The World Bank Group in Nepal, 2014-23
Chapter 2 | The World Bank Group in Nepal
Highlights
The World Bank Group’s country strategies consistently prioritized job creation, enabling the private sector, infrastructure development, increasing social inclusion, strengthening social services, and governance.
The World Bank program faced disbursement and implementation challenges because of counterparts’ high turnover and capacity constraints and the World Bank’s limited response to underlying governance and political economy issues, including federalism.
The Bank Group expanded financing and sectoral coverage amid disbursement and implementation challenges. Commitments covered many sectors with a specific focus on infrastructure development, earthquake reconstruction, and the COVID-19 response.
Sectoral development policy operations did not always lead to satisfactory outcomes, in part because the World Bank did not complement development policy financing with technical assistance for policy implementation or link them to investment projects.
This chapter presents the Country Program Evaluation (CPE) review of the Bank Group’s strategies, portfolios, financing instruments, shock responses, and collaboration and convening during the evaluation period. The chapter finds that the World Bank expanded its financing, sectoral coverage, and use of financing instruments. The World Bank responded robustly to large shocks but faced challenges in implementing projects and achieving results because its projects and programs did not account for resistance to change, inadequate interagency coordination, overlapping roles and responsibilities among tiers of government, frequent turnovers, staffing shortages in subnational governments, the influence of party politics on the state’s functioning, and other governance and political economy challenges.
The World Bank Group’s Strategies
Country strategies were comprehensive but did not always appropriately incorporate lessons learned from previous engagement. Country strategies consistently prioritized job creation, private sector investment, infrastructure, social inclusion, social services, and governance. The country engagement documents addressed postfragility issues and identified many lessons from closed projects and previous strategy periods but did not sufficiently incorporate these lessons, especially those pertaining to governance limitations, political economy constrains, project implementation challenges, and barriers to private sector development. Further, country strategy documents aimed at increasing inclusion but targeted vulnerable groups without distinctions. There was a focus on the region’s goal of achieving 100 percent gender-tagged projects, which means that all project activities had the “meaningful potential” to address gender gaps. However, the Bank Group’s country strategy documents neither focused on any actual gender outcomes nor identified lessons about how to achieve gender outcomes.
The World Bank Group’s Portfolio
Financing increased substantially over the evaluation period (figure 2.1). The World Bank committed nearly $5.6 billion to Nepal in FY14–23, compared with $2.2 billion committed in FY04–13. Most financing came from the International Development Association (IDA) performance-based allocation and the special windows for crisis response and risk mitigation. The portfolio emphasized infrastructure investments, such as roads and hydropower, and significantly backed the financial, education, and health sectors and postearthquake housing reconstruction (figure 2.2). The World Bank’s South Asia Regional Integration, Cooperation, and Engagement supported regional dialogue and convening in hydropower, transport, and transboundary water, among other sectors.
Figure 2.1. World Bank Commitments by Instrument and Fiscal Year
Figure 2.1. World Bank Commitments by Instrument and Fiscal Year
Source: Independent Evaluation Group.
Note: Diagonal lines represent commitments that were approved before the Country Program Evaluation period but active during it. FY15 shows especially high commitments because it includes the FY15-approved Earthquake Housing Reconstruction Project ($200 million) and its two additional financings: $300 million in FY18 and $200 million in FY20. See appendix B for details on the portfolio and the World Bank’s lending instruments. DPF = development policy financing; IPF = investment project financing; PforR = Program-for-Results.
Figure 2.2. World Bank Commitments by Sector, FY14–23
Figure 2.2. World Bank Commitments by Sector, FY14–23
Source: Independent Evaluation Group.
