Poverty in Nepal - Achievements and Remaining Challenges
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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 83148-NP THE INTERNATIONAL DEVELOPMENT ASSOCIATION THE INTERNATIONAL FINANCE CORPORATION AND Public Disclosure Authorized THE MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP STRATEGY FOR NEPAL FY 2014-2018 Public Disclosure Authorized May 1, 2014 Nepal Country Management Unit South Asia Region International Finance Corporation South Asia Department Multilateral Investment Guarantee Agency Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. DATE OF CURRENT INTERIM STRATEGY NOTE AUGUST 4, 2011 CURRENCY EQUIVALENTS US$1.00 = 97 NPR (AS OF APRIL 2014) GOVERNMENT FISCAL YEAR JULY 16–JULY 15 ABBREVIATIONS AND ACRONYMS AAA Analytic and Advisory Services NBF Nepal Business Forum ADB Asian Development Bank NBL Nepal Bank Limited CA Constituent Assembly NEA Nepal Electricity Authority CAR Capital Adequacy Ratio NGO Non-Governmental Organization CAS Country Assistance Strategy NLSS Nepal Living Standards Survey CPAR Country Procurement Assessment Review NPPR Nepal Portfolio Performance Review CPS Country Partnership Strategy NPR Nepalese Rupee CSO Civil Society Organization PAF Poverty Alleviation Fund DFID UK Department for International Development PEFA Public Expenditure and Financial DPO Development Policy Operation Accountability EU European Union PETS Public Expenditure Tracking Survey FDI Foreign Direct Investment PforR Program-for-Results FY Fiscal Year PFM Public Finance Management GAFSP Global Agriculture and Food Security Program PPA Power Purchase Agreement GDP Gross Domestic Product PPP Public-Private-Partnerships GNDI Gross National Disposable Income PRG Partial Risk Guarantee GoN Government of Nepal RBB Rastriya Banijya Bank HNP Health, Nutrition and Population ROSC Report on the Observance of Standards IBN Investment Board Nepal and Codes IBRD International Bank for Reconstruction SARTI South Asia Regional Integration in and Development Trade and Investment IDA International Development Association SREP Scaling Up Renewable Energy Project IEG Independent Evaluation Group SSRP School Sector Reform Program IFC International Finance Corporation SWAp Sector Wide Approach IMF International Monetary Fund TA Technical Assistance ISN Interim Strategy Note TF Trust Fund IWRMP Irrigation and Water Resources Management UK United Kingdom Project UN United Nations MDG Millenium Development Goals USAID United States Agency for International MIGA Multilateral Investment Guarantee Agency Development MoU Memorandum of Understanding WBG World Bank Group SMEs Small and Medium Enterprises WDR World Development Report MW Megawatt International Development Association International Finance Corporation Multilateral Investment Guarantee (IDA) (IFC) Agency (MIGA) Vice President Philippe H. Le Houerou Vice President Karin Finkelston Vice President Michel Wormser Country Director Johannes Zutt Regional Director Serge Devieux Director Ravi Vish Country Manager (vacant) Country Manager Kyle Kelhofer Task Team Leader Paul Barbour Task Team Leader Johannes Widmann Resident Representative Val Bagatsing Task Team Leader Gunjan Gulati COUNTRY PARTNERSHIP STRATEGY FOR NEPAL TABLE OF CONTENTS I. EXECUTIVE SUMMARY.......................................................................................................... i II. COUNTRY CONTEXT .................................................................................................................. 1 A. Social and Political Context ..................................................................................................... 1 B. Nepal’s Progress in Poverty Reduction ................................................................................... 3 C. Economic Developments and Prospects .................................................................................. 5 D. Development Challenges and Opportunities ........................................................................... 8 E. Government Priorities and Medium-Term Strategy .............................................................. 12 III. WORLD BANK GROUP PARTNERSHIP STRATEGY FOR NEPAL ................................ 12 A. Lessons Learned from Previous Strategies and Feedback from Consultations ..................... 12 B. Proposed Assistance Strategy ................................................................................................ 13 Pillar 1: Increasing Economic Growth and Competitiveness ................................................. 15 Pillar 2: Increasing Inclusive Growth and Opportunities for Shared Prosperity ................... 19 Foundations and Cross-Cutting Dimensions .......................................................................... 22 C. Implementing the FY14-FY18 Strategy ................................................................................. 24 The World Bank Group Lending Program.............................................................................. 24 The World Bank Group Knowledge Program ........................................................................ 27 Partnerships ............................................................................................................................. 28 IV. MANAGING RISKS ................................................................................................................... 29 Figures/Tables: Figure 1 : Nepal’s impressive progress on poverty reduction ...................................................................... 3 Figure 2 : Population clustered around the poverty line .............................................................................. 3 Figure 3 : Poverty reduction correlates to increase in remittances .............................................................. 4 Figure 4 : Nepal’s historic growth rates ....................................................................................................... 5 Table 1 : Investment needs per year by sector, 2011-2020 .......................................................................... 9 Table 2 : IDA lending program FY14-18 .................................................................................................. 25 Table 3 : Analytic and Advisory Activities FY14-18 ................................................................................ 27 Table 4 : WBG engagement areas vis-à-vis development partners ........................................................... 29 Annex Annex 1 : Results Framework for the Nepal CPS FY14-FY18 ................................................................. 31 Annex 2 : IFC Portfolio and Pipeline Summary ........................................................................................ 37 Annex 3 : Poverty in Nepal - Achievements and remaining challenges .................................................... 39 Annex 4 : Nepal Foreign Aid Structure ..................................................................................................... 48 Annex 5 : Lessons Learned from Previous Strategies ............................................................................... 50 Annex 6 : Feedback from CAS Consultations and Client Survey ............................................................. 54 Annex 7 : Selected Indicators of Portfolio Performance and Management ............................................... 57 Annex 8 : IDA Operations Portfolio .......................................................................................................... 58 Annex 9 : Nepal Trust Fund Portfolio ....................................................................................................... 59 Annex 10: Nepal IFC Portfolio ................................................................................................................... 60 Annex 11: Nepal at a Glance ...................................................................................................................... 61 Map of Nepal: IBRD 33455 WORLD BANK GROUP COUNTRY PARTNERSHIP STRATEGY FOR NEPAL I. EXECUTIVE SUMMARY i. Nepal has achieved remarkable progress over the last years. The country managed to halve the percentage of people living on less than $1.25 a day in only seven years, from 53 percent in 2003/2004 to 25 percent in 2010/2011. Several social indicators in education, health and gender have also improved. In addition, since the end of the civil war in 2006, Nepal has successfully transitioned away from being a post-conflict country and former combatants have been integrated into the country’s armed forces. While the country’s political transition – notably the drafting of a new constitution – is taking longer than expected, the November 2013 elections, which resulted in a peaceful transfer in power, were an important step toward the formation of an inclusive and democratic state. ii. To build on this progress, Nepal needs to take advantage of its economic potential and put in place the prerequisites that will provide faster, sustained and inclusive growth. While the political process remains intricate (understandably so, given Nepal’s relatively short experience with democratic governance), the country urgently needs to pay greater attention to the economy. Remarkably, Nepal’s economy grew steadily even during the height of the conflict, and economic management remained prudent, resulting in a budget