Nepal: Poverty Reduction Strategy Paper, September 2003

September 2003

IMF Country Report No. 03/305

[Month, Day], 2001 August 2, 2001 January 29, 2001

[Month, Day], 2001 August 2, 2001

Nepal: Poverty Reduction Strategy Paper

Poverty Reduction Strategy Papers (PRSPs) are prepared by member countries in broad consultation

with stakeholders and development partners, including the staffs of the World Bank and the IMF.

Updated every three years with annual progress reports, they describe the country's macroeconomic,

structural, and social policies in support of growth and poverty reduction, as well as associated

external financing needs and major sources of financing. This country document for Nepal, dated

May 2003, is being made available on the IMF website by agreement with the member country as a

service to users of the IMF website.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent

by e-mail to [email protected]

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International Monetary Fund

Washington, D.C.

THE TENTH PLAN

(Poverty Reduction Strategy Paper)

2002–2007

Summary

His Majesty's Government

National Planning Commission

Kathmandu, Nepal

May 2003

Foreword

The Tenth Plan is government's main medium-term strategic planning document and this

summary provides a sharply focused strategies of the Plan for poverty alleviation. The Plan

has formulated a poverty reduction strategy based on four pillars -broad based high and

sustainable growth, social sector development with emphasis on human development, targeted

programs with emphasis on social inclusion and improved governance.

The Plan is an outcome of extended nation-wide consultation participated in by a large

number of people from all walks of life. The participatory approach adopted in preparing the

Plan, inclusion of the logical framework, identification of prioritized programs and projects

and identification of monitorable indicators are some of the important features. Besides, the

simultaneous preparation of the Medium Term Expenditure Framework has provided an

effective mechanism to link the Plan with the annual budget.

The Plan has emphasized on effective implementation and monitoring mechanism. Some of

the mechanisms formulated include (i) preparation of annual poverty monitoring report

(ii) initiation of special monitoring mechanism for social inclusion and regional development

(iii) development and monitoring of four monthly intermediate output indicators of major

public expenditure components (iv) initiation of immediate action plan-- a list of critical

policies for quick implementation (v) designing of a policy matrix to link priority activities of

the plan with output indicators and (iv) decentralization. The implementation modalities

initiated are expected to succeed particularly in delivering basic services, enhancing the

quality of life of the poor people and promoting economic and social inclusion of deprived

communities and regions.

We would like to express our gratitude to parliamentarians, ministers, educationists, experts,

politicians, members of civil society, and bureaucrats, who have been directly or indirectly

involved in the process of formulating the plan. We are also grateful to the donor

communities for providing cooperation and support in the process of preparing and finalizing

this document.

July 2003

Shankar P Sharma

Vice-chairman

National Planning Commission

iii

National Planning Commission

Rt. Hon'ble Prime Minister Mr. Surya Bahadur Thapa Chairman

Dr. Shankar Prasad Sharma Vice-chairman

Dr. Yubaraj Khatiwada Member

Chief Secretary Dr. Bimal Prasad Koirala Ex-officio Member

Secretary of Finance Mr. Bhanu Prasad Acharya Ex-officio Member

Mr. Bhoj Raj Ghimire Member Secretary

Acronyms

ADDCN Association of District Development Committees of Nepal

AGO Auditor General's Office

AIC Agriculture Input Corporation

APP Agriculture Perspective Plan

BOOT Build Own and Operate Transfer

BOT Build Operate and Transport

CAAN Civil Aviation Authority of Nepal

CBS Central Bureau of Statistics

CFAA Country Financial Administration Assessment

CIAA Commission of Investigation of Abuse of Authority

CTEVT Center for Technical Education & Vocational Training

DC Dalit Commission

DDCs District Development Committees

DDWSS District Development Water Supply schedule

DIMC Decentralization Implementation Monitoring Committee

DNPWC Department of National Parks & Wildlife Conservation

DOA Department of Agriculture

DOC Department of Commerce

DOE Department of Education

DOH Department of Health

DOHS Department of Health Service

DOI Department of Industry

DOL Department of Labour

DOLIDAR Department of Local Infrastructure Development and Agriculture Road

DOR Department of Road

DOSCI Department of Small and Cottage Industries

DPS Department of Postal Services

DWSS Department of Water Supply & Sanitation

ERP Economic Reform Program

FCGO Financial Comptroller General's Office

FPAN Family Planning Association of Nepal

GDP Gross Domestic Product

HDI Human Development Indicators

HHS Household Survey

HRC Human Rights Commission

IAP Immediate Action Plan

ICOR Incremental Capital Output Ratio

INGOs International Non-government Organizations

IPRSP Interim Poverty Reduction Strategy Paper

ISDP Internal Security and Development Programmes

JEMC Janak Education Material Center

LBFC Local Bodies Finance Commission

LM Line Ministry

LSGA Local Self Government Act

M1 Narrows Money

M2 Broad Money

MCH Maternity Child Health

MDAC Ministerial Development Action Committee

MIS Management Information System

MLD Ministry of Local Development

MOAC Ministry of Agriculture and Cooperatives

MOCTCA Ministry of Culture, Tourism and Civil Aviation

MOES Ministry of Education and Sports

MOF Ministry of Finance

MOGA Ministry of General Administrative

MOH Ministry of Health

MOICS Ministry of Industry, Commerce & Supplies

MOLJ Ministry of Law and Justice

MOLTM Ministry of Labour and Transport Management

MOPPW Ministry of Physical Planning and Works

MOST Ministry of Science and Technology

MOWR Ministry of Water Resources

MOWSW Ministry of Women and Social Welfare

MTEF Medium Term Expenditure Framework

NARC Nepal Agriculture Research Council

NDAC National Development Action Committee

NDC National Development Council

NEA Nepal Electricity Authority

NER National/Ecological/Regional

NERG National/Ecological/Regional/Gender

NERGS National/Ecological/Regional/Gender/Social Groups

NERS National/Ecological/Regional/Social Groups

NERUGS National/Ecological/Regional/Urban/Gender/Social Groups

NERUR National/Ecological/Regional/Urban/Rural

NERUS National/Ecological/Regional/Urban/Social Groups

NFC Nepal Food Corporation

NGOs Non-government Organizations

NHRC National Human Rights Organization

NLSS Nepal Living Standards Survey

NOC Nepal Oil Corporation

NPC National Planning Commission

iii

NRB Nepal Rastra Bank

NTB Nepal Tourism Board

NTC Nepal Telecommunication Corporation

NWSSC Nepal Water Supply and Sanitation Corporation

PAC Public Account Committee

PAF Poverty Alleviation Fund

PERC Public Expenditure Review Committee

PIUs Project Implementation Units

PRSP Poverty Reduction Strategy Paper

PSC Public Service Commission

RDBs Rural Development Banks

RNAC Royal Nepal Airlines Corporation

SAFTA South Asian Free Trade Arrangement

SAPTA South Asian Preferential Trading Arrangement

SMEs Small and Medium Enterprises

SOE Statement of Expenditures

TCA Telecommunication Authority

TPC Trade Promotion Center

UNDP United Nations Development Program

VAT Value Added Tax

VDC Village Development Committees

WTO World Trade Organization

WUA Water User's Association

Content

1. Introduction—The Socio-Political and Economic Context 1

The Tenth Plan's Challenge 2

The Organization of the Summary Paper 3

2. The Tenth Plan Preparation Process 5

Traditional Planning Process 5

The Tenth Plan Preparation 5

3. Review of Past Development Efforts 9

Introduction 9

Economic Reforms in the Early Nineties 9

The Ninth Plan 10

Growth Performance 11

Progress in Poverty Reduction and Human Development 11

Physical Infrastructure 12

Macroeconomic Performance 13

Progress in Policy Reforms 17

Lessons from Past Experience 21

4. The Poverty Situation - Its Key Dimensions And Determinants 23

Introduction 23

Recent Poverty Trends 23

Current Poverty Situation and Its Characteristics 24

Present Social Disorder and Its Implications 34

Conclusion 35

5. The Tenth Plan-Goals, Targets and Strategies 37

Introduction 37

Key Goals and Targets 39

The Tenth Plan's Poverty Reduction Strategy 40

Macroeconomic Stability 42

Structural Reform Agenda 43

Broad-Based Economic Growth 44

Social Sector Development (including Human Development) 52

Social Inclusion and Targeted Programs 56

Good Governance 60

Improving Financial Management and Accountability 61

Decentralization 63

6. Financing The Tenth Plan 64

Introduction 64

Macro-economic Framework 65

The Normal Case 66

The Alternative Case 70

Medium Term Expenditure Framework (MTEF) 72

7. Implementation Modalities 77

Introduction 77

Monitoring and Evaluation Arrangements 80

Conclusion 84

Annex 1 Policy Matrix 88

Annex 2 Immediate Action Plan 117

Annex 3 Macro-Economic Indicators 118

List of Tables

Table 1: The Ninth Plan—GDP and Sectoral Growth Rates.......................................................11

Table 2: Ninth Plan–Key Poverty and Human Development Targets and Achievements.....12

Table 3: Vital Physical Infrastructure—Targets and Achievements..........................................13

Table 4: Ninth Plan -Macroeconomic Performance, 1996/97–2001/02....................................14

Table 5: 1995/96 Survey: Income Poverty Indicators .................................................................25

Table 6: Human Development Indicators, 1996 and 2000* ........................................................26

Table 7: Gender Disparities in Key Human Development Indicators, 1996 and 2000...........28

Table 8: Human Development by Caste and Ethnicity, 1996......................................................29

Table 9: Household Distribution by Their Access to Agriculture Inputs, 1996.......................32

Table 10: Sources of Income of Rural Households, 1996..............................................................32

Table 11: Indicative Targets of the Tenth Plan................................................................................39

Table 12: Investment requirements of The Tenth Plan (Normal Case) ......................................68

Table 13: Sectoral Allocation of Development Expenditure- Normal Case ..............................68

Table 14: The Tenth Plan Macroeconomic Projections- Normal Case Scenario ......................69

Table 15: The Tenth Plan—Macroeconomic Projections—Alternative Scenario .....................72

Table 16: MTEF—Budget Allocations for Priority Sectors, 2002/03–2004/05.........................74

Table 17: Major Poverty Related Development Expenses.............................................................75

Table 18: Key Output/Outcome/Impact and Process Indicators ...................................................85

Introduction—The Socio-Political

and Economic Context

1 The overriding objective of development efforts in Nepal is poverty alleviation. In spite

of noticeable progress achieved over the past decade, there is still widespread poverty. The

Tenth Plan represents a renewed commitment by His Majesty's Government of Nepal to this

all-important task. Its sole objective is to achieve a remarkable and sustainable reduction in

the poverty level in Nepal from 38% of the population at the beginning of the Plan period to

30% by the end of the Tenth Plan, and to further reduce the poverty ratio to 10% in about

fifteen years' time.

2 The reduction of poverty to 30% by the end of the Tenth Plan is a daunting task by itself.

It has been made even more challenging by several recent developments in the country.

Among these, the following are particularly important:

i) First, poverty in Nepal has persisted for decades, and it is recognized as a deep-seated

and complex phenomenon, for which there are no quick and easy solutions. What has

changed particularly over the last decade is the socio-political situation in the country.

Following the Democracy Movement of 1990, peoples' expectations have risen; but

the economy and government actions, although successful in many areas, have

largely failed to fulfill the expectations of poverty alleviation. Significant progress

that was made especially in the early nineties was also not sustained. Thus, wide

disparities persist in regard to income distribution, social and economic infrastructure

and employment opportunities, particularly for an expanding young population. The

main reasons for these less than expected outcomes with regard to poverty alleviation

are discussed in section IV.

ii) Second, Nepal is currently experiencing complex socio-political situation, which has

intensified over the past few years. It has created considerable insecurity in many

parts of the country, made difficult for the government agencies and development

partners to carry out development activities in such areas. The situation also pre-

empted a significant and rising share of the government's limited financial and

administrative resources for maintaining peace and security in the country. The costs

so far in terms of human lives, destruction of property and infrastructure, increased

security expenditures and foregone development and economic activities have been

considerable. There are many underlying causes for the present situation, some of

which are political and ideological in nature. Nevertheless, there is little doubt that

among others, the underlying causes include poverty and its manifestations, (in terms

of regional, gender, ethnic and caste-related inequalities), as well as poor governance,

and the failure to deliver adequate and essential social services and infrastructure to

rural communities and marginalized groups. To bring about a lasting solution to the

present problem, the nexus of poverty, poor governance, and marginalization need to

be carefully and urgently addressed. A "Ceasefire" in late January and the subsequent

resumption of peace negotiations now provide considerable hope for resolution of

these tensions. However, any serious disruption of the peace process will destabilize

the fiscal situation, severely erode the country's capacity to carry out development

work and pose a major threat to social and political stability in the country. Nepal has

little time to lose.

iii) Third, the Tenth Plan's campaign against poverty reduction is being launched against

the backdrop of a fragile economy. After a decade of fairly robust growth, Nepal's

real GDP growth became negative (-0.6%) in 2001/02, for the first time in nineteen

years. In part, this has been due to: (a) The global recession and the after-effects of

September 11 (2001) events. (b) More importantly, the present turmoil has been an

even bigger destabilizing factor, through increased insecurity, destruction of physical

assets/infrastructure, bandhs (strikes) and loss of working hours and loss of business

confidence, among others. Together, these developments have adversely affected

activity levels in virtually every sector of the economy—industry, trade, construction,

tourism, exports, services etc,—as well as savings and investment levels and overall

economic growth. In particular, the effects of the disorder on the government budget

have been disastrous, (due to slowing revenues and a sharp rise in security-related

expenditures) at a time when substantially more (domestic and external) resources are

needed to vigorously implement the development/poverty reduction agenda.

The Tenth Plan's Challenge

3 Nepal is caught up in a vicious cycle of poverty and economic stagnation at present.

Poverty is providing a fertile ground for the disorder, which in turn is pushing the economy

into a downward spiral, undermining its capacity to vigorously pursue the poverty reduction

agenda. The challenge for the Tenth Plan is therefore, to break out of this vicious cycle by

designing and forcefully implementing an appropriate strategy to reduce poverty and to

eliminate the root causes of the disorder.

4 Notwithstanding these constraints, His Majesty's Government stands ready to take on the

challenge of poverty reduction. The Tenth Plan recognizes that, in view of the existing

turmoil, ways and means must be found quickly, despite budget constraints, to effectively

implement the development agenda aimed at addressing the underlying causes of poverty and

regaining public support and confidence, while concurrently pursuing possible approaches to

sustain peace and restore law and order.

5 In this context, as discussed below, the Tenth Plan has formulated an appropriate poverty

reduction strategy based on four pillars—to promote faster and pro-poor economic growth,

equitable access to social and economic infrastructure and resources for the poor and

marginalized groups, social inclusion and targeted programs and improved governance. The

Plan emphasizes effective implementation to ensure better delivery of outputs and services to

rural communities. To do so, within a tight budget constraint, it has adopted cross-cutting

approaches—limiting the role of the public sector and prioritizing public interventions;

enhancing the participation of the private sector, NGOs, INGOs, and community-based

organizations in development activities; developing alternative delivery mechanisms,

particularly through greater devolution of functions, responsibilities and resources to local

bodies; and greater community involvement in the formulation and management of key

programs aimed at meeting the needs of the rural population. The Plan also emphasizes good

governance to minimize leakages and irregularities, and ensure greater accountability through

better monitoring mechanisms. To bring about the necessary changes in these areas, economic

reforms in a broad range of areas and sectors have been formulated, together with a time-

bound plan of critical immediate and medium term actions for their implementation. To

ensure public acceptance of and support for it, the Tenth Plan has been prepared through a

highly participatory and consultative process.

6 The Tenth Plan provides a comprehensive framework, supported by detailed sectoral

programs, to carry out this strategy over the next five years. Given the richness of detail of the

Plan—over 600 pages in length—a shorter, more sharply focused summary —the PRSP—has

been prepared. The latter, apart from its usefulness to domestic audiences, can be readily used

by Nepal’s development partners as the basis for supporting the Tenth Plan’s implementation.

The Organization of the Summary Paper

7 The Summary Paper begins with a brief discussion of the Tenth Plan's preparation

process and highlights its key elements in this regard—country ownership, participatory

preparation and the dissemination and feedback process involving virtually all key segments

of the Nepali public (Section II). Section III reviews the development efforts undertaken in

the recent past, particularly through the Ninth Plan (1997/98-2001/02), and the key lessons

learned from this experience. The dimensions of Nepal's poverty problem, its manifestations

and determinants, and its linkages with the ongoing social disorder are then discussed in

Section IV. Section V outlines the poverty reduction strategy of the Tenth Plan, its key

sectoral programs and activities, and complementary policies and reforms, which are deemed

necessary to achieve them. The macroeconomic frameworks within which the poverty

reduction strategy, programs and activities will have to be implemented, and how these

programs will be adjusted from time to time, given the inherent uncertainties of predicting

resources, are then discussed in Section VI. That section also briefly discusses how the

government intends to cope with the inherent downside risks which are difficult to predict at

this stage, and how it will protect priority programs and activities in order to maximize the

poverty-reducing impact of the Plan. The implementation, monitoring and evaluation

modalities that are necessary to ensure effective implementation of the Plan, and key tools

and instruments, which will be used in this regard, are discussed in Section VII. The policy

matrix of the Plan linking the overall poverty reduction strategy with sectoral programs and

activities and the Government's Plan of key Immediate Actions (IAP) are shown as Annex 1

and 2. The macroeconomic framework with projected indicators of the Tenth Plan has been

presented in Annex 3.

The Tenth Plan

Preparation Process

Traditional Planning Process

8 Nepal has a well-established process for preparing periodic development plans, having

prepared nine such plans earlier. Typically, the preparation of the new plan starts with the

mid-term review of the ongoing plan, which serves as a base for the Approach Paper for the

new plan. The Approach Paper, which provides broad guidelines and targets and an indicative

resource framework for the new plan, is approved by the National Development Council

(NDC). The plan is then prepared and finalized by the beginning of the new plan period, after

discussion and approval first by the National Planning Commission and then by the Cabinet.

Traditionally, the plan preparation is led by the National Planning Commission (NPC), which

in consultation with the Ministry of Finance sets out the overall resource framework for the

plan, sectoral allocations and broad guidelines for the preparation of sectoral programs; while

the line ministries themselves are formally responsible for the preparation of sectoral

programs. Although the plan typically focuses on the next five years, the Ninth Plan

(1996/97-2002/03) also included for the first time a long-term (twenty year) perspective.

9 Though well established, this process has been subject to numerous criticisms: (i)

Typically, plan preparation has been a “top down” process, with little involvement of local

governments, beneficiaries, civil society or development partners. (ii) There was little

participation of, and feedback from, the key stakeholders; and wider societal ownership of the

plans was lacking. (iii) While the plans contained overall development and broad sectoral

strategies, they were not often well integrated. (iv) They were ambitious and tried to do too

much, without adequately recognizing resource or implementation capacity constraints. They

also did not adequately focus on implementation, monitoring or evaluation mechanisms. (v)

In addition, the plans were not anchored to a sound fiscal framework; and they did not have

any built-in mechanisms to adjust programs and activities from time to time, as needed. As a

result, there was no clear linkage between resource allocations in the annual budgets and plan

activities and targets. Consequently, they were often viewed as unrealistic from the beginning

and their usefulness as a development tool for poverty reduction was limited.

The Tenth Plan Preparation

10 The Tenth Plan represents a major effort to address these shortcomings. Its distinguishing

features include the following: (i) It has adopted a participatory and relatively more “bottom

up” approach; (ii) It is the product of an extended nation–wide consultation process over two

years; and the feedback from the such consultations has been interactively utilized for

finalizing the plan’s objectives, targets, policies; and programs; (iii) It focuses strategically on

the overall poverty reduction strategy and seeks to prioritize sectoral programs and activities

accordingly; (iv) It emphasizes results and effective implementation and monitoring

mechanisms; (v) It incorporates a credible macroeconomic framework by utilizing alternative

scenarios; (vi) The latter is supplemented by a rolling Medium Term Expenditure Framework

(MTEF), which will be updated every year, and provides for the first time in Nepal, an

effective mechanism to link the annual budget with the Five Year Plan and to make periodic

adjustments in programs as needed; and (vii) Finally, as the product of a highly participatory

process, it can claim a far higher degree of national ownership and acceptance than earlier

plans.

11 Of particular importance, the Tenth Plan's formulation benefited from the preparation of

additional, closely related, documents—Interim Poverty Reduction Strategy Paper (IPRSP)

and the MTEF. When the preparation of the Tenth Plan was initiated in mid 2001, the

government decided to prepare an IPRSP, which would be an important input into the

Approach Paper for the Tenth Plan; and that the Tenth Plan itself would be the government's

full Poverty Reduction Strategy Paper (PRSP). A Steering Committee was set up under the

Vice-Chairman, NPC to provide strategic leadership, while technical committees headed by

the Secretaries of the line ministries coordinated the formulation of sector strategies and

programs, leading to strong inter-agency participation and ownership. The MTEF and the

Tenth Plan were prepared concurrently by the same line ministry teams, ensuring close

coordination.

12 An extensive consultation process was initiated at various levels to discuss, and solicit

feedback on, the ideas and recommendations presented in the drafts of the various papers—

IPRSP, Approach Paper, MTEF and the draft Tenth Plan itself.

13 At the time of IPRSP preparation, five consultations were held including two exclusively

with women's groups. Three public consultations held in the months of August and September

2000 in eastern, central and western Nepal included representatives from all 75 District

Development Committees (DDCs), mainly their Chairpersons or Deputy Chairpersons,

representatives from socially backward classes, mayors from municipalities, academia from

campuses and schools, representatives from NGOs and CBOs, representatives from major

political parties and the private sector, women, and ethnic minorities, and participants from

remote areas. About 25% of the participants in these three consultations were women. The

other two consultations exclusively with women's groups – one in east Nepal and the other in

west Nepal – were held in the months of September/October 2000. Participants were drawn

from members of DDCs/VDCs and municipalities and representatives from NGOs, There

were also significant representations from backward communities, ethnic minorities including

dalits, and remote areas. It is worth noting that women participated actively in both mixed and

exclusive women's group discussions, with forceful opinions provided on different social and

economic issues that need to be dealt with at the national and local levels. In all these

consultations, brief papers were presented, followed by group discussions and additional

feedback provided by participants by filling-up a questionnaire. There were 112 participants

in the three mixed groups and 94 participants in the women only groups.

14 These consultations were characterized by frank discussions on broad features and causes

of poverty, strategies for poverty reduction, reasons for poor implementation, and measures

for ensuring gender equality. Broadly, they emphasized empowering and strengthening local

bodies, empowering women, modernizing and commercializing agriculture, promoting basic

and technical education, providing basic health and drinking water facilities, reducing

corruption, and the need for an efficient and effective bureaucracy. Participants from west

Nepal in particular emphasized the need for infrastructure development in their region.

15 Similar consultations were also organized subsequently to solicit opinions from all

concerned when the IPRSP was developed as the draft Approach Paper of the Tenth Plan.

Thus, in June 2001, five regional consultations were held. Participants numbering between 60

to 80 in each of these consultations in five Development Regions included all

Chairpersons/Deputy Vice Chairpersons of DDCs, representatives from ethnic minorities,

backward communities and areas, government officials, representatives from academia and

private sector, NGOs and CBOs. In view of the need for preparing periodic district plans, and

to identify ways to establish linkages between such district plans and the national plan,

another discussion was organized in October 2001 in collaboration with the Association of

District Development Committees of Nepal with chairpersons and deputy vice chairpersons

from all 75 districts of the country. A separate consultative meeting was also organized for the

parliamentarians of the country.

16 Major recommendations from these consultations included the need for prioritization of

development programs, need for giving greater emphasis to mid and far west regions in

development efforts, modernizing agriculture, more effective coordination of the roles of the

government, private sector and NGOs, promoting eco-tourism, and the development of basic

health facilities and drinking water in rural areas etc.

17 Based on all these consultations, the draft Approach Paper was finalized, and submitted to

the National Development Council (NDC) for its comments and approval. The meeting of this

national body was held in January 2002. The NDC is composed of all the ministers,

representatives from all political parties, chairpersons of different committees of House of

Representatives, Secretaries of line ministries, Vice Chancellors, representatives from private

sector and academia, ethnic minorities, labor unions, women, NGOs and CBOs at the national

level. The Council approved the Approach Paper with some revisions, emphasizing in

particular the prioritization of development programs, and effective monitoring of progress in

program implementation and poverty reduction.

18 In addition to the above, consultations held specifically in the context of the PRSP/Tenth

Plan preparation. The PRSP/Plan also benefited from a large number of consultations

organized from time to time by various agencies (such as the ADDCN, various HMG line

ministries, donor agencies, NGOs and CBOs) for developing key sectoral programs, thematic

chapters and background papers. For example, in formulating the Local Self Government Act

(LSGA), the Agriculture Perspective Plan (APP), Water Resource Strategy, Financial sector

reforms, Long Term Health Plan and programs for decentralization of primary education and

primary health centers, among others, extensive public discussions have been held at national

and regional levels. These have helped to evolve a broad consensus and wide support for the

poverty reduction strategy and structural reforms incorporated in the PRSP/Tenth Plan. While

the conflict may have constrained the consultation process in some parts of the western and

far-western regions at that time, HMG intends to expand the future consultation process to

include all key stakeholders in these areas as an ongoing process.

19 As noted, the Tenth Plan incorporates detailed alternative macroeconomic scenarios,

which is a significant departure from Nepal's traditional plan preparation process. It

recognizes the need for a more realistic and credible framework for guiding resource

allocation decisions in the current environment of social disorder and a fragile economy. It is

also supported by a rolling MTEF, which would be updated and revised annually with strong

monitoring mechanism. The MTEF represents the first serious effort to prioritize the public

expenditure program in Nepal; and provides, in a situation of unpredictable resource flows, an

in-built mechanism to ensure that limited resources would be channeled to the Tenth Plan's

highest priority sectors and activities through the annual budget. The goal of poverty

reduction will be evaluated by monitoring the track record of implementation as well as the

output indicators. The progress of these activities will help in achieving the Millennium

Development Goals. In addition, the Tenth Plan is supported by two other key initiatives: (a)

The Economic Reform Program (ERP) and (b) The Immediate Action Plan (IAP). The ERP

represents the Government's efforts to revitalize a flagging economy and to get the Tenth Plan

off the ground. And closely related to it, the IAP reflects the emphasis, which the Government

places on the quick and effective implementation of the Plan. By identifying critical policies,

programs and activities in key areas, and a specific timetable for their implementation, the

IAP provides a monitorable checklist for the Plan's implementation, which would be updated

on an annual basis as an effective operational tool.

Review of Past

Development Efforts

Introduction

20 Though poverty has always been an overriding concern of development efforts in Nepal,

it was explicitly stated as an objective only from the Seventh Plan (1985/86-1989/90)

onwards. The latter, however, was the first attempt to formulate a separate plan with a long-

term poverty alleviation perspective. Towards the end of the Plan period, it was derailed by

the Trade and Transit crisis and the resulting economic dislocation in the late eighties. The

transition to democracy in 1990, by raising popular expectations and aspirations, gave a new

impetus to poverty reduction. The development plans which were formulated subsequently—

the Eighth Plan (1992/93-1996/97) and the Ninth Plan (1997/98-2001/02)—specifically had

poverty reduction as their main objective. The Ninth Plan also established long-term targets

and development indicators for all sectors based on their potential for alleviating poverty.

Economic Reforms in the Early Nineties

21 To reduce poverty by accelerating economic growth and expanding employment

opportunities, the government in the early nineties initiated an extensive economic reform

agenda. Reforms were introduced, for example, to liberalize trade, investment and foreign

exchange regimes, unify the exchange rate, rationalize the tariff structure and the tax system,

promote exports, strengthen financial and capital markets, foster private sector development,

and strengthen public expenditure management.

22 These efforts yielded impressive results early on. They helped to transform the Nepalese

economy from a highly regulated to a more open, market-oriented economy; create an

energetic private sector and expand its role in such areas as manufacturing, industry, exports,

education, health, air transport, finance, and power; and to improve the country's macro-

economic fundamentals. In particular, it helped to accelerate economic growth in non-

agriculture sector (trade, transport, tourism, manufacturing and services); an annual rate of

7.5%, in real terms, in the first half of the nineties; and the share of non-agriculture rose from

51%to 59% of overall GDP in that period. As noted below, this helped to create increased

employment and income-earning opportunities in urban areas, and kept urban poverty at low

levels. According to the 1996 Nepal Living Standards Survey, urban poverty was estimated at

23%, and in the urban Kathmandu Valley at only 4%, compared to overall national poverty

incidence of 42% of the population. However, these early reforms did not touch the important

agricultural sector in a significant way; and consequently had little impact on rural poverty.

The Ninth Plan

23 The Ninth Plan's stated goal was to reduce (income) poverty from 42 percent to 32

percent of the population by the end of the Plan period, and to 10 percent by 2016/17. Several

other indicators of human poverty—such as illiteracy, infant mortality rate, maternal morality

rate, average life expectancy at birth—were also identified and targets set for them (Table 2).

To attain this goal, the Ninth Plan postulated a three-pronged strategy: (i) Achieving a high,

sustainable and broad-based economic growth rate (a minimum of 6% p.a. GDP) through

liberal and market-oriented policies; (ii) Developing social and rural infrastructure; and (iii)

Introducing targeted programs for those communities and areas left behind by the mainstream

development process. The Plan also sought to bring down the unemployment rate to 4% and

underemployment to 35% by the end of the Plan period. The Ninth Plan accorded high

priority to the neglected agricultural sector; and its centerpiece—the Agriculture Perspective

Plan (APP), formulated in 1995 with a long-term vision—sought to raise agricultural growth

rate to 4.0 percent for the Plan period and to 4.9% over the next 15 years. The APP envisaged

increasing cereal and cash crop production in the Terai and livestock products and other high

value crops in the hills, through increased use of modern inputs, irrigation, improved research

and extension services, rural roads and marketing network. In the non-agricultural sector,

emphasis was placed in developing tourism, labour-intensive manufacturing, hydropower and

the transport and communications network.

24 The Ninth Plan's implementation, (particularly towards its end), was severely disrupted

by the adverse domestic and external developments noted in para 2 above. The resulting

dislocations in terms of slowdown in economic growth, diversion of resources for security

needs, reduced availability of resources for Plan activities and the difficulties in carrying out

development work in the affected areas severely constrained plan implementation. These

apart, as discussed below, there were other important factors, which hampered the Plan's

performance.

25 By and large, the Ninth Plan's performance has been mixed. Given the ambitious nature

of the Plan, achievements generally fell short of targets. Nevertheless, as outlined below,

significant progress was made in some important areas. For example, some key human

development indicators showed notable improvement, while some progress was also made

early on in reducing poverty. Key macroeconomic indicators, such as the balance of

payments, monetary growth, and control of inflation indicate good progress, while some

actions have been taken in implementing policy reforms in key sectors, such as education,

health, power etc. which hold considerable promise for the future. Nevertheless, progress in a

number of areas has been below expectations, for example in reducing poverty and inequality,

in fiscal management, in improving the quality and delivery of essential social services and

rural infrastructure, and the effective implementation of announced policies and programs, all

of which were critical to the attainment of the primary goal of poverty reduction.

Growth Performance

26 Compared to a Plan target of 6.0% p.a, overall GDP growth averaged only 3.6% p.a.

(Table 1). Agriculture grew at the rate of only 3.3% p.a, and non-agricultural sector at 3.9%

p.a, compared to a Plan target of 7.3%. Allowing for population growth, (estimated at 2.25%

p.a), per capita income grew at 1.3% p.a, well below the 3.7% rate envisaged in the plan as

being necessary to make a significant dent on poverty.

Table 1: The Ninth Plan—GDP and Sectoral Growth Rates (In percent per annum)

NINTH PLAN TARGET ACHIEVEMENT

GDP (at factor cost) 6.0 3.6

Agriculture sector 4.0 3.3

Non-agriculture sector 7.3 3.9

• Industry, geology, and mines 9.1 2.0

• Electricity, gas and water 10.4 6.1

• Construction 5.9 4.1

• Trade, hotels and restaurants 7.4 1.4

• Transport and communication 8.7 6.0

• Finance and real Estate 5.8 4.0

• Social services 7.0 6.6

GDP (at market prices) 6.5 3.6

27 Weather-related fluctuations in output in the first and last years of the Plan dampened

agricultural as well as overall economic growth. Agricultural production was also affected by

ongoing social tension, as a result of insecurities that have been created and disruptions in the

supply of key inputs, labour, and marketing and cropping arrangements. Equally important

has been the failure to follow through with the effective implementation of the APP by

providing adequate support for its key elements (see below).

28 Growth in the non-agriculture sector was initially good; but it declined sharply in the last

two years of the Plan due to the deteriorating industrial environment. Initially, Nepal's exports

as well as manufacturing activity had grown strongly in the first three years of the Plan. But,

subsequently the global slowdown and, even more importantly, the deteriorating security

situation at home, have adversely affected virtually all the sectors and activities—exports,

manufacturing, as well as tourism, commerce, industry, services, construction etc. Investment

levels in both agriculture and non-agriculture sectors also declined. Unplanned cuts in public

investment/development spending (which is an important source of demand for private sector

activities) also affected non-agricultural growth in the last two years.

Progress in Poverty Reduction and Human Development

29 In the absence of recent national level household data, (the last Nepal Living Standards

Survey—NLSS—was carried out in 1996), it is difficult to provide an accurate and up-to-date

measure of the Ninth Plan's progress in reducing poverty. Preliminary estimates made in the

context of the mid term review of the Ninth Plan suggest that the poverty ratio declined

modestly from 42% at the beginning of the Plan to about 38% in 2000/01. This is not

surprising, given the slow growth of per-capita incomes, especially in rural areas, in view of

continued weak agricultural performance. It is also highly likely that since then, given the

sharp decline (by about 3%) in per capita income during 2001-02 and the continued

disruptions to investment and economic activities caused by the violence, that the poverty

situation in rural areas may have deteriorated significantly over the last year.

30 Progress achieved in Human Development as measured by key indicators, though

generally less than the Ninth Plan targets, is commendable in many areas. For example, the

infant mortality rate had been reduced from 75 per thousand at the beginning of the Plan

period to 64 by FY 2002 (Plan target 61.5), maternal mortality rate from 439 per 100,000 to

415 (Plan target 400), and life expectancy rose from 56.1 to 61.9 (Plan target 59.7). Other

notable achievements include: lowering the total fertility rate from 4.6 to 4.1 (exceeding the

Plan target of 4.2) and the overall population growth rate to 2.25 (i.e. below the plan target of

2.38). Largely reflecting these achievements, Nepal has been recognized as one of the

"successes" in terms of its recent progress in moving up the Human Development Indicators

Index. However, it should also be noted that the recent gains have been made from a

relatively low base; and that Nepal will need to continue to improve further to catch up with

other (smaller) South Asian countries. In other areas, progress has been less impressive: for

example, in regard to adult literacy, the Plan achievement is only 49.2% (compared to a target

of 70%), while the women's literacy rate is still low at 35.6%. Similarly, the net primary

school enrolment ratio is 80.4% (Plan target 90%) while the percentage of the population

supplied with drinking water is only 71.6% (Plan target was 100%). In addition, there also

major concerns about the quality and effectiveness of education, health, drinking water and

other social services delivered to communities; and major improvements in these areas are

necessary in order to improve living standards and quality of life, particularly of rural

communities.

