Kathmandu, Apr. 7:The Ministry of Finance today organised a meeting between senior government officials and the donor community based in Nepal to discuss the reform and poverty reduction agenda to be discussed at the upcoming Nepal Development Forum in Paris, April 17-19, 2000.
In his keynote address to the meeting, Minister for Finance Mahesh Acharya said in order to give the people means of livelihood and a sense of justice, a fundamental change in the planning process and development outcome is required. He said foreign aid has to be linked with development strategies and priorities in order to help achieve development goals and that aid effectiveness has to be enhanced by ensuring local ownership.
“If view of the country’s sizable debt burden and ever increasing level of debt servicing requirements, the country is in an urgent need to repriotise its sectors to be financed by domestic external resources,” Minister Acharya said.
Vice Chairman of the National Planning Commission, Mr. Prithivi Raj Ligal presented the government’s poverty reduction strategy. He said Nepal’s experience illustrates the positive impact of growth in poverty alleviation. “A development strategy that provides benefits that can be spread across all income groups including poor segments of society will have two major components – First agriculture must be targetted to grow by at least 4-5 per cent and second, private sector-led growth must be further emphasised,” he said.
The World Bank Country Director for Nepal, Mr. Hans Rothenbuhler said the need of the hour is a clear, well focussed and relatively simple and straightforward action agenda, specifying the priority measures the government thinks that it should and can take over the next six to twelve months.
Mr. Henning Karcher, the UN Resident Coordinator in Nepal, stressed the need to make clear linkages between peace, security and development. “Peace and development are two sides of the same coin,” he said.
The meeting then discussed the Priority Reform Actions presented by Mr. Madhav P. Ghimire, Joint Secretary at the Ministry of Finance. The agenda defines the reform actions in the areas of macro-economic and fiscal structure, private sector development, financial sector reform, decentralisation, governance, civil service reform, aid effectiveness and the role of civil society. It outlines the reform actions in terms of focus, outcomes expected and status. Donor representatives present at the meeting commended His Majesty’s Government for adopting an open and consultative process to define the agenda and underscored the need for further focus and prioritisation in the agenda.
Ambassador of Japan Mr. Mitsuaki Kojima said Nepal’s poverty reduction strategy should pay due attention to reproductive health and family planning in order not to negate economic growth.
Mr. Richard Vokes, the Asian Development Bank Resident Representative in Nepal, said that Nepal should first start with the most pressing but relatively easier reform actions in a framework that defines short-term, medium-term and long-term reform goals.
Ms. Ingrid Ofstad, Norway’s Charge d’Affaires to Nepal, said reform actions are universally painful and that the government should try to forge broad partnerships to push the reform agenda forward.
Mr. Anton Hagen, Representative of the Swiss Development Cooperation in Nepal, defined good governance as the most urgent and overriding of Nepal’s reform priorities. If Nepal could achieve positive results in this area, many other reform goals will have been met.
Ms. Sue Wardel, representative of the UK’s Department for International Development said it would be important for Nepal to embark on it’s reform programme with some symbolic measures to demonstrate that it is indeed serious about reforms. She said the role of the donor community should be one of a facilitator and purveyor of quality aid.
Wrapping up the discussion Minister Acharya said although the reform agenda outlined appears ambitious, work is already underway in many sectors. He said that the government would narrow down the agenda to give it more focus and clarity in terms of sequencing ahead of the Nepal Development Forum Meeting in Paris.
Delivering the vote of thanks, Special Secretary at the Ministry of Finance Mr. Bimal Koirala said the preparatory process had been a productive and thoroughly engaging one for both the government and civil society contributors.
Today’s meeting is a culmination of a month-long preparatory process that sought input and feedback from a wide range of stakeholders from civil society. Earlier, the Ministry of Finance hosted a kick-off meeting between HMG Secretaries inviting their input for the agenda and programme to be discussed at the Nepal Development Forum. Over the month of March, the Ministry of Finance organised three separate interactions with civil society, the private sector, development professionals and academia to discuss a range of issues affecting Nepal’s development agenda, including governance, decentralisation, private sector development and financial sector reform and the role of civil society.
