development Framework VCDP Vulnerable Communities Development Plan VDC Village Development Committee WFP World Food Program Vice President: Isabel M. Guerrero Country Director: Susan G. Goldmark Sector Director: Michal Rutkowski Sector Manager: Amit Dar Task Team Leaders: Raiendra D. JoshiNenkatesh Sundararaman NEPAL School Sector Reform Program CONTENTS Page . 1 STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 A . Country and sector issues.................................................................................................... 1 B. Rationale for Bank involvement ......................................................................................... 3 C . Higher level objectives to which the program contributes ................................................. 3 I1 . PROJECT DESCRIPTION ................................................................................................. 4 A . Lending instrument ............................................................................................................. 4 B. Program development objective and key indicators ........................................................... 4 C . Project components ............................................................................................................. 5 D. Lessons learned and reflected in the program design ......................................................... 8 E. Alternatives considered and reasons for rejection .............................................................. 9 I11 . IMPLEMENTATION ...................................................................................................... 9 A . Partnership arrangements (if applicable) ............................................................................ 9 B. Institutional and implementation arrangements., .............................................................. 10 C. Monitoring and evaluation o f outcomeshesults ................................................................ 11 D. . . . Sustainability..................................................................................................................... 12 E. Critical risks and possible controversial aspects............................................................... 13 F. .. Loadcredit conditions and covenants ............................................................................... 14 IV . APPRAISAL SUMMARY ............................................................................................. 15 A . Economic and financial analyses ...................................................................................... 15 B. Technical ........................................................................................................................... 16 C . Fiduciary ........................................................................................................................... 16 D. Social................................................................................................................................. 19 E. Environment...................................................................................................................... 20 F. Safeguard policies ............................................................................................................. 21 G. Policy Exceptions and Readiness ...................................................................................... 22 Annex 1: Country and Sector o r Program Background ......................................................... 23 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................32 Annex 3: Results Framework and Monitoring ........................................................................ 35 Annex 4: Detailed Project Description...................................................................................... 46 Annex 5: Project Cost ................................................................................................................ 54 Annex 6: ImplementationArrangements ................................................................................. 55 Annex 7: Financial Management and DisbursementArrangements..................................... 62 Annex 8: Procurement Arrangements...................................................................................... 73 Annex 9: Economic and Financial Analysis ............................................................................. 78 Annex 10: Safeguard Policy Issues............................................................................................ 92 Annex 1 : Project Preparation and Supervision ................................................................... 1 106 Annex 12: Documents in the Project File ............................................................................... 107 Annex 13: Governance and Accountability Action Plan....................................................... 109 Annex 14: Lesson Learned From EFA ................................................................................... 117 Annex 15: Joint Financing Arrangement ............................................................................... 125 Annex 16: Statement o f Loans and Credits............................................................................ 137 Annex 17: Country at a Glance ............................................................................................... 138 Annex 18: Maps......................................................................................................................... 140 NEPAL SCHOOL SECTOR REFORM PROGRAM (SSRP) PROJECT APPRAISAL DOCUMENT SOUTH ASIA SASHD Date: August 26,2009 Team Leader: Rajendra D. JoshiNenkatesh Sundararaman Country Director: Susan G. Goldmark Sectors: Primary education (70%); Secondary Sector ManagerDirector: Amit Dar/Michal education (30%) Rutkowski Themes: Education for all (67%); Other social development (33%) Project ID: P113441 Environmental category: Partial Assessment Lending Instrument: Specific Investment Loan Joint IFC: [ ] Loan [ X I Credit [XI Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing . - (US$m.): 71.5 IDA Credit and 58.5 IDA Grant Proposed terms: 40-vear maturitv with a 10-vear mace oeriod IDA Credit 70.50 1.oo 71.50 IDA Grant 56.50 2.00 58.50 Bilateral Agencies (AUSAID, Denmark, 165.OO 3 .OO 168.00 DFID, Finland, Norway) Foreign Multilateral Institutions (ADB, 188.00 1.oo 189.00 EC, UNICEF) Non-Pooling Partners (JICA, UNESCO, 4.00 5.00 9.0 USAID, WFP) Financing Gap 250.00 4.00 254.00 Total: 2,619.00 16.00 2,63 5 .OO Recipient: NEPAL Ministry o f Finance Singh Durbar Kathmandu Nepal i Tel: (977- 1)-425 -9820 Fax: (977-1)-425-7854 http://www.mof.gov.np/ Responsible Agency: Ministry o f Education Keshar Mahal Nepal Tel: (977-1)-441-8784 Fax: (977-1)-441-2199 owa@,mail.moe.rzov.np I hmulative) 10.00 I 35.00 I 65.00 I 95.00 120.00 I 130.00 I Project implementation period: Start December 1,2009 End: October 31,2014 Expected effectiveness date: November 30,2009 Expected closing date: December 15,2014 Does the project depart from the I S N in content or other significant respects? [ ]Yes [XINO Ref: PAD I.C. Does the project require any exceptions from Bank policies? Ref: PAD I K G . [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ IN0 I s approval for any policy exception sought from the Board? [ ]Yes F I N O Does the project include any critical risks rated "substantial" or "high"? Ref: PAD III.E. [XIYes [ IN0 Does the project meet the Regional criteria for readiness for implementation? Re$ PAD IKG. CxIYes [ IN0 Project development objective Ref: PAD II.C., Technical Annex 3 The Program Development Objective i s to increase access to and improve quality o f school education, particularly basic education (Grades 1-S), especially for children from marginalized groups. Project description [one-sentence summary o each component] Re$ PAD II.D., Technical f Annex 4 The proposed Credit and Grant w i l l help finance the GON's program to increase access to and improve the quality o f school education, particularly basic education covering Grades 1-8, and with a specific emphasis on children from marginalized groups. The three main components o f the program focus on Basic Education, Secondary Education and Strengthening Institutional Capacity. The program finances both the recurrent and the development expenditures for school education, focusing on the three pillars o f enhancing access, promoting inclusion, and improving quality. SSRP supports the following sub-sectors or cross-cutting areas for the three pillars referenced above: (i) Basic Education (Grades 1-8) including Childhood Education and Development (ECED) and Literacy and lifelong learning; (ii) Secondary Education (Grades 9- 12) which includes technical education and vocational training (TEVT); and (iii) Institutional .. 11 Capacity Strengthening for delivery and monitoring o f the educational services and products. Which safeguard policies are triggered, if any? Re$ PAD I K F . , Technical Annex 10 Environmental Assessment (OP/BP 4.01). The nature o f activities proposed under the project does not pose significant environmental risks. An Environmental Management Framework has been prepared to deal with the localized nature o f environmental impacts, with a particular emphasis o n (i)drinking water in schools, (ii)access to toilet and latrine facilities, and (iii) seismic-proofing o f buildings. Indigenous People (OP/BP 4.10). The SSRP triggers the Bank policy on IPSand requires the development o f an Indigenous Peoples Development Plan (IPDP). Given the pattern in the country o f marginalized and disadvantaged people, and the specific classifications o f IPS, the GON has prepared a comprehensive Vulnerable Community Development Framework (VCDF). The V C D F complies with the essential features o f the Bank's IP Policy o f free, prior, and informed consultation leading to broad-based community support. SSRP does not trigger the Bank's policy o n Involuntary Resettlement. However, as the program will have land acquisition o f a voluntary nature, a set o f guidelines acceptable to IDA for such land acquisition has been prepared by the GON. Significant, non-standard conditions, if any, for: Re$ PAD III.F. Board presentation: None Loadcredit effectiveness: None Negotiations Conditions: None Implementation Covenants: The Recipient has agreed to the following project-specific covenants: 0 Cause MOE/DOE to be responsible, at the central level, for the overall coordination, monitoring, evaluation and reporting on the Project. 0 Ensure that the Project (including Subprojects for community schools) i s implemented in accordance with the provisions o f the Program Implementation Guidelines. 0 Cause MOE/DOE, not later than April 15 o f each year, to prepare and furnish to the Association a draft ASIP and AWPB for the following Fiscal Year, for its review, and promptly furnish the final ASIP and AWPB after their formal endorsement. Furnish to the Association an annual report summarizing the status o f key indicators, relevant surveys, special studies and education project expenditure reviews, no later than two (2) weeks prior to the joint annual review meeting to be held no later than April 30 o f each year. 0 Provide each Subproject Grant to a Beneficiary, other than a community school, pursuant to an agreement to be entered into between the Recipient and such Beneficiary (Subproject Grant Agreement) containing terms and conditions satisfactory to the Association. 0 Provide Subproject Grant to a Beneficiary, which is a community school: (i) accordance in ... 111 with the eligibility and selection criteria, the disbursement, financial management, monitoring and other relevant provisions set forth in the Program Implementation Guidelines; and (ii) pursuant to arrangements satisfactory to the Association. Ensure that: (i) Project (including Subprojects) is implemented in accordance with the the provisions o f the Vulnerable Community Development Framework (VCDF) (including the provisions o f each Vulnerable Community Development Plan prepared in accordance with such Framework), the Environmental Management Framework (EMF) (including the provisions o f each Environmental Management Plan and other environmental and social management plan prepared in accordance with such Framework) and the Land Acquisition Framework; and (ii) action i s taken which would prevent or interfere with such no implementation. Ensure that the implementation o f the Project (including Subprojects) does not involve, without limiting the generality o f the foregoing,: (a) any involuntary taking o f land resulting in: (i)relocation or loss o f shelter; (ii) o f assets or access to assets; or (iii) o f income loss loss sources or means o f livelihood, whether or not the affected persons must move to another location; or (b) any involuntary restriction o f access to legally designated parks and protected areas resulting in adverse impacts o n the livelihood o f the affected persons. Ensure that the Project is carried out in accordance with the provisions o f the Anti- Corruption Guidelines. iv I. STRATEGIC CONTEXT AND RATIONALE A. Country and sector issues 1. Nepal i s a land-linked country, located between China and India, and characterized by significant geographical and social diversity. I t s 27 million people come from more than 100 caste/ethnicity groups and speak more than 90 languages and dialects. In an approximate rectangle o f 800 kilometers by 250 kilometers, there are three distinct eco-zones- the mountains, the hills and the tarai plains - running north to south and five east-to-west development regions. 2. Nepal i s a relatively poor country with nearly one-third of the population living below the poverty line (NLSS 11,2003/04). Nepal's annual per capita income i s about US$470 (FY2008/9), making it among the poorest countries in the region, despite a broad trend showing the poverty rate declining by one percentage point per annum even during the conflict period. 3. The country has witnessed significant political transformation in the recent past, and i s beginning to emerge from a protracted period o f instability and internal strife'. Having emerged from a long period o f internal conflict, it has recently transitioned from being a constitutional monarchy to a republic state, and elected a Constituent Assembly (CA) that i s primarily tasked to drafting a new Constitution. The Communist Party o f Nepal (Maoist) emerged as the single largest party, but without a clear majority, following the 2008 C A elections and formed the coalition to head the Government. However, the Maoist-led government stepped down from office in M a y 2009 and a new coalition Government has been formed, led by the United Marxist Leninist (UML) party and supported by the Nepali Congress and other parties. The current political environment and the peace process remain volatile. 4. The political transformation i s closely interlinked with a desire for social change, with inclusion being very high up on the political agenda. Nepal has a highly stratified social set-up and historically many communities and ethnic groups in Nepal have been marginalized and excluded from the development process. Spatially, development has been largely Kathmandu- centric. The emphasis on decentralization and the development o f a federal structure as part o f the new constitution i s a reflection o f this desire for greater inclusion. Another manifestation o f this social change i s the very strong demand for education in post-conflict Nepal. 5. There i s strong political support for education, cutting across party lines. The Government o f Nepal's (GON) prioritization o f education i s a response to the increased demand for education services. The budgets for the past two years articulate the priorities o f N w Nepal, e with a key feature o f the budget being the emphasis on the development o f the country's human resources as a cornerstone o f the country's development strategy2. This can be viewed as a continuation o f the commitments made by the successive Nepali governments towards facilitating improved access to, and quality o f education in the country. 6. The proposed School Sector Reform Program (SSRP) i s the final program in a 15 year Education for All - National Program of Action (EFA-NPA). The Government has been focused on the education sector since the early 1990s through a series o f national programs 1 such as the Basic Primary Education Projects (BPEP I 1992-1998 and BPEP 1 , 1999-2004), and , most recently, Community School Support Program (CSSP, 2003-2008), Secondary Education Given the recent conflict, a peace filter was developed to ensure that the program design ensured that no one was made worse o f f due to the design o f the project. 2 In FY 10, the education sector accounted for the largest share o f the Government's budget. 1 Support Program (SESP, 2003-2009), and Education For All Program (EFA, 2004-2009). The SSRP completes this series and will be in effect between FY 2009/2010 and FY 2014/2015 under the proposed phase o f support. 7. The success o f these past programs i s shown by the achievements in schooling outcomes reflected in Table 13. The Net Enrolment Rate (NER) at the primary level (Grades 1- 5) has reached 92 percent in 2009, an increase from 67 percent in 1995. Gender Parity has been achieved at the primary and lower secondary (grades 6-8) with a Gender Parity Index (GPI) o f 0.98 and 0.96 respectively. Table 1: Progress on Key Education Indicators, P r i m a y Education Indicator 1995 2003 2008 Net enrolment rate (NER), % 67.5 83.5 91.8 Survival Rate to Grade 5, YO n.a. 59.7 81.14 Gender Parity Index (GPI) 0.66 0.83 0.98 Schools Completing Social Audits, % 0 n.a. 75.0 8. These achievements have benefited from Nepal pushing some critical reforms which have been implemented during periods o f instability over the past decade. Some o f these key reforms include: (i) devolution o f decision making powers to communities and school management5; (ii) expansion o f demand-side intervention schemes to bring children from the marginalized groups to the schooling process including per child financing and scholarships; (iii) the decentralization o f teacher hiring through the provision o f teacher salary grants; (iv) opening up o f the textbook printing and distribution system to private sector players, and (v) harmonizing support from across many Development Partners (DPs) behind a set o f coherent and common objectives in education. The Government has committed i t s e l f to policy continuity. 9. Despite the substantial progress in the provision of schooling services, considerable challenges remain. Though the GON has made considerable progress towards achieving EFA targets, and has met some key MDG goals, the country s t i l l faces significant challenges. First, nearly 8 percent o f primary-school aged children do not participate in schooling and these shares increase sharply for higher levels o f schooling. In the primary school cycle, internal efficiencies continue to be poor with nearly 16 percent o f children dropping out after Grade 1 and 30 percent repeating the grade. Grade 5 survival rate, by cohort method, i s less than 60 percent and many who complete grade 5 do not transition to grade 6. Secondly, direct measures o f quality, reflected through student learning assessments show only modest improvements in learning outcomes conducted in Grades 3 and 5. More importantly, systematic measurements o f learning achievements o f internationally acceptable standards are s t i l l absent. With the EFA program scheduled to close in 2009, the SSRP aims to consolidate the gains made under EFA and address the remaining challenges describe above. Furthermore, the SSRP will expand the access to Basic Schooling (Grades I-8), while focusing on improving the quality o f schooling. The Handbook o f Education Economics refers to the "miraculous developments in education in NepaP in the chapter written by Paul Glewwe and Michael Kremer. 4 Most recent comparable value i s from 2007. 5 The Government's policy o f local ownership through community management has been an important means of developing an accountability mechanism which relies largely on the relationship between the community and the school. This has proven to be an invaluable reform at a time when most other government services had come to a standstill due to the years o f conflict. 2 10. The government has been preparing School Sector Reform Program (SSRP) in close consultation with stakeholders. These include other line ministries, representatives o f special groups such as Indigenous Peoples, Dalits, Janajatis, and People with Disabilities (PWDs), and DPs. The Core Document and Sector Plan have been approved by the Cabinet. B. Rationale for Bank involvement 11. The Government o f Nepal (GON) has requested the Bank and other Development Partners to assist them with this ambitious agenda. The SSRP i s seen as a program that consolidates the gains achieved under previous programs, while simultaneously expanding the program coverage in a phased manner to include all levels o f schooling. The success o f programs such as BPEP, EFA and CSSP, have created new challenges, such as meeting the "bulge" o f children entering secondary education. Thus, the SSRP i s envisaged as the continuation o f support to education in Nepal in order t o complete the EFA agenda. 12. The World Bank has supported education in Nepal for over 30 years and i s seen as trusted partner in this sector. The Government particularly acknowledges the Bank's technical expertise on a wide range o f sectoral and technical issues. The Bank also plays a key role in terms o f donor coordination and development effectiveness. The Bank i s well placed to support the Government's request for assistance t o this effort given IDA'S extensive experience in this sector, the knowledge acquired through working all over the world, and in particular, the vast experience IDA has had in working with, and in, fragile states like Nepal. The Bank has been and continues to be keenly involved in research activities in the school sector in Nepal, which has been instrumental in the development o f the SSR Plan. C. Higher level objectives to which the program contributes 13. The SSRP contributes to Nepal's long-term objective o f developing its human resources, and thereby contributing towards its poverty reduction and sustainable economic growth targets. The Government o f Nepal (GON) has a high commitment to education, as reflected in the successive 5-year plans6 and the 3-year interim plan (FY2008-FY2010)'. In addition, the SSR Core Document and SSRP have been developed for a 7-year timeframe (FY201O-FY2016) in view o f working towards achieving the Millennium Development Goals (MDGs) for education by 2015. A key national priority i s to increase equity in access to education, while social inclusion i s a central approach to reducing disparities in education across gender, caste, and ethnicity. The decentralization o f school management responsibilities to school management committees (SMCs), and community participation in education are at the center o f the Government's strategy to improve the quality and efficiency o f education. In 2000, Nepal joined the global EFA movement. The national plan o f action for EFA 2015 was drawn up with the vision o f achieving quality basic and primary education for all by 20 15. T o achieve the EFA goals, the Government launched the Nepal EFA Program (2004-2009), a high-priority program for basic and primary education supported by development partners including IDA. 14. The SSRP i s also aligned with the Interim Strategy Note. The proposed program i s well aligned with both the previous, and the recently approved, World Bank Group's Nepal Interim Strategy Note (ISN, Report No. 48279-NP, 2009, and Report No. 381 19-NEP, 2007). The program aims to support the I S N by ensuring access to basic schooling to all and meeting the key objectives o f ensuring equitable access to quality education, and protecting key reforms 6 See the 4" and 5" Five Year Plans prepared by the National Planning Commission. 7 See the Three-Year Interim Plan (FY2008-FY2010) prepared by the National Planning Commission. 3 undertaken in Nepal's school sector, particularly, the decentralization o f decision making powers to communities and school management. 1 1. PROJECT DESCRIPTION A. Lending instrument 15. The proposed lending instrument for the Bank i s a Specific Investment Loan (SIL). The program i s expected to cover the period between 2009/10-2013/148. The program will also be supported by numerous development partners (DPs) including AUSAID, Asian Development Bank, Denmark. DFID, EC, Finland, Norway, and UNICEF, all o f whom will pool funds with the Government to support the program through a Sector Wide Approach (SWAP). In addition, there are a set o f non-pooling partners, including JICA, USAID, and other UN agencies, UNESCO and WFP). DPs who pool their finances with the GON, harmonize their support through a Joint Financing Arrangement (FA). The program i s implemented primarily using country systems'. The experience with the SWAP in EFA has been a positive one, and i s regarded as a best practice example in the country. B. Program development objective and key indicators 16. The Program Development Objective i s to increase uccess to and improve quality of school education, particularly basic education (Grades I+), especially for children from marginalized groups. 17. Program Key Performance Indicators (KPIs) are the following": KPI Baseline (2009) Endline Target (2014) (a) N e t Enrolment Rates for Basic Education 13% 85% (b) Basic Education Completion Rate 'a 41% 66% (c) Gender Parity Index Basic Education 95% 98% (d) Student LearningAssessment in Grade 8 N.A. Internationally accepted learning assessment system in place Note: : 'a proxied by Grade 8 survival rate by cohort method for now, this will be established as the ratio of total Grade 8 graduates in a given year to total children of official graduation age in the population. not applicable 18. The K P I s focus on Basic education given that over 75% o f the budget i s spent on this sub-sector. Primary education (grades 1-5) key indicators will continued to be tracked as part o f the MDG Goals monitoring. These K P I s together with two intermediate indicators will complete the IDA core indicators requirements. * The GON views the SSRP over a 7 year program till 2015/2016, though they have agreed to engage with the DPs on a 5-year partnership. Except for ICB procurement which follows IDA guidelines and NCB which incorporates IDA specified caveats. loWhile IDA KPIs are limited to the following, SSR program as a whole with GON and all DPs, including IDA, will continue to monitor a larger set of outcomes, outputs, and other intermediate indicators (see Annex 3 for details). 4 C. Project components 19. The SSR program finances both the recurrent and the development expenditures covering all o f school education. IDA will finance roughly 5% o f the total program costs. The program focuses on the three pillars o f Access, Inclusion, and Quality in: (i) Basic Education (Grades 1-8) including Childhood Education and Development (ECED) and Literacy and lifelong learning; (ii) Secondary Education (Grades 9- 12); and (iii) Institutional Capacity Strengthening for delivery and monitoring o f the educational services and products. These are described below. 20. A key reform that the government has adopted has been to move to a policy o f providing grants to schools based on Per Capita Financing (PCF). Schools will be financed based on the number o f students enrolled". This will encourage communities to establish schools, and then finance direct student costs such textbooks and indirect costs, such as, teachers for un-served children and other quality interventions in the School Improvement Plan (SIP). The PCF provides a major shift in funding formula and avoids political influence in resource allocation to schools. The proposed SSRP will scale-up the PCF finding modality nationwide. Component 1: Basic Education (Total: US$2067 million, IDA: US$lO2 million'2) 2 1. The primary objective o f this component i s to ensure equitable access and quality o f basic education for all children in age group 5-12, prepare pre-school-age children through ECED for basic education and deliver basic numeracy and literacy to youths and adults, especially women and marginalized groups13. Sub-component I. Increase Access and Inclusion in Basic Education (US1 78 million) I 22. SSRP will finance both demand and supply side interventions to expand the primary cycle to basic (to include grades 1-S), and to ensure access to all children, particularly those from marginalized population groups. Demand side interventions will include welcome-to-school and other outreach programs, provision o f targeted scholarships, increased use o f multilingual teachers and learning materials and provision o f mid-day meals in targeted districts. A school mapping exercise would determine the extent o f out-of-school children in a given locality. Supply-side interventions will include expansion o f physical facilities including classroom construction and rehabilitation, and increased use o f per capita financing for both teacher salaries for un-served students and non-salary inputs such as textbooks and other block grants. 23. The program will continue to build on the foundation o f community initiation and ownership o f schools and co-finance with the communities - mainly through per capita financing and matching grant incentives - to raise sufficient resources towards achieving universal access at this level. It will also provide increased support in the form o f PCF-based salary grants and 11 This enrolment figure i s based on an end-of-school year census known as Flash 11. l2 The IDA numbers for each component are indicative (reflecting five percent o f the cost o f the component. As this i s a SWAP, and resources are pooled with GON and the other DPs, IDA resources can be used fingibly across components. 13 This document uses marginalized or disadvantaged or excluded groups interchangeably. For purposes o f the SSRP (and as defined under the EFA Core Document), the GON will continue to use the following categories o f children as constituting the above groups. These include: Dalits, girls, ethnic minorities, linguistic minorities, children belonging to indigenous groups, poor children, children with disabilities, working children, street children, conflict affected children, calamity affected children, children from remote regions, children with parents in prison, children rescued from trafficking, and children o f migrant parents. These definitions will be reviewedperiodically during implementation. 5 textbooks to traditional religious schools such as Gumbas (Buddhists), Madrasas (Muslims) and Gurukul (Hindus) in their goal to bringing more children into school, and to alternative schooling schemes in the form o f non-formal education, including mobile `classrooms.' Sub-component 1.2 Improve Quality in Basic Education (US$302 million) 24. To improve internal efficiency and quality o f learning, SSRP will finance, mainly through the PCF instrument, a number o f interventions: (i)at the student and school level, provision o f free textbooks, provision o f multilingual teachers and instructional materials to schools and other quality-enhancing block grants in the annual SIP, salary grants to improve the pupil-teacher ratio, performance-based incentives and matching grants to schools, and performance-based student incentives, (ii) the district level, strengthening o f EMIS and Flash at reporting systems and development, digitization and training for local curriculum; and (iii) the at center level, updating o f curriculum t o gradually adopt a competency-based system, textbooks and teacher guides, piloting o f a number o f innovative quality interventions and their evaluation, introduction o f both continuous assessment system and sample-based standardized student assessments for grades 3,5 and 8. Sub-component 1.3 Early Childhood Education Development (US$59 million) 25. With an aim to better prepare children for school, SSRP will build on and expand the success o f ECED under EFAI4by financing the operation cost (salaries and materials) o f some 25 thousand existing ECED centers and the establishment and operation o f about 6000 new ECED centers in the rural areas. It will also support appropriate partnership with NGOs, INGOs and local agencies to coordinate and manage the different ECED modalities - school-based ECED centers, community-based centers, and privately managed centers in urban areas. Sub-component 1.4 Literacy and Continuing Education (US$14 million) 26. SSRP proposes to complement the national literacy program by financing the operation o f community learning centers. The target groups will include women and marginalized population groups, and the implementation modality will encourage locally managed partnerships with private sector and I/NGOs. Sub-component 1.5 Basic Education Salary (US$1,513 million) 27. There are broadly three categories o f teachers in Nepal - teachers recruited into government teacher positions, teachers recruited into raahat positions, and those recruited into the positions created by School Management Committees (SMC). There are an estimated 100,000 approved government teacher positions in Basic Education. This number has not increased since 1998, with the government only replacing teachers lost through natural attrition. The number o f raahat positions in Basic education i s estimated to be about 11,000. The sub- component finances both government teacher positions and raahat teachers. In addition, the sub- component will also finance new teacher positions approved by the GON during the implementation o f SSRP and who w i l l be hired at the community level and will be financed exclusively through PCF. 14 GER in ECEDPre-Schoolingincreased from 13 percent in 2001 to 63.4 percent in 2008, far exceeding the target established for 2008 which was 51 percent. Percentage o f new entrants in Grade 1 with ECED/pre-school experience increased from 8 percent to 36.2 percent between 2001 and 2008 respectively. 6 Component 2: Secondary Education (US$512 million, IDA: US$25 million) Sub-component 2.1 Increase Access and Equity in Secondary Education (US44 million) 28. This component aims to improve equitable access to secondary education by financing: (i)the expansion o f physical facilities, including classroom construction and rehabilitation, library and laboratory construction, and the construction o f schools for children with special needs (CWSN), (ii) targeted scholarship schemes for Dalits, marginalized groups, disabled, girls and children from poor households; and (iii)alternative provisions such as open learning centers, non-formal education to adult women, and grant support to traditional schools. Sub-component 2.2 Improve Quality in Secondaiy Education (US$44 million) 29. SSRP will aim to improve the quality and relevance o f secondary education by supporting the: (i) setting o f norms and standards for curriculum, education materials, teachers, school environment and examination systems; (ii) integrating grades 9-10 with grades 11-12 to result in a full-fledged secondary cycle o f grades 9-12; and (iii) providing performance-based grants, PCF-based textbooks and other non-salary grants t o secondary schools. Sub-component 2.3 Technical Education and Vocation Training (TE W) (US15 million) 30. In order to prepare schoolchildren for future employability, SSRP will pilot a number o f "soft" skills schemes such as in-school crafting skills classes for grades 7 and 8, and in-school training in non-formal apprenticeship for grades 9 and These could be scaled up over time after evaluating the efficiency and effectiveness o f such pilots. Sub-component 2.4 Secondary Education Salary (US$408 million) 31. This sub-component i s very similar to that under Basic education. The sub-component will finance recurrent salaries and benefits o f approximately 16,290 secondary school teachers in government teacher positions at the end o f the EFA Program. In addition, the sub-component will also finance salary grants for secondary and higher secondary raahat teacher positions that had been approved by the end o f EFA. Finally, given that there i s likely to be increases in student numbers at the Secondary level, the sub-component will also finance new teacher positions identified by the GON during the implementation of the SSRP. These additional positions will be recruited by the SMC at the school level and will be financed using the modality o f PCF. Component 3: Institutional Capaciv Strengthening (US$57 million, IDA: US$3 million) 32. The objective o f this component i s to improve the capacity o f SSRP implementation agencies and i t s partners to enhance delivery and monitoring o f educational services and products. In addition, this component also covers program management costs, excluding government staff salaries, which are incurred as part o f program implementation. Sub-component 3.1 Teacher Recruitment and Professional Development (US11 million) 33. SSRP will support and finance the move towards school-based recruitment o f licensed teachers through a system o f teacher grants using the PCF instrument. Under the existing 15 These courses are intended to orient and expose younger children to trade and/or vocational courses, but not actually provide training i any particular trade or vocation given that these children are very young. n 7 Education Act, there already exists a provision to recruit more female teachers. I t i s proposed that under the SSRP, schools w i l l be encouraged to recruit more female teachers and if possible provided incentives to do so. With regard to teacher development, SSRP will support both school and resource-center based teacher training, focus on student-centered teaching methods and upgrading o f teacher licensing practices. Sub-component 3.2 Capacity Development (US$3 million) 34. SSRP will strengthen capacity at both the school and implementing agency level. In line with increased decentralized planning and management, more and more communities will be encouraged to manage their schools. Capacity development will focus on enhancing the management capacity o f SMCs, including the preparation and utilization o f School Improvement Plan (SIP). In addition, support will be provided to all schools under the SSRP system to prepare social audits, making schools accountable for funds utilization. This sub-component will also finance a large-scale communication dissemination and strategy to reach out to parents and civil society to reinforce the main policy thrusts o f SSRP such as community management o f schools, the PCF, quality improvement and reduction o f repetition and dropout rates at grade 1. Sub-component 3.3 Program Management and Monitoring and Evaluation (US$43 million) 35. Under this component, the program will finance expenditures associated with program management. I t also will finance monitoring and evaluation activities such as EMIS data collection and reporting, commissioning o f quantitative and qualitative studies, learning assessments o f international standards, and impact evaluation o f pilot interventions. Moreover, it will support the implementation o f a Governance and Accountability Action Plan (GAAP). This sub-component will also include direct costs o f program management, excluding government staff salaries, which i s wholly financed by the GON. D. Lessons learned and reflected in the program design 36. The EFA program demonstrated that solid program design and effective implementation and monitoring can lead to significant achievement in outcomes even under conflict. The lessons learned from previous Bank-supported projects and programs are numerous. One key reason underlying the success o f EFA was the emphasis placed on strengthening SMCs and community ownership o f schools. Other over-arching lessons include: (i) mainstreaming implementation through Government structures rather than establishing stand alone PIUs i s a more effective way o f supporting reforms, (ii)for reforms t o be successful there must be high level political commitment, continuous public dialogue, and communication on progress o f the reform; there must be bureaucratic buy-in, and beneficiaries have to be mobilized; (iii) donor harmonization i s best achieved when donors use country systems with the government in the lead; and (iv) clear and transparent resource allocation criteria and procedures can make significant contribution towards improving governance. There has also been tremendous progress on fiduciary issues under EFA, particularly since the adoption o f the Financial Management action plan, and the emphasis on these issues will continue under SSRP. The program i s designed with these lessons as key guiding principles. Annex 14 provides a detailed description o f key lessons learned. 37. Significant policy developments have also taken place under past programs. These include primarily the decentralization policy as it applies to the school sector that returned all schools to community ownerships and management (Seventh Amendment to the Education Act), the increased use o f block grants and cash grants based on the number o f students and defined as per capita )naming (PCF), and the involvement o f the private sector in the printing and 8 distribution o f textbooks. The lessons from these policy measures have been extremely positive. In many ways, the support to the SSRP i s a reaffirmation o f the effectiveness o f these policies and the need to ensure that these can be sustained during the difficult political period the country i s in presently. 38. EFA was supported by the DPs through a SWAP approach who financed a slice o f the overall expenditures o f the program. A similar approach will be followed for SSRP, as the success o f the EFA program has been facilitated by this harmonized approach. E. Alternatives considered and reasons f o r rejection 39. Additional financing f o r EFA, with support to a new program being contingent o n political stability. Given the political instability in the country, the Bank team considered the option o f additional financing for EFA instead o f supporting a challenging reform program in Nepal. This was not pursued for a number o f reasons including inter alia: (i) education sector the had demonstrated considerable resilience during EFA implementation which coincided with the height o f the conflict in Nepal, (ii) SSRP has been under preparation for the past three years, and the basic structure o f the program has been supported by successive governments, and (iii) inspite o f the political instability, the GON has repeatedly committed to not rolling back key reforms - e.g. community management o f schools, decentralized teacher recruitment, implementation o f the PCF, and opening up o f textbooks publication and distribution more fully to the private sector. 40. Financing only p r i m a r y education, though the Government's program covered the entire school sector. The estimated cost o f the initial Government program was US$4.4 billion, while the available financing was about US$2.4 billion. There was a risk that the G O N capacity to implement this would be stretched and they would not be able to place adequate emphasis on either primary or secondary education, which would compromise the achievement o f the MDGs. On this ground, the DPs considered the option o f financing only basic education. The Government and DPs worked closely together to significantly prioritize the program, and sharpen i t s focus t o selectively finance expenditures at the basic and secondary levels, as a result o f which the size o f the program was reduced to $2.6 billion. Given that the risk o f compromising the achievement o f MDG was averted, there was no compelling rationale for financing only primary education. The advantages o f financing the entire school sector were: (a) given that grades 1-12 in Nepal are offered in the same school and managed by a single administration, reforms covering the entire school are more sustainable compared to reforms focused on the basic level only, and (b) the coverage o f the entire school sector would help addressing the "demand-bulge" at the secondary levels created by the success o f EFA. 1. 11 IMPLEMENTATION A. Partnership arrangements 41. The SSRP will be supported by the DPs through a SWAP approach. The DPs have agreed with the Government that the program will cover a five-year period between 2009/10- 2013/1416. The total estimated cost o f the program i s US$ 2.63 billion over this period with an indicative envelope o f US$2.35 Billion from G O N and DPs, with the DPs tentatively committing about US$ 500 million. I t i s estimated that a financing gap o f approximately US$ 254 million or about 9.7 percent o f the overall program cost remains. The Government plans to initiate a l6Not all DPs have committed financing for a five-year period at this point in time. 9 resource mobilization strategy to cover this gap, which includes seeking financing from the Education for All-Fast Track Initiative's (EFA-FTI) Catalytic Fund". This does not include the program management costs that include salaries o f government staff o f the Ministry o f Education, the Department o f Education, and all other associated agencies. Approximately 13% o f the overall budget overseen by the Ministry o f Education i s allocated to staff salary costs, and costs for other programs that include higher education, vocational education and training, and other expenses. 