Nepal's multi-donor trust fund supports significant financial management reforms

Banking & Financial Services
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Ajay Banga 14th President of the World Bank Group | Official Website

The Nepal Public Financial Management Multi-Donor Trust Fund (PFM MDTF) was established in 2010 to enhance public financial management performance, transparency, and accountability in Nepal. The MDTF has been instrumental in supporting the government’s execution of various reforms.

Since December 2010, the PFM MDTF has funded six projects aimed at strengthening Nepal's PFM systems, improving accountability, and increasing oversight by civil society. These initiatives were implemented by the Government of Nepal (GoN) with regular support from the World Bank to ensure project progress and success.

The PFM MDTF has also facilitated critical PFM analytical and advisory activities such as Public Expenditure & Financial Accountability (PEFA) Assessments, Public Expenditure Review (PER), and Public Expenditure Tracking Survey (PETS). Six Development Partners (DPs)—USAID, DFAT, FCDO, EU, Royal Norwegian Embassy, and SECO—continue to support the MDTF.

Nepal recently completed its third PEFA Assessment with assistance from the PFM MDTF. This assessment evaluates the progress of PFM across the government since 2015. The reports include assessments on PFM Performance, Climate Responsive PFM Performance, and Gender Responsive PFM Performance. Notably, Nepal is the second country in South Asia to undertake PEFA Climate and PEFA Gender Assessments. The government and development partners launched these reports on April 30, 2024.

The third PEFA Assessment identified several areas for potential reforms to improve fiscal outcomes in Nepal:

- Restoring fiscal credibility through a sustainable medium-term expenditure framework.

- Enhancing public investment efficiency by reducing inefficiencies.

- Applying climate and gender considerations to fiscal decision-making.

- Increasing fiscal transparency and accountability by enforcing rules.

Currently, the PFM MDTF is aiding the government in formulating a comprehensive medium-term PFM Reform Strategy based on these findings. It is also conceptualizing a project to support this forthcoming strategy while continuing its analytical initiatives like provincial PEFA Assessment for Gandaki province.

Nepal has shown a strong commitment to implementing PFM reforms but still faces challenges such as public procurement issues and budget reliability within a federal framework. The next wave of reforms aims to address these challenges with ongoing support from MDTF partners.

Several projects under the MDTF have achieved significant results:

1. Integrated Public Financial Management Reform Project (IPFMRP)

- Grant Disbursed: USD 7.7 million

- Implementation Period: June 2018 – July 2023

2. Strengthening Public Financial Management Systems Project II (SPFM II)

- Grant Disbursed: USD 2.69 million

- Implementation Period: October 16, 2015 – July 31, 2017

3. Strengthening Public Financial Management Systems Project I (SPFM I)

- Grant Disbursed: USD 4.24 million

- Implementation Period: October 31, 2011 – June 30, 2016

4. Strengthening Civil Society Organization’s Use of Social Accountability II

- Grant Disbursed: USD 1.5 million

- Implementation Period: January 31, 2015 – June 30, 2016

5. Strengthening Civil Society Organization’s Use of Social Accountability I

- Grant Disbursed: USD 1.2 million

- Implementation Period: February 1, 2011 – June 30, 2014

6. Strengthening the Office of the Auditor General Project (SOAGN)

- Grant Disbursed: USD2 .22 million

- Implementation Period: February23 ,2012 –June30 ,2015

These projects have led to improvements such as better cash management through Treasury Single Account implementation; digitization of transaction processing; enhanced financial reporting; strengthened public scrutiny and external audits; improved procurement capacity; reduced carbon footprint through digital solutions; better gender mainstreaming in budgeting; and increased citizen engagement in PFM processes.

The consolidated results underscore significant advancements made under these projects:

- Enhanced cash management via Treasury Single Account.

- Digitized transaction processing for improved efficiency.

- Timely and accurate financial reporting aligned with international standards.

- Improved audit quality through modern methodologies.

- Efficient procurement processes at all government levels.

- Reduced carbon footprint due to decreased paper usage.

- Mainstreamed gender considerations in budgeting processes.

- Institutionalized citizen engagement strategies across various phases of public financial management.

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