IFC’s portfolio in Nepal increasingly shifted over the evaluation period to the electricity and financial sectors, while earlier engagement had focused on promoting a better economywide investment climate. IFC managed a portfolio of 11 investments with $253 million in total own-account commitments. Most of these investments went to the finance and insurance sector ($135 million) and the electricity sector ($104 million). IFC complemented these investments with more than 30 advisory services activities, also primarily supporting the financial and electricity sectors, with a notable emphasis on enhancing environmental, social, and governance practices (27 percent). Earlier in the evaluation period, IFC advisory services focused on promoting investment climate reforms, but after internal reorganizations, IFC shifted to providing advisory services only when directly connected to investments (see chapter 4).
The World Bank’s PSD initiatives prioritized road and hydropower infrastructure and regulatory reforms in the energy and financial sectors, areas that represented major obstacles to private sector–led growth and high development impact, according to the SCD and other diagnostics. The World Bank concentrated on strengthening the electricity sector’s governance and financial stability and viability, progressing from diagnostics to policy and institutional reforms. It also emphasized financial sector development in a development policy operation (DPO) series and added a small jobs portfolio.
The World Bank successfully mounted fast and large responses to the 2015 earthquake and the 2020–21 COVID-19 pandemic while also promoting resilience (box 2.1). The World Bank’s lending surged in response to both shocks. The World Bank’s earthquake response showed the World Bank at its best, at the time of the shock and beyond. Its convening of stakeholders and its large and sustained financing enabled the government to move toward improved risk reduction in the second half of the evaluation period (see chapter 5). During the COVID-19 pandemic, the World Bank used a DPO with catastrophe deferred drawdown option, among others, to support the National Pandemic Preparedness and Response Plan. The World Bank’s analytic and advisory work on disaster risk management (DRM) informed policy dialogue and the World Bank’s lending engagement well.
Box 2.1. Fast and Large Responses to Major Shocks but Without Much Use of Social Protection
After the major earthquake in April 2015, the World Bank supported a postdisaster needs assessment and a pledging conference and convened donors to plan the reconstruction, resulting in a clear division of labor and a multidonor trust fund for pooling donor resources for housing reconstruction. The World Bank expedited the approval of a major reconstruction project and an emergency nutrition and sanitation project. Similarly, the World Bank’s COVID-19 response was fast and large. It included 11 projects to support responses in the health and education sectors and to create temporary employment in infrastructure projects. The World Bank initiated emergency response projects, modified existing ones, and canceled noncritical projects. The World Bank coordinated effectively with the World Health Organization and others during the COVID-19 response, leading to complementarities among the organizations’ response projects. It supported a cash-for-work program, which performed weakly both before and during the pandemic. The project activated its contingency emergency response component during the pandemic to provide temporary employment to more than 40,000 people. The program had targeting issues resulting from self-selection and beneficiary lists that were updated by hand (ADB 2022), underbudgeting, limited coverage, and delays in provision of work and, therefore, the timeliness of response. Hesitancy by the government prevented more extensive use of social protection in the pandemic response.
Source: Independent Evaluation Group.
The World Bank supported the expansion of a wide set of social services, contributing to Nepal’s human development gains. The program switched from community-managed service delivery used during the conflict to building reliable service delivery by the government. Education support extended from basic and secondary to vocational and higher education over the evaluation period. The Health Sector Management Reform Program-for-Results (PforR), approved in 2017, was the only health operation until the pandemic, when the COVID-19 response project was introduced. The World Bank started supporting social protection around 2017, lending small amounts in combination with policy dialogue and technical assistance.
The World Bank supported fiscal decentralization through DPOs and advisory services and analytics (ASA) but could have provided a more comprehensive support to federalism. The World Bank supported the government’s efforts in implementing federal fiscal arrangements (see chapter 3). Several sectoral projects had local government capacity building or other federalism components. A total of 10 percent of lending was allocated to public administration integrated into sectoral projects, and the World Bank led on a federalism capacity needs assessment and other ASA. Beyond this, however, assisting Nepal’s public sector transition to a well-functioning federal system would have required more concerted support to public sector management, including for civil service reform and capacity building. Yet, the World Bank’s portfolio did not include large-scale investments in these areas.