Table 2: Ninth Plan–– Key Poverty and Human Development Targets and Achievements

Ninth Plan Objectives Base Year

1996/97

Target

2001/02

Achievement

2001/02

Percentage of Population Below the Poverty Line 42.0 32.0 38.0

Literacy Rate (Age 15+) in percentage 37.8 70.0 49.2

Net Primary School Enrollment 69.4 90.0 80.4

Infant Mortality Rate (per 1000) 74.7 61.5 64.2

Maternal Mortality Rate (per 100,000) 439.0 400.0 415.0*

Total Fertility Rate 4.58 4.2 4.1

Population Growth Rate 2.3 2.25

Average Life Expectancy 56.1 59.7 61.9

Drinking Water Supply (population in percentage) 61 100 71.6

* As estimated by the National Planning Commission. This figure will be revised when actual data

become available.

Physical Infrastructure

31 Progress in providing essential infrastructure, such as roads, irrigation, telephone and

electricity services, to communities has been mixed. In electricity generation, Plan targets

were accomplished. Another major achievement has been the effective implementation of a

framework for the involvement of the private sector in power generation; and a number of

projects involving substantial private investment have been either completed, or are under

construction. In the road sector, a major achievement has been the active involvement of

District and Village Communities in road construction, utilizing development grants from the

central government. However, the quality of construction in these projects is weak; and if

appropriate measures are not taken to improve quality, there is a danger of increasing

environmental problems. Moreover, in the road sector, although the Plan target in terms of

KMs of roads constructed has been exceeded, most of these roads are low priority roads. The

primary objective of linking district headquarters by roads has not been achieved, as only 4

districts were connected during the Plan period. Also, progress with regard to operation and

maintenance of the road system—one of the highest priorities in the sectors—has not been

satisfactory. Progress in telecommunications and irrigation sectors have been behind targets.

Table 3: Vital Physical Infrastructure—Targets and Achievements

Units Target Achievement

Total Roads Km 13564 15905

Total Irrigation Thousand hectares 1198 1121.4

Total number of Telephone lines Thousand 643.7 328

Telephone service Per thousand population 25 14

Electricity supply capacity MW) 598 584.5

Population benefiting from electricity Percent 20 40*

* including 7% from alternate energy

Macroeconomic Performance

32 Macroeconomic performance during the Ninth Plan was reasonably good. During most of

years of the Plan period, the balance of payments continued to strengthen, and fiscal,

monetary and price stability was maintained (Table 4). However, in the last year of the Plan

period, weakening global demand and the domestic violence took their toll. Overall GDP

growth, exports and government revenue slowed down, putting pressure on the budget and the

balance of payments. The macroeconomic situation has continued to deteriorate during 2002-

03—the first year of the Tenth Plan period (see below).

Table 4: Ninth Plan -Macroeconomic Performance, 1996/97–2001/02

Annual Data – In current Prices

Cumulative Data In 1996/97 Prices

Ninth Plan Period

1996/97

97/98 98/99 99/00 00/01 01/02 Ninth Plan

Target

Ninth Plan

Achievement

Change (%)

Economic Growth

GDP Growth (real produce price) 2.9 4.5 6.1 4.8 - 0.6 6.0 3.6 - 40.0

Per Capita GDP Growth (Real) p.a. 0.6 2.2 3.8 2.5 -2.9 3.7 1.3 -65.0

Investment and Savings (% of GDP)

Total Investment 25.3 24.8 20.5 24.1 23.8 24.4 372.71a 310.4a -16.1

Private Investment 17.2 16.2 13.0 15.4 14.3 14.8 247.55a 194.3a -20.4

National Savings 16.0 16.2 17.2 18.8 19.0 17.4 16.4 17.8 +8.5

Domestic Savings 14.0 13.8 13.6 15.0 14.7 11.6 14.1 13.2

Government Finances (% of GDP)

Government Revenue 10.8 11.0 10.9 11.3 11.9 12.0 210.84a 172.27a -18.3

Government Expenditure 18.1 18.7 17.4 17.5 19.5 19.3 337.29a 279.49a -17.1

Development Expenditure 9.5 9.6 8.3 8.4 9.0 7.6 189.58a 130.13a -31.4

Government Budget Balance -7.3 -7.8 -6.5 -6.2 -7.6 -7.3 -126.45a 106.43a -15.8

Foreign Aid (Grants and Loans) 5.4 5.5 4.8 4.6 4.6 4.7 111.55a 72.42a -35.1

Domestic Borrowing 1.9 2.2 1.8 1.5 3.0 2.6 14.90a 24.54a +64.6

Balance of Payments (% of GDP)

Export Value 8.1 9.1 10.4 13.1 13.6 11.3 12.5% p.a. 12.2% p.a.

Import Value 33.4 29.6 25.6 28.6 28.2 25.4 8.6% p.a. -2.8% p.a.

Current Account Balance Before Grants -9.3 -8.6 -3.4 -5.3 -4.8 -7.0

Aid disbursements (Net) 6.4 6.9 5.9 5.1 4.2 3.4 111.5a 71.9a -35.5

Gross Foreign Exchange Reserves b 5.5 7.7 9.0 9.2 9.6 10.5 71a 104.3a +46.9

Monetary Data (percent p.a)

Broad Money Growth (M2) 12.0 21.9 20.8 21.8 15.2 5.5 14.8 20.0

Domestic Credit Growth (at current price) 13.1 14.8 16.4 17.2 18.6 9.8 16.1 16.6

Net Foreign Assets (NFA) (at current price) 6.6 38.3 17.0 23.8 9.1 21.6 9.15 21.9

Inflation (percentage p.a.)

Consumer Prices 8.1 8.3 11.4 3.4 2.5 2.9 6.55 5.7

a Rs. billion b In months of imports of goods and services.

33 Why then were these good indicators not translated into better poverty reduction and

development results during the Ninth Plan? A number of factors help explain the Ninth Plan's

modest performance. Following a quick review of the main macroeconomic developments in

the next few paragraphs, the key cross-cutting issues which hampered the attainment of better

development results are discussed briefly below. Reform actions taken by the Government in

the last two to three years in response to the deteriorating economic conditions are then

discussed. A detailed review of performance in the key sectors is made in the respective

sectoral chapters of the Tenth Plan.

34 Saving and Investment. Overall savings performance was reasonably satisfactory. Even

though domestic savings fell somewhat, the national savings rate exceeded the Plan target, as

remittances by Nepalese working abroad more than trebled during the Plan period. However,

the overall investment was significantly (16%) below the Plan target. Private investment fell

even more and reached only about 80% of the Ninth Plan target. Although some areas such as

hydropower, airlines, health, education and tourism initially attracted substantial private

investment, the overall investment climate was affected by weak domestic demand, political

instability, insecurities created by the violence, and administrative/ bureaucratic hurdles.

35 Balance of Payments. A major achievement during the first four years of the Plan period

was (i) the rapid growth of exports from 8% of GDP in 1996/97 at the to nearly 14% of GDP

by 2000/2001. Most of this growth reflected increased exports to India—vegetable ghee, jute

products and light consumer goods (e.g. toiletries and processed products)—as Nepal was

able to take advantage of the 1996 Indo-Nepal Trade and Transit Agreement, under which

India granted duty-free access to certain imports from Nepal. Exports to third countries—in

particularly garments, pashmina products and carpets—also increased steadily through

2000/2001. However, exports decelerated sharply in 2001/02 due to the global recession,

quota restrictions on Nepal's exports to India, and the deteriorating security situation at home.

Nepal's exports to third countries now face an uncertain future due to possible effects of the

phasing out of the Multi-Fiber Agreement and loss of cost-competitiveness in part due to

domestic disruptions. (ii) The slowdown in the economy, weak public and private investment,

and the deteriorating security situation affected Nepal's imports even more. Imports in

1996/97 prices in fact declined at an annual rate of 2.8%, compared a planned increase of

8.6% p.a.. (iii) With increasing migration abroad of Nepalese workers in recent years,

remittances however have risen rapidly. (iv) Accordingly, the current account

deficit (before grants) improved sharply from around 9% of GDP in 1996/97 to around 3.4 to

8.6% of GDP over the Ninth Plan period. (v) Even though foreign aid inflows (net of debt

repayments) as a percentage of GDP gradually declined from about 6% to around 4% over the

Plan period, (reflecting the poor implementation of development programs), nevertheless,

Nepal's gross foreign exchange holdings rose steadily from about $ 850 million in 1996/97

to about $1.7 billion, (the equivalent of 13 months' imports of goods and services), in

2001/02. However, the sustainability of this position is questionable, given the growing

uncertainties for both exports and the demand for Nepali-workers abroad.

36 Monetary and Price Developments. Based on GDP (at factor cost) growth of 6% p.a.,

an inflation rate of 6.5% p.a. and a monetization rate of 0.5% p.a., the Ninth Plan targeted

Narrow Money (M1) to grow at 13% p.a. and Broad Money (M2) at 14.8% annually. During

the Ninth Plan, M1 actually grew by 16.5% p.a. and M2 by nearly 20% p.a. The faster growth

of money supply was mainly due to the rapid increase in foreign exchange reserves, at an

annual rate of 21.9% (compared with a Plan target of 9.1% p.a.). Domestic credit grew by

16.6% p.a., more or less in line with Plan targets. Credit to the private sector grew less rapidly

than expected, (given the slowdown in private investment and activity levels), offsetting

increased public sector borrowing. A sluggish economy, weak domestic demand, and the free

flow of goods across the open border helped to keep inflation in check, at 6.3% p.a. compared

to a Plan target of 6.5% p.a.

37 Fiscal Performance. The Ninth Plan had envisaged an ambitious development program,

which it sought to finance through large increases in revenue and external aid, while limiting

domestic borrowing in order to maintain macroeconomic stability. While it succeeded in

achieving the latter goal, it failed to effectively implement the development program. This

was due to a number of factors: (i) Although the revenue/GDP ratio rose by one percentage

point from 10.8% to 12.0%, revenue collections fell 19% below Plan targets due to the

weakening of the economy and imports, deteriorating industrial environment and security

situation, and weaknesses in the tax structure. (ii) Regular expenditures rose significantly

faster than revenue growth from 8.6% of GDP to 10.7%, as security expenditures increased

sharply, particularly in the last two years. (iii) Consequently, the revenue surplus available for

financing the development programs, was sharply reduced from a Plan target of Rs.63 billion

in 1996/97 prices, (equivalent to 33% of planned development expenditures), to only about

one-third of that level. (iv) Similarly, disbursements of foreign assistance (grants and loans)

fell far short of the Plan target of Rs. 111.5 billion in 1996/97 prices, to Rs. 71.9 billion, i.e.

35% less than expected. Unrealistic aid targets, counterpart funding shortfalls and poor

implementation of donor-assisted programs were the major reasons for this shortfall. All of

these factors together created a major shortfall in financing the development budget, which

was cut back by two percentage points of GDP over the Plan period. In 1996/97 prices, actual

development spending reached only about two thirds of the Ninth Plan target. Thus, many

programs/activities were significantly under-funded. Agriculture, irrigation and forestry,

which are crucial for the alleviation of rural poverty, were the most severely affected. While

the government was generally able to protect the social sectors’ share in development

spending, the absolute level of spending on these programs still fell far short of Plan targets.

38 Apart from financing shortfalls the Ninth Plan's mixed implementation performance

was also due to several other reasons. First, continued political instability from the mid

nineties onwards created a poor environment for development. With frequent changes of

governments and officials, little attention was given to the effective implementation of the

plan and economic reforms, which were critical to attaining its goals. Second, public

expenditure management itself was poor. Apart from having ambitious targets, the Plan

included too many activities, which were not sufficiently prioritized; and the Plan lacked an

effective mechanism (such as a rolling MTEF), to make adjustments as necessary to the

resource constraints. Third, there were serious governance problems. Corruption and leakages

increased, as did the politicization of the civil service, and misallocation. Fourth, service

delivery by public sector agencies was weak. Although decentralization of central government

functions and responsibilities to local governments and communities was expected to help

improve service delivery, this did not happen as rapidly as envisaged. Fifth, monitoring

mechanisms to ensure effective implementation of programs/activities and accountability

were weak. Sixth, These deficiencies in turn contributed to the unsatisfactory aid

disbursement performance. In many areas even committed aid funds could not be utilized

because of slow progress of projects and programs.

39 Agriculture —the major focus of the Plan's poverty reduction strategy—is an excellent

typology of, the Plan's mixed performance. There were significant improvements within the

sector: output growth was satisfactory in the middle three years of the Plan, a noticeable shift

to cash crops was taking place, and progress has been made in involving the private sector in

input distribution, among others. But, there were also major shortcomings: (i) Agriculture

sector, as noted, was severely under-funded. (ii) The key inputs, which are central to the APP

strategies were not effectively provided. For example, the groundwater (shallow tubewell)

development program was poorly implemented both because of differing Irrigation sector

priorities and inconsistent subsidy policies. Similarly, the development of agricultural roads

network lagged behind; and the pocket extension and research approach, (which is essential

for developing high value horticultural products in suitable locations in the hills), was poorly

implemented. (iii) In addition, a major problem was the fragmentation of responsibilities for

APP implementation among a number of ministries and departments, and the lack of co-

ordination among them.

40 Private sector development has been an important part of the Ninth Plan Strategy; and

the mixed performance of the Plan also reflects the lack of sufficient progress in this area.

While political instability, attacks on some business establishments and the implosion of some

industrial sub sectors have eroded business confidence; the poor implementation of policies

governing the private sector continues to be an important constraint on private investment. A

survey of private sector firms carried out in 1999 identified several such impediments

including, among others, excessive bureaucratic delays in the provision of government

services, lack of clarity of laws and unpredictability in the enforcement of government

policies, discretionary implementation of tax laws, excessive documentation requirements,

and labour laws that prevent retrenchment of workers (encouraging firms to employ more

casual labour). To address this situation a regulatory framework reflecting clarity of laws and

predictability of government policies, procedural simplification and reduction in discretionary

powers of the authorities will be made the basis for making the private sector vibrant and

dynamic.

Progress in Policy Reforms

41 Although important policy changes were initiated in some areas, by and large, progress in

implementing critical reforms was slow, given the continued political uncertainties and weak

commitment. The Ninth Plan's progress in this regard is discussed briefly below.

Governance, Decentralization and Civil Service Reforms

42 Decentralization was a major thrust of the Ninth Plan. In terms of creating a legal and

institutional framework, considerable progress has been made: For example, the Local Self

Governance Act (LSGA) was enacted in 1999. This was followed up with more specific

recommendations by PERC. A high level Decentralization Implementation Monitoring

Committee (DIMC) was set up to oversee its implementation; and it has approved the fiscal

decentralization framework. Capacity building programs were undertaken with donor

assistance in selected districts to strengthen local bodies; and 45 districts have already

prepared periodic district development plans. However, progress in implementing

decentralization during the Ninth Plan has been limited by : (i) The overall resource constraint

at the national level; (ii) Delays in transferring functions and responsibilities to local

governments, and lack of agreement on operational modalities; and (iii) Institutional capacity

and accountability considerations, among others.

43 Civil service reform. The proposed measures aimed at: (i) right-sizing the civil service

by reducing staff, decentralizing functions and responsibilities, contracting out some

peripheral activities to private sector and streamlining government departments and offices;

(ii) improving incentive structure through wage reforms and merit-based performance and

promotion system; and (iii) improving efficiency and accountability of civil servants. There

has been some progress in implementing the reforms. These include restriction of frequent

transfer of civil servants, computerized data base in the civil service records department,

freezing of more than 12,000 vacant positions, initiation of voluntary retirement scheme and

streamlining of government's central organization and establishment of civil service rewards

and development of evaluation center. A civil service census has been under preparation and

public sector salaries were increased substantially in 2001. In the meantime, the Government

has also initiated a long-term and comprehensive Governance Reform Program (GRP) with

the objective of making the civil service more results and people oriented. Lack of political

commitment and resources, and political changes have hampered effective implementation so

far; but renewed commitment to implementation is necessary to improve public sector

efficiency.

44 Governance has continued to be a persisting problem resulting to inefficiency in

utilization and leakage of public resources. Although Nepal has good public accountability

mechanisms including an active Public Accounts Committee (PAC), an independent Auditor

General's Office (AGO), a Financial Comptroller General's Office (FCGO) and an

independent Commission for Investigation of Abuse of Authority (CIAA), follow up actions

to enforce their effectiveness have been limited. Towards the end of the Ninth Plan Period,

four anti-corruption legislation were passed by the parliament, which was a significant step

towards addressing corrupt practices. In addition, a Judicial Property Probe Commission was

also established to address the problem of corruption. Some of the recommendations made by

the Public Expenditure Review Commission (PERC) were adopted and the recommendations

made by a recent Country Financial Accountability Assessment are being implemented. The

CIAA has already initiated actions to combat corruption, which hold considerable promise for

the future.

45 Tax Reform. To improve revenue collection, a major tax reform program was

introduced. Its main elements included: (i) The introduction of a Value Added Tax (VAT) and

extending its coverage to include many small and medium enterprises; (ii) Improving the

import valuation system for customs and requiring payments to be made through banks; (iii)

Revising the Income Tax Act in order to consolidate tax laws and simplify payments

procedures; (iv) Strengthening the tax administration by amalgamating the Departments of

Taxation and VAT into one; and (v) Strengthening anti corruption measures. These measures,

however, had little impact in the short term in improving the Ninth Plan's revenue

performance. But, they should help improve the elasticity and transparency of the tax system

over the medium term.

46 Public Expenditure Reform. Several important steps to strengthen public expenditure

management, in the last two years. A Public Expenditure Review Commission (PERC) was

set up in 2000/01; and its key recommendations have been subsequently implemented. These

included, among others: (i) Streamlining and rationalizing the role of the government,

ministries and departments with a view to improving service delivery; transferring functions

and responsibilities to local governments, and reducing administrative costs; (ii) Prioritizing

the public expenditure program and reducing the number of projects and programs; (iii) Civil

service/governance reforms to improve accountability and right-sizing key government

ministries and departments; (iv) Strengthening cost control, financial management and

internal auditing systems; and (v) Accelerating the decentralization program, especially in

education , health and agricultural extension services. PERC also recommended the

formulation of Medium Term Expenditure Framework, which was subsequently adopted as

the basis of the 2002/03 Budget. The MTEF introduced important reforms, including a more

realistic budget framework, a serious prioritization involving a major reduction in the number

of projects/ programs, greater focus on implementation and monitoring of expenditures, and

linking fund releases to performance. The MTEF is expected to be a regular part of the

budgeting and planning process, and now provides an extremely useful mechanism for

adjusting the Tenth Plan and the budget to the changing resource situation.

47 Financial Sector. Reforms in this sector have been deemed essential for ensuring

solvency of the banking system and for providing adequate and predictable credit flows to

sustain a vibrant private sector. However, for a variety of reasons, the implementation of the

reforms has been slower than expected. A Financial Sector Strategy Statement was prepared

in 2001 and its key recommendations are now being implemented. These include: (i)

Strengthening the autonomy and authority of the Nepal Rastra Bank; (ii) Enhancing its

capacity for supervision and regulation of commercial banks; (iii) Concurrently, the two

major banks (which own nearly 60% of the banking assets) have been placed under external

management in order to address their deep-rooted management and financial problems and

possible restructuring needs. However, much remains to be done to complete the reform

program.

48 Infrastructure Reforms. During the Ninth Plan, important reforms were initiated to

encourage private sector participation in infrastructure, particularly in power,

telecommunications, education, health and rural infrastructure. These hold considerable

promise for the future, even though their impact during the Ninth Plan Period has been

uneven among sectors. The more important initiatives include the following:

• Hydropower policy was revised to allow the private sector entry into a full range of

power sector activities i.e. generation, transmission and distribution. Considerable

private investments have already taken place under the previous policy in a number of

power generation projects. But progress has been constrained by the insecurity caused

by the civil disorder.

• Telecommunications progress has been made in opening up the sector for private

investment. A new Telecommunications Act was enacted to introduce competition in

basic, cellular and value added services and the private sector is now involved in their

provision. A private operator was also selected to provide basic telecommunications

services to 534 rural communities i.e. roughly one-fourth of the rural communities

which are under-served. Thus the monopoly which the public sector agency—Nepal

Telecommunication Corporation (NTC)—enjoyed has been broken; and a

Telecommunications Authority has been set up to oversee the sector.

• In Education and Health, private sector participation in providing alternative

educational and health care services increased significantly over the plan period.

However, the quality of education services provided particularly through the public

sector needs to be enhanced. But the coverage in health sector has significantly

increased. To improve service delivery through community participation and

management, handover of village level schools and health facilities to communities is

being implemented in a phased manner from 2002/03 in selected districts; and as

experience is gained, it is expected to be replicated in other areas. In education, the

government has also announced new programs to: (i) provide free education upto

tenth grade for all girls and for those boys of oppressed, backward and below poverty

line; (ii) providing education in mother languages (of communities) upto the primary

level: (iii) regulating fees in private schools; (iv) providing scholarship in

private/boarding schools to students from "oppressed and backward communities"

and (v) the setting up Rural Education Development Fund (finance by a levy of 1.5

percent of the income of private/boarding schools) which would be utilized for

funding the education of marginalized communities.

• In Transport, new policies initiated to meet the Ninth Plan's goals included the

creation of a separate institutional mechanism (DOLIDAR) for the construction of

agriculture roads, delegation of responsibility and resources to local authorities to

construct local roads; and the formulation of a Public Infrastructure Construction and

Transfer Policy to promote private sector participation. These initiatives so far are yet

to produce the desired results. While there has been considerable progress in terms of

road construction by local bodies, considerable technical support and supervision are

necessary to ensure appropriate planning and road quality in order to avoid

environmental problems.

• In Agriculture and Irrigation, as noted earlier, important policy changes have been

introduced to promote private sector participation in input supply and investment,

with mixed results. Private sector participation in fertilizer and seed distribution has

increased significantly with the removal of subsidies (and the monopoly) given earlier

to the Agricultural Inputs Corporation. However, there are a number of problems to

be overcome, (for example, ensuring better quality of private supplies), in order to

effectively implement this policy and increase fertilizer usage.

Lessons from Past Experience

49 The Ninth Plan was not an unqualified failure or a success. As noted, its performance was

mixed. There was some initial good progress in terms of economic growth and

macroeconomic stability, and some promising reform initiatives late in the Plan period.

Nevertheless, the Plan did not achieve good results in relation to its primary goal of

substantially reducing poverty.

50 Some interesting lessons have been learnt from the Ninth Plan's experience, which can be

helpful to make the Tenth Plan successful. These include, among others, the following: (i)

Three essential requirements for ensuring good progress in poverty reduction are (a) political

stability; (b) strong government commitment and political will to effectively implement the

poverty reduction agenda; and (c) good governance, in terms of service delivery, transparency

and accountability. All three are closely inter-connected; and they collectively provide a

conducive environment in which development efforts can produce good results. However,

they could not be realized, (instead, they deteriorated) during the Ninth Plan period. (ii)

Within such an environment, the Plan itself needs to be credible and realistic, and firmly

anchored to the realities of resource availability. Otherwise, a Plan cannot be implementable

and becomes a wish-list of projects and activities. This was also largely the case with the

Ninth Plan. (iii) To make it operational in such an environment, a Plan needs to be well

prioritized and supported by mechanisms (and political will) which would allow the key

priorities to be protected and funded within the resource constraints. This did not happen, and

a considerable part of actual public spending was diverted to lower priority activities in many

sectors. (iv) To ensure progress towards poverty reduction, the Plan would need to be result-

oriented, specify actions to achieve outputs and service delivery targets, and include

mechanisms to monitor progress and ensure accountability. Such mechanisms were weak. (v)

Finally, recognizing that the role of the central government and its agencies would need to be

limited, (if for no other reason than capacity constraints), the Plan had envisaged

decentralization to local governments and the active involvement of communities (as well as

the private sector, INGOs, NGOs and CBOs) in the management and delivery of essential

services. This would have also helped to ensure wider participation in, and ownership of, the

poverty reduction agenda. However, despite the creation of a good legal framework, there was

little progress in effectively implementing these promising approaches.

51 Some further lessons have been learnt from the implementation of the Ninth Plan. First,

broad-based economic growth is a must for poverty reduction; and without reasonable growth

in agriculture and rural economic activities, GDP growth can not be broad based. Second,

liberal economic policies provide opportunities for private sector development; but

appropriate interventions are also necessary for inclusive development, i.e. targeted programs

focusing on the deprived, poor, vulnerable and socially excluded groups. Third, along with

economic growth, access to education, health, safe drinking water and rural infrastructure

(like roads, electricity and irrigation) are important for better human development outcomes.

And fourth, without good governance, these initiatives can not ensure delivery of goods and

services in an equitable, effective and efficient manner. Allocation of resources and creation

of institutions alone have not helped to enhance access of the people to basic services. These

issues have to be adequately addressed to achieve any meaningful reduction in poverty. These

are the reasons why the Tenth Plan builds its poverty reduction strategy on four basic pillars:

(a) broad based economic growth, (b) social sector development including human

development, (c) targeted programs, including social inclusion, and (d) good governance for

effective, equitable and efficient delivery of public goods and services. These are discussed in

detail in the subsequent sections.

The Poverty Situation - Its Key

Dimensions And Determinants

Introduction

52 Poverty in Nepal is widespread with 38% of the population living below the poverty line.

Segments of the poor are hardcore poor barely eking out subsistence on fragile, vulnerable

ecosystems; and large areas of the country lack even the most basic infrastructure. And there

are wide variations in poverty levels based on rural-urban divide, geography, gender, and

ethnic groups and occupational castes.

53 This section analyses the dimensions of the poverty situation in Nepal and its key

determinants. It begins with a brief discussion of data sources and poverty trends. It then

reviews the poverty situation from a multi-dimensional perspective, including income

poverty, human development indicators, and gender, ethnic and caste-related differences,

which help to bring out the social exclusion aspects of the poverty problem. The major causes

of income and human poverty and exclusion are then discussed. The concluding sub-section

discusses the possible linkages between the poverty situation and the ongoing civil disorder.

54 Most of the data on which the analysis is based are derived from the Nepal Living

Standards Survey (NLSS), which was carried out in 1996. Another NLSS has been recently

carried out in early 2003 but its results will not be available for several months. In the context

of the mid-year evaluation of Ninth Plan, a smaller sample survey was undertaken in 2000;

but it is not comparable with the 1996 survey, nor adequate to provide the basis for poverty

analysis. (Thus PRSP benchmark of 38% poverty head count is not survey based, but

estimated on the basis of economic growth in the last few years relative to the 1996 NLSS

survey data. The poverty benchmark would be revised when the data analysis of the current

NLSS II survey is completed in early 2004). The human development indicators are based in

Nepal Human Development Reports for 1996 and 2001 prepared by the United Nations staff.

Sufficiently detailed published survey data are not available for analyzing gender, ethnic and

caste-related poverty differentials; and the analysis in this section relies on the findings of

researchers who used the 1996 NLSS and other sources.

Recent Poverty Trends

55 Assessing what happened to poverty over time is useful for understanding the current

poverty situation in Nepal. But in the absence of comparable survey data, it is hard to reach

definitive conclusions. There were three nation-wide surveys before the 1996 NLSS. The first

in 1976/77 estimated that 33 percent of the population fell below the poverty line, that poverty

was mostly prevalent in rural areas, and that it was most intense in the Mid Western and Far

Western development regions. The 1984/85 household survey estimated the poverty rate at 42

percent, and concluded that the disparities among geographical and development regions

remained more or less the same as before. The third survey in 1991 covered only the rural

areas. It also indicated widespread rural poverty, and that it was most severe among the

landless and small farmers.

However, these surveys were not directly comparable with the 1996 NLSS, or with each

other, since they all used different methodologies to collect data on incomes and consumption

and to define measures of poverty. But when different methodologies are applied to the 1996

NLSS data to replicate as closely as possible the methodologies used in the earlier surveys in

order to obtain broadly comparable estimates, some tentative conclusions can be drawn: (i)

There is no evidence of a decline in poverty in Nepal as a whole between 1976/77 and

1995/96; and (ii) There is also no evidence of a decline in poverty between 1984/85 and

1995/96. In fact there is some evidence of an increase in poverty during that period, but such

an increase cannot be stated with a high degree of confidence. (iii) There is some evidence of

a decline in rural poverty between 1991 and 1995/96. This suggests that while there may have

been some improvement in rural areas in that period, it was not enough to compensate for the

deterioration that took place in the previous fifteen years.

56 Apart from poverty incidence, a few other conclusions emerge from the Poverty

Assessment with regard to overall trends: (i) The absolute numbers of the poor appear to have

increased sharply. Assuming a constant incidence of 42 percent in both 1976 and 1996 and

with population growing at an average of 2.6% p.a. in the intervening period, the number of

the poor is estimated to have grown from 5.7 million in 1976 to about 9.2 million in 1996—an

increase of about 3.5 million. (ii) In regard to urban-rural differentials, urban areas,

particularly the Kathmandu Valley, appear to be better off in 1995/96 than in the earlier

decade. In contrast, rural areas generally appear to have been worse off than in 1984/85, but

better off in 1995/96 than in 1991. This evidence suggests as noted, a significant deterioration

in the late eighties, followed by some improvement in the early nineties. Some rural areas—

central hills and central Terai—appear to have benefited from the rise in per-capita incomes in

the Kathmandu Valley. However, other areas, notably the Mid West and Far Western regions,

appear to have become worse off, or least not any better. These areas, the poorest in 1984/85,

also remained the poorest in 1995/96 also. (iii) The Poverty Assessment also indicated that

the distribution of income appears to have become more unequal everywhere between

1984/85 and 1995/96. This was also true of the distribution of consumption, but to a lesser

degree.

Current Poverty Situation and Its Characteristics

Income Poverty

57 Apart from its high incidence, poverty situation in Nepal is characterized by wide

variations between urban and rural areas, ecological zones, development regions, gender and

This analysis is based on the 1995/96 NLSS data, as it is the latest nation-wide survey available.

ethnic and caste groups. The 1995/96 Household Survey data provide useful information in

this regard (Table 5). Several important conclusions can be drawn from Table 5.

Poverty in Nepal is largely a rural phenomenon. In 1995/96, 44% of the rural population was

living in poverty. Poverty was significantly lower, only 23%, in urban areas. Indeed in the

Kathmandu Valley, (where the vast majority of the population falls in the upper quintiles of

the national income and consumption distribution), the poverty rate was only 4%; poverty in

other urban areas (excluding the Kathmandu Valley) was about 34%, still significantly lower

than the national average (42%) and rural poverty incidence. Judging by the absolute numbers

of the poor, the predominantly rural nature of the poverty problem is even more striking.

According to the survey data, over 90% of the poor live in rural areas! When ecological zones

are compared, poverty in both the (low land) Terai and the Central Hills is close to the

national average. But poverty in the Mountain region is much higher—56%. The survey data

also show wide variations in poverty within rural areas. For example, poverty rate is the

highest in the more remote rural areas—the Mid-Western and Far-Western hills and mountain

regions where it is as high as 72%. The rural Mid-Western and Far-Western Terai regions are

also much poorer (53% incidence) than the national average.

Table 5: 1995/96 Survey: Income Poverty Indicators (Poverty Line: Rs. 4404 per person per

year)

Ecological Zone Poverty Incidence-Percentage of

People Living Below Poverty Line (%)

Poverty Gap-Depth/

Intensity of Poverty %

Severity of

Poverty %

Mountain 56 18.5 8.2

Hill 41 13.6 6.1

Terai 42 9.9 3.4

Rural/Urban

Urban 23 7.0 2.8

Rural 44 12.5 5.1

Nepal 42 12.1 5.0

Source: World Bank (1999) Nepal; Poverty at the Turn of Twenty First Century.

58 Table 5 also shows the depth/intensity of poverty and its severity. The poverty gap

analysis shows how far below the poverty threshold income/consumption level the poor are

concentrated on average, i.e. whether they are close to, or significantly below, the poverty

line. Thus, larger the poverty gap, greater is the depth/intensity of poverty. The severity

measure is similar to the poverty gap measure in construction, but gives greater weightage to

those who are further below the poverty line (ie, the hard core poor). Again, higher the

numerical value of the index, the deeper and more severe is poverty. The estimates in Table 5

show that while the poverty gap and severity measures are only 7.0% and 2.8% respectively

for urban areas, the corresponding values are over 12% and 5% for all of Nepal, and are far

higher for the Hills (13.6% and 6.1%) and the Mountain areas (18.5% and 8.2% respectively).

Thus, all three estimates (incidence, intensity and severity) suggest that poverty is more

rampant, deeper and severe in rural (as compared to urban) areas, and that it is much worse in

the Hills and the Mountains as compared to both urban areas, as well as the (rural) Terai.

Human Development Indicators

59 Apart from income levels, poverty levels can be measured more broadly in terms of

access to basic social and economic infrastructure, which help improve the quality of life at

various levels of income. Among these, education is by far the most important, since it would

enable the poor to climb out of poverty over time; but others such as access to healthcare, safe

drinking water etc. contribute to improved living standards and life expectancy. Nepal has

made significant progress over the past two decades in terms of such human development

indicators. Table 6 below (derived from Nepal Human Development Reports 1996 and 2001)

shows both the current situation and recent progress in this regard.

Table 6: Human Development Indicators, 1996 and 2000*

Adult Literacy

Rate (above 15

years)

Average Life

Expectancy

Percentage of

Population Having

Drinking Water

Human Development

Indicators (Index

1.00)

1996 2000 1996 2000 1996 2000 1996 2000

Ecology Zone

• Mountain 27.5 44.5 52.7 49.8 - 79.2 0.271 0.378

• Hill 40.2 55.5 58.0 65.1 - 76.2 0.357 0.51

• Terai 35.9 46.8 59.5 62.4 - 83.4 0.344 0.474

Urban/Rural

• Urban 63.5 69.0 55.0 71.1 62.0 92.3 0.518 0.616

• Rural 34.5 48.0 53.7 58.7 61.0 78.1 0.306 0.446

• Nepal 36.7 50.7 55.0 59.5 61.0 79.9 0.325 0.466

Dev. Region

• Eastern 43.4 62.0 77.7 0.484

• Central 47.1 61.3 85.1 0.493

• Western 48.3 62.8 83.8 0.479

• Mid-West 50.4 53.2 65.5 0.402

• Far-West 42.6 52.1 82.3 0.385

* As the data for this table was derived from different reports, they may not tally with similar other data

reported in other sections of this document.

