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Nepal: Agility in Fragility

April 16, 2013

In spite of the uncertainties brought about by the protracted political transition in Nepal, economic prospects have remained positive and macroeconomic management prudent. Moreover, Nepal has witnessed rapid and sustained poverty reduction and a similar positive trend on most indicators of human development, which sets it apart from other fragile and post-conflict countries. Nepal attained the first Millennium Development Goal (MDG), to halve extreme poverty, ahead of time. The country has also made impressive improvements towards the achievement of other MDGs including in the areas of primary education, maternal and infant mortality and gender parity and has made significant progress in enhancing gender equality and women’s empowerment.

Challenge

Nepal is at a cross roads where political uncertainty is likely to remain the norm and development challenges will also remain pressing. Paradoxically, despite the 10 year conflict and post-conflict challenges of reaching consensus on the future shape of the state, the country has demonstrated surprisingly strong results especially in poverty reduction and human development. While political and democratic stability will likely remain distant, Nepal’s development track record has shown remarkable resilience. This can be attributed largely to a strong tradition of community participation and institutional arrangements at district levels and below, which continued to function even during the height of conflict.  

Over the past decade Nepal’s economy maintained an average annual growth rate of 3.9% of GDP, well above the rate of demographic growth. That being said, Nepal has not managed to significantly develop its industrial base. Therefore, the declining share of agriculture in GDP was entirely ‘compensated’ by growth in the services sector which now accounts for over 50% of GDP. Poor and insufficient infrastructure is the single most important bottleneck for growth: in the 2011/12 Global Competitiveness Report, Nepal ranks 141st in overall quality of infrastructure.

Going forward, the toughest challenge for Nepal will be to “graduate” to a higher growth trajectory by removing key bottlenecks to public and private investment such as power and infrastructure.

Approach

Despite prolonged political uncertainties, it is worth noting that Nepal did not experience an economic meltdown or institutional and service delivery breakdown often associated with fragile states even during the height of the conflict. On the contrary, the slow but steady progression of the Nepali state from a purely extractive system toward more inclusive institutions provides a welcome opportunity to strengthen its development underpinnings.     

The Bank Group is contributing towards the country’s objectives of reducing poverty and accelerating inclusive employment-centric growth to build a “peaceful, prosperous and just Nepal” as noted in Nepal’s Three Year Development Plan. The Bank Group is supporting Nepal’s aspirations for (i) increasing accessibility and growth; (ii) promoting growth in human potential; (iii) enhancing governance, accountability and citizen’s empowerment; and (v) strengthening resilience and social equity.  The World Bank Group strategy supports Nepal’s aspirations to enhance its growth rate and further accelerate poverty reduction through principles of inclusion and equity.

Nepal will continue to benefit from the full range of the Bank Group’s operational and analytical instruments including investment lending, additional financing, technical assistance. It is also the first IDA country to implement a Program-for-Results (PforR) operation. Going forward a concerted effort will be made to achieve larger transformational interventions while leaving open the space for smaller innovative projects. 

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Bishnu and his community manage a group fund which helps members support their livelihoods. Through community-led organizations, thousands of vulnerable groups are coming together and pulling themselves out of poverty.

Results

Nepal attained the first Millennium Development Goal (MDG), to halve extreme poverty, ahead of time.

  • The percentage of people living below the international line for extreme poverty (people earning less than US$1.25 per day) has halved in only seven years between 2003 and 2011. At this measure of poverty, the percentage of poor people declined from 53.1% in 2003/2004 to 24.8% in 2010/2011.
  • At a higher poverty line (people earning less than US$2 dollars per day), poverty declined by one quarter to currently 57.3% in the same period of time.
  • Nepal's overall Gini coefficient has simultaneously declined from 0.41 to 0.35, a measure that shows poor segments of the population have been able to increase household incomes.

Nepal has also made impressive improvements towards the achievement of other MDGs including in the areas of primary education, maternal and infant mortality and gender parity.

  • Net primary enrollment has increased to 95% and gender parity in primary education has been achieved. Enrollment rates for girls in secondary education are increasing steadily, gender parity has almost been achieved and there is also little difference in enrollment rates between girls and boys at the secondary level.
  • Completion rates for girls at primary level are slightly higher (82.1%) than for boys (81.8%). Disparities in access to primary education across regions, consumption quintiles and ethnic groups have also narrowed.
  • The maternal mortality rate declined from 538 in 1996 to 380 per 100,000 live births.
  • Infant mortality declined from 110 deaths per 1,000 live births to 46 between 1990 and 2011.
  • Full immunization coverage rose from 43% in 1996 to 87% in 2011.

Nepal has made significant progress in enhancing gender equality and women’s empowerment.

  • The Government introduced gender-sensitive budgeting and allocations to activities that are directly supportive of women have steadily increased to 19% during last year’s budget.
  • Preferential treatments and stipends to girls have contributed to improvements in average enrollment for Dalit and Janajati girls in secondary education at 12 and 42% respectively – almost aligned with the population share of these groups.
  • The percentage of births attended by skilled birth providers almost doubled from 19% in 2006 to 36% in 2011.
  • The overall fertility rate declined from 3.1 (2006) to 2.6 (2011) far better than in similar income countries.
  • Women’s participation in the labor force is relatively high compared to similar countries with a female to male labor force participation ratio of 0.8.
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Ramila, and her children, need not worry about darkness anymore, thanks to electricity from the microhydro plant in her village. The electricity allows village businesses to be more profitable and the children to continue their education. Harnessing natural resources has provided a clean source of energy to households across rural Nepal.