The World Bank increased its policy-based and PforR financing, and counterparts greatly appreciated PforR’s sectorwide and results-based approaches. At the beginning of the evaluation period, the program mainly used investment project financing (IPF; see appendix B). Over the evaluation period, it added six PforR operations and four additional financings for PforR, totaling $883 million, for education, health, and bridges. These often built on earlier IPF-supported operations. Senior government counterparts interviewed for this evaluation favored PforRs for their sectorwide reach, alignment with aid principles, and results-based disbursements.1 Four programmatic DPO series were added (figure 2.3), which sustained World Bank financing amid the slowdown in IPF-financed project disbursements. Compared with other countries, the high number of smaller-value sectoral DPOs is unusual.
Figure 2.3. Use of Lending Instruments: Nepal Versus World Bank Average, FY14–23 Commitments
Figure 2.3. Use of Lending Instruments: Nepal Versus World Bank Average, FY14–23 Commitments
Source: Independent Evaluation Group.
Note: The figure compares commitments approved in FY14–18 and approved in FY19–23. DPF = development policy financing; IPF = investment project financing; PforR = Program-for-Results.
Implementation Challenges
The World Bank’s program disbursement was slow because of implementation challenges in many IPFs. IPF disbursements, as a share of commitments outstanding, are relatively low and declining. The disbursement ratio was 21 percent in FY15 and 17 percent in FY16. It increased to 32 percent in FY18 and stayed at 24 percent in FY19, with the Earthquake Housing Reconstruction Project (EHRP) contributing to above-average disbursements. Disbursements fell to 9 percent by FY24 (figure 2.4). Slow disbursement was because of implementation challenges such as issues with procurement, complex project designs, challenges in intergovernmental coordination, and obstacles to building stronger institutions, according to IEG’s interviews, review of Implementation Completion and Results Report Reviews, and country engagement documents.
Figure 2.4. Disbursements and Undisbursed Balances, FY10–23
Figure 2.4. Disbursements and Undisbursed Balances, FY10–23
Source: Independent Evaluation Group.
Note: Disbursements = total disbursements made during the given fiscal year; undisbursed balance = total undisbursed balance as of the start of the given fiscal year.
The World Bank has partially addressed key program implementation challenges but continued to design complex projects. The Bank Group’s country engagement documents recognized project implementation challenges and recommended simplifying projects and aligning designs with counterpart capacity while fostering stronger client ownership.2 The World Bank held regular dialogues with project and government counterparts, conducted portfolio reviews, canceled nondisbursing projects, and stopped preparing small projects. Apart from this, the country program did not implement fundamental changes. It has continued to design relatively complex projects that require coordinated action across multiple ministries or departments.
Lack of counterpart ownership and high counterpart turnover were persistent obstacles to implementation. Political resistance within parts of the government to certain reforms or policies, along with lack of ownership and inadequate institutional coordination, hindered cooperation and ownership. Frequent counterpart turnover and staffing shortages in subnational governments compounded the challenges. Conversely, counterparts hold the view that the World Bank’s processes for project approval and implementation are overly cumbersome given Nepal’s public sector capacity, especially in relation to procurement, monitoring and evaluation, and environmental and social standards. Some senior government officials and development partner counterparts perceived the World Bank as too narrowly focused on delivering projects and lending rather than on outcomes, noting how the DPOs and PforRs allowed the World Bank to continue to deliver financing to Nepal despite the challenges in implementing the program and achieving results.
World Bank DPO-supported policy reforms did not always benefit from complementary program support and faced setbacks during the evaluation period. The Bank Group could have provided more complementary IPF and technical assistance for policy implementation. The government policy does not allow borrowing for technical assistance in support of policy implementation, and trust funds and partners did not cover the shortfall in implementation support. For example, DPO prior actions on electricity and financial stability that benefited from complementary implementation support achieved better results than DPO-supported policies on accelerating fiscal decentralization, and strengthening Nepal’s disaster risk resilience was less successfully implemented without such support. Chapters 3, 4, and 5 find that DPO-supported policy reforms faced some setbacks. Examples include the nonenactment of the Electricity Bill and the dropping of key provisions of the Cooperative Act. In other cases, the World Bank replaced ambitious reforms with less significant prior actions. The use of multiple sector-specific DPO series may have also prevented the World Bank’s leverage over economywide economic policy reforms. Interviews suggest that despite its ASA program, the Bank Group had a muted voice on major economic policy issues and seldom engaged publicly and visibly on them.
