Why Should Anyone Be Optimistic About Nepal?

Nepal continues to face a serious security challenge, political turmoil, and significant difficulties in implementing its much-needed development agenda. Why then does a new World Bank report recommend a seemingly audacious shift in its stance towards the country? Why is the World Bank recommending an increase in its development assistance to Nepal?

The World Bank has just presented to its Board a Progress Report on its Country Assistance Strategy (CAS) for Nepal. The CAS Progress Report says that reform efforts have accelerated over the past 12 months and concludes that the lending program for Nepal be upgraded from the "low case" ($0-50 million annually in new lending) to the "base case" (around $100 million or more annually). Should Nepal really get such an increase in development assistance?

In late 1998, the World Bank formulated the current CAS for Nepal and highlighted poor governance as the central problem facing the country. Recognizing that a government that does not manage its own resources well is unlikely to manage aid resources very well either, the World Bank reduced its lending sharply. It also made it clear that promises of reforms were no longer sufficient. Experience has taught us all that in the political reality of Nepal, until reforms are actually implemented, it is very difficult to be sure certain reforms will happen. So, the World Bank decided that it should simply judge reforms by action, not by promises.

The World Bank continues to apply the same principle. It is obvious that there are serious security concerns and political uncertainty. But when one looks past them, one sees quite an impressive record of reforms over the last year or so, sustained by a succession of governments. Just a few examples:

§               His Majesty's Government has restructured its development budget significantly, dropping many low-priority projects and producing a selective list of high-priority projects ("P1s") so as to assure full funding of such projects. This is part of the so-called "Medium-term Expenditure Framework" (MTEF). And MTEF is taken increasingly seriously in public expenditure management.

§               The Immediate Action Plan was formulated last spring to accelerate reforms, with a clear understanding that its timely implementation was critical in boosting HMG's credibility vis-à-vis the citizens of Nepal as well as the donors. So far, results have been good. It is a major break from the past pattern of making many promises and keeping few.

§               In this process, the reformers in the Ministry of Education and the Ministry of Health pushed forward daring decentralization moves, beginning the process of handing over public primary schools to community management and many sub-health posts to Village Development Committee management.

§               As we all know, the CIAA, the constitutional anti-corruption body, has begun to demonstrate that with a stronger legal framework and under the new Chief Commissioner, it has real teeth. It arrested a number of senior Revenue officials in June, and since then steadily stepped up its efforts to go after the "big fish."

§               Recent senior public sector appointments have been quite impressive. Competent people seem to be appointed to the key posts—for their competence and not for their political leanings or connections.

§               Despite repeated earlier delays, Nepal Bank Limited (NBL) was handed over to an external management team in July, and a new CEO has been selected to take over Rastriya Banijya Bank (RBB). This would not have happened without serious efforts to overcome the resistance of vested interests that had benefited from the old ways of doing business at NBL and RBB.

§               The civil code was amended and inheritance rights for women have been strengthened. There have been reports now that women are actually moving the courts for their fair share. This will undoubtedly have a social impact in the longer term.

Many of these areas of action were identified as progress benchmarks or "triggers" in the CAS for Nepal to attain base case lending levels. Other areas of action are in fact over and above what was envisaged as possible in 1998.

Are these just a series of accidents or reflections of a larger shift? It seems that at least some political leaders came to realize that with the country in crisis, and the need for reforms urgent, they had to allow civil servants to implement long-promised reforms. Committed reformers among the civil service ranks also seem to have become bolder, as they felt they had to act to save the country from the deepening crisis. The confluence of these currents appears to have led to progress in many areas.

These two undercurrents have also created a shift in the division of work between the political leaders and the civil servants. In the past, the politicians tended to be more involved in the day-to-day running of the government (such as the awarding of lucrative contracts and recruitment and transfer of civil servants), leaving important matters of policy for civil servants to worry about. This is the exact opposite of what it should be and probably explains many of the problems of poor governance—slow implementation of policy changes, corruption, and poor public service delivery. The politicians should focus on policy-level issues and leave to the civil servants the implementation of policies and everyday running of the administrative machinery. In the last several months, it seems that there has been a movement toward the proper balance of responsibilities. This I believe has contributed to opening up the space for reform.

I hope that the new government will reinforce this trend, by focusing on the policy-level issues. And there are critical policy issues to be addressed. There will be little economic development and poverty reduction if Nepal cannot restore peace. Continued political uncertainty will also undermine the country's ability to sustain reforms and maintain consistent policies. In fact, addressing these were the top two of the five key mandates King Gyanendra gave the current government. These are issues that civil servants cannot solve. Only the political leaders can. In the meantime, many reforms that Nepal desperately needs have been well understood and already promised by successive governments. Given the space they need, the civil servants can take the reform process far by simply implementing the backlog of reforms already agreed on.

Of course, much more needs to be done, and done fast. Despite some impressive reforms, that the country struggles with a serious insurgency is the starkest proof that past development efforts have been inadequate. Nonetheless, I remain optimistic, based on these important changes that have taken place over the last one year or so. And as long as the cabinet can reinforce the healthy division of responsibilities between the political level and the civil service, I believe this reform process could go far, even in the face of fiscal difficulties. If the government is serious about reforms, financing will not be a problem for Nepal because of its access to development assistance. The recent move by the World Bank confirms this. However, should peace remain elusive or complacency set in, the reform momentum could easily backslide. And should this happen, the World Bank's assistance levels could also slide back into "low case."