Statement by Hon'ble Finance Minister of Nepal Dr. Ram Sharan Mahat in the Thirty- Fifth Annual Meeting of the Asian Development Bank
Mr. Chairman,
President Chino,
Fellow Governors,
Distinguished Delegates,
Ladies and Gentlemen.

It is my pleasure and privilege to address this Thirty-Fifth Annual Meeting of the Board of Governors of the Asian Development Bank (the Bank). On behalf of my delegation and on my own, I would like to thank the Government of the People's Republic of China and the people of Shanghai for the warm welcome and hospitality extended to us during our stay in this beautiful city. We express our deep appreciation to the Bank for the excellent arrangements made for the meeting. I would like to congratulate you, Mr. Chairman, on your election as the Chairman of the annual meeting. Let me extend my sincere congratulation to Mr. Tadao Chino on his re-election to the coveted post of the President of the Bank for another five-year term. I am confident that the Bank will further emerge as a stronger and a more dynamic institution in the days to come. In the mean time, I would like to welcome Portugal as the 60th member of the Bank community.

Mr. Chairman,

Poverty, by far, has remained the major challenge of the Asian and Pacific region, where more than 900 million of the world's poor live. Amelioration of this scale of massive poverty has always remained one of the principle concerns of the Bank. We note with satisfaction that the Bank has approved a numbers of policy measures in 2001. The adoption of the Long-Term Strategic Framework (LTSF), the Medium-Term Strategy (MTS), Water Policy, Policy on Education and Policy on Performance-based Lending are among those that would contribute in the alleviation of poverty in the region. These coupled with the Bank's governance initiatives and other institutional strengthening measures, will prove important in fostering environment for sustaining growth and alleviating poverty in the developing member countries.

There has been a decline in the Bank's the commitment of both loan amount and technical assistance in 2001. In view of this, the net flow of resources both at the individual country level and in aggregates has dropped in our group members as well. Consequently, the volume of lending in Nepal has also decreased in comparison with the previous year. However, with the prospect of gradual recovery in the global economy accompanied by an increased level of economic reform initiatives in the developing member countries, the operations of the Bank in the coming years will pick up. Viewed in this context, the responsibility would increase, along with the scale of resources that need to be mobilized to meet this need, including the Asian Development Fund, a soft window of the Bank.

The developing member countries of the Bank, including my own country Nepal, have greatly benefited from Technical Assistance provided by the Bank for the project preparation and capacity building activities. In this regard, I would like to take this opportunity to express our sincere appreciation to the donor governments for their generous support. We also wish to put on record our sincere gratitude to the Government of Japan for creating Japan Fund for Information and Communication Technology with a view to bridging digital divides in the region. I am confident that developing member countries will immensely benefit from this initiative.

The Bank's initiative in promoting economic growth through regional and sub-regional economic co-operation, we hope, will open new opportunities for accelerating economic development process in developing member countries. Nepal strongly supports the South Asian Sub-regional Economic Cooperation (SASEC) programme being implemented under the framework of the South Asian Growth Quadrangle (SAGQ). Indeed, regional economic cooperation can be a powerful tool for dealing with regional issues and reaping benefits unleashed by globalisation. Therefore, we hope that this program will help realize the vast resource mobilizations potential of this region. We are confident that a more efficient use of regional resources, protection of environment and the expansion of trade will ultimately help reduce poverty in the region.

Mr. Chairman,

Now, let me turn to my own country, Nepal. Despite being a late starter of development in the South Asian region, Nepal has achieved tangible progress in socio-economic development front after the reinstallation of democracy in 1991. The government has been putting its efforts to strengthen democratic institutions and to empower these institutions to address social, economic and political issues as well as fulfilling the rising expectations of the people. However, in recent years, violence, destruction and terror unleashed by the terrorists have seriously affected the country's development process. The nation, the people and the economy are badly affected. Not only human lives, even infrastructure like telecommunication facilities, electricity plants, roads, bridges, government offices and banking institutions have become the target of terrorist attacks.

