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The World Bank Group in Nepal, 2014-23

Chapter 6 | Conclusions and Lessons

Nepal needs a new development model that creates jobs in the country, but various influential stakeholder interests and a partisan civil service influence the pace of reform progress and capacity building, while unstable political coalitions have made it hard to create consensus on reform agendas. Federalism was at the heart of the political compromise that ended the armed conflict but is unfinished business—it still requires more clarity on roles and responsibilities among tiers of government and the overcoming of staffing shortages in subnational governments to meaningfully devolve power. Political and bureaucratic resistance to reforms, lack of interministerial and interagency coordination, frequent counterpart turnover, and large shocks made Nepal a challenging environment in which to achieve results.

Over the evaluation period, the World Bank expanded IDA commitments despite weak absorptive capacity. The World Bank expanded its financing in response to major shocks and by widening the sectors in which it engages and using DPOs and PforR to disburse as IPF faced implementation challenges. The World Bank’s partial responses, such as joint portfolio reviews with the government, proved insufficient to address these challenges. Absorptive capacity can be defined as a country’s ability to effectively use external resources to achieve development goals and sustainably manage projects, encompassing institutional, technical, and policy capabilities. Over time, the IDA program came to exceed Nepal’s absorptive capacity.

The Bank Group was effective in several areas of its portfolio. These areas included postdisaster housing reconstruction, roads, hydropower, and support for reforms in finance and energy. Overall, the Bank Group was more successful in building physical assets than in strengthening institutions and capacities. It achieved good results on politically uncontested issues during times of national unity after major disasters, when elite interests were broadly aligned with the reform agenda, when building on existing government initiatives executed by a central agency with clear administrative authority, and when addressing lower-level regulatory changes. It helped when the Bank Group had strong technical staffing and collaborated closely with partners.

Nevertheless, the Bank Group’s outcomes were modest because of implementation challenges that were rooted in limited institution and capacity building. Building institutions in postconflict countries is usually a slow process, and Nepal is no exception. The World Bank’s program made little progress in building stronger institutions with the capacity to implement policy and deliver services. Several policy reforms were completed but with little impact on people’s lives and livelihood. There still exists a challenge of engaging effectively across sectors and levels of government. For example, pivoting from disaster response to building resilience required institutional reforms and sustained capacity that did not materialize.

The Bank Group was unable to successfully affect politically sensitive issues, such as federalism, civil service reform, and regulatory reforms related to jobs, competitiveness, and enabling business. The impacts of development policy financing support were often limited as complementary implementation support, technical assistance, and capacity building were not always adequate to support sustained follow-through and continued implementation in these reform areas. It was hard for IFC to grow its financing to the private sector given the country’s investment constraints.

The World Bank considered political economy issues in its programming and its skillful partnering with other donors, but it did not develop a differentiated approach to operations in Nepal as it continued to initiate new, and sometimes larger and more complex, projects. The Bank Group project and program documents did not fully recognize the dearth of outcomes or the underlying obstacles to progress. The key implementation challenges of lack of political and interministerial coordination, resistance to decentralizing powers from Kathmandu, opposition to reforms, various influential stakeholder interests, and shallow public sector capacities persisted. The Bank Group program could have done more in prioritizing inclusion, supporting federalism, engaging more subnationally, enhancing citizen engagement, and deepening the understanding of political economy issues.

The Bank Group should exercise greater strategic selectivity and take decisive actions to strengthen program implementation. This includes areas such as ensuring appropriate staffing, facilitating more learning from past implementation challenges, building stronger results frameworks, and expanding stakeholder relationships.

Lessons

IEG offers the following lessons based on the evidence, analysis, and conclusions in this CPE:

  1. The Bank Group could focus more on promoting counterparts’ capacity and fostering coalitions for change among counterparts, stakeholders, and development partners for achieving higher-level development outcomes—in line with the Bank Group’s comparative advantage of providing long-term development support.
  2. The Bank Group could strengthen program implementation through more technical support or early project restructuring, including complementing policy development operations with technical assistance. Stronger results frameworks and more candid results monitoring would allow for earlier feedback on implementation challenges.
  3. The Bank Group could give greater attention to political economy issues and to informing the program of potential challenges during project design and implementation, including in terms of Bank Group staffing capabilities. In this regard, a stronger focus on citizen engagement and strengthening subnational institutions could be beneficial.