Source: Nepal Human Development Reports, 1996 and 2001

60 Despite significant progress in recent years, human development indicators are still low

for Nepal; and they show significant urban/rural and geographical variations which duplicate

the income poverty differentials noted earlier. For example: (i) The HDI for urban areas

(0.616) far outstrips that for rural areas (0.446), because of far better access in urban areas to

services, resources and opportunities. (ii) Similarly, there are significant differences among

ecological zones. HDI for mountains (0.378) is far below that for the hills (0.51). The broad

scattering of communities in the mountains sharply limits access to services and resources and

severely disadvantages people who live there. Human development in the hills is higher than

in the Terai (and the national average), in part because many large towns and cities (including

Kathmandu Valley) are located in the hills. (iii) Among the development regions, HDI is

highest for the central region (0.493), followed closely by the Eastern (0.484) and Western

(0.479) regions. This is largely due to the fact that most of Nepal's trading centers and

productive economic activities are concentrated there. In contrast, the Mid-Western (0.402)

and Far-Western (0.385) regions, far from the center of power, have been traditionally

neglected. Despite recent efforts to include them in the country's modernization process, these

areas (except for Mid-Western Terai) have also made the least progress in terms of the level

of improvement in HDI between 1996 and 2000.

Gender-Based Disparities

61 Spatial disparities in incomes and human development are important elements of the

poverty profile in Nepal; but its complexity cannot be comprehended without looking at

major undercurrents, which cut across spatial patterns—such as gender, ethnicity and caste-

related differentials—which exacerbate the intensity and depth of poverty for the affected

groups.

62 In regard to income poverty, since the NLSS data have been collected at the household

rather than the individual level, it is difficult to establish directly that women as a group are

poorer than men in terms of per capita income. However, NLSS data do show that female-

headed households are poorer than male-headed households. They also spend less on

consumption. While female-headed households constitute 13.2% of all households at the

national level, there are 13 districts—mostly in the mountains and more remote hill areas

(where there is high male migration)—in which the ratio is higher than 20%; and this is

probably one of the factors contributing to the higher poverty incidence in the mountain

region noted earlier.

63 Women's active participation in paid employment is limited in Nepal. They currently

account for only a third of the paid labor force. And when they enter the labor market, their

wages even for the same type of work continue to be lower than men's. Adjusting for

differences in hours worked per day, women agricultural workers earn 20 percent less than

men

64 For the majority of women who live in male-headed households, there are sociological

factors, which constrain their access to household income and resources. Although the

structure of gender relations varies significantly among different social groups in Nepal,

generally it is men who traditionally inherit family land, and who, for the most part control

the allocation of household income and assets. Women's legal right to inherit parental

property is still limited. In addition, in most rural areas customs and social practices can

create greater vulnerability for women than for men. A woman's share in household assets and

income (and even basic food security) is far more uncertain than a man's.

65 Human development indicators show existing male/female disparities clearly. Nepal

has made significant progress in increasing female life expectancy as well as in improving

female literacy levels, and primary and secondary school completion rates. Yet, large gender

gaps remain (Table 7). For example, despite recent improvements, the adult literacy rate for

women in 2000 was just over half that of men. This was also true of the indicator for average

years of schooling. However, in the case of life expectancy at birth, females have finally

caught up with men, reversing an aberration in health statistics which Nepal earlier shared

with a few countries in the world.

Table 7: Gender Disparities in Key Human Development Indicators, 1996 and 2000.

Life Expectancy (years) Adult Literacy (%) Average School Going Years

1996 2000 1996 2000 1996 2000

Male Female Male

Female Male Female Male Female Male

Female Male Female

Mountain 52.7 50.4 48.6 51.1 44.2 11.8 61.9 26.6 2.27 0.71 3.71 1.33

Hill 58.0 55.5 65.4 64.7 58.4 24.3 72.3 39.5 3.42 1.61 3.97 2.18

Terai 59.5 57.0 61.7 63.2 52.3 19.9 60.2 32.5 3.10 1.25 3.71 1.93

Urban 63.2 60.3 71.4 70.8 76.7 51.5 81.2 56.9 5.63 3.88 6.01 3.80

Rural 53.7 51.3 58.2 59.3 52.0 19.5 63.6 32.3 2.93 1.15 3.40 1.66

Nepal 55.0 52.4 59.3 59.8 54.3 21.3 65.8 35.4 2.55 1.13 4.45 2.25

Source: Nepal Human Development Reports, 1996 and 2001.

66 In terms of the empowerment dimension of poverty reduction, Nepali women are still

largely without influence in the public domain. Their representation in Nepal's influential civil

service and in all three levels of elected government lags far behind men. Women make up

only a little more that 7 percent of the civil service and only 4% of the officer level staff. And

for those accepted as officers, progress to the higher levels is evidently slow. As in many

countries throughout the developed and developing world, women are also under-represented

in Nepal's elected government. After the last elections they made up only about 6 percent of

the lower house and 15 percent of the upper house (where some of the seats can be nominated

by the King). In the lower District and Village level bodies, women have even less voice. The

Local Self Governance Act requires a minimum representation of women in the District

Councils and the District Development Committees, most of the women representatives are

those that are nominated by their parties to meet the quota. And, very few of them end up in

the District Development Committees or any of its sub-committees where budgetary decisions

are made; and therefore have little influence on program and expenditure priorities.

Ethnicity and Caste-Based Disparities

67 Nepal is a pluralistic society with diverse ethnic, caste, linguistic and religious

communities—the consequence of several waves of migration over 2000 years. Nepal has

about 60 recorded caste and ethnic groups (mostly Indo-Aryan and Mongol) and 70 languages

and dialects (mostly Indo-Aryan and Tibeto-Burman). There are many indigenous ethnic

("Janajaties") and caste ("Dalits") groups who have been historically disadvantaged, and who

continue to lag behind in their income and asset levels, educational achievements and human

development indicators, and to the extent to which they are represented in the power structure.

68 Some of the key data sources, such as the NLSS, aggregate data for groups (such as

Newars and Madeshi) which actually contain different castes and ethnicities. This makes it

difficult to establish accurately income levels of all castes and ethnicities. There does not

seem to be a simple straightforward one-to-one correlation between rank in the traditional

caste system and poverty level; but there are broad linkages. The poverty level among the

upper social castes (Newars, Brahmins and Yadavs) is generally much lower than that of the

groups which are lower in the social ladder. In general the Janajati groups have higher poverty

levels (ranging from 45 to 59 percent) than the national average, while the Dalits have poverty

levels as high as 65-68%. There are some notable deviations from this generalization. The

upper caste Chhetris have an above average poverty rate of 50%, while the Muslims, although

low in the social hierarchy, are relatively better off in terms of poverty incidence. And the

indigenous Limbus have the highest rate of poverty (71%).

69 The data in Table 8 (Human Development Indicators for these different groups) tell a

similar story. For every indicator, Janajati groups fall below the national average and well

below that for the Brahmins, Chhetris and Newars. The situation with the hill Dalits is even

worse. Taking the average Human Development Index for Nepal as 100, the ratio of

Brahmins and Newars is 135.9 and 140.7 respectively compared with 92.2 and 73.6 for hill

Janjatis and Dalits.

70 While most of the Dalits in Nepal can certainly be classified as disadvantaged, there is

considerable variation in the welfare status of different Janajati groups. Janajati groups like

the Gurungs, Limbus and Rais who traditionally went for service in the Indian and or British

army have higher educational and income indicators as do groups like the Thakali and

Sherpas who have done well in trading and other businesses. It is likely that if these groups

were removed from the tabulations in Table 8 above, the HDI indicators for other Janajati

groups would be considerably lower. Among the more disadvantaged Janajati groups with

large populations are the Tharu, Tamang and Kham Magars; along with 16 other smaller

groups.

Table 8: Human Development by Caste and Ethnicity, 1996

Human Dev.

Indicators

Nepal Bahun Chhetri Newar Hill

Janjatis

Madhise Hill

Dalit

Muslim Other

Life Expectancy (yrs) 55.0

60.8

56.3

62.2

53.0 58.4

50.3

48.7

54.4

Adult Literacy (%) 36.7

58.0

42.0

54.8

35.2 27.5

23.8

22.1

27.6

Mean yrs Schooling 2.3

4.7

2.8

4.4

2.0 1.7

1.2

1.4

1.9

Per Capita Income (NR) 7673

9921

7744

11953

6607 6911

4940

6336

7312

HDI Indices

Life Expectancy Index 0.500

0.597

0.522

0.620

0.467 0.557

0.422

0.395

0.490

Educational

Attainment Index

0.295

0.490

0.342

0.462

0.280 0.221

0.186

0.178

0.226

Income Index 0.179

0.237

0.181

0.289

0.152 0.160

0.110

0.145

0.170

Human Dev. Index 0.325

0.441

0.348

0.457

0.299 0.313

0.239

0.295

Ratio of National HDI 100

135.9

107.3

140.7

92.2 96.3

73.6

73.7

90.9

Source: "A Strategy to Empower Nepal's Disadvantaged Groups", Document 1, Page 7 (based on data of the

Nepal Human Development Report, NESAC, 1999.

71 Caste and ethnicity-based disparities in education are also striking. For example, in 1991,

there were 6 ethnic groups and 16 caste groups with adult literacy rates below 25%, compared

to a national average of 39.6% . There are also similar disparities in educational attainments at

the graduate level. According to the 1991 Census data, 89% of the graduate population came

from high and middle ranking castes (including the Newars) from the hills and Terai, while

the traditional ethnic groups accounted for only 6% of the total and Dalits another 3%.It is

likely that with the social awakening following the political changes in 1990 this situation

may have improved somewhat; but more recent information is not available to confirm it.

72 With the restoration of democracy in 1990, efforts were made to assist Janajati groups in

their economic and social development and to voice their concerns. The number of civil

society groups dedicated to welfare, advocacy and political action on behalf of both groups

has grown exponentially. In response to the demands of these groups, the government

established a Dalit Development Commission during the Ninth Plan. Similarly a National

Janajati Development Committee was established in 1997 and recently restructured to a more

powerful and independent Adibasi Janajati Utthan Pratisthan (Indigenous and Ethnic Groups

Upliftment Academy) in 2002.

73 Yet, neither the civil society groups nor the government bodies have yet had much

success in significantly improving the educational, economic or welfare status of the Dalit and

disadvantaged Janajati population. Neither group has had much success in joining the civil

service nor gaining elected office at any level of government. Rough estimates of ethnicity-

wise participation in the civil service, public office and political leadership in the country

show that participation of communities in public office is not reflective of Nepal's caste and

ethnic profile. For example, high caste Brahmins and Chhetris have more than twice the level

of participation in relation to their population share and the Newars nearly three times their

population share. In contrast, the hill Janajati have only 32 percent and Dalits even less—only

3 percent of the participation they would have if they were represented in proportion to their

population share in the country.

Determinants of Poverty—Proximate Causes

74 Given its complexity and diversity, it is difficult to find a few simple explanations for

Nepal’s poverty problem. Among the obvious ones which contribute to it are such factors as

limited resource endowment, ill health a land-locked and rugged terrain, and centuries of

political and economic isolation, all of which have kept the economy at a subsistence level

without, (until a few decades ago), even the minimum social and economic infrastructure.

While these factors explain the low initial economic base and its mirror image—widespread

poverty, they alone cannot explain the lack of progress in combating poverty, particularly

over the past two decades.

75 The experience of other countries which have been successful in substantially reducing

poverty clearly demonstrates that achieving sustainable, high and pro-poor growth is a

necessary condition for poverty reduction. In conjunction with a deceleration of the

population growth rate, (an additional requirement for countries like Nepal which are already

burdened with high population growth), it would help increase per-capita incomes steadily.

This however, has not happened in Nepal consistently across the economy, even though

respectable overall economic growth rates were achieved in the early nineties. As noted, real

GDP at factor cost rose at an annual rate of 4.9% through the early nineties, and at a slower

rate of 3.6% p.a. during the Ninth Plan period. But, notwithstanding recent progress in

reducing birth rates, the population growth rate (2.25% p.a.) still remains high; and

consequently, per capita income has risen at about 1.9% p.a. since the early nineties. This is

still not a poor achievement!

76 From a poverty reduction perspective, however, the pattern of growth has not been pro-

poor. Much of this growth took place outside agriculture, and outside rural areas where 86%

of the Nepali population and over 90% of the poor live. Over the past 12 years, non-

agricultural activities (which in Nepal are primarily centered in urban areas, particularly the

Kathmandu Valley) grew by almost 6% p.a. in real terms even with the recent slowdown. In

contrast, the agricultural sector grew at an annual rate of only 2.3% p.a. on average, about the

same rate as population growth. Thus there was no perceptible improvement in rural per

capita incomes for a long period to make a difference in reducing rural poverty.

77 This differential growth pattern over the last two decades helps to explain the prevailing

urban-rural divide. The non-agricultural sector (manufacturing, trade, tourism and services)

grew rapidly in the early nineties, driven by the growth of exports, public investment and

demand for urban services. Thus, incomes and employment opportunities rose rapidly in

urban areas. This is probably the major explanation for the extremely low poverty rate (4%) in

the Kathmandu Valley, and the glaring poverty disparities between urban and rural areas. In

addition, since the urban areas (particularly Kathmandu) are also viewed as centers of

investment, with rising property values, financial services and infrastructure, most of the

substantial inflows of remittances noted earlier eventually end up in urban, rather than rural

areas.

78 Notwithstanding some improvements over the past few years in the use of modern inputs

and some diversification into cash crops, overall agricultural growth has remained low. An

important reason for this is the slow growth, and in the case of some crops even a decline, in

productivity. A review of agricultural data for major food crops from 1985/86 through

1998/99 shows that both production and productivity stagnated or only marginally increased,

except for wheat which showed a modest gain. But over a longer period from 1961-63 to

1991-93, yields actually decreased by 0.07 percent. And, among the three ecological regions,

the yield levels are the lowest in the mountains, followed by the Hills while the Terai has the

highest yield. In the case of major food crops, area expansion has also been quite limited.

79 Several factors have contributed to both these trends: small uneconomical farm size—the

median land holding in 1996 was only 0.65 ha—lack of progress in providing year-round

irrigation, (only 15% of the cultivated land is irrigated year round resulting in excessive

exposure to the vagaries of the weather), low use of modern inputs (fertilizer and improved

seeds) and extension services, among others. As noted, during the Ninth Plan, the APP sought

to address these constraints, but with little success, as it was poorly implemented.

80 These factors help to explain the poor performance of agriculture and why rural poverty is

worse than urban poverty. But, they by themselves do not explain the disparities within the

rural economy. Table 9, based on the 1996 NLSS data, provide useful insights on rural

income disparities. The poorer households in the rural economy are consistently more

handicapped than others in terms of the quality of the land they cultivate and access to and

use of inputs. For example: (i) The median landholding of the bottom 25 percent of

households is only 0.51ha, only about three-fourth of the rural average; (ii) Within that, the

proportion of ploughed land suitable for growing rice is only about 37%, i.e about one-fourth

less than the rural average; (iii) Year-rounds irrigation is available only for about 11% of the

land, (i.e. about one-third less than the average; and (iv) Their use of modern inputs and

access to institutional credit are substantially less than the rural average. (v) While access to

Extension and Veterinary agents have been limited for most rural households, the poor have

far less contact (less than half) compared to the household average. (vi) Not surprisingly, the

poorer households are located further away from roads, i.e. they have less access to markets

for their products, as well as to all of the inputs noted earlier. (vii) Also, incomes from

agriculture are positively correlated with the level of schooling completed by the head of the

household. And yields are positively correlated with levels of education above primary. In

other words—“while the poor do not differ from the rest (in rural areas) in terms of their

dependence on agriculture, they do differ in terms their opportunities to make a living off the

land. Poor land quality and limited access to inputs limit returns from agriculture for the

poor".

Table 9: Household Distribution by Their Access to Agriculture Inputs, 1996.

Household Income Ploughed (Khet)

Land as Percent

of Total

Cultivated Land

Year-Round

Irrigated

Land As Percent

of Cultivated Land

Chemical

Fertilizer

Bought from

AIC (in kg/ha)

Percent of

Household with

Institutional

Loans

Bottom 25 Percent 37 11 10 8

25-50 Percent 53 14 19 16

50-75 Percent 57 15 30 16

Upper 25 Percent 54 18 39 16

Average 51 15 26 14

Sample Household (No.) 2550 2550 2679 3373

Source: World Bank (1999): Nepal Poverty at the Turn of the Twenty First Century.

81 All rural households, though deriving much of their household income from agriculture

(including earnings as paid farm labor), also earn from non-agricultural sources through self-

employment and wage employment (Table 10). But the dependence on agriculture is

significantly higher for the poorer households. This is also suggestive of the fact that

opportunities for non-agricultural employment are limited in rural areas; and with their low

educational achievements and skills, it is difficult for the poor to obtain higher-paying non-

farm employment and break out of the poverty cycle.

Table 10: Sources of Income of Rural Households, 1996

Agriculture Non-agriculture

Self-

Employment

Wage-

Employment

Self-

Employment

Wage-

Employment

Other

Sources

Bottom 25 Percent 50 19 5 16 10

25-50 Percent 48 18 7 12 15

50-75 Percent 49 13 8 13 16

Top 25 Percent 43 7 11 15 23

Average 47 14 8 14 16

Source: NLSS, 1996

82 Despite recent progress, the level of social development in Nepal is low even by South

Asian Standards. This in turn has had a direct impact, (as evident from the human

development indicators noted earlier), on poverty and inequalities in living standards between

different geographical regions and socio-economic groups in Nepal. Inadequate social service

delivery is seen to be one of the primary reasons for the poor to remain poor in the rural areas.

The key social and economic infrastructure such as health, education, drinking water and

energy show the following general characteristics: (a) the poor in general have less access to

social services; (b) except for access to primary schools, no other services are comparable in

terms of rural coverage; and (c) even in the primary schools, accessibility, enrolment rates,

dropout rates, etc, are significantly worse in rural areas. In the like manner, internal efficiency

of social service delivery is also low. Only about 18% of the primary school children

complete the primary cycle on time. The situation is similar in the secondary schools also.

Approximately 60% of primary school teachers are still untrained. School supervision system

is weak and non-wage expenditure in education is extremely low. Similarly, health services at

the rural health institutions are either unavailable, or their quality is very poor, mainly due to

the absence of health personnel and medical supplies.

83 Public expenditure programs have played a key role in most countries in accelerating

economic-growth and addressing poverty incidence. In Nepal, the effectiveness of public

interventions has been undermined by a number of deficiencies: weak prioritization,

inadequate project screening, weak monitoring and supervision and lack of results orientation,

among others. Public resources have not been consistently allocated and spent to support

poverty reduction in rural areas. To the contrary, public expenditure programs have been

generally urban-biased. For example, education sector’s budget that goes in primary

education has remained inadequate and 30 percent of the public expenditure in health was

allocated until recently to urban hospitals. Despite significant growth in the budget for the

social sectors including health and education, per capita expenditures on these sectors is still

low, as compared to most developing countries; and they need to be made more equitable to

address rural needs.

84 Political instability and weak governance have been major impediments to effectively

addressing rural poverty. Frequent changes in governments with short time horizons have

weakened the administration, increased corruption and leakages and lack of accountability,

and undermined the effective implementation of programs. The worst casualties in this

process have been rural communities, who are far removed from the center of power.

Although there have been recent efforts to promote decentralization and community

participation, these are only now beginning to show results.

85 All of these factors which have led to differences in poverty levels between urban and

rural areas apply equally to regional income and human poverty differentials across the

development regions. In addition, a few other factors help explain the depth of regional

variation, particularly in the Mid-western and Far-Western regions:

i) Geography and its consequences—inaccessibility and relative isolation—have been

a primary cause. Until the East-West Highway was completed in the late nineties,

there were no road links with these two regions. Indeed, until that time, access to

them was possible mainly through (north-south road links with) neighboring India.

Even now, within Nepal north-south road links with the mountain areas of both

regions are lacking. The consequences have been continued isolation, lack of

integration with the Nepalese economy, poor access to markets for their limited

products, and little development activities there—hence poor infrastructure, education

and health facilities, drugs and medicines and even basic food to ensure food security.

And public sector agencies which have been given the responsibility (and transport

subsidies) for supplying basic food and supplies (NFC) and agricultural inputs (AIC)

have remain highly inefficient. Given the high transport costs, and thinly spread

population lacking resources, the private sector has had little incentive and interest to

operate in these regions. In contrast, the Eastern region is well served with road links

not only with Nepal but also with neighboring countries, facilitating trade, commerce

and industry; and its proximity to relatively developed educational centers in India

has served as a catalyst for social development, and education in particular. As noted

in Table 6, the Eastern region's human development indicators are almost as good as

(and in some respects better than) the Central region's.

ii) The Mid-western and Far-Western regions, being sparsely populated have less

political representation in Parliament, lack sufficiently large power blocks and, being

far removed from the center of power, the ability to influence resource allocation

decisions. It is not surprising that between 1996/97 and 2000/01, these two regions

together received only 11-12% of total government expenditures.

86 These regions thus have been traditionally neglected, and not because of their ethnic and

caste characteristics. In fact, except for ethnic belts in the mountains (Bhotes) and in the Terai

(Tharu), most of the two regions are inhabited by Nepali language speakers, with the upper

caste Chhetris being the most numerous. Thus, all communities in these two regions have

suffered; and this probably is an important factor contributing to the relatively high poverty

incidence in these regions.

87 While all of these factors have equally affected the ethnic and caste-based communities, a

major additional factor contributing to their relative backwardness has been the effects of

social stratification noted earlier. In an isolated and closed society, generally those in the

upper rungs of the social ladder had better access to social and economic infrastructure and

opportunities for economic advancement. Those at the lower levels, particularly the Dalits,

were left behind. And, when the modernization process began in the fifties, the urban-

centered development pattern that emerged left the isolated regions and the socially

disadvantaged communities further behind. A major element of the poverty reduction strategy

of the Tenth Plan is to begin to close this gap as rapidly as possible by mainstreaming the

deprived communities and regions in the development process.

Present Social Disorder and Its Implications

88 The prolonged national crisis has remained as the biggest threat to national development.

Starting in 1996 from Mid-Western districts, the violence spread rapidly to many parts of the

country. Until January 31, 2003, when a truce was arrived at. It severely disrupted economic

activity and development work in many areas. Moreover, a prolongation of the present

situation could seriously impede the government's efforts to substantially reduce poverty over

the next few years. This section briefly reviews the genesis of the disorder, its linkages with

the prevailing poverty and inequalities, and its implications for the Tenth Plan strategy.

89 While there are undoubtedly social and economic grievances contributing to the present

situation of disorder, its causes are far more complex.

90 Whatever the motivation for the beginning of the social disorder, there is little doubt that

persistent poverty and inequalities have provided a fertile breeding ground for the present

crisis. Some of the reasons which helped fuel the crisis could be: (i) Weak impact of various

development activities on some areas of the country; (ii) Inadequate delivery of social

services in some of the remote and isolated areas; (iii) The slow pace of decentralization and

inadequate community involvement; and (iv) Inadequate resource allocation for the remote

areas and regions.

91 The changing social and political situation in the country has enormous implications for

the Tenth Plan. To prevent further turmoil and violence the government is committed to

establish peace and security as its highest priority, and concurrently win back the faith and

confidence of its public. It can do so only by showing that it is trying to be different—

efficient, functional and able to deliver basic services to the poor, and that it is trying hard to

meet the expectations of its citizens. It will make special efforts to roll back poverty and

reduce inequalities, and bring the deprived regions and communities into the mainstream of

development. The Tenth Plan provides the government with the means to do so—a workable

strategy, modalities to implement it, and the tools to monitor progress—within the severe

resource constraints Nepal is facing.

Conclusion

92 The foregoing analysis clearly indicates that poverty in Nepal is a widespread, complex

and multi-dimensional phenomenon. Poverty is deeper, more intense, and more severe in rural

(as compared to urban) areas; and even more so in the hills and mountains and in the Western

and Far Western regions. There are also clear gender, ethnic (and regional) disparities. Other

indicators of human poverty (as measured through key socia l indicators) also closely

correspond with, and confirm this rural, gender, ethnic and regionally oriented poverty

pattern. The analysis also shows a clear nexus among the key variables/determinants of

poverty. The level and intensity of poverty is closely linked to the pace and pattern of

economic growth in urban and rural areas and economic/income generating opportunities

associated with such growth. (Rural poverty is worse primarily because agricultural growth –

the primary source of income and employment generation in the rural economy – has

stagnated in per capita terms over the past few decades). Even within rural areas, the poorer

segments of the population have less access to fertile land, irrigation, modern inputs, credit,

and marketing and road infrastructure. Similarly, a key determinant of the level and intensity

of both income and human poverty is access (or the lack of it) to basic social and economic

infrastructure. The rural areas are badly underserved in terms of quality and coverage of basic

education, healthcare, drinking water, roads and access to other infrastructure and markets.

Poverty is also closely related to the degree of social, political and economic

inclusion/exclusion. Women and ethnic groups by and large are left out of the mainstream of

development, because they lack voice, empowerment, representation and access to economic

opportunities and resources. Similarly the remote districts and regions are further away from

centers of power and influence and are the most neglected. Another key determinant, which

cuts across and exacerbates the impact of these factors on the poverty pattern, is weak

governance, which includes ineffective government, poor resource allocation, week

implementation and service delivery performance, and corruption and leakages, among

others. To effectively address this complex problem and to bring about a significant and

lasting reduction in poverty, a comprehensive well-designed strategy, which will be

effectively implemented and monitored, has been formulated by the Government. This

strategy is discussed in chapter V.

The Tenth Plan-Goals, Targets and

Strategies

Introduction

93 The foregoing evaluation of the Ninth Plan and the poverty situation clearly demonstrates

that past development efforts have fallen behind to meet the expectations of poverty

reduction. Poverty is more widespread particularly in rural areas; and that it is deeper and

more severe among women, ethnic groups and Dalits, and those living in backward areas—

Mid and the Far Western and Mountain areas. Poverty could not be reduced to a desired level

due to the failure to achieve high and sustained broad-based economic growth particularly in

rural areas; inadequate human development commensurate with heightened desires and needs

of the people, in large part due to less than satisfactory implementation of public actions to

effectively provide essential social and economic services and infrastructure to the poor and

backward communities and areas; poor accountability, economic malpractices, and poor

implementation and monitoring of development programs. The impact of development on the

deprived areas and communities has been limited. In the absence of effective policies for

ensuring social and economic inclusiveness, the poor and deprived communities could not

come to the mainstream of the development process. In addition, the recent spells of violent

activities and disorder have badly slowed down development activity and service delivery by

the government. They have also adversely affected the poor and backward areas and

communities even more than others.

94 In this context, the Tenth Plan's sole objective is to bring about a remarkable and

sustainable reduction in the poverty level in Nepal over the next five years. To this end, His

Majesty's Government has formulated a "four pillar" poverty reduction strategy, which

squarely addresses the main causes and determinants of poverty identified in the preceding

poverty analysis. The strategy, which is discussed in more detail below, is based on four

overarching approaches: achieving sustained high and broad-based economic growth,

focussing particularly on the rural economy; accelerating human development through a

renewed emphasis on effective delivery of basic social services and economic infrastructure;

ensuring social and economic inclusion of the poor, marginalized groups and backward

regions in the development process; and vigorously pursuing good governance both as a

means of delivering better development results and ensuring social and economic justice.

Particularly noteworthy, the Tenth Plan seeks, as an integral part of its poverty reduction

strategy, to bring the marginalized sections of the population and backward regions into the

mainstream of development, and to make visible progress in reducing existing inequalities.

95 In designing and carrying out its poverty reduction strategy, the Tenth Plan/PRSP has

adopted a number of new approaches and initiatives, which represent a radical departure

from past plans and strategies. The more important of these, discussed in greater detail in the

next few chapters, include the following: (a) The poverty reduction strategy itself is

significantly different. (i) While emphasizing sustainable high economic growth as in the past,

the PRSP focuses more sharply on accelerating income and employment growth in the rural

economy where the majority of the poor live. (ii) The emphasis on social inclusion and on

improving governance is altogether new. (iii) So is the commitment to effective

implementation of programs and better delivery of social and economic services and

infrastructure as the primary means of accelerating human development, particularly among

the poor and neglected groups and areas. (b) In carrying out the strategy, the Tenth Plan/PRSP

explicitly recognizes the fiscal and implementation constraints, unlike previous plans, which

sought to do everything. This pragmatic approach has led to the identification of new

modalities of implementation and service delivery for ensuring better development results: (i)

In particular, the role of the Government has been redefined; and public interventions will be

limited and focussed on areas where they can yield the maximum social benefits (ii) The Plan

relies heavily on the private sector, NGOs, INGOs and Community Based Groups (CBOs) for

carrying out economic activities, infrastructure development and service delivery wherever

possible, both in partnership with central and local governments and agencies and to

complement the role of the government. (iii) Strong emphasis is also placed on

decentralization and maximizing the involvement of local governments and community

groups for identifying development activities and allocating resources for them in accordance

with people's needs, for strengthening service delivery and for ensuring better program

management, accountability and transparency through people's participation. (c) The PRSP

also seeks to ensure strict adherence to a sustainable macroeconomic framework, setting

annual budgets and spending plans within realistic levels. For this purpose, alternative

macroeconomic scenarios have been developed as a broad framework to guide future

spending decisions. (d) The PRSP/Tenth Plan also place strong emphasis on prioritizing

resource allocations annually through a rolling Medium Term Expenditure Framework, so

that the key poverty reduction priorities can be protected despite shortfalls in resources. (e) To

bring about the necessary changes in key areas, detailed structural and sectoral reform

programs have been developed, together with a program of key Immediate and Medium Term

reform actions. (f) Finally, reflecting its emphasis on better implementation and service

delivery, the Tenth Plan stresses the need for effective monitoring and evaluation

arrangements, together with appropriate benchmarks and intermediate goals/targets for key

activities, so that performance can be evaluated and monitored on a regular basis.

96 The rest of this Section outlines the Tenth Plan's objectives and targets, the main elements

of its poverty reduction strategy, and policies and programs in key sectors to support this

strategy. Alternative macroeconomic scenarios and mechanisms for adjustment of the public

expenditure program are discussed in Section VI. Section VII outlines the implementation and

monitoring modalities which are necessary to ensure that the Plan will be able to achieve its

goals, outputs and results in reducing poverty.

Key Goals and Targets

97 The Tenth Plan's key goals and targets are set out in Table 11. The Normal Case scenario

aims to reduce the overall poverty ratio from 38% estimated at the end of the Ninth Plan

(2001/02) to 30% by 2006/07. Indicative targets for key human development variables

include: raising literacy to 63 percent, reducing the infant mortality rate to 45 thousand births,

raising life expectancy to 65 years, increasing access to drinking water for 85 percent of the

population, electricity to 55 percent, and telephone facility to almost all village development

committee. If these social and infrastructure goals are achieved, a 10 percent improvement in

the human development indicators is possible. To reduce the overall poverty rate through the

creation of income and employment generating activities in the key sectors, an overall GDP

growth rate of 6.2% p.a. at factor cost is also envisaged, together with a substantial

improvement in agricultural growth to around 4.1% per annum.

98 These should be regarded as indicative targets only. Some of these targets, particularly,

those for education and health, are ambitious. In order to achieve them, much stronger efforts

than in the past will have to be made by providing the necessary inputs and resources.

Nevertheless, the Tenth Plan recognizes that the availability of resources, the extent to which

the planned programs can be implemented and the degree of commitment with which they are

pursued will have an important bearing on whether these targets will be achieved or not.

Given the uncertain fiscal prospects and the security situation, an alternative Lower Case

scenario is therefore assumed in the Tenth Plan. This lower case scenario will be used as the

basis for formulating the budget and the MTEF, and as the resource situation improves, it will

be appropriately adjusted. While every effort will be made during the preparation of annual

budgets and mid year reviews to protect the Plan priorities, nevertheless, it is realistic to

assume that achievements with regard to economic growth, service and infrastructure delivery

and poverty reduction will be lower under the Lower Case (Table 11, column 4). Thus, the

incremental targets in the Lower case are expected to be lowered by about 15% for

infrastructure and by about 10% for the social sectors. This is broadly in line with the reduced

availability of resources under the Lower case and the efforts that will be made to give

priority to the social sectors in resource allocation under such a scenario.

Table 11: Indicative Targets of the Tenth Plan

Tenth Plan End 2006/07 Ninth Plan

End 2001/02

Normal Case

Lower Case

Overall Poverty Level (percent of Population) 38 30 33

Real GDP Growth (at factor cost-percent p.a.) 3.6 6.2 4.3

• Agriculture 3.3 4.1 2.8

• Non-agriculture 3.9 7.5 5.2

Per-capita Income Growth (percent p.a.) 1.3 4.1 2.2

Social Indicators

• Infant Mortality Rate (per thousand) 64.2 45.0 47.0

• Total Fertility Rate % 4.1 3.5 3.6

• Maternal Mortality Rate (per 100000) 415.0* 300.0 3.5

• Rate of Contraceptive Users (in percent) 39.3 47.0 46.0

• Obstetric Services by Trained Manpower (percent) 13.0 18.0 17.0

• Average Life Expectancy (years) 61.9 65.0 64.0

• Population growth Rate (percent) 2.25 2.1 2.1

• Net Enrolment in Primary Level (above 6 years,

percent)

80.4* 90.0 89.0

• Literacy (above 15 years, percent) 49.2 63.0 61.0

• Female Literacy (above 15 years, percent) 35.6 55.0 53.0

• Drinking Water (population benefited, percent) 71.6 85.0 83.0

• Human Development Index (HDI) 0.466 0.517 0.512

• Human Poverty Index (HPI) 39.2 34.0 34.5

Physical Infrastructure

• Number of districts With Access to Roads 60.0 70.0 70.0

• Irrigated Area ('000 of hectors) 1121.4 1417.0 1375.0

• Telephones (per '000 of Population) 14.0 40.0 36.0

• V.D.C.s with Telephone Facility 1761.0 All 3590.0

• V.D.Cs Connected With Computer Networks NA 1500.0 1275.0

• Population Having Electricity (percent) 40.0 55.0 53.0

• V.D.C.s Having Electricity 1600.0 2600.0 2450.0

• Argicultural and Rural Roads (kilometers) NA 10000.0 8500.0

* As estimated by the National Planning Commission. These figures will be revised when actual data

become available.

The Tenth Plan's Poverty Reduction Strategy

99 Given the nature of Nepal's poverty problem and the social/political context, the Tenth

Plan's poverty reduction strategy has been guided by a few key considerations: First, as

noted, the poverty reduction strategy needs to be rural-oriented. While supporting other areas

of the economy with strong potential for income and employment growth, the growth strategy

will need to be broad based and pro-poor, and focus on rural/agricultural growth. Second,

priority should be given to actions and interventions, which can give quick results, as

compared to investments that may take a long time. This requires careful balancing of short

term as well as longer term needs. Third, given the country's limited administrative and

implementation capacity, (as well as implementability of programs in some areas), the Plan

will need to have a strong strategic focus; and concentrate on a few important approaches and

supporting interventions which, if effectively implemented, can deliver quick results to the

rural poor. Fourth, the Plan will need to be interpreted as a strategic and flexible document.

While the overall strategy provides a broad framework and strategic interventions for poverty

reduction, and the key priorities themselves will need to be protected in terms of budget

allocations and funding, such interventions and policies will need to be reassessed from time

to time, and revised if necessary, in order to achieve the poverty reduction goals. A number of

such initiatives have already been taken in the first year of the Plan, such as the MTEF,

education sector reform package and, the emergency relief program, among others.