42. Program implementation will be in accordance with the Joint Financing Agreement (JFA) that sets forth the joint provisions and procedures for pooled donors financial support to the SSRP and serves as a co-ordination framework for consultation between the Signatories for SSRP monitoring and decision-making (see Annex 15). In addition to the F A , the DPs have also developed a Code o f Conduct to provide a common framework and mechanism for regulating conduct o f institutions including donors and government authorities involved in education, including the SSRP. B. Institutionaland implementationarrangements 43. The implementation arrangements for SSRP will be similar to those that have been employed for the implementation o f EFA. Given that there may be considerable changes in the federal and sub-national structure o f the country with the drafting o f the new constitution, the GON and DPs have agreed that the SSRP implementation modality and inter-ministerial coordination may need to change to accommodate these developments. Until then, implementation arrangements developed and used under EFA will govern the implementation o f SSRP. Furthermore, the SSRP will be implemented under the existing legal framework provided by the Education Act and all its constituent Amendments. Even though the implementation structure i t s e l f does not change, there will be a renewed focus on ensuring that the most- disadvantaged and marginalized groups receive considerable attention under the program given the SSRP's focus on getting all children into school, particularly those from marginalized and disadvantaged groups. The monitoring tools and indicators will also be focused to a considerable extent on these groups so as to ensure the ability to measure progress. 44. Implementation arrangements have been defined as a function o f the proximity to the point o f service delivery. At the frontline o f this service delivery chain are the schools, the communities in which they reside, the teachers in the schools, and the management structure that governs all school level activities, viz. the School Management Committees (SMCs). Higher up the service delivery chain are the implementing agencies at the district level and these include the village development committees (VDC), district education office (DEO), and resource centers referred to as cluster resource centers (RC). These institutions provide management and technical support, and help in program monitoring. The DE0 provides policy oversight at the district level. Finally, at the highest point on the service delivery chain are the MOE/DOE, and all other institutions that develop strategies and policies underlyingthe SSRP. 45. The unique feature o f Nepal's education sector i s the extent to which schools are established by communities and managed by SMCs. The SMCs even have the authority to recruit teachers, raise financing from the local communities, decide on the number o f classes to be offered at the school, and many other aspects o f school management. This has been made possible by the Government's decision in recent years to redefine i t s role from being a provider o f 17 It has been proposed that a total o f US$ 120 million will be sought from the Catalytic Fund over a three year period. 10 schooling services, to playing the more crucial role o f financing, policy and strategy formulation, and oversight functions. Though the Education Act has effectively transformed these schools from government schools to schools established, owned and managed by communities, schools continue to fall under the legal umbrella o f the Education Act. This requires them to adhere to guidelines, regulations, and directives established and promulgated by the MOE. A key reform that has supported this decentralized set-up has been the adoption o f the per capita funding modality. This has allowed financing to be channeled to schools to cover the costs o f textbooks and other material, and additional teacher resources. 46. Aid Coordination i s another key function o f the MOE. The proposed partnership arrangements for SSRP, are similar to those developed during BPEP and EFA, and will be further strengthened in the SSRP. The government has clearly gained considerable experience during the implementation o f EFA o f a new model o f engaging with the development partners, through the modality o f pooled funds where domestic resources are combined with support from development partners to finance a sector wide approach (SWAP). A key feature o f this partnership i s that the development partners rely on government systems to account for, and report on, the use o f these resources. This also extends to the realm o f procurement, where the program allows for the use o f government systems o f procurement except in the case o f ICB which follows wholly the World Bank's procurement guidelines, and for NCB where with a few additional caveats, the government system i s employed. The partnership arrangements are endorsed in a Joint Financing Arrangement (EA) and a Code o f Conduct (COC). The SWAP approach i s based on the adoption o f a common monitoring and evaluation framework, common targets and reporting tools. 47. All DPs are coordinated by the Foreign Aid Coordination Section (FACS) o f the MOE. FACS will convene regular meetings o f the local representatives o f all donors including those providing parallel financing. C. Monitoring and evaluation of outcomedresults 48. Monitoring: SSR monitoring and evaluation framework will continue to build on and enhance the existing EMIS system at MOE/DOE, to strengthen the Program Monitoring Information Systems (PMIS), and to improve the dissemination o f information on inputs, outputs and outcomes to relevant stakeholders. One, EMIS will collect comprehensive information in the form o f school censuses at the beginning and at the end o f school calendar year respectively, and produce Flash 1 report, Flash 2 report and Annual consolidated report. Two, MOE/DOE will use data from household surveys such as Nepal Living Standards Survey (NLSS), Demographic and Health Survey (DHS) and Population Census to cross-check schooling data obtained from EMIS system and to establish estimates on key indicators that are difficult to obtain through the EMIS. Three, MOE/DOE will commission other agencies and f i r m s to carry out a number o f qualitative and quantitative studies on topical issues every year. Four, MOE/DOE will team up with a specialized agency to carry out sample-based student learning assessments at Grade 3, 5 and 8. 49. Evaluation: Since SSRP has a number o f access, quality and other interventions, the program proposes to identify four to five key pilots and assess them using rigorous impact evaluations before deciding to scale them up or refine their designs or implementation modalities. W h i l e MOEDOE will manage these IE activities, they will collaborate with independent agenciedfirms to undertake collaborate research/evaluation. 50. Review arrangements: The supervision strategy i s based on several mechanisms that will enable enhanced implementation support to the Government and enable timely and effective 11 monitoring. The supervision thus comprises: (i) Joint Review Missions twice a year, with quarterly meetings between the GON and DPs; (ii)regular visits by the DPs and technical consultants between the formal joint review missions as needed; (iii)internal monitoring by the Government; (iv) in-built independent third party monitoringhalidation; and (v) internal audit and financial management reporting. The review arrangements will be modified as needed during implementation. These are detailed in Annex 3. Particular emphasis will be placed on monitoring progress on meeting the social and environmental safeguards objectives with particular attention to ensuring compliance with the Bank's I P policies. The monitoring arrangements will also place emphasis on ensuring that the agreements under the G A A P will be met. 5 1. Social Audits: In addition to all o f the above, the SSRP w i l l also lay heavy emphasis on ensuring that all schools receiving financial subventions through this program carry out social audits. Under EFA nearly 70% o f schools have carried out social audits - covering both financial and output related aspects - and the target under SSRP i s to raise this t o all schools. Given that about 90 percent o f all expenditures are likely to happen at the school level, and given the limited capacity for direct monitoring o f all school level activities by concerned government authorities, it i s important to introduce a system o f social audits to ensure compliance with the stated goals o f the program. D. Sustainability 52. There i s considerable evidence already that the G O N has prioritized education over the last 15-20 years. The allocations for the education sector are typically the largest share o f the budget, and it i s also true that in terms o f actual expenditures as opposed t o budget documents, the education sector i s one o f the biggest spenders in the country. The Government's target for spending on education i s roughly in the order o f about 20 percent o f the budget. The direct support for education through the MOE has ranged between 16-18 percent o f budget. The Ministry o f Finance (MOF) and the National Planning Commission (NPC) have also requested the Ministry o f Local Development (MOLD) to ensure that about 20 percent o f the share o f their proposed expenditures at the local level be earmarked for spending in the social sectors. 53. The current legal framework and decentralized nature o f the schooling system provides the perfect launching pad from which t o strengthen the quality o f teaching and learning in schools, and the accountability o f school management to the community and teachers in the schools, and for principles o f good governance to be established at the school level. The success o f Nepal's education sector, even during the years o f conflict, was because o f the highly decentralized nature o f provision and the fact that finances were channeled to schools increasingly based on pre-set financial and funding norms. The risk to institutional sustainability i s greater in the current political context, particularly if new political players attempt t o politicize the schooling process, and re-centralize authority to various tiers o f government, and undermine funding modalities. The G O N has committed to consolidating all major reforms and strengthening them through the SSRP, though this i s an issue on which close monitoring i s required. 54. Institutional sustainability also requires that the program build the capacities across all tiers o f government and school management to implement and manage the program, and to ensure that the program i s adequately staffed for this purpose. This also involves streamlining bureaucratic procedures, building the capacities at the district level to effectively translate centrally mandated policies and targets into meaningful programs at the sub-district level, and building the capacities at the school level for effectively providing schooling services, while 12 simultaneously adhering to good governance practices. Staffing and redistribution o f staffing resources to meet specific program targets i s an important feature o f institutional sustainability. E. Critical risks and possible controversial aspects 55. The task team has analyzed: (i) country and sector level risks, (ii) sector governance, policies, and institutional risks, and (iii) operation specific risks. The overall program risk rating i s Substantial, prior to mitigation, and judged to be Moderate after mitigation measures are employed. These are illustrated in Table 2. Risk Risk mitigation measures Risk rating with mitigation Macroeconomic. Overall macroeconomic Nepal's macroeconomic outlook for the medium term rests heavily on Substantial framework and fiscal policy i s consistent with the prospects for sustained peace and political stability with framing macroeconomic stability, however risks to growth of a new Constitution. A lasting improvement in the security stem from the fluid political situation, stalling o f situation, a return to normalcy on the political front and concurrent reforms and financial sustainability of populist acceleration of key economic reforms, ought to lead to a gradual programs. return to growth rates of 5 percent. GON has made good progress in FY09 in raising revenues by streamlining tax policy and improving tax administration. On the expenditure side, spending priorities have been reorientedtowards pro-poor activities, although military/security expenditures remain high, as part of the peace process. Country Governance. (i) Risk of delay in the (i) Community oriented operations empower communitiesto demand Substantial legislative process until the Constituent Assembly accountability and improved governance. (ii) With Nepal being a becomes fully functional. pilot country for CGAC, the Bank i s supporting a wide range o f (ii) continuing large gap between Nepal's The initiatives aimed at promoting inclusion, transparency, and use of legal framework and its capacity to implement its social accountability mechanisms. A l l new operations, including laws has implications for the likelihood of laws SSRP, will integrate governance risk management measures through such as the Right to Information Act, the mutually agreed Governance and Accountability Action Plans. Governance Act and the Procurement Act being Community driven projects have built-in social accountability properly implemented. There i s a risk of more measures. (iii) IDA, DFID, ADB and other partners are supporting leakages of public resources through criminal implementationof the GON's PEFA strategy through policy dialogue activities. and capacity building. Sector Governance (i) Given the political Through the mechanism of the SWAP, the DevelopmentPartners Moderate changes, there i s the heightened possibility that have conveyed collectively to the Government the importance o f policy reforms adopted earlier could be reversed; maintainingpolicy reforms. The GON has provided in writing that i t (ii) Potential for interest groups to use the political will be committed to policy continuity and that any changes to transition to their advantage (e.g. reversing implementationapproach will be preceded by the necessary change in community management of schools). legislation and regulations. Implementation Capacity. (i) Central, regional (i)Central, regional and district levels: Capacity DevelopmentPlan to Moderate and district levels: Gaps in human resources, be prepared by December 2009 to encompass the deployment and knowledge and skills, technology, management of human, physical and financial resources that communications, etc. contribute to institutional strengthening. (ii) School/Community level: Schools located in (ii)School/Communitylevel: School Management Committee and undersewed communities lack human resources head teachers to be trained by service organizations on school with sufficient knowledge and skills for effective management, preparation of School ImprovementPlans (SIP), and school management social auditing processes. 13 Risk Risk mitigation measures Risk rating with mitigation TechnicaUdesign. (i) Programs such as TEVT are being kept relatively small in SSRP, Moderate (i) Investing in interventions where returns to and their effectiveness will be evaluated before any decisions are investments are lower than for other competing made to expand them. interventions- e.g., investing in expensive, low- (ii) The program will include a blend of mechanisms for return TEVT versus investing in less expensive disbursements. IDA will continue to use regular reporting and potentially high returns ECED. mechanisms as the basis for disbursements, as will most other (iv) Disbursement slow due to the difficulty o f partners. This was the approach adopted under EFA. The ADB will meeting thresholds in the policy matrix (PM) or use triggers for tranche releases, and the DFIDEC will employ policy triggers too weak or inability to submit triggers for both tranche releases and disbursement. A l l tranche progress reports on time. release and disbursement triggers are sourced from the policy matrix to which the GON and all DPs have subscribed. Financial Management. An FMIS (i) Completion of a computerizedFMIS has been completed at the Moderate computerization effort has been initiated at the central level. The key challenge i s to extend the same to all district central level and i s near completion. This i s being offices under SSRP. (ii) DOE has a working group in place to ensure gradually extended to the district level. There i s a timely preparationof financial statements and compliance to various risk that this will not be completed and it will guides already in place as social accountability tools. (iii) adversely affect timely preparation of financial Development partners will closely monitor the implementationof statements. Furthermore, to support formal Governance and Accountability Action Plan (GAAP) which will be a financial management procedures, the GON has key document under the Joint Financing Arrangement (JFA) to ensure also adopted social accountability tools and there i s good accountability. a risk that these will not be universalized. Procurement. There i s evidence of increased By decentralizing powers to communities, linked to the fact that Moderate interference in public bidding. This i s a threat to public expenditures particularly on works, i s only a fraction of the the usefulness and implementability of the overall expenditures on works financed through community Procurement Act. However, this has not yet been contributions, the SSRP i s likely to mitigate procurement concerns on seen in the education sector. There are also stories civil works. With regards to teacher salary grants, the inherent in the popular press that teacher positions through weakness in raahat appointments will be addressed in the SSRP by raahaf positions may have been allocated in channeling all government funds for additional teacher positions for inappropriatemanner. un-served and under-served children entirely through the PCF modality Safeguards. Environmental risks under the Environmental guidelined framework provide guidance. There are Low proposed program are related to: (i) limited access already some experiences of using environmental standard and to clean water and adequate sanitation facilities guidelines with positive experiences. Standard designs for (ii)school buildings / class rooms that are classrooms have been developed to help improve constructionand inappropriatefrom climatic considerations supervision standards. Orientation and training to be given to the (temperature, light, ventilation etc), and (iii) school and district implementers, and mechanism to coordinate disasters from flood, landslide and earthquake. environmental services to the school to be established. Lack of awareness and capacity of field implementers, particularly at school and district Through the introduction of decentralized planning procedures, and level, regarding environmentalguidelines could the employment o f per capita financing norms, it i s expected that the constraint effective implementationsof the risk of the lack of awareness will be mitigated. environmentalstandards. Social safeguards focus on inclusion, with a The GON has prepared a Vulnerable Community Development specific focus on indigenous peoples and other Framework and a Land Acquisition Framework to ensure that IDA'S marginalized and disadvantaged groups, and on policies on IPS(and other marginalized and disadvantaged groups) ensuring that acquisition of land through voluntary and voluntary contribution of land or land acquisition using willing means follows a mechanism acceptable to IDA. sellerbuyer approach are per guidelines that meet I D A safeguard uolicies. Overall risk rating Moderate F. Loadcredit conditions and covenants 56. Implementation Covenants: The Recipient has agreed to the following project-specific covenants: 0 Cause MOE/DOE to be responsible, at the central level, for the overall coordination, monitoring, evaluation and reporting on the Project. 14 Ensure that the Project (including Subprojects for community schools) i s implemented in accordance with the provisions o f the Program Implementation Guidelines. Cause M O E D O E , not later than April 15 o f each year, to prepare and furnish to the Association a draft ASIP and AWPB for the following Fiscal Year, for its review, and promptly furnish the final ASIP and AWPB after their formal endorsement. Furnish to the Association an annual report summarizing the status o f key indicators, relevant surveys, special studies and education project expenditure reviews, no later than two (2) weeks prior to the joint annual review meeting to be held no later than April 30 o f each year. Provide each Subproject Grant to a Beneficiary, other than a community school, pursuant to an agreement to be entered into between the Recipient and such Beneficiary (Subproject Grant Agreement) containing terms and conditions satisfactory to the Association. Provide Subproject Grant to a Beneficiary, which i s a community school: (i) accordance in with the eligibility and selection criteria, the disbursement, financial management, monitoring and other relevant provisions set forth in the Program Implementation Guidelines; and (ii) pursuant to arrangements satisfactory to the Association. Ensure that: (i) Project (including Subprojects) i s implemented in accordance with the the provisions o f the Vulnerable Community Development Framework (VCDF) (including the provisions o f each Vulnerable Community Development Plan prepared in accordance with such Framework), the Environmental Management Framework (EMF) (including the provisions o f each Environmental Management Plan and other environmental and social management plan prepared in accordance with such Framework) and the Land Acquisition Framework; and (ii) action i s taken which would prevent or interfere with such no implementation. Ensure that the implementation o f the Project (including Subprojects) does not involve, without limiting the generality o f the foregoing,: (a) any involuntary taking o f land resulting in: (i)relocation or loss o f shelter; (ii) o f assets or access to assets; or (iii) o f income loss loss sources or means o f livelihood, whether or not the affected persons must move to another location; or (b) any involuntary restriction o f access to legally designated parks and protected areas resulting in adverse impacts on the livelihood o f the affected persons. Ensure that the Project i s carried out in accordance with the provisions o f the Anti-Corruption Guidelines. APPRAISAL SUMMARY Economic and financial analyses 57. Economic Analysis: The economic analysis o f the five-year SSRP uses the following benefit streams: (i) education quantity (additional school completers resulting in more workers in the future with at least eight years o f schooling and with higher earnings as a result), (ii) education quality and relevance (more learning, resulting in higher productivity and earnings on the part o f everyone who has completed basic education), and (ii) education's internal efficiency (less "wastage," Le., fewer school dropouts and repeaters, and lower unit costs as a result). The measure o f impact o f SSRP on these benefits i s estimated as the difference between "SSRP" and that in a counterfactual scenario o f "in the absence o f SSRP". For the cost streams, it uses the net SSRP investment costs (difference between the full SSRP costs and the business as usual costs had there been no SSRP), household expenditures and opportunity costs in the form o f forgone earnings. The cost-benefit analysis results in an internal rate o f return o f 39 percent and a net present value o f U S $ 93 1 million assuming a 12 percent discount rate. Sensitivity analysis shows that even under the most conservative assumption in the low-case scenario, IRR i s above 22 15 percent. These results accounts for only those benefits associated with basic education. An estimate o f the IRR that takes into account all o f the benefits associated with secondary education, as well as the private costs (household outlays and opportunity costs) o f secondary education, i s 62.5 percent, which i s 23 percentage points higher even than the IRR based on basic education alone. The results unambiguously reinforce the conclusion that SSRP i s a sound investment for Nepal. 58. Fiscal Sustainability: The analysis shows that the program i s sustainable under various growth and government expenditure scenarios. However, it i s clear that D P support will be required even after the SSRP period ends to ensure that gains from the program are sustained. B. Technical 59. A key challenge that the SSRP will focus on i s improvements in system quality. Overall progress on quality has been fairly limited to date. However, SSRP puts a significant emphasis on enhancing quality. Interventions include a focus on providing better quality inputs (e.g. textbooks, learning materials, teacher guides), providing incentives to schools and students which are tied to tied to performance measures, and improving the quality o f teachers in school. 60. In addition, it i s critical to enhance institutional capacity. Given the focus on community management o f schools, SSRP will continue to support more schools as they move towards community management, while simultaneously strengthening the capacity o f School Management Committees to implement the program and improve their performance on the governance front. 61. Another key issue i s ensuring that PCF based financing to schools does not lead to over- reporting the number o f students (ghost students). This i s unlikely to happen for the following reasons: (i) Nepal has developed a good EMIS system, with EMIS reports being published twice a year. The first captures the beginning o f the academic year indicators, while the second captures the end o f academic year indicators. Both are published within six months o f the census. This system has been in place for the last five years and has worked well. Independent surveys have assessed the EMIS to be reliable and accurate with regarding reporting on the number o f students, and (ii) PCF has been in place since 2003 during the EFA program, where it was the used to finance non-salary recurrent costs and it has worked effectively. SSRP i s now extending this to include financing o f salaries, and the effectiveness o f this approach will continue to be monitored closely. 62. Student scholarships have been identified by the EFA Evaluation Report to be one o f the most successful instruments used by the G O N to ensure universal participation. Though this evaluation i s not rigorous, there i s considerable anecdotal evidence o f the importance placed by families on this scholarship amount. This will be continued under SSRP. However, it i s important to try t o get a better understanding on how well these scholarships are targeted and on the size o f inclusion and exclusion errors. This will be carefully studied during the implementation o f the SSRP. C. Fiduciary Governance and Accountability Action Plan 63. As part o f the preparation o f the SSRP, the G O N and the DPs together prepared a Governance and Accountability Action Plan (GAAP) for the SSRP. This combines several action plans under a single instrument and provides the foundations for the GON's keen desire to 16 establish practices o f good governance. The GAAP i s expected to help mitigate and address key risks o f a fiduciary nature, and other key programmatic risks. Given that a large component o f the program i s the financing o f teacher salaries and student grants, a key risk that has been identified includes ghost students and teachers. The SSRP addresses this by ensuring that the GON continues to strengthen i t s commitment to further decentralization to schools and school management committees (SMCs) and continue to ensure that the policy o f moving towards to decentralized recruitment i s strengthened during SSRP implementation. The GAAP i s also expected to help address the issue o f weak internal controls'8 identified in institutions in Nepal. The weak internal control i s a reflection o f high fiduciary risk environment in Nepal and not necessarily sector specific. However, to address this issue, the SSRP also focuses on developing and strengthening alternative control mechanisms which are centered on schools and school management committees, but also include alternative measures, such as, arrangements for third party monitoring, social and performance audits, and special reviews as part o f i t s design. 64. In order to ensure adequate focus and attention to governance and accountability arrangements (including financial and procurement management), the Governance and Accountability Action Plan (GAAP) has been integrated into the Joint Financing Arrangement (JFA) document to be signed by all pooled partners and the Government o f Nepal agreeing to harmonize procedures. Implementation o f GAAP will be regularly monitored jointly by the GON and the pooled partners. There will be strong efforts to build capacity both in technical areas as well as overall sector management, including FM. On staffing, the Government will be required to place a qualified and competent team o f staff, to be supplemented by consultants when needed, to sustain the successes being achieved in EFA. Pooled partners will seek assurances o f continuity o f core staff managing the SSRP program at the central level and also seek assurances for alternative arrangements should the risk o f staff transfer prevail. Social audits, financial audits and performance audits are various means o f ensuring better financial accountability and improved governance in SSRP. Procurement 65. Procurement for the proposed program would be carried out in accordance with the JFA, which i s consistent with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated M a y 2004, Revised October 2006; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated M a y 2004, Revised October 2006, and the provisions stipulated in the Legal AgreementIg. The various items under different expenditure categories are described in general below. For each contract to be financed by the CreditIGrant, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual program implementation needs and improvements in institutional capacity. 66. The factors contributing to procurement risk include: (i) limited ability to monitor decentralized procurement which constitutes a bulk o f procurement under the program; (ii) non- l8Refers to the effectiveness o f mechanisms are in place to ensure that prescribed norms and regulations are followed in the allocation o f resources. For example, that scholarships are given only to those categories o f persons identified and agreed to under SSRP, and i the stated amounts. n 19 The F A also stipulates that procurement w i l l be carried out in accordance with country systems, except for NCB which will need to meet additional IDA prescribed caveats and for ICB which follows fully IDA guidelines. 17 availability o f trained manpower to handle the procurement; (iii) lack o f awareness/dissemination o f procurement procedures at schooVvillage level, where most o f the expenditure i s incurred; (iv) limited disclosure o f procurement related information and the oversight by the civil society on the procurement; (v) susceptibility o f outside interference in procurement process. Given the current political situation, and weak governance specially at the decentralized levels, there have been growing instances o f interference in or capture o f works contracts (specially works contracts) invited at district levels2'. To mitigate this risk D O E shall instruct i t s district offices that if such risks exist in the district, then the bid documents shall specify multiple locations for the sale o f bid documents (e.g. the District Development Office, Department o f Education in Kathmandu, any other location in the district) and to specify a location other than the DE0 where security can be arranged o n the deadline date for bid submission (e.g. the DDO or the Police Station). In parallel, the D O E shall organize community awareness/dissemination programs informing local people about how the effects such interference has on the timeliness, quality and cost the service delivery to the community, and their right to demand accountability. 67. I t needs to be emphasized that the procurement-related risks in SSRP are identified to be moderate. The reasons for this include: (i) large value central procurement, (ii) no most procurement i s small value, (iii) community management i s accompanied by community contributions and hence provides an in-built mechanism for efficiency in procurement, iv) disclosure o f procurement procedures for SMCs in the Project Implementation Guideline. Perhaps the most striking feature o f the procurement environment in Nepal i s the fact that there are no contracts issued by the Government for printing o f textbooks. Textbooks are printed and distributed by the monopoly government printer, and receive payments from schools only when textbooks are delivered at the school. In two development regions, the textbook printing and distribution has been opened to private producers as well and G O N has agreed to extend this throughout the country. There i s a process o f short-listing o f private printers and distributors here, and the SSRP GAAP aims to remove this short-listing process and move to an arrangement with no pre-qualification required, and thereby improve systemic accountability and eliminate vulnerability to corruption. On the issue o f quality control, the G O N has already agreed to have ex-post examination o f the textbook quality, and not ex-ante approval o f quality. Financial Management 68. Overall, FM arrangements currently in place are considered to be adequate, and the FM risk for the program i s rated "Substantial" and "Moderate" after mitigation. From operational and financial management perspectives, arrangements as adopted in the Education for All (EFA) Program will be followed by harmonizing with the government's planning, budgeting, accounting, reporting and auditing systems. During the EFA implementation, substantial efforts were made in improving overall financial management and accountability arrangements at the central and district levels and at the beneficiary level. 69. The strategy for financial management focuses on ensuring that the lessons from EFA are incorporated into SSRP, and that the achievements made therein are consolidated and strengthened during the implementation o f the proposed operation; an appropriate identification o f the key risks associated with the SSRP implementation; and in developing risk mitigation and supervision strategies that incorporate features that make it possible to supervise a SWAP type operation. These are described in greater detail below. 2o Though t h i s has not yet been witnessed in the education sector. 18 70. Under the EFA, considerable progress was made in strengthening F M related aspects o f the program. A Financial Management Improvement Plan (FMIP) was developed and agreed to between the GON and the DPs, and i t s implementationwas closely monitored. This has led to several key achievements including inter alia (i) a Financial Management Information System (FMIS) has been established at the DOE; (ii) efforts are underway to computerize this system and create an FMIS network with seventy-five district education offices; (iii) social accountability tools, such as, Social Audit Guidelines have been prepared and implemented in about 70 percent o f schools in Nepal with an emphasis to cover all schools during SSRP; (iv) a School Audit Guide has been prepared with close collaboration with the Institute of Chartered Accountants o f Nepal (ICAN) and this Guide i s a part of the regular curriculum of students at ICAN; and (v) a mechanism for review of fmancial management and accountability arrangements are now in place within the system. All of these will be further deepened and expanded during the implementation o f SSRP. 71. I n terms o f arrangements for supervision of SSRP from an F M perspective, the implementation of the GAAP i s proposed as an important mitigating measure to address risks identified in the program and with the aim to lower the residual risk to "Modest" during implementation. The current financing arrangements as being adopted in EFA will continue with SSRP with an arrangement for pooled partners to share certain percentage of total SSRP expenditures. The DP consortium in Nepal has requested IDA, ADB, and the DFID to lead on fiduciary issues that include F M and Procurement, and hence the responsibility for supervision of a l l fiduciary matters among DPs lies with these three agencies and this provides considerable opportunities for strengthening the overall system. The coordinated approach applied during design phase will continue in the implementationphase to ensure high level attention i s received on fiduciary matters. D. Social 72. An over-arching goal of SSRP i s to bridge gender and social gaps by 2015 in Basic Education. The SSRP aims to achieve this by focusing on the most marginalized groups that remain out of formal schooling at the Primary and Basic level. The target groups include Dalits, Indigenous Peoples or Janajatis, differently-abled children, children affected by conflict, and children with HIV-AIDS. Some of the specific interventions for Janajati children in SSRP include provision of additional classrooms for schools in areas inhabited by these groups, bilingual or multilingual teachers, mother tongue medium of support, and scholarship support particularly for children from the two most marginalizedgroups of Ips. 73. To ensure that the targets are achieved, the SSRP will closely monitor disparities across social groups in enrolment, attendance, dropout, transition and learning outcomes. The EMIS will be further strengthened to provide even more disaggregated data that can be used for planning purposes. The SSRP will focus on strengthening the use of EMIS for planning, and for school and community level planning as well. The SIP will be strengthened and school management committees will be given training and incentives to ensure that out-of-school children, who are beyond the reach of interventions that are school based, can be mainstreamed into the schooling system. Back to school programs will be targeted at those children andor communities or groups who are over-represented in the out of school population. 74. The GON has prepared a Vulnerable Community Development Framework (VCDF) which has been endorsed by the DPs and will drive and guide the implementation of programs targeted at marginalized children and groups, and will be used to monitor success in this area. The VCDF i s developed based on the national policies/strategies and the SSRP with the primary 19 aim o f meeting IDA's O P B P 4.10 on Indigenous Peoples and to ensure that there are repeated opportunities for free, prior, and informed consultations specifically with I P groups, and more generally with other marginalized and disadvantaged groups during program implementation. This will be supervised during the annual review missions and quarterly meetings with the GON. In particular, the GON has committed to ensuring that an entire session will be dedicated to addressing these issues during review missions, and that national level representatives o f these groups will be invited to all review missions. I t i s also important to note that these representatives already play a key role in the EPC, which i s the highest education policy body in the country. 75. Furthermore, given the recent conflict in the country, a peace filter was developed to ensure that the operation did not create a negative impact on potential beneficiaries and also addresses root causes o f conflict, such as social exclusion. The peace filter analyzed the operating environment including the policy making environment, the security situation, local political context and accountability. In addition, the peace filter also analyzed the potential program impacts in terms o f location, who the most likely beneficiaries were, and the nature and scale o f the impact. As a result, project design related to access and program financing has been influenced to address peace filter findings. For example, the SSRP emphasizes access to mother tongue medium o f instruction which will be monitored during this program in terms o f the number o f languages for which basic textbook material i s available, and the number o f teachers that have been trained in bilingual education or teachers who have been recruited who are capable o f teaching in select languages. In addition, to ensure the financing flows to the children, schools, and regions most needed, the G O N together with DPs will improve resource channeling by developing an educational development index2'. 76. There will be no involuntary land acquisition under the program, and hence, SSRP does not trigger OP 4.12 on involuntary resettlement. Land acquired directly by the GON for the establishment o f administrative buildings will either be on land that already belongs to the GON, or will be acquired through a willing buyerheller approach. The issue o f land acquisition for schools in Nepal is more nuanced than normal. Since schools are established by communities, the question o f how the land i s acquired only emerges ex-post and at the time the school i s identified for receiving GON subventions for constructing additional classrooms or other buildings. Traditionally, this land has always been acquired through voluntary contributions, or by adopting a willing buyerheller principle. To meet IDA's safeguards issues on land acquisition the G O N has developed a land acquisition framework which helps to ensure that all such transactions are done in a transparent manner, and without fundamentally altering the manner in which schools are established in Nepal. The framework will apply to all schools established during the program period and which become eligible and identified for financing o f new classrooms under the SSRP, and for those schools that were established prior to the start o f the SSRP, but acquired additional land during the SSRP period with the aim o f expanding the number o f classes they offered. E. Environment 77. SSRP covers a wide range o f activities including inter alia: teacher salary and textbooks, teacher development, physical infrastructure, scholarship, program cost, operating/ administrative cost, per capita funding for un-served children. Environmental concerns are related to actions/ *'There i s already an effort underway between the MOE and the NPC to develop such an index for improved targeting o f government resources on a needs basis. This should help channel resources to parts of the country that may have historically been neglected. 20 activities under physical infrastructure. However, no large scale, significant and/ or irreversible impacts are foreseen as the activities would be relatively small scale and spread throughout the country. The minor and localized impacts may arise from construction/ upgrading o f small administrative buildings or school blocks or new/ additional classrooms or may be related to providing facilities such as drinking water and sanitation as well as to their proper operation and maintenance. Ensuring supply o f safe drinking water (e.g. arsenic-free groundwater in Tarai), proper sanitation (school latrine and waste management at school), and appropriate classroom conditions (e.g. light, ventilation temperature, and noise) are the operational phase concerns. Locations o f the schools or i t s facilities in risky or sensitive spot such as in flood-prone /risk, or landslide risk spot, and protected areas i s also a concern besides risk o f damage by earthquake as Nepal i s in high earthquake risk zone. These concerns are also related to appropriateness o f sites, orientations o f the buildings considering climatic factors, and use o f appropriate design standards for adequate light, ventilations, and temperature, sound-proofing as well as earthquake- resistance. 78. In order to manage the above-mentioned type o f minor and localized impacts, G O N has prepared Environmental Management Framework (EMF) for SSRP. This has incorporated the experiences o f the other projects such as Education for All, emerging lessons and updating the National Environmental Guidelines for School Improvement and Facility Management in Nepal (NEG). The EMF defines simplified steps, procedures and guidelines or criteria and/or standards t o be used while planning and developing schools' physical infrastructure under the program. These, for example, are related to screening, preparation o f simple environmental management plan, use o f criteria for orientations and location o f school buildings, standards for light and ventilation requirements, temperature and sound-consideration as well as sanitation and water- quality aspects. 79. The EMF suggests capacity strengthening measures in order to improve environmental management by implementers (such as DOE, DEO, and SMCs). These measures, for example, include providing environmental competency/ human-resources; orientation and awareness activities on environmental planning and management o f school and school-facilities; and mechanism for coordination and for accessing specific environmental services e.g. water-quality testing, climatic design o f school blocks etc. 80. The EMF provides a satisfactory basis for addressing environmental concerns that emerge from the implementation o f the proposed program. F. Safeguard policies Safeguard Policies Triggered by the Project Environmental Assessment (OPBP 4.0 1) Natural Habitats (OPBP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OPBP 4.1 1) Involuntary Resettlement (OPBP 4.12) Indigenous Peoples (OPBP 4.10) Forests (OPBP 4.36) Safety o f Dams (OPBP 4.37) Projects in Disputed Areas (OPBP 7.60)' * By supporting the proposedprogram, the Bank does not intend to prejudice thefinal determination o the parties' f claims on the disputed areas 21 Projects on International Waterways (OPBP 7.50) [I [XI G. Policy Exceptions and Readiness 8 1. N o policy exceptions are sought. The project's implementation, fiduciary, safeguards, and M&E arrangements are in place (with baseline data available for key performance indicators) satisfactory to IDA. Furthermore, the region's readiness criteria for AppraisalNegotiations have been met. 22 Annex 1: Country and Sector o r Program Background NEPAL: School Sector Reform Program . IINTRODUCTION 1. Political and social context. Nepal i s undergoing significant political and social transformation. Having emerged from a decade-long conflict between the Government and the Maoists, the country recently transitioned from being a constitutional monarchy to a republic in 2008, and elected a Constituent Assembly tasked with drafting a new Constitution. The Communist Party o f Nepal (Maoist) emerged as the single largest party, but without clear majority, in the C A elections. The Maoist-led coalition government ruled for only about nine months before resigning in M a y 2009. The Unified Marxist Leninist (UML) party, supported by Nepali Congress (NC) and other parties, n o w leads the coalition. 