The extent of destruction of physical infrastructure by the terrorists has been estimated at US $ 250 million till now. Immediate rehabilitation costs to restore the damaged public facilities and services is estimated to be more than US $ 100 million. The government exercised a lot of restraints to prevent the loss of human lives and property. The failure of negotiations exercise left the government with no choice but to proclaim emergency and undertake all such measures that are absolutely necessary to maintain peace and tranquillity in the country. The state of emergency is only a temporary phenomenon, a compulsion rather than a choice, which will be brought to an end as soon as possible. At this critical juncture, we need all-out support from the Bank and the international community to bring the situation under control in order that normal development activities and programs in Nepal could continue in full swing.

On account of global and domestic terrorism as well as global economic slowdowns, economic problems are compounded and are getting complex in Nepal. Revenue targets have become unattainable. Economic output, export, import, tourism, investments and overall economic outlook have received setbacks. Our earnings have gone down and tourism has declined by almost 50 percent, the industrial output has sharply declined. On the other hand, increasing security cost, among other things has pushed up the governments' regular expenditures far exceeding the previous estimates.

However, due to prudent macroeconomic policy stance of the government, the budgetary deficit is under control, the price situation has remained stable and the foreign exchange reserve has been kept at a satisfactory level. Domestic borrowing has been controlled to avoid the crowding out effect in investment. However, there has been an increase in the current account deficit partly due to decline in services income and the overall balance of payments has remained negative during the year.

HMG is fully committed to the implementation of various poverty reduction measures including channelling more domestic and external resources to the needy and poor people down to the grass-root level. We are in the process of finalising the Tenth Plan/Poverty Reduction Strategy Paper (PRSP) with a sole objective of reducing poverty. We believe that Tenth Plan/PRSP would provide a general framework for poverty reduction strategy under which all stakeholders will assume their definite and significant roles. Nepal is one of the countries to sign the Poverty Reduction Partnership Agreement with the Bank, which reflects HMG's goal on poverty reduction. We are also preparing Medium-Term Expenditure Framework (MTEF), which will help anchor the plan in reality of the present resource situation and to translate the plan and priorities into achievable program. Likewise, HMG has initiated a number of measures to consolidate reform process with strong emphasis on poverty reduction. The reform measures mainly concentrate on the areas of civil service, good governance, financial sector reform, private sector development and decentralization.

At a time, when Nepal's resources requirements have increased manifold and her capacity to mobilise own resources has shrunk because of several internal and external reasons, we are in need of extra resources to fund our economic reform programs and to finance social sector, agriculture, infrastructure and other development activities. Therefore, we are in urgent need for flexible economic assistance from the Bank and our valued donors to support our budget so that our priority program in sectors like education, health and rural development is not affected.

Furthermore, the interplay of forces like reduced revenue due to slowing down of economic activities, increased security cost and need for high social spending has put severe pressure on public resource management. On top of this, our debt servicing liability is growing fast. About one third of our revenue needs to be spent on debt servicing. Therefore, we urge the international community to consider liberal debt relief measures, or at least debt service moratorium for some time. This will give Nepal at least an immediate breathing space to carry out the minimum level of development activities for people.

Nepal is serious to make effective utilisation of resources in the face of grave fiscal problems. As part of efforts for the overall utilization of resources and lifting the country out of this hardship, Nepal's fiscal priorities are being closely reviewed with a view to addressing internal security needs, reducing poverty and generating employment opportunities. We are determined to translate policies and reforms into concrete actions, in the hope that the end result of these endeavours will yield quick, observable and monitorable results in terms of the delivery of services - such as basic health care, basic and primary education, agriculture, drinking water and so on - to the rural communities in our effort to alleviate their poverty.

We are aware, Mr. Chairman, that the implementation of these reform measures is not an easy task in the countries like ours. Nevertheless, we are committed to overcome the complex and challenging problems and transforming the economy's potentials into concrete achievements. Our association with the Bank and the international community, I believe, will further help us achieve this.

Mr. Chairman,

The relationship between Nepal and the Bank has grown ever stronger and closer over time. The Bank's assistance has covered almost all sectors of economy including agriculture, power, transport and social services. We are thankful to the Bank for its valuable support in our socio-economic development endeavours. I am fully confident that the economic cooperation between HMG and the Bank will be further strengthened in future.

Before I conclude, let me take this opportunity to express our sincere appreciation to the Bank and all our valued development partners for their commitment and support in the recently concluded Nepal Development Forum meeting held in Kathmandu in early February this year.

I thank you all.