Nepal's decisions on development policy and economic management at all levels urgently need to take more systematic account of environmental concerns. Traditional economic assumptions about the sources of growth or comparative advantage, which often shape donors' perceptions of the most critical needs and the most suitable instruments for addressing them, need to be modified to incorporate more realistic notions of opportunity cost and economic prices. Calculations of economic prices must take account of the external effects of the proposed interventions over space and time--over and above the traditional method of calculating marginal costs. Resource degradation problems should be a central concern in the design of both macroeconomic and sectoral policies. Here the Bank could make a major contribution.
For the Bank, financing projects without regard to an overall strategy is not an effective way to press for the changes in government policy, institutions, and individual behavior that are required for better resource management in Nepal. Program lending has a potentially bigger impact on the way sectors are managed and on policies and regulations that affect economic incentives. The expectation of an extended structural adjustment period (10-20 years) provides a context for the Bank and other donors to work with the government to produce a national strategy for resource management in which project lending and policy change can reinforce one another. To this end the Bank should:
- Help the Government prepare a Consultative Group Meeting for the agricultural/rural sector to seek a consensus among government agencies, donors, and concerned NGOs, on what can be done, who will do it, and how.
- Require more careful analysis of the effects of macroeconomic instruments, including those being supported by structural adjustment lending, on natural resource use.
- Encourage the modification of Nepal's national accounting system to reflect changes in natural resource allocation and use. At present, it does not and thus gives a false sense of progress for the economy.
- Assess proposed public investments and expenditure allocations not only on their own merits but also from the broader perspective of the whole portfolio, tracing how its components affect one another. Also assess these proposals from the point of view of their contribution to the sustainability of Nepal's development.
- Consolidate efforts already underway to formulate macroeconomic and sectoral adjustment policies that are mutually consistent. At present, macroeconomic policies (concerned mainly with growth) and sector policies (focusing more on sustainable development) are often conceived separately, increasing the risk that they will contradict each other.
- Consider new lending instruments to accommodate a resource management program that yields its main results only over a long period. Without a significant change in this regard, the tendency will remain to allocate scarce resources to ameliorate short-term problems--as a result, attempts to bring about sustainable development will fail.
Box 1: Factors in resource degradation
Many aspects of Nepal's resource use and institutional structure took a long time to be documented and thus to be featured in discussions of possible policies and programs. Opinions still differ about the main causes of environmental degradation, with some observers claiming that at least 70 percent of the erosion in the hill country each year is inevitable and due to natural geological factors. Many analysts stress the role of population pressure, land use legislation, and a weak public administration.
Population pressure: Aided by improved health care and malaria control, annual population growth increased from 1.4 percent in the 1950s to 2.6 percent now. Rapid population growth increased demands for fuelwood, timber, fodder, and land for grazing and food production. Forest reserves were reportedly halved between 1950 and 1980, and risk being completely exhausted by year 2000. As soil erosion accelerated, soil fertility declined, village water supplies were disrupted, and agricultural production decreased, reservoirs were silted up by the sediment brought down by rivers, water courses became unstable, and the increased run-off during the monsoon season caused catastrophic flooding in the plains.
Noting the pressure of population, commentators in the 1970s warned of an impending food crisis, and aid donors responded by emphasizing agricultural modernization. But although farm inputs rose as a result, yields improved little because extension services, along with the distribution of seeds and fertilizer, were inadequate. And although double cropping was extended to 80 percent of the cultivated land, livestock numbers were not commensurately reduced, and grazing pressures on forest fringes increased. By the 1980s, 40 percent of the labor that could have been used for farming was used for fuelwood collection; as a result, productivity had declined, real incomes from farming had fallen, and child nutrition had worsened.
Land use legislation: When it emerged from isolation Nepal had one of the most inequitable land tenure systems in Asia, and one that seriously hindered agricultural efficiency. Legislation to reduce the size of large farms, control rents, and improve security of tenure is said to have been ineffectual. Many tenants became landless laborers, not landowners.
As to public land, the Private Forest Nationalization Act of 1957 is blamed for much of Nepal's deforestation and the cycle of resource destruction that followed. Intended to ensure proper management and conservation of forests, it could not be enforced, and in practice replaced traditional systems of managing common lands with free access to them. Villagers had no incentives to protect forests. Forest legislation of the 1970s and 1980s recognized that sound forest management would have to rely on community involvement, but it contained loopholes that allowed villagers to cut trees, and did not affect the exercise of the traditional view that clearing land for agriculture was a way to obtain title to it. Land-use data for 1977-84 show a net decline in forest, shrub, and cultivated area and a net expansion of grasslands.
Public administration: The Nepalese administration has long been weak in development planning and implementation. Problems in the period reviewed included rapid turnover of senior decision makers, low staff morale, limited career prospects for mid-level staff, and uncertain job security. Decision making was over-centralized and coordination weak. Many senior officials reputedly knew little about rural Nepal. An attempt during the 1970s to strengthen decentralization through the panchayat system (village level organizations) merely reinforced the power of local elites. To promote efficient equitable growth through sustainable use of natural resources will require institutional reform at the national level.
Box 2: Scope of study
The study reviews Bank macroeconomic and sector work, the literature, and documentation and other assistance provided by the Nepalese government, the Bank, and other donors, to address the following questions:
- How are Nepal's various forms of capital used?
- How do income-earning activities affect the management of natural resources?
- How aware were the Bank and others of Nepal's resource management problems?
- How were management problems conceived, how were concepts and strategies evolved, and what recommendations were made to solve problems?