The country program’s technical staffing challenges sometimes affected results. Experienced local staff often have deep local knowledge and strong relationships with counterparts, but sometimes those relationships are so strong as to give the perception of less than full objectivity. Effectively combining local knowledge with the valuable global expertise internationally recruited staff bring (for example, via co-team leadership) is key to productive dialogue and results. This evaluation found that the World Bank brought staff with global experience in many areas, including earthquake response and resilience mainstreaming, but that the program had staffing gaps in some key areas, such as trade, tourism, and governance.
Results
The Bank Group’s results systems had some gaps in tracking outcomes and did not always facilitate learning about implementation challenges. Results frameworks frequently focused on outputs and intermediate outcomes rather than on higher-level outcomes. Implementation Completion and Results Reports could have been at times more candid about implementation challenges and would have benefited from a more thorough analysis of the nature of challenges to implementation to facilitate learning.3
Findings from IEG evaluations of the Bank Group’s program in the first part of the evaluation period were not used to inform program changes in the subsequent CPF. IEG’s Completion and Learning Review Validation of the FY14–18 CPS emphasized the need for greater selectivity in postconflict environments to align with limited implementation capacity and ensure sustained delivery of results (World Bank 2018a). Nevertheless, the FY19–24 CPF and portfolio of operations expanded sectoral and thematic operations.
The country programs successfully mainstreamed gender and achieved progress with some tangible results. All projects became gender tagged, and the CPSs included gender targets. The Bank Group prioritized gender as part of its inclusion agenda, focusing on embedding actions within project components aimed at reaching women, enhancing their voices, and increasing their access to services. Some important results encompass the establishment of a platform to tackle gender-based violence in 2016, which included the launch of a 24-hour helpline for women. By 2021, this helpline had received 5,180 reports, with 90 percent of users expressing satisfaction with the assistance provided. The government also adopted gender-sensitive budgeting and increased support for women-centric initiatives.
Collaboration, Coordination, and Convening
The Bank Group was the largest development partner in Nepal, with financing peaking in 2015 and 2020 in response to earthquakes and the COVID-19 pandemic. IDA and IFC together accounted for 30 percent of total reported donor commitments during the evaluation period (table 2.1). The Asian Development Bank was the second-largest development partner, with 23 percent of total reported commitments. Development partner financing peaked in 2015 and 2020 in response to earthquakes and the COVID-19 pandemic. PSD and job creation received 38 percent of total development partner commitments, of which 25 percentage points went toward infrastructure. Thematic areas such as job creation, small and medium enterprise development, trade, and federalism received little development partner financing, according to these data. Aid transfer to subnational levels of government grew from next to nothing before 2018 to 20 percent in 2020–21 (figure 2.5).
Within the thematic areas in which the Bank Group engaged, it was often the largest development partner, such as for improving the investment climate and job creation. IEG categorized the Bank Group’s role in the evaluation’s three thematic areas through a combination of total development partner commitments in each area and the degree of concentration of development partner financing (figure 2.6). This categorization showed three roles: (i) primary actor—the Bank Group had the highest share of financing, and the thematic area had a higher degree of concentration (such as for job creation and investment climate); (ii) lead partner—the Bank Group had the highest share of financing, and the thematic area had a lower degree of concentration (such as for federalism, PSD, disaster and climate resilience); and (iii) secondary partner—the Bank Group had the second-highest share of financing, and the thematic area had a lower degree of concentration (such as for infrastructure and skills development).