2. The political transformation i s closely interlinked with desire for social change, with inclusion being very high up on the political agenda. Nepal has traditionally marginalized many o f its diverse social and geographic groups from its development process. Three distinct north-to-south eco-zones, viz., the mountains, hills and the tarai (plains) and the five east-to-west development regions are characterized by uneven living standards in this land-linked country, located between China and India. The "new" Nepal has the opportunity and the challenge to be fully inclusive in its political, social and economic development for i t s 27 million people that come from over 100 different caste/ethnic groups and speak more than 90 languages and dialects, as identified in the last Population Census. 3. Economy, poverty and human development. Amidst a difficult conflict period, Nepal showed a great deal o f resilience in economic growth". The average GDP growth at constant prices has been around 3% since 2000. Headcount poverty rate decreased from 42 percent in 1996 to 31 percent in 200423. With an annual per capita income o f about US$ 470 (GON figures), making it amongst the poorest countries in the region. 4. The global economic crisis has had only a limited impact on Nepal till date. Because the country i s largely isolated from international financial markets, there has been limited direct impact. On the other hand, the indirect effects are expected to come from likely reductions in remittances (that now account for close to one-fourth o f the total GDP), export volume and tourist arrivals. 5. While Nepal i s ranked low (142"d out o f 177 countries in the list) on a globally monitored Human Development Index, it has made impressive progress in many o f the MDG indicators. N e t enrolment rate in primary school level increased from 68 percent in the mid-nineties to 92 percent in 2008. During the same period, gender parity index in primary enrolments rose from 0.66 to 0.98, infant mortality rate decreased from 79 to 48 (per 1000 live births) and under-5 mortality rate from 118 to 6 1. However, maternal mortality rate and child malnutrition rates remain one o f the highest in the region. Moreover, despite an overall progress in many o f the human development indicators, there i s considerable disparity across populations from different caste/ethnic groups, geographic locations and income quintiles. 22 Nepal Interim Strategy Note, 2009. 23 Nepal Poverty Assessment, 2006. 23 1 1. THE EDUCATION SECTOR Policy Reforms 6. The GON i s committed to ensuring educational access to all and improving the quality o f school education. Education continues to be a priority sector for the governments formed following the election o f the 2008 Constituent Assembly. A key feature o f last year's budget was the emphasis on the development o f the country's human resources as a cornerstone o f the country's development strategy. Among the overarching priorities related to the education sector, identified in the budget, are increasing access to, and improving quality o f school education, and orienting graduates towards skills and vocations. Despite a change in the leadership in the government, the new Government has indicated firm commitment to key policy reforms and activities in the education sector, with an initial indicative budget allocation o f about 17% for the education sector. 7. Nepal has been keenly focused on the education sector since the early 1990s and more recently implemented a series o f key reforms. GON has collaborated with development partners in a series o f national programs such as the first and the second Basic Primary Education Projects (BPEP I1992-1998, and BPEP I1 1999-2004) and the Education for All (EFA 2004- 2009) SWAP program. Despite the decade-long conflict, the Government had undertaken significant reforms in the education sector that have helped achieve impressive results in enrolments and gender parity. These reforms include: the transfer o f public schools t o community management; government financing for unaided community schools; introduction o f per capita financing o f schools; opening o f textbook printing and distribution t o the private sector; decentralizing higher education, along with introducing formula-based funding and cost sharing; and government financing for community campuses (see B o x 1.1 for key reforms). 8. The devolution of education management to communities i s considered to be the key reform. The education sector has set the trend for decentralization and devolution in with the passing o f the Seventh Amendment to the Education Act in 2001. Historically, Nepal has had a unique tradition o f communities establishing and managing schools. In 1971, Nepal effectively nationalized the management o f schools. Owing to over-whelming dissatisfaction with this delivery system, the Government decided to return schools to community management on a gradual and voluntary basis. The legal framework that helped return schools to their communities i s enshrined in the Seventh Amendment to the Education Act paved the way for schools to be made more accountable to the community they serve and helped ensure that public service delivery in school education took place through community schools, established and operated by communities, and co-financed by both government and communities. Management structure at the school level, supported by the Education Act and Education Regulations, i s the formation o f School Management Committees (SMC) and PTAs to be established through selection or election by parents and guardians. The full composition o f the SMC i s presented in B o x 1.3. 24 Box 1.1 Key Reforms in the School Education 1. Started in 2002, the transfer o f aided primary schools to community management has been a radical reform. Community ownership empowers the school management committee, consisting o f parents and influential local citizens, with various staffing and fiscal decisions. I D A supported CSSP was designed to support this initiative o f the government. Subsequently, the transfer o f schools to community management was mainstreamed into EFA SWAp. To date, more than 8,600 schools have been transferred to community management. . Because community transfer i s a completely voluntary choice, the extraordinary speed at which this has happened was not anticipated when the reform started. Recently completed EFA evaluation report has independently verified that the transfer o f schools to community management has been a successful initiative and has already led to positive outcomes. The SSRP will continue to encourage communities to take over management o f schools through advocacy programs and one time incentive grants o f NRs. 100,000 (approximately US$1200) per school level. Government has already announced in the F Y 10 budget speech a target to transfer 4,000 schools to community management this year. All schools are expected to be transferred to community management by the end o f the SSR program. W h i l e all community schools have the authority to appoint teachers on a non-permanent basis, community managed schools can appoint permanent teachers as well. 2. Salary grants are provided to schools to recruit community teachers. Empowering communities to hire and fire their own teachers - as opposed to government supplying them with centrally recruited teachers- increases teacher accountability and therefore school quality. First introduced in 2003/04 in unaided schools through the Bank's PRSC support, it was mainstreamed into the EFA SWAP program in 2004105. This funding modality was spread to aided schools from 2005/06. Already very popular among the communities, this reform has proven to be highly effective. In FY09 EFA disbursed salary grants equivalent to salaries o f 22,000 teachers. 3. Per capita funding (PCF) i s a student enrolment based funding (as opposed to teacher-based funding) that i s expected to enhance quality and efficiency through increased school choice (for children), competition among schools, and efficient teacher deployment. GON introduced PCF as a pilot in FY07/08 and provided 4,000 PCF-based salary grants to unaided schools. Scaled up from FY08/09, the PCF instrument will continue to be the primary funding modality to provide non-salary grants to schools to frnance free textbooks and other quality interventions in the SIP. Moreover, all additional teachers' salary grants for un-served students under SSRP will be channeled through PCF. PCF provides a major shift in funding formula and avoids political influence in resource allocation to schools. 4. Since the beginning o f the supply o f free primary textbooks in 1984, timely delivery o f textbooks to schools had been a problem. A number o f experiments aimed at ensuring the timely delivery o f textbooks through Janak Education Materials Center (EMC), a state-owned enterprise, did not n produce desired results. At the beginning o f EFA i 2004, schools were provided with per capita based textbook grants, ending the system where DOE contracted JEMC for printing and supply o f primary textbooks. T h i s paved the way for opening textbook supply to the private sector. In FY06/07, the government opened to the private sector the supply o f Grade 5 textbooks in the eastern development region, which led to more timely availability o f textbooks. In F Y 08/09 the textbook supply for grades 1 to 8 to eastern and western regions was opened to the private sector. By the end o f the SSRP period the government aims to open the entire school textbook market to the private sector. GON will drop the current provision o f short listing o f textbook suppliers and replace ex-ante quality control o f textbooks with ex-post. 25 Box 1.2 Community and Community Managed Schools In 2001, after adoption o f the Seventh Amendment o f the Education Act, all public schools were renamed as community schools. Public schools had School Cooperation Committees appointed by the government. But they had no meaningful authority. Therefore, these schools were in fact managed by the government. Following the Seventh Amendment, the responsibility for management o f community schools was given to school management committees (SMC) which unlike school cooperation committees were elected by parents. Parents' Assembly became the supreme authority for schools. SMCs were given wide ranging powers - such as appointment o f teachers, resource generation, formulating, approving and executing the school budget. In principal all community schools are community managed as all schools are managed by SMCs formed by the parents' assembly. Community management o f schools was a radical move and the government faced difficulties in implementation o f the Seventh Amendment. Though the Act deemed the creation o f SMCs, these were not formed immediately after the enactment. T h i s i s why the strategy o f supporting the implementation through a voluntary approach was adopted. Those schools which signed an agreement with the government to take over management o f schools were referred to as Community Managed Schools (CMS). This agreement on the one hand gave communities the confidence to exercise the powers vested in them by the Seventh Amendment, and on the other hand further pushed the government to concede the powers they exercised before the Seventh Amendment to communities. The conditions to be fulfilled for this transfer were: (a) formation o f an SMC; (b) decision by the SMC to get the school transferred to community management; and (c) endorsement o f the SMC decision by the Parent's Assembly. N o w every community school has formed an SMC. In this sense all o f them are community managed. The only additional authorities that Community Managed Schools have in comparison to regular community schools, includes the authority to appoint head-teachers and permanent teachers in government teacher positions. The second provision i s yet to be implemented successfully. Though schools formally transferred and non-transferred schools are in principle community- managed, the former are distinctly different from the latter in terms o f the learning they have already experienced as managers o f their schools, and hence in the confidence and morale they demonstrate. Box 1.3 Composition o f School Management Committee The School Management Committee consists o f a total o f 10 persons. The composition o f the SMC according to Education Regulations i s as follows: 0 Chairperson selectedelected by guardians from among guardians 0 Three members (at least one female) selectedlelected by guardians from among the guardians 0 W a r d Chairperson o f the V D C or Municipality where the school i s located 0 One member from among local intellects/educationists appointed by the SMC 0 One member from among school founders appointed by the SMC 0 One member from among philanthropists appointed by the SMC 0 One teacher representative selectedelected by the teachers T h e school's Head Teacher serves as the Member Secretary 9. There are a variety o f schools in Nepal: Community Aided, Community Managed, Community Unaided, Institutional or Private, and Alternative/Traditional Schools. The Education A c t stipulates two types o f schools - community and institutional. W h i l e the first type o f schools i s eligible f o r government grants, the second t y p e i s not. Community schools that have 26 been approved for regular government grants (mainly salaries for government teachers) are popularly known as aided (legally approved) community schools, and those yet to be approved are popularly known as unaided (proposed and legally permitted but yet to be approved).Aided community schools that have taken over the management responsibility by entering into a formal agreement with the district education office are called community managed schools. Institutional schools are classified into schools registered as trusts and schools registered as companies. While the first type i s not for profit, the second i s for profit. In addition to the above mainstream schools, traditional religious schools - Madrasas (Islamic), Gumbas (Buddhist) and Gurukuls (Hindu) - operate in Nepal. These schools do not receive government grants. For those children who despite best efforts are unable to participate regularly in schooling, the Government also offers access to schooling through alternative schooling programs. 10. Community schools - both aided and unaided - also receive the following government grants: salary grants for teachers (relief grants), PCF grants for non-salary recurrent costs (textbooks and other quality interventions in the SIP), PCF salary grants for un-served students, earmarked grants for physical facility upgrading scholarships, etc. The Government has recently started to offer per capita financing to traditional schools that have agreed to cover the government curriculum in addition t o the religious curriculum. 11. Schooling System. Figure 1.1 provides a schematic o f the current schooling system in Nepal. There are four cycles under the school education sub-sector - these include Primary, Lower Secondary, Secondary and Higher Secondary covering Grades 1-5, 6-8, 9-10, and 11-12 respectively. Pre-primary and ECED i s precedes entry at Grade 1. Entry age at Grade 1 i s recommended for 5 year olds. Under the proposed SSRP, the schooling cycles will be revised to include only two - Basic and Secondary schooling covering Grades 1-8 and Grades 9-12 respectivelg4. f Financing o the School Sector 12. Public expenditure in the education sector has improved greatly in the last decade. During 2004-2009, the education expenditure as a share o f GDP and as a share o f government budget averaged 3.7 percent and 17 percent respectively. In 2008, primary education accounted for roughly 63 percent o f the education budget, the secondary getting about 23 percent, tertiary 11 percent and the remaining going to technical/vocational and overall administration. In per student terms, public spending in primary grades (1-5) has seen a dramatic increase from $35 in 2004 to $65 in 2008 in nominal terms. 13. Per student household expenditure in primary education, as estimated by N L S S 2003/04 was about $17, the average largely driven by high costs o f private schooling. Nevertheless, parents and communities made and continue to make a significant contribution t o overall spending in primary education. As expected, such contributions are much larger at secondary and tertiary level, due to higher direct costs o f schooling and lower public spending. 14. The benefit incidence o f public spending for primary education i s pro-poor. In 2003104, public primary education outlays were strongly pro-poor, secondary education outlays weakly pro-poor and tertiary education not pro-poor. Forty-eight percent o f public expenditure in primary school and 2 1 percent o f secondary expenditures went to the bottom two expenditure quintiles. In contrast, just 4 percent o f tertiary expenditures went to the poorest 40 percent o f the population. 24 This will require changes in the existing Act. 27 With the increased enrolments in both primary and secondary level, particularly from disadvantaged groups, it likely that the benefits are increasingly reaching the poor. Figure 1.1 Schooling System in Nepal Achievements in School Education: Access and Equity 15. Access to schooling has improved tremendously in Nepal in recent years25.In 1951 there were only 10,000 children in Nepal in primary and secondary schools. Total enrolment rose to about 400,000 in 1971 and has now reached more than 7 million students in more than 30,000 schools throughout the country. 16. Primary School: Nepal has made remarkable progress in increasing enrolments, particularly in primary education in the past two decades. Overall primary enrolments have more than doubled to almost 5 million in 2008. As a result, the net enrolment rate (NER) for primary education rose from 68% in 1995 to 92% in 2008. The increase has been driven by expansion in underserved areas in the mountains as well as in the Tarai. Nearly 90 percent o f primary enrolment occurs in community schools (aided, un-aided and managed), and only about 10 percent in institutional or private schools. Trend in NER at the primary level i s shown in Figure 1.2. 17. During the same time-period, there has been huge progress in terms o f gender parity and social inclusion. Gender parity index (GPI) increased from 0.66 in 1995 to 0.96 in 2008. School participation amongjanajatis, for example, doubled from 1 million to 2 million in only five years o f EFA implementation. Dalit enrolments too have shown substantial progress, as seen from recent data that indicates dalit students now constituting 18% o f total primary enrolments. 25The Handbook o f Education Economics refers to the "miraculous developments in Nepal" in the chapter written by Paul Glewwe and Michael Kremer. 28 It i s also noteworthy that gender parity at the primary level has also been achieved within population sub-groups. A GPI o f 0.98 for Dulits and o f 0.99 for Junujutis reveal that girls belonging to these population sub-groups have also benefitted from increased access to schooling opportunities at the primary level. Other notable achievements include increase in percentage o f teachers with required qualification and training (17% in 2003 to 67% in 2008). These achievements have also been supported, independently, by a recent report "Joint Evaluation o f Nepal's Education for A l l (2009)" that documents key achievements in this sector, attributing mainly to revitalized School Management Committees under EFA program. Figure 1.2:Net Enrolment Rate at Pri 160.0 140.0 120.0 + 100.0 80.0 60.0 40.0 20.0 0.0 2001 2002 2003 Girls Boys - 2004 Total 2005 2006 2007 18. Secondary School: The success o f the primary education access has also led to increased enrolments in lower secondary and secondary schooling. Over 2.25 million children are enrolled at the lower secondary and secondary levels in Nepal, o f which about 1.5 million are in lower secondary and the remaining at the secondary level. As seen from Figure 1.3, NER at lower secondary level (grades 6-8 for ages 10-12) grew from 43% in 2001 to 52% in 2008 while that at secondary level (grades 9-10 for ages 13-14) increased modestly from 30% to 35% during the same time period. In terms o f gender parity, females now account for close to 47% o f total enrolments at both lower secondary and secondary level, an impressive achievement during BPEP I1and EFA period. Figure 1.3: NER at Lower Secondary and Secondary Lower Secondary Secondary 1w 0 70 0 90 0 60 0 80 0 70 0 50 0 60.0 40.0 50.0 30 0 40.0 30.0 20 0 20.0 10 0 10.0 0.0 00 2001 2002 2003 2004 2005 2006 2007 2001 2002 2003 2004 2005 2006 2007 Girls Boys *Total Girls Boys +Total 29 19. Other sub-sectors: Dramatic improvements have been made in increasing access to ECED programs between 2003 and 2007. Currently, a total o f about 24,000 ECED centers cater to more than 800,000 children between 3 and 4 years o f age in the country. In terms o f trend, GER at ECED increased from a lowly 13% in 2001 to an impressive 60% in 2008. As a result, the percentage o f children in Grade 1 with ECED/PPC experience increased almost four- fold from 8% in 2003 to 33% in 2007. 20. The use o f non-formal education as a means o f increasing access to schooling has gained popularity in Nepal in recent years. Currently, there are three modalities through which NFE i s offered: (i)School Outreach Program (SOP) for ages 6-8, (ii) Flexible Schooling Program (FSP) for ages 8-14 and (iii)Urban out o f School Program (UOSP) for children aged 6 to 14. Together they enroll about 65,000 out-of-school children - both working and non-working. Challenges: EfJiciency, Quality and Measurement o Learning Outcomes f 21. Internal efficiency at all levels of school remains a daunting challenge given very high repetition and dropout rates. About 28% o f students in grade 1 repeat and 12% drop out every year (see Figure 1.4). Grade 1 repetition i s very high, in the order o f 30%, and dropout rate i s about 16.1%. Survival rate t o grade 5, as measured by cohort method, remains l o w at 58%. Many children who complete grade 5 do not transition to lower secondary level. Figure 1.4: Internal Efficiency at Primary Level Grades 100.0 90.0 80.0 70.0 60.0 M 0 Y 0 50.0 z P 40.0 30.0 20.0 10.0 0.0 w h w h w h w ~ w h w h w h w h w ~ w h w h w W h h W h W h 'E 0 I 0 0 0 R R 0 0 0 R R 2 0 0 0 0 0 2 R 0 0 0 0 0 0 2 2:':: R R R R R 0 0 0 0 0 0 0 N 0 0 N 0 0 N 0 0 N 1 0 N 0 0 0 N Boys I Girls Total Boys Girls Total Boys Girls Total Boys Girls Total Boys Girls , Total Grade 1 Grade 2 Grade 3 Grade 4 Grade 5 Promotion Rate l Repetition Rate i Dropout Rate I I - __ __ - - __ - 30 19. Other sub-sectors: Dramatic improvements have been made in increasing access to ECED programs between 2003 and 2007. Currently, a total o f about 24,000 ECED centers cater to more than 800,000 children between 3 and 4 years o f age in the country. In terms o f trend, GER at ECED increased from a lowly 13% in 2001 to an impressive 60% in 2008. As a result, the percentage o f children in Grade 1 with ECED/PPC experience increased almost four- fold from 8% in 2003 to 33% in 2007. 20. The use o f non-formal education as a means o f increasing access to schooling has gained popularity in Nepal in recent years. Currently, there are three modalities through which N F E i s offered: ( i ) School Outreach Program (SOP) for ages 6-8, (ii) Flexible Schooling Program (FSP) for ages 8-14 and (iii) Urban out o f School Program (UOSP) for children aged 6 to 14. Together they enroll about 65,000 out-of-school children - both working and non-working. Challenges: EfJiciency, Quality and Measurement o Learning Outcomes f 2 1. Internal efficiency at all levels o f school remains a daunting challenge given very high repetition and dropout rates. About 28% o f students in grade 1 repeat and 12% drop out every year (see Figure 1.4). Grade 1 repetition i s very high, in the order o f 30%, and dropout rate i s about 16.1%. Survival rate t o grade 5, as measured by cohort method, remains low at 58%. Many children who complete grade 5 do not transition to lower secondary level. Figure 1.4: Internal Efficiency at Primary Level Grades 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Grade 1 Grade 2 Grade 3 Grade 4 Grade 5 Promotion Rate Repetition Rate Dropout Rate 30 22. Moreover, quality o f schooling as measured through student achievement tests i s yet to systematically measured and documented. I n the absence of a reliable achievement testing system that meets international standards of student assessments, it i s difficult to assess the learning outcomes o f children in a meaningful way. A number o f studies conducted between mid-1990s and now have reported student test scores in various subjects, without providing a systematic analysis for useful feedback to policymakers and other stakeholders. 23. Teacher management continues to be a serious concern, especially in the area of uneven deployment of government teachers, poor quality o f teachers, and serious shortfall in resources (government not fully able to cover teacher's salary). Teachers play an important role in improving the quality o f education and quality improvements can only be sought with an adequately sized teacher-force, with teachers who are well-trained, and committed to improving the learning outcomes of children in their classrooms. Teacher absenteeism i s another issue - on average, 1 out of 6 teachers are absent on any given day. The SSRP will closely monitor teacher absence using the EMIS and other instruments as may be necessary, and efforts will be undertaken to improve teacher attendance. 31 Y a e 0 e Y 0 c Y 5 .- , Y i- a a 73 m e * o 5 .- Y a m t 2 3 \o 0 0 2 e Q 0 r e T m 3 0 , rg c v) 7 h m 3 M .s .- C g B c 8 W Y cr 0 % s a B - .- 0 td 1 0- W 0 W > 0 0 0 hl Y I n hl m M .- E 0 z v M * 0 E W 0 Q\ '3 0 0 & Y c;' s 0 hl E % e v r e, u e, *7 2 a 6 E 8 .- r 0 * .e td 3 f 0 U 1 a w w e, I- B a c E 8 s 0 m x --. m rn n d P 00 0 0 N I N 0 0 N L E .- Y 0 rd 0 a 13 w . l. P -0 0 0 LL Annex 3: Results F r a m e w o r k and M o n i t o r i n g NEPAL: School Sector R e f o r m P r o g r a m I. Introduction 1. The monitoring framework for the SSR Program will build on the framework developed under current programs such as EFA and SESP. During these programs the M O E D O E developed mechanisms to monitor program progress using both data-based methods and findings based on field level monitoring. The GON and the DPs tracked a total o f 19 indicators to monitor progress o f EFA program, and a set o f additional indicators for SESP project as well. Since the SSR Program focuses more broadly on the overall school sector, and not just the primary cycle as done under EFA, the GON and the DPs have agreed to a set o f revised indicators to monitor implementation and outcomes in accordance with School Sector Reform Plan, a long-term strategic plan o f the education sector in Nepal over the period from 2009 to 2016, that has been endorsed by DPs. The SSRP results monitoring framework covers the key aspects o f the program, viz., (i)ECED, Basic education, (ii) Secondary education including TEVT, (iii) Literacy and Lifelong Learning, (iv) Teacher Professional Development, and (v) Capacity Development including program management and monitoring. 2. The monitoring o f the SSRP will largely rely on information collected through the Education Management Information System (EMIS), which i s used to prepare the Flash Iand Flash I1 Reports, the Annual Status Report, and an Annual Consolidated Report. This will be supplemented by available data from nationally representative household surveys for crosschecking the key indicators, such as, NER, GER, out o f schoolchildren and completion rates. In addition, MOE/DOE will collaborate with other agencies and f i r m s t o carry out a number o f quantitative and qualitative studies on specific topics. Sample-based learning assessments and impact evaluations will also form important part o f the SSR program monitoring. The section below describes these instruments in some detail. 11. Sources o f data for monitoring outputs and outcomes 3. E M S Flash I and Flash II. Most data available on school level education i s obtained from annual school census in the form o f Flash I 1 and Flash 1 . The DOE initiated the Flash system in 2004 in response to the fact that data collection at a single point in time was inadequate for capturing both the initial enrolments and those at the end o f school year. The EMIS collects school level information twice a year with the Flash Ireporting on school level characteristics at the start o f the school year, and Flash I1 reporting on those at the end o f the school year. Figure 3.1 provides the timeline for the processing o f Flash Iand I1data collection. Figure 3.1:Timeline for Flash Data Collections -Flash I Flash I Census Distrlct forms -Collection Forms rubinits to of f o r i n s C o IIe c t ed Flash i Districts a t RC at DE0 Ftdsli II Forms District forrns to - F l a s h II Collected s u bn-i ts Districts c e n s L1Z at DE0 F l a s h II t o DOE -Collecrioi> of f o r m s atRC 35 4. The Flash Iand Flash I1 data are regarded as being o f reasonable quality by most stakeholders in the country. The data collection, analysis and dissemination are done in a timely manner. The information coverage i s comprehensive (Table 3.1), and it i s collected from over 30,000 schools twice a year. Since i t s initial years, the flash system has improved in such areas as quality control during data entry and consistency-checks. SSR will build on this system and strengthen data utilization for informed decision- making at the center, districts as well as school-level. The DOE i s already working towards producing a district- and school-level report card system with an aim to inform parents and communities how their schools are performing relative to other schools in their VDCs or district and the country. Flash I(Reference Date - M a y 2 1) Flash I1(Reference Date - April 1) . - - 2. Student participation-bygender, Dalit, Janajati and disabilities Janajati, and disability 2. Enrolment in women literacy classes, enrolment in adult 3. Number of teachers and their training literacy classes by gender status 3. Percent of schools receiving funds within two months of SY 4. GER, NER by gender and level of or each trimester education 4. Percentage of schools with SIP (for the first time, and others), public disclosure of accounts, number o f schools 5. Student-teacher ratios receiving SIP for the first time, and number o f schools 6. Student-school and teacher school-ratios receiving Block grants 7. Delivery of free textbooks to schools 5. Number o f operational days within the start of school year 6. Completion of social audit or not 8. Schools with transitional language 7. Transfers to community management support 8. Number of scholarships received 9. Also contains information on 9. Number of new classrooms constructed and other ECDsPPCs, Higher Secondary Schools, rehabilitated and school environment improved and Religious Sihools 5. Nationallv Representative Household Survevs. In addition to EMIS, and Flash I and I1reports, the M O E D O E uses data from household surveys such as Nepal Living Standards Survey (NLSS) and Population Census, and Demographic and Health Survey (DHS). These independent survey data are used to cross-check schooling data obtained from EMIS system and to establish estimates on key indicators that are difficult to obtain through the EMIS. These include indicators such as out-of-school children (OOSC) and household expenditures on education, for which household surveys are more reliable than EMIS administrative data. I t i s expected that respective agencies (CBS for N L S S and the Census, N e w Era for DHS) will carry out at least three large data collection exercises during the SSR implementation period: N L S S I11 during 2009/10, Population Census during 20 11/12, and DHS during 20 12/13. For the upcoming N L S S 1 1 CBS has agreed to incorporate an expanded education module. These nationally 1, representative data sources will allow for triangulation o f data across surveys and administrative EMIS system at different points during SSR implementation. 6. Qualitative and Quantitative Studies: In addition, SSRP intends to use independent agenciedfirms to carry out a number o f studies using both quantitative and qualitative methods. First, to check FlasWEMIS data reliability, a sample-based verification survey o f schools will be conducted annually to produce a report on EMIS data reliability/validity. Second, a sample o f classrooms will be visited periodically to gather and analyze information to review quantity and quality o f classroom teaching- learning processes occurring in classes. Third, M O E D O E will commission research studies and reports each year on specific topics, agreed upon in the annual review mission among GON and DPs. 36 7. Learning Assessments: Given that quality enhancement i s one o f the primary SSR Program objectives, it i s critical that the program systematically measure the quality o f learning by administering a scientific student achievement testing that i s reliable, valid and credible. The rationale for this independent assessment i s even more compelling given G O N i s adopting a new policy o f liberal promotions and Continuous Assessment Systems (CAS). SSR proposes to carry out sample-based nationally representative student tests, administered by an independent agency, at Grades 3, 5 and 8. Given the specialized nature o f the task, M O E D O E w i l l partner with an international testing agency/firm and the national Curriculum Development Center (CDC) to develop, administer and analyze the testing results. The results o f these independent assessments will be fed back to policymakers and stakeholders to raise their awareness about the quality o f education, and adjust quality-related policies and interventions accordingly. These learning assessments will be carried out early during program implementation (2010), and again towards the end o f the program implementation period (2013). 1. 1 1 Capacity Building 8. Monitoring and Evaluation system at the MOE/DOE has been improved over the past decade, especially under EFA. As mentioned earlier, Flash Reports are one o f the noteworthy products in EFA, providing detailed information at school level in timely manner. Financial Management System developed under EFA i s also highly regarded by DPs as a successful tool to periodically produce financial management reports. M&E capacity at the MOE/DOE will continue to be strengthened in (i) improving mechanism for EMIS data collection and data management, (ii) carrying out qualitative and quantitative studies, and (iii) administering sample-based scientific learning assessments. 9. As a part o f capacity building, the M O E D O E already have in place a Program Monitoring Information Systems (PMIS) aimed at capturing the physical and financial progress o f implementation, and other intermediate or input related information. The PMIS will need to be strengthened to capture information from all schools, and not only primary schools in Nepal. IV. Dissemination and Use o f Performance Indicators 10. The M O E D O E disseminate the collected information to all stakeholders through the website and through review missions. This has helped improve not only dissemination process the but also quality o f the data collection, as these key stakeholders are able to provide feedback on this information. This policy will be continued under SSRP with necessary refinements. The data collected by EMS will continue to be disseminated as Flash Reports. Other data collected by different means will be also widely disseminated in the form o f reports, e.g., student assessment reports, literacy survey reports, etc. The improved information dissemination mechanism under SSRP would allow stakeholders to conduct continuous and timely analysis o f the program progress and institute corrective actions. V. Research and Impact Evaluation 11. ImDact Evaluations o f Pilot Programs. Nepal has a long-standing tradition o f piloting a program before scaling it up to a larger program. For example, school mapping (child tracking) exercise was carried out in 3 districts, before being considered for countrywide scale-up. Similarly, the program on Annex schools was piloted in a few areas, before the M O E D O E considered whether it should be scaled up across the country or not. M O E D O E i s considering a number o f pilot interventions such as school- feeding and school-health programs, incentives o f teachers, student incentives, and TEVT soft skills course. Piloting a program prior to scaling up i s important, but even more important i s to ensure that these pilots are rigorously studied and evaluated. Furthermore, if these pilots were to have a range o f design possibilities (not just single one), impact evaluation would help choose the most effective option. 37 12. Since SSRP will implement new and innovative strategies to improve the quality o f the learning, the importance o f rigorous impact evaluation cannot be over-stated. I t i s proposed that the M&E cell within the MOEDOE work closely with appropriate institutions outside o f the Government to carry out these evaluation activities through a learning-by-doing approach to facilitate quick transfer o f evaluation capacity. Under SSRP, the MOEDOE together with the DPs, will identify 4 to 5 key pilots for evaluation. Based on the findings o f the evaluation, these pilots can be scaled up further during the program period. In addition, where possible, MOEDOE will commission impact evaluation o f ongoing education interventions that are of wider interest. MOEDOE will collaborate with relevant organizations to build in-house capacity through technical training courses, and undertake collaborative researchlevaluation. Given these impact evaluation activities require substantial technical and financial resources, it i s agreed to carry them out using TA funds. VI. Joint Review Missions and Supervision Strategy 13. The GON and the DPs will conduct joint meetings two times a year for the Joint Annual Review (JAR) in April and for the Joint Consultative Meeting (JCM) in December (Table 3.2). In addition, the MOEDOE and the DPs have agreed to hold quarterly meetings and other periodic meetings as and when need arises (also see Joint Financing Agreement). The GON and DPs will review this arrangement at the end o f the first year o f SSRP implementation. 14. A Joint Consultative Meeting (JCM) will be held in December o f each year for the GON and DPs to discuss overall progress for the previous fiscal year based on reports such as unaudited annual financial statements, interim financial monitoring report for the first fiscal trimester (four monthly), annual performance report, and a consolidated report o f the previous fiscal year showing program outcomes. 15. A Joint Annual Review will be held annually in April for a joint review o f the ASIP and the AWPB for the next fiscal year and the audit report o f the previous fiscal year. Donor partners will commit to funding levels for the next year based on the previous fiscal year's progress. 16. The Pooling Donors, non Pooling Donors, National Planning Commission (NPC), MOF, Financial Comptroller General Office (FCGO), MOE/DOE and Ministry o f Local Development (MOLD) will be represented at the meetings. The Association o f INGOS (AIN) and other key stakeholders (such as indigenous groups, teacher union's representatives, representatives o f the Community School National Network, and heads o f school management committees, etc.) will be invited to participate. Both the JAR and the JCM will be preceded by commissioned studies, described in section I1 under "qualitative and quantitative studies" paragraph above, to provide additional information on financial and overall implementation progress. 17. Quarterly Meetings. In addition to JAR and JCM, the GON and the DPs will hold regular meeting every quarter to oversee key issues, such as, those identified in the Policy Matrix and GAAP. The schedule for these meetings will be agreed at JAR and JCM. 18. Field visits to districts, schools and communities will constitute an important part o f the program supervision and monitoring. IDA, along with other DPs, will participate in these visits during the regular missions and also carry out its own random monitoring visits between the missions. 19. A Mid-Term Review (MTR) will be held approximately in December o f 201 1. 20. Program Impact Evaluation will be carried out during the final year o f the five-year SSR implementation. The GON and the DPs have agreed to develop a statistically rigorous methodology for 38 evaluation o f the SSRP. The plan for evaluation will be developed by the first review meeting scheduled for November/December o f 2009. 39 W 8 a n 21. SSR Results Framework. Table 3.3 and 3.4 present the results framework and monitoring arrangements respectively, f o r the overall program as w e l l as different program components. T h e framework describes the objectives and the results indicators, and monitoring arrangement describes the reporting arrangement and target values for each o f the monitoring indicators. Table 3.3: p_ SSRP Results Framework Goal and Puruose: To contribute to socio-economic development through enhanced access to quality education and improvement o f country's human resource capacity. Data on outcomes w i l l be to increase access to and improve quality 1-8) the basis for assessing the o f school education, particularly basic 2) Basic Education Completion Rate efficiency and the education (grades 1-8), especially for 3) Gender parity index for Basic Education effectiveness o f the children from marginalized groups. 4) Student Learning Assessment in Grade 8 program and w i l l monitor the progress towards the stated SSRP goals. T h e indicators w i l l be disaggregated by gender, sociaVpopulation groups (educationally group 5-12 disadvantaged groups and poor), lagging districts, and school-type Inclusion in Basic Education 9) Percentage o f new entrants at grade 1 with (institutional and ECED experience community) where relevant. Basic Education literacy/post literacy competency exams Sub-component 1.3- Early Childhood Education and Development (ECED) The objectives, associated To expand access to quality ECED outcome indicators (in services for children o f four years o f age this table) and their target to prepare them for basic education values (in the following table) assume the Sub-component 1.4- Literacy and following: Continuing Education To enhance functional literacy and basic Macroeconomic competencies among youth and adults stability and sustained economic Component 2: Secondary Education 11) NER for secondary education (grade 9-12) I 12) Transition rate from grades 8 to 9 and 10 to 11 growth 26 The K P I s focus on Basic education given that over 75% o f the budget is spent on this sub-sector. Primary education (grades 1-5) key indicators w i l l continued to be tracked as part o f the M D G Goals monitoring. These KPIs together with two intermediate indicators w i l l complete the IDA core indicators requirements. 27 The number o f intermediate indicators by components i s large because many o f these were already part o f the EFA key indicators monitored by both the Government and DPs and the program now covers all o f school education. For ISWICR purposes, IDA w i l l report a subset o f these indicators, limited to KPIs and some key intermediate indicators. . To improve access, equity, and quality 13) SLC and HSE pass rates as percentage o f initial Continued political and relevance o f secondary education enrolment and exam appearance commitments on 14) Number o f students completing TEVT soft major policy and Sub-component 2.I - Increase Access and skills course strategic issues in Inclusion in Basic Education the sector Sound financial Sub-component 2.2- Improve Quality in management and Basic Education effective funds flow mechanism Sub-component 2.3- Technical Continued Education and Vocational Training commitment and cooperation from Component 3: InstitutionalCapacity 15) Percentage o f teachers with required DPs Strengthening qualification and training at basic and secondary Enhanced Improve capacity o f SSRP education level institutional implementation agencies and i t s partners 16) Percentage o f teachers with required capacity at central to enhance delivery and monitoring o f Certification at basic and secondary education and community educational services and products level level 17) Pupil Teacher Ratio at basic and secondary Firm commitment Sub-component 3.1- Teacher Recruiting education level to inclusion agenda and Professional Development 18) Number o f classrooms built or rehabilitated Increasing 19) Percentage o f students receiving textbooks partnership Sub-component 3.2- Capacity within two weeks o f school session start between schools Development 20) Percentage o f students receiving scholarships and communities i n o f different categories within a month o f service delivery Sub-component 3.3- Program scheduled timeline. Sound monitoring Management and Monitoring and 21) Share o f PCF, raahat salary and non-salary and evaluation Evaluation grants disbursed to schools in first trimester. system 22) Number o f schools under community management 23) Number o f schools completing social audit reports 24) Number o f schools introducing Continuous Assessment System (CAS) in Grades 1-3 25) Number o f languages for which instructional materials have been developed and teachers have been trained 26) Teacher attendance rate 42 0 * g g m m - 4 0 S I 3 n o 0 Z N B s B m P, s m P, s N W s W IC T % m s m W 5 m I r - 0 7 7 6 g 0 m r 0 W m 2- N m m c r 0 2 s m I- s m s N v, 0 N m r 8 s s 8 m m r 2 I- vr N z. 1 1 as $ g g m N m N A n n e x 4: Detailed Project Description NEPAL: School Sector R e f o r m P r o g r a m I. Background 1. Nepal has recorded impressive achievements in primary school enrolments through a series , o f national programs such as the Basic Primary Education Projects (BPEP I 1992-1998, and BPEP 11, 1999-2004), and more recently, Community School Support Program (CSSP, 2003- 2008), Secondary Education Support Program (SESP, 2003-2009), and Education For All Program (EFA, 2004-2009). Since 2000, G O N has undertaken significant reforms such as transfer o f schools to community management, introduction o f per capita financing o f schools; and opening o f textbook printing and distribution to the private sector that have helped achieve remarkable results in access and gender parity. However, a number o f key challenges remain. These include l o w internal efficiency at a l l levels o f schooling, need to increase access at lower secondary and secondary levels, inequity beyond primary grades, l o w levels o f quality at a l l levels and the need t o measure quality outcomes systematically. 