- What did other donors do?
- How was the Bank's thinking applied in operations, sector work, macroeconomic strategy, and support for institutional reform?
- What were the major findings and lessons? Did they help the Government to develop more effective strategies to avoid pervasive resource degradation?
For the Bank, financing projects without regard to an overall strategy is not an effective way to press for the changes in government policy, institutions, and individual behavior that are required for better resource management in Nepal. Program lending has a potentially bigger impact on the way sectors are managed and on policies and regulations that affect economic incentives. The expectation of an extended structural adjustment period (10-20 years) provides a context for the Bank and other donors to work with the government to produce a national strategy for resource management in which project lending and policy change can reinforce one another. To this end the Bank should:
- Help the Government prepare a Consultative Group Meeting for the agricultural/rural sector to seek a consensus among government agencies, donors, and concerned NGOs, on what can be done, who will do it, and how.
- Require more careful analysis of the effects of macroeconomic instruments, including those being supported by structural adjustment lending, on natural resource use.
- Encourage the modification of Nepal's national accounting system to reflect changes in natural resource allocation and use. At present, it does not and thus gives a false sense of progress for the economy.
- Assess proposed public investments and expenditure allocations not only on their own merits but also from the broader perspective of the whole portfolio, tracing how its components affect one another. Also assess these proposals from the point of view of their contribution to the sustainability of Nepal's development.
- Consolidate efforts already underway to formulate macroeconomic and sectoral adjustment policies that are mutually consistent. At present, macroeconomic policies (concerned mainly with growth) and sector policies (focusing more on sustainable development) are often conceived separately, increasing the risk that they will contradict each other.
- Consider new lending instruments to accommodate a resource management program that yields its main results only over a long period. Without a significant change in this regard, the tendency will remain to allocate scarce resources to ameliorate short-term problems--as a result, attempts to bring about sustainable development will fail.
Box 1: Factors in resource degradation
Many aspects of Nepal's resource use and institutional structure took a long time to be documented and thus to be featured in discussions of possible policies and programs. Opinions still differ about the main causes of environmental degradation, with some observers claiming that at least 70 percent of the erosion in the hill country each year is inevitable and due to natural geological factors. Many analysts stress the role of population pressure, land use legislation, and a weak public administration.
Population pressure: Aided by improved health care and malaria control, annual population growth increased from 1.4 percent in the 1950s to 2.6 percent now. Rapid population growth increased demands for fuelwood, timber, fodder, and land for grazing and food production. Forest reserves were reportedly halved between 1950 and 1980, and risk being completely exhausted by year 2000. As soil erosion accelerated, soil fertility declined, village water supplies were disrupted, and agricultural production decreased, reservoirs were silted up by the sediment brought down by rivers, water courses became unstable, and the increased run-off during the monsoon season caused catastrophic flooding in the plains.
Noting the pressure of population, commentators in the 1970s warned of an impending food crisis, and aid donors responded by emphasizing agricultural modernization. But although farm inputs rose as a result, yields improved little because extension services, along with the distribution of seeds and fertilizer, were inadequate. And although double cropping was extended to 80 percent of the cultivated land, livestock numbers were not commensurately reduced, and grazing pressures on forest fringes increased. By the 1980s, 40 percent of the labor that could have been used for farming was used for fuelwood collection; as a result, productivity had declined, real incomes from farming had fallen, and child nutrition had worsened.
Land use legislation: When it emerged from isolation Nepal had one of the most inequitable land tenure systems in Asia, and one that seriously hindered agricultural efficiency. Legislation to reduce the size of large farms, control rents, and improve security of tenure is said to have been ineffectual. Many tenants became landless laborers, not landowners.
As to public land, the Private Forest Nationalization Act of 1957 is blamed for much of Nepal's deforestation and the cycle of resource destruction that followed. Intended to ensure proper management and conservation of forests, it could not be enforced, and in practice replaced traditional systems of managing common lands with free access to them. Villagers had no incentives to protect forests. Forest legislation of the 1970s and 1980s recognized that sound forest management would have to rely on community involvement, but it contained loopholes that allowed villagers to cut trees, and did not affect the exercise of the traditional view that clearing land for agriculture was a way to obtain title to it. Land-use data for 1977-84 show a net decline in forest, shrub, and cultivated area and a net expansion of grasslands.
Public administration: The Nepalese administration has long been weak in development planning and implementation. Problems in the period reviewed included rapid turnover of senior decision makers, low staff morale, limited career prospects for mid-level staff, and uncertain job security. Decision making was over-centralized and coordination weak. Many senior officials reputedly knew little about rural Nepal. An attempt during the 1970s to strengthen decentralization through the panchayat system (village level organizations) merely reinforced the power of local elites. To promote efficient equitable growth through sustainable use of natural resources will require institutional reform at the national level.
Box 2: Scope of study
The study reviews Bank macroeconomic and sector work, the literature, and documentation and other assistance provided by the Nepalese government, the Bank, and other donors, to address the following questions:
- How are Nepal's various forms of capital used?
- How do income-earning activities affect the management of natural resources?
- How aware were the Bank and others of Nepal's resource management problems?
- How were management problems conceived, how were concepts and strategies evolved, and what recommendations were made to solve problems?
- What did other donors do?
- How was the Bank's thinking applied in operations, sector work, macroeconomic strategy, and support for institutional reform?
- What were the major findings and lessons? Did they help the Government to develop more effective strategies to avoid pervasive resource degradation?
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