EXPERTSPEAK: 'Capital budget should stand at around 6-8pc of GDP

The Asian Development Bank gave Nepal a portfolio performance rating of 3.0 out of the maximum scale of 5.0 for fiscal year 2012-13 after conducting a detailed review of development projects and programmes supported by it. If Nepal’s rating stays at the same level, the country stands to get an assistance of only $405.4 million in 2015-16, as against $498.9 million if the rating goes up to 4.5, the ADB has said. Rupak D Sharma sat down with Country Director of ADB’s Nepal resident mission Kenichi Yokoyama on Saturday to discuss efforts that Nepal needs to make to ensure ADB’s assistance is not reduced. Excerpts: You had recently said that ADB would slightly reduce its assistance to Nepal if it fails to properly execute projects and programmes supported by it. ADB’s present allocation for Nepal stands at around $427 million. But if the present situation continues, the country will get assistance of only $405.4 million in 2015-16. However, we think Nepal can achieve a rating of 4.5. How do you rate the performance of other least developed countries? Nepal’s performance is more or less average among countries that are receiving assistance from the Asian Development Fund. If you only look at LDCs, then Nepal has been getting a slightly higher score than the others. But again 3.0 is not a good score and we want Nepal to get a rating of 4.5 so that it can get assistance of around $500 million in 2015-16. What needs to be done to achieve the rating of 4.5? One essential element is enhancing project readiness. Another is completing works related to project implementation at the time of project approval. Likewise, detailed designs of projects also need to be prepared on time. Then procurement related works should also be carried out properly and in a timely manner. And once the project is executed, there should be stringent mechanisms to ensure quality of work, efficiency and sustainability of projects. Also, there should be focus on enhancing institutional capacity and governance of the executing agencies. And lastly inclusiveness is also essential. So where is Nepal lagging behind? Currently, ADB-supported projects worth $1.5 billion have been undertaken by the government. But 60 per cent of the projects have not been awarded, while around 80 per cent of the amount is yet to be disbursed. We want the figure for unawarded contracts to come down to 40 per cent in the next two to three years, and 60 per cent of the amount should be disbursed. So we really need to make efforts to enhance the project readiness level. In this regard, we want works like establishment of project management offices, appointment of project directors, and preparation of project designs to be expedited. That requires long-term partnership with executing agencies. Also, the bidding process at Nepal Electricity Authority needs to be simplified. Currently, all tenders at the state-owned company are examined by the board of directors and in case of bigger projects the board’s approval is also required. But as per our understanding, the board is a policy-making body and not a body to look into individual procurement process. We have raised this issue and the energy secretary is trying to decentralise the decision making process. It is known a host of problems is responsible for Nepal’s low performance. But the finance secretary recently said ADB is also responsible for the delay in implementation of some projects. What is your take on this? There are instances of the ADB taking longer time to make decisions. This is because we have to seek approval of our headquarters in Manila on technical evaluation of bigger packages. And a few projects related to urban sector confronted problems in this regard, which ultimately resulted in expiry of bid validity. Since the procurement process in the urban sector is very much efficient, the government had then raised concerns. We have already asked the headquarters not to create such delays. But those are exceptions and on average the government is taking a longer time to implement projects. ADB also raises the issue of lower allocation of capital budget. In your opinion how much should it be as a percentage of the gross domestic product? We cannot just say what percentage of the gross domestic product (GDP), as the capacity of various sectors should also be built simultaneously. Last year’s capital budget of 3.1 per cent of gross domestic product was way too low. In the draft of the new country partnership strategy we have mentioned a capital budget of six to eight per cent of gross domestic product as a desirable amount. In order to achieve seven per cent to eight per cent economic growth, capital expenditure should be increased substantially, absorptive capacity should be enhanced, governance related problems need to be addressed, and capital formation should be boosted.   Source: THT