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Establishing Economic Policy Network Technical Assistance Consultant’s Report Project Number: 37172 (TA 4288) December 2006 Nepal: Establishing Economic Policy Network Prepared by Dipendra Purush Dhakal, Team Leader This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. Final Report Establishing Economic Policy Network ADB TA 4288-NEP Volume I: Main Text Dipendra Purush Dhakal Team Leader December, 2006 CURRENCY EQUIVALENTS (as of 30 September 2006) Currency Unit – Nepalese rupee/s (NRe/NRs) NRe1.00 = $ 0.0134 $1.00 = NRs 74.89 ABBREVIATIONS AC : Advisory Committee ADB : Asian Development Bank APP : Agricultural Perspective Plan BIC : Business Incubation Center BOI : Board of Investment BOT : Build, Operate and Transfer CIT : Citizen’s Investment Trust CNI : Confederation of Nepalese Industries DDC : District Development Committee DIR : Department of Inland Revenue DOLIDAR : Department of Local Infrastructure Development and Agriculture Roads DOR : Department of Roads EAPAD : Economic Affairs and Policy Analysis Division EPF : Employees' Provident Fund EPN : Economic Policy Network FCAN : Federation of Contractors' Association of Nepal FDI : Foreign Direct Investment FNCCI : Federation of Nepalese Chamber of Commerce and Industries GDP : Gross Domestic Product GON : Government of Nepal HAN : Hotel Association of Nepal ICD : Inland Container Depot ICT : Information Communication Technology JS : Joint Secretary LRN : Local Roads Network MDG : Millennium Development Goal MfDR : Managing for Development Results MLD : Million Liters per Day MOAC : Ministry of Agriculture and Cooperatives MOCTCA : Ministry of Culture, Tourism and Civil Aviation MOF : Ministry of Finance MOICS : Ministry of Industry Commerce and Supplies MOPPW : Ministry of Physical Planning and Works MOWR : Ministry of Water Resources MTEF : Medium Term Expenditure Framework NATO : Nepal Association of Tour Operators NCC : Nepal Chamber of Commerce NEA : Nepal Engineering Association NGO : Non Governmental Organizations NPC : National Planning Commission NRB : Nepal Rastra Bank NTB : Nepal Tourism Board PBMC : Performance Based Management and Maintenance Contract PPP : Public Private Partnership RBN : Roads Board Nepal SC : Steering Committee SCAEF : Society of Consulting Architectural and Engineering Firms SRN : Strategic Roads Network TA : Technical Assistance VAT : Value Added Tax VC : Vice Chairperson WTO : World Trade Organization NOTES (i) The fiscal year (FY) of the Government ends on 15 July. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2003 ends on 15 July 2003. (ii) In this report, "$" refers to US dollars. CONTENTS Page EXECUTIVE SUMMARY I I BACKGROUND 1 II. OUTPUTS AND OUTCOMES 2 A. Overall Goal 2 B. Scope and Outputs 2 III. IMPLEMENTATION MODALITY 3 A. Steering Committee 3 B. Advisory Committee 3 C. Focal Unit at the Ministry of Finance 4 D. Policy Research and Interactions 4 IV. ACIEVEMENTS 8 A. Economic Policy Reform Agenda and Focus of Policy Studies 8 B. Information Dissemination and Follow-ups 24 C. Institutionalization of Economic Policy Network 27 D. Monitoring the Implementation of Economic Policy Reform Agenda 28 V. MAJOR ISSUES 29 VI. CONCLUSIONS AND RECOMMENDATIONS 31 A. Conclusion/ Findings 31 B. Recommendations 31 APPENDICES 1. Design and Monitoring Framework 33 2. Membership in EPN Committees 36 3. Meetings, Consultations, and Seminars 37 4. Policy Studies under the Thematic Areas 39 5. Policy Briefs 43 i EXECUTIVE SUMMARY 1. In order to help improve Nepal's economic policy reform agenda by evaluating policy reforms and providing feedbacks on implementation and to foster constructive policy dialogue between concerned institutions to generate a national consensus, Asian Development Bank (ADB) has assisted the Government of Nepal (GON) through this Technical Assistance (TA). The TA was commenced on August 9, 2004 and concluded on December 2006. 2. The goal of the TA is to develop and institutionalize an open, responsive, and result- oriented economic policy formulation process based on sound economic analyses. The policy recommendations developed through such transparent and consultative process is expected to support and consolidate the Government's economic reforms and assist it to achieve the development targets of the Tenth Plan and beyond. 3. In order to steer the project activities, a high level Steering Committee (SC), under the Chairpersonship of the Hon'ble Member of National Planning Commission (NPC) is constituted. The secretaries in the concerned ministries of the Government, representatives from private sector organizations, and individual experts are members of the committee. This committee is found to be influential to carryout the recommendations made by the studies. 