2. To build on the successes so far, continue with the key policy reforms and to address the remaining challenges, GON i s implementingthe School Sector Reform Program (SSRP) starting July 2009. Lessons learned from the EFA program in particular have been incorporated in the design o f the SSRP (see Annex 14 for details). I. I School Sector Reform Program - An Advanced SWAP 3. The SSR program, prepared by G O N during the past three years, draws from the Education for All National Plan o f Action and the Interim Three Year Plan (2005-2008). A Core Document (CD) for the Program was prepared by the MOE and approved by the Cabinet on June 15,2008. The MOE prepared the School Sector Reform Plan (SSRP) based on the CD. The Plan was endorsed by the Cabinet on August 20,2009. SSR Plan went through several rounds o f revisions, incorporating comments and suggestions from a wide range o f stakeholders, including the DPs. 4. This program i s the outcome o f high level partnership between GON and DPs and demonstrates their commitment t o the Paris Declaration on Aid Effectiveness. The partnership has matured over the period o f past two decades. Twelve donors are supporting this program, o f which nine are financing it by pooling their funding with that o f GON, and three through parallel financing. Pooled donors resources constitute more than 90% o f the donor financing for the program. The financing for the program accounts for over 95% o f the financing for the school sector i.e. this program provides a holistic treatment o f the school sector. 5. The program i s based on the shared vision and strategies for the sector. The cornerstone for the program i s the vision o f the school sector articulated by the Parliament in 2001 through the Seventh Amendment to the Education Act. The core policies/reforms guiding the program are: (i) community management o f schools, (ii) per capita financing o f schools, (iii) licensing o f teachers, and (iv) the expansion o f the role o f the private sector in supply o f textbooks. The G O N and DPs have agreed on a broad policy matrix2'. 29 Given the scope o f the SSRP, and the fact that there are 9 DPs who pool support with the GON's resources, there are a broad number o f policy issues that have been identified and included in the Policy Matrix. Furthermore, for several DPs the Policy Matrix provides triggers for tranche releases and disbursements, for example, for the ADB, DFID and EC. 46 6. The program finances both recurrent and development expenditures. This entails a shift from the focus on ensuring effective use o f donor resources to the focus on ensuring effective use o f both donor and government resources. This i s a significant achievement for a number o f reasons. First, given that about 80 percent o f SSRP financing i s borne by the government, extending the purview o f the program to recurrent expenditures allows the program to address systemic issues such as teacher deployment, equitable allocation o f resources and good governance in general. Second, the program recognizes that the effectiveness o f investments on development activities depends largely on the success in addressing these systemic issues. And finally, financing o f the recurrent expenditures also helps to rapidly expand access to education by addressing the short-term government constraints in financing teachers. 7. The existing government institutional structures are used for the implementation o f the program. This approach began in 1999 with BPEP 1 , and was further strengthened during EFA. 1 The SSRP will use national procedures o f procurement and financial management except for procurement under international competitive bidding (ICB) and limited caveats to national competitive bidding procedures as described in Annex 8. T o mitigate possible risks associated with the use o f national procedures the program will be guided by a Governance and Accountability Action Plan (GAAP). I. II Program Development Objective 8. The Program Development Objective i s to increase access t o and improve quality o f school education, particularly basic education (Grades 1-8), especially for children from marginalized groups. IV. Program Components 9. The SSR program covers all o f school education and finances both recurrent and development expenditures. Recurrent expenditures under the program comprise salaries and benefits o f teachers and administrative staff, while development expenditures comprise remaining expenses including inter alia infrastructure, textbooks, student grants and incentives, student scholarships, teacher training and teacher qualifications upgrading. The program i s clustered around three main components: (i) Basic Education (Grades 1-8) that includes Childhood Education and Development (ECED) as a preparation for basic education; and Literacy and lifelong learning as a means o f delivering functional literacy and basic competencies for out-of- school youth and adults; (ii) Secondarv Education (Grades 9-12) including the introduction o f TEVT c c ~ ~ f(prevocational) skills; and also; and (iii) t)7 Institutional Capacitv Strengthening; that includes Teacher Professional Development; Capacity Development; Program Management and Monitoring and Evaluation. The main emphasis o f the SSRP i s on Basic Education, to which more than 75% o f overall funding i s targeted. The program also focuses on three overarching goals o f Access, Inclusion, and Quality. Component 1: Basic Education (Total: US$2067 million, IDA: US$102 million) 10. Component 1 focuses on basic education with an objective to ensure equitable access and quality basic education for all children in age group 5-12, prepare pre-school-age children through ECED for basic education and deliver basic numeracy and literacy to youths and adults, especially women. 47 Sub-component 1.1Increase Access and Inclusion in Basic Education (US1 78 million) 11. Context. Nepal has significantly improved access in primary education. The country now needs to expand this to combine the primary and lower secondary cycle to form basic education cycle. This expansion i s justified because o f the success o f earlier programs has advanced the demand for quality schooling beyond the primary level. Moreover, the primary cycle/completion alone i s inadequate in providing children with a set o f basic literacy and numeracy skills to prepare them for a l i f e o f work and also leaves graduates at a time when they are s t i l l too young to enter the labor force. Therefore, SSRP proposes to expand the universal coverage t o include grades 1-8. The program will continue to pursue the MDG o f universal primary completion by 2015 in spite o f the proposed expanded coverage by universal education. The program aims to increase the primary NER t o 99% from 92% in 2008, and the basic NER t o 85% from 73% in 2008. The program will address the lagging enrolments o f children from marginalized groups including lagging regions, educationally disadvantaged caste/ethnic groups, female gender, poorer economic quintiles and children with special needs (CWSN). 12. Strategic interventions: S SRP will support the long-term strategy towards guaranteeing basic education to all children, particularly the needy ones. GON will continue t o build on the foundation o f community initiation and ownership o f schools and co-finance with the communities - mainly through per capita financing and matching grant incentives - to raise sufficient resources towards achieving universal access at this level. Expansion o f primary cycle to basic to include grades 1-8 will necessitate restructuring o f schools accordingly. SSRP will provide positives incentives to move towards restructuring, but the decision on the final structure for a given school will continue to l i e with the SMCs. T o enroll the hardest t o reach children, SSRP will finance both supply and demand-side interventions. Demand side will include school mapping exercise to determine the extent o f out-of-school children, welcome-to-school and other outreach programs, provision o f targeted scholarships, increased use o f multilingual teachers and learning materials. Supply-side interventions will include expansion o f physical facilities including classroom construction and rehabilitation, and increased use o f per capita financing for both teacher salaries and non-salary inputs such as textbooks and other block grants. 13. To increase access for the vulnerable children, SSRP will support special strategies including targeted financial and other support within a broad framework o f Vulnerable Community Development Framework (see Annex 10 for further details). In terms o f the Access Safety Nets to assist communities that do not otherwise have the resources to establish schools, SSRP will explore in the second year o f the program possible scheme to implement an Education Guarantee Scheme. Traditional schools such as Gumbas, Vihars, Madrasas and Gurukuls continue t o have an important role in bringing more children into school. SSRP w i l l explore ways to provide greater support to these institutions and encourage them to broaden their curriculum to include secular subjects as well. And finally, for urban street children, unable to j o i n the formal schooling system, SSRP will provide alternative schooling in the form o f non-formal education, including mobile `classrooms' t o cater to special categories o f children. Appropriate funding and implementation modality for such NFE programs will include collaborative efforts from MOE, INGOs, NGOs and other district or municipality level agencies. Sub-component 1.2 Improve Quality in Basic Education (US$302 million) 14. Context. Internal efficiency and quality o f learning remain formidable challenges at the basic education level. As described before, the repetition rate at grade 1 i s 28 percent while the survival rate to grade 8 (cohort method) i s only 41 percent. Direct measures o f quality, reflected through in test scores show only modest improvements in learning outcomes conducted in Grades 48 3 and 5 with about 33% and 56% o f correct answers by children in Mathematics and Language (EDSC 2003). The SSRP will carry out two international quality learning assessments by building capacities o f relevant agencies by adopting learning by doing approach. 15. Strategic interventions: To improve the flow o f students through the basic schooling cycle with minimum wastage and to improve learning achievement, the SSRP will finance, a number o f interventions. At the student and school level, these will include: strengthening o f the SIP, provision o f multilingual teachers3' and instructional materials to schools, free textbooks, PCF- based other non-salary grants, salary grants to improve pupil-teacher ratio, performance-based incentives and matching grants to schools, performance-based student incentives, and provision o f mid-day meals in targeted districts. At the district level, they will include strengthening o f EMIS and Flash reporting systems and development, digitization and training for local curriculum. At the central level, this will involve updating o f curriculum to gradually adopting competency-based system, textbooks and teacher guides, piloting o f a number o f innovative quality interventions and their evaluation, introduction o f both continuous assessment system and sample-based standardized student assessments for grades 3 , 5 and 8. Sub-component 1.3 Early Childhood Education Development (US$59 million) 16. Context: EFA has been very successful in introducing and expanding access to ECED programs. There i s increasing evidence that children with ECED experience have lower dropout rates, higher completion rates, and are better prepared cognitively, emotionally, and socially when they go to primary school. SSRP will to continue to support with the ECED services. 17. Strategic Interventions: SSRP will support the running o f some 25,000 ECED centers costs associated with education materials, and through financing o f renumeration for facilitator~~l, for some 6000 new ECED centers in the rural areas through financing o f both the establishment costs and operational expenditures. Given that ECED i s a shared responsibility that the MOE/DOE and other agencies, the SSRP will finance appropriate partnership with NGOs, INGOs and local agencies to coordinate and manage the different ECED modalities - school- based ECED centers, community-based centers, and privately managed centers in the urban area. Sub-component I.4 Literacy and Continuing Education (US$I4 million) 18. Context: Less than 70 percent o f Nepalese aged 6 and above are literate and the average for 15+ age-group i s only 56%. The gender parity index for the 15+ age group i s only 74%. G O N runs a national literacy campaign, through the Ministry o f Local Development in collaboration with the Non-Formal Education Center, aimed at reaching the MDG goals on literacy. 19. Strategic Interventions: SSR proposes to complement the national literacy program by financing the operation o f community learning centers, contributing to comprehensive literacy and basic competencies that impart skills to improve the quality o f life. The target groups will include women, marginalized populations, Dalits, internally displaced people, people with disability and people living with HIV/AIDs. Emphasis will be placed on decentralization and partnerships with private sector and I/NGO's to achieve goals o f adult literacy and continuing 30 Though the recruitment and deployment o f multi-lingualteachers i s shown as a strategic intervention under Sub-component 1.2, for accounting and budgeting purposes this i s covered under Sub-Component 1.5. All teacher salary related grants, including PCF salary grants, fall under the recurrent education part o f the program description. 31 These costs are also covered under Sub-Component 1.5 which covers all salary and other benefits. 49 education. Continuing education interventions will be provided by linking to the formal education system and through locally managed arrangements at community learning centers. Sub-component 1.5 Basic Education Salary (Total: US$1513 million) 20. Context: There are broadly three categories o f teachers in Nepal - teachers recruited into government teacher positions, teachers recruited into raahat positions, and those recruited into the positions created by School Management Committees (SMC) and funded through community contributions or other sources o f financing raised at the school level. There are an estimated 100,000 approved government teacher positions in Basic Education, and this has not increased since 1998, with the government only replacing teachers lost through natural attrition. The number o f raahat positions in Basic education i s estimated to be about 11,000. 21. Strategic Interventions: The GON has committed to a policy o f moving towards school based recruitment. Furthermore, the G O N has also committed to channeling finances for additional teacher grants through Per Capita Funding modality to ensure transparency in the use o f funds and to ensure good governance. The sub-component finances both government teacher positions and raahat teachers. In addition, all new teachers hired through a PCF allocated post hired at the community level will be financed exclusively through PCF. Component 2: Secondary Education (Total: US$512 million, IDA: US$25 million) 22. The objective o f this component i s to improve access, equity, and quality and relevance o f secondary education. This component targets children in the age group o f 13-16, and aims to ensure access to quality secondary education. This component will further focus on improving the relevance o f secondary education by introducing and exposing children to various vocational and technical education programs, that would help facilitate school to work transition. Sub-component 2. I Increase Access and Equity in Secondary Education (US$44 million) 23. Context. Secondary Education Support Project (SESP 2004-2009) has helped increase access in lower secondary (grades 6-8) and secondary (grades 9-10) schooling level, and Second Higher Education Project (SHEP, 2007-13) in higher secondary level. GER for lower secondary increased from 60 to 79 percent between 2003 and 2007, and that for secondary rose from 46 to 56 percent during the same period. N o w that the new secondary cycle consists o f grades 9-12, GER and NER at this level currently stand at 40 and 20 percent respectively. Gender gap i s a concern and disparity across disadvantaged groups i s even starker. 24. Strategic Interventions: SSRP will support the access objective through expansion o f physical facilities, including classroom construction and rehabilitation, library and laboratory construction, and the construction o f schools for Children with Special Needs. It aims to enhance equity and inclusion through the continuation o f the SESP scholarship schemes for Dalits, marginalized groups, disabled, girls and children from poor households. I t will also finance alternative provisions such as open learning centers, non-formal education for adult women, and grant support to traditional schools. In the medium to long run, SSRP seeks to make secondary education free for all children. 50 Sub-component 2.2 Improve Quality in Secondary Education (US44 million) 25. Context. More than 30 percent o f School Leaving Certificate examinees fail to graduate from grade 10, and the average pass rate for students from community schools i s around 50 percent. Pass rates at higher secondary level (grade 12) i s much worse and i s in the range o f 25 percent. Moreover, even among those who graduate from these two grades, their competency level i s low and relevance for labor market i s very weak. 26. Strategic Interventions: S S W w i l l aim to improve the quality and relevance o f secondary education through development o f standards settings for curricula, education materials, teachers, and school environment and examination systems. T h i s will also involve gradual integration o f grades 9-10 with grades 11-12 to result in full-fledged secondary cycle o f 9-12 grades. In terms o f the direct support, SSRP will finance performance-based grants, PCF-based textbooks and other non-salary grants to secondary schools. Sub-component 2.3 Technical Education and Vocation Training (TE VT,) (US$15 million) 27. Context: As in other countries, many Nepali school leavers are unequipped with the necessary skills to enter the labor market. SSRP seeks to provide these skills within the secondary curriculum. Integrating skill development into general education i s not without risk. International and regional experience shows that technical streams in general education tend to be supply driven and inflexible. Schools are unable to provide and maintain relevant equipment and recruit and retain teachers with the necessary practical skills. 28. Strategic Interventions: In view o f these experiences, SSRP will focus on developing generidlife skills to prepare school children for future employability. SSRP strategies will initially involve the piloting o f a number o f options in the initial years. ccSoft"employability skills required by enterprise for employment will be introduced on a pilot basis as part o f the education system from Grades 8-12. Sub-component 2.4 Component B: Secondary Education Salary (US$408 million) 29. Context: Secondary education in the country has been severely underfunded in the past. The success o f EFA has started to place pressure on the system at the secondary level. While this requires improved access and quality as stated in Sub-Components 2.1, 2.2, and 2.3 respectively, it also requires increasing the pool o f teacher and trainer resources. Thus, the Government will finance salaries at the secondary level. 30. Strategic Intervention: The sub-component will finance recurrent salaries and benefits o f approximately 16,290 secondary school teachers in government teacher positions at the end o f the EFA Program. In addition, the sub-component will also finance salary grants for secondary and higher secondary raahat teacher positions which had been approved by the end o f EFA. Finally, given that there i s likely to be increases in student numbers at the Secondary level, additional teacher positions recruited by SMCs on the basis o f a PCF allocated position, at the Secondary level will be financed using the modality o f the PCF. Component 3: Institutional Capacity Strengthening (Total: U S 5 7 million, IDA: $3 million) 31. This component aims to improve the capacity o f S S W implementation agencies and i t s partners to enhance delivery and monitoring o f educational services and products. 51 Sub-component 3.1 Teacher Recruitment and Professional Development 32. Context: Given the importance o f teachers in the overall learning environment in the school, any improvement in quality outcome will be achieved through the deployment o f an adequately sized, committed and well-trained teaching force. Currently, only 66% o f primary teachers and 77% o f secondary teachers possess the basic required levels o f qualification and training, and 9% do not have the required certification. 33. Strategic Interventions: SSRP will continue with the current policy o f moving towards school-based recruitment o f licensed teachers through a system o f teacher grants financed both by GON using PCF instrument and locally through fund-raising at the school level. Additional teachers will be recruited through per-capita funding to gradually reduce pupil teacher ratios and thereby reduce class sizes and overcrowding. Teacher positions in overstaffed schools will not be refilled but will be reallocated t o overcrowded schools through local recruitment. Schools will be provided with incentives to recruit more female teachers. 34. In terms o f teacher development, SSRP will support the updating o f both the qualification training and certification norms. Teacher training, both school-based and resource-center based, will focus on new student-centered learning methods and continuous assessments. Qualifications and training will be linked to career development, thereby also addressing teacher motivation. To enhance quality o f teachers, SSRP will aim to enhance teacher licensing practices. Teachers will be recruited at the local level from among the licensees as per the guidelines provided by the central level. The minimum qualifications for teachers will be upgraded t o higher secondary education for basic education and M.Ed. or Master's degree qualifications with relevant teacher preparation course for secondary level. Serving teachers with a qualification o f SLC or below will have the following options: (i) teach lower grades such as 1-3 grades until retirement, (ii) upgrade qualification to the minimum level in five years through upgrading courses that N C E D will offer in partnership with academic institutions. Sub-component 3.2 Capacity Development 35. Context: T o deliver the education services as envisioned under SSRP, capacity development i s required at both the school and implementing agency level. A number o f areas have been identified as crucial for smooth and timely operation o f the school system in line with the SSRP management objective. These include the timely delivery o f textbooks, and the timely disbursement o f scholarships t o students and salaries to teachers. 36. Strategic Interventions: MOE/DOE i s currently finalizing a comprehensive capacity development plan and aligning it with SSRP activities and responsibilities. Capacity development efforts under SSRP w i l l focus more on local level development o f capacity than was the situation under EFA. This i s in line with increased decentralized planning and management. System-level capacity to deliver education services will be enhanced by increased involvement o f communities in the management o f schools. This presents a continuation o f activities initiated under EFA. The number o f schools transferred to local communities w i l l be increased under SSRP. Capacity development will also focus on enhancing the management capacity o f SMCs. The EFA evaluation study found that not all communities are ready to take on management o f schools. This sub-component will also finance a large-scale communication campaign to reach out to parents and civil society to reinforce the main policy thrusts o f SSRP such as community management o f schools, the PCF, quality improvement and reduction o f repetition and dropout rates at grade 1. 52 37. The SIP i s another tool, first introduced during BPEP I1 and further improved in EFA, to strengthen local-level capacity in the planning and managing o f school operations. All schools are expected to annually prepare a SIP as a mandatory requirement for release o f the funds that will provide textbooks and other resources. The EFA evaluation study found that while SIPs are prepared by almost all the schools, their use for planning and budgeting i s very limited. Under SSR, the government intends to strengthen the capacity o f schools and communities to prepare and implement their SIPs. In addition, social audits will be made compulsory to all schools to receive funds in the next fiscal year and communities will be trained on how to conduct such audits in an effective manner. School level capacity development activities will be facilitated through both resource centers RCs and locally available service providers. Sub-component 3.3 Program Management and Monitoring and Evaluation 38. Context: For purposes o f program management, the SSRP allocates 1.5 percent o f all development expenditures towards program management costs. These cover non-salary costs related to program management, such as, travel, per diem, office supplies, and communications. Furthermore, a program o f this scope and coverage, SSRP proposes to systematically monitor program inputs, processes, and outputs and evaluate the impact o f program. T h i s i s important for accountability purpose as well (see Annex 13 on Governance and Accountability Action Plan (GAAP)). 39. Strategic Interventions: This sub-component will finance both Program Management and M&E costs. The financing for program management will not include staff salaries for staff in MOEiDOE and other associated offices. However, it will include other direct costs o f program management including but not limited to transportation, travel, fuel, stationery, communications, and dissemination. This sub-component will also finance monitoring and evaluation activities as identified in Annex 3. These include EMIS and Flash data collection and reporting, commissioning o f quantitative and qualitative studies, learning assessments o f international quality standards, and impact evaluation o f pilot interventions. It will also finance expenditures associated with program management such as supervision costs and logistics support. In addition to these tools, the SSRP will also rely on the use o f social and performance audits to strengthen the monitoring system o f the program. The performance audit will be carried out by the OAG and typically includes a focus on major expenditure items, such as, scholarships, classroom construction, salary grants, and textbooks. Social audits on the other hand, are carried out at the community level by a committee chaired by the head o f the PTA, and entirely independent o f the SMC. The findings o f the social audit are reported to the Parent's Assembly. 53 Annex 5: Project Cost NEPAL: School Sector Reform Program SSRP Costs (2009-2014) US$ mil Percent of total Total 2,635 100.0% 1. Basic Education 2067 78.4% Access 178 6.8% 1. Table 5.2 provides an idea o f the shares o f the various agencies involved in the SSRP. 54 Annex 6: Implementation Arrangements NEPAL: School Sector Reform Program 1. The implementation arrangements for SSRP will be very similar to those that have been employed for the implementation o f EFA. Given the very fluid political situation in Nepal, and the likelihood o f considerable changes in the structure o f the country with the drafting of the new constitution, and the fact that all o f this i s expected to take place during the period when SSRP will be effective, the Government and DPs have agreed that changes in implementationmodality will be agreed to only when firm sub-national structures have been established and are in place. Till such point in time, implementationarrangements developed and used under EFA will govern implementation of SSRP. Furthermore, the SSRP will be implemented under the existing legal framework provided by the Education Act and Education Regulations, till such time that the Act and Regulations will be amended to support the implementationof SSRP. 2. The implementation arrangements for SSRP will rest on four principle levers: (a) Frontline Service Delivery, (b) Management, Technical Support, and Monitoring, (c) Policy Direction and Oversight, and (d) Aid-Coordination. These are described below. 3. Frontline Service Delivery i s the most important part o f the entire SSRP program implementation. The main frontline actors are community schools through which most of SSRP expenditures will be made. A typical organizational chart of community schools i s presented in Figure 6.1. The organizational structure of community schools i s defined by law. Among the committees identified in the chart, the Parents' Assembly, the SMC, the PTA and the Social Audit Committee are mandatory. All other committees depicted in Figure 6.1 are optional, but they are formed in most schools. 4. Other important frontline actors include community based organizations (CBOs) and non-government organizations (NGOs). Whereas school education (grades 1- 12) will be delivered largely through community schools, early childhood education and development (ECED) i s delivered through both CBOs and community schools, and non-formal education through NGOs. The success of the SSRP will be determined to a great extent at the community and school level. The existing legal framework in Nepal defines all schools eligible for government financing as community schools and bestows on schools the full rights for school management with the School Management Committee (SMC) being responsible for day to day operations o f the school, as well as i t s development. These responsibilities includes inter alia: (a) preparation o f the budget financed through government grants and school income, and i t s approval and execution; (b) resource generation including income generation activities; (c) teacher management including hiring of teachers; (d) scholarship distribution; (e) planning and execution of academic calendar; (f) conducting school examinations; and (g) periodic reporting to parents' assembly. Developmental activities, among others, include: (i) school improvement planning, (ii) maintenance and rehabilitation o f school infrastructure and construction of new infrastructure; (iii) addition of higher grades; and (iv) teachers' training. The school management committee reports to the Parents' Assembly. PTAs are responsible for school oversight including the social audit. The Education Act envisaged Village Education Committees to provide planning and coordination functions at the VDC level, however, since many of the VDC positions remain vacant or are not adequately staffed due to attacks on the VDCs during the period of heightened conflict, the VDCs have not been effective in administeringtheir functions. 55 5. School-based ECED centers are managed by schools, and community-based centers by communities through ECED Center Management Committees. Non-formal education programs - literacy, programs to bring out-of-school children back into school, and flexible schooling - are delivered through NGOs. The school outreach program, which i s classified as a non-formal education program i s managed by schools. 6. Schools, ECEDs and non-formal education programs receive financing from and report to DEOs, though resources are also at the community level. Schools report to the DE0 through flash questionnaires (at the beginning and the end o f the academic year), SIP, and financial and social audit reports. There are several modalities by which finances are transferred to schools and these include block grants like SIP grants and PCF financing for under- and un- served students, earmarked grants like teacher salary grants, PCF for textbooks, grants for classrooms and scholarships. 7. The SMC w i l l assist in bringing all children to school, if possible update the village or ward register o f the number o f children o f school-going age, monitor their attendance and whether parents are involved in their children's schooling, and oversee any developmental activities at the school level. They must also help ensure that educational needs o f all children are being addressed, and that desirable outcomes, such as, gender and social parity i s reflected in enrolment, school grants are used and accounted for properly, and that students and teachers regularly attend school. 8. Management, Technical Sumort. and Monitoring: The District Education Office (DEO) has the responsibility for implementation o f the program at the district level. A district level organization chart i s presented Figure 6.2. DE0 i s an extended arm o f DOE. In relation to the functions devolved to District Development Committee (DDC) - a local body - DE0 i s guided by the District Education Committee (DEC) a committee under the DDC. The major function o f the DEC i s distribution o f government teacher positions. The DEC also plays an active role in allocation o f resources to schools. DECs have been weakened due to the lack o f elected local-body officials at the district level. The main responsibilities o f DE0 are: (a) preparation o f a district education plan; (b) allocation o f resources to schools; (c) providing technical assistance and monitoring through a network o f resource persons and school supervisors; (d) administering school census through flash questionnaires, preparing district level flash reports and forwarding them to DOE; (e) providing management oversight by reviewing financial and social audit o f and teacher management by schools; ( f ) redeploying government teachers; (g) supervising c i v i l works in schools and ensuring that environmental and social safeguards are met; and (h) executing annual work plan and budget and reporting to DOE. The DE0 i s also responsible for helping to guide schools to implement enacted policies o f the Government, review progress on enrollment, retention, other indicators o f system efficiency, and quality o f education. The DE0 liaises with other agencies that are offering support to education, such as, the Ministry o f Women and Children, Ministry o f Health, Ministry o f Local Government and Development, and I / N G O S ~ ~ . 9. There are over a thousand resource centers (RC) established throughout the country, this means that there i s approximately one R C for every three-four VDCs. The RCs are usually established in a secondary school, in which rooms are set aside for the RC. The RC provides a venue for schools in a cluster to gather together for discussions, introspection, and for training. The RCs provide training to SMC members, teachers, and other key stakeholders on a wide variety o f issues, such as, school management, how to manage community ____ 32 INGOs are helping to supervise construction o f classrooms in about half o f the districts. 56 construction, carry-out micro-planning, and mobilize communities and parents for enrolment and retention o f children. Ideally, the RCs are also used to deliver training to teachers and in- school professional support to improve classroom processes and enhance student learning. . The RCs can also provide assistance in the preparation o f SIPS, monitor physical and financial progress o f schools in their catchment areas, and liaise with the DE0 on issues that may arise during implementation. 10. The overall responsibility for implementation o f the program lies with the DOE. The organization structure at the center i s presented in Figure 6.3. Numerous other agencies are involved in implementation o f the program at the central level and these include the National Council for Education Development (NCED), the Non-Formal Education Center (NFEC), the Curriculum Development Center (CDC), the Higher Secondary Education Board (HSEB) and the Office o f the Controller o f Examinations (OCE). The N C E D i s responsible for teacher and administrative staff training, NFEC for non-formal education programs, CDC for curriculum development, and HSEB for curriculum development, examinations, standard setting and monitoring o f higher secondary programs, and OCE for administration o f SLC examinations. The DOE prepares ASIP and AWPB and executes the plan approved by the government's budget process and providing the necessary authorization for activities assigned to other central, regional and district level agencies, 11. Policv Direction and Oversight: Policy direction i s entirely the purview o f the government at the center, through the Ministry o f Education. Policy related matters will be dealt with by the Education Policy Committee (EPC). Responsibility for overall program monitoring will be assigned to a steering committee comprising mainly o f senior officials from education line agencies. While the SSRP envisions the formulation and establishment o f new institutional structures, such as, the technical board to coordinate key line agencies, and the National Examination Board, and the Education Desk in each VDC, these do not exist at this point in time. As per the agreements between the G O N and the DPs, all these institutions and their roles will have to be first articulated clearly in a revised Act or in an new amendment o f the Act, before they will be part o f the implementation o f the SSRP. 12. Aid-Coordination: The partnership arrangements between the GON and the DPs has been established, and in practice, since BPEP 1 . This will be further strengthened in the 1 proposed program o f support for SSRP. The government has clearly gained considerable experience during the implementation o f EFA o f a new model o f engaging with the development partners, through a modality o f pooled funding where domestic resources are combined with support from development partners for financing a sub-sector, also referred to as a sector wide approach (SWAP). The most important aspect o f this partnership i s that the development partners largely rely on Government systems to account for and report on the use o f these resources. The partnership arrangements are endorsed in a Joint Financing Arrangement and a Code o f Conduct. Furthermore, the adoption o f a common monitoring and evaluation framework under the SWAP has streamlined data collection and analysis systems, and built capacity at the district and central levels to produce more timely and reliable information on program outputs and outcomes. 13. All DPs are coordinated by the Foreign Aid Coordination Section (FACS) o f the MOE. FACS will convene regular meetings o f the local representatives o f all donors including those providing parallel financing. 14. Financial Management: The M O F and the Financial Controller General's Office (FCGO) will be responsible for the financial management o f pooled government and donor 57 funds for the EFA program. The FCGO i s providing access to its Financial Management Information System (FMIS) to the DOE to ensure a timely production of financial reports. This will enable the DOE staff to prepare reports on SSR accounts, which are identified by specific budget codes in accordance with the Government's cash-based accounting system. These reports will be verified by the FCGO before submission to the pooling donors for their review. To further strengthen the financial management arrangements the Government has committed to the implementation of a financial management improvement plan, as provided in GAAP, to strengthen capacity in the DOE, MOE and other program cost centers. Financial and audit provisions are also included at the school level. 58 D 1 4 I 0 I I- w I I n - pn x I R .R -b a- Annex 7: FinancialManagement and Disbursement Arrangements NEPAL: School Sector Reform Program I. Summary o f SSR Program and Implementation Modality 1. The School Sector Reform Program (SSRP) i s the final program in a 15-year Education for All - National Program of Action (EFA-NPA). Following a series o f national education programs in the early 1990's, a sector-wide approach (SWAP) was adopted during the implementation of the Education for All Program (EFA) between 2004 and 2009. This allowed interventions in the sector to be harmonized with country systems, and helped ensure the support from a range of development partners was aligned with the Government's program. Furthermore, the adoption of a SWAP system provided an opportunity to make meaningful changes in those areas where the risks o f using country systems were perceived to be "substantial" or "high". 2. Lessons on Financial Management learned during the implementationof EFA, will be applied to the proposed SSRP and further strengthened to deepen the harmonizationefforts by DPs and to further align their support with the country's system. The SSRP will be guided by a Joint Financing Arrangement ( F A ) that sets forth the joint provisions and procedures for financial support to the SSRP and serves as a co-ordination framework for consultation between the Signatories for S S W monitoring and decision-making (see Annex 15). Learning from the implementation experience of EFA, the JFA will be modified for SSRP with a heightened focus on governance and accountability agenda. Given the high fiduciary risk country environment, the Governance and Accountability Action Plan (GAAP) (see Annex 13) has been discussed and agreed by the government and all DPs. This will be integrated into the JFA to draw close attention to this agenda during implementation. I n addition to the JFA, the DPs have also developed a Code of Conduct to provide a common framework and mechanism for regulating conducts of peoples and institutions including donors and government authorities involved in education. 3. Total expected program cost for SSRP for five years i s estimated at US$ 2.635 billion o f which the government i s expected to finance about US$ 1.89 billion, and pooled DPs to finance about US$0.5 billion. Based on the Annual Work Program and Budget (AWPB), the annual pro- rata share for each pooled DP will be determined on an annual basis which will be decided during the joint review o f AWPB. A financing gap of about USD $254 million remains. The GON will initiate a resource mobilization strategy to try and cover this shortfall. The GON will seek to bridge this gap with resources from the EFA-FTI Catalytic Fund, and it i s proposed that the GON will seek approximately U S $ 120 million over the next three years, for which IDA will be the Supervising Entity. 4. The SWAP design has been strengthened to provide greater impetus to the governance and accountability framework with a specific focus on procurement and financial management, and social accountability tools as alternative assurance arrangements. These are intended to bring systemic reforms in the entire education sector. Periodic preparation of Implementation Progress Reports measuring implementation progress on outputs, with detailed analysis o f financial information and procurement management, has now been internalized. This has not only improved transparency in reporting, but i s also being used as a management tool. 5. The recent assessment o f Financial Management in the ongoing EFA Program has rated Financial Management as Moderately Satisfactory. Main challenges and issues based on recent review as well as the review o f the latest audit observations include: 62 a. delay in financial reporting and audit report, b. weak monitoring and follow-ups, C. weak internal control environment that includes not adhering to policy directives, not maintaining books o f accounts or records as required by directives issued by the Department, payments made without adequate supporting documents, increasing financial indiscipline, Financial Procedure Rules not followed especially in case o f taking action to freeze the unspent balance at the end o f fiscal year or refunding the unused advances , and d. satisfactory compliance o f social monitoring tools which include, social audit and school audit. 6. These are partly due to the overall effects o f high risk country environment. Working under a fragile political environment, the Ministry and the Department have to put a great deal o f efforts to mitigate these challenges. In order to provide priority focus on these matters, actions related to these have now been integrated into the GAAP which will be closely monitored by DPs during quarterly meetings and semi-annual joint reviews with the government. Necessary resources will be built into the Annual Work Program and Budget to ensure that envisaged actions are adequately resourced. A high level focus will be provided together will DPs for oversight in program implementation, including, (i)policy and guidelines formulation; (ii)coordination among government agencies and other stakeholders; (iii) approval o f AWPB and overseeing i t s implementation. 