100 Cognizant of these needs, the Tenth Plan's poverty reduction strategy is built on of four

pillars: (i) Broad based economic growth; (ii) Social sector development including human

development; (iii) Targeted programs including social inclusion, in order to bring the poor

and marginalized groups into the mainstream of development, together with targeted

programs for the ultra poor, vulnerable and deprived groups (who may not adequately benefit

from the first two pillars); and (iv) Good governance. All four pillars are essential for

improving the lives of the poor, and for mainstreaming the very poor deprived groups, and

thus for promoting inclusive development. In implementing the four-pillar strategy, the Plan

also stresses strategic cross-cutting approaches with regard to: (a) redefining the role of the

State, and limiting public interventions; (b) enlisting the private sector to play a leading role

in employment and income generation and together with NGOs, INGOs and CBOs, in

complementing government efforts in service delivery functions in key areas, as well as in

implementing key activities; (c) promoting community participation in and management of

activities at the local levels; and (d) accelerating the decentralization process, which is also a

key element under good governance.

101 These four pillars of the poverty reduction strategy should not be seen as separate and

self-standing. To the contrary, they are closely inter-related. For example, international

experience clearly demonstrates that improvements in literacy and health and nutritional

status, by enhancing skills and productivity and reducing family size, contribute to higher

economic and per-capita income growth. Conversely, without achieving sustainable high

growth rates, it may not be possible for Nepal to undertake the planned levels of public (and

private) spending that are needed to undertake basic social and physical infrastructure

development programs in rural areas. Second, the four pillars address different aspects of the

same problem—poverty, broadly defined to include income poverty, human poverty and

exclusion. Thus, while the first pillar tries to address income poverty directly, the second

pillar tries to expand access to basic services and amenities which help to improve quality of

life and human capability at given income levels. Both are equally important for

mainstreaming the poor. The third pillar is not an isolated attempt to address the needs of the

poor and deprived through targeted programs alone. It should be viewed as part of an

integrated approach to bring the poor within the mainstream of development. Finally, the

fourth pillar is essential for ensuring that the programs/activities included under the first three

pillars achieve their intended results. Indeed, without good governance, (control of corruption

and leakages, and mechanisms to ensure accountability), the objectives of other pillars cannot

be really achieved. In addition, the fourth pillar, which also includes participatory

involvement of local governments and communities in the development process, will help

considerably in addressing social exclusion aspects of poverty also. How the four-pillar

strategy will be implemented and their implications for sectoral programs and activities are

discussed in more detail below.

Macroeconomic Framework

102 A poverty reduction strategy emphasizing high and sustained economic growth can be

pursued only if public action can help build policies and institutions needed for higher

growth. Economic growth requires a framework, which can encourage and expand private

investment and activities. In this context, creating an appropriate enabling environment and

incentive framework are the main elements for fostering private sector development. And, to

this end, ensuring macroeconomic stability is of paramount importance. The latter is also

necessary for assuring sustainable levels of public investment to support the key elements of

the poverty reduction strategy, (such as human development and social inclusion programs).

103 The Tenth Plan has been prepared at a difficult time. GDP is estimated to have declined

by 0.6% in the base year of the Tenth Plan 2001/02. Political instability, violence, and social

disorder have challenged the economic situation in the country. External demand for goods

and services and tourist arrivals have remained volatile for Nepal especially after the event of

September 11, 2001. The pace of recovery of the domestic economy will depend on both the

attainment of sustained peace in the country and a rebound in the global economy.

104 Recognizing these constraints and risks, the Tenth Plan has incorporated a sustainable

macroeconomic framework to support high and broad-based economic growth with low

inflation. Two alternative scenarios projecting possible upper and lower boundaries with

regard to resource availability and implementability are discussed in Section VI. These

assume that the Nepalese currency will continue to be pegged to the Indian currency, the

Government's domestic borrowing will be managed conservatively, and that foreign exchange

reserves will be maintained at a level of nine months of merchandize imports. The overall

fiscal deficit is projected to be at around 5% of GDP, financed largely through foreign aid.

Macroeconomic policy will be accompanied by a deepening of structural reforms in key areas

including the financial sector, public enterprises and trade competitiveness which are crucial

for removing constraints to private sector-led growth; and reforms will be undertaken to

improve the efficiency and quality of public administration and services. An integral part of

this macroeconomic framework is the Medium Term Expenditure Framework, which the

Government introduced in FY 2003 (for the first time in Nepal) in order to implement the

Tenth Plan in a difficult macro-fiscal environment. The expenditure prioritization in the

MTEF and how it helps to protect the Tenth Plan's poverty reduction priorities are discussed

in some detail in Section VI below.

105 The importance of macroeconomic stability can hardly be overemphasized for

promoting either economic growth or poverty alleviation. Maintenance of satisfactory

macroeconomic fundamentals is also a necessary precondition for the operation of a market-

oriented economy and also for promoting private investment. The core objectives in this

regard, as outlined in the Tenth Plan, are to maintain fiscal discipline, ensure efficiency of

public resources, sustain monetary and external stability and, as discussed below, strengthen

the financial system.

106 To maintain fiscal discipline, prudent expenditure policies will be pursued and domestic

resource mobilization will be improved. The annual budgets will be set at realistic levels

consistent with implementation capacity and resource projections and borrowing targets

outlined in Section VI. To ensure efficiency of public resources, the MTEF will be widened to

cover all ministries, and the prioritization of projects/programs improved so that the key

poverty reducing pro-poor activities identified in the Tenth Plan/PRSP are indeed given

priority (as P1s) in the expenditure program. The MTEF will be further expanded to cover

regular expenditures (which are currently excluded); and the expenditure classification will be

improved on the basis of recurrent and capital expenditures. To improve domestic resource

mobilization, the recommendations of the fiscal commission for tax reforms will be

implemented, tax exemptions and tax rebates will be reduced, customs valuations will be

revised periodically, and tax administration will be strengthened through a move towards an

autonomous tax administration. Besides, government arrears to/from the public utilities will

be cleared. To maintain monetary and external stability, a prudent monetary policy will be

pursued: (i) Money supply growth will be contained at a desirable level. (ii) Both domestic

borrowing as well as bank financing of the government will be limited in line with the

macroeconomic framework outlined in Section VI. (iii) Open market operations will be used

as a major instrument; and any excess liquidity in the economy due to inflow of foreign assets

will be mopped up by issuing Central Bank bonds. To strengthen the external sector, greater

autonomy of the Central Bank in exchange rate formulation and the management of the

foreign exchange regime will be encouraged.

Structural Reform Agenda

In order to bring about economic transformation, public actions have to be made more

efficient and effective. Constraints which inhibit private sector's competitiveness need to be

removed and programs to improve the conditions of the poor should be given priority. To this

end, the Government will strengthen the reform programs already initiated in many areas and

introduce new reforms geared to supporting rapid growth. Some of these reforms are: (i)

expenditure management, (ii) financial sector reform, (iii) fiscal reform, (iv) measures aimed

at improving the competitiveness of the private sector including foreign trade and labour

reform, (v) governance, including civil service reform and decentralization, and (vi)

promoting private sector's involvement in infrastructure development. These reforms will help

reinforce and strengthen the market-oriented strategy followed by Nepal in the past decade.

They will also help in focusing the role of government on areas where markets function

poorly or would result in inequitable outcomes.

107 Ensuring macroeconomic stability and improving the incentive framework particularly

through reform programs mentioned above will enhance the environment for higher

investment and cost effective service delivery. It will also help increase opportunities for, and

capabilities of, the poor to earn a decent income. A growing economy increases income-

earning opportunities for the poor. The role of the state in fostering an environment

conductive to growth is pivotal in this regard.

108 The government will also promote opportunities for growth through coordinated efforts in

key sectors, such as agriculture, irrigation, tourism and infrastructure development. Rural

infrastructure—such as roads, electricity, telecommunication facilities—not only will help in

improving access to markets and inputs, but also help increase accessibility and the quality of

living and service delivery in the remote areas of the country. The growth of agriculture,

which is the source of livelihood of most of the people in rural areas, will assist the poor by

increasing income generating activities and gainful employment opportunities. The benefits of

eco-tourism are enormous in a country like Nepal, where the potential for tourism is

immense; and accordingly, the Government has given high priority to it.

109 Poverty impact of growth, however, cannot be maximized until the income earning

capabilities of the poor are improved by addressing the deficiencies in human development

such as low education and ill health. The removal of these deficiencies is not only a means of

reducing income poverty, but also of improving their social well-being. Therefore, programs

to support effective delivery of education, primary health, and enhanced access to clean water

have been given priority.

Broad-Based Economic Growth

110 The need for high and broad-based growth does not require much explanation. The

experience of Nepal and other countries shows that growth has a positive impact on poverty

alleviation. Growth that improves income distribution appears to further reinforce the positive

impact of growth on poverty. In this context, a growth strategy that can benefit all income

groups (including poor and deprived segments of society) will have two major components.

First, since more than 80 percent of the population are engaged in agriculture, agriculture

must be made to grow by at least 4 percent p.a.; and second, private sector led non-

agricultural growth must also be emphasized, for the reasons mentioned earlier.

111 The sources of (higher) growth would be increased productivity in both agriculture and

in non-agriculture sectors, and a recovery in manufacturing, exports and tourism, along with

the expected improvement in the domestic and external environment. Similarly, the adoption

of policies to boost trade and industrial sectors and improved public resource management,

among others, would help trigger higher and sustainable growth.

In the case of agriculture, improved irrigation facilities, uninterrupted supplies of chemical

fertilizer and expansion of rural credit, along with the rural roads and higher resource

allocations would help achieve annual agricultural production growth of the order of 4.1

percent. Creating a better environment for private sector development, including

macroeconomic stability, would also help accelerate private sector investment in the country.

Industry, tourism and services activities would also benefit from the improved law and order

situation, increased demand in rural areas (associated with higher agricultural growth), and

higher public investments associated with increased development activities and rehabilitation

and reconstruction needs. In particular, measures to promote domestic and internal trade can

be an important source of non-agricultural growth. These include ongoing initiatives such as:

(i) lowering trade transport costs through developing Inland Container Depots, strategic roads

development, and implementing the multi-modal transport strategy; (ii) improving customs

administration; (iii) developing power for potential exports towards the end of the Plan

period; and (iv) carefully negotiating accession to World Trade Organization to bind Nepal to

the global community in an advantageous manner. Under the normal case, these factors are

expected to raise non-agricultural growth to 7.3 percent per year. Of course, if some of these

crucial assumptions, particularly with regard to the improvement of internal security and the

external environment remained unrealized, the economic growth would turn out to be lower,

as suggested in the Lower Case scenario.

112 Prioritizing and refocusing policies and activities in the agriculture, irrigation, forestry

and power (rural electrification) sectors are crucial for achieving agricultural growth targets.

The major objectives set for the agriculture sector are to increase agricultural production,

productivity and incomes, both to reduce poverty of rural farmers and increase food security.

The Tenth Plan also seeks to promote agro-biodiversity conservation and environmental

protection, in addition to encouraging the adoption of need-based technology. Likewise, one

of the major objectives is to promote domestic agro-products in local as well as in foreign

markets.

113 The growth strategies for agriculture are to modernize, diversify and commercialize crop

and livestock production by expanding the use of technology, and increasing the access of

farmers to modern agricultural inputs and credit. Similarly, promoting the participation of

private sector and NGOs/INGOs in service delivery, market promotion and infrastructure

development are other major strategies.

114 The major thrust in the agriculture sector will be directed at ensuring the successful

implementation of the Agriculture Perspective Plan (APP). The APP aims to increase cereal

and cash crop production in the Terai and develop livestock, horticulture and specific high

value crops in the hills. The main activities in this regard include package programs that

promote smooth supply of fertilizers, provision of irrigation facilities, and expansion of rural

agricultural roads, rural electricity and improving the marketing network. Policies and

activities conducive to carrying out research and development will also be adopted.

115 The major outcomes which are expected from the effective implementation of programs

in the agriculture sector are that the production systems will be more diversified and

agricultural growth will increase by 4.1 percent p.a., and livestock by 4.9 percent p.a. Food

insecurity and malnutrition will also be reduced. Market access for agricultural products, as

well as farmers' incomes and consumption levels, will increase.

116 The major objectives in the Land Reform and Management sector are to ensure

sustainable land use and management, update and maintain land records/information, and

increase access of the poor to land resources and ensure effective utilization through

enhancement of their skills. Main strategies that will be pursued to achieve these objectives

are: preparation of land use guidelines and policies; and effectively implementing new land

ceilings, together with resettlement of freed “Kamaiyas” (bonded labor) on surplus land. The

key policies and programs that are envisaged include the following: Prepare integrated land

use policies, guidelines and Acts, (for example, to discourage keeping land fallow, discourage

fragmentation of holdings, developing new legislation to promote co-operative and

contractual farming etc); Develop a national geographic information system, carry out plot

surveys, and establish a computerized land information system; (this would also help

eliminate dual land ownership and prepare the basis for progressive taxation of land); and

Strengthen land management, manpower development and training programs. It is expected

that the implementation of these policies and activities would help strengthen the institutional

basis for agricultural development (by improving land use and management), establish an up-

to–date land information and mapping system, and help develop effective land management

services.

117 The core objectives of the Irrigation sector in the Tenth Plan are to promote year round

irrigation in the arable land area of the country and to ensure the sustainable management of

developed irrigation systems.

118 The main strategies adopted by the Plan to achieve these objectives are to expand new

irrigation facilities with focus on APP where year-round irrigation is feasible, and to

rehabilitate and strengthen public and community based irrigation systems, focusing attention

on the preservation and full utilization of the existing irrigation systems.

119 The major policies and activities to achieve these goals include: (i) expanding small

surface irrigation in the hills and surface and ground water facilities in the Terai; and (ii)

repair/rehabilitate and maintain the existing farmer managed and public irrigation systems.

Irrigation laws will be revised to grant WUAs the legal powers to collect irrigation charges. In

the case of large and medium scale public irrigation systems, their management will be

increasingly transferred to the private sector. Increased involvement of NGOs and the private

sector in new irrigation development will also be encouraged.

120 The expected outcomes are that 50 percent of total irrigated land will receive year round

irrigation facilities by 2005, while farmers/WUAs will be able to manage irrigation systems

up to 500 ha during the same period. In the longer run, maintenance, efficiency and utilization

of irrigation facilities are expected to improve significantly.

121 Rural electrification has an important role to play in accelerating both agricultural and

rural development. It could have a catalytic effect on agricultural growth by accelerating

shallow tubewell irrigation. In addition to supporting for the development of agro business,

the extension of rural electrification would also help modernize cottage industries and

improve the living standards of rural households. Accordingly, key programs are aimed at

expanding grid-based rural electrification, promoting small projects where grid-based

expansion is not possible, and enhancing the capacity of cooperatives for management at local

levels. To achieve the objective of increasing rural coverage from 40 to 55% over the Plan

period, the government's strategy envisages internal unbundling of NEA's activities as well as

initiating an explicit subsidy policy for grid-based rural electrification.

122 The development of the forestry sector is especially important for promoting livestock,

making compost fertilizer, conserving environment and for watershed management by

conserving ground water resources. Community and Leasehold Forestry programs have been

very successful in the country in creating income-generating opportunities for the poor. In this

context, the 'user-group approach' is particularly useful in mainstreaming poor and deprived

communities in forestry sector activities. Given its high success, the leasehold programs

would be further expanded. Integration of the concept of sustainable development in all the

development processes for balancing population and environment and identification of

comparatively advantageous areas for achieving high and sustainable economic growth

through adaptation of community-based natural resource conservation, utilization and

improvement are focused in consideration of strategic environment assessment and capability

enhancement. Various program interventions will be carried out so that land use is planned

and managed at the national and local levels such that resource bases and ecosystems are

improved, with complementarity's between high- and low- lands, that forest biomass grows,

that agricultural and forest lands are protected from urban sprawl, and that biodiversity is

conserved at the landscape level by recognizing threats from habitat fragmentation,

unmanaged solid waste and loss of forest cover. Air, solid waste and water quality

monitoring will be maintained to reduce human health hazards.

123 To achieve the desired growth in the agriculture sector, increased investments will be

required from both private and public sectors. In parallel, public expenditure on key sub

sectors and activities will be streamlined and refocused in line with the APP, to ensure

adequate funding. Similarly, improved modalities of implementation will be adopted by

emphasizing polycentric institutional arrangements to ensure greater participation of private

sector and NGOs in activities such as input delivery, marketing, research and extension

services. In this regard, the activities of inefficient public enterprises involved in these areas

such as AIC, will be either restructured or phased out. Also, existing policies which inhibit

agricultural growth, (such as those governing ground water development) will be reviewed, in

order to make appropriate corrections.

124 The non-agriculture sector includes a number of important sub-sectors such as

manufacturing, trade, tourism, transport, construction and financial and social services.

Activity levels in most of these sub-sectors have been depressed in the last 2-3 years because

of the present domestic social disorder, and weak export demand. It is reasonable to expect

that the ceasefire declared in January 2003 would lead to a quick rebound in a number of sub-

sectors, especially tourism, manufacturing, construction and services, where substantial

under-utilized capacity exists. And, a pick up in development activity and rehabilitation and

reconstruction efforts would also help provide a quick stimulus. Over the medium term, a

revival of business confidence and private investment, increased domestic demand (associated

with rural/agricultural growth), continued reasonably high growth in neighboring India, (trade

with India has increased rapidly in the last few years), and the beneficial effects of ongoing

structural reforms, (such as financial sector, trade and institutional reforms), would help to

achieved a growth rate close to the level achieved over the past decade.

125 However, the impending internal security issues and gloomy global economy will have

implications for Nepal’s private sector promotion. In the mean time, Nepal can do a number

of things to promote private sector development, enhance competitiveness and boost the

growth of the non-agricultural sector. The core objective of private sector development is to

enhance the scope for private participation in economic activities through the creation of a

private sector friendly environment, so that the private sector can make a meaningful

contribution to poverty eradication. The major strategies to achieve this objective include: the

acceleration of economic reforms; ensuring policy-wise consistency in order to create an

investor friendly environment; simplifying entry and exit procedures for businesses;

enhancing competitive environment by providing equal opportunities and facilities, and

sectoral reforms. As per liberal economic policy, the government will gradually reduce its

role in economic activities, while private involvement will be encouraged in a wide range of

economic activities, such as investments in social and economic infrastructure and service

delivery. As discussed elsewhere, policies have been already formulated and announced to

facilitate private investment in power, roads, telecommunications and other infrastructure

development. To create a level playing field, the privatization of public enterprises will be

accelerated and those areas will be fully opened to the private sector. The Government intends

to increase the involvement of the private sector in a number of public enterprises including

Nepal Electricity Authority, Nepal Telecommunications Corporation and the Royal Nepal

Airlines, among others. Efforts will be made to streamline the regulatory processes and to

make them more transparent, for example by reducing complicated documentation

requirements for exports; and improving tax administration so as to reduce discretionary

power of tax officials. A fiscal reform commission (which is currently sitting) is expected to

make important recommendations in this regard. Legal reforms will be initiated and new

liquidation, merger and bankruptcy laws will be enacted. Finally, reforms currently under way

in the financial sector (aimed at creating an efficient and competitive banking system and

transferring state-owned banks to private management and ownership, among others), will

help considerably in facilitating private sector development.

126 Nepal’s trade, tourism and industrial regime is quite liberal. However, the size of the

private sector is small and inefficient, and lacks competitiveness. The country needs to

expand output capacity and improve the efficiency of the private sector through the adoption

of appropriate measures. As Nepal is also seeking to join the World Trade Organization, it

needs strong efforts to strengthen its international competitiveness. Therefore, in order to

create a favorable environment to achieve private sector led growth, the government will

focus on removing impediments to private sector development. In this regard, a strong

promotional package especially for export-oriented industries, measures to increase incentives

for investment, and an appropriate technology and information program will be introduced to

enhance competitiveness. Concurrently, steps will be taken to reduce costs of exporting. For

example, as noted earlier, initiatives are underway to reduce trade transport costs (through the

multimodal transport strategy and developing internal container depots); while improving

customs and tax administration and tax policy reforms also will help in this regard. In

addition, programs in the trade sector aim to increase the number of private sector managed

customs terminals, expand technical assistance programs for export commodities and revise

existing Acts and regulations to make them compatible with WTO and SAPTA requirements.

127 In order to provide employers more flexibility to adjust their labour requirements with

due compensation to those affected, the Tenth Plan will take a number of measures to reform

existing labour laws. The major objective outlined in the Tenth Plan for the labour sector is

to ensure a congenial industrial environment by maintaining a flexible labour market while

safeguarding the basic rights of workers. The major strategies adopted in the Plan to achieve

this objective are: the initiation of timely reforms in labour laws to promote private

investment, promotion of better industrial relations, increasing productivity and elimination of

child labour. The Government will also give even greater emphasis to its present policy of

encouraging foreign employment. Similarly, to make Nepal free from child labour, legal

measures would be adopted along with strict monitoring; and the ongoing programs for

rehabilitation of child labour would be strengthened.

128 With the effective implementation of these policies and programs, it is hoped that both

productivity and rights of labour would be enhanced and that industrial relations will

improve. Existing child labour would be eliminated.

129 Infrastructure development has a major role to play in facilitating the development of

the private sector. Despite significant progress in the expansion of road density, penetration of

telephone and electricity is still low. The government will give priority to strategic road

network, maintenance of major roads and highways and expansion of electricity and national

communication infrastructure. The government, however, in the medium term, will gradually

reduce its involvement, especially in the areas where private sector can increasingly take over,

including telecommunications, hydroelectricity and roads, among others. Legislation has

already been enacted for this purpose and encouraging progress has been made to date.

130 The main objectives of the Tenth Plan in the road sector are to develop and manage the

road transport network to support the socio-economic development efforts and to promote

private sector participation in the construction of new road networks and their maintenance.

The major strategies to be adopted in this regard include increased participation of the private

sector in road construction and maintenance, enhancing institutional capacities of both the

roads department and the private sector to ensure cost effective sustainability of the road

network, and transferring to DDCs the responsibility for rural roads. To encourage increased

private involvement in the road sector, legislation will be enacted for the implementation of

BOT and BOOT policies. A framework will be established for improved road maintenance,

the Road Fund Board will be made fully operational and financed by a road levy. Measures to

build capacities of the Department of Roads and the private sector will be undertaken. At the

end of the Plan period, 1025 kms of road will be added. An additional ten district

headquarters will be connected by road, taking the number of HQs having road connections to

70. Private sector will actively participate in the construction and maintenance of roads.

131 The Tenth Plan's key objectives in the power sector include: expanding electricity

coverage in a sustainable and environmental friendly manner by generating low-cost power;

accelerating rural electrification to promote economic growth and improve living standards in

rural areas and to develop hydro power as an important export item. The major strategies of

the sector include promoting private sector participation in power generation and distribution,

unbundling the activities of NEA and improving its financial viability, integrating rural

electrification with rural economic development programs, and strengthening power

infrastructure.

Major initiatives/activities to be undertaken to improve power sector development include the

establishment of a Power Development Fund; the creation of an independent regulatory

authority; initiation of an explicit subsidy policy for grid-based rural electrification; and

promotion of small, medium and storage hydropower projects. The major expected outcomes

are that the proportion of population having access to electricity will increase from 40 percent

to 55 percent by the end of the Plan period, and adequate power will be supplied as needed to

support economic growth.

132 In the information and communications sector, the Tenth Plan's main objective is to

improve the access of people to information and telecommunication facilities, facilitating

their participation in economic activities, as well as personal development. The major sector

strategies are to enhance private sector participation in the expansion of information and

communication network and facilities, and clarify the roles and responsibilities of private and

public operators and to give them (as well as the postal service) functional autonomy.

Regarding policies and activities, necessary steps for the promotion of private sector

involvement in telecommunications will be taken. NTC will be converted into a public

company under the Company Act, and general and rural telecom services will be opened up to

the private sector. A policy of expanding broadcasting services will be adopted. A legal

framework for functional autonomy of postal services will be finalized by FY 2004. With the

effective implementation of these policies and activities, it is expected that the telecom market

will be liberal and competitive. All VDCs will have access to telecom services with

penetration rising to 40 lines per 1000 inhabitants. Broadcasting services will be available to

all. Likewise, ICT services will be available in various urban areas.

133 Apart from its contribution to economic growth and the balance of payments, the tourism

sector can be an important instrument of poverty reduction by increasing employment

opportunities directly and indirectly in urban as well as rural areas, particularly in the hills and

mountain areas along trekking trails and tourism sites. A major objective of the Tenth Plan is

to increase the contribution of the tourism sector to the national economy through the

expansion of tourism activities and generation of greater employment opportunities.

Similarly, conservation and promotion of historic, cultural and religious sites, and the

development of a safe reliable and easily accessible air transportation system are other

objectives in the sector. The sector strategy aims to develop and market new tourism products,

and to improve tourism facilities and services for promoting faster growth of the sector.

Accordingly, the ongoing promotional activities will be further expanded, focussing on

regional markets; developing and conserving national heritage/religious sites will be

emphasized; and new areas will be opened up for rural tourism. Developing infrastructure and

institutions particularly for eco-tourism, and solid-waste management will be given priority.

Likewise, RNAC will be divested, measures will be taken to improve air safety, and the

immigration system will be simplified. With the effective implementation of the policies and

activities, it is expected that the total number of tourists coming into the country and the

average length of stay will increase. Thus, the contribution of the tourism sector to the

economy will rise. With effective promotion and the spread of tourism into rural areas, and

resulting increases in incomes and employment generation, tourism will positively contribute

to reducing rural poverty.

134 The core objectives of the Tenth Plan in the industrial sector is to accelerate the pace of

industrialization through increased participation of private sector and to create additional

employment in both rural and urban areas to reduce poverty. The main strategies to achieve

these objectives are: improving policies to attract domestic and foreign investment,

strengthening the role of SMEs in national production and improving the overall industrial

environment. Tariffs will be further rationalized, and existing policies and Acts relating to

foreign investment and industrial development will be revised. Up-gradation process of SMEs

through technological improvements and policy of sub-contracting will be further accelerated.

Incentives to improve backward linkages of industries will be continued; and information

technology development will be given emphasis. The effective implementation of these

policies and activities during the Tenth Plan will help improve industrial competitiveness,

expand industrial production and employment generation, and raise the contribution of the

industrial sector to GDP.

135 The major objective of supply sector in the Tenth Plan is to improve the supply and

distribution of essential commodities throughout the country, to discourage illegal hoarding

and black marketing, and to ensure food security for these purposes. The main strategies

adopted are to improve food availability and supplies in remote areas and promote market

based pricing mechanism for petroleum products. Accordingly, the government will

rationalize the activities of Nepal Food Corporation and focus on enhancing food supply and

distribution, particularly in food-deficit areas. Also, the management capacity of Nepal Oil

Corporation (NOC) will be strengthened, and measures will be introduced to reduce leakages

and to ensure private sector participation in the activities of NOC. The effective

implementation of these policies and activities should help increase food security in deficit

areas, ensure uninterrupted supplies of essential commodities and enable NOC to become

financially viable.

136 Measures will also be taken to attract more foreign investment, along with appropriate

technology, particularly in areas of comparative advantage in order to enhance

competitiveness. As noted, policy and legal framework will be improved in line with the

market economy; administrative mechanisms will be streamlined and made more efficient;

and necessary physical infrastructure and human resource development will be undertaken.

Ensuring macroeconomic stability (thereby assuring repatriatibility of capital and dividends)

and a stable financial system will also help in this regard.

137 In parallel, similar reforms are also needed in corporate and financial governance.

Nepal lacks sound accounting and reporting standards. Disclosure requirements for

companies are inadequate and information available to lenders is incomplete, and sometimes

inaccurate. Similarly, institutional capacity for regulation and supervision is weak.

Improvements in these areas will help increase trust and confidence in the private sector and

in turn reduce bureaucratic hassles.

138 Strengthening the financial system is of critical importance for private sector

development, to ensure that national savings would be mobilized and intermediated at

competitive interest rates to meet the private sector’s financing needs, as its role in the

economy progressively expands. Nepal’s financial sector is in a critical stage. The main

problems of the banking system are inefficiency, inadequate financial discipline, as well as

political and other influences in lending decisions. These have resulted in poor loan quality,

high spreads and high lending rates to borrowers, and increasing non-performing assets. To

address these problems, a Financial Sector Strategy has been prepared and is being

implemented. The reform agenda in the financial sector, currently underway, involves, among

others: (i) restructuring and privatizing state owned banks, (ii) improving auditing and

accounting standards, (iii) strengthening monitoring and regulatory functions and capacity of

the NRB, (iv) strengthening legislative and institutional framework for effective loan

recovery, and (v) improving loan quality and banking discipline. The reform program in the

non-banking sector is expected to include the restructuring of the two government owned

development banks, (Agricultural Development Bank and Nepal Industrial Development

Bank), as well as ensuring healthy growth of the finance companies and the micro-finance

sub-sector. They will be brought under a transparent and more accountable regulatory

framework. And the Government will also reform the rural development banks with a view to

minimizing its involvement in rural finance.

Social Sector Development (including Human Development)

139 The development of human resources is essential for reducing human poverty and

improving the quality of life in rural areas. While human development has many dimensions,

education, health, rural drinking water and sanitation are particularly important. In addition,

basic infrastructure such as access to (even low-quality) roads, electricity and telephone

communications (particularly in remote areas) can help improve living conditions for the poor

in rural areas. As noted above, improvements in these areas are mutually reinforcing, and

have benefits well beyond their direct impact. Ensuring equitable access to these services and

facilities is especially important for mainstreaming the very poor, and deprived communities.

140 Recognizing the importance of ensuring the effective delivery of services (and basic

infrastructure programs), the government has adopted in the Tenth Plan innovative

approaches which cut across all the key social sectors: (i) The role of the government will

continue to be particularly important in the social sectors because there are many programs

where costs of providing services cannot be fully captured by private providers, even though

the social returns from such programs and activities may be high, (for example, preventive

programs). (ii) But, the government is committed to increasingly decentralizing to local

governments the responsibilities for primary education and health care, and involving local

communities in the management of primary schools and health centers. (iii) Greater

involvement of the private sector, INGOs, NGOs and CBOs is being actively promoted in a

variety of activities in these areas, both to supplement existing publicly managed activities

and also to increase the outreach and effectiveness of these programs. In the case of rural

drinking water, the implementation of this approach involving NGOs, CBOs and user groups

is already well advanced and has shown good results; and it will be expanded and extended to

other sectors. (iv) These approaches will be utilized for improving access of the very poor and

deprived communities to social services (mainstreaming), together with better co-ordination,

technical assistance, supervision and funding from the central government agencies to ensure

satisfactory progress.

141 Guided by the objective of 'education for all', the education sector in the Tenth Plan aims

at improving the access to and quality of primary education. The Plan also has among others,

the objective of expanding literacy programs to improve the livelihoods of deprived groups,

especially girls, dalits and disadvantaged children. The Plan objectives also include

development and expansion of secondary education, production of middle-level technical

manpower through the expansion of vocational and technical education and production of

higher level skilled manpower through the development of higher education.

142 The major strategy adopted by the Tenth Plan to fulfill the education objectives is the

decentralization of the management of local schools by handing it over to school management

committees at the local level, and changing the role of district and central level agencies to

that of facilitator, monitor and evaluator. Improving and expanding teacher training programs

to uplift the quality of education and strengthening school monitoring and supervision system,

in addition to mitigating social, cultural and financial barriers in order to ensure easy access to

education are other major strategies. Similarly, promotion of vocational courses and private

sector involvement in extending basic and middle level technical education also from a part of

the Tenth Plan strategies. In higher education, cost recovery would be adopted as a guiding

principle.

143 Transferring schools to school Management Committees has already been initiated under

the 7

Amendment to the Education Act; and this policy will be further accelerated and

expanded. School Management Committees will be made responsible for the recruitment of

new teachers. Teacher training at both primary and secondary education levels will be

expanded. The government will also provide partial grants to community schools that do not

receive government funding, and encourage the private sector to undertake production and

distribution of textbooks to ensure adequate supply and timely distribution. The government

will take steps to expand adult literacy by setting up Community Learning Centers with the

increased participation of CBOs, NGOs and local bodies. It will also expand the policy of

granting scholarships to first child or first girl of poor families from which none of the

members have completed primary education. Effective system to provide middle level

technical education for the poor will be introduced. With the effective implementation of

proposed activities in the education sector, the net primary school enrolment is expected to

increase to 90 percent from the existing 82 percent. Accessibility and the quality of education

will improve significantly; while the percentage of primary school repeaters will decline. The

expanded literacy program is expected to increase the adult literacy rate to 63 percent.

Enrolment of girls and disadvantaged children at primary level will increase significantly.

Reforms in higher education with a view to enhance financial sustainability and market

relevance will be supported.

144 Education reforms announced by the government recently will help to expedite the

implementation of this agenda. As noted, the handover of management responsibilities to

School Management Committees together with adequate funding through District

Development Councils has been started initially in selected districts. The government has also

announced a new program to: (i) provide free education up to tenth grade for “oppressed,

backward and below poverty line students”; (ii) providing education in mother languages (of

communities) up to the primary level; (iii) regulating fees in private schools; (iv) providing

basic facilities in private/boarding schools to students from “oppressed and backward

communities” and (v) the setting up of a Rural Education Development Fund (financed by a

levy of 1.5% of the income of private/boarding schools) which would be utilized for funding

the education of marginalized communities.

145 The health sector is of critical importance for human development, improving living

standards in rural areas and for mainstreaming marginalized groups and communities. Despite

significant progress in recent years, service delivery in the health sector remains weak.

Although an extensive network of primary healthcare centers has been constructed nation-

wide, it has not been functioning well in many rural areas due to lack of trained staff, drugs

and medicines, etc. The sector's overall performance has suffered due to inadequate funding

for essential recurrent expenditures, misallocation of resources and limited capacity for

supervision and, for co-ordination of the activities of other agencies providing health care

services.

146 To address the health sector needs, the government formulated a Health Sector Strategy in

August 2002, which provides a coherent strategic framework to involve all the stakeholders.

The key sector objectives are: (i) Extending essential health care services to all, with special

emphasis on the poorer population living in rural areas; (ii) Management of the growing

population by enhancing the accessibility of rural population to family planning services and

expanding maternal and child health services; and (iii) Ensuring effective control of

communicable diseases, such as Malaria, and Tuberculosis, as well as HIV/AIDS.

147 The Tenth Plan has adopted a number of strategies to achieve these objectives: (i)

Expansion of primary health centers and district hospitals, and strengthening out-patient

services in hospitals; (ii) Development and retention of trained health personnel in rural areas;

(iii) Increased supply of essential drugs and vaccines; (iv) Improved delivery of health

services, publicly, through decentralized management/delivery, through increased

participation of the private sector, INGOs and NGOs, or through public-private partnerships;

(v) Improved regulatory mechanisms to ensure the quality and accessibility of health services;

and (vi) improving human resource development and management and health care financing.

148 The major policies and programs to implement these strategies include, among others, the

following: As noted, primary health centers and outpatient facilities in hospitals will be

expanded. In order to mainstream the marginalized groups and regions, efforts will be made

to ensure access to a facility within one hour's walk to all, and to initiate special programs in

the Mid and Far Western regions. Given the inadequate staffing and quality of health facilities

in rural areas, the government will make recruitment and transfer process of health workers

transparent; and adopt an incentive mechanism to encourage them to work in remote areas.