Table 2.1. Development Partners’ Commitments, 2013–21
|
Development Partner |
Total Commitments (US$, millions) |
Share of Total Commitments (%) |
|
World Bank Group |
4,898 |
29.6 |
|
Asian Development Bank |
3,754 |
22.7 |
|
United States |
1,428 |
8.6 |
|
Japan |
991 |
6.0 |
|
EU institutions |
716 |
4.3 |
|
United Kingdom |
661 |
4.0 |
|
Germany |
539 |
3.3 |
|
Switzerland |
481 |
2.9 |
|
Norway |
450 |
2.7 |
|
IMF (concessional trust funds) |
268 |
1.6 |
|
Korea, Rep. |
217 |
1.3 |
|
IFAD |
206 |
1.2 |
|
AIIB |
204 |
1.2 |
|
Finland |
190 |
1.1 |
|
Other development partners |
1,553 |
9.4 |
Source: Organisation for Economic Co-operation and Development (2022).
Note: Commitment figures for the World Bank Group are as reported in the Organisation for Economic Co-operation and Development Creditor Reporting System for comparability. AIIB = Asian Infrastructure Investment Bank; IFAD = International Fund for Agricultural Development; IMF = International Monetary Fund.
Figure 2.5. Foreign Aid Disbursements Transferred to Subnational Government
Figure 2.5. Foreign Aid Disbursements Transferred to Subnational Government
Source: Independent Evaluation Group, based on government of Nepal Economic Survey 2021–22 (Nepal Ministry of Finance 2022).
Figure 2.6. World Bank Group’s Share of Total Development Partner Financing by Engagement Area
Figure 2.6. World Bank Group’s Share of Total Development Partner Financing by Engagement Area
Source: Independent Evaluation Group based on commitment figures reported in the Organisation for Economic Co-operation and Development Creditor Reporting System.
Note: PSD = private sector development; SME = small and medium enterprise.
The World Bank coordinated effectively with other development partners, and partners valued their engagements with the World Bank. The World Bank had strong relationships with other development partners through regular exchanges at the senior and technical levels. Heads of agencies appreciated the World Bank’s development knowledge and the invitations to join visits to provinces and project sites. This coordination aligned development partners’ views, for example, in relation to support for federalism. Nevertheless, the World Bank could consider exploring more project-level collaboration—official cofinancing was 4 percent of the total financing during the period, with the World Bank’s cofinancing fees seen as a deterrent by other development partners.
Bank Group knowledge products were valued by development partners but were less influential in the dialogue with the government. In interviews, government counterparts highly valued the World Bank for its financing and were aware of specific projects and reports coauthored with government counterparts, such as those on postdisaster needs assessment and federalism. However, government clients rarely cited other World Bank knowledge products. Senior civil servants questioned how well the authors of World Bank reports appreciate local realities and how well the World Bank’s Nepalese counterparts appreciate the reports. In contrast, development partners valued the World Bank’s reports.
The World Bank and IFC routinely coordinated with and complemented each other on the PSD agenda. The two institutions established mechanisms for dialogue and coordination, but they tackled PSD from different perspectives. This at times led to the perception of some clients and other stakeholders that the World Bank and IFC had different priorities—for example, on the proposed public-private partnership (PPP) for the operation of Kathmandu airport. However, World Bank–IFC collaboration was mostly complementarity, particularly in financial sector reforms.
- This CPE did not arrive at findings on PforR effectiveness because the human development sectors that most used PforR were outside its special themes.
- IEG’s forthcoming evaluation of World Bank procurement highlights the need for more support for building government procurement capacity (World Bank, forthcoming).
- The limited utility of Nepal’s country engagement documents for learning and conveying results and challenges is consistent with IEG’s evaluation of country program outcome orientation. We found that country-level results systems are little used by staff and are ineffective in helping country teams understand their contribution to country outcomes. This, in turn, makes it less likely that teams will practice effective adaptive management to improve such contributions (World Bank 2020).