7. Policy related matters will be dealt with by the Education Policy Committee. The Department o f Education (DOE), under the broad policy guidance o f the MOE, will have overall SSFV implementation responsibility. As most o f the program activities will be undertaken by the stakeholders at the district, sub-district and community levels, the D O E will coordinate with other line education agencies and local government, as well as support organizations (international and local NGOs), to provide technical backstopping t o these stakeholders and monitor implementation o f program activities. Responsibility for overall program monitoring will be assigned t o a steering committee comprising mainly o f senior officials from education line agencies. The partnership arrangements between the GON and the DPs will be further strengthened in the proposed program o f support for S S W . The government has clearly gained considerable experience during the implementation o f EFA SWAP o f a new model o f engaging with the development partners, through a modality o f pooled funding where domestic resources are combined with support from development partners for financing a sub-sector. The most important aspect o f this partnership i s that the development partners largely rely on Government systems to account for and report on the use o f these resources, and also provide inputs to the process o f strengthening country systems where improvements are warranted. Furthermore, the adoption o f a common monitoring and evaluation framework under the SWAP has streamlined data collection and analysis systems, and built capacity at the district and central levels to produce more timely and reliable information on program outputs and outcomes. All DPs are coordinated by the Foreign Aid Coordination Section (FACS) o f the MOE. FACS will convene regular meetings o f the local representatives o f all donors including those providing parallel financing. 63 1 1. Country Fiduciary Environment 8. The Nepal Country Financial Accountability Assessment (CFAA) that was conducted jointly by the Government o f Nepal (GON) and IDA in 2002 and subsequently updated in 2005, concluded that the failure to comply with the impressive legal and regulatory fiduciary framework makes the fiduciary risk in Nepal "High", but the risk i s similar to that in most developing countries. The situation has not significantly changed. The Public Financial Management (PFM) Review (May 2007) has reaffirmed that the P F M system in Nepal i s well designed but unevenly implemented. The P F M benchmarks established in 2008 based on the Public Expenditure and Financial Accountability (PEFA) framework led by the government with technical assistance o f the World Bank have endorsed the continuing "high" fiduciary risk with several P F M indicators rated at low scale. Joint DFID and World Bank progress review carried out in September 2008 and later in February 2009 have revealed little progress on implementation o f PEFA Action Plan. Some o f the prevailing country level risks include deteriorating control environment, insufficient monitoring, and increasing threat o f collusion and intimidation to bidders, weakening oversight agencies with the absence o f institutional leaders which include the Auditor General and the Chief Commissioner o f the C I A A have a wider impact on the country's accountability environment including at the sectoral or program level. While these challenges prevail, improving overall financial accountability framework remains a high priority o f every government in transition. Frequent transition o f political leadership in the government has been the main cause o f slow movements in accelerating P F M reforms as envisaged by PEFA Action Plan. Some o f the actions undertaken during challenging transition period such as, promulgation o f the Public Procurement Act and Public Procurement Regulations in 2007, amendment o f the Financial Administration Regulations in 2007, and the self-assessment o f various P F M Indicators as per PEFA Guidelines in 2007 are some examples o f government's continued commitments. Implementation o f these frameworks through an integrated P F M reform package through a set o f mutually supportive actions that are realistic and can generate positive impacts i s critical to mitigate fiduciary risks. Such a package will be reflected in the P F M Strategy Document which i s currently being prepared. A high level steering committee chaired by the Finance Secretary provides necessary forum for close monitoring on implementation with continuation o f collaborative support from development partners. In. Education Sector Fiduciary Environment and Risk Assessment 9. High fiduciary risk at the country environment bears a direct impact at the sectoral level. While many o f risk factors may go beyond the control o f the sector, there are s t i l l a number o f initiatives that are or can be undertaken at the sectoral level to mitigate the risk environment. Detailed fiduciary assessment (procurement and financial management) carried out by the World Bank in 2006 and a fiduciary risk assessment in the sector carried out by DFID in September 2007 had concluded that the overall risk in the education sector was "High" mainly attributable to the absence o f effective social and financial audits at the school level. Subsequent t o the detailed assessment by the Bank, an action plan for Financial Management Improvement was agreed upon with the government which was closely monitored by DPs duringjoint reviews. Issues related to operationalizing social audits and financial audits at school level were addressed through the action plan. A review again carried out by the World Bank and DFID i s 2008 noted satisfactory progress in the implementation o f the Action Plan. 10. Some o f the key results that were achieved through the implementation o f the Action Plan included: (1) Preparation o f School Audit Guide through the Institute o f Chartered Accountants o f Nepal (ICAN) and subsequent approval by the Accounting Standards Board followed by training program to the registered auditors; (2) Integration o f training on School Audit Guide into 64 the regular curriculum o f training courses conducted by I C A N - this has now been fully integrated and internalized into the system; (3) Revision o f Social Audit Guidelines - in order to improve the compliance o f the social audit (from about 60% estimated to target for loo%), a social audit committee was formed in the DOE to monitor both the compliance and quality o f social audits; formation o f social audit committees at school i s also mandatory; in order to enforce the compliance, the D O E issued notice in the newspapers and also issued circulars to all DEOs mandating all schools to submit social audit report o f the preceding year in order to be eligible for release o f budget for the third trimester o f the fiscal year; (4) Initiation on computerization o f D O E and some DEOs started - following the preparation o f a computerization plan, initiatives were undertaken to begin computerization o f D O E and piloting in about 10 DEOs which will gradually be expanded with an overall thrust o f MOE/DOE to be connected on line with all DEOs over the medium term; (5) Preparation o f a simple accounting manual for schools i s now in progress; and (6) Human Resource Development (HRD) Plan prepared to build the skills in all the areas mentioned above. 11. All these happened during the implementation o f EFA Program. A solid foundation i s now in place to ensure good governance in the education sector but this need to be substantially accelerated to ensure sustainability o f these efforts. All these initiatives as well as identification o f other governance actions have now been integrated into a G A A P which i s proposed to be the central focus o f the Joint Financing Arrangement to ensure close monitoring on the implementation o f GAAP. In addition to that, all DPs have also committed to ensure that resources required for implementing HRD Plan are also integrated and discussed during review o f AWPB. The fiduciary risk environment at the sectoral level, considering all the high risks and measures being taken and proposed to be continued, i s "Substantial". W. Adequacy of Fiduciary Arrangements 12. Experience gained through the implementation o f EFA Program for almost five years, increased focus on governance and accountability both by the government and DPs, increased demand for alternative assurance arrangements such as, social audit at the community level, arrangement for performance audit through the Supreme Audit Institute and arrangements for third party verification from time to time by DPs on specific technical areas are the basis for increased comfort on fiduciary arrangements. Further, the proposed integration o f G A A P into the F A i s mainly to draw close focus and attention on this agenda by the government and DPs during periodic reviews. The overall thrust i s to deeply enroot the governance and accountability agenda into the sector program. With all these initiatives, the proposed financial management arrangements will be adequate t o manage the SSRP. Strengths 13. The proposed S S W operation i s a follow on program to the EFA which will be implemented under the existing legal framework provided by the Education Act and all i t s constituent amendments. Implementation arrangements developed and used under EFA will continue for the proposed S S W . The Government and DPs have also agreed to remain flexible for required modification in implementation modality following the new Constitution which i s expected to define the firm sub-national structures. Through successful implementation o f the first SWAp, EFA Program, the sector has gained a number o f strengths that have a positive impact on financial management: (i)high-level government commitment for the sectoral program and the government taking the lead in implementing SSRP; (ii) effective coordination amongst DPs which has modeled for an effective SWAP operation in Nepal; (iii) incorporating lessons learnt from the EFA Program to the implementation design o f the proposed S S W ; (iii) effective an 65 harmonization approach agreeing and signing the Joint Financing Arrangement (FA) signed by the government all signatories to the pooled funding; (iv) a central focus to the governance and accountability agenda through integrating GAAP into JFA; (v) an agreement to a code o f conduct for all DPs; (vi) adoption o f a common monitoring and evaluation framework; (vii) priority to capacity building and human resource development by integrating such program into AWPB; and (viii) oversight arrangements through the country system as well as periodic reviews by DPs. Harmonized Approaches as specified in the Joint Financing Arrangement (FA) 14. The nine Pooling D P s have committed themselves to the principles o f harmonization in ~~ the spirit o f the Paris Declaration on Aid Effectiveness and Accra Agenda for Action and have strived to reach the highest degree o f alignment with the budgetary and accountability system and legislation o f Nepal so as to enhance effective implementation and to reduce the administrative burden o f GON. Following are key features: 15. SSRP Budgets. The government will identify separate SSRP budget heads and which will be indicated in the GON Estimates o f Expenditures (Red Book). A l l activities under these budget heads will be funded jointly by the GON and Pooling Donors. These budget heads will comprise the SSRP for financial reporting purposes. The financial commitments o f the Pooling DPs will be confirmed within the bilateral agreementdarrangements concluded between GON and each pooling donor. 16. Support from Pooline; DPs. The Pooling DPs will base their actual support on the progress attained in the implementation o f the SSRP. Progress will be measured through the common procedures for monitoring and reporting. 17. Roles and Responsibilities o f GON and Pooling DPs. Roles and responsibilities o f the GON and Pooling DPs are clearly defined. The GON has the overall responsibility for: (i) planning, the administration, procurement, financial management and implementation o f the SSRP as per the country system, (ii)maintaining a financial management system adequate to reflect the transactions, resources, expenditures, and assets under the SSRP and ensure that the GON i s able to produce timely, relevant and reliable financial information for planning and implementation o f the SSRP, and monitoring o f progress toward i t s objectives that will also allow the Pooling DPs to evaluate compliance with agreed procedures, (iii) providing sufficient qualified personnel and release a l l financial and other resources that are required over and above the funding from the Pooling Donors for the successful implementation o f the SSRP; and (iv) ensuring that resources are channeled to the end user (such as, schools, students and teachers) on a timely basis. 18. On the other hand, the Pooling DPs have the responsibility to (i)review the Annual Strategic Implementation Plan ("ASIP") and the Annual Work Plan and Budget ("AWPB") and commit their contributions subject to satisfactory review o f the said documents, and (ii) ensure timely release of their commitments to the foreign currency account as per agreed procedure and in accordance with the provisions o f the bilateral agreementdarrangements. 19. Review Mechanism. The GON and Pooling DPs will conduct joint meetings two times a year. In addition, they will also meet periodically as required. 20. Pooling and Fund Flow Mechanism. The indicative funding levels o f the Pooling DPs for the following fiscal year will be discussed in the Joint Consultative Meeting in December. The 33 And, any new DPs that may choose the pool their resources with those o f the GON. 66 Pooling DPs w i l l provide a funding commitment in the annual review meeting in April to be presented to the GON in a schedule showing amount and time o f contribution by each Pooling D P conditional upon a satisfactory review o f the ASIP/AWPB and also taking into account the budget and cash forecast statement. In light o f these commitments, the Pooling DPs determine their share o f funding for the coming fiscal year for the total SSRP. 21. The Pooling DPs will make an advance deposit into the Foreign Currency Account (FCA) with at least their share o f the first two trimesters' expenditure estimates for the fiscal year from which G O N will make their withdrawal for reimbursing the SSRP equivalent to the Pooling Donor's share based on actual expenditures during the period. G O N will present Financial Monitoring Reports ("FMRs") showing funds utilized during the trimester, the cash balance position o f the FCA, and the cash forecast for the remaining fiscal year. In the event o f the cash balance position in foreign currency being more than the funds required for the next two trimesters, no transfers o f funds would need to take place from the Pooling DPs to the FCA. Any outstanding advance may be liable for repayment or deduction against the advance for the following fiscal year. Pooling DPs, as suitable to their respective funding cycle, may advance to the F C A the full amount as committed for the fiscal year or for the full program or to any amount as convenient to them with the assurance that the funds so transferred will be closely monitored, tracked and reported by the FMRs. The F C A will be used only for the purpose o f reimbursing the amount to GON's consolidated fund following the certification o f actual expenditures. There will be no direct expenditure on the procurement o f imported goods and services from the FCA. Upon MOE/DOE requests, foreign exchange currency payments will be promptly facilitated by GON as per G O N regulations. 22. Procurement Arrangements. G O N will undertake all procurement o f works, goods and services in conformity with the Public Procurement Act 2007 and Public Procurement Regulations 2007 except for procurement under International Competitive Bidding (ICB) for which the World Bank's Procurement Guidelines will apply and for National Competitive Bidding (NCB) for which specified caveats need to be taken into c ~ n s i d e r a t i o n ~ ~Procurement A. Plan will need to be prepared by the DOE which will include on-going contracts rolling into the following year, and procurement plans for the following fiscal year prepared based o n the agreed work program. 23. Financial Reporting, Monitoring and Disbursement. As part o f progress reports, D O E will submit the Implementation Progress Report (IPR) on a trimester basis o f which "Financial Monitoring Report" will form the basis o f disbursement to the Foreign Currency Account (FCA) 34 Guidelines for National Competitive Bidding (NCB) under the Public Procurement Act and Public Procurement Regulations should be subject to the following additional caveats: (i) only the model bidding documents for National Competitive Bidding agreed with the Association (as amended from time to time), including qualification criteria, shall be used; (ii) documents shall be made available, by mail or in bid person, to all who pay the required fee; (iii) there shall not be any restrictions, such as registration/licensingrequirements, for purchase o f bid documents and bidding by foreign bidders, and no preference of any kind shall be given to any bidders in the bidding process when competing with the foreign bidders, state owned enterprises, or small scale enterprises; (iv) if a registration process i s required, a foreign bidder declared as the lowest evaluated responsive bidder shall be given a reasonable opportunity of registering, without let or hindrance; (v) rebidding shall not be carried out without the prior concurrence of the Association; (vi) invitations to re-bid shall be advertised in at least one (1) national newspaper with a wide circulation, at least thirty (30) days prior to the deadline for submission of bids; and (vii) except in cases of force majeure andor situations beyond the control o f the Recipient, extension of bid validity shall not be allowed without the prior concurrence of the Association: (a) for the first request of extension if it i s longer than four (4) weeks; and (b) for all subsequent requests for extension irrespective o f the period. 67 by DPs. DOE w i l l submit the IPR within 45 days o f the end o f each trimester on current and year-to-date: (a) transfers o f funds to and from the foreign currency account, (b) expenditure statements against each budget head by detail classification according to the chart o f accounts, as funded for the SSRP, (c) a cash forecast statement for the following two trimesters accounting for the current balance in the FCA, (d) an output based progress report, and (e) an update on the procurement plan. 24. Monitoring. Various monitoring mechanisms will be adopted. These include annual review meetings, independent external review, mid-term review o f SSRP progress to assess program outcomes, performance audit to be carried out by O A G every two years, external evaluation during the last year o f the SSRP and detailed fiduciary review covering both procurement and financial management to be carried out by the World Bank every two years. 25. External Audit. An annual audit report o f the SSRP covering all budget heads assigned to it will be submitted within six months after the end o f the fiscal year. Given the reality that audit reports cannot be submitted within the defined period, three months grace period will also be provided. 26. Governance and Accountabilitv Action Plan. In order to mitigate the risks o f corruption and to ensure good governance in the implementation o f SSRP, the G O N and the Pooling DPs agreed to a Governance Accountability Action Plan (GAAP) which will address governance and accountability issues that related to the management o f the SSRP, financial management, procurement management and social accountability tools. Actions in G A A P include the following: (i) improvement in the textbook distribution; (ii) timely distribution o f grants and scholarships, and data processing for EMIS; (iii) improvement in financial management system at central level, district level and school level; (iv) improvement in procurement at central level and at district level; (v) enhancing alternative assurance arrangement such as, social audit and performance audit; (vi) improvement in the quality and compliance o f school audits; (vii) implementation o f transparency and disclosure measures; and (ix) ensuring capacity development by implementing HRD Plan. Disbursement Arrangements 27. Disbursement arrangements will be same as applied for EFA35.Disbursements w i l l continue to be report-based based on FMRs acceptable to Pooled DPs. All Pooled Partners will continue to disburse their portion o f funds as determined by the Financial Monitoring Report (FMR) to the designated Foreign Currency Accounts maintained at the Nepal Rastra Bank. The program finances a number o f different initiatives including inter alia, salary grants for teachers and facilitators (both in government teacher positions and community teacher positions), scholarships for students, provision o f textbooks, teaching and learning materials, expanding the reach o f local level institutions to provide resource support to teachers, schools and schools management committees, and for strengthening o f a monitoring and evaluation system. O f the total expenditures incurred under SSRP, each Pooled DP will finance as per the agreed pro-rata share. 35 The disbursement arrangements remain the same for IDA. The ADB has tranche release conditions that need to be met and the DFIDEC have both tranche release conditions and disbursement conditions. A l l triggers for these releases are incorporatedin the policy matrix to which the GON and all DPs have subscribed. 68 External Audit Arrangements Implementing Auditors Audit Due Date Audit Agency DOE SSRP Financial Office o f the Auditor 6 months after the Statements General (OAG) end o f each fiscal year (January 15th) Audit observations o f EFA for FY2007/08 29. The audit report o f EFA for FY2007/08 contains a number o f qualified observations. The Auditors have expressed their concern about the delays in transferring the funds based on certified actual expenditures from the Foreign Exchange Account to the Government's Treasury. Similarly, concerns have been raised for the delays in requesting apportioned funds from pooled partners. These are mainly due to delay in preparing acceptable FMRs. The Auditors have raised concerns about weak control environment. There are some cases reported when payments were found to have been made without supporting documents as evidences. The Auditors have also reported that the Directives for Per Child Funding (PCF), 2007 were not followed in making payments to the additional teachers. The Auditors also raised issue related to non-compliance with the provision o f the Fiscal Procedure Rules, 2007 with regard to timely action for returning unspent balance to the consolidated fund accounts. Based on sample visit to 25 districts, the Auditors observed overall weak control environment especially with regard to information system that relates to number o f teachers, their level, their transfer status, their promotion status and their salaries. Based on these, the Bank has already sent its management letter to the DOE requesting for clarifications or actions on audit observations. Recognizing these weaknesses, actions are already incorporated into GAAP to address these concerns. Performance Audit Observations and Recommendations 30. The Office o f the Auditor General in close coordination with the Ministry o f Education and development partners carried out the performance audit o f EFA in FY2007/08. I t s report has been published in the Performance Audit Report o f the OAG. The Ministry o f Education will ensure that the recommendations o f the performance audit will be seriously followed up and implemented. Some o f the key recommendations, which are already critical features built into the GAAP are related to improving the distribution o f textbooks, improving the transparency o f grants distribution to schools and scholarship distribution, and improving the implementation o f per capita funding. Internal Controls 3 1. Many o f the indicators that deal with financial management are contributed by weak country environment. High risk environment as resulted by PEFA assessment clearly reflects a need for substantial P F M reform at the national level. This dialogue i s being pursued separately by the development partners with the government. At the sectoral level, all possible interventions including the observations o f the auditors are being addressed through GAAP. GAAP has been 69 brought to the central focus o f a l l development partners and hence being referred to as a separate "Agenda" in the Joint Financing Arrangement (FA). This means that implementation o f GAAP will be ensured o f adequate resources and will be subject to close scrutiny by development partners during reviews. While weak internal controls are the fact that aligns more with the high fiduciary country risk, but GAAP provides an opportunity to mitigate such risks at the sectoral level. Financial Monitoring Reports (FMRs) 32. Currently, there are no outstanding FMRs. FMRs have been o f acceptable quality but were usually delayed. The third trimester report of EFA Program for FY2008/09 i s due on August 3 1, 2009. Conditionality 33. There are two FM-specific conditions: (i) submission of annual audited financial statements, and (ii) submission of trimesterly FMRs. Supervision 34. A sub-team of the World Bank, the ADB and the DFID have been formed to closely supervise the fiduciary arrangements. The World Bank will take lead on fiduciary matters and will closely coordinate with the Pooled Donor Contact Point for dissemination of any findings with the consensus o f pooled partners' view. Implementation of financial management actions contained in GAAP will be closely monitored. Arrangements for detailed joint procurement and financial management review will be undertaken by the World Bank on behalf of the Pooled DPs once in every two years. As being done during EFA Program, the World Bank will take lead to review all FMRs and audit reports and take necessary follow-up actions as per the Bank's procedure. The supervision strategy i s based on several mechanisms that will enable enhanced implementation support to the Government and to enable timely and effective monitoring. The supervision thus comprises: a) Joint Review Missions; b) regular visits by the DPs and technical consultants between the formal joint review missions; c) internal monitoring by the Government; d) in-built independent third party monitoringlvalidation; and, e) internal audit and financial management reporting. 70 Attachment- 1 TABLE7.1 RISK RATING SUMMARY Risk Previous Risk Risk Mitigating 'sessme Residual Risk Assessment Measures S M INHERENT R I S K S Country level H - Quality o f PFM Implementation of institutions (see PEFA- PEFA Action Plan; PMF, CFAA, CPAR, PFM sector dialogue CPIA & other and implementation diagnostics), standard of actions. of financial accounting, reporting and auditing, quality of F M Drofession. Entity level X Implementationof M - Independenceof monitoring entity's management, arrangement stated in appropriateness of the Joint Financing organizational structure, Arrangements (JFA) impact of civil service and GAAP rules implementation. Project level X M - Relative size of the Implementation of Bank loan, type of monitoring lending instrument, arrangements stated complexity of the project in Joint Financing (e.g. sectors involved, Arrangements ( F A ) number of implementing and GAAP and sub-implementing implementation. entities, multi-donor etc.) OVERALL INHERENT X Implementation of M RISK monitoring arrangements stated in Joint Financing Arrangements ( F A ) and GAAP implementation. 1. CONTROL RISKS Budget L Accounting X Placement of M qualified and experienced staff; use of consulting services; close monitoring Internal Controls Funds flow X H I M GAAP implementation S M 71 H - High S - Substantial M -Moderate L - Low 72 Annex 8: Procurement Arrangements NEPAL: School Sector Reform Program A. General 1. Procurement for the proposed program would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated M a y 2004, Revised October 2006; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, Revised October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the CredWGrant, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual program implementation needs and improvements in institutional capacity. 2. Procurement o f Works: Works procured under this program would essentially be limited to small value works under the Physical Facilities Improvement component o f the program and involves construction o f additional new classrooms or rehabilitation o f classrooms/schools. The value o f the construction i s small (usually not exceeding US$ 15,000 equivalent) and the procurement o f these works shall be overseedcarried out by a Procurement sub-committee (PC) under the School Management Committee (SMC) o f the beneficiary schools The SMC includes members from the concerned A part o f the construction cost i s borne by the school and a part by a matching grant provided under the program, but as i s tradition in Nepal, schools are initiated by communities with GON's contributions t o teachers, textbooks, and works for classrooms being provided only after the school has been established. The eligible school f i r s t carries out the construction using its own resources, and the program reimburses a fixed amount after verification o f the construction. Usually, the schools contribute a part o f the matching funds in kind (local materials such as sand, stones etc.) and engage the services o f a labor contractor, selected competitively, for the construction. Procurement by the PC w i l l follow procedures described in the program implementation guidelines (PIG) a simplified manual in local language developed for the earlier Education For All program that are in accordance with the national procurement law, i s updated regularly, and will be in use for the SSRP. 3. In addition, the program envisages the construction o f three District Education Office buildings, each estimated to cost NRs. 12.5 million ($ 155,000 equivalent). Contracts for these works shall be procured through N C B carried out following local procedures with the following conditions: (i) only the model bidding documents for National Competitive Bidding agreed with the Association (as amended from time to time), including qualification criteria, shall be used; (ii) bid documents shall be made available, by mail or in person, to all who pay the required fee; (iii) there shall not be any restrictions, such as registratiodlicensing requirements, for purchase o f bid documents and bidding by foreign bidders, and no preference o f any kind ~ 36 Described in detail in Annex 1. 73 shall be given to any bidders in the bidding process when competing with the foreign bidders, state owned enterprises, or small scale enterprises; (iv) if a registration process i s required, a foreign bidder declared as the lowest evaluated responsive bidder shall be given a reasonable opportunity o f registering, without let or hindrance; (v) rebidding shall not be carried out without the prior concurrence o f the Association; (vi) invitations to re-bid shall be advertised in at least one (1) national newspaper with a wide circulation, at least thirty (30) days prior to the deadline for submission o f bids; and (vii) except in cases o f force majeure and/or situations beyond the control o f the Recipient, extension o f bid validity shall not be allowed without the prior concurrence o f the Association: (a) for the first request o f extension if it i s longer than four (4) weeks; and (b) for all subsequent requests for extension irrespective o f the period. 4. Procurement o f Goods: Goods procured under this program would include text books, reference materials, simple lab equipmentheaching aids etc. by beneficiary schools using the proceeds o f the Per Capita Fund. The value o f these contracts will not be large enough to merit I C B and thus all procurement will be done through shopping or N C B in accordance with local procedures as detailed in the PIG. For program related goods procurement through N C B , the D O E shall first prepare and obtain Bank clearance o f a model document which shall then be applicable for such procurement. In addition the program envisages the procurement o f incremental office furniture for District education ofices or Regional Educational Directorate. The value o f any such contract shall not exceed NRs. 100,000 ($ 1300 equivalent) and the goods shall be procured through shopping using national procedures. 5. Procurement o f non-consulting services: The program shall hire non-consulting service providers for activities such as organizing regular trainings, workshops, orientation programs, simple I C T services such as email, internet or webpage services etc. The districts are responsible for these small value contracts. Selection o f Consultants: Consultant shall be hired for various assignments such as developing and conducting training programs, studies, reviews and impact evaluation, development o f educational materials in different languages, carrying out pilot activities capacity building etc. These are small value assignments (usually below NRs. 200,000) which can be carried out by local individuals, f i r m s or NGOs. Procurement o f such consultants shall be done in accordance with local procedures. Short lists o f consultants for services estimated t o cost less than $ 200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. 6. Others: The program w i l l fund provision o f various types o f Grants (for Open Education, to religious schools and schools for special need students, Per Capita grants, text-book grants, salary grants etc.) as well as scholarships. Scholarship grants will be targeted to specific categories o f students as described in the GON's Vulnerable Community Development Framework. 74 B. Assessment o f the agency's capacity to implement procurement: 7. Except for some Procurement activities at the central Department o f Education (DOE) such as educational materials, outreach programs etc. and by the District Education Offices (DEO), the bulk o f the procurement will be carried out by the beneficiary schools. While each unit o f the D O E has a procurement unit and a designated procurement official, overall coordination and support for DOE procurement i s also provided by the Physical Services Section (PSS) which i s headed by experienced procurement experts who have been responsible carrying out and assisting other units for D O E level procurement carried out for the ongoing EFA program. 8. As described above, contracts for the small value procurement taking place at school level shall be procured by the Procurement Sub-committee (PC) drawn from the members o f the SMC following procedures and using simplified forms/documents contained in the described 9. An assessment o f the capacity o f the Implementing Agency to implement procurement actions for the program has been carried out. The assessment reviewed the organizational structure for implementing the program and the interaction between the program's staff responsible for procurement Officer and the Ministry's relevant central unit for administration and finance. Together with this capacity assessment and the provisions o f the national Procurement laws that require disclosure o f procurement results, adequate procurement capacity and controls exist at the central level. In the case o f schools, the identity o f the beneficiary schools and the corresponding SMC cannot be determined at present and thus a capacity assessment like that carried out for DOE i s not currently possible. However, t o ensure that the PC drawn from the SMC i s made aware o f and i s rovided an orientation in the procurement section o f the Program Implementation Guidelines" (PIG), the DOE will mobilize DE0 staff to disseminate the information to the SMC through visits to the schools and short duration workshops. 10. Given the current political situation, and weak governance specially at the decentralized levels, there have been growing instances o f interference in or capture o f works contracts (specially works contracts) invited at district levels. To mitigate this risk DOE shall instruct i t s district offices that if such risks exist in the district, then the bid documents shall specify multiple locations for the sale o f bid documents (e.g. the District Development Office, Department o f Education in Kathmandu, any other location in the district) and to specify a location other than the DE0 where security can be arranged on the deadline date for bid submission (e.g. the DDO or the Police Station). In parallel, the DOE shall organize community awareness programs informing local people about how the effects such interference has on the timeliness, quality and cost the service delivery to the community, and their right to demand accountability. Other features o f the program such as the fact that contracts are o f small value and that even classroom construction i s carried out through communities, and not through central government or district administration, has provided an additional layer o f mitigation against interference or capture o f works contract3*. 11. D O E shall also hire the services o f a reputed INGO to carry out independent review o f a sample number o f districts and schools to monitor the quality o f procurement and assets. 3' Vidyalaya Anudaan Karyanvayan Nirdeshikaa Evam Vidyalayasthrikaran Form 38 Under other sectors, it has been observed that even relatively small works contracts (less than NRs. 1,000, 000 or U S $ 13,000 approximately) have been captured or there has been interference in the contracting process. The difference seems to be based o n the entity which is issuing the contract notice, district offices or the communities themselves. 75 12. Lastly, the DOE will design and put in place a robust mechanism for a) public disclosure o f procurement actions/results and expenditure so that written records o f a l l meetings/decisions and procurement documents (invoices, quotations etc.) are maintained and accessible to all, b) public disclosure o f procurement results (names and prices o f a l l bidders, winning bidder and contract price, contract description and time schedule if applicable) c) a transparent system for publicly addressing and resolving any complaintdgrievances. 13. The overall program risk for procurement i s substantial though moderate after mitigation. C. Procurement Plan 14. The Borrower, at appraisal, has developed l i s t o f actions and consolidated procurement needs for the first year of program implementation and has developed a procurement plan based on this list. This plan was finalized on August 19,2009, and agreed to between the Borrower (GON) and the Project Team. Once agreed, the overall plan will be made available at the DOE, Kathmandu. Further, discrete procurement plans for each district level procurement shall also be available at the concerned District Education Offices. 15. The overall plan will also be available in the program's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual program implementation needs and improvements in institutional capacity. D. Frequency of Procurement Supervision 16. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Agency has recommended two supervision missions to visit the field to carry out post review o f procurement actions. E. Details o f the Procurement Arrangements Involving International Competition 1. Goods, Works, and Non Consulting Services (a) N o ICB procurement i s foreseen under the program. (b) NCB contracts estimated to cost above U S $ 100,000 equivalent per contract and all direct contracting will be subject to prior review by the Bank. 2. Consulting Services (a) L i s t o f consulting assignments with short-list o f international firms. 1 2 3 4 5 6 7 Ref. No. Description o f Estimated Selection Review Expected Comments Assignment cost Method by Bank Proposals (Prior / Submission Post) Date 76 (b) Consultancy services estimated to cost above US$50,000 per contract, single source selection o f consultants (firms), contracts with individuals for assignments estimated to cost above US$ 10,000 equivalent will be subject to prior review by the Bank. (c) Short lists composed entirely o f national consultants: Short lists o f consultant f i r m s for services estimated to cost less than US$ 200,000 equivalent per contract, may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. 77 Annex 9: Economic and Financial Analysis NEPAL: School Sector Reform Program I. INTRODUCTION 1. In a concerted effort to build on the progress made under the country's Education for All (EFA) program (2004-2009) and to meet Millennium Development Goal (MDG) targets for education by the year 2015, the Government o f Nepal (GON) has prepared a School Sector Reform (SSR) Program in close consultation with stakeholders including development partners (DPs). Whereas the Government's SSR program vision extends to 2015 and even beyond, GON and DPs have jointly agreed to appraise a five-year implementation program, 2009/10-2013/14. The economic and financial analysis presented in this annex39will focus on this intermediate five- year program. 2. While the EFA goals remain a key priority for Nepal, Government has determined that five years o f education (the length o f the nation's primary cycle) are not enough to support the country's human resource and economic development requirements. The key objectives o f the SSR program i s to increase access to and quality o f school education, particularly basic education (grades 1-8), especially for children from marginalized groups. Though the SSR aims to cover the entire school sector eventually so that more students can continue and complete 10 or 12 years o f schooling, the initial years would focus on basic schooling (Grades 1-8) so as to be able to consolidate the gains o f EFA (2004-2009) and to accommodate the increased enrolment projections for Grades 6-8. 3. The economic analysis o f the five-year SSRP requires the identification o f a counter- factual "business as usual" scenario in which GON's program for the school sector i s simply an extrapolation o f the spending and activities o f the recent period during which EFA was being implemented. The SSRP "investment" being appraised i s the estimated addition to sector spending (both development and recurrent spending) as a result o f the adoption o f SSRP. Similarly, the benefits are taken to be those changes in the quantity and quality o f education produced over the period o f the program as a result o f SSRP, as well as any savings attributable to reductions in "wastage" (repetition and dropout) o f students in the system. 1. 1 BENEFITS OF SCHOOL SECTOR REFORM PROGRAM 4. For the purposes o f the economic analysis, three distinct objectives, in line with the above goals, will be studied and, to the extent possible, quantified: (1) education quantity (increased access to education, resulting in more workers in the future with at least eight years o f schooling and with higher earnings as a result), (2) education quality and relevance (more learning, resulting in higher productivity and earnings on the part o f everyone who has completed basic education), and (3) education's internal efficiency (less "wastage," i.e., fewer school dropouts and repeaters, and lower unit costs as a result). These benefits will be reported both in physical terms (for example, the additional number o f completers and the reduced number o f repeaters) and in monetary terms (the value o f having completed a full education cycle (basic or secondary) and the savings associated with lower repetition). The monetized benefits will be used to compute the 39 This analysis was jointly prepared by ADB and the World Bank program preparationteam. 78 discounted present value (DPV) o f each o f the three benefit streams and, together with an estimate o f the investment costs, the internal rate o f return (IRR) accruing to the SSRP investment. 5. Underlying all o f the analysis are projections of: (a) Nepal's 5-year old age cohorts, (b) gross intake ratios o f children into grade 1, and (c) repetition and dropout rates in all grades, G1- G12 (and, therefore, about completion rates in all grades, since the completion rate for any grade = 1 minus the repetition rate minus the dropout rate). Because o f over-age and under-age children, the gross intake ratio for grade 1 i s currently well above 1.0, but in the economic analysis it i s assumed that this ratio will gradually approach 1.O over time as M O E monitors grade 1 entry more closely and discourages entry by children who are outside the official age range. 6. Approximately 12 percent o f basic education students in Nepal (and 30 percent o f secondary students) attend private schools. Although there might be some spillover impact o f SSRP activities on student flows in the private sector, the conservative assumption used in the economic analysis i s that SSRP's impact will be confined to students who attend community schools eligible for government funding (usually termed as public schools elsewhere). Accordingly, all o f the numbers in the analysis that follows are deflated t o eliminate students expected to be studying in the private or institutional schools (not eligible for public funding). 7. The analysis takes as given, for all 12 grades, the assumed repetition, dropout and completion rates in public schools as a result o f the activities financed and included in SSRP. These activities include the construction o f new schools and classrooms, reducing the distance to school for many children, the rehabilitation o f classrooms and the addition o f sanitation facilities, and provision o f school meals and scholarships for children in the poorest and most disadvantaged areas o f the country. With SSRP, repetition rates are assumed to drop by as little as 5-6 percent per year in the case o f G I 1 and GI2 to as much as a third in the case o f G1. Dropout rates are assumed to drop between 15 and 25 percent annually depending on the grade. 8. To assess the impact o f SSRP o n student flows, the analysis then assumes a counterfactual scenario in which repetition, dropout and completion rates would be in the absence o f SSRP40. The counterfactuals used for the economic analysis are not the rates observed in the base year, 2008/09, as this would be "unfair" given that repetition and dropout rates surely would continue to fall even in the absence o f SSRP, if more gradually. The assumptions used are that, without SSRP, repetition rates in any year would be 95 percent o f those in the previous year, and dropout rates, 90 percent - declines that reflect trends over the recent past. The difference in student flow numbers o f that between "SSRP" and "without SSRP" i s a measure o f the impact o f SSRP on repeaters, dropouts and completers. 