The policy of transferring the management of sub-health posts and health posts to local

communities will be further intensified; and recruitment of health workers and procurement of

drugs will be done at the local level. The community drug program and human resources

development program to produce trained health manpower will be further expanded. Focus

programs particularly for immunization, safer motherhood and control and prevention of

communicable diseases such as HIV/AIDS, as well as a Health Insurance Scheme will be

initiated. Family planning and nutrition programs will be expanded and made more effective.

MOH is also developing an annual work plan within the framework of the MTEF and the

Tenth Plan that would help implement these key reform actions identified in the Health Sector

Strategy as a part of a sector-wide approach to improve performance. It is expected that with

effective implementation of these policies and programs, the existing infant mortality rate will

come down to 45 and life expectancy will increase to 65 years from the current 61.9 years.

All sub-health posts, some of the health posts, and some hospitals will be managed by local

bodies/communities by the end of the Plan.

149 The new implementation modalities in the education and health sectors should be seen as

a logical extension of the decentralization process. Indeed, they represent the

operationalization of the commitment the government made two years ago to transfer

increased functions and responsibilities to local governments and communities, starting with

education, health, rural roads and agricultural extension services. While the management of

primary schools and primary health centers in specified areas are being transferred to

community management committees, funding for them will be channelled through local

governments—DDCs and VDCs. The community management committees will be

answerable to, and be monitored by the DDCs/VDCs for ensuring effective use of and

accountability for resources, while technical support for the management committees will be

provided by the district offices of the line departments, since the DDCs and VDCs do not

have sufficient capacity in this regard at present. Moreover, in both education and health, the

pace of transferring management to the communities will be gradual, taking into account the

management capacity and readiness of communities to take on such responsibilities, the

degree of availability of support through NGOs and CBOs, and implementation constraints

created by the domestic disorder. As conditions improve, particularly as peace and a degree of

normalcy return to the affected areas, it would be possible and necessary to develop new

implementation modalities involving local groups, NGOs and CBOs in order expand the

community management approach to those areas also.

150 The core objectives of the Drinking Water supply and sanitation sector are to increase

sustainable access to basic drinking water in rural areas and basic sanitation in both rural and

urban areas. Similarly, upgrading basic drinking water services in urban and semi-urban areas

through private sector involvement and checking water-induced diseases through the supply

of safe drinking water are other major objectives. The main strategies of the sector are to

encourage NGOs, CBOs and the private sector to actively participate in the planning,

designing, implementing, operating and maintaining water supply and sanitation schemes

with the support from NGOs and the private sector and to formulate and implement necessary

legislative reforms and cost recovery policies, among others. Among the major policies and

activities adopted by the Tenth Plan, the government will revise the 1998 rural sub-sector

policy to specify clear roles and responsibilities for the various sector actors. It will also

reform and consolidate the institutional mechanisms and approaches to facilitate the

implementation of demand driven community managed programs and projects by making

operational a sector monitoring and evaluation system within the line ministries. Likewise,

the government will formulate an Act to ensure the autonomy of the RWSS Fund

Development Board. With the completion of proposed activities, about 3.8 million people will

have access to safe and sustainable drinking water services. Girls will have better opportunity

to go to schools due to time saved in fetching water. Incidence of water borne diseases will be

reduced considerably.

Social Inclusion and Targeted Programs

151 As discussed earlier, the Tenth Plan seeks to address gender and ethnic/caste-related

disparities and facilitate social inclusion by mainstreaming such efforts, i.e. by taking actions

under all four pillars of the poverty reduction strategy, instead of simply relying on targeted

programs. Accordingly, in implementing key sectoral programs, attention will be paid to

ensuring equity of access to such programs for all, with special attention (and monitoring of

such actions) to assuring access of women and deprived communities, with the explicit

objective of reducing the existing gaps between these groups and the rest of the population.

The following paragraphs briefly summarize the Plan’s expectations in this regard.

152 Gender mainstreaming will require a shift away from the traditional reliance on welfare

measures to ensuring equal access for women and children to social and economic

infrastructure and income and employment generating opportunities created by the broad-

based growth process. In addition, to ensure equitable access, women will need to be

empowered by removing the social, legal, economic and other constraints, which have

traditionally hampered their access to and use of resources. How the Tenth Plan will try to

achieve these goals is briefly discussed below.

153 The agricultural growth strategy will help landless women (as well as deprived

community groups) through its emphasis on the production of high value crops (horticulture,

bee keeping) and livestock, which require less land. Irrigation policies supporting shallow

tube well development (complemented by strong support to the poor and women) will have

similar effects. In forestry, community and leasehold forestry development based on the user

group approach will help to significantly expand income generating opportunities for women,

as well as for deprived groups. As discussed, the government also will explore the possibility

of helping the poor to acquire land (through a land bank and/or low cost loans or grants), and

improve their access to agricultural inputs and credit. Increased agricultural production and

productivity would also help expand wage employment and improve wage levels in rural

areas. Attention will also be given to reducing wage differentials between men and women

through appropriate revisions in minimum wages. And, ongoing targeted programs for

women (for example, entrepreneurship development and skills training, income generation

programs, production loans and marketing programs) will be expanded, with priority given to

women heads of households, all of which would help increase incomes of women.

154 Similar interventions will be undertaken in the social sectors. In education, literacy

programs for women will be expanded, with the objective of raising female literacy to 55%.

As noted, scholarship programs for girls will be significantly expanded; and measures will be

adopted to increase school attendance by girls and hiring of more female teachers; and the

existing gender bias in the school curricula will be corrected. In the health sector, the major

thrusts of the program—emphasis on MCH programs, family planning services, HIV/AIDS

control,—should all help women. Mobile clinics will also be used for this purpose. In

drinking water, the community user group and demand based approach will significantly

expand the role of women in this area, through increased voice (minimum 40% representation

in user groups) and influence in decision-making. And the construction of rural roads and

trails, (together with access to drinking water), would contribute significantly to improve

quality of life and increased access to schools, health facilities and markets for women and

girls.

155 Other key areas where planned actions will significantly help women include: (i)

Eliminating legal discrimination against women, by revising existing discriminatory laws;

providing legal assistance to women to enforce the provisions of the newly revised Muluki

Ain (inheritance laws); (ii) Affirmative action to increase women’s role in public office,

administration and community level participation and management, all of which will

contribute to women’s empowerment; and (iii) Introducing legal and other changes to prevent

disorder against women, including a social education process, involving information

campaigns and public discussions about the role of women and their rights. Women’s

development will be regarded as a cross cutting theme which runs across the four pillars; and

each of the key ministries which will be responsible for program implementation will be

required to specifically monitor the impact of their sectoral programs on women. In addition,

the Ministry or Women, Children and Social Welfare, and the Poverty Monitoring Unit within

the NPC will also monitor their progress (see below).

156 The approach to mainstreaming the deprived communities will be broadly similar: the

emphasis will be on ensuring social inclusion through normal sectoral programs and

activities, supplemented by targeted initiatives; for example, with regard to service delivery

and infrastructure development, (such as primary schools, health facilities, drinking water

etc.), the respective line ministries will be required to give equal attention to deprived

communities to ensure that they are served as well as others. They will also be required to

monitor and report progress achieved annually. Similarly, in targeted programs, equal

opportunities will be provided for deprived communities (for example, in skills training,

income generation activities, etc.). The Ministry of Local Development, together with Nepal

Dalit Commission and the National Academy for the upliftment of indigenous people, which

will be created, will monitor these activities. At the VDC level, VDCs will be required to

include in their periodic Plans specific measures for meeting the needs of deprived

communities, and report annually on their implementation. Affirmative action in a number of

important areas (such education, health, participation in public service, administration,

political life and at the community level) would be taken to help achieve progressive results in

this regard, until such time as these communities become sufficiently empowered to stand on

their own, and fight for their rights.

157 Targeted Programs. Broad-based economic growth human development and efforts to

achieve social inclusion will benefit the poor. But, despite such efforts, there will be specific

groups of people who may either be unable to escape the poverty trap or take an unacceptably

long time to do so. Many of them lack education, knowledge, skills, and access to resources

and opportunities to benefit from general development programs. These groups can be the

hard-core poor, assetless, disadvantaged groups, indigenous communities, people living in

remote areas, female-headed households and women.

158 In the past, several programs have been started under both Eighth and Ninth Plans to meet

the needs of these diverse groups. However, despite some successes, the plans failed to

achieve the desire results. Too many fragmented interventions, lack of co-ordination and

follow-up, inadequate resources and commitment and lack of poor-targeted programs were

the main deficiencies.

159 Along with efforts to mainstream the poor and deprived communities and areas, the Tenth

Plan is bringing out a number of special programs to meet their needs. The basic objective of

the targeted programs is to design and implement the programs in such a way so that they

benefit the poor. The strategy underlying these programs will be to develop appropriate

modalities for the selection or targeting of the beneficiary groups. The coverage and outreach

will be increased in the case of successful projects. However, various income cut-off points,

geographical targeting, group or self-targeting modalities will be used for various

compensatory, market-based and facilitation programs. These measures will help in

administering safety net and targeted programs fairly and equitably.

160 To improve their effectiveness, the Tenth Plan has adopted some new approaches: (i)

Targeted programs of similar nature, (which were earlier implemented by different agencies

with different modalities), will be merged and implementation modalities will be simplified.

(ii) While central government agencies as Ministries of Local Development, Education,

Health and Agriculture will continue to operate some of the programs, the government has

initiated a Poverty Alleviation Fund (PAF), which will be used as an umbrella program in

order to strengthen target-oriented programs. Proposed poverty interventions will be widely

discussed with the grassroots organizations, local governments and the general public in order

to strengthen ownership of the programs and ensure successful implementation. This will also

help ensure that targeted programs will not undermine local governments and that they will

correctly target the very poor. (iii) The PAF will increasingly utilize NGOs and CBOs as

support groups for the target groups. (iv) Improved modalities will be put in place to ensure

effective monitoring of the mainstreaming efforts by central government ministries, as well as

of targeted programs. Poverty monitoring will be institutionalized; and a central monitoring

unit under a Joint Secretary has been created in the National planning Commission (NPC) for

this purpose. Also, poverty mapping will be initiated to provide a database for both

mainstreaming by the line ministries and targeted programs in order to better identify

beneficiary groups and targeting modalities. (v) Additional resources will be provided to the

backward regions by the adoption of a population-based resource allocation formula, with

possible additional funding to reduce existing disparities. This in turn should enable a number

of programs (such as skills training, literacy etc) to be expanded, in consultation with local

communities. And, (vi) actions will be taken to empower the poorer and deprived groups by

increasing their representation/participation at various levels of public office and political

process.

161 The targeted programs envisaged in the Tenth Plan include (a) multi-

dimensional/integrated area development programs for construction of infrastructures as

drinking water, small irrigation, schools, health posts, and trails in backward areas with the

support of training, credit and technical support activities; as well as (b) group programs,

aimed at improving the access of target groups to resources, skills and opportunities for

income generation. These include programs such as women's group formation and

empowerment, income generation activities, non-formal education, skills training, technology

adaptation and advisory services in agriculture and livestock, food for work in famine-hit

areas, and occasionally cash grants for food and supplies, among others. Many of these

programs already exist, sometimes overlapping and generally not efficiently run. As noted

earlier, they will be streamlined and merged where possible. They will be supplemented by

additional programs to ensure availability of food stuffs (food security) in remote areas,

improved access to education for deprived groups, (through scholarship programs) and to

rehabilitate people suffering from disorder in affected areas.

162 Targeted programs will also help to increase employment opportunities for the poor. For

this purpose, the effectiveness of existing training and skill development programs will be

improved, by making such programs more cost-effective and relevant for acquiring the skills

needed for self-employment and for wage employment. For example, migrant workers who

go abroad as unskilled labor from poor and deprived groups will be assisted to significantly

increase their earning capacity through short duration training in appropriate skills. Other

target groups would include youth, dropouts from schools and colleges and those affected by

the disorder situation needing rehabilitation. Similarly, labor intensive public works and

minimum needs programs using local labor will be utilized to help increase income

generation in rural areas. Reconstruction and rehabilitation of damaged infrastructure and

other structures will provide a major opportunity in this regard when the law and order

situation improves. The Government will also explore the possibility of providing assistance

to the landless poor to acquire land through arrangements such as a land bank or cash

subsides.

163 Mainstreaming the very poor, deprived communities and backward regions through faster

growth and social and infrastructure development are very essential. However, it will take

time, if only because of limited capacity of central government agencies. Therefore,

alternative ways must be explored to achieve quicker results. A possible approach would be to

involve local governments and community groups in area development efforts and to channel

the additional allocations for "infrastructure development in backward areas" through the

DDCs/Village Committees themselves. This will be accompanied by mobilization of deprived

(beneficiary) groups through NGOs and CBOs, earmarking funds for deprived groups,

involving them and ensuring that they are adequately represented in the decision making

process.

Good Governance

164 The government recognizes that good governance is one area where effective actions

will help to make the Tenth Plan different from previous plans. Indeed, as noted earlier,

without significant progress in this area, it will be virtually impossible to achieve the

objectives outlined under the first three pillars of the poverty reduction strategy. It is worth

noting that Nepal has made significant progress in creating institutional mechanisms and

strengthening procedures to improve key governance aspects; for example, accounting and

auditing functions within the government are clearly separated, an independent Auditor

General's office and an active Public Accounts Committee exist, strong anti-corruption

legislation and institutional mechanisms are in place, and considerable progress has been

achieved in computerizing fiscal accounts and strengthening procurement procedure.

Notwithstanding these improvements however, the effective enforcement of procedures and

institutional arrangements remains weak, and governance problems abound. To achieve good

progress in terms of poverty reduction and development, improvements are necessary over a

broad spectrum of public actions, for ensuring the efficiency of the civil service, assuring

accountability, reducing corruption and leakages, and accelerating decentralization as an

important vehicle for better delivery of services, with greater accountability and

beneficiary/community participation. The key elements of the Tenth Plan's strategies in these

respects are discussed below.

165 Civil service reforms were started two years ago, but as noted, progress to date has been

slow. The Tenth Plan seeks to accelerate reforms in this important area. Its main objectives in

this regard are to: (i) in accordance with the overall strategy of streamlining the role of the

government and transferring responsibilities to local levels, to "right-size" the government

and to reduce the growth of financial administrative overheads; and (ii) to make the civil

service efficient, accountable and transparent. (iii) Related to the last objective is the need to

strengthen institutional capacity to combat corruption.

166 In regard to the first objective, a number of actions have already been taken in the last two

years. On the basis of the recommendation of the Public Expenditure Review Commission

(PERC), a number of offices of line ministries and departments have been merged or closed

down, temporary staff have been eliminated or regularized, and several permanent posts have

been abolished. A policy of utilizing surplus permanent staff in development activities

conducted by other agencies of the government, as well as not creating new posts (hiring

freeze) have been adopted. A civil service census of existing staff to help update personnel

records and to match them with the payroll, as well as computerization of personnel records

by the Ministry of General Administration are under way, while a voluntary retirement

scheme has been initiated. The completion of these activities, together with austerity measures

introduced recently, would also help restrain the growth of current expenditures.

167 The reform program to make the civil service efficient, accountable and transparent will

involve actions on two fronts: (a) recruitment, transfers and promotions will be merit-based,

with transparent criteria (to be finalized by the Ministry of General Administration), backed

up by an annual performance evaluation system. (i) A long-term pay policy will be introduced

together with appropriate decompression of the pay scales, together with additional economic

incentives based on work performance in order to encourage the evolution of a motivated,

honest and independent civil service cadre. The pay structure has already been increased by

50-80% 1999 as a step in this direction. (ii) As a necessary complement to "right sizing",

capacity and skill mix within the civil service will be improved, with a view to enhancing

staff productivity; and adequate training and career development opportunities will be

provided for this purpose. (iii) to ensure adequate representation of women and deprived

groups, affirmative action will be introduced. (b) In parallel, to ensure accountability for work

performance, (i) annual work plans and service standards (for delivery of services/work

performance) will be set for central and local level administrative units, together with the

publication of a Citizens' Charter. (ii) Accountability measures (discussed below) will be

implemented in order to ensure service delivery, and strengthen supervision, monitoring and

compliance with fiscal regulations and standards. (iii) The civil service Act will also be

revised in order to insulate civil servants from political interference and hold them responsible

for matters, which fall under their preview. (c) Finally, as an essential part of civil service

reform, the institutional capacity in the government for effectively carrying out anti-

corruption programs will be significantly strengthened.

Improving Financial Management and Accountability

168 Nepal already has a good institutional framework for ensuring sound financial

management and accountability, including well established regulations and administrative

procedures, institutions for their enforcement, for independent auditing and reporting and for

ultimate review/oversight by the parliament. However, as noted earlier, these arrangements

have not worked well in practice, leading to considerable corruption, leakages and misuse of

resources and poor development results. Correcting these weaknesses is critical to the

effective implementation of the Tenth Plan.

169 Government has taken a number of steps over the last two years to address these issues,

including the formulation of a comprehensive Financial Accountability Regulations Act in

1999, the adoption of the recommendations of the PERC, the Local Self Government Act and

the recent Country Financial Administration Assessment (CFAA); and strict enforcement of

these regulations. These collectively represent a systematic approach to significantly improve

the budgeting, expenditure management and monitoring system. In this regard, some

important measures have already been implemented, while the others are expected to be

enforced over the next 1-3 years. The key reforms include the following: (i) The budgeting

process is being strengthened. The development budget was prioritized in 2002, (as part of a

three year MTEF), and the number of projects/programs was significantly reduced. Priority

projects are required to prepare trimesterly work plans with detailed output/physical

achievement targets and expected results. (ii) Fund releases by the FCGO are being linked

directly to work programs and the provision of expenditure reports (on a trimesterly basis) for

previous releases. Importantly, the discretion previously allowed to line ministries and

agencies to transfer funds between programs and activities will now be restricted. The regular

budget will be integrated with the development budget in 2004 and subjected to the same

prioritization discipline, and the new expenditure reporting and fund release procedures

linking them to performance will be extended to all projects/activities. (iii) Expenditure

monitoring capacity within the government is being significantly strengthened; (iv) Together

with the enhancement of the capacity of internal audit agency (Financial Comptroller

General's Office—FCGO), external auditor (Office of the Auditor General—OAG) and the

Public Accounts Committee. (v) The Government has agreed to the implementation of the

Development Action Plan of the CFAA as per agreed time frame; (vi) Efforts are under way

to reform the public procurement system through the enactment of a new procurement law

and revision of procurement regulations along the lines suggested in the recent CPAR, and to

enhance capacity building in this regard. (vii) Similarly, steps are being taken to ensure

accountability of local governments for activities that will be transferred to them (see below).

(viii) Similarly, to ensure transparency and accountability, information on budget allocations,

expenditures and outputs will be published, and made available to the public. In this context,

a web portal for HMG/N has been created, with links to government departments forms

information on programs and activities; (ix) a Political Party Law was enacted in 2002

requiring the Auditor General to audit the accounts of all political parties; and (x) to create

increased public awareness, FM radio programming has been opened up to the private sector,

while freedom of Information Legislation is expected to be enacted, and the National

Vigilance Center is to be strengthened by mid 2004. Finally, a series of actions have already

been taken to reduce corruption and misappropriation; and a comprehensive Anti-Corruption

strategy have been approved and action plan for the implementation is being worked out.

170 Effective implementation of the government's Anti-Corruption Strategy is important to

ensure good governance. In its drive against corruption, the Tenth Plan's main objective is to

prevent corrupt practices and leakages in order to ensure proper use of public resources and

improved service delivery. The major strategies being adopted for this purpose are to

formulate and effectively implement an anti-corruption strategy, and strengthen the judicial

system and institutional arrangements for prevention of corruption.

171 An important start has been made recently in taking effective actions in this area.

Legislation to strengthen the Commission for Investigation of Abuse of Authority (CIAA) has

been enacted, a special court for speedy handling of corruption cases has been established

recently, and a Judicial Commission for investigating into holding of property and financial

assets by politicians and senior government officials was established and the report has been

submitted to the government. An Anti-money laundering Act will be enacted soon to

discourage and control corruption. Similarly, National Vigilance Center will be activated and

strengthened, while the Commission for Investigation of Abuse of Authority (CIAA) will be

strengthened by increasing its budgetary, physical, human and technological resources, and

the establishment of district/regional CIAA offices. With the effective implementation of

these programs, corruption will be reduced considerably leading to efficiency in resource

allocation and service delivery. Delivery of justice will become effective while the integrity of

the public service will also improve.

Decentralization

172 Decentralization is an important means of bringing development closer to the rural

poor—by involving local communities in developing appropriate programs which are best

suited to their needs and in implementing them, ensuring greater accountability for use of

public resources, and mainstreaming the poor and deprived groups. The local Self

Governance Act (LSGA, 1999) provides a framework for decentralization, which the

government has agreed to implement in a phased manner. The Local Bodies Finance

Commission (LBFC) has also recently made recommendations for fiscal devolution. A

Decentralization Implementation and Monitoring Committee was also set up to oversee

effective implementation. But progress so far has been hampered by institutional capacity and

fiscal constraints, and more recently by the dissolution of elected local bodies.

173 The main objectives of the Tenth Plan in this area are to ensure greater participation of

people in the governance process to accelerate the development process by implementing

fiscal devolution in a phase-wise manner as envisaged in the LSGA; and creating necessary

institutional mechanisms including the formation of a Local Service Commission. The main

strategies being adopted to achieve these objectives include: the devolution of basic service

delivery functions, capacity building of local bodies and decentralization of certain revenue

mobilization functions to local bodies. The major activities being undertaken to carry out this

strategy include the transfer of the management and operation of DIDO, schools, health posts,

postal service, agriculture and small irrigation projects, as well as rural roads, to local bodies.

The government will constitute local service cadres and enhance the planning, management

and evaluation capacities of the local bodies by providing the necessary training and

equipment. Revenue collection and fiscal management of local bodies will be improved and

auditing and accounting system refined. As a result of these initiatives, it is expected that over

the Plan period, 25,000 primary schools, all sub-health posts and agriculture extension

services will be transferred to local bodies. The share of local revenue in the local bodies'

budget will rise, transparency and accountability will increase and service delivery to

communities at village levels will improve considerably.

Financing

The Tenth Plan

Introduction

174 The formulation of a well-designed strategy through extensive nation-wide consultations

is a major milestone in the drive to reduce poverty and mainstream the poor. The real test of

this strategy, however, depends on: (a) whether it is credible and realistic in relation to the

socio-political challenges and resource constraints facing the nation, and (b) whether it can be

effectively implemented in order to deliver the expected results to the poor. This section

briefly reviews the financing aspects of the Plan, while its implementation and monitoring

aspects are discussed in Section VII.

175 In the present circumstances, it is possible to take different approaches to the (Tenth)

Plan's development strategy and its macroeconomic framework. One could be a “business as

usual” approach, setting higher targets and ambitious goals. However, this is very risky,

because the Plan may not be implementable in the absence of domestic and external resources

that are needed. A second approach would be to be very conservative, even err on the side of

caution, and project the current gloom into the future in the belief that the situation will get

worse before it begins to improve, and that donors' support would gradually erode. Such an

approach based on "low case" projections however is equally undesirable and self-defeating;

they could lead to a self-fulfilling downward spiral, in which poverty may only get worse. A

third would be to chart a course in between: accept fully the current constraints for the short

term, but take the difficult steps that are needed to move the economy on to a higher path as

quickly as possible and win the support of stakeholders in that process. This would require

limiting development activities to resource availabilities right now, but as the situation

improves and more domestic and external resources become available through positive and

pro-active actions, expand development/poverty reduction programs to higher, sustainable

levels. This is what the Tenth Plan tries to do.

176 It is also important to keep the Plan's objectives in perspective. First, the Plan is expected

to meet the needs of multiple audiences. The donor community—Nepal's important

development partners—are a vital part of that audience. The Plan is also for domestic

constituents. A Plan which offers only gloom and doom and continued sacrifices for the latter,

without a ray of hope for the future is a recipe for social and political disaster. Second, the

Plan has been under preparation for nearly two years now; and given the rapidity with which

recent events have unfolded, the Plan drafts have already been revised several times. Taking

more time again to revise the Plan in line with the latest developments as they unfold is a "no-

win proposition", because it can be an un-ending process. Third, it is not necessary to do so.

As indicated elsewhere in this report, the Tenth Plan should be seen as a flexible strategic

document, not as an immutable Master Plan. It has built-in mechanisms to adjust its size,

priorities in terms of projects/programs and activities, and resource allocations and

expenditure levels to actual resource availability on an annual basis, (or even more frequently,

if needed). If resource availability is less, budget allocations especially for lower priority

activities can be reduced; and, if the resource situation improves, Plan expenditures can then

be increased accordingly. As discussed below, the Government has already clearly

demonstrated its willingness and ability to adjust the public expenditure program to resource

availabilities and prioritize it to protect the PRSP's key poverty reduction priorities through

the MTEF; and in actual implementation managed it even more tightly during the course of

this fiscal year.

177 Accordingly, the rest of this section briefly reviews the Tenth Plan's strategy with regard

to its financing. It starts with the "normal case"—what the government would like to do, if

resources are available. Even here though, the program for the first year has been sharply

reduced, (reflecting the present resource constraints), but picks up quickly thereafter.

Recognizing that the resolution of the present fiscal and socio-political constraints may take

more time and the Plan's targets and expenditure programs may have to be scaled down for a

longer period, a “lower case” scenario, (which is really a base case) is then presented. The

lower case scenario is indeed the operational basis at present, and will be adjusted every year

through the MTEF as resource availabities and development needs change, (for example as

may be required with the progress of the peace negotiation process). And, as and when

resource availabilities improve, the Government will try to move up to the normal case

scenario to the extent possible. The remainder of this section will discuss how future

expenditure adjustments will be made in practice, (through the MTEF, expenditure

prioritization etc); as well as the actual adjustments that have been made so far in this year's

budget to firmly anchor the Tenth Plan to resource availability and to protect its poverty

reduction priorities through the MTEF. A third "low case" scenario is not separately

discussed, because these built-in mechanisms will help reduce the Plan expenditures further in

a systematic way, if needed.

Macro-economic Framework

178 The macro-economic framework of the Tenth Plan has been set taking into account the

economic growth target, the financial resources required to meet that target, and the

incremental capital output ratio estimated at 4.3:1. Given the fact that resource availability,

implementation capacity and Plan outcome will be heavily influenced by the law and order

situation in the country, the macro economic framework has been designed on the basis of

two scenarios for targeted economic growth. The first—Normal Case—assumes that

restoration of peace within the first year of the Plan would provide room for a GDP growth of

6.2 percent per annum. The investment requirement to attain this growth, given the

incremental capital-output ratio, would be about Rs. 610 billion for the entire Plan period. As

private sector is expected to contribute about 72 percent of this investment, the required

government investment for attaining the growth target would be Rs. 170 billion for the Plan

period. The corresponding development outlay by the Government would be Rs. 234 billion.

The annual decomposition of this development outlay is in line with the MTEF, which was

formulated in FY 2003. Starting from Rs. 32.5 billion in the first year of the Plan,

development expenditure would reach Rs. 51.5 billion in the third year of the Plan.

179 In case the restoration of sustainable peace takes a longer time, the 'normal' economic

growth would be difficult to attain. A risky investment climate for the private sector, resource

constraints in the public sector and constrained Plan implementation capacity would hamper

the growth potential. Accordingly, economic growth in the constrained environment is

expected to be confined to only 4.3 percent per annum under this alternative 'low case'

scenario. The investment required to attain the lower growth target would be Rs. 457 billion.

Of this, the investment to be made by the government would be Rs. 129 billion; and the

corresponding development expenditure level would be Rs. 178 billion for the five year Plan

period. Accordingly, from Rs. 29 billion in the first year, the development expenditure will

rise to Rs. 40.5 billion in the third year of the Plan.

180 The key assumptions underlying these two scenarios are discussed in some detail below.

However, it is worth noting that maintaining a sustainable macroeconomic framework and

ensuring macroeconomic stability are built in as key imperatives under both scenarios. The

major differences between the two scenarios are with regard to the scope for mobilization of

government revenue and domestic/national savings, (both of which will be closely related to

the levels of economic activity/growth), and the feasible levels of external assistance inflows.

Under both scenarios, prudent monetary, fiscal and exchange rate policies designed to keep

domestic inflation at around 4.5% p.a. and foreign exchange reserves at comfortable levels

(nine months' imports equivalent) will be pursued; and the overall fiscal deficit (after grants)

is expected to remain at a sustainable level of about 5 percent of GDP throughout the Plan

period. Much of this deficit would be financed by concessional external loans; and domestic

borrowing will average only about 2.0 percent of GDP per annum over the Plan period. Such

a fiscal deficit would not pose any serious threat to price and balance of payments stability of

the country. Financing this defic it through the planned level of domestic borrowing also will

not lead to a substantial rise in the debt burden of the government. Debt servicing will remain

within affordable limits.

The Normal Case

181 The Normal Case Scenario is based on a number of critical assumptions: (i) The security

situation will improve beginning in the second half of 2002/03, helping to bring about a

modest revival in tourism and domestic economic activities. (ii) The agriculture sector is

expected to grow at a modest rate. These will help the economy to achieve a 3.3% growth rate

in 2002/03. (iii) Global economic conditions will also improve in 2003/04, helping to achieve

faster GDP growth from then on—-6.1% in 2003/04, rising to 7.5% in 2006/07. (iv) Lower

revenue growth will initia lly constrain development spending in 2002/03 to only about Rs.

32.5 billion; but will recover strongly after that. (The revenue/GDP ratio will rise from 12.0%

in FY 2002 to 14.0% in FY 2007). (v) Savings and investment rates, after a slow start in

2002/03, are expected to grow by 11% and 9% per annum respectively during the Plan period.

(National savings will rise from 17.4% of GDP in FY 2002 to 23.1% in FY 2007). (vi)

Prioritization of projects and improved monitoring will increase the effectiveness of public

expenditure and bring positive results; and (vii) Accelerated reforms will help attract more

foreign assistance and raise growth rates further, especially during the last 2 years of the Plan

period.

182 Investment requirements of the Tenth Plan have been estimated by using the Input-Output

methodology. A number of strategic choices made in the Plan, (for example, the need to focus

on investments which can give quick results, the emphasis on agricultural and social

development as the mainstay of the poverty reduction strategy, and the need to make the

administration efficient and cost-effective), influence these estimates. Similarly, other cross-

cutting themes which run right through the Plan strategy, such as limiting public interventions

and focusing them on critical areas where they can make the most beneficial impact, (such as

social sector development), increasing the reliance on the private sector for the development

of infrastructure etc., also have a significant impact on the pattern of investment. (These, as

well as the prioritizing of activities to be included in the Tenth Plan are discussed in some

detail in the sectoral chapters).

183 The investment requirements for the normal case derived on this basis and their broad

sectoral composition are summarized in Table 12. A few comments help to clarify some of

the numbers presented in that table: (i) The agriculture sector's share of total investment

(13.8%) includes its direct share only. There are additional investments which contribute to

increasing agricultural production and productivity, (such as agricultural and rural roads, rural

electricity etc), which are included under the programs of those sectors. (ii) Similarly, apart

from the social sector investment (of 31.5% shown in Table 13), there are large expenditures

of a recurrent nature in these sectors. (In education, for example, recurrent expenditures

account for nearly 70% of total sectoral expenditures, and in health, about one-half). (iii) The

construction sub-sector's share also represents only its direct investment, since capital

expenditures on large projects (such as those for electricity generation and surface irrigation)

are included under those sectors.

184 Subject to these caveats, Table 12 shows that: (i) total gross capital formation of about Rs.

610 billion would be required to implement the poverty reduction strategy and attain the

targets and goals set under the normal case. (Gross investment, including stock changes,

would be about Rs. 641 billion). This level of investment is equivalent to 25.9% of GDP

projected under that scenario, about two percentage points above the somewhat disappointing

investment/GDP ratio which was actually achieved during the Ninth Plan. (ii) The larger part

of the investment (roughly 72%) is expected to be undertaken by the private sector, with the

public sector undertaking the remaining 28%. This is higher than the past ratio of 63% during

the Ninth Plan; but it reflects the Tenth Plan’s strategy of reducing public interventions except

in critical areas and the increased reliance on the private sector. (iii) The sectoral composition

of proposed investment strongly reflects this structural shift. Public investment is expected to

focus mainly on the social sectors and agriculture-related activities, transport and electricity

and water, where there are still a number of large ongoing public sector projects, (such as

Marsyangdi Hydropower and Melamchi). The private sector, on the other hand, is expected to

contribute the dominant share of investment in finance, services, construction, manufacturing,

trade, tourism, hotels and restaurants etc. Its share in agriculture, electricity and transport and

communications (where the public sector role has traditionally been important) is also

expected to grow rapidly.

Table 12: Investment requirements of The Tenth Plan (Normal Case) (Rs. billion, in 2001/02

prices)

Of Which

Government Private Sector

Sectors

Gross

Fixed

Capital

Formation

Percent

of Total

Amount Percent Amount Percent

Agriculture, Irrigation And Forestry 84.4 13.8 31.8 18.7 52.6 12.0

Non-Agriculture 525.4 86.2 137.9 81.2 387.5 88.0

Social Services 131.3 21.5 64.1 37.8 67.2 15.3

• Industry and Mining 36.7 6.0 1.4 0.8 35.3 8.0

• Electricity, gas and Water 86.1 14.1 33.3 19.6 52.8 12.0

• Construction 13.2 2.2 0.0 0.0 13.2 3.0

• Trade, Hotels and Restaurants 44.6 7.3 2.0 1.2 42.6 9.7

• Transport and Communication 122.3 20.1 34.4 20.3 87.9 20.0

• Finance, Real estate, Services 91.3 15.0 2.7 1.6 88.6 20.1

Total Fixed Capital Formation 609.8 100.0 169.7 100.0 440.1 100.0

185 In accordance with the poverty reduction strategy, pubic sector development expenditures

(Table 13) are expected to focus mainly on agriculture, irrigation and forestry (24%), social

sectors (39%), transport and communications (16%) and electricity and water (15%). The

combined share of agriculture and social services is expected to rise from 55% of

development spending under the Ninth Plan to 63% under the Tenth Plan.

Table 13: Sectoral Allocation of Development Expenditure- Normal Case (Rs billion in 2001/02

Prices)

Ninth Plan Target Ninth Plan Estimate Tenth Plan Target Sectors

Amount Percent Amount Percent Amount Percent

Agriculture, Irrigation and

Forestry

67.4 27.1 32.7 19.2 56.2 24.0

Non-agriculture 181.9 72.9 138.2 80.8 177.8 76.0

Social Services

83.0 33.3 61.1 36.0 90.4 38.6

Industry and Mining 2.1 0.8 2.7 1.6 2.3 1.0

Electricity, Gas and Water 46.6 18.7 30.8 18.1 36.0 15.4

Trade, Hotel and Restaurant 3.8 1.5 3.2 1.9 3.5 1.5

Transport and Communication 43.8 17.6 29.8 17.6 36.4 15.6

Finance and Real State

0.3 0.1 6.6 3.9 2.7 1.2

Miscellaneous

2.1 0.9 2.9 1.7 6.5 2.8

Total 249.3 100.0 169.8 100.0 234.0 100.0

Including targeted programs.

Including financial sector reform program.