At today’s meeting donors reiterated their willingness to continue support and enhance assistance for HMG programmes that are results-oriented, prioritised and realistic.
The following is the full text of Minister Acharya’s speech: It is indeed a matter of great pleasure for me to welcome you all here in this meeting and share with you our views on development challenges and our policies and priorities to address them. The interaction programmes that we had organised recently and the meeting that we are having today would, I hope, help in developing a common understanding and reform actions for the development of Nepal.
Nepal’s problems, as you all are quite familiar, are the acute poverty, higher under-employment, traditional agriculture, backward rural economy, and largely unsatisfactory socio-economic development indicators. Problems like the developmental inequalities across the geographic regions, social and gender differences, rural-urban gap, fragmented markets, and inadequate physical and social infrastructure are other challenges to development. The trend of low economic growth, volatility in price situation, higher population growth, low per capita income and narrow export sector are the other problems. The objective of mobilising more resources domestically, especially in view of the existing low taxable capacity and the requirements of the objectives of stability and discipline with respect to the domestic loans, are also not less daunting.
Addressing the problems like the weak structure of the Nepalese economy, inadequate level of socio-economic infrastructure, lower economic growth rate, high poverty and under-employment, and other major areas require large resources and their efficient investment. With an average saving level of 12% and investment level of 22.7% of GDP during the period FY 1995/96 through FY 1998/99, the resource gap of 10.7% had to be met through foreign resources. The growth rate that was achieved during this period averaged 4.2%, the agriculture by 3% and the non-agriculture by 5%. This underscores the increased importance of efficient investments to realise a satisfactory rate of economic growth.
You all would appreciate that, while the difficulties are formidable, the options and alternatives available for the government are not comfortable either. The government account in Nepal is heavily indebted as its external outstanding debt burden as of mid-July 1999 remained at 2.9 times the total expenditure of the government during FY 1998/99. This debt stock/GDP ratio reached 54.5% in mid-July 1999 and, as percentages of the external debt stock, total export represented 20.9% and government revenue 21.4% in FY 1998/99. Revenue increases in the government are not enough and have generally failed to keep pace with the increasing requirements for larger capital expenditures. In view of the increasing debt-servicing obligations and the compulsion to provide additional security-related expenses, more resources in the future need to be earmarked for the regular expenditures. This will lead to smaller share of the resources for financing developmental activities like agricultural and rural development along with the specific programmes of poverty alleviation, unless other financing means are available for these purposes.
You may kindly recall that, in spite of various policy pronouncements and reform measures that have been introduced in the past, the outcome has at the best concentrated in a few urban centres of the country. A large segment of the people dwelling mainly on the remote and difficult terrain has yet to be encompassed by this process. As a result, even the development expectations that these people have aspired in the wake of political change have remained unfulfilled. A sense of frustration and despondency that are so visible in the society are the results of the dream that has yet to come true.
While formulating development agenda for Nepal, we have to take into consideration the fundamental settings of the country, such as mass poverty, poor resource base, a difficult geographical terrain and a poor service base coupled with rising expectation but limited delivery capacity.
In order to give the people means of livelihood and also a sense of justice, a fundamental change in the planning process and development outcome is required. Agriculture has to be made more productive and additional employment opportunities have to be created outside the farm. At the same time, programmes such as skill development, credit availability, social mobilisation, population control, women empowerment, rural electrification, environment protection and legal provision against various exploitation of weaker sections of the society need to be implemented as important measures towards poverty reduction.
On the macro economic front, the various reform measures that were introduced towards the beginning of the last decade need to be consolidated and a number of essential reform measures would be implemented with a sense of urgency. The reform agenda would, inter alia, concentrate on the areas of civil service and financial sector reforms.