9. The presumed impact o f SSRP on the number o f reueaters and dropouts i s illustrated in figures 9.1 and 9.2. Most o f the impact i s seen to occur in the first grade (Gl), given that repetition in this grade i s so high currently (between 20 and 30 percent). Over the period o f the five-year program under appraisal, the additional number o f G I students expected to complete rather than repeat the grade as a result o f SSRP i s just over one million. The additional number o f students expected to complete all grades i s over 2.1 million. As will be shown at a later point, the monetary benefit o f these large reductions in repetition in terms o f teacher and other school resources saved i s very significant. In similar fashion, the additional number o f G1 students expected to complete rather than dropout as a result o f SSRP i s about 150,000. 40The details o f this analytical exercise are found in the background paper and are available from authors upon request. 79 Figure 9.1: Repeaters Who BecomeCompletersas a Result of Figure9,ZDropoutsWho BecomeCompleters asa SSRP, 2009/10-2013/14,Totals by Grade Result of SSRP, 2009/10-2013/14,Totals by Grade 1,200,000 N 160,OW e 5 R 140,ow 120,ow 100,ow so,000 400,ow 60,wO 200,000 0 - m * VI S m *- * v m S - . 40,000 20.000 0 GI G2 G3 G4 65 G6 G7 68 G9 GI0 G I 1 GI2 G1 G2 63 64 G5 G6 G7 G8 G9 GLO G I 1 G1Z -2oo.m -20.000 Figure 9.3:Additional Completers as a Result of SSRP, 2009/10- 2013/14, Totals by Grade 500,000 450,000 b 400,000 m 350,000 s m - 300,000 250,000 200,000 150,000 100,000 50,000 - ea b 0 G I G2 63 G4 G5 G6 G7 G8 G9 GI0 GI1 GI2 10. Finally, the combined impact o f reduced repetition and reduced dropout o n the number o f completers i s shown in figure 3. The additional numbers o f grade 8 (basic education) and grade 12 (secondary education) completers are highlighted in figure 9.3, because completion o f these levels is a particular objective o f SSRP and because, in the international research literature looking at the relationship between education and earnings, completing an education cycle is nearly always associated with a higher earnings premium than just finishing one more year within the cycle. 11. EQUITY:SSRP emphasizes policies and incentives intended t o increase the participation o f currently underserved groups - disabled children, poor children, Dalits and other ethnic minorities, girls and children from disadvantaged regions. The enrollments and progression o f these groups will be carefully tracked during SSRP. Specifically, gender parity (the enrollment o f girls divided by the enrollment o f boys) is expected t o increase f r o m its current level o f 0.95 in basic education, already quite high, to 0.98 over the seven years o f SSRP. While equity i s a very important objective and i t s achievement will have a tremendous value t o the country, particularly in the context o f a new inclusive Nepal, it i s difficult to quantify its monetary benefits. 80 11 1. DISCOUNTED PRESENT VALUES OF THE BENEFIT STREAMS - QUANTITY, QUALITY AND EFFICIENCY 12. QUANTITY (ADDITIONAL SCHOOL COMPLETERS). As seen from figure 9.3, this methodology results in a total o f 300,397 additional basic school completers produced by Nepal's publicly funded schools over the five years o f the program. Analysis o f household survey data from the most recent Nepal Living Standards Survey (NLSS 2003/04) show that a Nepali wage worker who has completed basic education earns about two and a half times more than a worker who has completed less than basic education. The first cohort o f additional completers (those finishing G8 in 2009/10) will be eligible to enter the labor market in 2010/11, the second cohort one year later (2011/12), and by 2014/15, all five cohorts will have completed their basic schooling and be eligible for work as primary school completers. In 2010/11 prices, the 250- percent earnings differential referred to above amounts to approximately NPR 25,300 per year (the equivalent o f about USD 3 17). This differential was then assumed to grow by 5 percent in every future year, in line with anticipated inflation. For purposes o f the analysis, it was assumed that the benefit stream accruing to the education o f these five cohorts will continue for 20 years.41 13. Taking 12 percent to be the opportunity cost o f capital (i.e., the rate o f return on the next best alternative use o f all o f the resources invested in SSRP by GON, DPs, households, private voluntary organizations (PVOs) and others) and discounting the stream o f benefits by this rate yields a "discounted present value" (DPV) o f USD 771.7 million (NPR 61.7 billion, exchanged at N P R 80 to USD I). the layman, the significance o f the D P V may be elusive. A way o f For thinking about it i s to say that USD 771.7 million i s the most that any investor should be willing to pay for SSRP's "quantity benefit stream.'" 14. QUALITY AND RELEVANCE (MORE LEARNING, AND LEARNING MORE RELEVANT TO THE LABOR MARKET). This benefit applies, not only to additional completers, but in fact to students who complete during the five-year investment period. Given SSRP, it can be predicted that nearly 2.3 million (2,290,3 18) students will complete basic education between 2009/10 and 2013/14. While it was not obvious what value o f quality "prerni~rn'~ apply t o this number o f to students to reflect the qualitative improvements introduced under SSRP, the analysis uses an indirect measure o f "school quality" from N L S S data. Using a standard human capital earnings function in a wage-regression and accounting for differential in earnings to both differences in demand for skills and differences in education quality, 5 percent o f the average annual earnings o f those with basic education (as observed in N L S S in 2003/04 and allowed to grow at the rate o f inflation) was taken to be a measure o f the "education quality premium" and was used to assess the impact o f overall improvements in system quality as a result o f SSRP. 15. As with the quantity benefit, the earnings o f the student beneficiaries (those who will complete basic education between 2009/10 and 2013/14) were tracked for 20 years into the future. One further adjustment was needed, however. Those who will complete basic education over the period will have started their schooling prior to SSRP and will finish it before SSRP has been fully implemented. It was decided, therefore, to pro-rate the quality premium for the 41 In fact, the typical basic education completer w i l l probably continue to work for far longer than 20 years, but only 20 years are registered for purposes o f the economic analysis, because "discounting" renders nearly insignificant the present value of benefits that occur beyond 20 years. 42 Applying the same methodology to the benefits expected to accrue to additional secondary school completers would, in fact, yield a DPV o f USD 919 million (NPR 73.5 billion), an even larger figure owing to the sizable earnings differential seen in NLSS between secondary school completers and those with less education. 81 beneficiaries included in the analysis. Even so, the D P V o f the benefit stream i s sizable, USD 428.8 million (NPR 34.3 billion).43 16. INTERNAL EFFICIENCY (REDUCED WASTAGE AND LOWER UNIT COSTS). T O measure a change in education's internal efficiency, the analysis required an estimation o f the number o f student-years needed to produce one (or a thousand) basic education completer($. In a "perfectly efficient" eight-year system, with no repetition and no dropout (and no mortality), for every 1,000 children entering grade 1, 1,000 would finish the course eight years later, as shown in table 1. Currently in Nepal, for every 1,000 children who enter grade 1, only 598 eventually finish, and because o f high repetition as well as high dropout, 6,820 student-years are used to produce the 598 completers. Stated differently, it i s currently necessary to use 11.50 student- years to produce one completer o f the eight-year basic education course. Three and a half o f the 11.5 years (the costs o f which must be covered from the budget) are in a sense "wasted" years. 17. The current situation i s treated here as the counter-factual (even though some improvements might have been expected to occur even in the absence o f SSRP). Given the assumed reductions in repetition and dropout rates as a result o f SSRP, it i s anticipated that, by the end o f the full seven years o f reform, only 9.73 will be needed to produce one basic education completer. The "savings," in terms o f 1.77 fewer student-years required, can be used to accommodate other students in the system or to enhance further the quality o f the system. T o assign a monetary value to the savings, unit costs were computed for each year o f the five-year program, by dividing the projected number o f students by the projected basic education costs in that year. As with the quality benefit discussed above, the per-completer savings were prorated to reflect the fact that the efficiency improvements have been programmed to be implemented over a seven-year period. The D P V o f this benefit stream amounts to USD 78.3 million (NPR 6.3 billion).44 Table 9.1: Cohort Analysis - Students-Years Spent to Produce One Completer Perfectly Counter- Difference (= effiaent SSRP factual impact of SSRP) Primarv educab`on Children who enter grade 1 1,000 1,000 1,000 __ Student-years 8,000 6,820 6,877 -57 Sbdents who complete grade 8 1,000 701 598 103 Student-years per completer 8.0 9.73 11.50 -1.77 Secondary education Students who enter grade 9 1,000 1,000 1,000 - Student-years 4,000 3,997 3,936 61 Students who complete grade 12 1,000 787 723 64 Student-wars per completer 4.0 5.08 5.44 -0.37 43 The DPV o f the comparable (quality) benefit stream for secondary school completers i s USD 563 million (NPR 45.1 billion). 44 T h e DPV o f the comparable (efficiency) benefit stream for secondary education i s USD 10.4 million (NPR 83 1 million). 82 IV. DISCOUNTED PRESENT VALUE OF PROGRAM COSTS 18. The original plan for SSRP prepared by G O N in October 2008 was an ambitious plan. To implement in full all o f the activities included in this draft o f the plan would have cost an estimated USD 5.1 billion (NPR 400.4 billion) over the full, seven-year period. Although that cost figure refers to all recurrent as well as capital costs needed to support key sector reforms and operate Nepal's school sector (pre-school plus grades 1-12) over the period, a preliminary financial analysis conducted by G O N and the Development Partners (DPs) determined that this high level o f financing was not feasible given reasonable assumptions about national economic growth, government and NGO spending, and support from DPs (both those currently active in Nepal's education sector and new ones that could possibly be mobilized). Between pre-appraisal and appraisal, an effort was undertaken to cut at least USD 1 billion from the SSRP budget. This effort was successful, for which the Government (whose "grand vision" for the school sector remains that articulated in the original plan) deserves much credit. At the time o f appraisal, the seven-year program costs had been reduced to U S D 4.1 billion (NPR 324.2 billion), and the five- year program that the donors were ready to appraise amounted t o USD 2.6 billion (NPR 210.8 billion) as shown in table 9.2, which includes a year-by-year breakdown. Table 9.2: M O E Expenditure on School Sector (ECED, Primary and Secondary 324.176 I 19. A financial analysis to assess the affordability o f the reduced program in the light o f expected government and donor financing will be presented later in this chapter. If, at the end o f the day, a financing gap i s found s t i l l to exist, GON w i l l try t o mobilize new sources o f external funding and also encourage existing DPs to give more, but if these efforts fail, it may be necessary to make further cuts. If, on the other hand, there i s n o financing gap, or if additional financing materializes over time, Government will be well prepared, having gone through the rigorous exercise o f prioritizing the components in the original plan, to ratchet up the program in a rational and cost-effective manner. Because the program costs shown in table 9.2 include all expenditures by Government for the school sector during the seven years listed, covering all o f the costs o f operating, reforming and developing the sector, these totals should not be confused with the "investment" being appraised here. The school sector would not disappear in the absence o f SSRP. A large share o f the costs shown in table 3 would have to be met with or without SSRP. The economic analysis o f SSRP requires an estimation o f the "counter-factual," the hypothetical situation o f not having a School Sector Reform Program, just as it was necessary above for quantifying the benefits o f SSRP. 20. Figure 4 shows two versions o f the public costs o f the school sector during the five years being appraised: (1) those according to a "business as usual" scenario, and (2) the higher costs needed to accommodate SSRP - those shown in table 9.3 above. The first i s an extrapolation o f 83 M O E spending on school sector activities over the last few years. The year-by-year differences between the two expenditure profiles comprise the "investment" being appraised here. The annual amounts are shown in figure 8. The additional expenditure, over and above the "business as usual" scenario, by G O N and the DPs for SSRP over the next five years amounts to USD 446.3 million. Although the main focus o f SSRP i s on basic education, the program includes some activities that relate to the development and improvement o f secondary education, literacy and TEVT (technical education and vocational training). To be conservative in appraising the basic l education program, however, & f the publicly financed investment costs shown in figure 9.5 are o attributed to the basic education sub-sector for purposes o f the economic analysis. Figure9.5: Investment Costs by Year Flgure9.4: Costs ofSchool SubSector(ECD, Prlmary __ and Secondary) With and WithoutSSRP 800 119.8 $20 0 Y) .e 100.0 -E n 00.0 1 - a m 6 60.0 63.3 - `I p 400 3 20 0 0 04/06 06/06 06/07 07/08 08/03 03/10 1W11 11\12 12/13 13/14 1U16 W l S 0.0 -Cosbwlth SSRP _--Cos!awlth no SSRP (counbr-faetual) 09/10 1W11 11/12 12/13 13/14 21. A full accounting o f the SSRP investment should also include private costs borne by households. Families with children in school usually need to pay some fees, buy books and cover other school-related costs such as transportation, meals and uniforms. They also face indirect costs, referred to by economists as "opportunity costs." Children who are studying cannot hold jobs or do work around the home or on the family farm. From N L S S data, it i s possible to quantify both the direct and indirect private (household) costs o f education. Table 9.3 itemizes the public and private components o f the SSRP investment. Basic (ECD-G8) 65.792 78.203 98.616 122.044 139.357 504.012 347.915 Secondary (G9-G12) 1.991 6.156 12.196 20.336 31.287 71.966 46.043 Both 67.783 84.360 110.812 142.380 170.644 575.978 393.958 22. Do the benefits described and quantified earlier in the chapter justify the additional expenditure, by GON, DPs and households o f USD 576 million over the next five years? An 84 answer to this question requires first, as with the benefits above, that future costs be discounted and expressed in terms o f current dollars. The D P V o f the five-year basic education cost stream i s USD 347.9 million, as seen in the final column o f the table above. V. NET PRESENT VALUE AND INTERNAL RATE OF RETURN OF SSRP 23. Having quantified, assigned monetary values and discounted back to the present all costs and the three main benefit streams, it i s now possible to address the question o f whether the five- year investment program in Nepal i s "profitable" from a social perspective. Given the discount rate (a measure o f the opportunity cost o f capital), the Government o f Nepal and DPs should be willing to undertake the investment if and only if the net present value (NPV) o f the investment i s greater than zero (or, stated differently, if the D P V or the benefits exceeds the D P V or the costs). 24. Based on a discount rate o f 12 percent, the first column o f figures in table 9.4 suggests that this condition i s satisfied by SSRP. Clearly, however, the choice o f the appropriate discount rate i s crucial. If the marginal cost o f capital in Nepal were assumed to be higher than 12%, then the N P V o f the investment would be lower (because the investment benefits are more back- loaded than the investment benefits and, therefore, get discounted more heavily by a higher discount rate). To give one example, the second column o f figures in table 9.4 replaces the 12 percent discount rate with a 50 percent rate. Discounting at 50 percent, in fact, "flips" the result. The costs are now seen to outweigh the benefits. Discounted present value of benefits and 12% 50% 39.2% costs (low) (high) (IRR) Quantity 771.7 62.1 102.4 Quality and relevance 428.8 26.3 45.1 Internal efficiency 78.3 27.7 35.7 costs 347.9 150.3 183.2 930.9 -34.2 0 25. Somewhere between 12 percent and 50 percent, there will be a discount rate that makes the D P V o f the benefits iust equal to the D P V o f the costs. This rate i s what economists refer t o as the "internal rate o f return" (IRR) o f the investment. The decision to undertake an investment requires that the IRR be greater than the discount rate (the opportunity cost o f capital). The two decision rules (that IRR > discount rate, and that the D P V o f benefits > the DPV o f costs) are, in fact, equivalent to one another. In the case o f SSRP, given all o f the assumptions about benefits and costs as detailed above, the IRR t u r n s out to be 39.2 percent, a robust figure that almost certainly equals or exceeds the rate o f return on most alternative investments that GON could be considering at this time. A key question t o ask, therefore, i s whether the assumptions used to quantify the benefits and the costs o f SSRP seem "rea~onable.'~Some reviewers o f the analysis presented here might argue that the assumptions are "stacked" in favor o f a positive decision in regard to the SSRP investment. The standard way o f responding to this kind o f critique i s to present alternative estimates o f the IRR using more rigorous (less favorable) and, therefore, less controversial assumptions. 85 VI. SENSITIVITY ANALYSIS 26. The key assumptions underlying the estimated IRR in table 4 have t o do with (1) the speed o f progress in achieving the internal efficiency targets (repetition and dropout rates both falling nearly to zero) and (2) the additional earnings associated with the completion o f basic education and with having attended school in an urban ("higher school quality") rather than a rural ("lower school quality") area. The first two I R R s reported in block B o f table 9.5 assume that progress towards the internal efficiency targets and the earnings premiums associated with completion and with quality are only one-half (B.1) and two-thirds (B.2) o f those assumed for A, the main IRR estimate. The last B estimate (B.3) combines both sets o f lower assumptions. Inevitably, the IRR estimates in block B are lower than the main IRR estimate, ranging from 23 percent (B.3) to 32 percent (B.2), but even these reduced rates exceed any reasonable estimate o f the opportunity cost o f capital. These results o f the "sensitivity analysis" reinforce the conclusion that SSRP i s a sound investment for Nepal. Table 9.5: Sensitivity Analysis - Alternative IRR Estimates - ivestment scenario assumDtions about benefits and costs IRR L.Main estimate of IRR rssumptions reflected in table 5 39.2% 1. Lower estimates of IRR B.1. Slower progress in achieving internal efficiency targets (reductions 26.2% in repetition and dropout) B.2. Smaller earnings differentials between education completion levels 32.3% and also between education quality levels 8.3. Both B . l (slower internal efficieny progress) and B.2 (smaller earning 22.8% differentials :. Hiclher estimate of IRR I iecondary education benefits and costs added to those in A I 62.5% 27. Finally, it should be recalled that the economic analysis thus far has taking into account only those benefits associated unambiguously with the changes in quantity, quality and internal efficiency expected in basic education (grades 1-S), and that the benefits associated with secondary education (grades 9-12) have not been counted. This was a deliberate decision taken by the analysts, reflecting the clear programmatic focus o f SSRP, but also to ensure an IRR estimate that i s conservative and not suspected o f exaggeration. An estimate o f the IRR that takes into account all o f the benefits associated with secondary education (as mentioned in three o f the footnotes in the pages above), as well as the private costs (household outlays and opportunity costs) o f secondary education, i s 62.5 percent, which i s 23 percentage points higher even than the IRR based on basic education alone. The key explanation for the difference in the A and C estimates i s the very high earnings premium currently enjoyed by those in Nepal who have completed 12 years o f secondary education as compared with those with just basic education or incomplete secondary. 28. This fact suggests that the future private demand for secondary education on the part o f the growing number o f basic education completers will be intense. It also suggests that MOE must begin thinking soon, even as SSRP i s just getting under way, about ways o f expanding the number o f places in secondary education, reinforcing high standards, and developing a model for financing that ensures that all basic education completers (rich and poor, urban and rural, male and female, and representatives o f all ethnic groups) who demonstrate the prerequisite motivation 86 and ability will have an opportunity to continue their studies beyond grade 8. Just as SSRP (focusing on basic education) follows naturally from Nepal's EFA program (focusing on primary education), a program that focuses on secondary education will be the next step on Nepal's path to a well-rounded system o f human development and global competitiveness. VII. FINANCIAL ANALYSIS - I S A GOVERNMENT PROGRAM OF USD 2.6 BILLION (INCLUDING DP CONTRIBUTIONS) OVER FIVE YEARS AFFORDABLE? 29. The answer to the affordability question requires a simulation model that estimates year- by-year government budget envelopes. An estimation o f the available budget for SSRP in any year (SSR(t)) requires an estimate o f gross domestic product (GDP) in the latest available year plus annual values for four parameters that make up the simulation model: (1) the "nominal'y (measured in current prices) GDP growth rate (GDP%A(t)), which equals the "real" (measured in constant prices) growth rate times the rate o f price inflation, (2) government expenditure as a share o f GDP (Govt%GDP(t)), (3) education's share o f the government budget (Educ%Govt(t)), and (4) the school sector's (or SSRP's) share o f the education budget (SSR%Educ(t)): SSRP(t) = GDP(t-1) x GDP%A(t) x Govt%GDP(t) x Educ%Govt(t) x SSRP%Educ(t) 30. BUDGETENVELOPE SCENARIOS. Three estimates o f the simulation model, based on different parameter values, are presented here, Scenarios 1, 2 and 3 (a "high case," a "medium case" and a "low case"). Scenarios 1 and 2 are based on a GDP estimate o f N P R 1,045.5 billion in 2009/10 and a nominal growth rate o f 10.8 percent thereafter.4s These were the values projected at the end o f 2008 by the Ministry o f Finance (MOF) o f GON and by the International Monetary Fund (IMF). The assumptions about other parameters o f the model were based on an extrapolation o f recent trends and on policy statements o f GON. Figure 9.6: Government Spending as Share of GDP and Education's Share 22.096 ~ 21.0% 21.0% 21.0% ~ 20.0% 10.0% 18.0% I 1 16.3% 15.0% 01/02 02/03 03/04 04/05 05/06 06/07 07/08 06/09 09/10 10/11 I 11/12 ~ 12/13 13/14 14/15 " 15/16 ActuaIs Bdgt AlIocn'1 Planned (SSRP) -9-Government c expenditure as share of GDP (Govt%GDP) - IEducation's share of government budget (Educ%Govt) 3 1. Figure 9.6 above shows the recent trends and SSRP projections o f government's share o f GDP and education's share o f the government budget. Government's share o f GDP has been increasing each year since 2002/03. In view o f Nepal's recent success in increasing government 45 Equal to 5.5 percent real growth times 5.0 percent inflation. 87 revenue through better tax collection, M O F and the National Planning Commission program even higher government shares between 2007/08 and 2015/16, perhaps reaching 25 percent or higher, but in order to be conservative, the financial analysis for SSRP assumes that government spending will reach 21 percent o f GDP in 2008/09 and remain at that level for the seven years that follow. 32. G O N has set a target o f 20 percent for education's share o f government spending. Up to now, however, MOE's share o f the government budget has never exceeded 17 percent (figure 9.6). Conservatively, the financial analysis for SSRP assumes that education's share o f the budget will gradually approach 20 percent and reach this target finally in 2015/16. The simulation model also requires an estimate o f the school sector's share o f the education budget (the share going to pre-school education and grades 1-12). Figure 7 shows that the school sector's share has remained quite constant, between 86 and 89 percent. The remaining 11 to 14 percent o f MOE's budget i s spent on tertiary education, technical education and vocational training (TEVT) and libraries and for management o f the ministry. The financial analysis o f SSRP assumes that the school sector's share will remain at 87.4 percent, the approximate level recently, for all years o f the program. Figure 9.7: School Sector's Share of Education Spending and Financing by the DPs as a Share o f School Sector Spending: Recent Trends and (Initial) Projections for SSRP 100.0% 90.0% . 88.7% as;'% 873% S.S% 87.8% 87.4% 87.4% 87.4% 87.4% 87.4% 87.4% 87.4% * ' 80.0% 70.0% 60.0% . 50.0% 40.0% 33.4% 30.0% 20.0% - __ 10.0% 0.0% 04/05 06/07 07/01) i os/os i 1/2 11 i 12/13 13/14 16/16 ActuaIs 8d.t AlIo~n*s I ) Planned (SSRP) - C S C h 0 0 1 Y C t O I ' S share Of eduemtlon budact (SSRBEduc) C D P s `s. h. of Yhool rducatlon budart (DPXSSRP) 33. High case. Using the parameter estimates discussed thus far yields the first o f the three financial envelope estimates, the high case scenario or Scenario 1, a five-year envelope o f USD 2.693 billion (see table 9.6). While this would be slightly more than enough to finance an SSR program o f USD 2.636 billion (see table 9.3), Scenario 1 assumes as well that the DPs will finance 30 percent o f the total cost o f SSRP. This seems reasonable given recent trends (figure 9.10), but to achieve this percentage requires that the DPs come up with USD 808.0 million over the five years. At the time o f the program's pre-appraisal, the DPs that currently support Nepal's education system made tentative pledges amounting only to about USD 500 million to cover the first five years o f SSRP. 34. Medium case. Subtracting the difference between 30 percent o f total funding according t o Scenario 1 and USD 100 million in each year o f the program reduces the total financial envelope from USD 2.693 billion to USD 2.385 billion, the basis for Scenario 2 or the medium case scenario. If we assume the medium case to be a realistic estimate o f the budget envelope, this leaves us with a financing gap o f USD 251 million (2.385 billion minus 2.636 billion). 88 Table 9.6: Financial Envelope Scenarios: H i g h Case, M e d i u m Case and Low Case Monetary value or Financial y a r of SSR program Averageflotal percentage share 09/10 10/11 I 11/12 I - Scenariol: I gh Cas .DPs3( 6 - -- 1 GDP grwth(GDP%A) 10.8% 10.8% 10.8% 10.8% 10.8% 10.8% 10.8% GDP (NPR billions) 1,046 1,158 1,284 1,422 1,576 1,746 1,934 lO,16 6 Govt's share (GovtXGDP) 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.096 21.0% Educ's share (Educ%Govt) 17 0% 17.5% 18.0% 18.5% 19.0% 19.5% 20.wo 18.5% Sch.S's share (SSRP%Educ) 87.4% 87.4% 87.4% 87.4% 8 7.4% 87.4% 87.4% 87.4% SSR (NPR billions) 32.62 37.21 42.40 48.29 54.95 6 2.49 7 1.01 348.97 SSR (USD millions) 407.8 465.1 530.0 603.6 686.9 781.1 887.6 4,3 62.1 DPs' share SSRP 30 . W O 30.0% 30.0% 30.0 % 30.0% 30.0% 30.0% 30.0% DPs'cmtrib'n (USD mill.) - 122.3 Medium Cas : 139.5 159.0 - 181.1 206.1 - --234.3 2 6 6.3 1,308.6 -DPs U ) l o o n 1 - year * GDP grwth ( G D P M ) 10.8% 10.8% 10.8% 10.8% 10.8% 10.8% 10.8% 10.8% 10.8% GDP (NPR billions) 1,046 1,158 1,284 1,422 1,576 1,746 1,934 10,166 6,485 3,487 Govt's s ha re (Govt%G DP) 21 .0% 21.0% 21.0% 21.0% 21.wo 21.0% 21.0% 21 .O% 21.0% 21.0% Educ's share (EducYlovt) 17.246 17.5% 18.0% 18.5% 19.0% 19.5% 20.0% 18.5% 18.0% 17.5% SchS's share (SSRP%Educ) 87.4% 87.4% 87.4% 87.4% 87.4% 87.4% 87.4% 87.4% 87.4% 87.4% DPs' cmtrib'n (USD mill.) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 700.0 500.0 300.0 External gap (USD mill.) 22.3 81.1 106.1 134.3 166.3 608.6 308.0 120.9 SSR (USD millions) ~ 385.4 425.6 471.0 522.5 580.8 ~ 646.8 ~ 721.3 3,753.5 2,385.4 1,282.C - h rate - nario 3: Low - !r grau - SI Se-LOk -- GDP grwth(GDP%A) 9.0% 9.0% 9.0% 10.8% 10.8% GDP (NPR billions) 1,046 1,354 1,476 1,609 6,257 3,427 Govt'sshare (Govt%GDP) 21.090 2 1.0 % 21.wo 21.0% 21.0% 21.0% E ducks ha re (EducS/&ovt) 17. o W 18.5% 19. W O 19.5% 18.0% 17.5 % Sch.S's share (SSRP%Educ) 87.4% 87.4% 8 7.4% 87.4% 87.4% 87.4% SSR required(NPR billions) 32.62 45.97 51.47 57.57 207.70 110.26 SSR required (USD mill.) 418.2 589.4 659.8 738.1 2,662.8 1,413.6 DPs' "reqdcontrib'n" @ 30% 125.5 176.8 197.9 221.4 79 8.8 424.1 DPs' contrib'n (USD mill.) 100.0 100.0 100.0 100.0 500.0 300.0 Externalgap (USDmill.) 25.5 76.8 97.9 121.4 29 8.8 124.1 SSR (USD millions) 392.8 512.6 S 61.9 616.7 - - 1.289.5 2,364.0 35. Low case. Since M O F and IMF at the end o f 2008 released the GDP projections used in Scenarios 1 and 2, however, the global economic picture has continued t o deteriorate, and estimates o f Nepal's economic growth in the short- to medium-term have been lowered. In a recent speech, a spokesperson for MOF referred to real growth o f 3.8 percent, which translates into nominal growth o f 9.0 percent using the same projected inflation rate o f 5.0 percent. Scenario 3 or the low case scenario in table 9.8, which reflects the lower GDP figures, shows a five-year financial envelope o f USD 2.364 billion. I f this scenario i s thought to be the most likely, it increases the five-year budget gap by USD 2 1 million, making it USD 272 million. 89 36. SUMMARY OF FINANCING GAP ACCORDING TO THE THREE FINANCIAL ENVELOPE SCENARIOS. Table 7 summarizes the results o f the affordability analysis. 37. The assessment i s that while a funding gap remains at this stage in the case o f the l o w and medium case scenarios, this would be a manageable gap for the following reasons: (9 The Ministry o f Finance (MOF) and the National Planning Commission (NPC) have committed to consult with the Ministry o f Local Development (MOLD) and require that a certain percentage o f local governments' grants be earmarked for education. MOLD has already agreed to improve i t s tracking o f local development grants. The new policy will help Government as a whole to satisfy the 20 percent budgetary guideline for education. I t will improve the manner in which allocations are made to schooling activities and result in greater budgetary predictability. Estimates o f local development spending to date suggest that recent totals nationwide have been in the neighborhood NPR 2 billion or approximately USD 25 million per year. (ii) The Government has been quite successful during this fiscal year in increasing revenue collection. Even in the face o f the economic downturn, this success could provide Government with more comfortable fiscal space in the future than in previous years. (iii) GON has also signaled that it will focus o n resource mobilization in the early years o f SSRP and hope to attract new Development Partners to education. In particular, it was agreed that an application will be made to the EFA Fast Track Initiative (FTI) for a grant to help bridge the funding gap. The FTI Secretariat in Washington, DC, has indicated that perhaps as much as USD 120 million could be secured from the FTI Catalytic Fund. (iv) Government i s keen to develop a comprehensive sector financing strategy in the medium to long term, with more innovative partnerships with the private sector, including local and international non-government organization (NGOs). This i s in recognition o f the fact that Government alone cannot adequately finance Nepal's education sector. 38. Sustainability o f Education System after SSRP: A different question to that o f affordability over the seven years o f SSRP i s the question o f the program's sustainability in the years that follow. To assess the sustainability o f the school education system, first it was necessary to decide which o f the costs identified for SSRP are recurrent in nature and will need to be financed on an annual basis after 20 15/16. The categorization o f SSRP costs by M O E (and by the Department o f Education (DOE), MOE's implementing arm) distinguishes between "development" and "recurrent" costs, but some o f the activities classified as "development," while they may be new activities introduced as part o f the reform, are in fact recurrent and, once adopted, will probably be repeated on an annual basis indefinitely into the future. 39. For the financial analysis, an attempt was made to distinguish between three levels o f item regularity: (1) those that are clearly recurrent, such as teachers' salaries and scholarships; (2) those that produce capital assets with a short (2-to-5-year) working life, such as the 90 development o f curricula; and (3) those producing assets with a long working life, such as construction. For the years after SSRP, beginning with 2016/17, it i s assumed that activities in category 1 w i l l occur annually, whereas those in category 2 w i l l occur only every three and a half years and those in category 3, every ten years. As done above, a 5 percent annual inflation rate i s assumed. Because development activities that occurred in compressed fashion during SSRP will occur less often after the program ends, the growth in the cost o f the school sector will be slower after SSRP (as shown by the flatter slope o f the graDh showing; costs in figure 9.8 from 2016/17 to 2024/25 as compared with 2009/10 to 2015/16). 40. As for financing to cover the costs o f the school sector after SSRP, it i s assumed that the financing from Government and NGOs will grow at 9 percent, the rate at which GDP i s assumed to grow according to Scenario 3. O f course, by 2016/17 the global economic situation i s likely to have improved, and Nepal's economic growth could be higher than this. Also, the growth o f education spending could remain higher than (or could fall below) economic growth. The g& a r showing financing in figure 9.8 also assumes that D P flows will end abruptly at the end o f SSRP, something not likely to happen in fact. 41. What the graph suggests i s that the financing gap that exists on paper (at least for now, until the gap i s closed, as it must be from an ex post perspective, by means o f further cost cutting or resource mobilization) could possibly continue for 3-4 years after SSRP but that this gap i s likely to close and become a surplus by 2020. The excess financing in the outer years could be used to make further improvements in the quality o f education and gains in education access on the part o f remaining disadvantaged groups. Figure 9.8: Costs and Financing of School Sector During and After SSRP (NPR millions) NPR millions 120,000 ' 100,363 100,000 80,000 . 06 80.000 20,000 0 I SSRP PostSSRP 91 Annex 10: Safeguard Policy Issues NEPAL: School Sector R e f o r m P r o g r a m I.SOCIAL DEVELOPMENT Introduction 1. The proposed SSRP w i l l continue to build on the social inclusion strategies in the EFA program. Nepal i s a country inhabited by people o f diverse social, cultural and ethnic backgrounds. Out o f an estimated 27 million population in 2007, about 40 percent are under the age o f 15 which forms the main group o f school going children (MOF, 2007/08). There are more than 100 socio-ethnic groups and 92 languages recorded in the Population Census (CBS, 2001). O f the total population, a large percentage belongs to disadvantaged groups: janajatis constitute 37 percent, dalits constitute 13 percent, and muslims 4 percent. These alone represent more than half the total population. Indigenous NationalitiesPeoples (JP)46 2. Forty three indigenous nationalities were identified in the census. Following this Nepal Federation o f Indigenous Nationalities (NEFIN) identified additional 16 groups, not identified by the last Census. O f the 43 groups, the census finds that these groups are distributed across the all three ecological zones o f the country (table 10.1). Source: Census 200 1 3. NEFIN and Nepal Federation for Development o f Indigenous Nationalities (NFDIN), a GON established body for indigenous nationalities, have identified used the following IP categories based on their population size and other socio-economic variables such as literacy, housing, land holdings, occupation, language and area o f residence (table 10.2). Classification Name o f IP groups EndangeredGroup Bankariya, Kusunda, Kushbadia, Raute, Surel, Hayu, Raji, Kisan, Lepcha, Meche (1 0 groups) Highly Marginalized Santhal, Jhangad, Chepang, Thami, Majhi, Bote, Dhanuk (Rajbansi), Lhomi Group (Singsawa), Thudamba, Siyar (Chumba), Baramu, Danuwar (12 groups) MarginalizedGroup Sunuwar, Tharu, Tamang, Bhujel, Kumal, Rajbansi (Koch), Gangai, Dhimal, Bhote, Darai, Tajpuria, Pahari, Dhokpya (Topkegola), Dolpo, Free, Magal, Larke (Nupriba), Lhopa, Dura, Walung (20 groups) 46 Indigenous People are interchangeably used with AdivasilJanajati 92 Disadvantaged Group Jirel, Tangbe (Tangbetani), Hyolmo, Limbu, Yakkha, Rai, Chhantyal, Magar, Chhairotan, Tingaunle Thakali, Bahragaunle, Byansi, Gurung, Marphali Thakali, Sherpa. (15 groups) Advanced Group Newar, Thakali (2 groups) Dalit 4. The term "Dalit" refers to those Hindu castes that have been placed at the bottom o f the social hierarchy and fall within broader categorization o f sudras. This group has also been referred to as "untouchables" in the popular literature. They have been traditionally excluded from participating in development programs and most notably in education. The census lists 15 Dalit castes in the country. Table 10.3 provides the detailed l i s t o f Dalits groups in the country. Eco-zones Name of Dalit groups Hill Dalits Badi, Damai, Gaine, Kami and Sarki (5 groups) Madhes (Tarai) Dalits Bantar, Chamar, Chidimar, Dhobi, Doom, Dusadh, Halkhor, Khatwe, Musahar and Tatma (1 0 groups) Madhesi 5. Madhesi refers to population groups from the Tarai region o f the country. As seen in Table 10.4. Madhesis can be classified as either dalits or other higher castes. Groups No. o f groups (family name) Population Higher caste 25 2.8 million Dalits 18 1.6 million Muslims 6. There are about 1 million Muslims in Nepal, representing about 4 percent o f the total population. There are four groups o f Muslims in Nepal. These are Kashmiri, Tibetan, Madhesis and Churaute (Hill Muslim) (Siddika, 1993). Most Muslims o f Nepal live in the Turai regions. 3. Legal and Policy Framework for vulnerable groups 7. Nepal has prepared and implemented different policies, Acts and Regualations, to address the issues o f IPS, Dalits and other marginalized or disadvantaged groups47 in terms o f their participation in schooling and towards the educational mainstreaming o f these groups. The major policies and steps include inter alia: guaranteeing the rights o f citizens access to free and 41 T h i s document uses marginalizedor disadvantaged or excluded groups interchangeably. For purposes o f the SSRP (and as defined under the EFA Core Document), the GON will continue to use the following categories o f children as constituting the above groups. These include: Dalits, girls, ethnic minorities, linguistic minorities, children belonging to indigenous groups, poor children, children with disabilities, working children, street children, conflict affected children, calamity affected children, children from remote regions, children with parents in prison, children rescued from trafficking, and children o f migrant parents. These definitions will be reviewed periodically during implementation. 93 compulsory basic education through constitutional provisions, and periodically developed plans, such as, NFDIN Act 2002, National Human Rights Action Plan 2005, Environmental Act 1997 and Forest Act 1993, which have all emphasized protection and promotion o f indigenous people's knowledge and cultural heritage. In 1999, the Local Self-Governance Act was enacted to give more power to the local political bodies, including the authority to promote, preserve and protect the languages, religions, cultures and welfares o f Ips. 3.1 National policies on mainstreamingIndigenous Nationalities 8. The Interim Constitution o f Nepal (2007) guarantees that every citizen will have the right to free education up to the secondary level and that mother tongue medium o f instruction will be made available across the country. I t commits the government to the protection and development of Ips. The government established a National Committee for Development o f Indigenous Nationalities in 1997, and in 2002 the government passed a bill which establisehd the 'National Foundation for Development o f Indigenous Nationalities'. This foundation has been working to preserve the languages, cultures o f marginalized ethnic nationalities, and to empower them. 9. The Three Years Interim Plan (2007-2010) includes following policies for inclusive development o f AdivasilJanujati and other disadvantaged groups including: (i) creating an environment for social inclusion; (ii) participation o f disadvantaged groups in policy and decision making; (iii) developing special programs for disadvantaged groups; (iv) positive discrimination or reservation in education, employment, etc.; (v) protection o f their culture, language and knowledge; (vi) proportional representation in development; and (vii) making the country's entire economic framework socially inclusive. 10. The G O N i s committed to ensuring the rights o f all children to education and this i s reflected in the country's willingness to sign on to a number o f international agreements and treaties which focus on the right to education and language including inter alia: (i) Convention on the Rights the o f the Child (CoRC) ratified by Nepal in 1990, (ii) 1990 Jomtien World Conference on the Education for All (EFA), (iii) Dakar Framework o f Action (2000), (iv) the Millennium the Development Goals (2000), and (v) the UN Declaration on the Rights o f Indigenous Peoples, 2007. The G O N has also ratified the International Labor Organizations Convention 169 on Indigenous and Tribal peoples. 3.2 National policies on education 11. In line with the spirit o f the interim constitution and the Interim Plan, the Education A c t (2001 Seventh Amendment) and Regulations (2002) have also articulated the need o f ECED interventions, ensuring access and quality. Education Regulations (2002) stipulate that at least one woman teacher has to be in every school and at least one female member in the School Management Committee, and in the district education committee. It also stipulates the provisions o f scholarships for students, for female teachers, for inclusive education etc.The Girl's education strategy and implementation plan for gender equity development (2006) include a comprehensive implementation plan ranging from the provision o f incentives for girl students to parental awareness activities. 12. The Three year Interim Plan (2007/08-2009/10) lays emphasis on the expansion and consolidation o f ECED programs across the country and on increased equity and inclusion in education through the provision o f literacy programs for marginalized groups and through the provision o f scholarships. 94 3.2.1 Community Schooling 13. Annex 1 describes community schooling in greater detail. The Education Act and Regulations, returned all schools to communty ownership. This crucial piece o f legislation has played a critical role in improving access and enrolment in Nepal, even during the worst years of conflict. Community schooling also ensures that every community can participate in the schooling process, since the community has the right and authority to establish a school. For communities too weak to establish schools, or those that do not have the capacity to establish a school, the SSRP will provide safety net measures to ensure full participation. 3.2.2 Inclusive Education 14. In Nepal, gender and inclusive education received impetus following the implementation o f BPEP I and 1 . This was strengthened following the Dakar Framework for Action which lists six 1 major goals to be achieved by the year 2015. The Education for All (EFA) 2004-2009 i s a five year strategic plan within the broader EFA-NPA framework, o f which the SSRP i s the final program. The EFA program has made considerable progress in addressing issues related to gender and social inclusion in education by following a strategy o f explicitly targeting marginalized and disadvantaged groups. 