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 ten 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 percent 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 percent 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.
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.