NATIONAL7Spotlight Weekly)]

Continued Assistance

The largest multilateral donor to Nepal focuses on poverty alleviation programs

By BHAGIRATH YOGI

Weeks before the Asia Pacific Poverty Forum was to begin in Manila under the auspices of the Asian Development Bank (ADB), bank chairman Tadako Chino visited Nepal with the message: Poverty alleviation needs pro-poor, good governance.

During his visit to ADB-funded projects in the country, Chino was particularly interested in seeing the output of the projects with their likely impact in the lives of the poor, officials said. The biggest multilateral donor to Nepal, the Manila-based bank has assisted almost every sector of development in the Himalayan kingdom.

During Chino's visit, the ADB and the Nepali government signed agreements under which the bank agreed to provide Nepal loan and grant assistance for a number of development projects, including Melamchi. Deputy director at the ADB, Rajat M. Nag, and Finance Secretary Dr. Bimal Koirala signed separate agreements at the Finance Ministry last week.

Under the agreement, the ADB will provide a loan assistance totaling US$ 138.3 million (approximately Rs 10.19 billion) to fund the Melamchi Water Supply Project (MWSP), Crop Diversification Project and the Corporate and Financial Governance Project in Nepal. Of this, MWSP will get the largest share (US$ 120 million). The ADB has also agreed to provide a grant assistance of US$ 3.3 million (approximately Rs 243 million) to Nepal.

"We are very happy to be a partner in Nepal's development," said Chino, addressing the signing function. "The bank is taking a lead coordinating role among the donors in the planning and implementation of the Melamchi project," he said.

Nepali officials appreciated the ADB's gesture. "We appreciate ADB's assistance in the form of concessional loans and technical grant assistance that has been instrumental in Nepal's development efforts," said Finance and Defence Minister Mahesh Acharya.

Late last year, the bank had extended a loan assistance of US$ 35 million (approximately Rs 2588.2 million) to Nepal for the implementation of the Small Town Water Supply and Sanitation project. The project aims to improve the water supply and sanitation conditions of up to 50 small towns, benefiting about 600,000 people.

The ADB also approved a loan package of US$ 10.6 million to reform and strengthen Nepal's financial and corporate sectors. The Corporate and Financial Governance Project comprises a US$ 7.3 million loan and US$ 3.3 million for six technical assistance grants from the ADB.

The assistance will also be used in establishing a National Judicial Academy, develop the payment systems and communications infrastructure for improved financial service delivery and prepare for the restructuring of state-owned financial intermediaries, among others.

The ADB's annual lending for public sector projects to Nepal has fluctuated considerably, because of the relatively small program and the lumpiness of some of the projects, especially those in the power sector. Average annual lending from 1994 to 1998 was $87.6 million, just above the average indicative planning figure (IPF) of $80 to $85 million during the period.

In 1999, the IPF was reduced to $78 million because of the scarcity of Asian Development Funds. In 1998, ADB approved four loans, namely, Second Agricultural Program Loan, Community Groundwater Irrigation Sector, Rural Microfinance, and an engineering loan for Melamchi Water Supply, with the total amount of $105 million.

In 1999, ADB lending program comprised one $50 million project for rural electrification, distribution and transmission. The proposed program for 2000-2002 is formulated on the basis of the 1998 Country Assistance Plan, bank officials said. The major focus is on the agriculture sector. Areas that support agricultural growth and rural development have been given high priority in the form of support to physical and social infrastructure, governance, and environment.

As outlined in its Country Operation Strategy (COS), the ADB has been focusing on components like stakeholder involvement, sectoral road maps, civil service reform, progress in improving governance (including anti-corruption measures), and progress in strengthening the policy and institutional environment to make its assistance effective and productive.

The proposed lending program for 2000-2002 comprises 11 loans for $350 million. The projects have been designed to improve economic growth, reduce poverty, increase human development, improve environmental management, and address key governance issues in the public and private sector. The sectoral focus of the program is consistent with the objectives of the ADB's operations in Nepal and assists in meeting the government's development priorities and commitment to sector reform, the ADB's role as a long-term development partner, and the assistance provided by other donor governments and agencies, bank officials said.

The new COS proposes that future lending to Nepal be linked to progress in addressing the major country performance issues that will improve the environment for both private and public investments. Future levels of ADB investments will be commensurate with the necessary development of the policy and institutional environment of the country to generate and sustain the desired development impact.

Average performance in the key areas would be consistent with an IPF in the range of $70 million-80 million at the current level of ADF availability. Poor performance would result in a lower IPF or even no lending in a year. Good performance would indicate achievement of a policy and institutional environment conducive to the generation and sustainability of the desired development impact from higher ADB investment, the bank said.

With nearly half of its people living below the poverty line, according to a UN estimate, Nepal needs to work hard to channel such development assistance in the areas directly addressing the needs of the poor. By re-orienting its policies and assistance, the ADB is helping poor countries like Nepal in the region to fight against poverty - an insult to humanity in the 21st century.