15. Overall educational attainment index for Nepal was 0.385 with sharp variations across the districts. For instance, the four top ranking districts include Kathmandu (0.622), Lalitpur (0.559), Kaski (0.543) and Bhaktapur (0.525), while the five districts with the lowest educational attainment indices include: Mugu (0.192), Jumla (0.212), Achham (0.206), Humla (0.158) and Rasuwa (0.204) (NHDR, 2004). Table 10.6: Some Facts on Gender and Social Inclusion in Education Source: Norad, Joint Evaluation o Nepal's Educationfor All Program, 2004-2009, March 2009 f 16. There i s evidence that Nepal has made considerable progress on a number o f key education related indicators during the period o f EFA implementation which emphasized on the need to increase access to marginalized groups. This i s reflected in Table 10.6. Reports demonstrate continuous growth in enrolments o f children in different grades with substantial positive changes on many fronts. The evidence suggests that the EFA program helped raise primary school enrolment from 3.85 million learners in 2001 to 4.5 million in 2006 o f which 48.1 percent were girls (ASIP, 2007/08). Total enrolments further increased to 4.78 million in 2008, with a marked 95 rise in the number o f girls' enrolled between the years 2003 and 2008 compared to the number o f boys during the same period. 3.2.3 Enrollment 17. N e t Enrolment Rate (NER) at primary level increased from 83.5 percent in 2003 to 91.9 percent in 2008 while the Gross Enrolment Rate (GER) also grew markedly from 126 percent to 145 percent during the same period, reflecting the large number o f under- and over-aged children who joined schools following intensive campaigns to raise awareness about children's education and to increase enrolment through enrolment drives. N o t only has the growth occurred in absolute numbers for the children at the primary level, but there are marked improvements in enrolment rates and the gender parity index. Higher growth in net enrolment rates for girls (90.4%) in 2008 as compared to 2003 (77.5%), and an increase o f ten percentage points in GPI during the same period offer encouragement. 18. This increase in enrolment numbers and rates i s reflected in the number or proportion o f children belonging to marginalized groups, belonging to dalit andjanajati groups, who have began to participate in schooling. The data illustrates that during the past 5 years or so, enrolments in primary education grew from 4.1 million to nearly 4.8 million, an increase o f 19 percentage points over the period 2003 to 2008, with an average increase o f about 5 percent per year. The available Flash data indicates that the enrolment o f two major target groups, Le., Dulits and Junujutis has gone up substantially with GPI remaining at par with general trend. In case o f Junujutis, enrolments have increased from less than one million to almost two million in 5 years, with near gender parity. Similarly, enrolment o f Dulits at primary level has increased from 0.6 million in 2003 to 0.97 million in 2008. 19. A recent independent study reveals a significant reduction in the number o f out-of-school children belonging to disadvantaged or marginalized groups during the period o f EFA implementation. The number o f out o f school girls o f primary age in the survey area dramatically reduced to 1.7 percent in 2008 from a high o f 40.9 percent in 2004. The corresponding figures for Dalit children are reported at 14 percent in 2008, from a high o f 49.1 percent in 2004, while for Junujuti children, only about 11 percent o f children were out o f school compared with 42.3 percent in 2003 (Bajracharya, 2008). 4. SSRP Interventions 20. SSRP emphasizes the need to improve access to education for girls and disadvantaged groups. A key policy to minimize the threshold o f access to education i s the provision o f free basic education including cost-free services for admission, textbooks, tuitions and examinations. The policy intent under SSR i s to make secondary education gradually free4' by 2015. T o further address financial constraints for poor, marginalized and needy children, scholarships and other support i s provided for marginalized and disadvantaged groups. Access will also be enhanced through expansion o f physical facilities, including construction o f classrooms, rehabilitation o f schools, construction o f libraries and laboratories, construction and transformation o f school for children with special needs and upgrading o f the external environment (including toilet construction). 48Free secondary education will include at least free services o f admission and tuition fees. Textbooks and curricular material will be made available on a subsidized rate. 96 21. In order to increase children's access to and participation in Early Childhood Education Development (ECED), emphasis will be placed on expanding ECED services in disadvantaged and underserved areas. Locations of marginalized and disadvantaged populations will be identified through social mapping and they will be given priority to ensure their access to the ECED program. 22. The SSR Plan intends to augment the literacy program as a complementary intervention to the National Literacy Campaign with special emphasis on targeted groups and areas including women, marginalized populations, dalits, endangered communities, internally displaced people, and people with disability and people living with HIV/AIDS. Income generation program targeting women, dalit, ethnic minorities and other marginalized groups will be introduced along with literacy and life-long learning programs through an integrated approach. 23. Following the amended Civil Service Act 2007, a 45 percent reservation policy for disadvantaged groups was invoked to ensure the adequate representation of such groups in the staffing and teaching force in Nepal. This was done within MOE, in coordination with the Ministry of General Administration. The Education Act also calls for an increased number of women teachers, although it does not specifically mention other disadvantaged or marginalized groups. I n order to be able fully implement the objectives of SSRP, the GON will need to amend the Education Act and Regulations to provide the opportunity for adequate representation in the staffing in MOE and line departments, and more importantly, in the teaching force. A trigger in this regard has been jointly identified in the Policy Matrix. If fully implemented, this can help increase the number of women gazette officers in MOE, DOE and DEO, including those from Dalit, Janajati and other under-represented groups. To develop such a reservation policy for teacher recruitment, appropriate changes will need to be made in Teacher Service Commission Regulations and other appropriate legislation. 4.1 Institutional Arrangements and Capacity 24. The District Education Offices are expected to ensure that the provisions for children belonging to vulnerable groups are implemented. The School Management Committees (SMC) and Parent-Teacher Associations (PTA) will help in community mobilization and assist in the development, implementation and management of activities as needed to bring a l l children to school. Staff of the DE0 and SMC members will be provided training to carry out the special activities needed to reach vulnerable groups with the necessary sensitivity and diligence. The educational system and several related institutions, have the necessary outreach capacity needed to serve vulnerable groups. 25. The GON has been implementing inclusive education policies through the on-going EFA program. The DOE and DEOs are responsible for the implementation o f SSRP and are familiar with requirements of social safeguard policy frameworks prepared for the SSRP. However, other stakeholders need to be oriented on the social safeguards framework. The existing `Education Inclusion Section' and `Gender and Equity Section' in the DOE will be strengthened by providing additional training and orientation. At the implementationlevel, the capacity of DEOs and SMCs needs to be strengthened for the management of social safeguard issues. The GON will provide training and capacity building support on planning and implementation of social safeguards framework. 97 5. Social Safeguard Policy 26. The SSRP triggers OPBP 4.10 on Indigenous People given the diversity among socio- economic groups in Nepal. In particular, the IP policy i s triggered because there are 59 sub- categories o f IPSor Janajatis and under the previous program a l l 59 sub-groups, grouped into 5 major groups, were classified under the one category known as Janajatis. There are however substantial differences across these sub-groups, and under SSRP the two most disadvantaged groups will be targeted for program interventions covering about 22 sub-groups. This will also necessitate changes to existing monitoring tools to ensure that program support can be adequately tracked. 5.1 Planningand Appraisal Process 27. The SSRP i s seen as the continuation o f the Education for All Program (EFA), Secondary Education Support Program, Community School Support Program and Teacher Education Project. A separate Vulnerable Community Development Plan (VCDP) was prepared for planning and implementing the specific interventions for vulnerable groups under EFA. Building upon the lessons learnt and gains made in the sector, the SSRP has put forward special reform initiatives emphasizing on access to basic and secondary schooling for children who are currently out o f school. The SSRP also aims to improve the quality o f learning for all children by raising the efficiency o f the program and improving the effectiveness service delivery. 28. The SMC will undertake social mapping o f the school catchment areas. The social mapping will prepare a sketch map o f these areas with distribution o f households, number o f schools located in the area and an approximate number o f children out o f school. The process also identifies the household characteristics to which these children belong. The SMCs and PTAs will carry out household surveys to collect detailed listing o f the children belonging to vulnerable groups as identified through the social mapping. The detailed inventory will identify the total number o f children out o f school, and the reasons for not participating in schools, possible alternatives to increase school enrollment, and the sustainability o f education services. The activity will be completed using the pre-designed modified EMIS/C-EMIS survey form. 29. Information collected from the social mapping and household survey w i l l be fit into the prepared EMIS to generate the information for the SIP preparation. Based on the need assessment and report o f EMIS, SMC will develop appropriate intervention measures and enhancement activities for vulnerable groups. In case o f limited intervention, specific actions for vulnerable group will be spelled out in SIP within their regular intervention. If the need assessment identified extra activities required for the development o f vulnerable group beyond the capacity o f SMC, additional section will be added in the SIP to enhance distribution o f program benefits and promote the development o f vulnerable communities. The SIP will consist o f a number o f activities and include mitigation measures o f the potential impacts through additional resource arrangements and alternative actions to enhance distribution o f SSRP intervention to vulnerable groups. The program implementation guidelines updated annually sets out the process for the formulation o f SIP, VEP, DEP and ASIP. 30. Every District Education Plan (DEP) and ASIP Work Plan i s expected to articulate clearly the district's strategy and approach to vulnerable group education and adopt specific programs and interventions to translate the strategy into action. I t provides disaggregated data on tribal demography and education, spells out the educational problems o f children belonging to vulnerable groups, the interventions, quality improvement efforts. 98 5.2 Vulnerable Community Development Framework (VCDF) 3 1. The SSRP i s a governments' strategic plan prepared for the restructuring o f education system in Nepal. The intervention area or sub-projects will be determined only when the program i s implemented. GON has prepared a VCDF to guide the preparation o f SIP under the SSRP to ensure better distribution o f the program intervention and education mainstreaming o f vulnerable groups. The VCDF i s developed based on the national policies/strategies, SRR Plans as well as safeguard policies and guidelines o f IDA'Spolicy on indigenous people. The VCDF i s prepared after rapid social assessment, review of previous or ongoing similar activities, field visits, and consultations with IPS,vulnerable groups, and stakeholders. 32. The VCDF will be used to manage consultations specifically with IP groups to comply with IDA'S OPBP 4.10. The GON has held national level consultations with leaders o f IP groups on both the primary program document o f the SSRP, and more specifically on safeguards related documentation, such as, the draft VCDF. The GON has invited organizations that represent these special vulnerable groups, for example, dalit organizations, women's organizations, organizations representing indigenous peoples, and organizations representing differently-abled children, to attend review meetings held twice a year during EFA implementation. Moving forward with SSRP, the GON will: (i) aside one session during the major review missions to gauge progress set on the key issues o f inclusion o f vulnerable groups and this meeting will be organized by the specific groups in questions; (ii)hold bi-annual consultations with representatives o f these special groups both at the center and in the districts; (iii) include at least one district visit during the Joint Consultative Mission to specifically allow for consultations with IP groups; and (iv) enhance the monitoring and evaluation specifically to evaluate the impacts o f the program on IP groups in the country while being cognizant o f the enormous diversity in the country. The EMIS will begin to categorize IPS into three sub-groups and these include: (i)Endangered IPS, (ii)highly marginalized IPS, and (iii) other IPS. This will permit the monitoring o f the effectiveness o f the program in brining the most marginalized groups. 5.3 Land Acquisition and Resettlement 33. The SSRP will invest in improvements in physical infrastructures o f educational institutions. This will likely include the construction o f additional classrooms to accommodate grades 6 to 8 in basic education, new school infrastructures, construction o f library building, community learning centers and building for DE0 which requires land either from public or private sources. In such cases, there i s always the risk o f displacement or any adverse impact on land owners or people who currently occupy the land, such as squatters. Since the land required for these activities are typically very small, and since in any given location there are several alternative sites49, it i s possible to avoid the adverse impacts o f involuntary land acquisition or forced eviction. The DOE i s intending to meet any need for land through an approach that allows for land acquisition only on a voluntary basis. This option includes voluntary donation or the adoption o f a willing seller and willing buyer approach to land acquisition. The DOE already has established practices in this regard and will follow these procedures while acquiring land. In addition, the DOE has further developed their existing guidelines to meet IDA'S requirements in this regard. The procedures also ensures that the land title i s transferred in the name o f School or DEO. A grievance redress mechanism will be in place to hear complaints regarding land acquisition. 49 Unlike the case o f the roads sector or water sector, where right o w q becomes important and limits the f number o f possible alternatives. 99 34. Schools are established by communities in which land i s acquired through voluntary contributions or through a willing buyerheller approach. There will be no involuntary land acquisition under the program, and hence, SSRP does not trigger OP 4.12 on involuntary resettlement. Land acquired directly by the GON for the establishment o f administrative buildings will either be on land that already belongs to the GON, or will be acquired through a willing buyerheller approach. The issue o f land acquisition for schools in Nepal i s more nuanced than normal. Since schools are established by communities, the question o f how the land i s acquired only emerges ex-post and at the time the school i s identified for receiving GON subventions for constructing additional classrooms or other buildings. Traditionally, this land has always been acquired through voluntary contributions, or by adopting a willing buyerheller principle. To meet IDA'Ssafeguards issues on land acquisition the GON has developed a land acquisition framework which helps to ensure that all such transactions are done in a transparent manner, and without fundamentally altering the manner in which schools are established in Nepal. For the current school year, these guidelines will be disseminated using government circulars, and will be made part o f the annual school implementation guidelines from the following year. The framework will apply to all schools established during the program period and which become eligible and identified for financing o f new classrooms under the SSRP, and for those schools that were established prior to the start o f the SSRP, but acquired additional land during the SSRP period with the aim o f expanding the number o f classes they offered. 6. Consultation and Disclosure 35. The MOE will organize a consultation workshop to disclose the social safeguard frameworks prepared for the implementation o f SSRP at center level. The participants will invited from the institutions working on social inclusion and minority rights; especially National Dalit Commission, National Women Commission, National Federation for Indigenous Nationalities and National Commission for People with Disabilities. A separate discussion will be held with representative o f such organization to share the progress acheived and out standing issues in each six month period during implementation o f SSRP. While updating PIG, the DOE will include the provision recommended in social safeugruad frameworks. 36. At village level, public consultation and information disseminatiodcampaign will be carried out in each school catchment area to disseminate information about the SSRP to local communities. The information dissemination will be done through posters and pamphlets, public consultation meetings, focus group discussion, radio programs, and frequent consultative meetings with vulnerable communities. Further, the stakeholders groups will be provided relevant safeguard requirements in language(s) and manner suitable to them. The necessary safeguards plans will be finalized only after the final consultation with representative o f vulnerable groups/ affected people. 37. Intensive consultations will carried out at the DE0 level and school level involving political parties, SMCs, VDCs, NGOs, Teacher's Unions, PTAs etc. During implementation, the DE0 will also disclose to and consult with the relevant stakeholders at district level for finalizing specific safeguard documents/mitigation plans. The DOE will translate and publish the document in local languages and disclose them as required by the GON's Right to Information and IDA'S safeguards policies. 100 7. ImplementationSchedule 3 8. The implementation schedule for the implementation o f vulnerable group framework requirement would follow the general implementation schedule for the program as a whole. Activities are planned and implementedin the districts/school on an annual basis. 8. Monitoring and Evaluation 39. The educational progress o f vulnerable group children i s monitored through the Education Management Information System (EMIS). EMIS data are analyzed at district and central levels and provide all relevant school indicators disaggregated by vulnerable group category''. The EMIS relates school level data to community information gathered through surveys. Schools are encouraged to share all information with communities (including information on grants received). Notice boards are to be put up in schools for this purpose triggering both transparency and accountability to communities. In addition, the DEOs or Resource Persons, including SMCs, are responsible for continuous monitoring o f activities in their areas, and provide feedback to local teachers and officials. The PTAs also interact with vulnerable groups during their activities, such as village meetings, welcome t o school campaigns, etc. Household surveys give disaggregated data for vulnerable groups by age, gender, drop outs and repetition rates. 40. The SSRP has established benchmarks for coverage and achievements during period o f implementation, which would be used to monitor implementation progress. SSR has a detailed Monitoring & Evaluation Component in place in which research and academic institutions all over the country carry out continuous and comprehensive monitoring o f SSR. The information required for the monitoring o f vulnerable group intervention will be through EMIS. The EMIS will capture and analyze data on social groups disaggregated by type o f vulnerability. The analysis will be done at district level to feed into preparation o f consolidated education at district level (DEP) and annual ASIP. 41. Evaluations are to be carried out by independent agencies to determine the impact o f the SSR activities. Professional social scientists would be involved in the monitoring and evaluation activities. Evaluation reports are to be made public. 42. During Joint Review Mission, the monitoring reports, studies and evaluations are reviewed. Particular attention would be paid t o assessing progress on the following, through EMIS and filed visits: Opening and functioning o f schools targeting vulnerable groups; 0 Enrolment and retention o f vulnerable groups children in schools; 0 Learning achievements o f vulnerable group children compared with other groups; Availability o f mother tongue teachers, teachers speaking the local language, teachers training t o deal with vulnerable group children (attitudinal training), and administrators sensitized to indigenous people issue; Availability o f instruction and instructional materials in the local languages; Availability o f other schemes and incentives to facilitate school attendance o f vulnerable group children. 50 Disaggregation by vulnerable group i s only possible for three broad categories o f Dalits, Janajatis, and others. Disaggregation can also be done on the basis o f gender and disability. 101 1. 1 ENVIRONMENTAL ASSESSMENT AND MANAGEMENT FRAMEWORK A. Introduction 43. T h i s section o f the Annex focuses on environmental issues as associated with the SSRP and covers the following: (i) findings from a recently concluded rapid environmental assessment the and the nature o f the issues likely to be encountered under SSRP, (ii) existing guidelines and the the Environmental Management Framework to be implemented during SSRP, (iii) EMF implementation guidelines, institutional capacity and review mechanisms, and (iv) community consultations and disclosure. 44. The SSRP has seven program areas o f which civil works for infrastructure expansion i s an important one. C i v i l works in the program includes: (i) construction o f new class rooms & rehabilitation o f existing class rooms, (ii) construction o f administrative buildings, (iii) construction o f hostel buildings, (iv) construction o f library and laboratory blocks, and (v) construction o f toilets and water supply facilities. These activities will be implemented across the country and will be o f small-scale in nature. 45. Environmental Safeguard Policy triggered. Environmental Assessment (OPBP 4.0 1) i s triggered because o f the anticipated minor and localized impacts related to the physical infrastructure component o f the SSRP. This i s a Category B program. The program as a whole does not warrant any environmental clearance given the kind o f the activities and the localized nature o f the impacts. B. Environmental Assessment and Key Issues 46. Since a full scale Environmental Assessment (EA) i s not needed, for reasons o f due diligence the GON undertook a rapid EA for SSRP. The EA was based on a series o f reviews o f 1 experiences related to previous or ongoing similar activities under BPEP 1 , SESP, EFA, as well as field visits, and consultations with key stakeholders. The EA concluded that: a. SSRP's environmental concerns are mainly related to actions/activities under physical infrastructure or c i v i l works components as described above. As the individual works under SSRP are small in scale and geographically spread, no large-scale, highly significant and/or irreversible impact i s anticipated. Environmental issues are assessed to be minor and localized in nature. Hence, the activities under SSRP do not trigger any national or Development Partners' (DPs) extensive environmental requirements. The SSRP, as a whole, doesn't require any environmental clearance. However, the minor localized impacts need to be managed appropriately in the process o f planning, developing and operating these infrastructures. b. The minor and localized impacts may arise from or may be related to: i. school site selection and (appropriateness o f sites, orientations o f buildings considering climatic factors); .. 11. use o f appropriate design and construction standards to ensure proper class room conditions considering different climatic zones in Nepal. These standard, for example, are related to space, light, ventilation, temperature, and noise; 102 ... iii. provision o f safe drinking water (e.g. e-coli free water in general and arsenic-free groundwater in Tarai), proper sanitation (school latrine and waste management at school); and iv. adequate consideration to disaster risks (such as from floods, landslides, earthquakes, fire etc). These issues can be managed through appropriate site selection, proper orientations o f the buildings considering climatic factors, and use o f appropriate design & construction standards for adequate light, ventilations, and temperature, sound-proofing, as well as by considering the risks o f earthquake, floods, landslides and fire (through the process o f site selection, planning, design, construction and operatiodmaintenance). C. Environmental Management Framework 47. Existing Guidelines, Standards And Innovative Approaches. Over the years, GON has adopted several policies, criteria and standards that attempt to address some o f the above mentioned issues and concerns. These include inter alia standards for earthquake- and storm- resistant buildings; child-friendly class-rooms/space, furniture and water supply; gender- considerations (e.g. separate toilet for girls and boys); water-quality standards and water quality testing; and disabled-friendly designs and standards (e.g. ramp for wheel chair, toilet for wheel chair movement etc). Some innovative ideas are being piloted. For example, Carbon Fiber UPVC roofing in school for sound and heat insulation as well as safety against fire; and climate responsive school buildings using bio-climate principles (such as use o f Compressed Stabilized Earth Block/ Brick) to maintain comfortable temperature in class rooms in all seasons. GON has been using the National Environmental Guidelines for School Improvement and Facility Management in Nepal and intends t o gradually mainstream results o f the successful pilots and innovative ideas. 48. In order to manage the above mentioned type o f minor and localized environmental impacts/ concerns, GON has prepared Environmental Management Framework for SSRP. T h i s has incorporated the findings o f the rapid environmental assessment as well as the experiences o f the other projects such as EFA, and emerging lessons from pilots and use o f the standards and guidelines such as the National Environmental Guidelines for School Improvement and Facility Management in Nepal. The EMF defines simplified steps, procedures and guidelines or criteria and/or standards to be used while planning and developing schools' physical infrastructure under SSRP. EMF will ensure environmental-friendly design and construction o f schools' physical facilities and infrastructures by meeting safeguard policies o f the G O N and DPs. 49. Salient features o f the EMF are: a. SSRP activities, in general, do not require formal environmental assessment such as Environmental Impact Assessment or Initial Environmental Examination, However, each SSRP physical infrastructure activity (school improvement activities as well as DE0 administrative buildings) w i l l be subject to environmental screening; b. At school level, each participating school will have simple overall environmental management plan as part o f School Master Plan and School Improvement Plan (SIP). c. Emphasize effective use o f already accepted policy and standards such as National Environmental Guidelines for School Improvement and Facility Management in Nepal; structural and disaster safety o f buildings, child- and gender-friendly design and construction, inclusive design and constructions for disabled, design guidelines for school building construction from an environmental perspective etc. 103 d. Recommendations o f environmental screening and environment management plan will be incorporatedin the plan, design and contract documents. e. There will be monitoring during pre-construction, construction and operational phases. Monitoring will be done at district level (regular), central level (four-monthly) and annually by an independenvexternal agency to ensure implementation o f environment management framework provisions and compliance to environmentalstandards. 50. Institutional Arrangements, Roles and Responsibilities for EMF implementation. The Department of Education (DOE), District Education Office (DEO) and School Management Committee (SMC) are the main implementingagencies. The school constructionwill be managed by SMC with necessary technical support from DEO. DOE/ DE0 will ensure that the physical infrastructure comply with the approved environmental standards and practices, besides design and constructionstandards. 51. Planning Process. The overall environment management plan of a school shall be an integral part o f SIP. The DE0 will conduct a preliminary survey of environmental conditions of the school and i t s surrounding as part of physical survey of schools. DE0 will be responsible for environmental screening o f the proposed school improvement activities as well as administrative buildings. SMCs with support from the DEO, will prepare simplified overall environmental management plan for the school as a part of SIP. The DE0 ensures incorporation of environment management plan recommendations and environment management framework provisions into SIP. In case of district education offices, the environment management plan will be prepared by DEO, approved by DE0 Environmental Officer and will be included as part of contract documents. EnvironmentalOfficer at DE0 will check/ verify random screening and environment management plan samples o f the SIP, and all screening environment management plans of district education offices. Incorporation o f environment management plan in desigdtender documents will be checked by DOEEnvironmentalOfficer. 52. Monitoring. Regular field level monitoring will be carried out by DEO. DE0 regularly monitors implementations of the environmental works in the schools and reports to DOE. DOE PSSEnvironmental Officer will prepare consolidated report on environmental works. DEORSS (Environmental Officer) and relevant district DE0 visits randomly selected samples of schools on four-monthly basis to check implementation of environment management framework and compliance with environmental standards. 53. Review o f Progress on EMF. Findings o f this will feed into government's quarterly portfolio review meeting. Independent external agency will annually verify environmental compliance by visiting randomly selected representative samples of schools. DOE will conduct annual interactions on implementation of the environment management framework. Annual compliance audit of the environment management framework will be carried but by an independent persodagency. The annual report on the environment management framework implementationwill be prepared by DOE and discussed in a workshop feeding into annual joint review conducted by GON and DPs. The annual GON and DPs joint review will also cover implementationo f the environment management framework. 54. Environment Management Framework Implementation Capacity. Capacity of implementers reviewed during preparation o f environment management framework suggests that capacity strengthening at different levels (DOE, DEO, and SMC) i s necessary in order to improve environmental management. These measures, for example, include providing environmental competencyhuman-resources; training, orientation and awareness activities on environmental planning and management o f school and school-facilities; and mechanism for coordination and 104 for accessing specific environmental services e.g. water-quality testing, climate responsive school building construction etc. In consideration o f increasing workload envisaged for implementation of environment management framework and non-existence o f environmental competency at centre as well as local level, GONNOE will have a full-time dedicated Environmental Officer at DOE to provide environment management framework implementation oversight. Additional human resources or agency will be hired, if necessary, in order to effectively implement the environment management framework. D E 0 will develop and implement an environment management framework training, orientation and awareness program targeting to SMC, DEO, other district level partners as well as service providers (including engineering design team). 55. Environment Management Framework Dissemination and Disclosure. GON will disclose the environment management framework on the web-sites of MOE and DOE. DOE will also translate and publish the document in Nepali language which will be widely circulated to DEOs and SMCs. It will be included in the PIG also. DOE will also disseminate environment management framework to stakeholders including engineerdsub-engineers, district education officers, design consultant as well as to partner INGOs/NGOs through orientation program. 105 Annex 11: Project Preparation and Supervision NEPAL: School Sector Reform Program 1. Project Preparation Timeline Planned Actual PCN review December 10,2008 M a y 29,2009 Initial P I D to PIC December 16,2008 July 4,2009 Initial ISDS to PIC December 16,2008 July 4,2009 Appraisal February 18,2009 August 11,2009 Negotiations M a y 20,2009 August 21,2009 BoardiRVP approval July 15,2009 Planned date o f effectiveness October 15,2009 Planned date o f mid-term review April 15, 2012 Planned closing date December 15,2014 Key institutions responsible for preparation o f the program: Ministry o f Education Keshar Mahal Kathmandu, Nepal Bank staff and consultants who worked on the program included: Name Title Unit Rajendra Dhoj Joshi Senior Education Specialist (Co-TTL) SASHD Venkatesh Sundararaman Senior Economist (CO-TTL) SASHD Mohan Prasad Aryal Extended Term Consultant SASHD Dilip Parajuli Education Economist SASHD Hiroshi Saeki Operations Analyst SASHD Hiroko Imamura Senior Counsel LEGES Kishor Uprety Senior Counsel LEGES Thao L e Nguyen Senior Finance Officer CTRFC Bigyan Pradhan Senior Financial Management Specialist SARFM Kiran Baral Senior Procurement Specialist SARPS Sangeeta Kumari Social Development Specialist SASDI Drona Ghimire Environmental Specialist SASDI L a x m i Prasad Subedi Consultant SASDA Maria Elena Anderson Consultant SASHD Maheshwor Shrestha Data Consultant SASHD Sushila Rai Program Assistant SASHD Julie-Anne Graitne " Program Assistant SASHD 106 Annex 12: Documents in the Project F i l e NEPAL: School Sector R e f o r m P r o g r a m Proiect Background Documents M O E (2009). School Sector Reform Program Document (Volumes 1 and 2), Ministry o f Education, Government o f Nepal. M O E (2007). School Sector Reform Program Core Document, Ministry o f Education, Government o f Nepal. Proiect Preparation Documents Pre-appraisal mission, December 1-11,2008 Technical Mission I (TM I), February 2-13,2009 Technical Mission I1(TM 11), March 22 - April 2, 2009 Joint Appraisal Mission I April (JAM I), 27-30,2009 I June 21-30,2009 Joint Appraisal Mission (JAM I ) , Government Documents "School Level Educational Statistical o f Nepal" At a Glance 2064 (2007-08), Government of Nepal, Ministry o Education and Sports, Department o Education, Research and Educational f f Information Management Section `T\lational Curriculum Framework for School Education in Nepal" (2007) Government o Nepal, f Ministry o Education and Sports, Curriculum Development Centre f "A Report on The Monitoring o f Training Programs under N C E D - 2065" Government o Nepal, f Ministry o Education & Sports, National Centrefor Educational Development f "Education for All - Secondary Education Support Program & Community School Support Program - Status Report 2007" Government o Nepal, Ministry o Education and Sports, f f Department o Education, Monitoring and Supervision Section f "A Strategic Implementation Plan for Gender Equality in Girls' Education Government o Nepal, f Ministry o Education and Sports, Department o Education f f "Strategy Paper for Early Childhood Development in Nepal 2004" Government o Nepal, f Ministry o Education and Sports, Supported by WESCO f "Ninth Five-Year Plan (1997-2002)". National Planning Commission, Government o Nepal, f Kathmandu (I996). "Tenth Five-Year Plan (2002-2007)." National Planning Commission, Government o Nepal. f Kathmandu 2001. "Three-Year Interim Plan (FY2008-FY20 1O>,'. National Planning Commission, Government o f Nepal, Kathmandu (2007). Translated from Nepali Version Department o f Education (Government o f Nepal Ministry o f Education): Program Implementation Booklet, 2007/08 (2064 B.S.). Department o f Education (DOE): School Grant Implementation Guidelines and School Accreditation Form, 2006/07 (2063 B.S.). DOE: Girls Education Strategy for Gender Equality, and Implementation Plan, 2006/07 (2063 B.S.). DOE: Second Higher Education Project (Higher Secondary Education Component) (2007-20 14), 2007/08 (2064 B.S.). D O E and UNESCO (Kathmandu): Strategy Paper on Early Childhood Development in Nepal, 2004/05 (2061 B.S.). 107 D O E and Nepal Teachers Union: Code-of-conduct for Education Stakeholders, and Training Materials and Self-study Materials for School Accreditation Information Dissemination Program, 2006/07 (2063 B.S.). DOE: Gender Trainer's Booklet, 2006/07 (2063 B.S.). DOE: Female Education (Annual Publication), 2005/06 (2062 B.S.) DOE: Resource Booklet for Inclusive Education, 2007/08 (2064 B.S.). DOE: Girls Education: Profile o f Networking Member Organizations, 2006/07 (2063 B.S.). DOE: Guidelines for Conducting Early Childhood Development Program, 2004/05 (2061 B.S.) DOE: Guidelines for Operation o f Community Managed Schools (First Amendment), 2002/03 (2059 B.S.) DOE: Program on Operation o f Community Managed Schools: An Introduction, 2008/09 (2065 B.S.) Sector Documents N O R A D (2009), Joint Evaluation o f Nepal's Education for All 2004-2009 Sector Program Tazeen Fasih (2008) "Linking Education Policy t o Labor Market Outcomes" Directions in Development, Human Development, The World Bank "The Street Children o f Kathmandu" Study, approaches and comments on the daily life o street- f based children o the Nepalese capital, CPCS, Nepal 2007 f Usha D. Acharya (2002) "Primary Education in Nepal" Policy, Problems and Prospects Govind Subedi, Bhim Prasad Subedi and Prabha Kumari Hamal(2001)"Child Labor in Bidi Industries in Nepal" C WIN Harry Anthony Patrinos and Shobhana Sosale (2007) "Mobilizing Private Sector for Public Education" A Viewfrom the Trenches,Directions in Development, Human Development, The World Bank Babu Ram Poudel, Kamal Kafle, Khaga Raj Paudyal, Arjun Aryal (DOE) and Thomas Nielsen (ESAT) "Concept Paper on Using Digitized Curriculum and OPLC in Nepal, 2008" Susan Durston, Amanda Steel, John Evans and Friedrich Huebler (2008) "Developing Rights- Based Education SWAPS in South Asia" From Evidence to Action, UNICEF Regional OBcefor South Asia Friedrich Huebler (2008) "Beyond Gender: Measuring Disparity in South Asia Using an Education Parity Index" Girls Too! Educationfor All, W G E J UNICEF 108 Annex 13: Governance and Accountability Action Plan NEPAL: School Sector Reform Program 1. The School Sector Reform Plan (SSRP) identifies a number of governance and accountability issues, and for which accountability measures are already integrated into the program design. In addition to this, the MOE/DOE and DPs have also agreed on some key guiding principles on the basis of which the SSRP will be implemented. This Governance and Accountability Action Plan (GAAP) i s structured around the following principles: a. Improving governance in the education sector will be key to improving overall quality of services provided in the sector, and hence should be an area of emphasis in the implementation of the SSRP. b. Program governance and implementation will be based on the prevailing Acts and Regulations. All proposed changes in governance and implementation modality, which requires changes in the Acts and Regulations, will be undertaken after the appropriate amendments have been made in the aforementioned legislation. c. The implementation arrangements for the SSRP will be the same as those for the on-going EFA, unless and until the new structures are in place. The proposed changes in terms of the role of the Local Bodies - Village Development Committees, Municipalities and District Development Committees - will be reviewed annually to determine the practicality of such changes.. d. Communities are at the forefront of service delivery and it i s important that the program ensures the creation of strong, independent community level structures for program sustainability. e. Good-governance will be a key theme of the SSRP, and in particular, the program will continue to strengthening transparency and accountability, and identifying and addressing areas that are vulnerable to corruption. 2. As a program focused on improving both the participation of children in the schoolingprocess, and to improve the quality o f both teaching and learning, some aspects of the program design are important for developing and implementingthe GAAP. These features include: a. All program planning, strategies and implementation of programs in SSRP are assessed on whether they are child-centric, and by reviewingthem through the lens of an equity filter b. Program financing will become norm-based and channeled through Per Capita Funding (PCF) grants. c. Responsibility for teacher management continues to be strengthened at the school level, consistent with the government's policy of decentralized teacher recruitment. d. Learning achievements as validated through international standard assessments will become the key measure of learning outcomes and program success. 3. Various sections of the program document, prescribed guidelines, the appraisal report, and other relevant operational manuals provide clarity on the policy and legal environment under which this program i s being implemented. The risk matrix provides a clear glimpse o f the some of the key risks as identified, in addition to which the peace-filter further identifies key concerns that need to be addressed before, and during, program implementation. 4. Based on the above, and through intensive discussions with the MOE/DOE and DPs, the following GAAP was prepared for program implementation. This summarizes key areas o f the risk matrix that require further specific actions and will focus on: (i)Ensuring minimum enabling 109 conditions in school education, (ii) Improving financial management and procurement procedures and their timeliness, (iii) Strengthening the role o f communities and further concretizing the decentralization agenda in this sector, (iv) Institutional and Capacity Development, and Human Resource Management, (v) Performance Audits, (vi) Disclosure arrangements and communication strategy, and (vii) Guidelines for dealing with emergencies, conflicts and crisis. 5. G A P Monitoring. The milestones and timeline indicated in the GAAP above will be monitoredby the MOEDOE and DPs on a regular basis through the review missions or through the quarterly Government and DP meetings. Issues identified in earlier missions will be reviewed and progress made on addressing these will be noted, and a l l remaining tasks identified. Given that the SSRP i s a school sector SWAp, any changes in governance administered through this program i s likely to have immediate and far reaching impacts across the sector, and as such will have impacts on overall service-delivery in the sector. Prior to each review mission, the MOEDOE and the DPs will agree on the key governance issues to be included in the mission's TORS. Given the importance of these issues, and in close consultation with MOE/DOE, the DPs may initiate and finance periodic independent evaluations of GAAP as has been agreed to under paragraph 60 of the FA. 6. Implementation Arrangements for GAAP. The SSRP i s implemented directly through Government offices, and not through the establishment of a Program ImplementationUnit (PIU). All improvements brought about through the program should enable the MOE and DOE to improve the overall efficiency with which resources are used in the system. Specifically, the implementation of the GAAP will be under the overall supervision of the Secretary (MOE), Director-General (DOE), and the DEOs at the district level. The Government shall designate a Grievance Officer to address key grievance issues and procedures at all administrative levels5'. 7. Communication Strategy. The Government shall designate a Deputy Director to handle both the dissemination of information and the development o f communications strategies for the program. The development o f clear strategies for communication are important for reasons of transparency and good-governance, and most importantly, for the benefit of all potential beneficiaries. The dissemination of program information will be carried out through all available and appropriate media. This includes, radio, TV, newspapers, MOE/DOE website, and other avenues. The disclosure o f key information as identified in the Table 13.1 will be an important part o f the Government's strategy for good governance and transparency, and will be reflected in the Government's annual budgets. 