World Bank Group Strategy for Nepal Refocuses on Unlocking Constraints to Growth
May 29, 2014
Washington D.C., May 29, 2014—Nepal’s determination to establish post-conflict foundations for rapid, inclusive and sustained growth found strong support today when the World Bank Group’s Board of Directors discussed the new Country Partnership Strategy (CPS) for Nepal for the next four years.
Welcoming the progress Nepal has achieved in poverty reduction and in improving social indicators – notwithstanding the challenging political environment of the recent past – the World Bank Group, according to the new strategy, will consolidate its engagement into fewer areas where it has a comparative advantage and can leverage its financing and analytical resources for greater, nation-wide development impact.
The strategy reflects the World Bank Group’s readiness to support Nepal’s aspirations for increasing economic growth through increased investments in key sectors and making growth more inclusive to help equalize opportunities across groups and communities.
In Nepal, the World Bank Group (WBG) includes the International Development Association (IDA), the concessionary lending arm, the International Finance Corporation (IFC), the private sector arm, and the Multilateral Investment Guarantee Agency (MIGA), which provides investment risk insurance. Another World Bank Group organization, the World Bank Institute (WBI) provides capacity building services.
Based on Nepal’s progress to date, the strategy makes the case to provide assistance under a longer-term partnership strategy, while maintaining the flexibility needed to accommodate a fragile country environment. It aims to consolidate the WBG’s current engagement in basic services while shifting focus on the binding constraints to growth: inadequate infrastructure (especially in energy and transportation), a poor investment climate, a fragile financial sector and a poorly skilled workforce. Given the reality of the Nepali economy, it will also focus on agriculture. The strategy also aims to shift the Bank’s engagement in the social sectors from providing financing for access to services to providing knowledge and solutions for improving quality, governance and opportunities for shared prosperity.
“Nepal will need rapid and sustained growth to continue reducing extreme poverty and increase the incomes of the bottom 40 percent,” said Johannes Zutt, the World Bank Country Director for Nepal. “This will require the country to boost investment and narrow a massive infrastructure gap, which is the single most important constraint to growth. Nepal will also need to make growth more inclusive and to provide opportunities for all Nepalis to participate in its development,” he said.
"The role of private sector is pivotal to deliver economic growth and generate much-needed jobs in Nepal,” said Serge Devieux, IFC Regional Director for South Asia. “IFC is ramping up both investment volumes and advisory support in the country across infrastructure, with a focus on hydropower development, agribusiness, access to finance, trade and tourism sectors. IFC is also issuing a local currency bond to stimulate investments in Nepal."
Supporting the Government of Nepal’s overarching goal to improve the living standards of all Nepalis and to reach middle-income status by 2022, the strategy is organized around two ‘pillars’ that emerged during consultations within the World Bank Group and with the Government, development partners and key stakeholders including civil society, the private sector, rural community groups and the media. The strategy aligns with the government’s development priorities, particularly in the energy sector.
Under Pillar 1, the WBG will support increasing economic growth and competitiveness, and will focus on expanding hydroelectric power generation, enhancing transport connectivity, and improving the business environment. Under Pillar 2, the WBG will provide support to increasing inclusive growth and opportunities for shared prosperity, aiming to enhance the productivity of agriculture and equalize access to health care, skills development and social protection. Cutting across these pillars, WBG activities will contribute to improving the effectiveness, efficiency and accountability of public expenditure.
The World Bank currently supports 19 projects in Nepal with US$ 1.4 billion dollars in commitments from IDA. IFC has a committed portfolio of $ 40 million in Nepal. Over the next four years Nepal can potentially benefit from an allocation of about US$ 200-300 million a year from IDA, subject to good portfolio performance, economic management and improvements in governance. These funds could finance three to four new operations per year. Depending on the availability of viable investments and improvements in the business climate, IFC estimates a hydropower program ranging from $300-800 million over the strategy period. Additionally, IFC expects to potentially commit $ 20-40 million per year for investments in the financial institutions, manufacturing, agribusiness and services sectors.