Administration reform, plan, statistics, science and technology, labor and supplies are included.

186 Table 14 helps to explain how total investment in the economy and government

development expenditures are expected to be financed under the normal case (Annex 3

provides the annual break-down of these numbers). While total investment is expected to rise

by about four percentage points of GDP between 2001/02 and 2006/07, it is expected to be

matched by a similar increase in domestic and national savings. Higher economic growth

would enable significant increases in both per-capita consumption and domestic savings,

while the continued growth of remittances by Nepali workers abroad would help to further

augment national savings. And, the evolution of a more efficient and dynamic financial

system (as a result of ongoing financial sector reforms) would help intermediate such savings

for private investment. However, it is important to recognize that the assumed ICORs, and the

associated investment and savings estimates, may be too high, if the potential efficiency gains

from the new emphasis on implementation and service delivery, public expenditure

prioritization and greater private involvement are realized.

Table 14: The Tenth Plan Macroeconomic Projections- Normal Case Scenario (In 2001/02

Prices)

Ninth Plan

End 2001/02

Tenth Plan

End 2006/07

Tenth Plan

Average

Change 2001/02-

2006/07 (% of GDP)

Economic Growth

• GDP Growth (real) p.a. -0.6 7.5 6.2 +8.1

• Per Capita GDP Growth (real) p.a. -2.9 5.4 4.0 +8.3

Investment and Savings (%of GDP)

• Total Investment

24.4 29.0 25.9 +4.6

• Gross Fixed Capita formation 23.2 27.7 24.6 +4.5

• Private 13.2 19.9 16.7 +6.7

• Public 10.0 7.9 8.0 -2.1

• Total Consumption 88.4 83.8 86.1 -4.6

• Domestic Savings 11.6 16.2 13.9 +4.6

• National Savings 17.4 23.1 20.4 +5.7

Balance of Payments (% of GDP)

• Exports of Goods & NFS 16.1 17.9 18.5 +1.8

• Imports of Goods & NFS 28.9 30.7 30.5 1.8

• Factor Income

5.4 6.5 6.5 +1.1

• Current Account Balance

-7.0 -5.9 -5.5 +1.1

Government finances (%of GDP)

• Government Revenue 12.0 14.0 13.0 +2.0

• Government Expenditure 19.3 21.3 20.4 +2.0

• Regular 11.7 9.7 11.0 -2.0

• Development 7.6 11.5 9.5 +3.9

• Government Budget Balance

-7.3 -7.3 -7.4 -

Gross Foreign Aid 4.7 5.9 5.4 +1.2

• Grants 2.1 2.0 2.2 -0.1

• Loans 2.6 3.9 3.2 +1.3

Domestic Borrowing 2.6 1.4 2.0 -1.2

Inflation (% p.a.) 2.9 4.6 4.5 —

Includes changes in stocks.

Includes net transfers.

Excluding grants.

187 The Plan strategy recognizes the importance of sound fiscal management for creating a

sustainable basis for continued high economic growth and social development by maintaining

macroeconomic stability and reducing the excessive dependence on foreign and domestic

borrowing in order to mitigate the rising debt burden. To this end, it seeks to accelerate

revenue growth, reduce the growth of current expenditures, and limit development

expenditures to sustainable levels.

Accordingly, under the Normal Case, an early resolution of the conflict, together with efforts

to “right size” the administration and reduced administrative costs, would help to bring down

the regular expenditure/GDP ratio from 12.7% this year (and 11.7% in 2001/02) to the pre-

conflict level of around 10% by 2006/07. Similarly, a recovery in economic activities and

strong efforts to improve revenue collections (for example, by strengthening tax

administration, and making it autonomous, revising and periodically updating customs

valuation, reducing tax exemptions and rebates, widening the tax net etc.) would help raise

the revenue ratio gradually (from 12.0 of GDP in 2001/02 to about 14% by 2006/07. The Plan

also seeks to encourage the donor community to provide more grant funding, and in line with

the government’s Foreign Aid Policy (2002), to invite foreign loan assistance primarily to

support poverty reducing priority activities. While a modest rise in the foreign aid/GDP ratio

to 5.9% in 2006/07 is projected, as a matter of policy, domestic borrowing will be reduced

(from 2.6% of GDP in 2001/02) to about 1.4% of GDP by 2006/07. However, increased

revenue surplus (higher revenues, lower current expenditures) and aid inflows would allow

development spending as a percentage of GDP to rise from 7.6% of GDP in 2001/02 to about

11.5% by 2006/07 under this scenario. During the Tenth Plan period as a whole, foreign

financing would be equivalent to 58% of the development budget—about the same ratio

(56%) under the Ninth Plan—while domestic borrowing would finance 21%, and the revenue

surplus the remaining 21% (See Table 14).

188 The Tenth Plan recognizes that there are considerable uncertainties with regard to the key

assumptions made in the normal case scenario, and that if these assumptions are not realized,

it would be difficult to attain the poverty reduction targets. The major risks in this regard

include the following: (i) The restoration of internal law and order will take more time. This

will slowdown and prolong the recovery of the economy; and (ii) Resource constraints will

continue to hamper development efforts for a longer period. Revenue growth will be lower

(due to slower economic recovery) and current expenditures cannot be reduced quickly (due

to continuation of the disorder); (iii) The recovery of the global economy may also take more

time, so that external demand for commodity and labor exports from Nepal may remain weak;

and this will lead to slower growth of domestic/national savings. The overall impact of such

developments would be to significantly slow down economic growth, overall investment and

government’s development activities, and consequently development results in terms of

poverty reduction. In such a situation, the government will need to pursue the economic

reform agenda even more vigorously.

The Alternative Case

189 Recognizing that some of these risks outlined above may indeed materialize and constrain

resource availability and the potential for economic recovery and growth, the Tenth Plan

incorporates an alternative lower case scenario to indicate how the government will deal with

such a situation (Table 15). The key assumptions of the lower case scenario include the

following: (i) The security situation will improve late in (beginning in the last quarter of)

2002/03; (ii) The recovery in the domestic economy will be slower and take longer, with a

slower rate of growth in exports and remittances reflecting slower recovery of the

international economy also. (iii) Revenue growth will be slow, reflecting the continuing

weakness in the economy. The revenue/GDP ratio, after an initial decline (from 12.0% in

2001/02) to 11.8% in 2002/03, will rise slowly to 13.0% by 2006/07, averaging only 12.4%

p.a. for the Tenth Plan period. (iv) Current expenditures will decline marginally from 11.7%

in 2001/02 and 12.6% in 2002/03 (reflecting the need to sustain some security-related

expenditure) to 11.1% of GDP by 2006/07, and average 11.9% p.a. of the Tenth Plan period.

(v) Gross aid inflows will increase only modestly (from 4.7% of GDP in 2001/02 to 5.7% in

2006/07); (vi) but, the government will continue to limit domestic borrowing to limit the debt

burden; and such borrowing will fall steadily from 3.2% of GDP in 2002/03 to only 0.8% in

2006/07. (vii) The cumulative effects of these assumptions are that resource availability for

financing development spending by the government will remain very tight. For example, in

2002/03 development spending is assumed to be only Rs. 29 billion (equivalent to 6.5% of

GDP) compared to a budget target of Rs. 38.3 billion and actual spending ratio of 7.6% in

2001/02. Moreover, development expenditure/GDP ratio will rise only gradually to 8.4% by

2006/07, averaging 7.6% of GDP p.a. over the Plan period. (viii) Under this scenario

domestic/ national savings and overall investment levels in the economy will decline below

the 2001/02 levels, reflecting a sharp decline in these variables during the current year

(2002/03), followed by a very modest recovery in the next few years. Thus, national savings

are expected to reach only 16.1% of GDP by 2006/07, and total investment in the economy

only 21.8% by 2006/07 (Table 15). Therefore, to attain a growth rate of 4.3% p.a. over the

Plan period, a significant improvement in the efficiency of the use of resources will be

required. This is of course what the Tenth Plan strategy tries to do by prioritizing

expenditures, focusing on quick returns and results in terms of output and service delivery and

improving accountability and monitoring.

190 Given these assumptions, the economy’s performance in terms of GDP growth, social and

infrastructure development and poverty reduction will be significantly lower under the Lower

Case than under the Normal Case (Table 12, last column). For example, GDP growth will be

only about 2.0% in 2002/03, and rise slowly thereafter to 4.0% and 4.5% in the next two

years, though picking up thereafter to 6.0 % by 2006/07. For the Tenth Plan period as a

whole, GDP growth will average 4.3% p.a., permitting per-capita income growth of about 2.0

% per annum. This is still better than the GDP and per capita income growth rates of 3.6%

and 1.3% respectively achieved during the Ninth Plan, but not good enough from a

macroeconomic perspective to achieve significant progress in poverty reduction. Not

surprisingly, development programs, activities and results in virtually every area would be

constrained.

However, qualitative improvements in the public expenditure program and supporting private

sector investments can still make a significant difference in terms of development/poverty

reduction results. For example, prioritizing the public expenditure program and directing

limited public resources to the most important areas for poverty reduction, channelling donor

aid and private initiatives to support the same objectives, and focusing intensively on the

effective implementation of these programs to ensure better service delivery will help achieve

better development results from the same resources and growth efforts. Accordingly, the

government has initiated, and begun to vigorously implement, an extensive economic reform

agenda (including the MTEF and related public resource management measures), which is

summarized in the Immediate Action Plan.

Table 15: The Tenth Plan—Macroeconomic Projections—Alternative Scenario (In 2001/02

Prices)

Ninth Plan

End 2001/02

Tenth Plan

End 2006/07

Tenth Plan

Average

Change 2001/02-

2006/07 (% of GDP)

Economic Growth

• GDP Growth (real) p.a. -0.6 6.0 4.3 +4.9

• Per Capita GDP Growth (real) p.a. -2.9 3.9 2.1 +4.9

Investment and Savings (%of GDP)

• Total Investment

24.4 21.8 20.8 -2.6

• Gross Fixed capita formation 23.2 20.5 19.5 -2.7

• Private 13.2 12.0 11.1 -1.2

• Public 10.0 8.6 8.4 -1.4

• Total Consumption 88.4 90.8 90.9 +2.4

• Domestic Savings 11.6 9.2 9.1 -2.4

• National Savings 17.4 16.1 15.7 -1.3

Balance of Payments (% of GDP)

• Exports of Goods & NFS 16.1 14.8 16.5 -1.3

• Imports of Goods & NFS 28.9 27.4 28.2 -1.6

• Factor Income

5.4 6.5 6.6 +1.1

• Current Account Balance

-7.0 -5.7 -5.1 +1.3

Government finances (%of GDP)

• Government Revenue 12.0 13.0 12.4 +1.0

• Government Expenditure 19.3 19.5 19.5 +0.2

• Regular 11.7 11.1 11.9 -0.6

• Development 7.6 8.4 7.6 +0.8

• Government Budget Balance

-7.3 -6.5 -7.1 +0.8

Gross Foreign Aid 4.7 5.7 5.1 +1.0

• Grants 2.1 2.2 2.2 +0.1

• Loans 2.6 3.5 2.9 +0.9

Domestic Borrowing 2.6 0.8 1.9 -1.8

Inflation (% p.a.) 2.9 4.6 4.5 -

Includes changes in stocks.

Includes net transfers

Excluding grants

Medium Term Expenditure Framework (MTEF)

191 Recognizing the fiscal deterioration and the need to revise the Tenth Plan accordingly, the

Government initiated the preparation in parallel of a Medium Term Expenditure

Framework (MTEF) in late 2001. The key objective of the MTEF was to begin to implement

the Tenth Plan from the beginning of the fiscal year 2002/03, without waiting for the formal

finalization of the Plan. Accordingly, the key projects/programs and activities that are

considered essential for achieving the Tenth Plan's poverty reduction goals and their resource

requirements for the next three years were to be identified, and were to be given priority in

terms of budget allocations in the 2002/03 budget. Additional considerations guiding the

MTEF, in view of the fragility of the fiscal situation, were: (i) How to streamline the budget

which was already overextended well beyond resource availability, with over 600 ongoing

activities/budget lines? (ii) How to protect the Tenth Plan's key priorities in the event of

further shortfalls in resource availability? and (iii) How to ensure that the resources allocated

and released for priority activities would be effectively utilized? The MTEF was expected to

be the principal instrument for operationalizing the Tenth Plan, by prioritizing the proposed

Plan activities according to the changing resource situation, and firmly linking the annual

budget process and the Plan.

192 Thus, a three year MTEF was prepared in early 2002 by virtually the same line ministry

teams responsible for Tenth Plan preparation, using similar methodology for ranking and

prioritizing activities, (but with a sharper focus on implementability, short term financing

needs and results). On the basis of the MTEF, (i) the 2002/03 development budget was

initially set at a significantly lower level—Rs. 38 billion, compared to Rs. 50 billion in the

2001/02 budget; and the number of budget lines were reduced from over 600 to 430. (ii) Even

more importantly, all activities were classified into three groups according to their priority (P

being the highest priority and P

being the lowest); and (iii) The principle was established that

the priority classification would be strictly followed in releasing funds for development

activities. Thus, P

s will receive first priority in budget releases; and P

and P

will get funded

only if funds are still available after providing for P

s. This has established clear criteria and

methodology for adjusting resource allocations on the basis of Tenth Plan's priorities, in line

with changes in the resource situation. (iv) Finally, resource allocation was linked to

expenditure reporting and performance, in order to ensure satisfactory results. Thus, under the

new system that has been evolved, activities which do not provide statements of expenditures

(SOEs) for the preceding trimester will not be given additional funds, until they provide the

SOE's. (Section VII discusses these in more detail).

193 The MTEF and the associated budget reforms now provide an effective mechanism to

adjust the annual expenditure program to the changes in the government's resource position,

while protecting the Tenth Plan's priorities. For example, the resource position appears to

have become even more difficult during the months following the announcement of the 2002-

03 budget; and accordingly, the MTEF and its macroeconomic scenarios have been further

revised and updated to facilitate expenditure management. As noted above, the Lower Case

scenario assumes development spending of Rs. 29 billion for this year, in line with this fiscal

deterioration, compared with Rs. 32.5 billion assumed in the Normal Case scenario and the

Rs.38 billion in the FY 2003 Budget which was announced last July. The prioritization

classification (P1-P3) has been further sharpened to protect the poverty reduction priorities.

This is summarized in Table 16 below, which shows the MTEF allocations for key priority

sector activities under the revised Normal Case and Lower Case scenarios. Thus, (i) the

budget allocations for the key sectors which are at the center of agricultural/rural development

and human development/service delivery strategies (namely agriculture, irrigation, forestry,

roads, electricity, education, health, drinking water and local development) have been

increasingly protected; and their combined share is projected to rise from 65% of total

expenditures in FY 2003 to 74% in FY 2005 under the Normal case and from 71% to 76%

under the Lower case (Table 16). (ii) Similarly, within these sectors themselves, the key

poverty reducing activities are being increasingly emphasized. Thus, within the key sectors,

P1 activities as a proportion of sectoral expenditures are projected to rise from 62% in FY

2003 to 72% in FY 2005 under the Lower case, and from 64% to 67% under the Normal case.

(iii) Similarly, all P1 activities as a proportion of total development expenditures would rise

from 55% in FY 2003 to 66% in FY 2005 under the Lower case and from 52% to 59% under

the Normal case. (iv) It is also important to note that the actual release of funds is being

managed tightly, with funds being released so far only to P1 activities (186 out of 430 budget

lines in the 2002/03 budget). Others will get funded, as noted, only if there are funds available

after meeting the needs of P

s. This mechanism also provides upside flexibility to the

government to expand the development program if the resource situation were to improve, for

example by releasing such additional funds to the next sub-set of activities in terms of

priorities. This has also obviated the need for another "Low Case" scenario, as discussed

earlier, while considerably strengthening the government’s capacity to control and manage the

development/expenditure program in a difficult environment.

Table 16: MTEF—Budget Allocations for Priority Sectors and Activities, 2002/03–2004/05

2002/03 2003/04 2004/05

Normal Case

• Total Development Exp (Rs. billion) 32.5 40.9 51.4

• Share of Key Sectors* in Dev. Exps.(%) 65.2 74.5 73.9

• Share of P1s in Key Sectors (%) 64.2 62.5 67.2

• Share of P1s in Total Dev. Exps.(%) 51.6 55.2 58.5

Lower Case

• Total Development Exp (Rs. billion) 29.0 35.0 40.5

• Share of Key Sectors* in Dev. Exps.(%) 71.4 73.5 75.5

• Share of P1s in Key Sectors (%) 61.6 66.0 71.8

• Share of P1s in Total Dev. Exps.(%) 54.9 59.4 66.2

* Includes Agriculture, irrigation, forestry, roads, electricity, education, health, drinking water and local

development.

Source: The Medium Term Expenditure Framework (MTEF).

194 Even though the Tenth Plan has been implemented in a difficult period and the MTEF has

been prepared under a resource constraint, it is important that to meet the objective of poverty

alleviation, pro-poor activities are protected and the poverty related expenses are increased.

Table 17 shows the budget estimates of pro-poor activities identified in MTEF. Although, the

given poverty related resource projections have to be reviewed and strengthened, allocation

reflects the commitment of the government for pro-poor economic activities. The table shows

that the percentage of prioritised poverty expenditure will increase from 67.6% in FY 2003 to

80.1% in FY 2005. Emphasis of the poverty focused expenditure has been mainly in

enhancing agriculture focused economic growth, human development and targeted program

for streamlining the deprived communities.

195 Thus, the MTEF represents a major step forward in operationalizing the PRSP/Tenth

Plan. It is an extremely useful instrument for managing downside/upside risks, protecting the

key poverty reduction priorities of the Plan and for ensuring tight fiscal management. Indeed,

Nepal is currently the only country in the South Asia Region, which is rigorously utilizing the

MTEF as an important operational instrument. Notwithstanding the progress, which has been

achieved over the past year, however, there are a number of weaknesses in MTEF

preparation, which need to be addressed: (i) The MTEF at present focuses only on

development expenditures of the Government. To make it more useful, the Government

intends to expand it to include regular expenditures also, and to improve the expenditure

classification to conform with international norms, on the basis recurrent/capital (instead of

regular/development) expenditures. (ii) Unit cost estimates which are used for costing

programs and activities need to be improved. Unit costs can and do vary significantly for

similar activities between urban and rural areas and between regions; but the information

currently available within most sectors are not robust. The government intends to improve

such estimates by undertaking field surveys and developing sector and activity-specific

estimates in the future in order to improve expenditure estimates, as well as monitoring of

progress. In this context, an important start has been already made towards improving

personnel costs through the computerization of personnel records as noted earlier. (iii) The

prioritization of activities needs to be significantly improved by consistent application of the

ranking criteria, so that the MTEF accurately reflects the PRSP/Tenth Plan's poverty

reduction priorities. MTEF developed and implemented in FY 2002/03 was a good start, more

can and will be done on the next round of the MTEF to improve the prioritization/ranking

process. (iv) Finally, to enhance its operational usefulness, the resource estimates

underpinning the MTEF will need to be revised and updated regularly. While this is being

done now, the estimates of aid inflows are still subject to considerable uncertainties; and these

need to be forecasted and monitored better with the co-operation of external donors.

Table 17: Major Poverty Related Development Expenses (Rs. billion)

Projection Sector Budget

FY 2002/03

FY 2003/04 FY 2004/05

Education

• Basic and Primary Education, Scholarship and Women's

education

2.34 2.57 2.83

Health

• Basic Health and Family Planning 1.55 1.78 1.97

Drinking Water Supply and Sanitation 3.53 4.74 9.93

Rural Electrification

• Rural Electrification and distribution alternate energy 1.47 2.21 2.42

Agriculture

• Programs for increasing agriculture productivity, crop

diversification, research, extension and training

2.06 2.44 2.73

Irrigation 2.58 2.35 2.98

Income generating forestry activities 0.15 0.16 0.17

Rural Infrastructure Development 5.20 5.64 6.53

Grant to local communities 2.87 2.96 3.42

Skill Development

(Only of Ministry of Education, Ministry of Industry and

Ministry of Labour)

2.77 3.02 3.28

Poverty Alleviation Fund 0.17 0.5 1.0

Micro Credit 1.47 1.74 2.08

Total 26.16 30.11 39.34

Total Development Budget 38.68 43.07 49.1

(% of Prioritized Poverty -Expenditure) 67.6 69.9 80.1

196 The potential fiscal stress emanating from the current as well as prospective external and

domestic developments even under the Lower Case scenario underlines the need for

continued revisions to and updating of the MTEF. A major potential impact of risk is the Iraq

war, on the global economy and implications both directly and indirectly for Nepal's

commodity and labor exports, remittances, tourism earnings, oil imports and transport costs,

and economic growth, as well as for the mobilization of government revenues and

domestic/national savings. Similarly, a continuation of the domestic conflict, associated high

security spending and constraints on mobilizing adequate domestic revenue for financing

development activities would be even more of a concern. The recent pause in hostilities and

the initiation of peace negotiations however hold considerable promise in this regard; and

over the past two months, there is evidence of some pick up in economic activity, tourism and

revenue collections, as well as considerable optimism for a recovery in economic growth and

development implementation. Nevertheless, there are also significant potential upside risks in

this regard. Even as peace is restored, considerable additional resources than that envisaged in

the initial MTEF would be required for undertaking rehabilitation, reconstruction and

reconciliation activities. Such expenditures could be considerable and would need to be

undertaken as a matter of priority in parallel with the prioritized development activities in key

areas already identified (under P1s) in the MTEF. To finance such activities, considerable

additional external assistance will be needed; and it is reasonable to expect that such

assistance might be forthcoming in the event that the peace process is consolidated.

Nevertheless, it is unlikely that such requirements will be fully covered by external aid alone,

while there will also be uncertainties about the timing as well as the form of such assistance.

More domestic resources will be needed to trigger additional external aid (through counterpart

funding) as well as for undertaking urgent rehabilitation needs by the government itself.

These risks call for continued review of the MTEF to make it a dynamic process whereby the

spending needs coming out of the peace process could be incorporated into it. While

revisiting the MTEF, as noted earlier, efforts will be made to make unit cost estimates of

activities more robust; to build in recurrent expenditures into the MTEF to ensure better

understanding of the expenditure demands and to make the budgetary system more

predictable; and to improve the forecasting of resource availability for development works.

The prioritization of development programs and projects will also be reviewed and low

priority projects will be dropped as needed. For all these reasons, the MTEF process will be

strengthened and institutionalized, and made an integral part of the planning and

implementation process.

Implementation Modalities

Introduction

197 As noted earlier, the effective implementation of the Tenth Plan's poverty reduction

strategy in an environment of disorder and fiscal stringency is the biggest development

challenge the government has faced in decades. The Tenth Plan will only be as good as its

implementation; and its success or failure will be measured by the extent to which it will

have succeeded in delivering basic services and infrastructure to the poor, enhancing their

quality of life and promoting economic and social inclusion of backward communities and

regions. Accordingly, the Tenth Plan lays strong emphasis on implementation, monitoring

progress towards the attainment of key poverty reduction goals including those in the context

of Millennium Development Goals, and ensuring that the feedback received from intended

beneficiaries and target groups is effectively utilized for improving poverty interventions.

This section discusses the arrangements that are being put in place for the effective

implementation of the Plan's core activities, for monitoring progress and for evaluating their

impact on beneficiaries; as well as the need for capacity building/technical assistance efforts

at various levels. The key actions, (including institutional and policy reforms), which are

required in all these areas, are summarized in the Policy Matrix (Annex 1) and the Immediate

Action Plan (Annex 2), which should be viewed as the implementation strategy of the Tenth

Plan.

198 The poverty reduction strategy will be implemented by many actors, including the central

government and agencies, local bodies, community groups, the private sector, INGOs, NGOs,

CBOs etc. Among these, the central government and its agencies will have primary

responsibility for carrying out much of the development budget and reform measures. But the

Tenth Plan will also rely on alternative mechanisms to improve service delivery. Major part

of the reform agenda is aimed at facilitating private sector involvement in widening range of

areas and activities. Accelerating the decentralization process by increasingly transferring

additional functions and responsibilities to local governments is one approach. Utilizing the

Fund Board approach (which has proved to be very successful in setting up drinking water

facilities in rural areas), and expanding it to other areas wherever possible is another. Also,

NGOs and CBOs will be enlisted for service delivery functions at the local level, (for example

by contracting out specific tasks in such areas as health and drinking water), and for

community mobilization. Even more important, the local communities themselves will be

directly involved in the management of village level service delivery aspects in key areas (see

below). With regard to the development budget, the major thrust of the implementation

strategy is to, within a sustainable fiscal framework, (i) Identify the priority activities which

are essential for poverty reduction; and (ii) Provide adequate funding for them to ensure their

early completion. (iii) A mid year budget review will be institutionalized so that a sound fiscal

framework will be adhered to; (iv) The MTEF would be annually revised and updated for the

purpose of ranking and prioritizing all budget-financed activities and for ensuring that priority

activities would be protected from funding shortfalls. The scope of the MTEF would be

expanded in 2004/05 to cover both recurrent and capital budgets, so that the resource needs

for service delivery as well as for operation and maintenance can be fully provided for. (v)

Also a project screening system will be introduced to ensure that only those activities with

acceptable rates of return will be included in the development program. (vii) To ensure better

utilization of funds, accountability and development results, procurement system and fund

release procedures have already been changed (see below).

199 The Tenth Plan emphasizes the increased involvement of local bodies - DDCs and

VDCs—and communities in the planning, implementation and management of local level

activities for ensuring that public money is spent properly to meet the people's needs, and for

improving service delivery and accountability. Accordingly, more functions, responsibilities

and resources will be transferred to local bodies. Agricultural extension and rural roads

programs will be handed over to local bodies in 2003/04. In addition, each ministry will be

required over the next five months to review their activities, and develop a detailed work plan,

indicating what activities could be transferred to local bodies and when, and what resources

and technical support would be needed to ensure a reasonably smooth transition. Similarly, a

poverty-based formula will be adopted for providing development grants to DDCs and VDCs,

and additional "catch up" grants would be provided to the Mid-Western and Far-Western

regions from 2003/04 onwards. Within these allocations, separate amounts will be earmarked

for deprived communities to ensure that they will have equal access to public resources; and

their representation/participation in community management committees will be assured

through affirmative action. To provide a greater degree of self reliance for local bodies, the

recommendations of the Local Bodies Finance Commission's report will be implemented in a

phased manner, starting with the stronger DDCs in terms of tax potential and management

capacity.

200 A major recent innovation in this regard is directly involving the communities themselves

in the management of primary schools and health facilities. Community management of

primary schools and primary health centers was started in a few districts this year, by setting

up village level management committees, giving them the responsibility for their operation

and management, and providing funds for them through the DDCs and VDCs and technical

support and supervision through the district offices of the concerned ministries. This approach

will be expanded into other areas and other activities. Programs are underway to transfer all

public primary schools to the communities during the plan period.

201 Related to this issue is the need to similarly co-ordinate the activities of INGOs and

NGOs. Undoubtedly, they play a very useful role in many areas in the rural economy; and the

Tenth Plan, as discussed, intends to involve them even more in service delivery and social

mobilization functions. However, the activities of many such organizations are not

transparent, particularly in terms of their sources of funding and the use of such funds; nor are

they accountable to local communities. They will need to be subject to similar standards of

transparency and accountability as the central and local government agencies and

communities they work with, as indicated in the recent Foreign Aid Policy (2002) of the

Government.

202 Although the main objective of the Tenth Plan is to set the overall framework, principles

and main strategies for poverty reduction, the Policy Matrix presented in Annex 1, provides a

more detail view of major strategies activities and outcome. The Matrix also clarifies the

relations between public strategies and actions and poverty reduction. The structure will be

useful in the implementation of poverty reduction strategy of the country.

203 The implementation of the Tenth Plan is not a separate exercise, but will be carried out

primarily through actions in each sector, MTEF and the annual budgeting exercise. An

exercise to develop prioritized through the detailed annual plans within each sector will be

carried out by individual line ministries. The exercise will also refine and sharpen the output

indicators which are indicated in the Policy Matrix. This work of designing the detail action

plans and refinement of output indicators will be completed by December 2003. This action

plan will help to set a good track record on implementation.

204 In order to ensure, good implementation expedite reform programs and improve public

service delivery, HMG/N has started an intermediate implementation modality called

Immediate Action Plan (IAP). The first IAP (Annex 2), which was initiated and implemented

in the FY 2002/03, was well-anchored in the Tenth Plan. The IAP was successfully

implemented and the result was encouraging. The second IAP is being developed to further

strengthen the implementation of the Tenth Plan. Implementation progress is being monitored

by a committee —the Reform and Development Group (RDG)—comprising representatives

of NPC, MOF and donor agencies. The IAP, in addition to specific actions, sets out the time

frame over which the actions are to be implemented, immediate indicators and expected

outcomes. The IAP has proved to be an unique tool in the effective implementation of the

Tenth Plan.

205 The prevailing disorder situation in the country presents special challenges in terms of

implementation. However, a ceasefire has recently taken place, and peace process is in

progress. There is considerable optimism that a return to a more normal situation will enable

the government to deliver services better and undertake reform measures. Though it seems

unlikely, if the peace process is to be in jeopardy, the government will adopt a multi-pronged

approach to implementation in the disturbed areas: (i) Where important development projects

will need to go on, the government will carry out such activities within “shield and support”

programs, for example, sealing off large project construction sites and carrying out the work.

(ii) A similar approach will be adopted for critical road construction work, (for example,

where explosives will need to be provided and used for rock-blasting purposes). The use of

mobile teams for service delivery and for undertaking repairs are some other examples. (iii)

Where it is possible to carry out development activities in a larger area with security presence,

Integrated Security and Development Programs (ISDP) will be carried out; for example, the

Gorkha district has been selected initially for significant ISDP activities. (iv) In areas where

government agencies will have difficulty in actively engaging in service delivery, but it is

possible to use NGOs and local CBOs to carry out essential development activities (for

example, providing food and medicines to avoid starvation and epidemics), the government

will utilize such channels. (v) In other areas, where there is less problem of security, the

government will make serious efforts to implement programs to deliver quick results, in order

to prevent further alienation and to win public support. In these areas government

interventions will seek to provide employment and income generating activities for the poor,

for example through rehabilitation programs, road construction and work for food programs.

Such interventions will add extra costs to the normal development activities; but they will

have to be accepted (within reasonable limits) to maintain government presence and to

prevent further erosion of public sympathy and confidence.

Monitoring and Evaluation Arrangements

206 Traditionally, monitoring of development activities in Nepal has focused largely on

expenditure monitoring only. Although there have been attempts to monitor physical progress

and results, this has not been consistently done. This deficiency inevitably led to leakages and

misuse of public resources and poor development results. Although budget allocations and

releases were spent on activities, their results in terms of outputs and service delivery were

not commensurate with expectations. Ministerial Development Action Committee at the

ministry level and National Development Action Committee at the Prime Ministerial level are

responsible for rectifying development policies and programs based on the monitoring reports

from respective ministries and for some national level core projects from National Planning

Commission. However, due to the absence of effective management information system,

monitoring, the actions from these Action Committees have still to be fruitful. There is a need

for strengthening management information system, and define an integrated frame for

monitoring progress of development programs, link them with resources spent, and evaluating

them for their effectiveness in reducing income poverty and promoting human development.

207 Monitoring capacity within the government has been weak up to now, in part because of

the lack of interest on the part of political leadership in the past and the consequent disuse of

even the existing institutional arrangements. Strong efforts will be made to revitalize and

strengthen monitoring capacity. Rather than creating new institutions for this purpose,

existing arrangements will be reinforced, as necessary, by new initiatives: (i) the primary

responsibility for supervision and monitoring is with the line ministries. The existing Project

Implementation Units (PIUs) within the line ministries will be significantly strengthened for

this purpose. As noted, the line ministries have already been made responsible for monitoring

and certifying both financial and implementation (work program) progress of agencies under

them. (ii) The NPC has an overview supervisory role, if only to carry out crosschecks on the

accuracy of progress certifications by line ministries in order to ensure proper accountability.

More importantly, monitoring progress towards poverty reduction will remain a NPC

mandate. The Central Monitoring Division and recently established Poverty Monitoring

Section of the NPC need to be significantly strengthened to carry out this role and to function

as the servicing body for the higher (national) level supervisory institutions. Members of the

NPC, who are responsible for various sectors, will be given additional responsibility of

monitoring and supervision in one of the Development Regions of the country, (iii) The sector

level and national level review committees will be reinvigorated. Thus the Ministerial

Development Action Committee (MDAC), chaired by concerned Ministers will review sector

progress every two months; while the National Development Action Committee (NDAC),

chaired by the Prime Minister, will review both sector implementation and progress towards

poverty reduction and key human development goals every four months. Key data and

information for poverty monitoring will be derived from surveys to be conducted by Central

Bureau of Statistics for which institutional structure and human resources of the CBS will be

significantly improved.

208 To improve the effectiveness of the existing set-up and new initiatives as noted earlier,

considerable capacity building will be required at all levels of the government—line

ministries, starting with the NPC, FCGO, as well as the statutory bodies involved in ensuring

public accountability, such as the Auditor General’s Office and the Public Accounts

Committee. This is because the nature of proposed implementation arrangements will be

significantly different from current practice and the scale of monitoring efforts envisaged is

far larger than the existing capacity of the government. Additional staffing, training and

resources therefore will need to be devoted to these activities. Apart from traditional

project/program monitoring, skills will need to be developed in the key ministries for poverty

monitoring. In addition, the co-ordination of sector activities and programs involving the

private sector, NGOs, CBOs etc. in such areas as health, education and drinking water will

demand new management skills from the government staff. An assessment will be undertaken

of the capacity building needs at various levels of the government as an essential part of the

monitoring framework that would be developed by December, 2003 (see below). And,

substantial donor assistance (in the form of technical assistance) as well as the government's

own resources will need to be provided for this purpose, once such a framework is developed.

209 The government has introduced monitoring of both financial and physical progress from

the beginning of fiscal year 2002/03. Fiscal reforms announced in this year's budget require

the implementing agencies, for all priority activities (classified as P1), to (i) prepare detailed

work programs on a trimesterly basis and, on that basis, formulate monitoring/output

indicators for each activity. (ii) Fund releases for priority projects by the Financial

Comptroller General's Office (FCGO) will be directly tied to the submission of statements of

expenditures by the implementing agency, and certification of satisfactory performance of the

agreed work program by the supervising line ministry. This system, though a bit cumbersome

initially, is expected to ensure that actual expenditures on priority activities are matched

reasonably closely with physical progress, or output/service delivery performance. Apart from

providing greater financial discipline, it will also facilitate the preparation of reimbursement

claims to donor agencies and help improve aid disbursements. Eventually, as the monitoring

capacity within the government ministries improves, these monitoring requirements will be

extended to all budgetary activities.

210 For activities undertaken by local governments, similar monitoring arrangements will be

adopted. The Local Self Government (Administration) Rules 1999 provide guidelines in this

regard. The reporting requirements will be simplified and strictly enforced, with the Ministry

of Local Development (MOLD) responsible for overall supervision. The same trimesterly

reporting procedures with regard to expenditure reporting and work programs will be initiated

and applied, with MOLD providing the certification on satisfactory performance to FCGO

before the release of funds can take place. Similarly, for primary schools and health centers

that have been transferred by Ministries of Education and Health respectively to village

communities, the District Offices of these ministries could provide the supervision and

monitoring and the certification that is needed for the trimesterly release of funds by FCGO.