With the objective of delivering a clean, capable and corruption-free administration, all the related administrative procedures have to be made transparent and an effective monitoring and evaluation system has to be enforced to comply with the specified standards, guidelines and provisions. Civil service has to be made more service-oriented and competent to confront with growing challenges by means of devising its perspective vision as well as a personnel policy based on sound administrative principles. Administration need to be strengthened for ensuring good governance and efficient development management. Local leadership should have to be made accountable for development works by strengthening local self-governance system. Public resource management has to be made expedient and effective, and the concepts of the rule of law and the enlarged role of the civil societies need to be promoted. In order to attain these objectives, the recommendations of the Corruption Control Commission would be implemented and the constitutional and administrative arrangements built for controlling corruption would be made more focused, professional and effective.
The financial sector reform strategy should ensure that banks are owned and managed by private investors and professionals. The capability of the central bank for effective supervision of banking and non-banking financial institutions has to be enhanced. The existing legal and judicial processes for enforcing financial contracts should be improved. Similarly, financial discipline based on adequate provisions of disclosure and competition-oriented policies have to be promoted. The government would re-orient its activities from being active participant in the financial system toward being strong regulator and supervisor of the overall financial system. Reforming the financial sector legislation, strengthening its inspection and supervision, privatising government-owned commercial and development banks, enhancing competition by encouraging more investments in the banking sector, reforming accounting and auditing system, reducing the directed/subsidised lending, and expanding the capital markets remain the important ingredients of the reform agenda in the financial sector.
As result of the priority given for macroeconomic soundness with emphasis on fiscal and monetary pragmatism, improved foreign exchange and trade regime, domestic and foreign investment promotion coupled with suitable administrative and legislative measures, the private sector in Nepal is expected to make a vibrant growth and contribute significantly to attain a sustainable development pattern.
The overall objectives of the foreign aid policy shall be to gradually attain the self-reliance on the economic resource requirements by means of attaining sustained, accelerated growth and poverty alleviation through the efficient and effective utilisation of foreign aid.
Aid effectiveness has to be enhanced by ensuring local ownership. In view of the country’s sizeable debt burden and ever increasing level of debt servicing requirements, the country is in an urgent need to repriotise its sectors to be financed by domestic and external resources. Time has now come to be very selective in projects to be financed under external loan. Judicious use of loan assistance has to be made to reduce the burden of external debt by utilising it in key infrastructure facilities and services that could play critical role in accelerating growth, enhancing industrialisation, increasing employment opportunities, promoting exports, addressing gender and regional imbalances, and reducing poverty.
Foreign aid has to be linked with development strategies and priorities in order to help achieve development goals. Leadership and ownership of the government and the people in development activities have to be fostered. The productivity and benefit of aid have to be maximised so as to enhance its impact on economic growth and poverty alleviation. National capacity in managing development projects has to be built through the transfer of management responsibility and implementation process of the projects jointly with the private sector.
The policy is expected to streamline the focus of aid on development priorities of the country; to make available adequate aid in terms of quality and quantity; ensure coherence of donor activities; reduction of the inefficient structure; maintaining consistency in procedures; generation of employment opportunities, and so on. In sum, the implementation of the foreign aid policy is expected to enhance the aid effectiveness and contribute to the fulfillment of development objectives of the country.
The government is committed to continue undertaking necessary structural changes in the economy so as to be able to effectively transform its human and natural resources into productive means. The government also believes that the availability of increased resources in the form of concessional financing coupled with the initiation of the debt-relief programme for Nepal would substiantially help her in challenging more resources for alleviating poverty, attaining a high and sustainable economic growth, reducing regional imbalances, addressing the major development challenges and also reducing the social costs and effects associated with the continued socio-economic reform process.
The deliberations that we undertake this afternoon in the areas mentioned above and in some of the other issues for which separate presentations are being made would help us in finalising our course of action for the future as well as giving a final shape to the documents that would be presented in the forthcoming Nepal Development Forum Meeting to be held in Paris. I would like to reiterate that Nepal highly appreciates the generous assistance provided by the donor community and firmly believes that, as Nepal is entering into a critical phase of the economic reform process and consolidation and strengthening of our democracy, the donor community would demonstrate their support to our policy measures by providing an enhanced level of development assistance.