8. Budgetary Implications o GAAP. The expenses needed to implement the GAAP will be f subsumed within the program management budget head. 51 Under the current system o f citizen's charter and the Right to Information (RTI), a similar designation exists. The GON has agreed to review and strengthen t h i s system. 110 0 3 3 3 u n u g- E x m W u 3 0 0 * m d d 'i 3 w 8 8g En z .I c, .I c .I c, 9 Y v, 3 3 I Annex 14: Lesson Learned From EFA NEPAL: School Sector Reform Program 1. Development Partners (DPs) have supported education in Nepal for over three decades, and on a programmatic basis since 2001. Numerous lessons have been learnt and incorporated into each successive program, especially in terms o f effective policies. The SSRP aims to integrate and build on the lessons learned from EFA, SESP and CSSP. Table 14.1 illustrates the important learning from EFA and how these will be applied under SSRP. 2. In terms o f overall engagement with the G O N on education, the key lessons include inter alia: (i) benefits o f mainstreaming implementation through Government structures rather than the establishing stand-alone PIUs, (ii) crucial need for high level political commitment to push the through difficult reforms, (iii) need for continuous public dialogue, and communication on the progress o f the reform; (iv) the importance o f bureaucratic buy-in; (vi) the crucial role o f participatory processes to engage communities and mobilize beneficiaries; (vii) that donor harmonization i s best achieved when donors use country systems with the government in the lead; and (iv) the finding that clear and transparent resource allocation criteria and procedures can make significant contribution towards improving governance. The proposed operation will be designed taking into account these lessons learned from previous programs. 3. As stated earlier, a number o f policy developments have also proved crucial to improving the quality o f education in Nepal. These lessons from EFA have been documented in a recently completed evaluation, financed by NORAD, endorsed by the GON and DPs, and carried out by Cambridge Education Ltd. and METCON Associates. The key lessons learned are shown below and with details provided in the attached matrix: 4. Communitv Manapement: Community management contributes to school improvement. Strengthening capacity o f school management committees and parent teachers' associations will be critical for success o f the School Sector Reform Program. SMCs work best when they have leadership with close ties to the communities. The hand-over o f school management to become community management o f schools has generally had positive outcomes. However, efforts to prepare SMC members, Head Teachers, and even District level staff to cope with decentralization have been patchy. SMC-to-SMC peer learning has been an effective and efficient way for building SMC capacity, and this will be consolidated and extended in SSRP. 5. Per Capita Funding: Notwithstanding the achievements already made equitable allocation o f resources, especially in allocation o f teachers and classrooms, continue t o be a challenge. In terms o f ensuring equity, per capita financing (PCF) has proven t o be a more robust tool for financing teachers than raahat grants, hence all additional financing for all new community recruited teachers will be channeled through PCF. The current PCF guidelines will need to be revised to make them even more equity sensitive. The recently released budget illustrates a move away towards PCF grants for teacher hiring and this will help reduce or eliminate the potential for rent-seeking in the recruitment and allocation o f teachers and teacher posts. 6. Resource Generation versus Free Schooling: School dependence on community resources i s heavy, and student fees and guardians' contribution do constitute one o f the major sources o f school revenues. Strict enforcement o f free basic education policy without ensuring sustainable compensation to schools for lost revenues would be a setback for improving both access to and quality o f education. A pragmatic policy to guarantee universal completion o f basic education 117 will be the key for successful implementation o f SSRP. The GON has adopted a pragmatic solution t o address the issue o f free-schooling versus resource generation, and have informed schools and SMCs that they can continue to mobilize community level resources as long as there are n o financial barriers t o admission, for the most marginalized students. 7. Student Scholarships: Scholarships constitute one o f the major expenditure items in SSRP. Since the number o f scholarships are too few to cover all eligible students, and the fact that the DOE employs categorical targeting, there i s always some likely to be a certain amount o f errors in targeting. It i s not clear if the resources for scholarships are therefore being used effectively, and whether the most vulnerable groups are receiving support. The SSRP has developed a l i s t o f disadvantaged and marginalized groups and will incorporate this in the school implementation guidelines and this will be revised as needed. 118 I N 0 Y 3 2 U 9 Annex 15: Joint Financing Arrangement NEPAL: School Sector Reform Program This Joint Financing Arrangement made between The Asian Development Bank ("ADB"); The Government o f Australia, represented by the Australian Agency for International Development ("AUSAID"); The Ministry o f Foreign Affairs, The Kingdom o f Denmark ("Denmark"); The United Kingdom o f Great Britain and Northern Ireland, represented by the Department for International Development ("DFID"); The Commission o f the European Communities ("EC"); The Ministry for Foreign Affairs o f Finland ("Finland"); The International Development Association ("IDA"); The Royal Ministry o f Foreign Affairs, The Kingdom ofNorway ("Norway"); The United Nations Children's Fund ("UNICEF") (collectively referred to as the "Pooling Donors") and the Government o f Nepal (hereinafter referred to as "GON") 1. a WHEREAS GON h s requested the support o f the Pooling Donors to contribute towards the finding o f the first five years of the School Sector Reform Plan starting from FY2009110 described in the School Sector Reform Plan document, dated June 2009 (hereinafter referred to as the "SSRP"). GON and the Pooling Donors together are hereinafter referred to as "the Signatories"; 2. WHEREAS GON has committed itself to provide an agreed level o f funding, in April meeting o f every year, to the SSRP and intends to contract from Pooling Donors, grants to assist in financing the SSRP on the terms and conditions to be set forth separately in an agreementkangement to be entered into between GON and each o f the Pooling Donors; 3. WHEREAS the Pooling Donors have committed themselves to the principles of harmonization in the spirit o f the Paris Declaration on Aid Effectiveness and Accra Agenda for Action (all five principles), as reflected in this Joint Financing Arrangement (hereinafter referred to as the "JFA'I) and strive to reach the highest degree o f alignment with the budgetary and accountability system and legislation o f Nepal so as to enhance effective implementation and to reduce the administrative burden of GON; 4. WHEREAS respect for human rights, democratic principles, the rule o f law and good governance form the basis o f the co-operation and constitute essential elements o f this JFA; 5. NOW THEREFORE, the Signatories to this JFA have come to the following understanding: I. Goals o f the SSRP and Scope o f the JFA 6. The provisions o f this JFA will be applied to all activities budgeted and accounted for in Nepal under the SSRP budget heads 65-314-428 and 65-314-815 (hereinafter referred to as Budget Heads) as per GON Estimates o f Expenditures, contained in the Red Book. All activities under these Budget Heads will be fimded jointly by the GON and Pooling Donors. In the context o f this JFA, these Budget Heads will comprise o f the SSRP for financial reporting purposes. In the event that these Budget Heads are changed, GON w i l l notify the Pooling Donors o f the new Budget Heads which w i l l comprise o f the SSRP for financial reporting purposes. 7. The goal o f the SSRP i s to contribute to socio-economic development through a continuous development o f i t s human resources capacity. The purpose i s to facilitate that all citizens have the opportunity to become functionally literate, numerate, and develop the basic l i f e skills and knowledge required to enjoy a productive life. The program development objective o f the SSRP i s to increase access to and improve quality o f school education, particularly basic education (grades 1 4 , especially for children from marginalized groups. 8. This JFA sets forth the joint provisions and procedures for financial support to the SSRP and serves as a co-ordination framework for consultation among the Signatories for SSRP monitoring and decision-making, joint reviews o f performance, common procedures on financial management including disbursement, accounting, procurement, reporting and audits. 9. The financial commitments o f the Pooling Donors w i l l be confirmed separately in bilateral agreementdarrangements to be concluded between GON and each o f the Pooling Donors. In addition, as SSRP i s a five year program, the GON welcomes an indicative contribution for the entire five-year period. 10. The Pooling Donors will establish bilateral agreementdarrangements that are compatible with the spirit and provisions o f this JFA and w i l l refrain, as far as possible, from setting conditions in the bilateral agreementdarrangements that contradict or diverge from the spirit o f this JFA. In case o f any inconsistency or contradiction between the provisions and conditions o f this JFA and any o f the bilateral agreements/arrangements, the provisions o f the bilateral agreementshrangements w i l l prevail. Insofar as specific agreements on specific items made in bilateral agreementskrangements should deviate from the JFA, the Pooling Donor concerned w i l l inform the other Pooling Donors thereof by supplying a copy o f the bilateral agreemenVarrangernents to the other Pooling Donors and specify the deviations and how to resolve them in case o f inconsistency with this JFA. 11. The Pooling Donors will base their actual support on the progress attained in the implementation o f the SSRP. Progress will be measured through the common procedures for monitoring and reporting as described in sections IX and X (refer to Annex 1 SSRP - Schedule o f Monitoring and Reporting). The Pooling Donors w i l l refrain from making additional unilateral demands on the GON for additional reporting above what has been stated above and any changes in monitoring and reporting procedures w i l l not be made without prior consultations among Pooling Donors and between Pooling Donors and G O N including all users within the GON o f the information. 11. Rewesentatives 12. In matters pertaining to the implementation o f this JFA, GON will be represented by the Ministry o f Finance ("MOF"). The responsibility for the implementation o f the SSRP not affecting the overall responsibilities o f GON or the M O F w i l l l i e with the Ministry o f Education ("M0E")Department o f Education ("DOE"). 13. In matters pertaining to the implementation o f the JFA, the representative o f each Pooling Donor w i l l be as identified in their respective bilateral agreementshrangements. 111. Responsibilities o f GON 126 14. GON will make all possible efforts to facilitate the successful implementation o f the SSRP, and will hereunder: a. have the overall responsibility for the planning, administration, procurement, financial management and implementation o f the SSRP; b. establish a Foreign Currency Account ("FCA") in United States Dollar in the name o f GON at the Nepal Rastra Bank ("NRB").The FCA will be utilised exclusively for the SSRP to which the Pooling Donors will disburse proceeds o f their loans/grants and from which funds will be reimbursed; c. ensure that accounts for the SSRP are kept in accordance with GON accounting system, and should comply with the Financial Procedures Act (2055, and as amended) and provisions set forth in the Financial Procedures Regulations ("FPR") o f GON (2064, and as amended); d. maintain a financial management system adequate to reflect the transactions, resources, expenditures, and assets under the SSRP and ensure that GON i s able to produce timely, relevant and reliable financial information for planning and implementation o f the SSRP; it will further monitor SSRP's progress towards i t s objectives that will allow the Pooling Donors to evaluate compliance with agreed procedures; e. provide sufficient qualified personnel and release all financial and other resources that are required over and above the funding from the Pooling Donors for the successful implementation o f the SSRP; and f. promptly inform the Pooling Donors o f any condition which interferes or threatens to interfere with the successful implementation o f the SSRP and call for a meeting to consult with the Pooling Donors on remedial actions to be taken. g. ensure that resources are channelled to the end user (such as, schools, students and teachers) on a timely basis. 15. GON will convene and make adequate arrangements and documentation as stated herein for joint consultations and reviews (refer to Annex 1 SSRP - Schedule o f Monitoring and Reporting). IV. ResDonsibilities o f the Poolinp Donors 16. The Pooling Donors will make available to Nepal funds to be deposited into the FCA to be used exclusively to finance the SSRP. 17. On an annual basis, the Pooling Donors will review the Annual Strategic Implementation Plan ("ASIP") and the Annual Work Plan and Budget ("AWPB'I) for the SSRP and, subject to paragraph 3 1, will commit their contributions. 18. The Pooling Donors will ensure timely release o f their commitments to the FCA in accordance with the provisions o f Section VI1 below, the bilateral agreementdarrangements and the conditions stated under paragraph 3 1 o f this JFA. 19. The Pooling Donors do not bear any responsibility and/or liability to any third party with regard to the implementation o f the SSRP. 127 V. Meeting Structure 20. GON and the Pooling Donors will conduct Joint meetings two times a year, the Joint Annual Review ("JAR") in April and the Joint Consultative Meeting ("JCM") in December. In addition, the Signatories and other development partners ("DPs") will also have quarterly meetings. 21. At the JCM, the Signatories will discuss overall progress for the previous fiscal year based on reports as mentioned in paragraph 24 (a) and Section IX below. At the JCM, the Pooling Donors will make an initial indication o f funding to be provided for the following fiscal year. 22. The JAR will serve as the annual review meeting. I t will include other DPs to the sector, that are not parties to this JFA, for joint review o f the ASIP, the AWPB for the next fiscal year, the audit report o f the previous fiscal year, and findings o f any studies commissioned by the DPs. 23. The Pooling Donors, National Planning Commission (NPC), MOF, Financial Comptroller General Office (FCGO), MOEDOE, Ministry o f Local Development (MOLD) and the Office o f the Auditor General (OAG) will be represented at the meetings. Representatives o f the Association o f INGOS (AIN), non Pooling Donors and other key stakeholders, to be jointly agreed during the preparation o f the term o f reference (TOR), shall be invited to participate in the meetings. MOEDOE in cooperation with the Pooling Donors will be responsible for the agenda o f the meetings. The meetings will be called and chaired by MOE and the outcome will be presented in an Aide Memoire. 24. The discussions and decisions in the meetings will be based on the following documents, which will be submitted by MOE to the Pooling Donors in accordance with the deadlines set forth in Sections I X and X I below, but no later than two weeks ahead o f the meeting: a. JCM: unaudited annual financial statements, annual performance report, interim financial monitoring report for the first fiscal trimester (four monthly), and a consolidated report o f the previous fiscal year showing program outcomes, all as described in Section I X o f this JFA; b. JAR: the annual audit report o f the SSRP for the preceding year as certified by the OAG, the ASIP and AWPB for the forthcoming year, the interim financial report for the second fiscal trimester o f the running fiscal year. C. Ouarterlv and other meetings: in addition to above specific purpose meetings, the Signatories and other DPs will meet quarterly and as and when necessary. 25. The Signatories have agreed to review Section V on Meeting Structure at the end o f the first year o f the SSRP implementation. VI. Organizational Structure and Consultations 26. The Pooling Donors will designate one o f the Pooling Donors as a contact or focal point ("Focal Point") for communication and information sharing with the GON on matters concerning the implementation o f this JFA. However, the Focal Point will not have any authority to make decisions on behalf o f the Pooling Donors. The period o f a Focal Point will be for one year representing government's fiscal year (that is, July 16 to July 15 of every year). A co-Focal Point ("Co-Focal Point") will also be designated to work closely with the Focal Point and to act when the Focal Point i s absent. 27. The TOR for the Focal Point and Co-Focal Point will be prepared by the Pooling Donors in 128 consultation with MOE/DOE and decided upon among the Pooling Donors, and a copy of the TORSwill be shared with the Signatories and other DPs. 28. The selection and role o f the Focal Point and Co-Focal Point, as well as any changes made during the timeframe o f this JFA, will be communicated to the MOF and MOE/DOE in writing by the Focal Point. 29. The Signatories will co-operate and communicate fully and in a timely manner with each other on all matters relevant to the implementation o f the SSRP and this F A . Signatories will share all information on financial matters and flow o f funds, plans to carry out reviews, missions, and any other initiatives relating to the implementation o f the SSRP. VII. Pooling: Mechanism 30. The indicative funding levels o f the Pooling Donors for the following fiscal year will be discussed in the JCM. 31. The Pooling Donors will provide a funding commitment in the annual review meeting in April to be presented to the GON in a schedule showing the amount and time o f contribution by each Pooling Donor. The commitment will be subject to the Pooling Donors subscribing to the ASIPIAWPB and will take into account the budget and cash forecast statement o f the SSRP. 32. The Signatories will in the light o f these commitments determine their share o f funding for the coming fiscal year for the total SSRP, in accordance with paragraph 6 o f this F A . 33. Changes within the year o f commitments or schedule of disbursements by the Pooling Donors or additional commitments from DPs, that are becoming signatories to this JFA and subsequently becoming a new pooling donors, will be discussed and agreed upon between the Signatories before such adjustments are made. 34. The disbursements by the Pooling Donors to the FCA will be as follows: a. The Pooling Donors will make an advance deposit into the FCA with at least their share o f the first two trimesters' expenditure estimates for the fiscal year from which GON will make their withdrawal for reimbursing the SSRP equivalent to the Pooling Donor's share based on actual expenditures during the period. b. GON will present Financial Monitoring Reports ("FMRs"), a further described in s paragraph 50 o f this JFA, showing funds utilized during the trimester, the cash balance position o f the FCA, and the cash forecast for the remaining fiscal year; c. In the event o f the cash balance position in foreign currency being more than the funds required for the next two trimesters, no transfers o f funds would need to take place from the Pooling Donors to the FCA; d. Any outstanding advance may be liable for repayment or deduction against the advance for the following fiscal year; e. There may be a final adjusted disbursement for the fiscal year on the basis o f the certified third trimester FMR and the annual financial statement. This adjustment will be made in the second trimester of the following fiscal year. f. The Pooling Donors, as suitable to their respective funding cycle, may advance to the FCA the full amount as committed for the fiscal year or for the full program or to any 129 amount as convenient to them with the assurance that the funds so transferred will be closely monitored, tracked and reported by the FMRs. 35. The DOE i s responsible for forwarding the relevant financial reports, as certified by the MOE Secretary, and for submitting the request for disbursement in writing in accordance with the provisions o f this F A to the Focal Point. 36. The Focal Point in consultation with Pooling Donors will have 15 calendar days, upon receipt o f the request for disbursement from DOE, to review the request and the reports; and clarify any outstanding issues including validity of cash forecasts for the following two trimesters with the MOF, FCGO and MOE/DOE. 37. In the event o f there being `no objection' the Focal Point will advise the Pooling Donors to deposit additional funds to the FCA, if required, to meet their share o f the agreed funding, which should take place no later than 30 calendar days after the receipt o f GON's request. 38. In the event o f there being issues which are not possible to clarify within the 15 calendar days period indicated in Para 36 above, the above process will be suspended until outstanding issues are resolved. GON and the Pooling Donors will make their best endeavours to resolve any such issues as quickly as possible. 39. Following confirmation from NRB, DOE will immediately acknowledge receipt o f the foreign currency funds, in writing, to the concerned agency and a copy to the Focal Point. 40. The FCA will be a non-interest bearing account. No fees and commissions will be charged for the operation o f the account without prior agreement o f the Signatories. 41. The exchange rate at which funds from the FCA will be converted into Nepalese rupees will R be the official buying rate o f the N B on the date o f conversion. 42. The FCA will be used only for the purpose of reimbursing the amount to GON's consolidated fund following the certification o f actual expenditures. There will be no direct expenditure on the procurement o f imported goods and services from the FCA. The procurement o f such items will take place in accordance with Section VI11 below. Upon MOEDOE requests, foreign exchange currency payments will be promptly facilitated by GON, as per GON regulations. VIII. Procurement 43. GON undertakes to effect all procurement o f works, goods and services for the SSRP and i s responsible for the contracts to be signed. 44. All procurements requiring National Competitive Bidding (NCB) will be performed in accordance with generally accepted principles and good procurement practices and in conformity with GON's Public Procurement Act 2063 and Public Procurement Regulations 2064. Until the gaps vis-&vis international procurement procedures that are existing in the prevailing laws are addressed, the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by IDA in May 2004, as amended in October 2006 ("Guidelines") will be applied for all procurements requiring International Competitive Bidding ( K B ) ~ ~ . 54 Given proposed changes to the Procurement Act, guidelines for National Competitive Bidding (NCB), should be subject to the following additional procedures: (i) only the model bidding documents for National Competitive Bidding agreed with the Association (as amended from time to time), including qualification criteria, shall be used; (ii) bid documents shall be made available, by mail or in person, to all who pay the 130 45. As an annex to the AWPB, MOE/DOE w i l l provide the Pooling Donors for their review a draft annual procurement plan ("Procurement Plan"), which w i l l include on-going contracts rolling into the following year, and a Procurement Plan for the following fiscal year prepared based on the agreed AWPB. 46. The Procurement Plan w i l l only include activities to be financed under the SSRP and procured pursuant to International Competitive Bidding (ICB) and other procurement methods as maybe requested by the Pooling Donors. 47. During implementation o f the Procurement Plan, MOE/DOE w i l l provide the Pooling Donors with fiscal year trimester procurement monitoring reports concerning progress in implementation o f the Procurement Plan and identifying any contracts that were not included in the previous Procurement Plan. 48. In each o f the procurement monitoring reports, MOE/DOE w i l l also provide information to the Pooling Donors concerning awarded contracts, appointment o f consultants, and any material modifications to the terms and conditions o f such contracts after their award. 49. MOE/DOE will, upon request, hrnish the Pooling Donors with all relevant information on i t s procurement practices and actions taken, and provide access to all related records and documents. IX. ReDorting 50. The following set o f progress reports w i l l be accepted by the Pooling Donors as "Implementation Progress Reports (IPRs)" o f which FMRs w i l l be formed, as the basis o f disbursement to the F C A by the Pooling Donors each trimester. These reports w i l l be produced by DOE and submitted to the Focal Point copied to all Pooling Partners within 45 calendar days as o f the end o f each trimester: a. A report certified by the M O E Secretary for each trimester and information on the sources and uses o f funds, transfers to and from the FC A in accordance with the format provided in Annex 2 to this JFA and with a copy o f the bank statement for the account from the NRB. b. One consolidated financial report for allocation and expenditures for the Budget Heads, as described in paragraph 6 o f this JFA, comparing actual and budgeted figures by budget heads and budget line item code for the trimester and cumulatively for the fiscal year to date, in accordance with the format provided in Annex 3 to this JFA. c. An output based progress report for the first and second trimester year relating SSRP required fee; (iii) there shall not be any restrictions, such as registratiodlicensingrequirements, for purchase o f bid documents and bidding by foreign bidders, and no preference o f any kind shall be given to any bidders in the bidding process when competing with the foreign bidders, state owned enterprises, or small scale enterprises; (iv) if a registrationprocess i s required, a foreign bidder declared as the lowest evaluated responsive bidder shall be given a reasonable opportunity o f registering, without let or hindrance; (v) rebidding shall not be carried out without the prior concurrence o f the Association; (vi) invitations to re-bid shall be advertised in at least one (1) national newspaper with a wide circulation, at least thirty (30) days prior to the deadline for submission o f bids; and (vi) except in cases o f force majeure and/or situations beyond the control o f the Recipient, extension of bid validity shall not be allowed without the prior concurrence of the Association: (a) for the first request o f extension if it i s longer than four (4) weeks; and (b) for all subsequent requests for extension irrespective of the period. 131 expenditure and outputs in accordance with Annex 4; the third trimester output based report will constitute the annual output based report (ref. 52a below). d. A cash forecast statement for the following two trimesters accounting for the current balance in the FCA. e. An update on the Procurement Plan. 51. The following financial statements will be produced by DOE and submitted to the Pooling Donors on an annual basis: the third trimester FMR, which will serve as the un-audited annual financial statement for the Budget Heads referred to in paragraph 6 o f this JFA, to be certified by the FCGO by 15 October o f the following fiscal year. 52. The financial reporting will compare costs for actual activities for the current reporting period with the budget for the same period, and in the same currency. 53. The following program performance reports will be produced by MOE/DOE and submitted to the Focal Point, with a copy to all the Pooling Donors on an annual basis: a. A consolidated output based progress report for the fiscal year relating SSRP expenditure and outputs by 15 November o f the following year, in the form provided in Annex 4 to this JFA; b. Flash reports on outcomes and processes twice during each academic year; C. A consolidated annual "Flash Report" by 15 November on outcomes for the previous fiscal year in a format and with a content to be decided upon between the Signatories. 54. The Signatories have agreed to review this Section I X o f this JFA at the end o f the first year o f SSRP implementation. X. Monitorinp and Evaluation 55. The Signatories have agreed that monitoring and evaluation will be an integral part o f the program. In addition to the data collected through the evaluation and monitoring information system (EMIS), qualitative and quantitative studies will be commissioned by the MOE and DPs each year to provide additional information and analysis for program management, development and governance. The subjects and scope o f such studies will be agreed each year as part o f the JAR mission. 56. The Signatories, in consultation with other DPs will develop an evaluation design prior to the first JCM. This evaluation design will be the basis on which the Signatories and other DPs will evaluate the impacts o f the program both at mid-term and closing stages o f the program. 57. The Signatories will jointly conduct a mid-term review o f SSRP progress in (i) meeting program outcomes, (ii) legislative or financial actions, (iii) use of program finds, and (iv) the capacity development measures. The Pooling Donors will elaborate the TORS o f the review to be discussed at a semi-annual meeting. The Focal Point will coordinate and manage the review process including the contracting of any external technical assistance for the review. The cost o f the review will be charged to the Pooling Donors. The Signatories will rely upon the PerformanceAudit to be carried out by OAG, as stated in paragraph 62 o f this JFA, and GON will ensure that the Performance Audit Report i s discussed at the Public Accounts Committee (PAC) o f the Parliament to ensure parliamentary oversight on findings and recommendations for improving program implementation. 58. The Signatories will jointly conduct an external evaluation during the last year o f SSRP. The Pooling Donors will prepare a TOR for the evaluation to be agreed at the second to the last 132 semi-annual meeting of the SSRP. The Focal Point will coordinate and manage the evaluation process. The cost of the evaluation will be borne by the Pooling Donors. 59. The Pooling Donors will designate IDA to carry out a detailed fiduciary review covering both the financial management and procurement on a bi-annual basis as part o f ensuring fiduciary controls and arrangements. IDA will closely coordinate with the Signatories while carrying out such a review and will share the findings o f the review. 60. The Pooling Donors will, to the extent possible, refrain from initiating unilateral reviews/evaluations o f the SSRP. However, in case a Pooling Donor i s required to conduct a review/evaluation, the Pooling Donor will in a timely manner consult with the other Signatories. XI. Audit 61. With respect to the SSRP, MOE/DOE will submit to the GON copied to the Pooling Donors an annual audit report o f the Budget Heads for each fiscal year referred to in paragraph 6 o f this JFA, as so audited by the OAG, no later than 15 January of the following fiscal year. The audit report will include the audit o f the FCA and the local currency accounts. In case the report could not be finalized by the stated time frame, an additional 90 calendar days grace period will be provided to submit the final audited accounts. Such audit shall be carried out in accordance with auditing standards, prevailing statutes, and additional t erms o f reference if required, agreed between OAG and the Pooling Donors. MOE/DOE will also submit the related sections o f SSRP in the Auditor General's Annual Report as soon as available. 62. A performance audit will be carried out once every two years by the OAG, or at its discretion, with the support of appropriately qualified auditors contracted under its authority. The Signatories may also request public expenditure tracking survey (PETS) studies to be carried out by the FCGO, or at the discretion o f FCGO, with the support o f appropriately qualified consultants under its authority. GON will provide adequate resources for such a purpose. The selection o f the auditors and/or consultants and timing for such audit or expenditure tracking will be done in close collaboration with the Pooling Donors. The Signatories and OAG will jointly agree on the TOR in case o f Performance Audit and with FCGO in case of PETS. Based on the outcome o f such audit, the Pooling Donors may convey to GON any corrective measures they consider needed to be undertaken. 63. The Pooling Donors will to the extent possible refrain from initiating unilateral audits o f the SSRP. However, in case a Pooling Donor i s required to conduct such an audit, this Pooling Donor will timely consult with the other Signatories and OAG. GON will offer all reasonable support to facilitate such auditdinspections. The cost o f this audithspection will be covered by the Pooling Donor(s) conducting such audit or inspection through separate arrangements. XII. Non-Compliance 64. In case o f non-compliance with the provisions o f this JFA and/or violation o f the essential elements mentioned in this JFA, the Pooling Donors reserve the right to suspend further disbursements to the SSRP and/or to reclaim all or part of the funds already transferred. Such non-compliance includes inter alia that: a. substantial deviations from agreed plans and budgets occur; b. SSRP implementation does not comply with the conditions of this JFA; 133 c. the suspension i s warranted by a fundamental change in circumstances compared to those which existed at the start o f the SSRP, and d. any case o f fraud or corruption i s observed or reported and the GON fails to take appropriate action as spelled out in Section XIII. 65. If a Pooling Donor has the intention to suspend disbursements, reclaim funds or terminate i t s support for reasons o f non-compliance, the Pooling Donor w i l l call for a meeting with the other Signatories to seek a mutually acceptable solution and to reach a joint position on the remedial measures required as far as possible. In case a Pooling Donor decides to suspend disbursement, notification to this effect will be provided by the concerned Pooling Donor to other Signatories. 66. The Suspension shall cease as soon as the eventlevents which gave rise to suspension have ceased to exist. Notification to this effect w i l l be provided by the concerned Pooling Donor to other Signatories. XIII. CorruDtion 67. GON w i l l promptly inform the Pooling Donors in case o f any incidence o f inappropriate use o f funds or corruption as investigated by responsible anti-corruption bodies in Nepal. 68. The Signatories will invoke the remedy clause o f suspension o f disbursements as described in Section XI1 o f this JFA if the GON fails to timely act with a satisfactory resolution on the cases o f alleged corruption reported. The Signatories reserve this right, consistent with their commitment to good governance, accountability, and transparency. XIV. Governance AccountabilitV and Action Plan (GAAP) 69. In order to ensure good governance in the implementation o f SSFW, the Signatories agreed to a set o f actions called the Governance Accountability Action Plan (GAAP), as provided in Annex 5 to this E A , which w i l l address governance and accountability issues that relate to the management o f the SSRP, financial management, procurement management and social accountability tools. xv. Modification. Pooling Donor Accession, Withdrawal 70. Any modification or amendment oflto the provisions o f this F A w i l l only be effective if decided in writing by all Signatories. 71. The Signatories welcome the accession to this JFA by other DPs who wish to support the SSRP. 72. Upon a DP's written request and acceptance o f the provisions and conditions o f this JFA, the Signatories may accept in writing the accession o f the DP. An addendum w i l l be prepared and attached to the JFA, to allow the DP to become a Signatory to the JFA. 73. In case a Pooling Donor intends to withdrawheminate i t s support, the Pooling Donor will call for a meeting to inform the other Signatories on i t s decision and to consult on the consequences for the SSRP. Each Pooling Donor reserves the right to withdrawherminate its 134 support to the SSRP by giving the other Signatories three months written notice. XVI. DisDute Settlement 74. If any dispute arises between the Signatories as to the interpretation, application or performance o f this JFA, the Signatories will consult with each other in order to reach an amicable solution. XVII Entering into Effect 75. This JFA comes into effect on the date of signature by GON and the individual Pooling Donor and will remain in effect until all obligations under this JFA have been completed. GOVERNMENT OF THE FEDERAL DEMOCRATIC REPUBLIC OF NEPAL The Asian Development Bank ("ADB") The Government of Australia, represented by the Australian Agency for International Development ("AUSAID") ~~ Name The Ministry of Foreign Affairs, The Kingdom o f Denmark ("Denmark") BY Name The United Kingdom o f Great Britain and Northern Ireland represented by the Department for International Development ("DFID") The Commission o f the European Communities ("E,") The Ministry for Foreign Affairs o f Finland ("Finland") The International Development Association (YDA") 135 BY Name The Ministry o f Foreign Affairs, The Government o f Norway ("Norway") BY Name The United Nations Children's Fund ("UNICEF") BY Name 136 Annex 16: Statement o f Loans and Credits NEPAL: School Sector Reform Program Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd Additional Financing for Power Sector Project on Agriculure Commercialization and Trade P113002 2009 - NP Social Safetv Net Food Crisis 0.00 16.70 0.00 0.00 0.00 15.83 0.00 0.00 Response P110762 2008 Peace Support Project 0.00 50.00 0.00 0.00 0.00 46.64 16.81 0.00 P105860 2008 PAF I1 0.00 100.00 0.00 0.00 0.00 105.94 24.58 0.00 PO95977 2008 Road Sector Development Project 0.00 42.60 0.00 0.00 0.00 29.93 -9.94 0.00 PO99296 2008 Irrig & Water Res Mgmt Proj 0.00 64.30 0.00 0.00 0.00 62.38 3.45 0.00 PO90967 2007 Second Higher Education Project 0.00 60.00 0.00 0.00 0.00 56.66 -1.49 0.00 P100342 2007 Avian Flu 0.00 18.20 0.00 0.00 0.00 13.00 -0.3 1 0.00 PO93294 2005 NP Economic Reform TA 0.00 3.00 0.00 0.00 0.00 1.30 1.34 0.00 PO83923 2005 Rural Access Improve. & Decentralization 0.00 32.00 0.00 0.00 0.00 15.23 0.12 0.00 PO74633 2005 Education for All Project 0.00 110.00 0.00 0.00 0.00 46.98 -18.02 -1.93 PO40613 2005 Nepal Health Sector Program Project 0.00 100.00 0.00 0.00 0.00 51.73 -6.06 3.08 PO84219 2004 Fin Sector Restructuring (Phase 1 ) 1 0.00 75.50 0.00 0.00 2 1.33 0.00 16.66 0.00 PO71285 2004 Rural Water Supply & Sanitation Project 0.00 52.30 0.00 0.00 0.00 27.75 -0.65 0.00 PO71291 2003 NP Financial Sector Technical Assistance 0.00 16.00 0.00 0.00 6.52 1.77 5.47 0.00 PO433 11 2003 POWER DEVELOPMENT PROJECT 0.00 75.60 0.00 0.00 0.76 57.96 47.95 2.98 PO50671 2002 NP: Telecommunications Sector Reform 0.00 22.56 0.00 0.00 6.79 1.13 3.97 -1.74 Total: 0.00 838.76 0.00 0.00 35.40 534.23 83.88 2.39 NEPAL STATEMENT OF IFC's Held and Disbursed Portfolio In Millions o f U S Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1996 Bhote Koshi 13.21 2.95 0.00 17.41 13.21 2.95 0.00 17.41 1998 Bhote Koshi 1.64 0.00 0.00 0.00 1.64 0.00 0.00 0.00 1994 Himal Power 18.17 0.00 2.54 0.00 18.17 0.00 2.25 0.00 2001 ILFC -Nepal 0.00 0.10 0.00 0.00 0.00 0.10 0.00 0.00 1998 Jomsom Resort 4.00 0.00 0.00 0.00 4.00 0.00 0.00 0.00 Total portfolio: 37.02 3.05 2.54 17.41 37.02 3.05 2.25 17.41 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. Total pending commitment: 0.00 0.00 0.00 0.00 137 Annex 17: Country at a Glance NEPAL: School Sector R e f o r m P r o g r a m POVERTY and SOCIAL South Low- Nepal Asia income 2007 Population. mid-year (millions) 28.1 1,520 1296 Life expectancy GNI per capita (Atlas method, US$) 340 880 578 GNI (Atlas method, US$ billions) 9.7 1,339 749 A v e r a g e annual growth, 2001-07 Population (Yd 2.0 16 2.2 Laborforce (%) 2.8 21 2.7 M o s t r e c e n t e s t i m a t e ( l a t e s t year available, 2001-07) Poverty (%of population below n a t i o n a l p verty line) 31 Urban population (%of totalpopulation) l7 29 32 Life expectancy at birth (pars) 63 64 57 Infant mortality(per ZOOOlive births) 46 62 85 Child malnutntion (%ofchildren under5) 39 41 29 Access to improvedwatersource Access to animprovedwatersource (%ofpopulation) 89 87 68 Literacy (%ofpopulation age ?5+j 49 58 61 Gross pnmary enrollment (%of school-age population) P6 U8 94 -Nepal Male 99 m 00 ~ ~ow-mcornegroup Female P3 u4 89 KEY E C O N O M I C R A T i O S a n d L O N G - T E R M T R E N D S I987 1997 200s 2007 Economlc ratlos' GDP (US$ billions) 3.0 4.9 89 0.2 Gross capital formation/GOP 212 25.3 26 0 25.3 Trade Exports of goods and SeNiCeS/GDP 118 26.3 t36 P.5 Gross domestic savings/GDP 12.1 u.0 79 9.4 Gross national savings/GDP 6.3 22.5 262 27.9 Current acco unt balance/GDP 4.7 4.8 22 0.6 savings Domestic + I Capital formation Interest payments/GDP 0.5 0.5 03 Total debt/GDP 33.3 49.1 38 1 Total debt servicelexports 0.1 5.2 51 Present valueof debt/GDP 24 8 Present valueof debt/exports 814 Indebtedness 1987-97 1997-07 2006 2007 2007-11 (average annualgrowth) GDP 5.2 3.6 2.8 2.5 4.5 -Nepal GDP percapita 2.6 14 0.8 0.6 3.1 -~ow-income~rou~ Exports of goods and services STRUCTURE o f t h e E C O N O M Y 1987 1997 2006 2007 G r o w t h o f c a p i t a l a n d G D P (X) (%of GDP) Agriculture 50.7 414 35 1 33 8 er Industry 15.8 22.9 74 172 M anufactunng 6.2 9.5 79 77 Services 33.4 35.7 47 5 48 9 Household final consumption expenditure 78.8 77.1 83 3 819 General gov't final consumption expenditure 9.1 8.9 88 87 Imports of goods and services 20.9 37.7 317 28 5 l907-97 8 9 7 - 0 7 2006 2007 (average annual gru wth) Agnculture 2.9 3.4 18 10 Industry 8.1 3.5 45 39 Manufacturing 0.6 19 20 22 Services 6.3 37 38 28 Household final consumption expenditure General gov't final consumption e v n d i t u r e Gross capital formation Imports of goods and services Note 2007 data are preliminaryestimates This tablewas producedfrom the Development Economics LDB database 'Thediamonds showfourkeyindicators in thecountry(in boId)comparedwithits income-groupaverage If dataaremissing thedlamondmll be incomplete 138 Nepal PRICES and GOVERNMENT FINANCE 1987 1997 20062 007 I , I n f l a t i o n (%) Domestic prices (%change) Consumer prices u.4 8.1 8.0 6.4 Implicit GDP deflator a.7 7.3 6.7 8.6 Government finance (%of GDP,includes current grants) Current revenue 9.4 0.8 u.1 14.3 02 03 04 05 06 Current budget balance -0.7 to 18 3.4 -GDP deflator -CPI Overall surplusldeficit -8.7 -3.9 -26 -14 TRADE 1987 1997 2oos2 007 Export and Import levels (US$ mlll.) (US$ millions) Totalexports (fob) 138 180 833 939 3,000 T Food and live animals 51 99 Animal and vegetableoiis 35 59 Manufactures 38 606 645 Totalimports (cif) 503 1750 2,372 2,653 Food 62 T23 184 206 Fuel and energy 43 277 504 691 Capital goods P8 242 293 328 I 01 02 03 04 05 OB 07 Export price index (20OO=WO) Import price index(2000=W0) i T e n s of trade (2000=WO) BALANCE of PAYMENTS 1987 1997 20062 007 I Current a c c o u n t balance t o GDP (%) (US$ rnil/ions) Exports of goods and services 348 1506 2 28 1347 5T Imports of goods and services 604 1962 2,832 3,225 Resource balance -256 -456 -166 -1878 Net income - 5 8 68 D6 Net current transfers P4 40 1744 1830 Current account balance -a6 -38 87 58 Financing items (net) 158 Q1 159 18 Changes in net reserves -8 -94 -355 -176 1 01 02 03 04 05 OB 07 1 Memo: ReSeNeS including gold (US$ mil/ions) 85 657 1797 2,008 Conversion rate (DC,locaUUS$) 216 57.0 72.3 70.5 E X T E R N A L DEBT and RESOURCE FLOWS 1987 1997 20062 007 / C o r n p o s i t t o n o f 2006 debt (US$ mlll.) (US$ millions) Total debt outstanding and disbursed 986 2,414 3,409 IBRD 0 0 0 0 I F 5 G81 IDA 392 1047 1468 1524 Total debt service 35 92 no IBRD 0 0 0 0 IDA 5 77 42 46 Composition of net resource flow Official grants Q1 no 3T2 Official creditors 00 87 58 Private creditors 37 -11 0 Foreign direct investment (net inflows) 1 23 -7 Portfolio equity(net inflows) 0 0 0 Wolld Bank program Commitments 94 146 0 0 IA-iBRD E - Bilateral Disbursements 81 55 43 35 E-IDA D-Otherrmlt~latwal F-Prlvate Pnncipal repayments 1 9 31 34 C-IMF G-Short-tern Net flows 79 45 a 0 Interest payments 4 8 11 n Net transfers 75 38 1 -11 Note This tablewas producedfrom the Development Economics LDB database 9/24/08 139 80°E 82°E 86°E 88°E 84°E To Barga Simikot 30°N 30°N NEPAL To Ranikhet L¯I KAi ¯ l ¯ HA a ak ah M Chainpur H CHINA K A R N A L¯ ¯ I Baitadi MA S E T¯ I Silgadhi i Dandeldhura ¯ Jumla Ka rn ali m Mustan IR¯ I Dunai a G B H E R¯ I Jomsom LA Dhangarhi Birendranagar l A ¯ G A N D A K¯ To AW I Xegar a i Sallyan K al H Baglung D Pokhara Tulsipur y Mt. Everest 28°N Nepalganj ¯ R A P T¯ I a (8848 m) 28°N Kodan ¯ B A G M A T¯ To To Lucknow I s R M AT ¯ A Shahajahanpur Nuwakot L U M B I N¯ I KATHMANDU ¯ H Butawal ani Lalitpur N ary This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information To Faizabad Bhairawa Bhimphedi Ar un M E C H¯ I Taplejun K O S¯ shown on this map do not imply, on the part of The World Bank Okhaldhunga Group, any judgment on the legal status of any territory, or any Hetauda I To SAGA endorsement or acceptance of such boundaries. ¯ ¯ ¯ NARAYANI Sindhulimadi Ramechhap Saidpur To Faizabad Birganj JANAKPUR Dhankuta shi Sun Ko Ilam NEPAL Lucknow To Gaur Dharan Faizabad INDIA Janakpur Rajbiraj Kanpur SELECTED CITIES AND TOWNS Biratnagar To ZONE CAPITALS Baruni To NATIONAL CAPITAL Faizabad To Baruni RIVERS 26°N 26°N MAIN ROADS 0 25 50 75 100 Kilometers RAILROADS SEPTEMBER 2004 0 25 50 75 Miles IBRD 33455 To ZONE BOUNDARIES Baruni To Jangipur INTERNATIONAL BOUNDARIES 82°E 84°E 86°E 88°E