“Peace And Stability Is Essential For Social And Economic Transformation”

BY MR. PAOLO SPANTIGATI  

This has been a remarkable year for Nepal . With the signing of the Peace Accord in 21 November Nepal has entered a new era of peace. After more than a decade, finally the mood in this country is upbeat. We hope this is the beginning of lasting peace and stability since peace and stability is essential for social and economic transformation.

Year 2006 has been good for us in terms of ADB assistance as well. For the first time in the history of ADB-Nepal relations, ADB approved almost half of its assistance for investment projects in the form of grant. As for the new assistance this year, of the $170 million approved for four projects, $84 million is in the grant form. The grant fund for these projects comes from ADB’s concessional Asian Development Fund (ADF).

The approved four investment projects are: (i) Roads Connectivity Sector I Project ($55 million grant) approved on 10 August, (ii) Rural Finance Sector Development Cluster Program I ($56 million loan $9 million grant) approved on 26 October, (iii) Commercial Agriculture Development ($18 million grant) approved on 16 November and (iv) Education Sector Cluster Program (Subprogram 1– $30 million loan and $2million grant) approved on 1 December.

The Roads Connectivity Sector I grant project will help expand and rehabilitate the feeder road system in Nepal to improve access to market, health and education centers in rural areas. This was the first ADB grant financing for a total investment project in Nepal . The Project will finance the construction and upgrading of about 10 feeder roads measuring a total of 490 kilometers, including providing roads to three district headquarters, which are not currently connected, and upgrading existing connection roads to all weather condition in 17 of the country’s 75 districts. In addition, a $300,000 technical assistance (TA) grant accompanying the Project, will enhance capacity building of the Department of Roads in carrying out road feasibility studies and enhance capacity building of local construction and consulting services industries in road construction and contract management.

The Rural Finance Sector Development Cluster Program—loan and grant package—will support a comprehensive reform program to improve the access of rural households in Nepal to financial services. The Program comprises two subprograms, the first of which, backed by a $56 million loan from ADF, aims to consolidate the fragmented rural finance regulatory framework, begin to commercialize rural finance institutions, and strengthen the capabilities of rural finance service providers. Funds from this first loan will be used to recapitalize the Agricultural Development Bank Limited (ADBL). An $8.7 million grant, also from the ADF, complements the reform efforts by supporting the restructuring of ADBL and the Small Farmers Development Bank. It will also establish a training institute in banking and finance, and support product and process innovations. In addition, a $500,000 TA grant from the Japan Special Fund, from the Government of Japan, will ensure quality inputs from experts on ADBL restructuring in line with international best practices.

The Commercial Agriculture Development Project, a grant from ADF, will help commercialize agriculture in Nepal ’s Eastern Development Region to expand economic opportunities for the rural poor. The Project will bring together key stakeholders—farmers, traders, and processors—to work together toward improving the efficiency of production, marketing, and processing of high-value crops, such as vegetables, fruits, tea, and spices. The Project, which will be carried out in 11 districts—Dhankuta, Ilam, Panchtar, Terhathum, Udayapur, Jhapa, Morang, Saptari, Siraha, Sunsari, and Taplejung—will help subsistence and semi-commercial farmers adopt high value crops to improve returns, and to become more knowledgeable and capable in participating in commercial activities. The commercial ones will be trained on social issues, gender concerns, and environmental responsibility. The landless will be assisted through training to become employed in agriculture-related activities. A commercial agriculture fund will be established to provide a facility for the community to make investments in local market infrastructure, such as collection centers, small markets, storage centers, and farm-to-market road improvements. Commercial Agriculture Alliance (CAA), a non-profit company, has been established to manage the fund.

The Education Sector Program 1 will offer phased support to the Government’s medium- to long-term education sector reform and restructuring towards a smooth transition to the integrated 1-12 school system. The program loan will support Nepal Education for All (EFA) 2004-2009 and the achievement of six EFA goals: (i) early childhood development expanded; (ii) access to education for all children increased; (iii) learning needs of all children met; (iv) adult literacy improved; (v) gender and social disparities eliminated; and (vi) all aspects of quality education improved. The program loan will provide budgetary support to the EFA through the joint financing arrangement. The program will start in January 2007 and conclude in July 2009.

Altogether 12 TAs amounting to $5.5 million have also been approved in 2006. Another TA amounting to $300,000 is expected to be approved by end this year.

Portfolio performance too improved significantly. The 2006 disbursement ratio is 18%, while it was 4.4% in 2004 and 7.7% in 2005. There was a sharp improvement in the net resource transfer as well. From negative resource transfer for four years, the net resource transfer was positive in 2005 by 2.9 million. This year it shot up to about $50 million. However, further improvements on project implementation are needed with $540 million of assistance still to be disbursed under ongoing projects.

As one of the key and reliable development partners, ADB will continue to work closely with the Government to support it’s longer-term reform and development activities. As the peace process continues, and the new Nepal comes into place, ADB will continue its development support, maximizing the opportunities opened by he increased development space. However, ADB will continue to move cautiously and in step with other development partners. Actual future operations will be determined based on continued careful assessment of the overall development context.

Talking about our outreach activities, NRM initiated a local internship program this year to assist our young stakeholders in deepening their understanding of development finance and the impact of ADB assistance and in enhancing their capacity. Two MBA students one each from the Kathmandu University School of Management and Apex College are currently conducting internship at NRM. We hope to be able to continue this program in future as well.

(Excerpts of statement by Spangiati, the Officer-in-charge, which he delivered at the year-end press conference by ADB on 15 December)