INITIAL POVERTY AND SOCIAL ANALYSIS

Country: Nepal Project Title: Strengthening Public Management (SPM)

Lending/Financing Program loan and grant Department/ SARD/SAPF and NRM

Modality: Division:

I. POVERTY ISSUES
A. Links to the National Poverty Reduction Strategy and Country Partnership Strategy

The Strengthening Public Management (SPM) Program strongly supports Nepal’s National Poverty Reduction
Strategy. The government’s strategy is articulated in its recently approved approach paper for a new three-year
development plan, which essentially extends its Three-Year Interim Development Pan that ended in July 2010. By
reducing risks and vulnerabilities in the country’s public financial management system, the program will directly
buttress one of the pillars of the strategy, namely the promotion of good governance and service delivery. At the
same time, by helping streamline inter-governmental fiscal transfers and the consolidation of public accounts, the
program will free up greater capital for public investments. In this regard, the program also supports two other pillars
of the government’s development plan, namely increase investment in physical infrastructure and creation and
expansion of employment opportunities.

Similarly, the SPM program is designed to help implement ADB’s Country Partnership Strategy (CPS, 2010-2012).
The program will specifically address the governance theme in the CPS, which calls for ADB to help the government
enhance the transparency and accountability of public systems, including regulatory bodies. By making public
procurement more transparent and by integrating the financial management information systems of the government,
the program advances a CPS objective of assisting the country's political transformation to a federal state by
strengthening public sector management and service delivery at central and local levels. In sum, the program seeks
to address market failures in procurement as well as correct government failures in its PFM systems. By helping
make government procurement more competitive and enhancing the efficacy of government financial management,
the program will contribute to better quality public goods and services that will in turn improve the business and
investment climate crucial to employment generation and poverty reduction.

B. Targeting Classification

General Intervention Individual or Household (TI-H) Geographic (TI-G) Non-Income MDGs (TI-M1, M2,
etc.)

The program is classified as general intervention because its proposed outputs have cross-cutting effects across all
sectors and has cascading effects from the national to the local level. Making the government’s procurement system
more competitive will be piloted and scaled up to other sectors. The consolidation of public accounts, the integration
of financial systems, and the streamlining of inter-governmental fiscal transfers will emanate at the central
government to affect all subnational governments. Finally, the capacity-building in PFM skill-sets, notably in external
and internal audit, will have a positive impact on the performance and accountability of the whole public sector.

C. Poverty Analysis
1. If the project is classified as TI-H, or if it is policy-based, what type of poverty impact analysis is needed?

Building on the findings of ABD’s Country Diagnostic Study of Nepal (ADB. 2009. Nepal: Critical Development
Constraints. Manila), the program team will include in its preparations a governance and institutional analysis of the
causes of poverty in the country. This will be part of the Poverty and Impact Analysis (PIA) that will be conducted
during the design stage and the findings will be presented in the summary of poverty reduction and social strategy
(SPRSS) as a core appendix to the RRP.

2. What resources are allocated in the PPTA for due diligence?

During program design, a governance risk assessment will be conducted that will review where, when, and how
Nepal has improved or not improved in PFM, procurement, and anti-corruption. The program team will seek to extend
this analysis in terms of how the unmitigated risks in these three areas in Nepal impinge on poverty reduction
objectives and activities.
2

3. If GI, is there any opportunity for pro-poor design (e.g., social inclusion subcomponents, cross subsidy, pro-poor
governance, and pro-poor growth)? Please explain.

There is an opportunity for an explicit pro-poor design in this program. This can be done for three of the outputs in the
program, as follows. First, in streamlining inter-governmental fiscal transfers, the program design can take into
consideration how the government’s allocation criteria can be more pro-poor (i.e., in the so-called Minimum
Conditions/Performance Measures guidelines for allocations to subnational governments). Second, in the design of
the capacity-building program on PFM, the selection criteria of participants could provide greater weight to
government staff who are from and/or who will serve in the more poverty-stricken areas in the country. Third, in the
selection of sectors to pilot the application of the program’s proposed procurement management information system,
the choice could privilege the sectors that have greater poverty reduction effects (i.e. education and health).

II. SOCIAL DEVELOPMENT ISSUES

A. Initial Social Analysis
Based on existing information:

1. Who are the potential primary beneficiaries of the project? How do the poor and the socially excluded benefit
from the project?

The primary beneficiaries of the program are the key economic ministries of the government, namely the Ministry of
Finance, the Financial Comptroller General’s Office, the Office of the Auditor-General, the Public Procurement
Monitoring Office, and the select line ministries that will be part of the pilot activities of the program. By enhancing the
effectiveness of government through the integration of its management information systems, by freeing public funds
through the consolidation of public accounts, and by increasing competition and transparency in public procurement,
the program will foster better quality public goods and services that will redound to the benefit of the poor and
marginalized groups of Nepalese society.

2. What are the potential needs of beneficiaries in relation to the proposed project?

The relatively low capacity of the Government and its various ministries presents a clear need for technical support to
enable them to more fully absorb and utilize the value of the outputs of the program. There are also institutional
legacies that the program will have to contend with, including inconsistent policies and regulations as well as different
stand-alone information systems in the ministries that are targeted for integration. In this regard, there is a strong
need for managerial and technical support for the government to benefit from this proposed program.

3. What are the potential constraints in accessing the proposed benefits and services, and how will the project
address them?

The constraints to accessibility of the program’s outputs are three-fold: political, social, and technical. The political
constraints relate in part to the persistent polarization among political parties and their horse-trading to gain political
advantage. As a result, public resources – including government offices and budgets – have become currency in
coalition-building, to be distributed as necessary to maintain alliances and reward supporters. The absence of local
elections has exacerbated the situation because electoral pressure could have been a force for political discipline. In
this environment, the attention of appointed local officials are geared towards the needs and signals of the
fragmented political leadership and less on the needs and preferences of citizens. Because of this situation, the
management of the program needs to be vigilant so that its outputs are insulated from political infighting and
jockeying.

The social constraints relate to cultural cleavages in Nepalese society that have historically been discriminatory on
the basis of gender, social class, status, caste, ethnicity and religion. These are powerful factors that will encompass
and in parts encumber the reach of the benefits of the program. However, some of the program’s outputs have built-
in features that mitigate against these deleterious factors. For example, the program’s emphasis on measures to
promote transparency in public procurement can help guard against overt discrimination. In addition, the program
design with respect to streamlining inter-governmental fiscal transfers will take into account the need to be impartial
and inclusive in the distribution of resources.

The technical constraints of the project has to do in part with the limited internet penetration in Nepal, which at 3.7%
of the population is among the lowest in Asia. In this respect, the benefits of e-procurement and access to electronic
channels of information are limited. Hence, the program will endeavor to design its outputs to take into account these
limitations. For example, in the publication of procurement plans, the program will utilize not only the internet but
traditional print media.
 3

B. Consultation and Participation

1. Indicate the potential initial stakeholders.

The potential initial stakeholders of the project are the following: (i) central government officials, particularly the heads
and senior management of the key economic ministries and other agencies, like OAG and PPMO; (ii) the officials of
subnational governments (the District Development Committees, the Municipalities, and the Village Development
Committees); (iii) the private sector, notably the firms that do business with the government; (iv) civil society
organizations and community groups, especially those that rely on the support and funding of the subnational
governments; and (v) other multilateral and bilateral development organizations that are also providing assistance to
the government in public financial management and related reforms.

2. What type of consultation and participation (C&P) is required during the PPTA or project processing (e.g.,
workshops, community mobilization, involvement of nongovernment organizations and community-based
organizations, etc.)?

During the course of program design, particularly during the fact-finding missions, the program team will be
conducting interviews and group discussions with officials or representatives from the various stakeholder groups.
With respect to certain stakeholders, notably government counterparts, the program team will be conducting iterative
and intensive discussions to define programmatic approaches and to anticipate and address issues of program
implementation.

3. What level of participation is envisaged for project design?

Information sharing Consultation Collaborative decision making Empowerment

4. Will a C&P plan be prepared during the project design for project implementation? Yes No Please
explain.

A C & P plan will be prepared during the program design period that will be implemented during the fact-finding
missions. The plan will identify the specific stakeholders to be consulted, the consultation approach to be undertaken,
and the objectives for each consultation (i.e. information-sharing, consultation, collaborative decision-making, or
empowerment).

C. Gender and Development Proposed Gender Mainstreaming Category: Effective gender

mainstreaming

1. What are the key gender issues in the sector/subsector that are likely to be relevant to this project/program?

As articulated in Nepal’s Country Partnership Strategy (CPS 2010-2012), discriminatory institutions and structures,
ideology and social norms continue to limit women’s progress in the country. These are reflected in lower women’s
participation and representation in the political, economic, and professional spheres than men, as well as lower
income, access to property ownership, and financial credit. These issues are relevant because the program seeks to
foster inclusive participation in public procurement as well as inclusive access to better quality public goods and
services that will be afforded by the greater availability of capital as a result of program interventions.

2. Does the proposed project/program have the potential to promote gender equality and/or women’s
empowerment by improving women’s access to and use of opportunities, services, resources, assets, and
participation in decision making?
Yes No Please explain

A gender action plan will be developed during the program design period.

3. Could the proposed project have an adverse impact on women and/or girls or to widen gender inequality?
Yes No Please explain

The program is not expected to have any adverse gender effect; in fact, the program will be designed to ensure
that it will contribute to gender equality.
4

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS

Plan or Other Action
Nature of Social Significant/Limited/ Required
Issue Issue No Impact/Not Known
There are no Resettlement Plan
Involuntary Resettlement
involuntary resettlement No impact Resettlement Framework
issues in the proposed Environmental and Social
program. Due diligence Management System
during the program Arrangement
design period will None
review this finding. Uncertain

Indigenous Peoples There are no issues in No impact Indigenous Peoples Plan

the proposed program Indigenous Peoples
that could adversely Planning Framework
affect indigenous Environmental and Social
peoples. Due diligence Management System
during the program Arrangement
design period will None
review this finding. Uncertain

Labor There are no labor No impact Plan

Employment issues in the proposed Other Action
Opportunities program. Due diligence No Action
Labor Retrenchment during the program Uncertain
Core Labor Standards design period will
review this finding.

Affordability As part of its due Limited Action

diligence, the program No Action
team will assess the Uncertain
program’s affordability
in the long-term, i.e.
financial sustainability.
The program team will
be exploring
cofinancing
opportunities that could
have a bearing on this
issue.

Other Risks and/or Political instability is a Limited

Vulnerabilities relatively high concern Plan
HIV/AIDS given continuing Other Action
Human Trafficking polarization of the No Action
Others (conflict, major political parties Uncertain
political instability, etc.), and consequent
please specify difficulties of
maintaining a ruling
coalition. Mitigating
measures include
regular counterpart
consultations to ensure
uninterrupted
bureaucratic ownership
 5

even if there are staff

changes as a result of
coalitional shifts. Other
measures include close
monitoring to reduce
risks of political
interference.

IV. PPTA/DUE DILIGENCE RESOURCE REQUIREMENT

1. Do the TOR for the PPTA (or other due diligence) include poverty, social and gender analysis and the relevant
specialist/s?
Yes No

The program team is composed of the required specialists with the appropriate TORs to conduct the required analyses.

2. Are resources (consultants, survey budget, and workshop) allocated for conducting poverty, social and/or gender
analysis, and C&P during the PPTA/due diligence? Yes No

There are sufficient resources allocated for the due diligence requirements of this program.