211 Accelerating the decentralization process and ensuring its success will be an important

challenge for both the central government and local bodies. To make the decentralization

process effective, it is necessary not only to transfer functions and responsibilities to local

governments, but also to enhance their capacity building to carry out the delegated functions,

including the provision of requisite technical, management supervision, monitoring, as well as

accounting and reporting skills. Until these capacities are built up at the local levels, technical

support and supervision from central and district level agencies will be essential. While

considerable progress has been made in several districts in building the capacities of DDCs

and VDCs through donor-supported programs, these efforts will need to be deepened and

extended to other districts. This overall capacity building effort in the Government (both

central and local) is one area where donor assistance will be needed to ensure the success of

the Tenth Plan, perhaps even more than traditional project support. Since various technical

assistance programs already constitute a significant proportion of donor aid to Nepal, these

programs will be reassessed in order to re-direct such assistance to the national priorities for

development, as suggested above.

212 Given the record so far with regard to capacity and accountability of some local

government bodies, additional measures will be adopted to ensure greater accountability and

transparency: (i) Access of the public to information is critical for ensuring better service

delivery and accountability. Accordingly, information on resources made available to VDCs,

for what purposes, planned activities, and how the money has been spent so far will be posted

outside each VDC. Also, access of the public to the reports made by VDCs and DDCs on

their trimesterly work programs, SOEs and outputs/service delivery performance will be made

available, so that the communities themselves can act as watchdogs over VDC performance.

(ii) This will be backed by periodic surveys aimed at assessing customer satisfaction with the

functioning of local, as well as, central government agencies (see below). (iii) To ensure

participation of the poorer and deprived groups in decision-making and management

processes at the village level, affirmative action will be taken to ensure their participation.

Citizens’ charters will be posted. Budget and expenditure status will be put in the web to

encourage citizens’ direct involvement in the progress monitoring.

213 Considerable data is being collected at present by various agencies and development

partners for poverty monitoring purposes (including the assessment of income poverty and

human development trends); but there has been no effort to integrate them into a systematic

framework/database for poverty monitoring on a regular basis. Accordingly, efforts will now

be made to develop such a framework for systematically monitoring and evaluating progress

towards the overall goals set for poverty reduction, human development and mainstreaming

the poor and deprived communities. Poverty monitoring will be closely integrated with the

monitoring of the PRSP’s implementation and assessing the country’s progress towards

achieving Millennium Development Goals. Several actions are being taken in this regard: (a)

Establishing a special poverty monitoring system within the government, as distinct from

normal project/program monitoring. For this purpose, a Poverty Monitoring Section has

already been created in the NPC, with the mandate of monitoring and analyzing poverty

trends, progress towards key human development indicators and the implementation of

measures to ensure social inclusion, and undertaking periodic reviews. (b) Efforts are under

way to develop intermediate indicators, with assistance from the line ministries. Indeed, as

noted above, work programs and output targets/ intermediate indicators have been developed

in many areas, to which both fund releases and actual expenditures will be linked. While this

will enable evaluation of short term implementation progress and financial accountability, (c)

considerable work remains to be done to develop a framework for assessing the outcomes and

impacts of development actions over the medium to longer term on the incomes and

livelihoods of people, human development and social progress, among others. This will

require significant efforts to evaluate existing data sources, to collect additional data that will

be needed for poverty monitoring, to decide on institutional responsibilities and the frequency

of collecting such data, and to strengthen institutional capacity, as well as to assess funding

needs for such efforts. As indicated in Table 18, apart from data that will be routinely

collected for MIS purposes, it would be necessary to conduct detailed NLSS surveys every 5-

6 years. These will be supplemented in the intervening periods by household surveys carried

out every 2-3 years. In addition, additional sector surveys (such as those conducted by the

Department of Health Services) will be undertaken from time to ascertain progress in critical

areas, especially the social sectors. Annual surveys will be carried out focusing particularly on

backward regions and deprived communities, to assess year-to-year progress. While these

would help evaluate progress over time in reducing poverty reduction and reaching social

development goals, other efforts will be launched in parallel to improve the effectiveness of

public (and private) programs and activities, for example, through participatory monitoring

exercises, expenditure tracking, and client satisfaction surveys in specific sectors and areas. It

is expected that such a framework for poverty monitoring and tracking PRSP’s progress

would be finalized by December 2003.

214 As an initial step, the NPC will undertake a Poverty Mapping exercise, to identify the

poor and marginalized groups, to provide a good basis for locating basic social sector

infrastructure facilities in backward areas. A new round of the Nepal Living Standards Survey

will be carried out in 2003, and its coverage will be broadened to provide additional

information required for poverty monitoring. To ensure the effective dissemination of poverty

reporting, an annual report on progress on poverty reduction and mainstreaming will be

prepared (drawing also on regular monitoring reports by line ministries), by the Poverty

Monitoring Unit, under the direction of the Vice-Chairman, NPC, for review by the National

Development Action Committee (NDAC). This Annual report will be evolved as a Country

Report on the Progress on Millennium Development Goals. Utilizing available information on

various dimensions of income and human poverty, the first issue of such a report has already

been brought out.

215 Table 18 below summarizes the indicators/key actions that are presently envisaged for

monitoring both PRSP implementation and progress in poverty reduction. The Table focuses

on key areas where progress in effective implementation of the PRSP is critical, but it should

be regarded as preliminary. A more detailed set of indicators to track progress in PRSP

implementation and poverty reduction will be formulated when the work program for setting

up a monitoring framework is completed in December.

Conclusion

216 Recognizing the importance of effective implementation and monitoring of the poverty

reduction strategy, His Majesty's Government is developing a comprehensive participatory

implementation, monitoring and evaluation strategy, with technical support and assistance

from the development partners. The current work program has focussed on the initial

requirements for monitoring the implementation of key work programs and activities and the

intermediate indicators of outputs from such activities, together with specification of

institutional responsibilities and formats and time schedules for reporting. This phase of the

work program including necessary budgeting, planning and procedural changes; the

establishment of a central poverty monitoring unit; and supervisory arrangements at the

national and highest political levels to oversee progress has been largely completed and made

operational. Work is now under way to develop comprehensive institutional arrangements for

measuring and evaluating the impact and outcomes of poverty reduction efforts over the

medium to longer term, to put in place effective arrangements to collect relevant data and

information on a sustainable and regular basis, to analyse and effectively utilize them for

policy purposes, for institutionalizing dissemination and feedback mechanisms and for

developing and strengthening the necessary institutional capacity at all levels to carry out

these tasks. Developing such a comprehensive framework, with donor support, is a major

undertaking; and it is expected that the exercise would be completed by December 2003.

Table 18: Key Output/Outcome/Impact and Process Indicators

Strategy/sector

Indicators/Key Actions

Levels of

Analysis/

Desegregation

Frequency of

Collection

Sources Responsible

Agency

Poverty Incidence, Intensity and Severity (poverty threshold,$’day,

consumption basket etc.)

NERUS 5-6 years NLSS CBS

Household Distribution by Consumption Deciles and Share of

Poorest Quintile

NUR 2-3 years Household Survey CBS

Gini Coefficient of Income NERUR 5-6 years NLSS CBS

Labor Participation Rates NERG 5-6 years Labor Force Survey CBS

Poverty Incidence

and Employment

Unemployment/Underemployment rates NERGS 5-6 years NLSS CBS

GDP and Per Capita Income Growth NERS 2-4 years/Annual NLSS/HH Survey CBS

Agriculture GDP and Per Capita Agricultural Income Growth NERS 2-4 years/Annual NLSS/HH Survey CBS

Provision of Key Inputs for Agriculture (fertilizer, extension, irrigation) NER Annual MIS DOA/DOI

Access to Institutional/Micro Credit NERUS 2-4 years/Annual HH Survey/MIS CBS/NRB

Tourists’ Arrivals National Annual MIS DOI

Gross/Net Nepali Workers Going Abroad National Sector Annual National Accounts CBS

Broad-based (pro-

poor) Economic

Growth

Employment- Number of Jobs Created National Sector Annual National Accounts CBS

Human Development Indicator NER 2 years Survey UNDP

Literacy Rates (adults and total) NERUGS 2-4 years Annual NLSS/HH Survey CBS

Net Enrollment Rates (primary/secondary) NERUGS 2-4 years Annual NLSS/HH Survey CBS/DoE

Repetition/Failure Rates in Primary and secondary Levels NERUGS 2-4 years Annual NLSS/HH Survey CBS/DoE

Time Taken to Reach a Primary School NERU 2-4 years NLSS/HH Survey CBS

Student Teacher Ratio NER Annual MIS CBS

Proportion of Trained Teachers in Primary School NERU Annual MIS CBS

Proportion of Students in Primary school Getting Scholarship NERUGS Annual MIS CBS

Life Expectancy at Birth NEUG 5 years NLSS CBS

Mortality Rates (infant, child, under 5 and maternal NERUGS 5-6 years HH Survey/MIS DoHS/CBS

Time Taken to Reach the Nearest Health Facility NERU 2-4 years NLSS/HH Survey CBS

One Year Olds (%) fully Immunized Against Target Diseases NERU 2-4 years Annual NLSS/DHS/HH Survey

CBS/MoHS

Diseases Incidence (TB, malaria, HIV/AIDS) NERUGS 5-6 years HH Survey DoHS/CBS

Births (%) Attended by Skilled Health Personnel NERUS 2-4 years/Annual HH Survey CBS/MoHS

Access to Antenatal Care During Pregnancy HERUS 2-4 years/Annual HH Survey CBS/MoHS

Contraceptive Prevalence Rate NERUS 2-4 years/Annual HH Survey CBS

Access to Improved Drinking Water Sources NERUS 2-4 years/Annual NLSS/HH Survey/MIS CBS/DWSS

Access to Adequate Sanitation Facilities NERUS 2-4 years/Annual NLSS/HH Survey/MIS CBS/DWSS

Human

Development and

Infrastructure

Access to Motorable All Weather Roads NER 2-4 years/Annual HH Survey/MIS CBS/DoR

Strategy/sector

Indicators/Key Actions

Levels of

Analysis/

Desegregation

Frequency of

Collection

Sources Responsible

Agency

Rural Roads Constructed-Kms NER 2-4 years/Annual HH Survey/MIS CBS/DoR

Percentage Served by Electricity NERUS 2-4 years/Annual HH Survey/MIS CBS/NEA

Ratio of Female Literacy to Male Literacy Rate NERUS 2-4 years NLSS/HH Survey CBS

Ratio of Girls’ Enrollment to Boys’ Enrollment Rate (primary and

secondary)

NERUS 2-4 years/Annual NLSS/HH Survey/MIS CBS/DoE

Proportion of Female School Teachers NER Annual MIS DoE

Percentage of Women in Civil Service National Annual MIS MoGA

Percentage of Women in political Positions National Local 2-4 years MIS Mo

Parliamentary

Affairs/MoLD

Number of Community/Leasehold Forestry UG’s formed NERS 2-4 years/Annual HH Survey/MIS CBS/MoF

Expenditure and Number of People Receiving Skill Training NERUGS 2-4 years/Annual HH Survey/MIS CBS/MoL

Proportion and budget of Students From Disadvantaged Groups

Awarded Scholarships

NERGS Annual MIS MoE

Social Inclusion

And Targeted

Programs

Number of Mobile Health Camps in Disadvantaged Groups/Areas NERS Annual MIS MoH

Implementation of Development Action Plan for CFAA and CPAR

(financial accountability, procurement, civil service reform)

National Annual MIS MOF, FCGO

and AGO

Implementation of Decentralization (education, health, agri.

extension, rural roads, fiscal devolution)

National Annual MIS MoLD, NPC

Governance

Implementation of Anti-Corruption Agenda National Annual MIS MoF, NPC,

MoGA

Improvement in recruitment and promotion system National 2-4 years MIS MGA,PSC Civil Service

Reform

Reduce political interference in civil service functioning National Annual MIS MOGA, PMO

Proportion of Land Area Covered by Forest National Regional Annual MIS MOF

Land Area Protected for Biodiversity National Annual MIS DNPWC

Environmental

Management

Carbon dioxide Emission Per Capita National Annual MIS DoHM

Gross national Savings and Investment (percent of GDP) National Annual National Accounts CBS

Government Expenditure (regular/dev, current/capital) Percent of

GDP

National Annual Economic Survey MoF

Revenue (percent of GDP) National Annual Economic Survey CBS/MoF

Fiscal Deficit as Percent of GDP National Annual Economic Survey CBS/MoF

Domestic Borrowing as Percent of GDP National Annual Economic Survey CBS/NRB

External Assistance as Percent of GDP National Annual Economic Survey CBS/MoF

Balance of Payments (exports, imports, C/A, gross reserves) National Annual Economic Survey CBS/NRB

Macroeconomic

Stability

Price Inflation NER Annual MIS, Price data NRB/CBS

Strategy/sector

Indicators/Key Actions

Levels of

Analysis/

Desegregation

Frequency of

Collection

Sources Responsible

Agency

Monetary Growth (broad money, credit to private sector) National Annual MIS NRB

Functional/Economic Classification of Allocations and

Expenditures(by sector)

NR Annual MIS FCGO/MoF

MTEF-Pro-Poor Expenditures (P1s) Allocations and expenditures by

program/activity and type of expenditures

National Trimesterly,

Annual

MIS NPC/MoF/FCGO

Fiscal/Financial

Management and

Monitoring

Mid Year Review of The Budget National Annual MIS MoF/FCGO

Govt. Review of Implementation Progress (to be shared with Dev.

Partners)

NR Trimesterly/Annual

MIS NDAC, MDAC,

NPC/MoF, Line

Ministries

Review by Auditor General and Public Account Committee National Annual AGO/FCGO Reports AGG/PAC

Structural

Reforms and

Overall progress

Review of IAP and Reform Agenda National Annual MIS MoF, NPC, Line

Ministries

Note NERUS: National/Ecological/Regional/urban/Rural/Social Groups

NERS: National/Ecological/Regional/Social Groups

NER: National/Ecological/Regional

NERUGS: National/Ecological/Regional/Urban/Rural/Gender and Social Groups

NERUR: National/Ecological/Regional/Urban/Rural

NERGS: National/Ecological/Regional/Gender/Social Groups

Annex 1

Macro Economic Stability

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Fiscal deficit remaining

around 5 % of GDP.

§ Revenue GDP ratio

increased to 14 percent

by 2007.

§ Medium Term Expenditure

Framework (MTEF) strengthened

by consolidating regular and

development expenditure and

classifying into recurrent and

capital expenditures (2005

ongoing).

§ Regular expenditure as

percent of GDP declining.

§ Decrease tax arrears by

50 percent by 2007.

§ NPC, MOF § Pursue prudent expenditure

management

§ Development expenditure in all

sectors widened and deepened

through MTEF (ongoing).

§ Revenue surplus to finance

development spending

improves over years.

§ NPC, MOF,

Line

ministries

§ Actions taken to clear government

arrears to/from the public utilities

(2003/04).

§ Annual revenue to grow by

0.4 % of GDP.

§ Revenue surplus to

contribute at least 18

percent of development

expenditure by 2007.

§ MOF, FCGO

§ Settle tax arrears (ongoing). § MOF

§ Recommendations of the fiscal

taskforce for tax reform

implemented (FY 2004 onwards).

§ MOF

§ Tax exemptions and tax rebates

narrowed downed and tax net

widened (ongoing).

§ MOF

§ Tax administration strengthened

through a move towards an

autonomous tax administration

(ongoing).

§ MOF

Maintain fiscal

discipline

§ Improve domestic resource

mobilization

§ Customs valuations revised every

six months based on ASYCUDA

and product (ongoing).

§ Number of tax payers with

PAN increased to 300,000

by 2007.

§ MOF

§ Widen and deepen MTEF to cover

all sectors

§ MTEF extended to all Ministries

(2002/03).

§ All priority projects/

programs published in the

Red Book.

§ Improved pro poor

budget allocation.

§ NPC, MOF Ensure efficiency

of public

resources

§ Increase the share of priority

projects (P1) in the budget.

§ Performance based fund release

institutionalized (2003 onwards)

§ Project completion period

reduced.

§ Improved efficiency of

public spending.

§ MOF

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Monitoring and evaluation unit

strengthened (2003 onwards)

§ Time and cost over run

reduced.

§ NPC, MOF

§ Performance of all

projects/programs made available

in the web site (2003 onwards)

§ NPC

§ The new procurement law

implemented (2004).

§ Total share of P1 project

budget in sector ceiling

increased.

MOF, MOPPW

§ Money supply (M2) contained to a

desirable level (ongoing).

§ Money supply (M2) growing

at the rate of 14.5 percent.

§ Average inflation rate

contained at 5 % per

annum.

§ NRB

§ Limit central bank borrowing as

per financial regulation (2003/04).

§ MOF

§ Limit the growth of bank finance to

the government (ongoing).

§ Share of private sector

credit at 76 percent of the

total.

§ NRB/MOF

Maintenance of

monetary stability

§ Pursue Prudent monetary policy to

(i) contain inflation and (ii) attain

favorable balance of payments

position

§ Widen the instruments of open

market operations (ongoing).

§ Favorable balance of

payment

§ NRB

Ensure external

sector stability

§ Diversification of exports. § Promote and divers exportable

commodities (commodity-wise and

country-wise) (ongoing).

§ Balance of payment

favorable.

§ MOICS

§ Promotion of foreign direct

investment.

§ Alignment of real exchange rate. § NRB

§ Act, regulation, tariff structure

amended/revised and procedural

simplification initiated.

§ MOICS, MOF

§ Increase remittance (from

Nepalese working abroad) by

increasing access/quality of

workers into foreign labor markets

(ongoing).

§ Current account deficit

contained at less than 4

percent of GDP.

§ DOL, NRB

§ Implementation of prudent foreign

exchange rate policy .

§ Foreign exchange regime

rationalized (ongoing).

§ Foreign exchange reserve

to cover minimum of 6

months of imports.

§ International reserves

remains to a

comfortable position.

§ NRB

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Strengthen Central Bank's

regulatory and supervisory

capability.

§ Implement re-engineering plan of

Nepal Rastra Bank (2005).

§ Reduced NPA of the

banking system.

§ Central Bank's

supervisory and

regulatory capacity

improved.

§ NRB, MOF

§ Reform state owned commercial

bank.

§ Initiate privatization process of

Rastriya Banijya Bank and Nepal

Bank Limited (2005).

§ Establish asset Reconstruction

Company (2003/04).

§ Improved capital adequacy

ratio.

§ Confidence in the

financial system

strengthened.

§ NRB/ MOF

§ Strengthen banking and non-

banking financial institutions.

§ Strengthen legislative and

institutional framework for

effective loan recovery (2003/04).

§ Interest rate spread

between deposit and

lending narrowed.

§ Efficiency of the

financial system service

delivery improved.

§ NRB/ MOF

§ Enact necessary acts for

regulation of local co-operatives

(2004).

§ NRB/ MOF

§ Complete audits of two main

development banks ( ADB/N and

NIDC) and develop restructuring

strategy for them (2004).

§ NRB/ MOF

§ Reform rural development banks

(2004).

§ MOF

§ Strengthen rural financing system

(ongoing).

§ MOF, NRB

Strengthen

financial system

§ Widen and deepen the activities of

the stock market.

§ Improve the regulatory framework

and operational efficiency of the

stock market (ongoing).

§ Number of listed

companies and transaction

volume in the stock

exchange increased.

§ MOF, SEBI

Enhanced role of

private sector in

economic

activities

enhanced

§ Create conducive and competitive

environment for private sector

investment.

§ Review labor act and enact

necessary laws for easy entry and

exit (2004).

§ Increased share of private

sector in total investment.

§ Private sector

investment reached

16.7 % of GDP.

§ MOLTM

§ Mechanism for improving

accounting, auditing and reporting

system strengthened.

§ Privatize at least three

SOEs annually.

§ Foreign Direct

Investment increased.

§ MOF, AGO

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Procedural simplification

especially for investment and

exports.

§ MOF, MOICS

§ Continue economic reform to

ensure macroeconomic stability to

increase private sector

investment.

§ Continue reform in fiscal,

monetary and financial sectors

(ongoing).

§ NRB, MOF

§ Restructure/privatize state owned

enterprises.

§ Privatize/corporatize Nepal

Electricity Authority, Nepal

Telecommunication Corporation,

Royal Nepal Airlines.

§ MOF, Line

Ministries

§ Accelerate the privatization of

state owned enterprises and

complete audits of all state owned

enterprises (2004).

§ MOF, Line

Ministries

§ Enact liquidation, merger,

bankruptcy acts (2004).

§ Unbundling of NEA and

corporatization of NTC.

§ MOF, MOICS

Agriculture

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Expand the use of available

modern technology

§ Enhanced farmer's group based

technology dissemination system

and capability enhancement of

staff and farmers groups

(continued).

§ Increased number of

effective farmers groups.

§ Need based location

specific technology

recommendations

available and

dissemination system in

place.

§ MOAC

§ Promote research, development

and extension for food security in

severely food deficit districts

(continued).

§ Co-ordinated need based

research and extension

programs for severely food

deficit areas (specially

remote) in operation.

§ More diversified

production system and

enhanced

commercialization

§ MOAC

§ Enhance balanced use of agro-

chemicals (continued).

§ Increase number of

Integrated Pest

Management (IPM) and

other farmers field schools.

§ Overall agricultural

growth by 4.1 percent

§ MOAC

§ Increase farmers access to

modern agricultural input and

credit

§ Enhance market based

environment for increasing

fertilizer supply and uses

(continued).

§ Increased supply and uses

of fertilizer.

§ Crops production

increased by 4.1

percent.

§ MOAC

§ Enhance rural banking activities

(ADBN/ Rural Banks) for effective

credit delivery (continued).

§ Increased flow of credits. § Livestock production

increased by 4.9

percent.

§ ADBN,NRB,

MOF

§ Strengthen regional research

farms stations and private sectors

resources for ensured quality

seeds/ breeds / planting materials

production and supply to the local

multipliers/ nurseries (continued).

§ Increased supply of quality

seeds/breeds/planting

materials to local

multipliers.

§ Enhanced agricultural

productivity.

§ NARC,

MOAC

Increase

agricultural

production

productivity and

income for food

security and

poverty reduction.

§ Promote diversification and

commercialization in crops/

livestock production system.

§ Implement intensive agriculture

program in year round irrigated

areas (continued).

§ Increased number and

coverage of intensive

pockets in year round

irrigated areas.

§ Reduced food insecurity

and significant

contribution to income

increases and reduction

in malnutrition and

poverty in rural areas.

§ MOAC, DOI

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Provide Incentive and appropriate

support package for expansion of

ground water irrigation and on

farm water management

(continued).

§ Increased no of shallow

tubewell and Improved

efficiency of on farm water

uses.

§ Increased marketed

volumes of agricultural

products and diversified

agricultural export.

§ MOAC, DOI

§ Intensify production of high value

crops /livestock commodities in

potential pockets (continued).

§ Increased areas and

coverage of High value

crops/ commodities.

§ MOAC

§ Include NGOs / private sector

involvement in partnership and

contract in agricultural service

delivery system.

§ Ensure involvement of private

sector/ NGOs /CBOs and local

bodies in extension service

delivery (continued).

§ Increased involvement of

NGOs/ CBOs / private

sector in service devilry.

§ MOAC

§ Improve effectiveness of Planning,

Monitoring and Evaluation (PME)

§ Enhance PME capabilities at all

levels (continued).

§ Improved database and

regularized reporting and

review system in place.

§ MOAC, DOA

§ Ensure effective, transparent and

timely reporting and review

system (continued).

§ Printed monitoring reports

in regular basis.

§ MOAC, DOA

§ Decentralize research and

extension.

§ Devolve DOA/ DLS extension

activities to local bodies and

ensure operational effectiveness

and technical backstopping to

them (continued).

§ Decentralized extensions

are fully functional by 2004.

§ MOAC

§ Decentralize NARC's adaptive and

on farms research activities to

Regional Agricultural Research

Centers (RARCS) (2005).

§ Decentralized NARC's

research to RARCS in

place by 2004.

§ MOAC

Develop local and

export market

opportunities

§ Encourage private and co-

operative sectors involvement for

market promotion and

infrastructure development.

§ Co-ordinate the expansion of

agricultural roads and rural

electrification (continued).

§ Increased investment in

agricultural road and

electrification.

§ MOAC, DOR,

NEA

§ Develop commodity policies for

congenial environment for private

sector investment. (continued).

§ Commodity policies

developed for major

commodities by 2004.

§ MOAC,

MOICS

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Emphasize on marketing

research, flow of market

information and development of

market infrastructure (Agro

industry, collection center, whole-

sale and retail outlets) (continued).

§ Increased number of

market infrastructures and

continuity in market

research and information

flow.

§ MOAC,

MOICS

§ Promote conductive tariff rate for

agricultural export and import

(continued).

§ Conducive tariff policies in

place.

§ MOAC, MOF,

MOICS

§ Regulate/facilitate agro-

processing and standardization

(ongoing).

§ Regulatory services in

place.

§ MOAC, FP

Laboratory

§ Promote co-operative and

contractual farming.

§ Facilitate legal arrangements for

cooperative and contractual

farming (2004/05).

§ Legal arrangement for

contractual farming in place

by 2004.

§ MOAC

§ Cases of cooperative and

contractual farming in place

after 2004.

Irrigation

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Strengthen public and

community based irrigation

system.

§ Increased number of

rehabilitated and handed

over schemes.

§ DOI, DOA

§ Enhance maintenance and

rehabilitation of existing farmer

managed and public irrigation

systems (continued).

§ Increased and strengthened

water users' committees

(WUAS) in place.

§ Revise irrigation policy and

regulations to give WUAs legal power

to collect irrigation charges (2004/05).

§ Revised irrigation policy and

regulation in place by 2004.

§ MOWR,

MOLD

§ Initiate private sector management of

large/ medium scale of HMG

managed irrigation system (2004/05).

§ Increase number and

hecterage of private sector

managed government owned

large/medium schemes.

§ MOWR

§ Expand new irrigation

facilities with focus on APP.

§ Develop and implement small surface

irrigation facilities in the hill and

surface and ground water irrigation

facilities in the Terai (continued).

§ Increased number of STW,

DTW and other irrigation

schemes.

§ DOI, MOLD

§ Increase involvement of NGO's and

private sector in the irrigation

development and management

(2004/05).

§ Increased number and

hecterage of new schemes

developed and managed by

NGO's and private sector.

§ DOI, MOLD

§ Adopt co-ordinate approach for timely

supply of irrigation water in intensive

packet areas (continued).

§ Timely supply of irrigation

water in pocket areas.

§ MOLD, DOI,

DOA

§ Scale up On Farm Water

Management Program (continued).

§ Strengthen technical support

to farmers.

§ MOWL

Promote year

round irrigation

in the irrigable

land.

§ Establish coordination in

intensive agriculture

program formulation and

implementation in year

round irrigated areas at all

level.

§ Ensure irrigation support component

in intensive agriculture program of

MOA (continued).

§ Coordinated intensive

agriculture pocket program in

place.

§ Year round irrigation

increased to 50% of the

irrigated land by 2005.

§ Additional irrigation

facilities developed in

177,600 ha. from new

schemes and

rehabilitation of 64,000 ha.

§ Management transfer to

WUAs in 37,000 ha.

§ Farmers/WUAs become

capable to own and

manage irrigation systems

up to the size of 500 ha by

2005.

§ Increased irrigation

charge collection by

WUAs significantly.

§ Private sector and NGO

participation in irrigation

management increased.

§ DOI, DOA

Trade

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Acts/rules compatible with

WTO/SAPTA. (2004 onwards).

§ Accession to WTO/SAFTA. § Trade policy to be made

compatible with regional /

international agreements.

§ Trade diversification

enhanced product wise and

country wise.

§ MOICS

§ Enhance

competitiveness.

§ Operationalization of ICD, Birgunj.

(03/04).

§ ICD Birgunj operationalized.

§ MOICS

§ Technical support service to

enhance competitiveness of exports

(ongoing).

§ Exports of supported

commodities increased.

§ MOICS,

TPC

§ Emphasis on quality improvement

(ongoing)

§ Quality certification

expanded.

§ MOICS

Increase the

contribution of

trade in the

economy

§ Involve private sector for

export promotion.

§ Introduce selected services in the

management of private sector in

major customs terminal (by 2004).

§ Involvement of private sector

in providing services in

customs terminals.

§ Export GDP ratio increased.

§ Market/product

diversification.

§ DOC

Labor

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Reorient public expenditure to make it more

employment intensive.

§ Employment

opportunities

expanded.

§ Make employment

intensive growth

objectives

§ Incentives and policies improvement for

private sector to generate employment

growth.

§ MOLTM,

MOF, NPC,

Line

Ministries

§ Streamline present training programs based

on market and demand for such training

identified by CBOs at district level

§ Efficiency of labor

enhanced.

§ MOLTM,

CTEVT,

MOICS etc.

§ Reform vocational

training program to link

with employment policy

objectives and labor

demand.

§ Consultative process strengthened and

cooperation initiated and institutionalized

with the private sector in making the training

program more demand driven and effective.

§ MOLTM,

CTEVT

§ Make labor laws

flexible.

§ Reform labor laws by (2004) § Labor law amended. § DOL,

MOLTM

§ Enhance foreign

employment.

§ Agreements with labor importing countries

increased/strengthened (continued).

§ Number of laborers

employed oversees

increases.

§ DOS, DOL,

CTEVT

§ Skill development program encouraged for

outward migrants workers (continued).

§ Number of disputes

decreased.

§ DOI, DOC,

CTEVT

Increase

employment to

reduce poverty

§ Support services for overseas laborers

enhanced (continued).

§ DOL

Ensure congenial

environment for

better industrial

relation.

§ Promote industrial

relationship for

increasing the labor

productivity.

§ Orientation/training on industrial relations

increased and guidelines/regulation

strengthened (continued).

§ MOICS,

MOLTM

Protect children

from exploitation

§ Eliminate child labour. § Legal measures and strict monitoring for

eliminating child labour and their

rehabilitation (ongoing)

§ Number of child

labour rescued and

rehabilitated.

§ Underemployment/

Unemployment rates decline.

§ Industrial relations improved.

§ Labor productivity enhanced

§ Rights of labor protected

§ Worst form of Child labor

reduced significantly.

§ Remittance income

increased.

§ MOLTM,

MOWSW

Infrastructure Development

Road

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Expansion of road

network to link the

districts without road.

§ 10 Additional District

headquarters connected by

road (by FY 07).

§ Additional 1025 km. to be

constructed by MOPPW.

§ Road access increased to 70

District Headquarters.

§ DOR

§ Encourage private sector

participation

§ Act developed for BOT projects

(FY 04).

§ Detail plan approved enough

and budget allocation.

§ Road length increased by 1025

km.

§ DOR, MOLD

§ Maintain the road network

in serviceable condition.

§ Rural roads management

responsibility transferred to

DDCs (FY 04 onwards)

§ Rural Roads responsibilities

transferred to DDCs.

§ Reduced transport cost. § MOPPW

§ Road Board operational (FY

04).

§ Full levy collected. § MOPPW § Enhance the institutional

capacity in the context of

liberal economy and

decentralization.

§ Framework planned for road

maintenance system (FY 04).

§ 90 percent of SRN in good / fair

condition.

§ Sustainable Road maintenance

fund available in a accordance

with annual maintenances plan

§ Act implemented. § Management efficiency

improved in planning,

procurement, and

implementation.

§ DOR

§ Annual maintenance plan for

2003/04 received and

approved (2003 April)

§ BOT legal frame finalization.

Develop &

manage road

transport network

in cost effective

way to support

socio economic

development

effort

§ Capacity building of

Department of Roads in the

context of liberal economy and

decentralization (FY 03

onwards).

§ Technical auditing agency

operational.

§ 90 percent of SRN in good/fair

condition.

§ MOPPW

Power Sector

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Promote private sector

participation in power

sector

§ Establish power

development fund (FY

2004).

§ Power Development Fund established. § MOWR

§ Establish an independent

regulatory body (FY 2004).

§ Regulatory Body established. § MOWR

§ Improve financial viability

of NEA

§ "Develop" profit-making

centers within NEA (FY 2003

onwards).

§ Reduce system losses 1% a year from

23% at the beginning of Tenth Plan.

§ NEA

§ Internal unbundling of NEA

into generation,

transmission, and

distribution units (FY 04).

§ Complete internal unbundling of NEA by

FY 2004.

§ MOWR

§ Initiate explicit subsidy policy

for grid-based rural

electrification (FY 2004).

§ Adopt a subsidy policy for grid-based

rural electrification by FY 2004.

§ MOWR, MOF

§ Integrate rural

electrification with rural

economic development

§ Promote productive end-

uses (continued).

§ Adopt a framework for cooperative

based rural electrification.

§ NEA

§ Promote cooperative

based grid-based rural

electrification.

§ Capacity building of

cooperatives (continued).

§ Training programs to cooperatives. § MOWR

§ Expand and reinforce

power infrastructure

§ Expand and reinforce

generation, transmission and

distribution (on-going).

§ Increase installed capacity from 527 MW

to 830 MW

§ NEA

§ Increase length of transmission lines

(66, 132 and 220 kV) from 1962 km to

2392 km

§ MOWR,

WECS

Expand electricity

coverage in a

reliable,

financially and

environmentally

sustainable

manner.

§ Promote small-, medium-

scale and storage

hydropower projects (on-

going).

§ Initiate construction of a storage project.

§ Increase in percentage

of population with

access to electricity from

40 to 55 percent.

100

Information and Communication

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Private sector

participation

§ Private sector involvement in

telecom (FY 2003 and onwards).

§ Convert NTC to a Company

under Company Act by 2003/04.

§ MOIC, TCA

§ Private GSM operator in place. § MOIC, TCA

§ Expansion of broadcasting

services (continued).

§ Private RTS operator in place in

Eastern Region.

§ Clarity on role and

responsibility of public

and private operators

§ Radio and Television service

extension to the whole country

initiated.

§ Radio Nepal

Improve access of

information and

communication.

§ Functional autonomy § Creation of legal frame for

functional autonomy of postal

service (2003/04).

§ Approval of Rules and

Regulation for functional

autonomy of postal service by

2003/04

§ Competitive and liberalized

market of Telecom service.

§ Access of Telecom service

to all VDCs.

§ Telephone penetration 40

lines per 1000 inhabitants.

§ Radio and Television

service available to all

people.

§ Effective function of postal

service.

§ At least two telephone lines

in all VDCs.

§ DPS

101

Tourism, Infrastructure, Services and Promotion

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

Expand tourism

activities

§ Promotional activities focused in

regional markets (on-going).

§ Number of promotional activities

increase.

§ MOCTCA, NTB

§ World heritage guidelines followed. § MOCTCA, DOA

§ Development and conservation of

national heritage/religious sites (on-

going).

§ National heritages developed and

conserved.

§ Promote eco-tourism (on-going). § Infrastructure and physical structure

improved.

§ New destination opened.

§ Tourism promotion/

marketing and

product

development

§ Increase tourist activities in National

Parks and Nature conservation areas.

