Nepal: Strengthening Public Management Program

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Lessons

Implementing governance reforms from a strategic perspective galvanizes support for Asian Development Bank (ADB) reform initiatives in developing member countries.

ADB strategically targeted its efforts at the subnational level at a time when there were few development partners engaged in this space. Through ADB’s efforts, Nepal's Strengthening Public Management Program (SPMP) gained the support of other development partners. ADB was visionary in seizing this vacuum by emphasizing subnational public finance management and governance reforms in anticipation of the events leading to the federal system, and this served as an important balance to an overemphasis on central level initiatives supported by most development partners. The SPMP was innovative in its focus on fiscal and budget management reforms, integrating a top-down policy and planning with a bottom-up implementation approach.

Project Cycle Stage:

Preparation

Policy reforms cannot take place in isolation and need to be well coordinated and have strategic linkages both at the national and subnational level.

It is essential to effectively develop two levels of coordination: horizontally within the government and among implementing agencies, and vertically between the central and local governments and across development partners, both of which have been challenging under this program. Despite the absence of an interlinked coordination mechanism, the program succeeded in achieving its intended results. This made program implementation even more remarkable, with practices that may be replicated, as appropriate.

Project Cycle Stage:

Preparation

Implementation

Policy reforms, particularly on public financial management at the local level, take longer and require concerted efforts.

This program has shown that because of limited capacities and resources, policy reforms at the local level, especially on public financial management, can take longer and be very difficult. But when backed by an institutional decision-making process with relevant policies, strategies, and plans, rather than being driven by individuals, they can make a sustainable impact even when the political environment is uncertain. For example, because the Ministry of Federal Affairs and Local Development, the executing agency, took every effort to develop and disseminate, including through software and digital systems, the necessary policies, guidelines, and tools to institutionalize results-based budgeting and risk-based internal auditing, among other measures, it was able to strengthen the financial and fiduciary risk management of local development committees and municipalities. The minimum condition and performance measure (MC&PM) system it introduced to track local spending also ensured that the earmarked funds for gender empowerment and social inclusion went to where they were intended.

Project Cycle Stage:

Preparation

Implementation

Reforms should be carefully sequenced by first setting the prerequisites right, followed by focused and gradual implementation that considers the varying speed of absorption at different tiers of the government.

Even though public financial management initiatives such as the municipal administration and revenue system, e-government procurement, risk-based internal audit, and the medium-term budget frameworks were advanced concepts for local governments to absorb, the program validated their applicability with pilots, motivated the stakeholders before scaling up and provided capacity building under the attached technical assistance. By its very definition, piloting cannot on its own achieve a desired level of sustainability but is part of a process, requiring stocktaking and tailoring before effective rollout. It is now incumbent on government to bring the reforms to a scale where they can make an enduring contribution to transforming Nepal's governance systems.

Project Cycle Stage:

Preparation

Implementation

Information technology (IT) can be used to standardize and enhance the quality and accessibility of service delivery.

Program investments in IT software, such as the e-government procurement, municipal administration and revenue system, and village development committee accounting software, have provided Nepal an effective tool for standardizing and enhancing service delivery. However, it will be important for future similar initiatives to consider the varying levels of readiness and staff skills and data and resource requirements when introducing IT systems at the subnational level. Furthermore, as IT systems gain more acceptance when supported by clear operating guidelines, necessary physical facilities, training, and IT support from the central government, future IT governance investments should be inclusive of these requirements. Implementation timelines may also have to be adjusted to suit the needs and capacities at the subnational level.

Project Cycle Stage:

Preparation

Implementation

Improving accountability requires a holistic approach.

The policy action to strengthen the National Vigilance Center (NVC) as an oversight and accountability institution was not accomplished. Nevertheless, the program contributed to creating awareness within the government on the importance of mechanisms such as the NVC in fighting corruption and promoting transparency and accountability. Several deliberations along with capacity building helped build dialogue on reform priorities to strengthen oversight and audit institutions. Moving forward, a more beneficial approach is to strengthen anti-corruption systems in a holistic manner, rather than only training and advocacy, and engage with the Commission for the Investigation of Abuse of Authority, established in line with the 2012 National Strategy against Corruption, and the Office of the Auditor General, given their resources and enforcement powers in financial and technical audits.

Project Cycle Stage:

Preparation

Implementation

Background

Nepal’s transition to democracy, following the end of a decade-long civil conflict in April 2006, had been complex and sometimes halting because of the deep ideological, social, and economic divisions that propelled the conflict. The country failed to approve a new constitution before its 27 May 2012 deadline, the constituent assembly was subsequently dissolved, and the need for new assembly elections had combined to prolong the transition period. While this had increased political uncertainty, it also presented opportunities to promote reforms and help the government shape the transition.

In recognition of the federal government Nepal was moving towards, and in view of the foreseen importance of local governments in the federal structure, the Asian Development Bank (ADB) approved in September 2012 a 2-tranche, $25 million grant for the policy-based Strengthening Public Management Program (SPMP). A complementary technical assistance (TA) worth $6.55 million was also approved. The SPMP aimed to improve the effectiveness of public goods and services delivery by enhancing the efficiency, transparency, and integrity of public finances at the national and subnational levels. It was designed with the view that neither a policy-based grant nor TA alone could address local governments’ severe shortcomings and that an integrated approach that combines policies with investment and capacity development was required.

Through 23 policy actions, the SPMP delivered four outputs ─ improved local government budget and fiscal management, strengthened fiduciary risk management at the local government level, enhanced public procurement system, and strengthened oversight and accountability institutions. Under output 1, performance guidelines on the allocation of block grants to village development committees (VDCs), with special attention to gender equality and social inclusion, were developed; a comprehensive system for reporting fiscal transfers and a medium-term results-based budgeting framework (MTRBF) were also set in place. Under output 2, communities were mobilized in project selection; a uniform accounting and financial management software and guidelines and tools for the conduct of risk-based internal audits (RBIA) were developed and rolled out in VDCs, district development committees (DDCs), VDCs, and municipalities; and a municipal administration and revenue system (MARS) was piloted. Under output 3, DDC and municipal staff were trained and assisted in preparing their procurement plans, the software for electronic government procurement (e-GP) system was developed, and electronic publication of ministry-level procurement plans was supported. Key actions assisted under output 4 included monitoring compliance to asset declaration regulations, establishment of a complaints response system in the National Vigilance Centre (NVC), and operationalization of the Commission for the Investigation of Abuse of Authority (CIAA).

Successful overall delivery of planned outputs made public finance management (PFM) in Nepal more efficient and transparent, at program completion. This was indicated by the wide use of the e-GP system, a remarkable recovery rate of disallowed funds by the auditor general, and a big number of local bodies web-publishing their final audit report.

SPMP implementation was efficient. 97.4% of the grant proceeds were disbursed. Originally designed to take 37 months, implementation period was extended once for 14 months largely due to uncontrollable political events and force majeures such as the 2015 earthquakes and the 2015-2016 unofficial blockade of the Indian border.

Nepal’s Ministry of Finance was the executing agency. The Ministry of Federal Affairs and Local Development, the Public Procurement Monitoring Office, and the NVC were the implementing agencies.

Project Information

Project Name:

Strengthening Public Management Program

Report Date:

February, 2018

Main Sector:

Public Sector Management

Country:

Nepal

Project Number:

36172-063

Report Type: