governance reform program - asian development bank · the governance reform program (the program)...

Completion Report

Program Number: 32238 Loan Number: 1861 December 2008

Nepal: Governance Reform Program

CURRENCY EQUIVALENTS

Currency Unit – Nepalese rupee/s (NRe/NRs)

At Appraisal At Project Completion 30 August 2001 18 July 2007

NRe1.00 = $0.0133 $0.0154 $1.00 = NRs74.84 NRs64.58

ABBREVIATIONS ADB – Asian Development Bank ADTA – advisory technical assistance ARC – Administrative Reform Committee ARCMC – Administrative Reform Coordination and Monitoring Committee CIAA – Commission for the Investigation of Abuse of Authority CPI – consumer price index EA – executing agency GRCU – Governance Reform Coordination Unit GRP – Governance Reform Program MOAC – Ministry of Agriculture and Cooperatives MOES – Ministry of Education and Sports MOF – Ministry of Finance MOGA – Ministry of General Administration MOH – Ministry of Health MOWCSW – Ministry of Women, Children and Social Welfare NVC – National Vigilance Centre PIF – performance incentive fund PIP – performance improvement plan PIS – personnel information system PSC – Public Service Commission SDC – Swiss Agency for Development and Cooperation SDR – special drawing rights TA – technical assistance VERS – voluntary early retirement scheme

NOTES

(i) The fiscal year (FY) of the Government ends on 15 July. FY before a calendar

year denotes the year in which the fiscal year ends, e.g., FY2007 ends on 15 July 2007.

(ii) In this report, "$" refers to US dollars.

(iii) For an explanation of rating descriptions used in ADB evaluation reports, see: ADB. 2006. Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila.

Vice President X. Zhao, Operations Group 1 Director General K. Senga, South Asia Department (SARD) Director B. Hitchcock, Country Director, Nepal Resident Mission (NRM), SARD Team leader S. Shrestha, Senior Governance and Capacity Building Officer, NRM Team member R. Tuladhar, Assistant Project Analyst, NRM

CONTENTS

Page

BASIC DATA i

I. PROGRAM DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1

A. Relevance of Design and Formulation 1 B. Program Outputs 2 C. Program Costs 8 D. Disbursements 8 E. Program Schedule 8 F. Implementation Arrangements 8 G. Conditions and Covenants 9 H. Related Technical Assistance 9 I. Consultant Recruitment and Procurement 10 J. Performance of Consultants 10 K. Performance of the Borrower and the Executing Agency 10 L. Performance of the Asian Development Bank 11

III. EVALUATION OF PERFORMANCE 11 A. Relevance 11 B. Effectiveness in Achieving Outcome 11 C. Efficiency in Achieving Outcome and Outputs 12 D. Preliminary Assessment of Sustainability 12 E. Impact 13

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 13 C. Recommendations 14

APPENDIXES 1. Program Framework 16 2. Policy Matrix 22 3. Status of Third Tranche Loan Conditions 28 4. Status of Compliance of Loan Covenants 29 5. Institutional Support for Governance Reform Technical Assistance Completion Report 32 6. Strengthening Performance-Based Management Technical

Assistance Completion Report 34

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Program Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Program Completion Report

Number

Nepal 1861 Governance Reform Program Government of Nepal Ministry of General Administration SDR 23,484,000.00 1055

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years) 8. Terms of Relending (if any) – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower

20 August 2001 30 August 2001 17 October 2001 19 October 2001 27 November 2001 13 December 2001 27 December 2001 27 December 2001 None 31 December 2005 18 July 2007 Two 1% 24 years 8 years Not applicable

ii

9. Disbursements a. Dates Initial Disbursement

28 December 2001

Final Disbursement

20 December 2006

Time Interval

5 years

Effective Date

27 December 2001

Original Closing Date

31 December 2005

Time Interval

4 years

b. Amount ($ million) Category or Subloan

Original

Allocation

Last Revised

Allocation

Amount

Canceled

Net Amount

Available

Amount

Disbursed

Undisbursed

Balance Governance Reform Program

30.00 22.50 10.69 22.50 22.50 0.00

Total (SDR) 23.48 16.44 7.04 16.44 16.44 0.00

Total ($ equivalent) 30.00 22.50 10.69 22.50 22.50 0.00

C. Program Data

1. Program Cost ($ million) Cost Appraisal Estimate Actual

Foreign Exchange Cost 30.00 22.50 Total 30.00 22.50

2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs ADB Financed 30.00 22.50 Total 30.00 22.50 ADB = Asian Development Bank.

3. Cost Breakdown by Program Component ($ million)

Component Appraisal Estimate Actual First Tranche 11.90 Second Tranche 10.60 Total 22.50

iii

4. Program Schedule

Item Appraisal Estimate Actual First Tranche 27 December 2001 Second Tranche 15 December 2006 Extension of First Loan Closing 31 December 2006 Extension of Second Loan Closing 15 June 2007 First Partial Cancellation 8 June 2007 Second Partial Cancellation 18 July 2007 5. Program Performance Report Ratings

Ratings Implementation Period

Development Objectives

Implementation Progress

From 30 Dec 2001 to 29 Jan 2002 Satisfactory Highly Satisfactory From 30 Jan 2002 to 30 Oct 2003 Satisfactory Satisfactory From 1 Nov 2003 to 15 June 2007 Satisfactory Partially Satisfactory D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-

Days

Specialization of Members a

Appraisal Mission 20–31 Aug 2001 7 70 a, b, c, d, e, f, h Review Mission 1 28 Jan–2 Feb 2002 2 10 a, b Review Mission 2 10–14 June 2002 2 10 a, b Review Mission 3 10–24 Feb 2003 3 26 a, b, f Review Mission 4 23 Dec 2003–8 Jan 2004 2 34 a, f Review Mission 5 13–22 Dec 2004 2 20 a, f Review Mission 6 12–20 Sept 2005 2 18 a, g Review Mission 7 20 Feb–3 Mar 2006 2 24 a, g Review Mission 8 26 June–7 July 2006 3 36 a, g, i Review Mission 9 11–20 Oct 2006 3 30 a, f, h Review Mission 10 29 May–5 June 2007 2 16 a, h Project Completion Review 22–31 July 2008 1 10 a a a – senior governance and capacity building officer (mission leader); b – principal project economist , SAAE; c –

counsel; d – senior programs officer, e – governance advisor, f – gender and development specialist; g – senior governance specialist, SAGF; h – senior country program specialist; i – economist

I. PROGRAM DESCRIPTION

1. The Governance Reform Program (the Program) loan1 to the Government of Nepal supported the establishment of a results- and people-oriented and gender responsive civil service that will contribute towards higher economic growth and reduction of poverty in Nepal by (i) developing capacity within the Government to lead and undertake the governance reform agenda, (ii) improving the efficiency of the civil service, (iii) improving governance and reducing corruption in the Government, (iv) enhancing the competence and motivation of civil servants, and (v) establishing processes for improving performance in key ministries. The Program supported comprehensive public sector governance reforms, and aimed to introduce a number of interrelated interventions and changes in the civil service and governance environment. The program framework is in Appendix 1. 2. The Program took the view that the vision of governance reform would be realized only in the long term (over a period of 10–15 years), requiring substantial external assistance, and that it was the first in a series of interventions. In addition to the program loan, the Asian Development Bank (ADB) provided two technical assistance (TA) grants. The first was to enhance the Government’s capacity to lead, coordinate, and support the implementation of its long-term governance reform strategy.2 The second supported the establishment of processes for improving performance in key ministries.3 This program completion report evaluates the design of the Program and its implementation until July 2007, when the program loan was closed. The third tranche was never released. The Government’s subsequent efforts to reform and strengthen the civil service and anticorruption measures are outlined briefly in the report’s discussion of sustainability issues.

3. The Government’s Ninth Plan4 and the Priority Reform Program (presented at the Nepal Development Forum in 2000 in Paris, France) identified civil service reforms and anticorruption measures as key priorities for public administration institution building in Nepal. Lack of efficiency, predictability, transparency, and accountability in key government institutions was identified as a major challenge in achieving development effectiveness. Further, poor public sector governance contributed to a demoralized bureaucracy, misallocation of budget resources, ineffective implementation of development programs, and poor service delivery caused by corruption. Improvement in governance was considered a critical factor for achieving the Government’s overarching goal of sustainable poverty reduction. In this context, the Government and ADB agreed on a package of policy reforms under the Governance Reform Program.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. The Program was designed against the backdrop of Nepal’s relative lack of success in reforming its civil service in the past. The Administrative Reform Commission of 1992,

1 ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Kingdom of Nepal for the Governance Reform Program. Manila (Loan 1861-NEP, for $30 million, approved on 27 November 2001).

2 ADB. 2001. Technical Assistance to the Kingdom of Nepal for Institutional Support for Governance Reforms. Manila (TA 3622-NEP, for $1,525,000, approved on 18 January 2001).

3 ADB. 2004. Technical Assistance to the Kingdom of Nepal for Strengthening Performance Based Management. (TA 4249-NEP, for $275,000, approved on 12 December 2004).

4 National Planning Commission. 1996. Nepal: Ninth Plan (1997–2002).

2

established after the restoration of multi-party democracy in Nepal in 1990, proposed 116 principal recommendations aimed at making the public service more efficient, results-oriented, accountable, motivated, and capable. However, many of the recommendations could not be implemented because of the short tenure of eight coalition governments during 1994–1999. Following national elections in 1999, the Nepali Congress Party was restored to power with a majority in Parliament. It showed its commitment to governance reforms and a number of actions were initiated—reduction in the number of ministries, freezing and abolition of vacant positions, transfer of staff from the reserve pool to other offices, implementation of a voluntary early retirement program and elimination of posts, improvement and decompression of wage scales, approval of a policy of not creating new development boards, and tabling of anticorruption bills in Parliament. With the election of a government with a clear majority and the Government’s commitment to reforms, ADB developed the Program based on the Government’s own plan to reform the civil service. The Government’s Ninth Plan (1997–2002) aimed to promote good governance and effective government and to make public management clean, lean, transparent, economical, competitive, job-oriented, capable, productive, service-oriented, and accountable. The Tenth Plan5 emphasized the need to rightsize government to reduce the growth of financial administrative overheads; and to make the civil service efficient, accountable, and transparent, including strengthening institutional capacity to combat corruption. 5. The overarching objective of ADB’s 1999 Nepal country operational strategy6 was to achieve sustainable reduction in poverty through (i) generation of productive employment opportunities and increased rural incomes resulting from faster and broad-based pro-poor economic growth, (ii) equitable improvements in basic social services to enhance human development, and (iii) good governance. ADB was engaged in Nepal’s civil service reforms since 1999 when it provided advisory technical assistance (ADTA) to assist the Government in developing an action plan on civil service reforms.7 The TA was designed to lay the groundwork for broader reform efforts and to probe the seriousness of the Government’s commitment to such a course of action. ADB’s Nepal country strategy and program (2005–2009)8 identified good governance as one of the strategic priorities. B. Program Outputs

6. The intended outputs and the 32 policy measures of the Program are in Table 1. The policy matrix (Appendix 2) details the policy measures, actions, and implementation arrangements for achieving the five outputs during the three tranche periods. Seven conditions were specified for the release of the third tranche, and Appendix 3 summarizes the current status of compliance with these. No major modifications were made to the Program’s components during implementation. The legal, policy, and institutional reforms identified in the Program were implemented by the Government in an extremely complex and challenging political, security, and administrative environment - dissolution of Parliament by the Prime Minister in June 2002 before completion of its 5-year term, dismissal of the elected Government by the King in October 2002, countrywide escalation of the armed struggle by the Maoists, change of three caretaker governments from October 2002 to October 2004 followed by the King’s direct rule from February 2005, violent confrontation between the King and the mainstream political parties throughout 2005, and reinstatement of Parliament by the King in April 2006. The political landscape of Nepal changed dramatically during program 5 National Planning Commission. 2002. Nepal: Tenth Plan (2003–2007). 6 ADB. 1999. Country Operational Strategy: Nepal. Manila. 7 ADB. 1998. Technical Assistance to the Kingdom of Nepal for Formulating an Action Plan on Civil Service

Reforms. Manila (TA 3117-NEP, for $630,000, approved on 14 December). 8 ADB. 2004. Country Strategy and Program (2005–2009): Nepal. Manila.

3

implementation but the Government remained dedicated to reform commitments. Implementation of the five intended program components is assessed in paras. 7 to 18.

Table 1: Summary of Outputs and Policy Reform Measures of the Program

No. Outputs/Components Policy Measures (Tranche Conditions) 1. Develop internal capacity

for leading reform • Executive committee to approve first year overall reform implementation

plan and annual plans to enable the Government to meet succeeding tranche conditions.

• Secretaries of MOGA and MOF to adjust and fill an appropriate number of full-time positions in GRCU and the MOF efficiency unit, including a focal point for mainstreaming participation of women in government.

• Executive committee to review and approve annual progress, and prepare an annual public report including information on women.

• Concerned secretaries of MOGA, MOAC, MOES, and MOH9 to adjust and staff an appropriate number of full-time positions in the three pilot ministry change units, including focal points for mainstreaming participation of women in the respective ministries.

2. Improve the efficiency of the civil service

• MOGA to computerize its personnel records and commence the process of linking these to approved posts.

• Cabinet to approve a revised voluntary early retirement scheme and Government to submit revised civil service act that reflects this.

• Cabinet shall have approved an overall policy on rightsizing government through commercialization, devolution to local authorities, and contracting out or elimination of selected functions while ensuring that rightsizing shall lead to narrowing the gap between the number of male and female civil servants.

• The executive committee shall have approved a detailed plan for the rightsizing of MOAC.

• Cabinet shall have approved a policy on teacher recruitment, remuneration, and number of posts, which shall be gender-sensitive.

• Efficiency unit, GRCU, and MOES to computerize teacher personnel and post information system to support rightsizing of the teacher service.

• MOGA to link its fully computerized personnel records to approved posts and the payroll system.

• The Executive Committee shall have approved a detailed plan for the rightsizing of MOES and MOH.

3. Improve governance and reduce corruption in Government

• Government to submit amended Commission for the Investigation of Abuse of Authority Act, including establishment of a specialized anticorruption court.

• Government to submit amended bill on specialized courts. • Government to submit prevention of corruption bill. • Government to submit bill on political parties, to include provisions on

annual audit of funds of all political parties. • Government to submit revised legislation to require elected public

representatives, gazetted civil servants, members of constitutional bodies, members of parliament, members of the council of ministers, and senior management of development boards and state-owned enterprises to declare property, assets, and income annually. Such legislation will include provisions on sanctions for noncompliance, and will designate responsible agencies to receive declarations and monitor compliance.

• Constitutional Council to adopt rules of procedure. • Prime Minister’s Office to establish an anticorruption unit that will

implement an effective ongoing anticorruption public awareness campaign on the role of concerned agencies involved in corruption control, and develop and implement a program for their interaction with

9 The Ministry of Health was also assigned the population portfolio in April 2005 and renamed as the Ministry of

Health and Population.

4

No. Outputs/Components Policy Measures (Tranche Conditions) civil society.

• MOGA shall have developed procedures for annual random checks of property, asset, and income declarations. Together with other designated agencies, MOGA shall have conducted at least one such annual random check.

• Government to submit whistleblower protection legislation. • Government to submit anti-money laundering legislation.

4. Enhance the overall competence and motivation of civil servants

• MOGA to issue a directive to line ministries to include women in civil service staff development training activities.

• Cabinet to approve an affirmative action policy and program to increase representation of women in the civil service, including their percentage in senior positions.

• Cabinet to approve new salary structure and conduct annual reviews. • Cabinet shall have tabled in Parliament amendments to the Civil Service

Act, 1993, that reflect the following: (a) establish procedures to strengthen annual personnel assessments; and (b) a merit-based approach to recruitment and promotion, which shall be gender-sensitive.

• Cabinet shall have approved regulations that will reflect the following: (a) the existence of a human resources succession plan for senior positions in the civil service; and (b) new procedures for grievance handling, which will be gender-sensitive.

5. Establish processes for improving performance in key ministries

• Cabinet to approve a performance incentive fund, its operating procedures, and its budget.

• Efficiency unit and GRCU to approve MOAC’s first performance incentive plan.

• MOF, GRCU, and MOAC to establish, announce, and commence implementation of a performance management system, with performance improvement plans and new service standards, with necessary funding made available from the budget.

• Efficiency unit and GRCU to approve first performance incentive plan of MOES and MOH.

• MOF/GRCU, MOES, and MOH to establish, announce, and commence implementation of a performance management system, with performance improvement plans and new service standards, with necessary funding made available from the budget.

GRCU = Governance Reform Coordination Unit, MOAC = Ministry of Agriculture and Cooperatives, MOES = Ministry of Education and Sports, MOF = Ministry of Finance, MOGA = Ministry of General Administration, MOH = Ministry of Health Source: Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom

of Nepal for the Governance Reform Program

1. Develop Internal Capacity for Leading Reform 7. The objective of this component was to improve management structures for leading and supporting the reform effort. The capacity of the civil service to manage reforms was gradually developed through the institutional arrangements of the Program: (i) Administrative Reform Coordination and Monitoring Committee (ARCMC); 10 (ii) Administration Reform Committee (ARC); and (iii) Governance Reform Coordination Unit (GRCU) in the Ministry of General Administration (MOGA), efficiency unit in the Ministry of Finance (MOF), and change units in the ministries of Agriculture and Cooperatives (MOAC), Health (MOH), and Education and Sports (MOES). The ARC,11 as the executive committee, steered the Program and approved the 10 The ARCMC was chaired by the Prime Minister and included the ministers for General Administration; Finance;

Agriculture and Cooperatives; Education and Sports; Health; and Women, Children and Social Welfare; as well as the chair of the Public Service Commission, vice chair of the National Planning Commission, chief secretary of the Government of Nepal, and the secretary of MOGA as member secretary.

11 The ARC was chaired by the minister for General Administration, with membership including the chief secretary, as well as secretaries of the Commission for the Investigation of Abuse of Authority; Ministry of Agriculture and

5

annual reform plans (of the pilot ministries) and progress reports, which included information on women civil servants. Joint secretaries headed the change units in the three pilot ministries, and staff members representing different functional departments were included as members. The three change units guided and coordinated implementation of the Program in their respective ministries. Undersecretaries were appointed as full-time members in the GRCU, efficiency unit, and change units. Further, gender focal points were appointed in the GRCU, efficiency unit, and change units and their capacity development was supported by ADB to enable them to mainstream gender issues effectively in ministries’ operations. In this process, gender strategies for MOGA, MOAC, and MOES were prepared. 8. Two TA packages proposed in the Program—Civil Society Support for the Reform Measures and Program Monitoring and Reporting—were funded by the Swiss Agency for Development and Cooperation (SDC) from July 2003 to December 2005. Pro Public, a nongovernment organization, was contracted by SDC to implement the TA projects. Pro Public worked closely with GRCU and the change units to build civil society support for the Program by organizing consultation meetings, radio programs, and publication and dissemination of reports and bulletins. Voluntary civil society structures—district level citizen-monitoring cells, civil society network on governance, and journalist forums—were established to support the reform process. SDC decided to discontinue support after December 2005 as it considered there was limited scope for civil society operation in governance under the King’s direct regime.

2. Improve the Efficiency of the Civil Service 9. The objective of this component was to generate fiscal savings by rightsizing government and improving personnel management systems to support enhanced performance and outcomes. The Government approved and implemented several policies to rightsize the civil service—elimination of vacant positions, freeze on recruitment, contracting out of services, devolution to local governments, and organizational restructuring. Amendments to the voluntary early retirement scheme (VERS) were introduced in the Civil Service Act, 1993, Second Amendment 2007 (amended Civil Service Act, 2007), which allowed targeting of VERS to selected groups and provided flexibility in ascertaining financially viable conditions. The Cabinet approved the restructuring and rightsizing proposals of MOAC and MOES in 2003 following comprehensive organization and functional reviews, but rightsizing of MOHP is still pending. Representation of women in the civil service increased from 8.6% in 2001 to 9.9% in 2006. 10. New policies on creation of public schoolteachers’ posts and posts for women teachers were included in the Education Regulation, 2003 (Third Amendment). The Government established the Teacher Services Commission with responsibility for recruitment of teachers (provided for in Education Regulation). The Teacher Services Commission Regulation requires job applicants to possess a teaching license to be eligible for recruitment. Starting from FY2003, the Government adopted a policy of transferring primary schools to community management, and authorized the school management committees to recruit teachers and set their salary levels based on the schools’ financial resources. In the FY2007 budget, the Government announced a policy of recruiting women teachers in schools managed by communities and provided funds for this purpose.

11. The Program supported the computerization of the personnel records of civil servants and public schoolteachers. Civil service positions and the personnel records of civil servants

Cooperatives; Ministry of Education and Sports; Ministry of Finance; Ministry of General Administration; Ministry of Health; Ministry of Law and Justice; Ministry of Women, Children and Social Welfare; Ministry of Local Development; National Planning Commission; Public Service Commission; and Office of the Prime Minister and Council of Ministers.

6

have been computerized to replace an archaic, haphazard, and incomplete manual system; and a comprehensive computerized personnel information system (PIS) has been developed to support personnel management practices. The PIS has been linked to a posts and payroll system, and it can be used to undertake comparative analysis of payroll information and forecasting expenditure on salary and grades. The Program also contributed to the development of the teachers’ computerized personnel information system in MOES, which has captured the teaching positions of government schools located throughout the country, including teachers’ personnel records.

3. Improve Governance and Reduce Corruption in Government 12. To strengthen the legal and institutional framework for combating corruption and enforce its implementation, Parliament in 2002 amended the Commission for the Investigation of Abuse of Authority (CIAA) Act and Prevention of Corruption Act, and approved the Special Court Act and Political Parties Act. The Government established the National Vigilance Centre (NVC) in August 2002 as an anticorruption unit under the Prime Minister to prevent corruption-motivated actions in government and to promote people’s awareness against corruption. ADB supported strengthening the technical audit capacity of NVC in infrastructure projects through TA.12 13. The Political Parties Act, 2002, requires the preparation of annual income and expenditure reports of political parties and audit of their accounts. The Prevention of Corruption Act, 2002 (Section 50) requires public officials to submit an annual updated statement of their income and property. Further, the act has authorized sanctions for noncompliance in case public officials fail to submit the declaration within the legally stipulated time frame, and it has mandated NVC to monitor the implementation of this legal provision. However, four policy measures of this component could not be completed during the Program implementation: rules of procedures for the Constitutional Council, submission of whistle-blower protection legislation to Parliament, submission of anti-money laundering legislation to Parliament, and development of procedures for random check of property and income declaration.

4. Enhance the Overall Competence and Motivation of Civil Servants 14. The objective of this component was to adopt modern human resource management principles to increase the motivation and improve skills of civil servants. During implementation of the Program, the Government acknowledged the urgent need for a more socially inclusive and gender-balanced civil service, and approved a gender-mainstreaming policy on 23 September 2004. Several of these policies were included in the amended Civil Service Act, 2007 and the Civil Service Regulations, 1993 (Eighth Amendment 2007)—a 45% reservation for women and other disadvantaged groups in open recruitment, infant care allowance for women staff,13 and paternity leave for male employees. MOGA has issued directives to line ministries to include women civil servants in staff development programs. The amended Civil Service Act, 2007 included provisions on succession planning at senior levels and on grievance handling. A directive approved by MOGA on grievance handling has enabled civil servants to present their grievances and complaints to a registered agency. 15. The Government was not able to finance a salary revision from 1999 to 2005 as it continued to face a fiscal crunch caused by political instability and insurgency. The amended Civil Service Act, 2007 has supported the institutionalization of regular revision of the salary

12 ADB. 2003. Strengthening Project Implementation and Quality Assurance. Manila (TA 4275-NEP, for $600,000,

approved on 18 December). 13 This provision has been included in the amended Civil Service Act, 2007 for the first time. The allowance will cover

the day care needs of female civil servants, which is a loan covenant of the Program.

7

structure by incorporating recommendations proposed by the High Level Pay Commission of 2004. A Salary and Allowance Review Committee14 has been established to review salaries, allowances, and other facilities of civil servants; and to recommend payment of a dearness allowance15 annually based on the consumer price index (CPI). The Committee will also review the salary, allowances, and benefits of civil servants every 3 years taking into consideration the rate of increase in revenue, total civil service positions, and the rate of dearness allowance paid over 3 years. The Government revised the salary structure by approving 20% of basic salary as dearness allowance in the FY2006 budget and 10% of basic salary as dearness allowance in the FY2007 budget. 16. The amended Civil Service Act, 2007 has revised the provisions on annual performance assessment and promotion systems. 16 Key amendments to the performance assessment included (i) half-yearly and yearly assessments of gazetted officers and yearly assessments of non-gazetted staff; 17 (ii) a new performance assessment format with a description of assigned, completed, and non-completed tasks, and explanations for non-completion of tasks; (iii) sharing of supervisors’ evaluations with subordinates to improve performance and promote transparency; and (iv) employees’ right to seek information on the evaluation. The act also requires the development of job descriptions with indicators, and performance assessments based on the assigned indicators. Amendments to the promotion system, however, raised two concerns. First, the promotion criteria did not adequately reflect a merit-based system. Second, a new provision on a time-bound promotion system for junior staff—on the basis of completion of a certain number of years of permanent service in the same position and fulfillment of several criteria—was introduced. ADB raised serious concern regarding the adverse impact of this promotion system on the structure, capability, and morale of the civil service during the loan review mission fielded in October 2006.

5. Establish Processes for Improving Performance in Key Ministries 17. Introducing a performance-based management system in the three pilot ministries was an integral part of the Program, since it was related to making the civil service more results- and people-oriented. On 23 September 2004, Cabinet approved a policy on a performance incentive fund (PIF) to reward good performance. The Government, however, accepted that the pilot ministries would only be in a position to allocate budget to a PIF regularly in future, if significant organizational improvement initiatives that contribute to budget reductions and efficiency gains were implemented. Since the Program also envisaged that a performance improvement fund would be provided to ministries that successfully introduced performance improvement plans (PIPs), MOF allocated funds to the three pilot line ministries under the Program annually. 18. MOAC’s performance management model was approved in 2004 by the National Planning Commission, efficiency unit, and GRCU. MOAC decided to pilot the model in three districts—in the district agriculture and livestock offices. 18 The pre-pilot program was implemented in FY2005 and FY2006, and 3-year rolling plans were developed and integrated into the PIPs during FY2006. The two pilot district offices developed output requirements and 14 The chief secretary heads the Committee; other members include the secretaries of the ministries of Finance and

of General Administration, an expert appointed by the Government, and the joint secretary of MOGA as the member secretary.

15 Interim salary adjustment provided to civil servants in Nepal to compensate for high inflation cost. 16 Civil service recruitment is undertaken by the Public Service Commission, a constitutional body. Its assessment is

confidential, rigorous, competitive, and independent; and is widely regarded as credible. Therefore, the amended Civil Service Act, 2007 did not include any provisions on changing the recruitment processes.

17 Officer level civil servants (or managerial category) in Nepal are referred to as gazetted officers, and clerical level staff are categorized as ‘non-gazetted’.

18 Solukhumbu, the mountain district, was later dropped in view of security threats.

8

performance indicators, identified input requirements, and established baselines for measuring performance. Performance management systems were also developed and implemented in MOH and MOES during FY2007. MOES’ performance management system was piloted in Kathmandu District Education Office from April 2006 to correspond with the new academic calendar. MOH initiated implementation of its PIPs in 94 sub-health posts in three districts (Morang, Kaski, and Rasuwa) from November 2006. C. Program Costs

19. ADB supported the Program with a loan of $30.00 million (SDR 23,484,000 equivalent) from its Special Funds resources, to be disbursed in three tranches (first tranche of $12 million equivalent followed by two tranches of $9 million equivalent each), each to be released upon compliance with specified conditionalities. The size of the loan was based on the scope and depth of the reform program, and the costs of mitigating the negative social impact of the reforms. The gross adjustment cost was estimated at $104.10 million in the short term. The loan proceeds were withdrawn for the purpose of financing foreign currency expenditures incurred for eligible items for procurement as specified in Schedule 3 of the Loan Agreement. The counterpart funds generated from the loan proceeds were used to support implementation of the Program, and to finance training of women officials and expenditures for the general development purpose. In addition, ADB provided two TA projects to assist program development and implementation. The first TA totaling $1,525,000 supported the Government’s capacity to lead, coordinate, and support implementation of its long-term governance reform strategy (footnote 2). The second advisory TA for $275,000 supported the establishment of processes for improving performance in key ministries (footnote 3). D. Disbursements

20. The loan was to be disbursed in three tranches: a first tranche of $12 million equivalent, followed by two tranches of $9 million equivalent each. The first tranche was released on 28 December 2001 immediately upon loan effectiveness. The second tranche was scheduled for disbursement in July 2003, 18 months after the release of the first tranche, but was finally disbursed on 20 December 2006. The third tranche was cancelled since a majority of policy measures were not completed by the extended loan closing date. E. Program Schedule

21. The scheduled Program period was 4 years, from December 2001 to December 2005. However, the loan closing date was extended on 7 February 2006 and on 24 January 2007 at the Government’s request since program implementation was delayed because of the extremely challenging political environment.19 For example, the tabling of the bill on amendments to the Civil Service Act in Parliament—a key tranche 2 condition—was delayed by more than 3 years because of the absence of Parliament (dissolved in June 2002) and the frequent political changes. The loan was closed in July 2007, at which time the Government did not seek further extension. F. Implementation Arrangements

22. A number of institutional structures were established to lead and manage the Program—ARCMC, ARC, GRCU, efficiency unit, and change units (para. 7). However, it was extremely challenging to ensure the engagement of ARCMC and ARC because of the incessant political

19 The original loan closing (31 December 2005) was extended by a year (to 31 December 2006) on 7 February 2006.

The closing date was further extended to 15 June 2007 on 24 January 2007.

9

transition. As a result, the Government’s development and reform agenda received less priority. Further, the members of the change units were frequently transferred, which adversely affected capacity building and institutional learning. MOGA, as the Executing Agency (EA), was responsible for overall implementation of the Program and its GRCU coordinated the implementation. Work groups and committees were established in the three pilot ministries to implement the performance management systems. G. Conditions and Covenants

23. The Program’s policy matrix (Appendix 2) included 32 policy actions. All first tranche policy actions were completed in December 2001 when the loan became effective. Of the 19 second tranche conditions, 15 were fully complied with, 2 substantially complied with, 1 partially complied with, and 1 not complied with by November 2006. While recommending the release of the second tranche to the ADB’s Board of Directors, the President also requested (i) the waiver of one condition because of changed circumstances; and (ii) approval of the waiver of full compliance on the partially complied with second tranche condition that would be fully complied by the third tranche release.20 The current status of compliance with conditions for release of the third tranche is summarized in Appendix 3. Appendix 4 provides an overview of the Borrower’s compliance with the loan covenants. H. Related Technical Assistance

24. ADB provided two TA projects to the Government to support implementation of the Program.21 The first TA (Institutional Support for Governance Reforms, footnote 2) was initiated in May 2001 and its outputs were (i) enhanced reform management, (ii) improved efficiency and wage bill control, (iii) strengthened anticorruption measures, (iv) improved personnel management, and (v) enhanced performance improvement processes. It was also expected to support the Government in implementing the Program and enable it to reach a number of key milestones during the first 18 months of implementation. The second TA (Strengthening Performance Based Management, footnote 3) commenced in March 2004 and its anticipated output was to establish processes to improve the performance management systems, improvement funds, service standards, and improvement plans of MOAC, MOES, and MOH. The original closing dates of the two TA projects were extended several times to support the Government’s capacity development needs for implementing the Program—TA for Institutional Support for Governance Reforms was extended five times and TA for Strengthening Performance Based Management was extended three times.

20 A waiver was sought on the condition related to the “Constitutional Council shall have adopted Rules of

Procedures” because full membership of the Council had been lacking since October 2002 because Parliament was dissolved. The reinstated Parliament, in April 2006, decided to conduct the election of a Constituent Assembly to write a new Constitution, including the provision on the Constitutional Council. The partially complied condition was related to amendments of the Civil Service Act, 1993 “to establish a merit based approach to recruitment and promotion”. The amendment tabled by the Government was inadequate in ADB’s assessment; the Government assured ADB that the promotion system would be reviewed while implementing the “unified civil service system”.

21 Recognizing the limited capacity of the Government to implement complex reforms, the Program envisaged substantial TA support. While ADB provided ADTA (Institutional Support for Governance Reforms) to assist completion of the Program’s first tranche loan conditions, the Government agreed to secure funding for three ADTA packages—package 1: core program reforms (covering five components of the Program); package 2: civil society support for reform measures; and package 3: project monitoring—from bilateral donor agencies to facilitate implementation of the second and third tranche loan conditions. The Government was able to secure funding support for TA packages 2 and 3, but not for TA package 1 which was to include provision of 46 person-months of international consultancy inputs and 64 person-months of national consultancy inputs. In the absence of TA support, implementation of several reforms was delayed. At the request of the Government, ADB provided Strengthening Performance Based Management TA to support implementation of the “improving performance in key ministries” component of the Program in 2004.

10

25. The two TA projects partly succeeded in achieving their anticipated objectives and supported the completion of several of the Program’s policy reforms. The Institutional Support for Governance Reforms TA assisted the Government in completing several reforms related to tranche 1 conditions of the Program, and contributed to capacity development of the Government to lead and coordinate reforms. In addition, the proposals developed by the TA on voluntary early retirement schemes, pay policy, merit-based recruitment and promotion, computerized personnel information system, gender mainstreaming, etc. were used by the Government as inputs to formulate and approve policies and rules. The Strengthening Performance Based Management TA assisted the Government to approve a policy on performance improvement funds; and the development and implementation of PIPs in MOAC, MOES, and MOH. It facilitated the completion of three tranche 2 conditions related to implementation of performance management systems in MOAC. The Government, however, could not fully own and utilize the TA support since there were frequent transfers of staff assigned to work in the Program. The TA completion reports are in Appendixes 5 (Institutional Support for Governance Reforms) and 6 (Strengthening Performance Based Management). I. Consultant Recruitment and Procurement

26. No consultants were engaged with financing from the Program loan. To provide the consultancy services required under the two TA projects, international and domestic consulting firms and individual international and national consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). No deviations from agreed procedures occurred, and no disagreements between the EA and ADB occurred regarding consultant selection. J. Performance of Consultants

27. Overall, the consultants engaged under the TA projects satisfactorily delivered the tasks identified in their terms of reference at an acceptable level of quality and timeliness under a very challenging work environment. In the Institutional Support for Governance Reforms TA, the terms of reference of the consultancy firm did not cover all the reforms envisaged by the Program since its policy matrix was approved almost a year after TA inception. However, the consultants were flexible and extended support to the implementation of reforms listed in the policy matrix. The consultants employed under the Strengthening Performance Based Management TA significantly contributed to the implementation of performance management systems in the three ministries. Several planned visits to the district offices to guide and monitor the piloting activities were canceled because of security concerns. K. Performance of the Borrower and the Executing Agency

28. The Borrower and the EA demonstrated continuous ownership of the Program but implementation was frequently disrupted because of political instability. From program inception in December 2001 to the release of the second tranche in December 2006, there were seven changes of government—resulting in changes in the senior management of MOGA. The entire program period was marked by continuous political tensions, and frequent strikes and protests organized by the agitating political parties. The Government, however, remained committed to the Program. ARCMC and ARC directed and guided the Program as reflected in the approval of the governance reform road map, policies on gender mainstreaming, Civil Service Ordinance 2005, bill on amendments to Civil Service Act 1993, and annual work plans and progress reports. The overall performance of the Government and the EA can be rated as partly satisfactory.

11

L. Performance of the Asian Development Bank

29. ADB regularly consulted all related government agencies during program processing and implementation. Following the delegation of the Program’s administration to the Nepal Resident Mission in February 2002, ADB remained closely engaged in the implementation and monitoring of the Program. Frequent meetings and consultation were held at the political and senior government levels to build ownership of the Program, monitor progress, ensure clear understanding of challenges faced by the Government, and extend support where needed. ADB fielded 10 review missions during program implementation. The Nepal Resident Mission played a key role in assessing progress on the second tranche loan conditions and in the preparation of the progress report on second tranche release. It also arrived at a mutual agreement with the Government to cancel the third tranche in July 2007. ADB also responded positively to the Government’s requests for technical and advisory support. The TA projects supported by ADB included extensive use of national consultants, as requested by the Government. ADB also supported the Government to secure funds for two TA projects on Civil Society Support for Reform Measures and Project Monitoring and Reporting from the SDC. ADB’s overall performance in the Program was rated satisfactory by the Government in its project completion report submitted to ADB in December 2007.

III. EVALUATION OF PERFORMANCE

A. Relevance

30. The Program is rated highly relevant, both at appraisal and completion. Governance reform was a key element of the Government’s broader economic and structural reform program in the Ninth Plan (1997–2002). Good governance was identified as one of the strategic pillars of the Tenth Plan (2002–2007) and its priority objectives included improvements in the performance of the civil service and combating corruption. ADB was considered an experienced and appropriate agency for public administration institution building in Nepal because of its previous engagement in the area, and since many of ADB’s loans and TA projects included components on governance and service delivery improvements. Further, ADB assisted the Government with TA for Formulating an Action Plan on Civil Service Reforms (footnote 7) from June 1999 to December 2000, which laid the groundwork for a broader reform agenda and assessed the seriousness of the Government’s commitment to reform actions. The Program formed a central element of ADB’s 1999 Nepal country operational strategy (footnote 6) and its Nepal country strategy and program (2005–2009), which both listed improvements in good governance as a priority. Therefore, the Program responded to a high-priority need of the Government and its commitment to reforms. The program lending with three tranches provided an appropriate assistance modality since it allowed tranche releases to be flexible and contingent upon the Government’s capacity and continued commitment to the reforms. There were no changes made to the program design during implementation. B. Effectiveness in Achieving Outcome

31. The Program was partly effective in achieving its objectives. The Government, through the introduction of performance-based management systems, piloted service delivery improvements in the agriculture, health, and education sectors. Some of the core building blocks of performance management systems—3-year rolling plans, PIPs, baseline on service delivery, and performance improvement funds—were developed and implemented. For example, a 3-year rolling plan (covering FY2006–FY2009) and annual PIPs for agriculture and livestock offices in two districts were prepared with extensive stakeholder participation. Performance against key agriculture and livestock commodities was assessed, baselines were established for

12

measuring performance, and inputs to be funded by the performance improvement fund were identified. However, the piloting activities were insufficient to establish performance systems firmly in the three ministries. 32. The Program contributed substantially in implementing the policy and institutional reforms listed in the policy matrix (the first and second tranche conditions) in a very challenging environment. Several pieces of legislation and policies on rightsizing the civil service were approved, and computer-based personnel information systems of civil servants and public teachers were established. The legal and institutional framework for combating corruption was substantially strengthened. The amended Civil Service Act, 2007 supported the establishment of a more socially inclusive and gender-balanced civil service; and also introduced important provisions on salary revision, succession planning, and grievance handling for impacting staff motivation and competency. However, the reforms have yet to deliver the anticipated results since the implementing institutions remain weak. C. Efficiency in Achieving Outcome and Outputs

33. The Program can be rated partly efficient. Preparation of the Program took substantially longer than envisaged.22 The Program was launched in 2001 when a majority government was in power that showed firm commitment to governance reforms, but political instability and turmoil commenced soon after. The scope of the Program was very wide, as it entailed a range of divergent reforms in the civil service and anticorruption area. The achievement of outputs was also constrained by lack of additional TA support that was proposed in the program design. The Government was not able to confirm TA cofinancing from other development partners, which delayed program implementation and limited capacity development opportunities for the EA and pilot ministries (footnote 21). Legal reforms were delayed following the dissolution of Parliament in June 2002. Further, the magnitude of some of the institutional reforms, such as the establishment of performance-based management, seems to have been underestimated (in terms of time and effort needed) in the design of the Program. D. Preliminary Assessment of Sustainability

34. Although the Government’s attention has been firmly focused on the political agenda in recent years, it continues to express commitment to governance reform and anticorruption measures. Promotion of good governance and effective service delivery have been listed as strategic priorities of the Three Year Interim Plan23, and several new pieces of legislation on good governance have been enacted recently: Public Procurement Act and Regulations, 2007; Promoting Market Competition Act, 2006; Rights to Information Act, 2007; Special Court Act, 2002 (First Amendment 2007); Anti-Money Laundering Act, 2008; and Good Governance (Management and Operation) Act, 2008.24 However, as in the case of legal and policy reforms introduced under the Program, their implementation remains weak. Good governance has been consistently prioritized in the Government’s policies and plans but it is not always matched in action and implementation. For example, the Government stopped allocation of resources for

22 Groundwork on the design of the Program was originally scheduled for completion in December 2000 but the

Government requested more time to formulate its governance reform strategy. Processing of the Program was initiated in June 2001 and finally completed in November 2001.

23 National Planning Commission. 2007. Nepal: Three-Year Interim Plan (FY2008–FY2010). 24 The Good Governance Act spells out the administrative functions and responsibility of officials at different levels

(minister, chief secretary, secretary, department head, office chief, etc.), including work procedures to be adopted in government administration. It mandates, among others, keeping a citizen charter, providing mobile services, determining service fees on the basis of social justice, setting up of a Governance Reform Unit in government agencies, conducting public hearings, managing grievances, setting up monitoring and evaluation committees, and submission of annual reports by government agencies.

13

performance improvement funds following the closure of the Program. The Program is less likely to be sustainable given the tenuous hold the reforms have taken to date. E. Impact

35. The reservation provision included in the amended Civil Service Act, 2007 will have a significant impact on creating a socially inclusive and gender-balanced civil service since the Public Service Commission has already started implementing the policy in new recruitment. The reforms initiated on performance management systems in the pilot ministries have the potential of reducing poverty, as they focus directly on improving service delivery at the local level, but long-term implementation of this initiative is essential. The enactment of several pieces of anticorruption legislation and the establishment of NVC and Special Court has significantly strengthened the Government’s legal and institutional framework. A tangible impact from the anticorruption drive will be achieved if the Government is committed to effective enforcement of new legislation and strengthening of anticorruption institutions. The environmental impact of the Program was minimal since it did not deal directly with environmental concerns. The overall impact of the Program can be rated moderate.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

36. The Program is rated partly successful based on the review of its relevance, effectiveness, efficiency, sustainability, and other impacts. The Program was implemented as conceived, albeit delayed, with the Government undertaking activities toward the fulfillment of the loan conditions in an extremely complex political environment, which was made even more challenging by the decade-long armed insurgency in the country. In line with the Program’s outcome of improving the quality and efficiency of services provided by MOAC, MOES, and MOH, performance management systems were developed and implemented to improve the quality of frontline services delivered by the three ministries. However, the piloting activities stopped after the Program closed. The Program contributed to reforms of several essential elements of the civil service by amending the Civil Service Act, 1993, and Civil Service Regulations, 1993, in 2007; and strengthened anticorruption measures. The anticorruption drive has lost momentum during the ongoing political transition although the legal and institutional framework for corruption control has been strengthened. 25 The computerized personnel information systems of civil servants and public schoolteachers have not been fully utilized as reliable human resource management information systems. Weak institutional capacity remains a key constraint to effective implementation of policy, legal, and institutional reforms supported by the Program. Political leadership, ownership, and commitment are critical to move forward the governance reform agenda in the changed political context. B. Lessons

37. The broader impacts expected from policy, legal and institutional reforms of the Program will take much longer to materialize than the program period. This reinforces the principle of long-term engagement in governance reforms adopted by the Program. Public sector reform is usually complex, time-consuming, and demands genuine political commitment, ownership, and actions. Further, predictability and continuity of development partner’s engagement is critical to support the Government’s development efforts on good governance. In the context of the conflict and political instability that existed in Nepal during the program period, continuous 25 CIAA is the national anticorruption body but the positions of chief commissioner and several commissioners have remained vacant since 2006.

14

engagement with stakeholders at all levels was the only way to ensure attainment of program outputs and outcomes.

38. Successful and sustainable governance reforms require an institutional home and adequate budgetary inputs. The reform agenda needs to be integrated into the organization’s annual plans, activities, and budget—with implementation responsibility clearly embedded in the permanent organization structure. Ministries and line agencies, that are the target of reforms, should be guaranteed adequate funds through a process of ring-fencing of the program budget. 26 Otherwise, there is no incentive for line agencies to undertake reforms. Parallel organizational arrangements and budgeting system should be avoided, as they generate sustainability and institutionalization challenges after completion of the program.

39. Legal, policy, and organizational reforms should be supplemented by long-term capacity development to achieve the intended goals and impacts. Capacity development interventions should be included as part of the program design. Behavior changes of civil servants, as anticipated from legal and policy reforms, will take longer to materialize.

40. Cofinancing for ADTA, where such provisions exist, should be confirmed prior to approval and initiation of program loans, especially when the focus of the program is on policy, institutional, system, and process reforms. Since the capacity of government agencies to lead and manage complex policy reforms is limited, TA support is critical to successful program implementation and long-term capacity development.

41. A clear long-term vision of support in governance reforms should be agreed with the Government during ADB’s country partnership strategy process. The scope of reforms should be focused and needs-based to reduce implementation challenges. Further, the time and effort required for institutionalizing governance reforms needs to be considered realistically in the program design by undertaking a readiness assessment for change. Flexibility is also needed in program design and implementation to meet emerging needs of participating government agencies.

42. The involvement of civil society in governance reform has the advantage of soliciting widespread support and advocacy for the reforms process, as well as exerting pressure on government agencies for effective implementation of reforms. Civil society organizations can also monitor reform initiatives independently by highlighting successes and failures. C. Recommendations

1. Program Related

43. The Government should pursue actions on the partly fulfilled and unfilled conditions related to the second and third tranches of the Program, specifically conditions on (i) procedures for annual random checks of property, asset, and income declarations; (ii) tabling of whistleblower protection legislation in Parliament; and (iii) tabling of an amendment to Civil Service Act, 1993 (Second Amendment 2007) in Parliament to reflect a merit-based approach to promotion. The first two policy reforms will contribute to corruption prevention and promotion of good governance, which are strategic priorities of the Government’s Three Year Interim Plan. Institutionalization of a performance-based management system (including merit-based promotion system) in the civil service is essential to improve public accountability and service

26 Under the ring-fencing arrangement, the Government will ensure that the counterpart funds generated from the

proceeds of the ADB program loan or grant will be made available to the ministries to finance the direct costs of the reforms.

15

delivery to the public, and to operationalize the provision on the performance incentive fund included in the amended Civil Service Act, 2007. 44. The Government’s leadership, commitment, and effort is critical to implement the policy reforms introduced under the Program effectively. Sustained capacity development of the Special Court, NVC, and CIAA is recommended. Institutional strengthening of MOGA is also recommended to enhance its capacity to implement the amended Civil Service Act, 2007 and Civil Service Regulations, 1993 (Eighth Amendment 2007). 45. ARCMC should be reactivated, with the support of the Office of the Prime Minister and Council of Ministers and MOGA, to lead implementation of Nepal’s governance reform agenda in the post-conflict situation. The governance reform road map should be revisited in the changed political context to prioritize reforms for the next 2 years, i.e., until completion of the state restructuring and adoption of a new Constitution. 46. The Good Governance Act, 2008, is landmark legislation for improving governance in the civil service as it complements the reforms initiated by the Program. The establishment of governance reform units in all ministries, as mandated by the Good Governance Act, 2008, is a logical replacement of the change units. ADB should closely monitor progress on implementation of the Good Governance Act and the amended Civil Service Act, 2007, and emphasize institutional strengthening to implement the policy reforms effectively.

2. General

47. Governance reform remain a priority development agenda for Nepal as reflected in the Three Year Interim Plan, and it is expected to gain more prominence upon the adoption of the new Constitution and completion of the restructuring of the state into a federal system. The Program has sensitized the Government on the need for and importance of governance reforms. The Government has indicated to ADB that it would seek support in improving governance at the central level following the adoption of the new Constitution. ADB, as an important development partner of Nepal, has responded positively by developing the Governance Support Program Cluster (Subprogram I and II), as a follow-up activity of the Program, to be implemented from 2008 to 2015 in two phases.27 Governance reform is a long-term process, and requires determined commitment from both the Government and development partners over a period of 10 years or more to achieve lasting change. This position was rightly adopted in the design of the Program but unanticipated political developments disrupted the reform plan and process. ADB should remain engaged in governance reforms over the long term (as projected in the Governance Support Program Cluster) since it is critical for the development of new Nepal.

27 The Governance Support Program Cluster (Subprogram I and II) was approved by ADB in October 2008.

Subprogram I (2008–2012) will support implementation of the Government’s Local Governance and Community Development Program, which will primarily focus on community mobilization and strengthening to hold local governments to account, strengthen the capability of local government to provide effective and inclusive services, support the work of meso-level agencies, and institute protocols and systems at the central level to support the local governance reform agenda. Subprogram II (2012–2015) will support a range of business process reengineering at the central government level (civil service) in support of a federal government structure.

16 Appendix 1

PROGRAM FRAMEWORK

Narrative Summary Indicators and Targets Monitoring Mechanisms Key Assumptions and Risks

Goal A civil service that is results- and people-oriented, and responsive to gender, reinforcing economic growth and poverty reduction

Improved access, quality, and efficiency of government services, provided by a well-trained, adequately compensated, and sufficiently motivated civil service

• Client satisfaction

surveys • Annual reports of

various ministries and departments

• Pay scales • Number of civil

servants trained in service delivery courses

Purpose 1. Improved quality of

government services provided by ministries of Agriculture and Cooperatives (MOAC), Education and Sports (MOES), and Health (MOH)28

2. Improved efficiency of

government services provided by MOAC, MOES and MOH

3. Improved access of

general population to government services

End of Project “Success Status” 1. Improved quality: By

tranche 2, technical assistance (TA) consultants/Government/ Asian Development Bank (ADB) to develop monitorable proxy indicators and targets for MOAC, and by tranche 3, for MOES and MOH

2. Improved efficiency: By

tranche 2, TA consultants, Government and ADB to develop monitorable proxy indicators and targets for MOAC, and by tranche 3 for MOES and MOH

3. Improved access: By

tranche 3, TA consultants, Government and ADB to develop monitorable proxy indicators and targets

1. To be identified by TA

consultants (e.g., client satisfaction surveys, annual reports of various ministries and departments, pay scales, and number of civil servants trained in service delivery courses)

• Government

commitment to reform • Political and economic

stability • Staff are able and

motivated to provide better services

• Improved ratio of personnel expenditure to operating costs

• People have confidence in government services

Outputs/ Components 1. Develop Internal

Capacity for Leading Reform

1.1 First year overall reform

implementation plans that are gender-sensitive approved by executive committee by tranche 1; subsequent plans to be approved on an annual basis, and annual progress reports made public

1.2 Coalition of stakeholder

groups established, and actively demanding reforms, by tranche 2

1.1 Executive committee

annual public reports 1.2 Assessment by all

stakeholders at workshops

1.1 Ministers and top civil

servants are committed to reform

1.2 Secretaries in central

ministries and other key ministries are competent.



Appendix 1 17


2. Improve the Efficiency

of the Civil Service

1.3 “Critical mass” of full-time

Governance Reform Coordination Unit (GRCU), Ministry of Finance efficiency unit, and change unit personnel are trained and demonstrate “satisfactory” application of change management and relevant technical skills. TA consultants/Government/ ADB to identify and articulate those skills, and develop criteria and a rating scale for monitoring, by tranche 2 for GRCU and efficiency unit, and tranche 3 for change units

1.4 “Critical mass” of senior

officials demonstrates “satisfactory” level of agreed leadership qualities. TA consultants/ Government/ADB to identify/articulate those skills, and develop criteria and a rating scale for monitoring, by tranche 2

2.1 Revised voluntary early

retirement scheme (VERS) approved by the Government, by tranche 2

2.2 Revised Civil Service Act

submitted, by Tranche 2

2.3 Procedures manual for VERS approved by executive committee, applied and accepted by donors, by tranche 2

2.4 Policy and detailed plans

of rightsizing government – through commercialization, devolution to local authorities, contracting out, and/or elimination of selected functions—that also contribute to

1.3 Assessment by TA

team, ADB, and Government

1.4 Assessment

workshop conducted jointly by TA team and Nepal Administrative Staff College

2.1 Cabinet secretariat

records, TA progress reports

2.2 Cabinet secretariat

records 2.3 Minutes of executive

committee, TA progress reports

2.4 Minutes of executive

committee, TA progress reports, budget

Risk: Government unwilling to foster or engage with coalition

1.3 Full-time personnel

are selected to GRCU, the efficiency unit, and the change units on the basis of merit

1.4 Senior officials are

willing to participate in the leadership development program

18 Appendix 1


3. Improve Governance

and Reduce Corruption in Government

narrowing the gap between the number of male and female civil servants, approved by executive committee, by tranche 2

2.5 Detailed plans for

rightsizing prepared by efficiency unit, and MOAC by tranche 2, and MOES and MOH change units, by tranche 3

2.6 Rightsizing programs

implemented by MOAC by tranche 2, and MOES and MOH, by tranche 3

2.7 Policy and measures to

achieve efficiencies in the teacher service approved by the Government, by tranche 2

2.8 MOGA personnel records

computerized and linked to post establishment and payroll, functioning “satisfactorily”, by tranche 2

3.1 Revised legislation

requiring elected public representatives, gazetted civil servants, members of constitutional bodies, members of Parliament, members of Council of Ministers, and senior management of development boards and state-owned enterprises to declare property, assets, and income annually, including provisions on sanctions for noncompliance, and designating responsible agencies to received declarations and monitor compliance, submitted by tranche 2


committee, TA progress reports, Ministry of General Administration (MOGA)/Public Service Commission (PSC) reports on numbers employed in key ministries





2.8 TA consultants/

Government/ADB to determine criteria, targets, and time frame, prior to tranche 2

3.1 Parliamentary

records, records of concerned agencies, minutes of executive committee, TA progress reports

Risk: Resistance to

change increases in key ministries

3.1 Government has the

necessary political will to propose and enforce such legislation

Appendix 1 19


4. Enhance the

3.2 Annual review institutionalized by financial comptroller general, to oversee implementation of existing rules and financial rules and regulations for public disclosure of contract awards, by tranche 2

3.3 Government to submit bill

on political parties including provisions on annual audit of funds of all political parties, by tranche 2; compliance with annual audit of all political parties enforced by Government, annually from tranche 2

3.4 Amended Commission for

the Investigating of Abuse of Authority Act, including establishment of a specialized anticorruption court submitted by Government, by tranche 1

3.5 Amended bills on

specialized courts, and prevention of corruption submitted by Government, by tranche 1

3.6 Legislation on

whistleblower protection, submitted by Government, by tranche 3

3.7 Legislation on anti-money

laundering submitted by Government, by tranche 3

3.8 Rules of procedure for

constitutional council developed by Cabinet Secretariat, by tranche 2

3.9 Rules of procedure

adopted by Constitutional Council, by tranche 2

3.10 Anticorruption public

awareness campaign implemented, by tranche 2

4.1 Affirmative action policy

3.2 Minutes of executive committee, financial comptroller general reports, TA progress reports

3.3 GRCU progress

reports 3.4 Cabinet Secretariat

records 3.5 Minutes of executive

committee, GRCU progress reports





3.8 Cabinet Secretariat records







necessary political will to tackle high-level official corruption and enforce such compliance


necessary political will to combat corruption

20 Appendix 1


Competence and Motivation of Civil Servants

5. Establish Processes for Improving Performance in MOAC, MOES, and MOH

approved and program implemented to increase representation of women in the civil service, including their percentage in senior positions, by tranche 2

4.2 Amendments to the Civil

Service Act, 1993, for more efficient and effective personnel assessment, merit-based recruitment and promotion, senior positions succession, management of development programs, grievance and transfer, with appropriate attention to issues of gender, submitted and implemented by tranche 2

4.3 New salary structure approved by Government, and first annual review conducted, by tranche 2

5.1 Operational procedures

for performance incentive fund agreed upon by Ministry of Finance (MOF) by tranche 2

5.2 Annual performance

incentive fund budgeted by MOF by tranche 2

5.3 Performance management

system and new service standards introduced in pilot ministries on phased basis, beginning with MOAC, by tranche 2

5.4 MOAC performance

improvement plans developed and implemented by tranche 2

5.5 MOES and MOH

performance improvement plans developed and implemented, by tranche 3


4.2 TA consultants/

Government/ADB to identify specific baseline indicators and targets for monitoring implementation of related aspects, by tranche 2





5.2 Performance incentive

funds audited on annual basis




committee, GRCU progress reports; MOGA to monitor and publicize results of annual service performance for MOAC annually


committee, GRCU progress reports; MOGA to monitor and

4. Continued political

support to enhance the pay of civil servants

• Civil servants accept personnel selection based on merit rather than seniority

• No political interference in transfer and placement decisions, or in disciplinary actions

• Size of the compensation package is not politically determined

• There is political commitment to strengthened wage bill and establishment controls

• There is political commitment to devolve noncore functions

• The system is well managed by MOGA and staff are trained to maintain and update it

Risk: Resistance in the bureaucracy to advancing affirmative action policies

Appendix 1 21


publicize results of annual service performance for MOES and MOH

Activities for outputs and components

Schedule The schedule of monitoring activities for each of the output milestones will be monitored separately (by target dates)

• GRCU staff work well

with the consultants • Government has the

will and majority to pass legislation

• Recommendations are enacted

• MOF is willing to give ministries more budgetary discretion

Risk: Gender not seen as a central issue within governance reform agenda

Inputs 1. Develop internal

capacity for leading reform

2. Improve the efficiency

of the civil service 3. Improve Governance

and Reduce Corruption in Government

4. Enhance the

competence and motivation of civil servants

5. Establish processes

for improving performance in key ministries

6. Civil society support

for reform measures 7. Program monitoring Total

Resources 1.1 TA, 42 person-months:

team leadership/change management

2.1 TA, 25 person-months:

devolution specialists, wage control specialists


anticorruption specialists 4.1 TA, 22 person-months:

performance improvement specialists


human resource/training specialist

6.1 TA , 44 person-months:

communications, media, service delivery, workshop, survey specialist, rural development specialist


communications specialist $2 million

1.1 TA contract, mission

supervision 2.1 TA contract, mission






supervision

• Government accepts

TA • Line ministries are

interested in preparing plans

• Government leadership provided

• Government willing to accept newly proposed role, accept inputs from society, and cooperate in disclosure of progress

22 Appendix 2

POLICY MATRIX

Policy Measures/Actions

Current Status of Progress

Component 1: Develop an Internal Capacity for Leading Reform • Executive committee to approve first year overall reform

implementation plan and annual plans to enable the Government to meet succeeding tranche conditions (tranche condition {TC} 1)

Secretaries of Ministry of General Administration (MOGA) and Ministry of Finance (MOF) shall have adjusted and staffed an appropriate number of full-time positions for the Governance Reform Coordination Unit (GRCU) and the efficiency unit, including a focal point for mainstreaming participation of women in government (TC2)

Executive committee shall have reviewed and approved annual progress, and prepare an annual public report including information on women (TC2)

Concerned secretaries of MOGA, Ministry of Agriculture and Cooperatives (MOAC), Ministry of Education and Sports (MOES), and MOH 29 to adjust and staff an appropriate number of full-time positions in the three pilot ministry change units, including focal points for mainstreaming participation of women in the respective ministries (TC3)

Fully complied with. The Program was designed after a series of stakeholder consultations and implemented from 2001 to June 2007. The Administrative Reform Committee (ARC), chaired by the minister of General Administration with the chief secretary of the Government and the secretaries of different ministries as members, functioned as the executive committee of the Program. The ARC continues to exist as a permanent body to oversee matters related to design, approval, implementation, coordination, and monitoring of administrative reform programs. Fully complied with. GRCU, efficiency unit, and change units were established in the respective ministries and each was led by a coordinator of joint secretary level, supported by an under secretary and other officials as full-time staff. Gender focal points were appointed in GRCU, efficiency unit, and change units. However, except for the GRCU, all other units are nonfunctional after the closure of the Program. Fully complied with. Annual progress reports (FY2003–FY2005) were reviewed and approved by the ARC and distributed to the media and other stakeholders; they contained information on policy decisions on gender mainstreaming and social inclusion. Fully complied with. While the Program was under implementation until June 2007, full-time positions (under secretary level) were appointed in the three change units in MOAC, MOES, and MOH to oversee program implementation, and gender focal points were appointed in all the ministries. However, the change units have been nonfunctional since July 2007.

Component 2: Improve the Efficiency of the Civil Service MOGA to computerize its personnel records and commence the process of linking these to approved posts (TC1)

• Cabinet to approve a revised voluntary early retirement

scheme and Government to submit a revised Civil Service Act that reflects this (TC2)

• Cabinet shall have approved an overall policy on rightsizing

Fully complied with. Computerization of personnel records and linkage to approved posts has been completed. Fully complied with. Amended Civil Service Act, 2007 includes a new provision whereby voluntary early retirement scheme (VERS) can be targeted at employees working in positions that have been eliminated and employees who are made redundant since their positions cannot be adjusted.

29 The Ministry of Health was also assigned the population portfolio in April 2005 and renamed as the Ministry of Health and Population.

Appendix 2 23



government through commercialization, devolution to local authorities, contracting out or elimination of selected functions while ensuring that rightsizing shall lead to narrowing the gap between the number of male and female civil servants (TC 2)

• The executive committee shall have approved a detailed plan

for the rightsizing of MOAC (TC2) • Cabinet shall have approved a policy on teacher recruitment,

remuneration, and number of posts, which shall be gender-sensitive (TC2)

• Efficiency unit, GRCU, and MOES to computerize teacher

personnel and post information system (TC2) • MOGA to link its fully computerized personnel records to

approved posts and the payroll system (TC2)

Fully complied with. The Government approved several policies to rightsize the civil service—elimination of vacant positions, freezing of recruitment, contracting out, functional devolution to local governments, and organizational restructuring. Following Cabinet’s order of 11 September 2002, some 7,350 vacant positions were eliminated. A freeze on recruitment of non-gazetted staff (clerical category, levels 3 and 4) was maintained. A Service Contract Directive was approved to allow a range of services to be contracted to individuals and firms. Activities in the education, health, agriculture, and infrastructure sectors have been devolved to local governments. The representation of women in the civil service increased from 8.6% in 2001 to 9.9% in 2006. Fully complied with. The Cabinet approved the rightsizing plan of MOAC in November 2003 based on a review of its organization. The rightsizing included a review of service subgroups, freeze on creation of new positions, rationalization of positions, contracting out of services, and elimination of 840 positions. Fully complied with. The Education Regulation, 2003 (Third Amendment), included new policies on creation of public schoolteachers’ posts, including posts for women teachers. The policies included classification of teachers’ positions into three levels for career progression; and determination of the number of teacher’s posts, education qualification, salary, grades, allowances, and provident funds. The Teacher Services Commission Regulation, 2003, contained procedures to be followed during recruitment and promotion. From FY2003, a policy on transferring primary schools to community management has been adopted and the school management committees have been authorized to recruit teachers and set their salary levels. In FY2007, the Government announced a policy of recruiting female teachers in schools managed by communities. Substantially complied with. The computerization of public schoolteachers’ personnel records in MOES was initiated in 2004, with procurement of hardware infrastructure and development and installation of customized software application. The system has captured all 107,000 teacher positions from about 26,000 schools. Construction of a new building to house the teachers’ personnel information system was started in FY2007. Currently, personnel records of about 95% of the permanent teachers have been computerized and the system was updated in 2007 with enhanced capacity. MOES has recently formed a committee to develop an integrated information system covering its major functional areas. Fully complied with. The computerization of civil servants’ personnel records has been completed and all the posts have linked to the payroll system. The system is able to track positions in ministries, departments, and offices; and identity officials occupying the positions. The system is capable of undertaking comparative analysis of payroll information and forecasting expenditure on salary and grades. During 2006 and 2007, MOGA has upgraded the capacity of the system, which includes the development of an optical fiber system within the premises of the central secretariat to improve accessibility.

24 Appendix 2



• The executive committee shall have approved a detailed plan for the rightsizing of MOES and MOH (TC3)

Partly complied with. Rightsizing of MOES was completed in 2003 with a reduction of 142 positions and development of job descriptions for staff. Rightsizing of MOH did not take place during the program period.

Component 3: Improve Governance and Reduce Corruption in Government Government to submit amended Commission for the Investigation of Abuse of Authority (CIAA) Act, including establishment of a specialized anticorruption court (TC1)

Government to submit amended bill on specialized courts (TC1)

Government to submit prevention of corruption bill (TC1)

• Government to submit bill on political parties, to include

provisions on annual audit of funds of all political parties (TC2)

• Government to submit revised legislation to require elected

public representatives, gazetted civil servants, members of constitutional bodies, members of Parliament, members of the Council of Ministers, and senior management of development boards and state-owned enterprises to declare property, assets, and income annually. Such legislation will include provisions on sanctions for noncompliance, and will designate responsible agencies to receive declarations and monitor compliance. (TC2)

• Constitutional Council to adopt rules of procedure (TC2) • Prime Minister’s Office to establish an anticorruption unit that

will implement an effective ongoing anticorruption public

Fully complied with. Legislation was amended in 2002 by Parliament and CIAA’s role and authority has been substantially enhanced. Fully complied with. Legislation was approved in 2002 and a Special Court has been established. The act was amended in 2007 to widen the scope of work of the Special Court. Fully complied with. Legislation was approved in 2002. The amended law has enabled CIAA and other related agencies to spearhead the anticorruption drive proactively in Nepal. Fully complied with. Political Parties Act was promulgated in 2002, requiring political parties to provide details of their income and expenditure, audited by certified auditors, in the annual report to the Election Commission within 6 months of the end of the fiscal year. However, because of low response of political parties to this law and the promulgation of new rules by the Election Commission to conduct the Constituent Assembly Election in 2008, a draft of a new law on political parties has been prepared by the Election Commission and submitted to the Government. The draft includes provision on regulating party operations and maintaining financial discipline. Fully complied with. The Prevention of Corruption Act, 2002, and the CIAA Act, 2002 require any person holding a “public responsibility post” to submit an annual statement of property to an authority prescribed by the Government. The act also mandates sanctions for noncompliance. The Government has published a notice on the authorities responsible for collecting submission of property and income declaration. Not complied with. ADB received a formal request from the Government to waive this condition in 2006 since the Constituent Assembly will be drafting a new Constitution for the country (by 2010), which may widen the role of and introduce new rules and procedures for the Constitutional Council. ADB approved the waiver request in December 2006. Fully complied with. As provided for in the Prevention of Corruption Act, 2002, the Government established the National Vigilance Centre (NVC) as the anticorruption unit under the Prime Minister’s office in August 2002, assigning it a preventive and vigilant role on anticorruption

Appendix 2 25



awareness campaign on the role of concerned agencies involved in corruption control, and develop and implement a program for their interaction with civil society (TC2)

• MOGA shall have developed procedures for annual random

checks of property, asset, and income declarations; and together with other designated agencies, MOGA shall have conducted at least one such annual random check (TC3)

• Government to submit whistleblower protection legislation

(TC3) • Government to submit anti-money laundering legislation

(TC3)

measures. NVC has been organizing various public awareness programs in collaboration with Transparency International Nepal. ADB has provided technical assistance support to build NVC’s capacity in technical audits. Not complied with. Section 38 of the Prevention of Corruption Act, 2002, has assigned the responsibility of monitoring the income and property declaration of public officials to the NVC but it has not developed standardized monitoring procedures. Further, it does not have the legal mandate to examine the declarations. MOGA, as the designated agency for collecting income declaration from civil servants, collects and files such declarations but does not undertake random checks since it regards this function as the mandate of NVC. Not complied with. The Law Commission drafted legislation on whistleblower protection in early 2007 but there has been no substantial progress since. Fully complied with. Interim Parliament approved the legislation in January 2008.

Component 4: Enhance the Competence and Motivation of Civil Servants • MOGA to issue a directive to line ministries to include women

in civil service staff development training activities (TC1) • Cabinet to approve an affirmative action policy and program

to increase representation of women in the civil service, including their percentage in senior positions (TC2)

• Cabinet to approve new salary structure and conduct annual

reviews (TC2)

Fully complied with. MOGA has issued directives to line ministries to include women in civil service staff development training activities. Fully complied with. The Cabinet approved a gender mainstreaming policy for the civil service on 23 September 2004 that included actions and programs to mainstream gender and to increase representation of women, e.g., reservation policy in recruitment, identification of positions for women, revision of curriculum of Public Service Commission (PSC) to make it more gender-friendly, development of gender-friendly work environment, engagement of women staff in managing grievances and complaints, and paternity leave for men. Several of these policies have been reflected in the amended Civil Service Act, 2007: 45% of vacancies to be filled through free competition reserved for women and other disadvantaged groups, shorter probation period for women, relaxation of minimum year for eligibility by 1 year for women candidates and others (from socially-excluded groups) to be promoted, and infant care allowance to women employees. Substantially complied with. Amended Civil Service Act, 2007 has incorporated several recommendations of the High Level Pay Commission. A Salary and Allowance Review Committee has been established to recommend payment of dearness allowance30 annually based on the consumer price index (CPI). The Government can approve payment of allowance up to 75% of annual increase in the CPI. If such increment is 25% of basic salary in a certain year, the amount will be adjusted in the salary. Despite being unable to revise salary from 1999

30 Interim salary adjustment provided to civil servants in Nepal to compensate for high inflation rate.

26 Appendix 2



• Cabinet shall have tabled in Parliament amendments to the

Civil Service Act which reflect the following: (i) establish procedures to strengthen annual personnel assessments; and (ii) a merit-based approach to recruitment and promotion, which shall be gender-sensitive. (TC2)

• Cabinet shall have approved regulations that will reflect the

following: (i) the existence of a human resources succession plan for senior positions in the civil service; and (ii) new procedures for grievance handling, which will be gender-sensitive. (TC2)

to 2005 because of fiscal constraints, the Government approved 20% of basic salary as dearness allowance in FY2006 and 10% of basic salary as dearness allowance in FY2007; and adjusted the increase to the basic salary scale of civil servants. Partially complied with. The amended Civil Service Act, 2007 and Civil Service Regulations, 1993 (Eighth Amendment 2007) have introduced changes in the annual performance evaluation procedures to make them more manageable, task-focused, and transparent, e.g., revision in assessment schedule, modification in evaluation formats, enabling staff to seek information on evaluation from the Review Committee, etc. Further, the act requires government offices to develop job descriptions with indicators. The promotion system is still not adequately merit-based since the same merit criteria have been retained in the amended Civil Service Act, 2007, e.g., annual performance assessment continues to have only 40% weight in total score. Further, the inclusion of new provisions on “time-bound promotion” will have long-term adverse impact on the structure, capacity, and morale of other civil service. The Government is currently undertaking preparatory work on the introduction of “unified civil service system”, which will also review the promotion system. Fully complied with. The amended Civil Service Act, 2007 includes new provisions on succession planning and grievance handling. Succession planning will be implemented at the special class (secretary) and departmental head levels in the central government agencies to facilitate institutional continuity and handover of charge over 15 days. MOGA is developing a directive on succession planning. The legal provision on grievance handling will enable civil servants to present their grievances and complaints to a registered agency regarding their service conditions, facilities, and other issues covered by the Civil Service Act and related rules. A Directive on Grievance Handling was approved by Cabinet in November 2006, which includes gender-sensitive features.

Component 5: Establish Processes for Improving Performance in Key Ministries • Cabinet to approve a performance incentive fund (PIF), its

operating procedures, and its budget (TC2) • Efficiency unit and GRCU to approve MOAC’s first

performance incentive plan (TC2)

Fully complied with. Cabinet approved a policy on establishment of a PIF to award excellent performance in the civil service on 23 September 2004, which stated that (i) savings generated from expenses allocated could be used as a PIF or (ii) the Government could allocate special funds to a PIF for piloting of performance management in three line ministries (MOAC, MOH, and MOES). The Government also agreed that a performance improvement fund would be used as an interim measure, leading to implementation of a PIF in the long run. MOF allocated budget to implement performance management systems in FY2006 and FY2007. The amended Civil Service Act, 2007 has made provision for the establishment of a PIF to reward staff. Fully complied with. MOAC’s first performance improvement plan was approved by MOGA and MOF. Subsequently, MOF allocated NRs1.63 million (about $23,000) as PIF for pre-piloting activities in two districts in FY2005.

Appendix 2 27



• MOF, GRCU, and MOAC to establish, announce, and commence implementation of a performance management system, with performance improvement plans (PIPs) and new service standards with necessary funding made available from the budget (TC2)

• Efficiency unit and GRCU to approve MOES’ and MOH’s first

performance incentive plan. (TC3) • MOF, GRCU, MOES, and MOH to establish, announce, and

commence implementation of a performance management system, with performance improvement plans and new service standards with necessary funding made available from the budget (TC3)

Fully complied with. Implementation of the performance management system was initiated in 2005 in two districts (Bara and Kavre). A 3-year rolling plan (FY2006–FY2008) and performance improvement plans for agriculture and livestock offices in the two districts were prepared, with extensive stakeholder participation. Performance against key commodities was assessed and a baseline was established against which to measure performance. Key input areas for funding from the performance improvement fund were identified. Implementation of the 3-year rolling plans and performance improvement plan was initiated in FY2007, for which MOF allocated NRs. 3 million (about $42,000) as performance improvement fund. Several important activities were completed, e.g., revision of the 3-year rolling plan, drafting of PIF guidelines, preparation of PIPs for Parbat and Dhankuta districts, development of monitoring system, and revision of PIPs for Kavre and Bara districts. Fully complied with. PIPs were developed by MOES and MOH, and approved by the National Planning Commission, MOF, and MOGA. MOF allocated NRs1.5 million (about $21,000) to MOES to implement the PIP and NRs8.5 million (about $119,000) to MOH in FY2007. Fully complied with. The implementation of MOES’ performance management system was initiated in the Kathmandu District Education Office from April 2006 to correspond with the new academic calendar. MOH started implementation of PIPs in 94 sub-health posts in three districts (Morang, Kaski, and Rasuwa) from November 2006. However, the piloting activities have been discontinued in FY2008.

28 Appendix 3

STATUS OF THIRD TRANCHE LOAN CONDITIONS

Tranche Conditions Progress

1. Secretaries of MOAC, MOGA, MOES, and MOH31 shall have adjusted and staffed an appropriate number of full-time positions for the change units in MOAC, MOES and MOH, including a focal point for mainstreaming participation of women in these ministries.

Fully complied with. While the Program was under implementation until June 2007, full-time positions (under secretary level) were appointed in the three change units in MOAC, MOES, and MOH to oversee program implementation, and gender focal points were appointed in all the ministries. However, the change units have been nonfunctional since July 2007.

2. The executive committee shall have approved a detailed plan for the rightsizing of MOES and MOH.

Partly complied with. Rightsizing of MOES was completed in 2003. MOH has recently set up an internal task force to study the reorganization and rightsizing of the ministry.

3. MOGA shall have developed procedures for annual random checks of property, asset, and income declarations. MOGA, together with other designated agencies, shall have conducted at least one such annual random check.

Not complied with. Section 38 of the Prevention of Corruption Act, 2002, has assigned the responsibility of monitoring the income and property declaration of public officials to the NVC but it has not developed standardized monitoring procedures. Further, it does not have the legal mandate to examine the declarations. MOGA, as the designated agency for collecting income declaration from civil servants, collects and files such declarations but does not undertake random checks since it regards this function as the mandate of NVC.

4. Cabinet shall have tabled in Parliament whistleblower protection legislation.

Not complied with. The Law Commission drafted legislation on whistleblower protection in early 2007 but there has been no substantial progress since.

5. Cabinet shall have tabled in Parliament anti-money laundering legislation.

Fully complied with. Interim Parliament approved the legislation in January 2008.

6. Efficiency Unit and GRCU shall have approved MOES’s and MOH’s first performance plan.

Fully complied with. PIPs were developed by MOES and MOH, and approved by the National Planning Commission, MOF, and MOGA. MOF allocated NRs1.5 million to MOES to implement the PIP and NRs8.5 million to MOH in FY2007.

7. MOF, GRCU, MOES, and MOH shall have established, announced, and commenced the implementation of the performance management system, with PIPs, and new service standards and necessary funding shall have been made available from the budget.

Fully complied with. The implementation of MOES’ performance management system was initiated in the Kathmandu District Education Office from April 2006 to correspond with the new academic calendar. MOH started implementation of PIPs in 94 sub-health posts in three districts (Morang, Kaski, and Rasuwa) from November 2006. However, the piloting activities have been discontinued in FY2008.

GRCU = Governance Reform Coordination Unit, MOAC = Ministry of Agriculture and Cooperatives, MOES = Ministry of Education and Sports, MOF = Ministry of Finance, MOGA = Ministry of General Administration, MOH = Ministry of Health, NVC = National Vigilance Centre Source: Ministry of General Administration



Appendix 4 29

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in Loan Agreement Status of Compliance

Loan Agreement Article IV, Section 4.01

The Borrower shall cause the Program to be carried out with due diligence and efficiency and in conformity with sound administrative, financial and governance practices.

Satisfactory


The Borrower shall make available, promptly as needed, the funds, facilities, services and other resources which are required, in addition to the proceeds of the Loan, for carrying out the Program.

Satisfactory


The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Program are conducted and coordinated in accordance with sound administrative and governance policies and procedures.

Satisfactory


(a) The Borrower shall maintain, or cause to be maintained, records and documents adequate to identify the Eligible items financed out of the proceeds of the Loan and to record the progress of the Program. (b) The Borrower shall enable the Bank’s representatives to inspect any relevant records and documents referred to in paragraph (a).

Ongoing. Records requested from the Government


(a) The Borrower shall furnish, or cause to be furnished, to the Bank all such reports and information as the Bank shall reasonably request concerning (i) the Loan, and the expenditure of the proceeds and maintenance of the service thereof; (ii) the goods financed out of the proceeds of the Loan; (iii) the Counterpart Funds and the use thereof; (iv) the implementation of the Program, including the accomplishment of the targets and carrying out of the actions set out in the Policy Letter; (v) financial and economic conditions in the territory of the Borrower and the international balance-of-payments positions of the Borrower; and (vi) any other matters relating to the purposes of the Loan. (b) Without limiting the generality of the foregoing, the Borrower shall furnish, or cause to be furnished, to the Bank every four months reports on the carrying out of the Program and on the accomplishment of the targets and carrying out of the actions set out in the Policy Letter and the Policy Matrix. (c ) Promptly after the closing date for withdrawals from the Loan Account, but in any event not later than three (3) months thereafter or such later date as may be agreed for this purpose between the Borrower and the Bank, the Borrower shall prepare and furnish to the Bank a report, in such form and in such detail as the Bank shall reasonably request, on the execution of the Program, including its cost, the performance by the Borrower of its obligations under the Loan Agreement and the accomplishment of the purposes of the Loan.

Satisfactory

Satisfactory

Satisfactory but delay in submission of PCR


(a) It is the mutual intention of the Borrower that no other external debt owed creditor other than the Bank shall have any priority over the Loan by way of a lien on the assets of the Borrower. To that end, the Borrower undertakes (i) that, except as the Bank may otherwise agree, if any lien shall be created on any assets of the Borrower as security for any external debt, such lien will ipso facto equally and ratably secure the payment of the principal of, and interest charge and any other charge on, the Loan; and (iii) that the Borrower, in creating or permitting the creation of any such lien, will make express provision to that effect.

Satisfactory

Loan Agreement, Schedule 5, Paragraph

MOGA, as Program Executing Agency, shall bear the overall responsibility for the timely implementation of the Program. It

Satisfactory

30 Appendix 4

Covenant Reference in Loan Agreement Status of Compliance 1

shall do so under the operational supervision of the Executive Committee that shall act under the overall guidance of the Prime Minister’s Administrative Reforms Coordination and Monitoring Committee. The Borrower shall ensure that the secretaries of MOWCSW, CIAA and PSC are included in the Executive Committee. The Executive Committee shall meet whenever necessary, but in any case not less than once every six months.

Loan Agreement, Schedule 5, Paragraph 2

The GRCU, established at MOGA, shall be responsible for the overall coordination and monitoring of all Program activities. The Head of the GRCU shall be the Program Director and shall report directly to the Secretary of MOGA. The GRCU shall include at least one female staff. The GRCU shall be supported by an Efficiency Unit in MOF.

Satisfactory


Change Units in MOAC, MOES and MOH shall support the GRCU and the Efficiency Unit and the change units shall assign a focal point for mainstreaming gender and shall, to the extent possible, include female staff.

Satisfactory


The Borrower shall (a) ensure that the policies adopted and actions taken as described in the Policy Letter prior to the date of this Loan Agreement continue to be in effect for the duration of the Program period, and (b) promptly adopt the other policies and take other actions included in the Program as specified in the Policy Letter and the Policy Matrix, and ensure that such policies and actions continue in effect for the duration of the Program period.

Satisfactory


The Borrower shall ensure that sufficient Counterpart Funds are made available to meet the costs associated with the implementation of the Program, in particular regarding: (a) the voluntary early retirement scheme; (b) salary increases; (c) staff induction and specialized training; (d) a performance incentive fund; and (e) other miscellaneous costs. Any Counterpart Funds not required for the Program shall be used first to finance women’s higher education and training and second to finance expenditures for the general development purposes of the Borrower.

Satisfactory but delays in securing funds for performance improvement fund


The Borrower shall keep the Bank informed of, and the Borrower and the Bank shall from time to time exchange views on, the progress made in carrying out the policies and actions set out in the Policy Letter and the Policy Matrix and in the formulation and implementation of new governance policies.

Satisfactory


The Borrower shall promptly discuss with the Bank problems and constraints encountered during the implementation of the Program and appropriate measures to overcome or mitigate such problems and constraints.

Satisfactory


The Borrower shall keep the Bank informed of policy discussions with other multilateral and bilateral agencies that have implications for implementation of the Program, and shall provide the Bank with an opportunity to comment on any resulting policy proposals. The Borrower shall take the Bank’s views into consideration before finalizing and implementing any such proposals.

Satisfactory


Within three months after the Closing Date for withdrawal from the Loan Account, the GRCU shall submit to the Bank a Program Completion Report (PCR). The PCR shall (a) evaluate the implementation of the activities and outputs under the GRP; (b) assess and analyze the impact of the GRP on the economy, including the social and poverty impacts; (c) identify the lessons learned during the implementation of the GRP; and (d) identify future reform program and assistance needed.

Satisfactory but submission of PCR delayed

Loan Agreement, Schedule 5, Paragraph

In addition to specific policies and actions set out in the Policy Matrix, the Borrower shall take all appropriate and necessary

Satisfactory but delays in completion

Appendix 4 31

Covenant Reference in Loan Agreement Status of Compliance 10

measures to mainstream gender and increase the percentage of female civil servants. The GRCU shall bear overall responsibility for this. This includes, but is not limited to, the following: (a) within six months of the Effective Date, MOGA and MOWCSW shall prepare a detailed plan specifying the number of women that would be targeted to participate in the coaching classes for gazetted positions in Dhankutta, Kathmandu, Pokhara, Nepaljung and Dhangadi. (b) within six months of the Effective Date, MOGA shall issue a directive to MOF, MOAC, MOES and MOH relating to monetary benefits to provide for day care needs; and (c) to the extent possible, no women shall be affected by the rightsizing of the Government.


The Borrower shall ensure that CIAA, MOAC, MOES, MOF, MOGA and MOH are adequately staffed and provided with the necessary financial, technical and other resources, including equipment, to perform their functions under the GRP.

Satisfactory


The Borrower shall ensure that all positions abolished under the voluntary early retirement scheme remain abolished and not be reinforced.

Satisfactory

Appendix 5 32

TECHNICAL ASSISTANCE COMPLETION REPORT Division: NRM/SARD

TA No. Country and Name: Amount Approved: $1,525,000.00

TA3622-NEP: Institutional Support for Governance Reform Revised Amount: $1,525,000.00

Executing Agency: Ministry of General Administration

Source of Funding: ADB-funded TA Program

Amount Undisbursed: $13,729.27

Amount Utilized: $1,511,270.78

TA Approval

TA Signing Fielding of First Consultant:

TA Completion Date Original: 31 July 2002

Actual: 31 December 2006

18 January 2001 22 March 2001

May 2001 Account Closing Date Original: 31 May 2007

Actual: 19 July 2007

Description The Government’s Ninth Development Plan (1997–2002) aimed to make public management clean, lean, transparent, economical, competitive, job-oriented, capable, productive, service-oriented, and accountable. The Plan stated that the concept of good governance and effective government would be promoted. The Tenth Development Plan (2002–2007) emphasized the need to accelerate implementation of civil service reforms.

The TA was a follow-up to an earlier TA (TA 3117-NEP: Formulating an Action Plan on Civil Service Reforms), which was approved in December 1998 and supported the preparation of an action plan on civil service reforms in Nepal. Following ADB’s reconnaissance mission for the proposed civil service reform program loan that visited Nepal in March-April 2000, the Government requested technical support to formulate its governance strategy and reform program. In response to the Government’s request, ADB approved TA 3622 in January 2001. The Governance Reform Program (the Program) Loan was approved in November 2001 with the overall goal of establishing a civil service that is results and people oriented and gender responsive, and that will help achieve higher economic growth and reduce poverty. The Program contained five broad reform components. According to the design of the Program, another TA was expected to be in place to support the implementation of reforms following the completion of TA 3622 in December 2002. However, the Government was not able to secure funds from other donor agencies and the momentum of reforms was adversely affected. Expected Impact, Outcome and Outputs The expected impact of the TA was to develop a results– and people-oriented civil service to contribute to economic growth and poverty reduction by introducing appropriate governance policies and mechanisms. The outcome of the TA was to enhance the capability of the Government to lead, coordinate and support implementation of governance reform. The outputs envisaged by the TA were: (i) enhanced reform management; (ii) improved efficiency and wage bill control; (iii) strengthened anticorruption measures; (iv) improved personnel management; and (v) enhanced performance improvement processes. The TA was expected to support the Government to implement the Governance Reform Program under consideration for approval in 2001. Delivery of Inputs and Conduct of Activities An international consulting firm, in partnership with a domestic firm, provided 100 person-months of consultancy inputs to the TA. The international team leader managed the consultancy team well but was not able to build close working relationships with senior government officials, which is essential to push reforms in Nepal. The terms of reference of the consultants did not match the specific reform requirements of the program loan (as listed in the policy matrix of the Program) in a few areas because the TA was designed and approved almost a year before the approval of the program loan. Altogether eight variations were approved in the contract of the consulting firm to accommodate additional inputs and activities. Following the completion of the international firm’s contract in December 2002, the uncommitted TA balance was utilized to support several reform components of the Program. The Executing Agency and the pilot ministries met their requirements in terms of providing counterpart staff, office accommodation and information. However, securing government funds for a number of reform programs was very time consuming and required frequent follow up by ADB although this was a prior understanding with the Government. ADB, while developing the Program, fielded two missions in 2001 to review TA implementation. Following the delegation of the TA and the Program to NRM in February 2002, ten review missions were undertaken from 2002 to 2007.

Appendix 5 33

Evaluation of Outputs and Achievement of Outcome The TA supported capability building of the Government to implement reforms identified by the Program. The specific achievements supported by the TA under the five reform components were as follows: • Enhanced reform management: Capacity building support to reform management units included a series of

seminar and workshops to encourage leadership in reforms. • Improved efficiency and wage bill control: Proposals were developed on voluntary early retirement scheme,

rightsizing options, devolution of activities, and establishment and wage bill control. A computerized personnel information scheme of civil servants was installed in the Ministry of General Administration.

• Strengthened anticorruption measures: A corporate plan for the CIAA was formulated and manuals on investigation and prosecution procedures were developed. A major conference on anti-money laundering was organized.

• Improved personnel management: Proposals were developed on long-term pay policy, merit-based employment policies, and mainstreaming gender in the civil service.

• Enhanced performance improvement processes: A model on performance-based management system in the civil service was developed.

TA implementation was adversely affected by the emergence of insurgency, political instability, security threats, and the declaration of state of emergency. The attention of senior government officials, including departmental ministers, was diverted from daily operational and reform issues to security and political concerns, which reduced the Government’s ability to manage reforms. A key challenge faced by the TA on capacity development of public institutions was the frequent transfers of staff assigned to work in the change units. Overall Assessment and Rating The TA was partly successful since it assisted the Government in completing several reforms of the Program and contributed to capacity development of the Government to lead and coordinate governance reforms. The completion of several policy reforms facilitated the disbursement of tranche 1 in December 2002. In addition, the proposals developed by the TA were used by the Government as inputs to formulate and approve policies and rules, which contributed to completion of tranche 2 conditions of the Program. Major Lessons • Implementation of governance reforms during political instability and transition requires powerful and influential

change advocates in the Government. It is equally important for development partners to remain engaged with the Government to keep ‘alive’ the reform agenda.

• In the case of an ADTA that precedes a program loan but is expected to supports its implementation, the scope and outputs of the TA and loan needs to be closely coordinated.

• Co-financing for advisory technical assistance, where such provision exists, should be confirmed prior to program loan approval, especially where the key focus is legal, policy, and institutional reforms.

• The resources, time and effort required to implement reforms in the civil service and anti-corruption areas needs to be realistically assessed.

Recommendations and Follow-Up Actions Promotion of good governance and effective service delivery is one of the strategies of the Government’s Three Year Interim Plan (FY2008–FY2010). Governance reforms (including civil service reforms) will remain a key development priority for Nepal following the adoption of a federal structure and a new Constitution in future. Improvements in accountability, transparency, inclusiveness, and participation are key priority reform agenda of the Government for the new Nepal. ADB has committed its long-term support to Nepal’s governance reforms through the Governance Support Program Cluster (Subprogram I and II), to be implemented from 2008–2015. While the first phase will focus on strengthening local government and community mobilization for effective service delivery, the second phase (2012–2015) will support a range of business process reengineering at the central government level (i.e., civil service) in support of a federal government structure. ADB’s proposed support to Nepal’s civil service reform is highly relevant and recommended.

Prepared by: Surya P. Shrestha Designation: Senior Governance and Capacity Building Officer, NRM

34 Appendix 6

TECHNICAL ASSISTANCE COMPLETION REPORT Division: NRM/SARD

TA No. Country and Name: NEPAL Amount Approved: $275,000.00

TA4249-NEP: Strengthening Performance-Based Management Revised Amount: $275,000.00

Executing Agency: Ministry of General Administration

Source of Funding TA Special Fund

Amount Undisbursed: $27,428.46

Amount Utilized: $247,571.54

TA Approval

TA Signing

Fielding of First Consultants:

TA Completion Date Original: 28 Feb. 2005

Actual: 31 December 2006

12 December 2003

2 January 2004

February 2004 Account Closing Date Original: 31 Mach 2007

Actual: 29 May 2007

Description The Governance Reform Program (the Program) was approved in November 2001 with the goal of establishing a civil service that is results- and people-oriented and gender responsive, and that will help achieve higher economic growth and reduce poverty. Establishing processes for improving performance in three pilot ministries was one of the five components of the Program. The design of the Program envisaged a separate TA package to support the implementation of the five components. It was agreed that the Government would secure funding from other donor agencies to finance the TA package, given ADB’s TA resource constraints. However, following the initiation of the Program, the Government was not able to secure TA funding. During the Program Loan Review Mission fielded in February 2003, the Government informed ADB that it was not able to implement the performance management sub-component of the Program since it lacked adequate knowledge and understanding of performance management concepts and processes. ADB was requested to provide technical support and the TA was approved on 12 December 2003. Expected Impact, Outcome and Outputs The impact of the TA was improved quality, efficiency, and access of services provided by Ministries of Agriculture and Cooperatives (MOAC), Education and Sports (MOES), and Health (MOH).32 The TA aimed to establish a system to develop, adopt, communicate and monitor performance targets in the three selected ministries, with a first set of targets in place by the end of the TA. The planned outputs of the TA were to establish processes to improve MOAC, MOES and MOH‘s performance management system, performance improvement funds, service standards, and performance improvement plans. Delivery of Inputs and Conduct of Activities The TA was adequately formulated and its key objective of helping the Government implement the Program’s reform component on improving performance management systems in three pilot ministries was clearly highlighted in the terms of reference of the consultants. The consultancy team (comprising one international and one national consultant) was fielded from March 2004. At the request of the Ministry of General Administration (MOGA), the executing agency for the TA, the consultants mainly concentrated on supporting MOAC to meet the tranche 2 conditions of the Program. Following the termination of the contract of the consultancy team in May 2005, MOGA requested ADB for additional consultancy support to sustain the implementation of performance management systems in the three ministries. Accordingly, two domestic consultants were engaged to build on the work of the previous consultants in the three ministers, and the uncommitted TA fund was used to fund their services. The TA was able to develop performance improvement systems as per the specific requirements of the three ministries. In spite of some delay in delivering the outputs, the performance of the consultants was generally satisfactory. However, the process of confirming the Government’s contribution to the performance improvement funds was slow and time-consuming although this provision was explicitly stated in the design of the Program and the TA. Seven review missions were fielded from January 2004 to June 2007 to monitor progress of the Program, during which the TA activities were closely monitored as well. Evaluation of Outputs and Achievement of Outcome The concept and tools of performance management – service standards, performance improvement plans, and performance improvement funds – were new to the Nepalese civil service; hence, the implementation was protracted

32 The Ministry of Health was also assigned the population portfolio in April 2005 and renamed as the Ministry of Health

and Population.

35

Appendix 6

and delayed, and the need for capacity development was huge. In addition, the political uncertainties, frequent changes in government, and fragile security situation did not provide a supportive context for reform. Planned visits to districts by the consultants were delayed and/or cancelled due to security threats in the field. In terms of the planned outputs, the TA supported MOAC to develop, approve and implement performance management system, which contributed to compliance of three tranche 2 conditions. MOAC’s performance management model included a performance improvement plan for district agriculture and livestock offices, provision for performance improvement fund, establishment of baselines and performance indicators, and inputs requirements. The TA also supported the development and implementation of performance improvement plans (PIPs) and performance improvement funds in MOES and MOH. MOES’s PIP identified five key result areas (KRAs) and focused on improving performance of school supervision function of the district education office. MOH’s PIP identified six KRAs and aimed at improving service delivery by sub-health posts to citizens at the local level. Overall Assessment and Rating The TA was partly successful since it contributed to the Government’s approval of performance improvement fund and the development and implementation (piloting) of performance improvement plans in MOAC, MOES and MOH. The support extended by the TA to MOAC facilitated the completion of three tranche 2 conditions. However, genuine ownership and commitment to performance management system from senior level managers was weak. The piloting activities in the three ministries were discontinued from FY2008, following the closure of the Program in July 2007, because the Ministry of Finance (MOF) did not allocate funds to the performance incentive fund in the FY2008 Budget. The TA, while adopting a process consultancy approach, contributed to raising awareness and understanding of performance management in the three pilot ministries, MOF and MOGA. The TA also contributed to the realization and appreciation of the importance of performance culture at the higher level of the Government. The amended Civil Service Act 2007 included provisions on establishment of performance incentive fund and development of performance indicators in job descriptions. Further, in line with the Paris Declaration on Aid Effectiveness, the Government has started institutionalization of managing for development results (MfDR) in several line ministries, which is closely linked to strengthening performance management practices. Major Lessons • Prior to supporting a major reform program on performance based management, it is advisable to undertake a

readiness assessment to identify the specific areas for support and to gauze ownership and support for such reforms at the higher levels of government.

• The implementation of performance management systems by its nature is a long term reform process requiring

sustained technical support; therefore, it is important to confirm adequate availability of TA resources. • The institutionalization of a performance culture in the civil service will require approval of legal mandates,

policies and organizational processes that promote merit-based recruitment, performance assessment, promotion, transfers and rewards systems.

Recommendations and Follow-Up Actions The civil service in Nepal is expected to go through a major overhaul after the country adopts a federal structure under a new Constitution in 2010. Further, the Government plans to implement a ‘unified civil service’ system and its 10-Year Vision Paper on the Development of Nepal Civil Service. Institutionalization of performance management processes and systems will be critical to promote meritocracy and accountability in the civil service while introducing these reforms. It is recommended that ADB remain engaged in policy dialogue and implementation of civil service reforms, particularly on the development of performance management systems. ADB should continue to encourage the Government of Nepal to adopt and extend sector wide approaches (SWAp) since it clearly links funding arrangements to result achievements. ADB should also continue to support capacity building in MfDR since this approach complements the adoption of performance culture in government agencies. The Government’s Three Year Interim Plan (FY2008–-FY2010) has explicitly endorsed the adoption of MfDR.

Prepared by: Surya P. Shrestha Designation: Senior Governance and Capacity Building Officer, NRM

governance reform program - asian development bank · the governance reform program (the program)...

Documents