§ NTB, MOCTCA

§ Infrastructure

development

§ Develop Infrastructure and

institutions particularly for eco-

tourism (on-going).

§ Air services at eco-tourism areas

enhanced.

§ MOCTCA,

NTB, MOLD

§ Infrastructure and institution for eco-

tourism developed.

§ Manage solid-waste and air

pollution (on-going).

§ Dumping site/incinerators established.

§ Air pollution standard imprinted.

§ MOLD,

Municipalities

MOPE

§ Manage air-safety (by 2004/05). § Air safety standard strengthened are

executed.

§ CAAN

§ Simplify Immigration system (on-

going)

§ Visa issuing simplifiied. § MOH

§ Domestic air services enhanced.

§ Expand transportation facilities for

tourism industry (on-going).

§ Accessibility of information.

§ Number international connection and

briers increased.

§ MOCTCA,

MOPPW

§ Tourism facilitation

§ Promote quality of tourism services

(on-going).

§ Tourism service standard

strengthened and monitored.

§ Increase in the number

of tourists to 516,000.

§ Length of stay of tourist

increases to 13 days.

§ Tourism earnings

distributed widely to

rural areas also.

§ Domestic tourism

enhanced.

§ Contribution of tourism

in the economy

enhanced to 3%.

§ NTB

102

Industry

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Tariff rationalization (on-going). § Industrial competitiveness improved. § MOICS, MOF

§ Foreign investment policy reform

(by 2004).

§ Foreign investment increased. § MOICS

§ Industrial acts & policies reform (by

2004).

§ Labour/company law amended. § MOICS

§ Exit policy introduced.

§ Acts amended according to

WTO/SAFTA.

§ Strengthened

market oriented

policies.

§ Action plan developed according to

Industrial Perspective Plan.

§ Incentive and programs for

technological improvement and

upgrading SMEs. (on-going).

§ Production and productivity

increased.

§ DOI, MOST

§ Institutional mechanism/acts sub-

contracting to SMEs (2005).

§ Number of trainings/trainees. § DOI, DOSCI

§ Entrepreneurship training, skill

development (on-going).

§ Promotional activities.

§ DOSCS, ETDC

§ Incentive for backward linkages to

industries (ongoing).

§ Industrial production expanded. § DOI, DOSCI

§ Strengthening

SMEs

§ Information technology

development (ongoing).

§ Access to information improved. § MOICS, MOST

Expand

Industrialization

§ Improved Industrial

environment.

§ Tripartite industrial relationship

improved (on-going).

§ Smooth industrial operation.

§ Contribution of GDP

enhanced.

§ Employment

generation.

§ Product expansion.

§ Information

institutionalization.

§ Harmonious industrial

relation.

§ Industrial production

expanded in average

7.8 percent/annum.

§ SME Additional

employment generated

to 250,000.

§ MOICS, MOLT

103

Supply

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Rationalization NFC activities and

strengthen supply system (on-

going).

§ Focus distribution in districts and

strengthened networks.

§ Food security will be

improved.

§ MOICS, NFC § Strengthen food

supplies in remote

areas.

§ Enhance food supply and

distribution in food deficit areas (on-

going).

§ Supply and distribution of 35000 MT

food per annum mainly in remote

districts.

§ Price of petroleum

products competitive.

§ NFC

§ Loss of NOC reduced. § MOICS, NOC § Management of NOC improved,

leakage reduced and private

sector's involvement in NOC

activities initiated (by 2004).

§ Storage capacity of petroleum product

will be increased.

§ Private sector involvement increased. § MOICS, NOC

Improve the

supply and

distribution of

essential

commodities.

§ Market based

petroleum price.

§ Rationalization of petroleum

product prices (by 2003).

§ Petroleum price will be market based.

104

Education

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Transfer of management of schools to

communities/ local bodies (ongoing).

§ At least 6000 schools transferred

to local communities/management.

§ MOES, MOLD

§ Framework for the assessment of

students' learning outcome (2004).

§ § DOE

§ Guideline for partial grant for

community schools completed; all

community schools receive grant.

§ DOE, CDC,

JEMC

§ Decentralization of school

management to

communities/local bodies

and change in role of

district and central level

agencies from

implementation to

facilitation, monitoring

and evaluation.

§ Promote private sector for production

and distribution of textbooks with a view

to facilitate timely distribution of

textbooks (to be started from 2004).

§ Timely distribution of textbooks.

§ Review and Rationalize

teaching/learning package (FY04)

§ Number of trained teachers in

primary school increased from 52

to 100 percent.

§ DOE

§ New recruitment of teachers done locally

(FY04).

§ Establishment of Child

Development Centers in

VDCs/municipalities.

§ DOE, DDC,

VDC

§ Teachers' certification process

expanded and strengthened (ongoing).

§ Increase in number of trained

teacher in secondary level.

§ DOE

§ Teachers training facilities for primary

school increased (ongoing).

§ DOE

§ Improve and expand

teachers training program

§ Expand teacher training for secondary

education (ongoing).

§ DOE

§ Framework for school monitoring

mechanism developed and strengthened

(2004).

§ DOE

§ Schools expansion only on the basis of

mapping and accepted norms (2004).

§ A system of regular school

monitoring in place in all districts.

§ DOE

Improve quality of

and access to

education

especially primary

education

§ Strengthen school

monitoring and

supervision system.

§ Partial grant for community schools not

receiving Government funding (ongoing).

§ School-mapping completed.

§ Net primary school

enrollment increased

from 82 to 90 percent.

§ Percentage of the pupil

completing primary level

increases from–to–

§ Percentage of primary

school repeaters

declines.

§ Drop out rates at the

primary level declines.

§ DOE, DDC,

VDC

§ Expand literacy campaign by increased

involvement of CBOs/NGOs/ local

bodies (ongoing).

§ At least 200,000 out of school

children in the 6-10 and 10-14 age

groups to receive informal

education.

§ Adult literacy rate (+15)

increased from 49 to

63%.

§ DOE, , DDC,

VDC

§ Expand Community Learning Centers

(ongoing).

§ Post literacy skill generating

programs to 20 percent of literates.

§ DOE, DDC,

VDC

Delivery of literacy

programs with

focus on livelihood

improvement

§ Integration of literacy

programs with CBO-

based income generation

activities facilitated by

local bodies.

§ Female adult literacy rate

(+15) increased from 34

to 55 percent.

105

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Mitigate social, cultural

and financial barriers for

access to education

§ Enhanced scholarship for children of

poor families (on-going).

§ Enroll all of age 6 children to

primary education.

§ Enrolment rate of girls

and disadvantaged

children increase.

§ DOE, DDC,

VDC

§ Expand school feeding program in

deprived areas (on-going).

§ Number of students for

disadvantaged receiving

scholarship increased.

§ Improvement in the ratio

of girls enrollment rate to

that of boys.

§ DOE, DDC,

VDC

§ Expand secondary scholarships for

children, girl and Dalit/disadvantaged

from poor families (on-going).

§ Increased share of female

teachers in primary schools from

26 to 30 percent.

§ DOE, DDC,

VDC

§ Separate latrines for girls (on-going). § DOE, DDC,

VDC

Improve access of

girls, Dalits and

disadvantaged

children to

education

§ Social contracts for

access improvement

§ Incentive grant for schools employing

female teachers (on-going).

§ Share of girls and disadvantaged

children in primary and secondary

levels increase.

§ DOE, DDC,

VDC

§ Vocational courses

attached to existing

secondary school.

§ Initiate and strengthen the program in 25

schools as an annex program (to start

from 2004).

§ DOE, DDC,

VDC

Meet national

demand for basic

and middle level

technical human

resources

§ Promote private provision

of basic and middle level

technical training.

§ Introduction of voucher system targeted

to poor for basic and middle level

technical training (to start from 2004).

§ Short and medium term technical

training to more than 30,000

people.

§ Increase share of semi-

skilled and skilled labour

in the labour force from.

§ DOE, CTEVT

106

Health

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Development and

retention of trained

staff especially in rural

areas.

§ Terms and conditions of recruitment

and transfer made transparent (end

2003).

§ Sick individuals (%) who visited

rural health centers (during the

past month).

§ MOH

§ Incentive mechanism devised to

encourage health workers to work in

remote and rural areas (FY 2003/04).

§ Number of absentee health

workers.

§ MOH

§ Fulfill vacant positions (on-going).

§ Increased availability of Auxiliary

Health Midwife/ nurse in the health

posts especially to address MCH

problems (FY 04 to 08)

§ Women receiving at least 4

alternated visit increased from 14

to 40%.

§ MOH, DOH § Training and

upgrading of health

personnel.

§ Training programmes strengthen and

manpower production enhanced (on

going).

§ Births (%) attended by skilled

health personnel increased from

13 to 40%.

§ MOH, DOH,

DDC, VDC

§ Procurement of drugs and equipment

based on program priorities (on

going).

§ Number of drug outlets where 15

of the most essential drugs

available.

§ MOH

§ Expansion of community drug

program (on going).

§ Number of sub/health posts with

community drug program

increases.

§ MOH, SAJHA

§ Increased supply of

essential drugs,

vaccines.

§ Availability of essential and

priority drugs increased to 90%

places.

§ MOH, DDC,

VDC

§ Initiation of health insurance scheme

(FY04 onwards).

§ Population under health

insurance.

§ MOH

Increase essential

health care

services to all with

special emphasis

to rural/remote/

poor population.

§ Expand

accessibility/facilities

§ One year olds (%) fully

immunized against target

diseases.

§ Reduction in infant

mortality rate from 64 to

45.

§ Reduction in child

(U5MR) mortality rate

from 91 to 72.

§ Reduction in maternal

mortality from 415 to

300.

§ Life expectancy

increased from 61.9

years to 65 years.

107

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Focus of the program in immunization,

safer motherhood, control and

prevention of communicable diseases,

malaria control, JE, TB and leprosy,

HIV/AIDS and CDP Programmes (on

going)

§ Proportion of

TB/malaria/JE/leprosy/HIV/AIDS

etc. cases detected and

prevention and treatment

measures. Condom use by

14-35 years old men increased

to 35 percent.

§ MOH, DOH

§ Accessibility increased on the basis of

mapping (starting from FY04).

§ Population more than hour's

walk or travel to rural health

facilities.

§ DDC, VDC

§ Effective family planning program (on

going).

§ Contraceptive prevalence rate

increase from 40 to 55 percent.

§ MOH, FPAN

§ Reorientation/refocus of programmes

based on mapping of HDI index

(initiation from FY04).

§ Condom use by 14-35 years old

men increased to 35 percent.

§ MOH, DDC,

VDC

§ Expand nutritional program (on going).

§ MOH, DDC,

VDC

§ Education/awareness (ongoing). § MOH, MOES

§ Up-gradation of

primary health centers

and hospitals.

§ Up-gradation of hospitals/health

centres to manage the increasing

problem of accidents and injuries a

phased manner (FY04 onwards).

§ Number of health centers and

hospitals upgraded.

§ MOH

§ Transfer of sub health post, health

post etc. to local management

committees (on going).

§ All sub health post and more

than 50% of health posts and a

25 hospitals handed over to local

bodies/management.

§ MOH, DDC,

VDC

§ Recruitment of health workers at the

local level ((FY04 and onwards).

§ Guidelines/frameworks local

recruitment developed.

§ MOH, DDC,

VDC

§ Decentralized

operation and

management

§ Procurement of drugs at the local level

(FY 2003/04 onwards).

§ Number of health centers

authorized for procurement.

§ MOH, DDC,

VDC

Promotion and

coordination with

NGO/INGOs and

§ Avoid duplication with private sectors

and NGOs.

§ Coordination guideline

developed.

§ MOH, DDC,

VDC

108

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

private Sectors

§ Environmental and occupational

health care and sanitation facilities

provided with inter-sectoral

collaboration (on going)

§ Level of collaboration improved. § MOH,

Municipalities

§ Improved regulatory

mechanism

§ Strong supervision and monitoring

mechanism devised and implemented

for the availability, quality and

accessibility of health services (private

nursing home/hospitals/colleges).

§ Strong supervision and

monitoring mechanism devised

and implemented for the

availability, quality and

accessibility of health services.

§ MOH

Drinking Water and Sanitation

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Revise the 1998 rural sub-sector

policy to include clear roles &

responsibilities of sector actors

by 2003.

§ A consistent sector policy in

place and implemented

§ Consistent community

driven approach

operational sector wide

§ DDWSS

§ Reform/consolidate the

institutional mechanisms and

approaches to service delivery to

facilitate implementation by 2003

§ Community driven approach

adopted to provide sustainable

water systems to benefit some

2.0 million additional people.

§ About 3.8 million people

have access to safe

and sustainable

drinking water services.

§ DDWSS, DDC,

VDC

§ Strengthen autonomy of the

RWSS Fund Development Board

through an Act by 2003

§ Fund Board operational as a

regular sector agency.

§ Increased opportunity

for enrolment of girl

child in schools due to

time saved in fetching

water

§ DDWSS, DDC,

VDC

Increased/improv

ed access to

sustainable basic

drinking water

services in rural

areas.

§ Scale up the demand

driven and participatory

approach to rural water

supply and sanitation

schemes. This approach

involves NGOs, CBOs,

local private sector to

assist communities to plan,

design and implement and

operate and maintain their

own schemes.

§ Rehabilitate rural water supply

schemes for community

management (continued).

§ Sector monitoring system

established; the sector monitored

effectively and regularly and

budget allocations to sector

agencies are performance

based.

§ Reduced water borne

and water washed

diseases

§ DDWSS

109

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Districts develop/update district

water development plans regular

to improve planning starting 2003

and continuous.

§ About 150 schemes rehabilitated

and community managed.

§ DDWSS, DDC,

VDC

§ Every new water supply scheme

should include sanitation as a

component of the project and

provide for promotional activities

(continued).

§ About 4,50,000 households build

and use latrines in rural areas

§ Health and hygiene

improved

§ DDWSS, DDC,

VDC

§ Promote sanitation activities in

areas that already have water

supply services but no sanitation

facilities (continued).

§ About 150,000 households with

appropriate sanitation services in

urban area

§ Reduction in diarrhoeal

diseases

§ DDWSS, DDC,

VDC

Improve and

expand basic

sanitation facilities

in rural and urban

areas

§ Promote sanitation as an

integral part of water

supply projects through

public education and

awareness campaigns by

mobilizing NGOs, CBOs,

local bodies and the private

sector

§ Promote appropriate sanitation

facilities in urban and semi-urban

areas through users’ participation

(continued).

§ DDWSS, DDC,

VDC

§ Implement cost recovery policies

starting 2003

§ A private operator in place by

2004 in Kathmandu Valley towns

§ Arrangements and

regulatory framework

for PSP in urban WSS

services established

§ MDPP, MOLD

§ Develop national water quality

standard/guidelines and

strengthen water quality

monitoring by 2004

§ MOPP, DDC,

VDC

§ Create a conducive

environment for private

sector participation & local

bodies involvement in

urban and semi-urban

water supply services by

legislative reforms, cost

recovery policy & a

national water quality

standards/guideline.

§ Frame legislation, establish and

make operational a regulatory

body by 2003

§ Carry out a study to develop a

strategy for PSP and local body

involvement in the other urban

and semi-urban areas by 2004

§ More efficient and cost

effective services

available to urban and

semi-urban areas

§ MOPP,

DDWSS

Improved access

to and up-

gradation of basic

drinking water

services in urban

and semi-urban

areas through

involvement of

private sector

and/or local

bodies.

§ Increased supply in the

valley by reducing

unaccounted for water.

§ Reduce unaccounted-for water in

Kathmandu Valley towns by 4%

annually.

§ Unaccounted for water reduced

by 4% annually.

§ Reduction in water

borne and water

washed diseases.

§ NWSSC

110

Targeted Programs

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Reorient sectoral

programmes to focus on

targeted groups/areas.

§ Initiate the system of

expanding/developing sectoral

activities based on poverty mapping

(FY04 onwards).

§ Budget allocation for deprived

communities/areas increased.

§ MOLD Bring poor/socially

excluded/disadvant

aged groups out of

poverty trap

§ Framework for addressing the

problem of deprived

communities/regions developed and

implemented (FY 04 onwards)

§ MOF

§ Use decentralize mechanism for

implementation (ongoing).

§ DIDO and service delivery agencies

transferred to local level.

§ MOLD

§ Make local bodies more

responsible for designing

and implementing local

poverty programmes

§ Increase grant to local bodies on

the basis of poverty index (FY04

onwards).

§ Allocation to district with low HDI

increased.

§ MOLD/MoF

§ Number of training program under

LGDP/LGFC/PAF increased.

§ MOLD, DDC,

VDC

§ Supplement the targeted

programmes of local

bodies and the

government with the

participation of

NGOs/CBOs.

§ Train local bodies and make them

accountable for the poverty

reduction program at the local level

(FY04 onwards).

§ PAF guidelines approved. Program

implemented for targeted groups.

§ HDI index of Far-western

and Midwestern increase

by 8% per annum.

§ Literacy rate of dalits and

indigenous people

increases significantly.

§ Life expectancy of

deprived

communities/region

increases.

§ Mean years of schooling

of deprived communities

and regions increase.

§ NPC, MOLD

§ Strengthen social mobilization

(continued)

§ PAF office established (FY 2003).

§ Use PAF to supplement targeted

programmes, to be carried out

mainly by NGOs/CBOs (FY 2004

onwards).

§ NPC, MOLD

§ Reorient and coordinate

NGO/INGOs activities

towards targeted groups.

§ Encourage coordination and

develop partnership with

NGO/CBOs and the private sector

to work in the poorer areas.

§ Mapping of INGOs activities done

and INGOs encouraged to work for

deprived areas/communities

§ MOLD, DDC,

VDC

§ Initiate and implement

effective mechanism for

poverty monitoring.

§ Design special mechanism to

monitor outcome and input

indicators for targeted group (FY04

onwards).

§ Poverty monitoring disaggregated

by gender/social groups/regions.

§ NPC, MOLD

111

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Initiate and support district level

poverty monitoring mechanism

(FY04 onwards).

§ District poverty monitoring

mechanism assessed and system

strengthened.

§ NPC, MOLD

§ Encourage philanthropic

organization in expanding

poverty reduction strategy.

§ Enhance public awareness

campaign for voluntary work,

welfare activities and pov erty

reduction programmes to be

generated by philanthropic

organizations and private sector

(FY04 onwards).

§ More resources mobilized by local

NGOs locally.

§ NPC, NVSD

§ Special programs from

Far-west and Mid-west

regions' poor districts.

§ Assistance for overseas

employment (FY04-05)

§ Assistant to poor people for foreign

employment.

§ DOL, MOFA

§ Micro credit/micro-enterprises

training/education etc and or

strengthened.

§ Asset creating activities increases.

§ ADBN, Rural

Dev. Bank,

CTEVT

§ Special scholarship program for

higher education (FY 2004

onwards) initiated.

§ At least 100 scholarship per annum

for deprived women, dalits and

indigenous people for higher

education.

§ MOES

§ Production loan and social

mobilization (ongoing).

§ Number and volume of loan

awarded.

§ RDBs Mainstreaming

gender in

development

activities

§ Women empowered by

removing the social, legal,

economic and other

constraints.

§ Incentives to increase proportion of

girls in education (2003 onwards).

§ Scholarship to girls.

§ MOES

§ Special health care system to

women to reduce maternal mortality

(2004-05).

§ Number of trained Midwives or AHM

or nurses.

§ Economic status of

women improved.

Proportion of women in

socio-economic political

activities and public

positions improved.

Status of women

enhanced.

§ MOH

Coaching classes and alternative

actions to increase females in

teaching and civil service (ongoing).

§ Proportion females in civil service

and teaching.

§ MOES, Pvt.

Institute

§ Eliminate legal discrimination

(ongoing).

§ Legal ammendment. § MOWSW,

Women

Commission

§ Legal and other changes to prevent

violence against women (2003-04).

§ Number of violence cases reported

and mitigation program.

§ MOWSW,

Women

Commission

112

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Action Plan for gender

mainstreaming developed and

implemented (FY onwards)

§ Number of scholarship for higher

education to girls.

§ MOES

§ Special scholarship program for

higher education (2003/04 ongoing).

§ Monitoring reports/analysis.

§ Special monitoring system in

improving gender equality (2004).

§ MOWSW,

Women

Commission

§ By removing social legal

and economic constraints.

Credit facility and social mobilization

(ongoing)

§ Credit program and number of

beneficiaries.

§ RDBs

§ Empowerment § Incentives to increase proportion of

deprived children in education

(ongoing).

§ Scholarship increased. § MOES

§ Affirmative actions to increase the

proportion of people recruited in

teaching and public service (2004).

§ Number of Dalits in teaching and

public agencies.

§ MOES, Dalit

Commission

§ Special emphasis in skill training,

income generating activities and

special scholarship program for

higher education (ongoing).

§ Number of scholarship and training

award to dalits and deprived janajati

groups.

§ PSC

§ Legal and other constraints

removed (ongoing).

§ Legal ammendment. § MOEC, CTEVT

§ VDC and DDCs to focus on the

mainstreaming of deprived

communities (2003/04).

§ Training and guidelines for targetting

programs in VDCs/DDCs.

§ MOLD, Dalit

Commission

§ Special infrastructure, income

generating and human development

activities for deprived communities

and areas.

§ Monitoring reports/analysis. § MOLD

Mainstreaming the

deprived

communities.

§ Special monitoring system in

improving the status of derived

community (2004).

§ Proportion of deprived

communities below

poverty line declines

significantly.

§ Human development

indicators of deprived

communities improvers.

§ Proportion of socially

excluded people

increased in socio-

economic and political

activities.

§ Derived communities

empowered.

113

Civil Service Reform

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Improvement in recruitment

and promotion system.

§ Curriculum and testing

mechanism for recruitment and

promotion revised and improved

(continued).

§ MOGA, PSC

§ Reduce political

interference in civil service

functioning

§ Introduce necessary laws (by

2005).

§ Revised and improved

curriculum and testing

mechanism developed (by

2004).

§ MOGA

Civil service

(including

Judiciary) made

competitive

accountable and

service oriented.

§ PSC

§ Better and qualified

candidates recruited by 2004.

§ Computerize functions of public

service commission (2007).

§ Governance Act ammended

by 2003.

§ Strengthening Personnel

information system (PIS)

and human resource

management.

§ Institutionalization of the PIS

system in all Ministries (2002-

2005).

§ A full fledged PIS system

operationalized by 2005.

§ MOGA/ Line

Ministries

§ Proportion of women, ethnic

and disadvantaged group in

civil service increased.

§ Coaching classes to perspective

women, ethnic and disadvantage

groups candidates for civil service

facilities (ongoing).

§ Increased percentage of

women and ethnic groups

joining civil service.

§ PSC, MOGA

§ Motivate women, ethnic and

disadvantage groups to join civil

services (ongoing).

§ Merit based recruitment

and promotion

strengthened.

§ Young graduates

attracted in civil service.

§ Civil Service is

depoliticized.

§ Civil service efficiency

and accountability

enhanced.

§ Up to date records.

§ Better pensions

management.

§ Corruption control.

§ Success rates of female,

ethnic and

disadvantaged groups

increased.

§ Women, ethnic and

disadvantaged groups

well represented in civil

service.

§ PSC, MOGA

114

Anticorruption

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Anti-corruption strategy adopted

and implemented (2003).

§ Draft procurement Act prepared

by April 2004.

§ Cabinet

Secretariat,

CIAA

Ensure efficiency

of resources use

and improve

service delivery

§ Preventive actions for anti-

corruption strengthened and

implemented.

§ National Vigilance Center activated

and strengthened (2003).

§ Technical Audit Agencies

established and made operational.

§ PM's Office

§ Public Department (PWD)

directives implemented 2003).

§ Increased quality of public

construction works.

§ MOPPW

§ Anti money laundering Act enacted

(2004).

§ Number of corruption cases

registered in the court increase.

§ NRB, MOF

§ Action against corruption

strengthened.

§ CIAA continued to be active

(continued).

§ More corruption cases prosecuted

and convicted.

§ CIAA

§ Prompt decisions by the courts.

§ Judicial system

strengthened.

§ Judicial system strengthened

through training and by improving

management (continued).

§ Number of pending judicial cases

decreased.

§ Corruption reduced.

§ New procurement

Act effective

§ Resources

efficiency improved.

§ Delivery of services

effective.

§ Enhance integrity in

public service.

§ Delivery of justice

improves.

§ MOLJ/SC

Decentralization

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Devolve service delivery

functions to local bodies

§ DIDO transfers to local bodies

(2003/04).

§ At least 800 primary schools

handed over to communities

(first year)

§ MOLD, DDC,

VDC

§ Education, health, postal service

transfer to local bodies (ongoing).

§ Health post of at least 10

districts each year transferred

to communities

§ MOLD, MOES,

MOH, DPS

§ Agriculture and small irrigation

services transfer to local bodies

(2004).

§ Agriculture service centers

transfer to local bodies.

§ MOLD, MOAC,

DOI

Enhancing

development

process with the

participation and

empowerment of

people at large in

the governance.

§ Rural roads transfer to local

bodies (2003 onwards).

§ Local road tolls handed over

to Road User Groups in 20

districts for the maintenance

of roads.

§ Service delivery improves

§ Electronic MIS

operational zed in 60

districts.

§ Increase share of local

revenue in budget

expenditure.

§ Transparency and

accountability improved

§ Ownership in

programmes/projects

increased.

§ MOLD, DOR

115

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Reconcile conflicting Acts and

Regulations (2003 onwards).

§ Preparations to reconcile

conflicting Acts and

Regulations

§ Citizen's charter in all the

DDCs and Municipalities

prepared.

§ MOGA, MOLJ

§ Local services cadre constituted

(2004).

§ Local services cadre designed

in the first year

§ MOGA, MOLD

§ District profile of 20 districts

for DPP completed in the first

year.

§ Enhance planning, management

and evaluation capacities of local

bodies (continued).

§ Electronic MIS operational in

25 districts

§ MOLD

§ Capacity building

§ Train and equip local bodies

offices (continued).

§ DPP (districts periodic plans)

all districts brought outs.

§ MOLD

§ Fiscal decentralization § Central grants allocated to local

bodies on poverty based formula

(FY 03/04)

§ Central grants allocated to

local bodies on poverty based

formula begins.

§ MOF, NPC,

MOLD

§ Improve revenue collection

(ongoing).

§ Increase share of local

revenue in budget expenditure

§ MOF

§ Fiscal arrears reduced

§ Fiscal management, auditing

accounting system (ongoing).

§ Transparency, auditing and

accountability improved.

§ MOF, FCGO,

MOLD

§ Public Audit of development

projects practiced

§ Road map for fiscal

decentralization (2003).

§ Road map for fiscal

decentralization adopted by

FY 02/03

§ Fiscal

Commission

§ Fiscal framework introduced in

pilot basis (2003/04)

§ Fiscal framework introduced

in pilot basis in 5 districts by

FY 2003/04

§ Fiscal

Commission

§ Preparation of citizen's charter

(2003/04).

§ MOH A, Line

ministries

§ Citizen Character in 15

districts prepared by mid-July

2003.

116

Human Rights

Objective Strategies Activities Intermediate indicators Outcome Responsible

Agency

§ Acts and laws made

compatible with

international conventions.

§ Formulate and amend major Acts

and regulations (continued).

§ Number of human rights

violation investigation cases

increased.

§ Human Rights violation

cases decreased.

§ HRC

§ Institutional strengthening. § Strengthen Human Rights

commission , women commission

and Dalit Commission

(continued).

§ Human rights action plan

prepared by 2003.

§ Reduction in

discrimination violation

and exploitation cases.

§ HRC, WC, DC

Promotion of

human fights for

the dignity of

people.

§ Establish and strengthen human

rights cells in major government

agencies (2003/04)

§ Support the capacity building

of human right cells.

§ Empowerment of people

to exercise their rights.

§ HRC

Integrated Security Development Program

Objective Strategies Activities Intermediate indicators Outcome Responsible Agency

§ Provide security to big projects. § MOHA, MOLD

Enhance security

and expand

development

activities .

§ Enhance the security umbrella

and the sense of security and

peace to continue and expand

development activities and

service delivery.

§ Enhance internal security and

development program strategic

locations and violence-affected

areas.

§ MOHA

Rehabilitation of

victims of violence

§ Rehabilitation of the victims of

violence

§ Rehabilitation of the victims of

violence.

§ MOHA, MOLD

117

Annex 2

Key Actions of the Immediate Action Plan, 2002 (IAP)

Area/Action

Prioritizing Public Expenditures

Prioritization of all expenditures—especially development activities— to make the budget more realistic

and reflect increased security requirements.

Resource allocations to be made consistent with decentralization by:

1. Allocating block grants to local bodies in FY 03 in an amount not less than FY 02 allocations.

2. Channeling funds to agricultural extension, sub-health posts and basic and primary education

through local bodies.

3. Developing poverty-based formula for block grant allocations to local bodies and implement in FY

04 budget.

Priority projects (P1s) to be assured of full funding, with release of funds to be tied to meeting agreed

performance indicators.

Measures for Improving Service Delivery

Education

§ Formulation of procedures for transferring management of primary schools to communities.

§ Begin the initial phase of transferring public primary schools to community management and block

grants to School Management Committees (SMCs).

§ Recruitment of primary school teachers handed over to SMCs.

§ Freeze on recruitment of primary school teachers by central Government.

Health

§ Management of sub-health posts (SHPs) by Local Health Management Committees.

§ VDC verification of staff attendance at SHPs before issuance of pay checks.

§ Compulsory public notices in SHPs stating the range of services, fees and hours of operation.

Civil Service Reform

4. Gradual elimination of vacant civil service positions.

Measures for Fighting Corruption and Improving Accountability

§ Publish annual budget and report of actual expenditure (by local bodies and by line agencies).

District analysis to be carried out at least quarterly.

§ Make arrangements for posting budget allocations and expenditures at DDC/VDC offices, SHPs

and schools.

§ Carrying out expenditure tracking to establish extent to which public funds are actually reaching the

points of service delivery.

§ No significant increase in the arrears of public utilities (electricity, telecommunications and drinking

water).

§ Adoption of time-bound action plan for implementing major recommendations of Country

Procurement Assessment Review (CPPR).

§ Public Works Guidelines (PWGs) to be made operational.

§ Adoption of time-bound action plan for implementing major recommendations of Country Financial

Accountability Assessment (CFAA).

§ Develop comprehensive Anti-Corruption Strategy (ACS) and make progress in its implementation.

118

Annex 3

Table A3.1: Growth Rate of GDP and Projection of Annual Macro Economic Indicators of the Tenth Plan (at 6.2 percent economic

growth rate)

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

1. Growth rate of GDP (%) -0.61 3.3 6.1 6.5 7.5 7.5

2. Fiscal deficit (% of GDP) -5.2 -5.6 -5.3 -5 -5 -5.3

3. Internal borrowing (% of GDP) 2.6 3.1 2.4 1.8 1.6 1.4

4. Revenue ( % of GDP) 12 11.8 12.3 12.9 13.5 14

5. Changes in GDP deflater 3.5 3.7 4.7 4.7 4.6 4.6

Table A3.2: Estimates of Projected sources and expenditure of the Tenth Plan (at constant price : for 6.2 percent economic growth

rate) (Rs. Billion)

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

1. Total Expenditure 81.05 86.31 91.66 98.26 108.45 120.51

• Regular 49.15 54.97 54 53 54.06 55.14

• Development 31.9 31.34 37.66 45.26 54.39 65.37

2. Sources of financing expenditure 0 0 0 0 0 0

• Revenue 50.45 51.11 56.54 63.17 71.08 79.26

• Foreign grant 8.7 11.09 10.77 10.6 10.79 11.23

• Deficit 21.9 24.11 24.36 24.49 26.58 30.03

3. Sources of financing deficit 0 0 0 0 0 0

• Foreign loan 10.95 10.61 13.16 15.9 18.38 22.1

• Internal borrowing 10.95 13.5 11.19 8.59 8.2 7.93

• Cash balance (-saving) 0.95 0 0 0 0 0

119

Table A3.3: Estimates of Projected sources and expenditure of the Tenth Plan (at current price : for 6.2 percent economic growth

rate) (Rs. Billion)

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

1. Total Expenditure 81.05 89.5 99.52 111.7 128.96 149.89

• Regular 49.15 57 58.63 60.25 64.28 68.58

• Development 31.9 32.5 40.89 51.45 64.68 81.3

2. Sources of financing expenditure

• Revenue 50.45 53 61.39 71.81 84.52 98.58

• Foreign grant 8.7 11.5 11.69 12.05 12.83 13.96

• Deficit 21.9 25 26.44 27.84 31.6 37.35

3. Sources of financing deficit

• Foreign loan 10.95 11 14.29 18.07 21.85 27.48

• Internal borrowing 10.95 14 12.15 9.77 9.75 9.86

• Cash balance (-saving) 0.95 0 0 0 0 0

Table A3.4: Growth Rate of GDP and Projection of Annual Macro Economic Indicators (for 4.3 economic growth rate)

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

1. Growth rate of GDP (%) -0.61 2 4 4.5 5 6

2. Fiscal deficit (% of GDP) 5.2 5.5 5.2 4.9 4.5 4.3

3. Internal borrowing (% of GDP) 2.6 3.1 2.6 2.1 1.3 0.8

4. Revenue ( % of GDP) 12 11.8 12.1 12.4 12.6 12.9

5. Changes in GDP deflater 3.5 3.7 4.7 4.7 5 5

120

Table A3.5: Estimates of Projected sources and expenditure of the Tenth Plan (at constant price : for 4.3 percent economic growth

rate) (Rs. Billion)

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

1. Total Expenditure 81.05 81.58 86.67 91.49 95.45 101.06

• Regular 49.15 53.62 54.43 55.86 56.35 57.65

• Development 31.9 27.97 32.24 35.63 39.11 43.42

2. Sources of financing expenditure

• Revenue 50.45 50.43 53.97 57.62 61.98 67.29

• Foreign grant 8.7 7.71 9.49 11.08 11.61 11.58

• Deficit 21.9 24.43 23.21 22.78 21.87 22.22

3. Sources of financing deficit

• Foreign loan 10.95 9.93 11.6 13.2 15.56 17.93

• Internal borrowing 10.95 13.5 11.6 9.59 6.31 4.29

• Cash balance (-saving) 0.95 0 0 0 0 0

Table A3.6: Estimates of Projected sources and expenditure of the Tenth Plan (@ current price : for 4.3 percent economic growth

rate) (Rs. Billion)

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

1. Total Expenditure 81.05 84.6 94.1 104 113.5 125.7

• Regular 49.15 55.6 59.1 63.5 67 71.7

• Development* 31.9 29 35 40.5 46.5 54

2. Sources of financing expenditure

• Revenue 50.45 52.3 58.6 65.5 73.7 83.66

• Foreign grant 8.7 8 10.3 12.6 13.8 14.4

• Deficit 21.9 24.3 25.2 25.9 26 27.64

3. Sources of financing deficit

• Foreign loan 10.95 10.3 12.6 15 18.5 22.3

• Internal borrowing 10.95 14 12.6 10.9 7.5 5.34

• Cash balance (-saving) 0.95 0 0 0 0 0

*Share of development expenditure is estimated to be Rs. 205 billion at current price for the plan period.