Bank Group Contribution

As of January 9, 2013, the World Bank’s concessional credit and grant program to Nepal consisted of 19 active projects. The IDA portfolio consists of 17 projects with net commitments of US$1.366 billion and two regional projects with net commitments of about US$102 million.

Cumulative IDA disbursements from the active portfolio total US$657 (about 48% of net commitments), regional disbursements US$5.78 million (about 6% of net commitments). The total undisbursed IDA balance in January 2013 is US$684 million.

The volume of IDA commitments has increased over the years with annual new commitments increasing from US$140 million in FY09 to US$351 million and US$253 million in FY10-11.

Trust Funds (TFs) have gradually become an important supplement to the Nepal IDA program. Most trust Funds are well integrated in the country program through AAA, co-financed operations and capacity building activities. The current TF portfolio consists of a total commitment amount of over US$175 million and most major operations are aligned with the core program. Major TFs include the Education for all Fast Track Initiative supporting the School Sector Reform Program, the Global Agriculture and Food Security Program (GAFSP), the Pilot Program for Climate Resilience (PPCR), a multi-donor financed Public Financial Management TF, the State and Peace Building Fund, the Japan Social Development Fund (JSDF) and a few others.

IFC has a project portfolio of $49 million as of June 30, 2012.

Partners

Longstanding partnerships with the Asian Development Bank, the UN agencies and bilateral partners have demonstrated good development results, especially in the health and education sectors. There is strong convergence among Nepal’s development partners on supporting measures to improve governance and accountability. A Multi Donor Trust Fund on Public Financial Management, currently under implementation, is a key vehicle to further this goal. Across the Bank’s ongoing analytic work and its lending portfolio, there are a range of examples including in agriculture and roads where the Bank is working closely with Nepal’s other development partners.

The aid effectiveness agenda in Nepal is driven by the Local Donor Meeting that serves as the main forum for regular dialogue and coordination between donors and government on development policy issues. The meeting is chaired by the Ministry of Finance and co-chaired by a Development Partner. In addition, the annual Nepal Portfolio Performance Review provides another important mechanism to discuss cross-cutting implementation issues and bottlenecks for development programs. IDA will continue to participate in the annual NPPR process, and support the government‘s efforts to transform this mechanism into a broader aid effectiveness tool for all donors. Among donors, the International Development Partners Group (IDPG) provides a bimonthly forum for information sharing, coordination and dialogue on common issues of concern. It is co-chaired by the World Bank and the United Nations.

Moving Forward

Accomplishing higher, inclusive growth in Nepal’s formidable terrain will require massive assistance to improve infrastructure access, along with efforts to address governance challenges in the public sector and a more competitive and transparent investment regime for the private sector. The Bank Group will help contribute to growth, productivity and connectivity especially to enhance rural access, and also support efforts to meet challenges of growing urbanization.

Building on the strong results in health and education, especially on female education, improving the delivery and reach of social services will require a sharper attention to vulnerable populations. Bank assistance will pursue a healthy and skilled labor force that enhances Nepal’s efforts to promote local and foreign investments and compete for skilled jobs in international markets.

To meet its objectives of an inclusive and just Nepal, the country will require delivery of services to be responsive and accountable to its citizenry, especially those vulnerable to social, ethnic and gender biases. With a historically strong tradition of community organizations and cooperatives, the citizens of Nepal are ready to benefit from tools and practices of social accountability promoted by the Bank in order to be able to demand and monitor the services they require.

Vulnerability to adverse natural events and a multi-ethnic population present a unique set of development challenges and associated opportunities in Nepal. While poverty has sharply dropped, historic inequalities remain. In addition, Nepal ranks among the most exposed to natural disasters, including earthquakes and flooding, further exacerbated by the impacts of climate change.

Open Quotes

It would have been difficult for my father to send seven children to school. But all of us get free education at our community school. We don’t have to pay any fees. Each of us also get scholarships which are allocated for students of the Dalit community every year. Close Quotes

Sita Kumari Rana
9th grade student who lives in Kanchanpur district in Far Western Nepal

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Sita, and her brothers and sisters, receive free education at their community-managed school. Children like Sita can dream of a better tomorrow, thanks to thousands of community-managed schools across Nepal.

Beneficiaries

14-year-old Sita Kumari Rana lives in Kanchanpur district in Far Western Nepal. She attends a community-managed school and is currently in the 9th grade. Her three brothers and three sisters also go to this school.

“It would have been difficult for my father to send seven children to school. But all of us get free education at our community school. We don’t have to pay any fees. Each of us also get scholarships which are allocated for students of the Dalit community every year. Receiving an annual scholarship means I can buy new school uniforms and books every year. I have many friends in my school who also come from very poor families, but now they have a chance to study. I feel very proud of myself when I go to school. Once I have an education, I can be a proud citizen of this country. Without an education we are like blind men. But once we get an education, no one can take that away from us.”