4. There is one Advisory Committee (AC) for each of the four thematic areas, which is chaired by the secretaries of the Government ministry. These committees are also represented by private sector organization, academia, individual experts and Government officials. These committees are involved in identifying issues, selection of consultants, and reviewing and validating reports. There is a feeling of ownership of the work since the initial stage. Following are the thematic committees and secretaries of the ministries as chairpersons: Macroeconomic management : Ministry of Finance (MOF) International trade, investment, and employment : Ministry of Industry, Commerce, and Supplies (MOICS) Infrastructure development : Ministry of Physical Planning and Works (MOPPW) Tourism, agriculture, and regional development : Ministry of Culture, Tourism and Civil Aviation (MOCTCA) 5. The focal unit of the project is located in MOF under the leadership of the Joint Secretary (JS), who is also the in charge of the Economic Analysis and Policy Analysis Division (EAPAD). 6. A comprehensive list of economic policy reform agenda were developed within all thematic groups to consider the core issues. A total of 8 policy papers were prepared under each of them, which served the basis for policy dialogue. Study reports were discussed at the AC meetings in the beginning and also finally validated after wider consultations in the workshops. Three workshops were also organized outside Kathmandu valley. Studies were done by former finance ministers, former VC and members of NPC, former governors of the Nepal Rastra Bank (NRB), former secretaries of the Government, academia, and experts. Out of 32 papers, 14 policy studies were led by private sector and civil society organizations and academic institutions. 7. The studies carried out under macroeconomic management are concerned with (i)Tax policy for export promotion, (ii) Non tax revenue, (iii) Excise duty, (iv) Tax compliance habit, (v) Revenue implications of World Trade Organization (WTO), (vi) Macroeconomic stability, (vii) Utilization of contractual savings, and (viii) Framework for Economic Policy Network (EPN). In International Trade, Investment, and Employment group the studies are concerned with (i) Foreign Direct Investment (FDI) policy, (ii) Promoting Nepal as a manufacturing hub, (iii) Business incubation centers, (iv) Garment industry, (v) Industrial property licensing, (vi) Transit treaty, (vii) Supply management, and (viii) Enhancing economic diplomacy. 8. The studies on Infrastructure Development are concerned with (i) Public Private Partnership (PPP) in transport infrastructure, (ii) PPP in information and communications technology, (iii) PPP urban waste management, (iv) North-south transportation connectivity, (v) Transport infrastructure maintenance, (vi) Urban housing, (vii) Sanitary sewerage, and (viii) Disasters and development. Similarly areas covered under Tourism, Agriculture, and Regional Development group are concerned with (i) Sustainable rural tourism, (ii) Crisis management in Tourism, (iii) Regional tourism markets, (iv) High value agriculture, (v) Pocket package development in agriculture, (vi) fertilizer supply, (vii) Investment priority for mid and far western Nepal, and (viii) Expenditure patterns of local governance. 9. Alongwith the full text of study reports, a four pager policy brief is also published for each of the study to serve as an abstract of the main report. The final reports and briefs are posted in the EPN website. All draft reports were also posted in the web sites to receive comments from readers but no one had ever responded. The electronic version of the reports are also prepared and widely circulated. 10. EPN team individually met the Vice Chairperson (VC) and all concerned members of NPC and secretaries of all relevant ministries to follow up the implementation of reports. The copies of reports were also handed over. The NPC officials were mentioned that these reports will be substantially contributing during the formulation of the forthcoming three year plan. 11. In light of the new political change which has given hope to permanently end the decade long conflict in the nation, a National Conference on “Peace, Democracy and Development” was organized. The Maoist's were given forum to speak on economic issues for the first time in the country. Similarly, towards the end of the TA a national seminar was also organized to disseminate the findings of the study to the wider public. 12. This TA has prepared enough ground works to develop an institutional framework to facilitate policy discourses and reforms that are characterized by transparency and openness. Such policy
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